Servicing

New home sales plunged 11.2% in January from the previous month ending a streak of encouraging news on a possible housing recovery. Despite the extension of the homebuyer tax credit in November, sales of newly constructed homes fell to a seasonally adjusted annual rate of 309,000 in January from a 348,000 rate in December. The latest reading on new home sales is below the 329,000 rate in January 2009 and there is no way to sugarcoat these numbers, according to Weiss Research real estate analyst Mike Larson. "They stink," he said. "Fewer new homes were sold in this country than at any time since the Kennedy administration. The inventory of homes for sale increased, and the median price of a new home fell to its lowest level in more than six years," Mr. Larson said.

Mortgage industry groups are urging the Treasury Department to act quickly and extend the Home Affordable Refinance Program so that borrowers with high LTV or underwater mortgages still have an avenue to refinance and lower their payments. HARP is due to expire June 10. But the trade groups are concerned there could be disruptions if the program is not extended soon. "By April 1, lenders will no longer be able to extend even 60-day rate locks," according to a joint letter by five trade groups. Launched last April, HARP has facilitated the refinancing of nearly 190,000 Fannie Mae and Freddie Mac mortgages with loan-to-value ratios of 81% up to 125%. "HARP makes it easier for families to stay in their homes," the Feb. 18 letter says. "HARP also appropriately rewards borrowers who have worked hard to stay current on the mortgage loans" and "prevents unnecessary foreclosures." The American Bankers Association, American Financial Services Association, Consumer Mortgage Coalition, Housing Policy Council and Mortgage Bankers Association signed the letter.

Freddie Mac, which continues to mark down the value of its mortgage assets, lost $6.5 billion in the fourth quarter but will not need fresh capital from the U.S. Treasury. At yearend its loss reserves increased to $33.9 billion, more than double what it had set aside 12 months earlier. In releasing its quarterly and full-year results, the GSE also revealed that it found two errors in how it calculates loss severity rates that would have made its results look better. It said that by fixing its calculations these changes would have been "material" to its earnings. The national mortgage delinquency crisis continued to hammer its bottom line in the 4Q with the GSE reporting total credit losses of $7 billion, a modest improvement over 4Q08 when it had CLs of $8 billion. However, when it comes to operating results that come from management and guarantee fees, Freddie earned $743 million in the fourth quarter, an 8% decline from the third quarter. The government-controlled company also revealed that the delinquency rate on its structured bonds increased to 3.87% at yearend from 3.33% three months earlier. Despite all its problems, the company still has a positive net worth of $4.4 billion, but to date Freddie has received $51 billion in aid from the Treasury. The company lost $21.6 billion for all of 2009, excluding dividends paid to the government. In 2008 it lost $50.1 billion. Fannie Mae is scheduled to report its results on Friday. Late last year, the White House said it would cover unlimited losses on the GSEs over the next three years, removing a previous ceiling of $400 billion.

EverBank, Jacksonville, Fla., is negotiating to buy a $10 billion package of residential servicing rights from Flagstar Bancorp, according to investment banking sources familiar with the matter. A spokesman for Flagstar said the company does not comment on rumors. EverBank did not return a call about the matter. The bid price is in the range of 75 basis points, said one official, but that figure could not be confirmed. According to the Quarterly Data Report, EverBank services roughly $46 billion in residential loans, ranking 22nd nationwide. If it winds up with Flagstar it would move up in the rankings to No. 20. Troy, Mich.-based Flagstar is one of the largest thrifts in the nation. In 2009 it lost $513.8 million compared to $275.4 million the year before. Despite its problems, its depository is considered "well capitalized" for regulatory purposes, with capital ratios of 6.19% for Tier 1 capital and 11.68% for total risk-based capital.

