Servicing

Mortgage loan servicer Ocwen Financial Corp. will be a buyer of mortgage servicing rights portfolios in 2010. The company had net income of $9.4 million for the fourth quarter of 2009. This compares to a net loss of $4.3 million for the fourth quarter of 2008. For the full year, West Palm Beach, Fla.-based Ocwen had net income of $272 million, down from net income of $13.2 billion for 2008. Chairman and chief executive William Erbey said "Strategic priorities for 2010 are: establish predictable and sustainable revenue growth in our servicing operations, improve process efficiencies to further reduce costs, improve quality, and reduce asset intensity and, therefore, enhance return on equity." As part of its revenue growth plan, Ocwen is actively seeking servicing rights portfolios to purchase. Mr. Erbey said "we are evaluating four servicing acquisitions, two of which, totaling $35 billion, are nearing final decisions." During the fourth quarter 2009, its servicing portfolio grew $9.7 billion or 24% from the end of the third quarter to $50 billion. Income from operations grew by 21% over the third quarter of 2009 principally due to an increase in revenues in the servicing segment of $9.4 million. The company completed modifications for the fourth quarter of 15,677 exceeding the top end of its previous guidance of 10,000 to 15,000. The 124% increase over third quarter modifications included 4,296 HAMP modifications. Full year profitability at the company was affected by a $50.6 million one-time tax expense arising from the separation of Altisource Portfolio Solutions S.A. (formerly Ocwen Solutions) in August, and the fourth quarter valuation allowance related to a non-cash deferred tax asset arising from deductibility of losses in a finance vehicle.

Fannie Mae purchased $54.9 billion of mortgages from its seller/servicers during January, a 23% drop from December but a significant improvement over the same month last year. In December the GSE bought $71.8 billion in loans, while in January 2009 - with the credit markets still reeling - it purchased just $28.8 billion. Fannie's purchase volume is a reflection of origination activity in the primary market. Mortgage and housing economists anticipate that residential loan volume will total anywhere from $1.2 trillion to $1.7 trillion this year, depending on where interest rates and employment wind up. Meanwhile, in its most recent activity report, Fannie noted that the serious delinquency rate on its single-family loans rose only 9 basis points in December to 5.38%, after jumping 135 bps over the previous five months. (The GSE's delinquency figures lag by one month.) It is the smallest monthly increase since July 2008 when the percentage of Fannie loans 90 days or more past stood at 1.45%. The GSE expects its serious delinquency rate will remain high in 2010, but the growth of that rate will moderate. "We anticipate that the pace of loans transitioning out of serious delinquency status will increase as the number of foreclosures and problem loan workouts that we complete increases," Fannie said in a recent earnings statement. The monthly activity report also shows that delinquency rates on Fannie multifamily loans fell 3 bps in December to 0.63%. Fannie issued $47.6 billion in mortgage-backed securities in January, down from $55.4 billion in the previous month. In 2009, Fannie MBS issuance totaled $807.9 billion, compared to $542.8 billion in 2008.

One series of a Freddie Mac index based on purchase transactions shows conventional home prices ended 2009 with a much smaller small year-to-year decline than was seen in 2008. Freddie's purchase-only series of its conventional home price index inched down 0.4% from the fourth quarter of 2009 from the same period in 2008, compared to a 9.5% drop in home prices during 2008. Between the third and fourth quarter of 2009, the U.S. index registered a 1.4% decline on an unadjusted basis. "We normally see a seasonal effect in the fourth quarter price index that reduces its value. A year-over-year comparison largely controls for this," said Freddie Mac chief economist Frank Nothaft. During 2009, "four-of-nine regions posted price gains, with the Pacific region showing a third consecutive quarterly gain as well as an annual increase in prices," he said. Another series of Freddie's conventional home price index that also includes data from appraisals from refinance deals shows typical U.S. home values depreciated 2.3% during 2009. This "classic" series shows average home values falling 0.7% in the fourth quarter of last year. "Generally, because appraisals are backwards looking through the use of recent comparable property transactions, the classic series will typically lag changes in the purchase-only series," Freddie Mac said.

Industry groups are urging Senate Banking Committee members to consider a proposal that would exempt mortgages with strong underwriting standards from the risk retention requirements of a financial regulatory reform bill. The backers of a "qualified mortgage" exemption are concerned the current language in the bill treats securitizations of risky and non-risky mortgages the same, which will increase costs for creditworthy borrowers using low-risk mortgages. An early version of the Senate bill required securitizers to retain 10% of the credit risk when they sell loans into the secondary market. A new study commissioned by mortgage insurer Genworth Financial shows that nonprime mortgages originated between 2002 and 2008 performed 2.9-times worse than traditionally underwritten mortgages that had full documentation and safe product designs. "This study demonstrates why Congress should not impose an arbitrary risk retention requirement on all loans sold in the secondary market," said Glen Corso, managing director of the Community Mortgage Banking Project. Committee members are still trying to reach a bi-partisan agreement on a reform bill. CMBP, the Mortgage Bankers Association, and the Financial Services Roundtable Housing Policy Council are hoping the committee will totally exempt qualified mortgages from the risk retention requirements.

