Servicing

The Bush Administration appointee who took Fannie Mae and Freddie Mac into conservatorship 17 months ago is disheartened that the Obama Administration has put off resolving the future of the two government-sponsored enterprises. James Lockhart, who is now vice chairman of WL Ross & Co., a private equity firm which owns American Home Mortgage Servicing and a 25% stake in Bank United, told the Midwinter Housing Conference in Park City, Utah, that he is "disappointed" the White House has "taken a pass" on Fannie and Freddie this year. The former director of the Federal Housing Finance Agency, the GSEs' regulator, said, "the whole servicing world has to be re-thought." But starting to rethink the whole mortgage business is an even "more critical issue," he added. "At some point, we need to attract the private sector back into the market." Meanwhile, another Bush appointee, Joseph Murin, who headed the Government National Mortgage Association for two years, told the conference that it's time for Congress to cut Ginnie Mae loose from the Department of Housing and Urban Development. "An entity with such a critical mission can no longer be treated as if it just another program office" within HUD, said Mr. Murin, who founded the Collington Group advisory firm when he left Ginnie Mae last year. If Ginnie Mae "is to fulfill its mission in the years ahead," he said, "it requires a structure that provides for its independence and the ability to respond to the always changing secondary markets." Otherwise, the agency's ability to continue to provide liquidity "will be severely compromised."

PHH Corp., Mt. Laurel, N.J., the nation's largest private label funder and servicer, earned $90 million in the fourth quarter, triple its profit in the same period a year earlier. Its loan production and servicing segments had gross profits of $65 million and $86 million, respectively. However, PHH noted that it had to reduce the asset value of its mortgage servicing rights by $57 million during the period "due to prepayments and recurring cash flows and $10 million of credit-related charges, which was comprised of foreclosure-related charges of $11 million partially offset by a reduction of reinsurance-related charges of $1 million." The writedown was not all that surprising given the nature of interest rates these days, but some larger bank-owned servicers actually marked up the value of their MSRs in 4Q. New CEO Jerry Selitto noted that the company's servicing segment "continued to be affected by provisions for credit-related reserves due to foreclosure activity. We are monitoring our potential exposure carefully," he said.

Fannie Mae completed nearly 40,000 short sales and deed in lieu transactions in 2009, up from 11,700 in the previous year, according to the mortgage giant. "We have increasingly relied on these foreclosure alternatives as a growing number of borrowers have faced longer-term economic hardships and home price declines have increased the proportion of borrowers with negative equity," Fannie said in releasing its 2009 annual financial report. The GSE completed 36,970 pre-foreclosure sales or short sales and 2,650 deed in lieu (of foreclosure) transactions last year. A short sale allows the borrower to sell the property and walk away debt free. It is generally understood that a short sale results in a 20% higher price than a sale of a foreclosed property (real estate owned). In the fourth quarter, Fannie said REO sale prices averaged 56% of the unpaid balance of the mortgage. In a deed in lieu transaction, the borrower simply turns the keys over the lender/servicer. The property ends up as REO. Fannie took over 145,600 foreclosed properties in 2009, compared to 94,650 REO in 2008. The GSE, which is in conservatorship, had 86,150 REO properties in inventory as of December 31.

GMAC Financial Services has tightened standards on a servicing-related program geared toward small- to medium-sized correspondent lenders, according to trade group officials and executives familiar with the effort. Moreover, a top executive who managed the program left the company in recent weeks, National Mortgage News has learned. The effort, known as '3-D,' is a way for GMAC's mortgage division, Residential Capital Corp., to gather servicing rights and grow its portfolio. With 3-D, according to executives familiar with it, the loans are sold to Fannie Mae with ResCap obtaining the underlying servicing rights. "There's certain tax advantages to it," said one servicing broker close to the situation. A trade group official said ResCap eliminated "the bottom tier" firms participating in 3-D "and only wants to deal with high net worth companies." A ResCap spokeswoman stressed that GMAC "has not discontinued" what she called its "rapid delivery program to Fannie Mae, though we may elect to change certain features of the program." She declined to comment further.

The nation's top three processors of residential loans saw their grip on the servicing market decline slightly in the fourth quarter, a sign that ultra low rates are causing more run-off than can be recaptured by these firms. According to new figures compiled by National Mortgage News and the Quarterly Data Report, Bank of America, Wells Fargo & Co., and Chase had a combined servicing market share of 52.79% at yearend, a slight decline from the 53.89% they had at September 30. The three, once again, ranked first, second, and third among all mortgage processors with B of A leading the pack: $2.16 trillion in receivables and a market share of 21.3%. Wells and Chase ranked second and third, respectively, with $1.8 trillion (market share: 17.7%) and $1.4 trillion (13.8% MS). B of A was able to grow its servicing portfolio by 5% year-over-year. Wells had a 1% gain but Chase saw its receivables decline by 7%, according to NMN/QDR.