Major banks "rebooked" $19 billion in seriously delinquent Ginnie Mae loans in the fourth quarter and pushed the percentage of single-family loans held by FDIC-insured institution that are 90 days or more past due up to 9.3%, from 8.1% in the previous quarter. The Federal Deposit Insurance Corp. reported that banks and thrifts held $178.5 billion in single-family loans that are seriously delinquent or "noncurrent" as of Dec. 31, up $23.2 billion or 15% from the third quarter. "Most of this increase — $19.1 billion — consisted of rebooked GNMA loans that have government guarantees," the FDIC says in its fourth-quarter report on bank performance and earnings. FDIC economists have never seen such a jump in rebooked Ginnie Mae loans before. Rebooking is an accounting convention that requires banks to recognize loans that are seriously delinquent even though it is not an indicator of significant losses. Ginnie Mae securities are mostly back by Federal Housing Administration-guaranteed loans. The FDIC also reported that banks and thrifts charged off $10.1 billion in single-family loans in the fourth quarter, up 6.8% from the previous quarter and 48% from the fourth quarter of 2008.

Bucking traditional beliefs regarding secured and unsecured credit, the risk of consumers with high credit scores defaulting on their mortgage is higher than the risk of this group defaulting on their credit cards, according to the FICO Score Trends Service. In 2009, 0.3% of consumers whose scores were between 760 and 789 defaulted on their real estate loan, compared with 0.1% who defaulted on their credit card. For the entire credit spectrum, in 2008-09, credit card accounts were just 1.6 times more likely to become 90 days delinquent; in 2005, they were over three times more likely. Mark Greene, chief executive of Minneapolis-based FICO, said, "Economic instability is creating unknown risk in lenders' credit portfolios as well as counter-intuitive trends in consumer behavior." On the originations side, FICO statistically showed that lenders tightened their credit criteria for giving new loans. In 2005, nearly 46% of consumers who got a new mortgage had a credit score under 700. In 2008, this fell to 25%.

Mortgage rates will rise no more than 50 basis points after the Federal Reserve stops purchasing agency MBS in March, according to a new survey of business economists. "Three-quarters of the panelists believe mortgage interest rates will increase 50 basis points or less," a summary of the survey results says. The 48 professional forecasters surveyed by the National Association of Business Economics generally say economic expansion is on a "firm track" and the rebound in the housing market is "ongoing and sustainable." The economists expect housing starts will hit 730,000 this year, up from 550,000 in 2009. And starts will jump to 1 million units in 2011. House prices will rise 1.6% this year and 2.6% in 2011, based on the Federal Housing Finance Agency housing price index. "Such increases would barely keep up with inflation," the survey says. The February survey does not include a forecast for mortgage rates. However, the economists see the 10-year Treasury rate drifting upward to 4.25% by yearend and 4.5% by the second quarter of 2011.

A handful of smaller servicing portfolios totaling about $300 million in receivables are now out for bid. Interactive Mortgage Advisors, Denver, is selling $60 million of Fannie Mae bulk rights, and a $196 million portfolio of Fannie Mae/Freddie Mac receivables. Bids are due in early March. Meanwhile, the Prestwick Group, Alexandria, is offering a $35 million package of receivables backed by Fannie Mae and private investor loans in Florida. The Prestwick portfolio has a 9.21% delinquency rate. The IMA packages have late payments of 2.78% or less.

California attorney general Jerry Brown and others are warning homeowners that are late on their loans to avoid the latest ploy to grab their money: services charging upfront fees for a forensic review of a lender's practices. According to a report in The Orange County Register a forensic review does not necessarily help in avoiding foreclosure. The warning comes from AG Brown, the California Department of Real Estate and the State Bar of California. "Forensic loan audits are yet another phony foreclosure-relief service hawked by loan-modification consultants trying to cash in on the desperation of homeowners facing foreclosure," Mr. Brown said. "The foreclosure-relief industry continues to be long on promises, but short on results."

DebtMarket of Los Angeles is coming to market with a $100 million portfolio of nonperforming multifamily loans. Stuart McFarland, a newly appointed advisor to the online auction company, said the offering will be available "shortly." A former executive for both G.E. Capital and Fannie Mae, Mr. McFarland said the company is starting to see more sellers of NPLs but noted that the market is waiting for some truly big sellers to appear: "Some day Fannie and Freddie will start selling," he said.