Barclays Capital is taking orders from investors on at least one Federal Deposit Insurance Corp. structured note deal with two others on the way as the government moves to monetize at least $4 billion worth of product, according to hedge fund and investment bankers familiar with the matter. Two offerings by Barclays - both private placements - are actively being discussed in the market: a $1.33 billion floating rate deal, and a $480 million fixed-rate transaction. "The FDIC is putting a 100% guarantee on these," said one investment-banking source. The collateral includes residential and construction loans culled from failed banks. The buyer will pay a fraction of the assets' value, work the underlying loans, and share some of the upside with the government. But by selling structured notes, the agency will receive some cash upfront. At least one of the deals could close this week. The FDIC and Barclays declined to comment.

Specialized Asset Management, a national provider of asset marketing and disposition services, is partnering with RealtyTrac to market its foreclosed property listings. The move will help SAM display its assets to RealtyTrac's customers. "Marketing our REO assets to RealtyTrac's visitors provides us with additional marketing visibility to help liquidate our REO assets," said Rudy Krupka, vice president of REO at Specialized Asset Management. "Our strategic partnership with RealtyTrac will assist our agents in promoting the properties to interested buyers across the country." RealtyTrac says the number of foreclosures is expected to increase significantly in 2010 as millions of payment option ARMs and alt-A mortgages reset in the next 12 to 18 months and double-digit unemployment plagues the national economy this year.

The Eleventh Federal Home Loan District Cost of Funds Index declined by four basis points between December 2009 and January 2010 as it continues to seek its new normal level following the disruption in the November calculation. For January, COFI is 1.786%, compared with December's 1.828%, according to the Federal Home Loan Bank of San Francisco. In November, Wachovia Mortgage FSB was removed as a contributor to the Index, which is calculated using data from the eligible thrift members of the FHLB-SF. As a result, there was a spike in COFI for November. The total average funds for the January calculation is $34.7 billion, while the total interest expense is $55.7 million. Both figures are in line with the data used to make the November and December calculations. When compared with January 2009, COFI is 67 basis points lower; at its lowest point during 2009 in October, the Index was 120 bps lower than in January. For comparative purposes, the Freddie Mac Primary Mortgage Market survey found the average 30-year fixed rate mortgage rate for January 2010 is only 2 bps under January 2009 and the lowest it fell to for the year was only 24 bps below the start of the year in April. For the one-year adjustable, the January 2010 rate is 59 bps lower than one year prior, a 2 bps increase over the lowest point recorded in 2009, for December.

DebtX is auctioning off two separate commercial nonperforming loan portfolios totaling $411 million, the largest of which consists of 25 multifamily loans controlled by the Department of Housing and Urban Development. The HUD portfolio - $306 million in size - also includes a mortgage backed by a healthcare facility. DebtX, a government approved auction company, has set March 24 as the bid date. The company said it also is taking bids on a $105.5 million portfolio of nonperforming residential and commercial loans on a behalf of a "commercial bank in the western U.S." DebtX would not identify the seller. The bid date on the second offering is March 22.

The GSE regulator has extended the Home Affordable Refinance Program for one year so that Fannie Mae and Freddie Mac can continue to refinance high LTV and underwater mortgages. Launched last April, HARP gives the government-sponsored enterprises the flexibility to go beyond their normal underwriting and mortgage insurance standards to refinance mortgages they already own or guarantee. In 2009, the two GSEs refinanced 190,000 single-family loans with loan-to-value ratios of 81% up to 125%. Fannie Mae disclosed that it requested a HARP extension in its 2009 annual financial report. "Unless our regulator grants our request for an extension," Fannie said, the HARP program will expire after June 10 and "we will no longer have the flexibility" to refinance these loans. Federal Housing Finance Agency acting director Ed DeMarco said current market conditions warrant an extension. It will "support and promote market stability," he said, and encourage more lenders to "fully adopt the HARP program." Fannie has already refinanced over 100,000 families under the HAMP program, reducing their monthly payments by $150 on average. "Extending HARP for another year will enable us to help even more families achieve an affordable mortgage," said Fannie president and chief executive Michael Williams.

The IRA Advisory Service, an analytics firm, says GMAC Financial Services could be forced into bankruptcy protection, despite receiving more than $15 billion in federal assistance. In a report to clients, the Torrance, Calif.-based advisor called GMAC (whose holdings include the troubled Residential Capital Corp.) a "bank holding company searching for a business model." A spokeswoman for GMAC said it has no intention of filing for bankruptcy. "The company has taken a series of steps recently to strengthen its capital position," she said. But IRA told its clients it has concerns about GMAC's source of funding: "GMAC has essentially substituted FDIC-insured deposits for commercial paper, and has done so with terms and conditions that allow investors to walk out the door at any time and without penalties."