REA Accelerated Marketing Group, an online bidding platform, is partnering with short sale technology provider National Quick Sale. Short sales have been gaining in popularity but suffer from a delayed approval process. By putting the short sale up for auction the property gets more visibility and true market value can be assessed based on how much borrowers are willing to pay for the property vs. relying solely on a BPO or other type of valuation, the two companies said. At the MBA National Mortgage Servicing Conference in San Diego, Jim Satterwhite, EVP at National Quick Sale, said, "We have created a platform that brings all parties together. This is the type of synergy the industry needs to get things moving."

Triad Guaranty Inc. - which is in the process of liquidating - reported a fourth-quarter loss of $79.1 million, a 35% improvement from the same period a year earlier. The Winston-Salem, N.C., mortgage insurer had a net loss of $595.6 million for the full year, compared to a net loss of $631.1 million for 2008. The MI's book of business is in "run-off" status. Ken Jones, president and chief executive, said, "First-time defaults, while down moderately from earlier 2009 quarters, continued at a high volume. We have seen very little permanent impact to date from the existing loan modification programs and, consequently, the cure rates on existing defaults remain at historic lows and have shown little sign of improvement." Its total insurance-in-force declined to $50.5 billion at Dec. 31, 2009, a 7.5% drop from Sept. 30, 2009 and a 19.3% decline from Dec. 31, 2008.

For mortgage firms that institute foreclosure actions, the key to a successful outcome is in the lawyer selected, according to speakers at the MBA's national servicing conference in San Diego. Executives participating on the judicial activism panel at the trade show said it is important to choose a lawyer who knows how to cut their losses while providing advise on whether the servicer is facing a bad case, especially with so many "foreclosure factory cases" swamping the industry. Speakers worried about uncommunicative attorneys on both sides of the equation especially in regard to requests for information. Judge Ronald Pearson, who works bankruptcy cases in the Southern District of West Virginia, advised servicers to look for attorneys who are available and proactive about workouts. "I see situations most often where the borrower appears in court and the attorney for the lender is not there," he said. "The borrower says he has been calling the lender and getting no response. They bring in returned checks," said Judge Pearson. "If you hire a lawyer to commence legal action, he better have the time to call the borrower who is there." Older borrowers around the country are making appearances in court, he said, sharing stories of how their homes were almost paid for when someone made a telephone call and asked the borrowers to refinance. The refi turned out to be a teaser interest rate with payments that doubled after a three-year period. "If a borrower can prove that and show how they can't make the payment, you are in trouble," said Judge Pearson. "I have yet to see the servicer bring a loan originator to court to counter the elderly debtor's testimony." On the other hand, Cynthia Nierer, a partner with Rosicki, Rosicki & Associates, said there are plenty of borrowers who get "busted" for making claims that they tried to contact their servicer. Many times, they did not make the calls they claimed, she said, and in some cases the judges recognize that argument.

Even though existing-home sales fell 7.2% in January to a seasonally adjusted annual rate of 5.05 million units, the inventory of available homes is continuing to shrink, a sign that housing values might be stabilizing, according to the National Association of Realtors. In January inventory fell 0.5% to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace. In December the number was better (a 7.2-month supply) but NAR says "raw unsold inventory" is 9.6% below a year ago, and is at the lowest level since March 2006. "Activity should be picking up strongly in late spring as buyers take advantage of the tax credit, which is critical to absorb distressed properties reaching the market and to continually chip away at inventory," said NAR. The January existing home sale figure compares to a downwardly revised pace of 5.44 million in December. The results, the weakest since June, were worse than many housing economists had forecast. Mr. Yun admitted that the sales numbers are "not good." The trade group hopes that sales will spike this spring as consumers move to take advantage of the $8,000 first-time homebuyer tax credit which is set to expire in late April. The median sales price was $164,700, unchanged from a year earlier and down 3.4% from December.

Freddie Mac said it will stop buying and securitizing interest-only mortgages - a $40 billion a year market - on Sept, 1. Interest-only and alt-A products have been Freddie's downfall: the two loan types accounted for 44% of the mortgage giant's credit losses in 2009. Freddie exited the alt-A market a few years back but the product still accounts for 8% of its portfolio holdings. The GSE currently has $129.9 billion in interest-only mortgages, which comprises 7% of its single-family mortgage portfolio. These loans have an average loan-to-value ratio of 106% and 17.6% are 90 days or more past due. This loan product features interest-only payments for a set period of time before the loan becomes fully amortizing and the borrower has to start making principal and interest payment. Because the initial payments are so low, it is very difficult to modify these loans once the homeowner defaults. Freddie has modified only 0.2% of its interest-only portfolio. Despite these problems, Freddie purchased $800 million in interest-only mortgages in 2009.