Servicing

At least 1,000 victims have lost more than $100 million in cases of real estate fraud — including loan modification scams — referred to a special unit of the Orange County District Attorney's office, according to a new report. "The number of referrals has been overwhelming, with more than 346 referrals to date," says a report issued by the DA's office. (The unit that investigates RE fraud was launched last year.) The report's findings were first published by The Orange County Register. The DA says a "vast majority" of referrals have come directly from victims of real estate fraud directly to its office. A "significant number" of cases involve loan modification schemes, it said. Several cases were cited, including one in which three men were charged with 101 counts of fraud in a loan modification scheme.

Mortgage Bankers Association leaders speaking at the opening session of this year's national servicing conference in San Diego said that current challenges are resulting in a greater spirit of cooperation within the industry and with the government that will continue throughout the year. Addressing 2,200 people, the MBA's president and CEO John Courson said that this year will be the year of dynamic strategic planning to create processes that bring the organization to assist the industry into an "Apollo 13" type of safe landing, alluding to the troubled space mission during which astronauts faced life-threatening challenges coming back to earth but ultimately prevailed. Despite challenges such as capacity shortages and a flood of regulations, Mr. Courson said servicers have done a good job with modifications. These also have been complicated by other challenges such as the fact that up to 60% of borrowers do not file complete loan-mod packages, a situation that has required multiple contacts and exhausted servicer resources, he said. Expectations do not fit the reality of things so the MBA is proposing specific programs to assist both servicers and borrowers especially those forced into unemployment. MBA's chairman Rob Story said that the organization is now focusing on putting together suggestions and tools that will help servicers deal with sometimes "unnecessary" regulatory requirements that "undermine" their efforts to complete more loan modifications. Cooperation is very important, he said, noting that there should not be competition over foreclosures. "Every good idea should be considered," said Mr. Story.

House prices fell 1.6% in December and wiped out price gains in November and October, according to the Federal Housing Finance Agency. On a seasonally adjusted basis, the FHFA house price index fell 0.1% in the fourth quarter and it is down 1.2% for 2009 after dropping 8.2% in 2008. The GSE regulator originally reported that house prices rose 0.7% in November and 0.4% in October. But the increases were revised downward to 0.4% in November and 0.2% in October. "The decline in prices in the fourth quarter was much more significant when measured without seasonal adjustment. The unadjusted national decline was 1.5%, a much larger drop than the 0.1% decline measured on a seasonally adjusted basis," FHFA said.

Freddie Mac could lose up to $700 million because of the failure of Taylor Bean & Whitaker — $200 million more than previously disclosed. The Florida-based nonbank sold mortgages to Freddie and as recently as 2008 accounted for 5% of its total purchase business. In a new filing with the Securities and Exchange Commission, the GSE says the bankrupt TBW owes it money for loan buybacks and on servicing-related charges. In November, Freddie said it might lose $500 million on TBW but has since updated that estimate. The government-controlled mortgage giant said its seller/servicers are not honoring buyback requests in a timely manner with $4 billion of loan repurchase requests unfulfilled at yearend. TBW failed in August of last year.

PacWest Bancorp, San Diego, sold $323.6 million of problem loans to an unnamed institutional buyer for $200.6 million in cash. Included in the sale were $144 million of real estate construction loans, $117 million of commercial mortgages (consisting of loans secured by owner-occupied properties, retail properties and hotel properties), $25 million of multifamily mortgages and $30 million of single-family mortgages. PacWest said the total balance of the loans sold was as of Feb. 23; the balances given in the breakout by loan type was as of Dec. 31, 2009. None of the loans sold were "covered loans" obtained when PacWest acquired Affinity Bank, Ventura, Calif., in a Federal Deposit Insurance Corp. transaction last August. There were a total of 61 loans sold. Approximately $108 million was on nonaccural status. The expected after-tax loss related to the sale is expected to be $41 million. PacWest chief executive Matt Wagner said, "Removing almost $324 million of problem loans from our portfolio in a single transaction creates tremendous opportunity for the company. We remain cautious and vigilant with respect to credit, and our existing loan portfolio is subject to uncertainty and volatility given the fragile economic environment. Without these problem loans, however, and given the significant earnings power of our company, we believe PacWest is well-positioned to grow, both organically and through acquisition."

The pace of existing home sales decreased year-to-year in January in California, but the inventory of unsold units sitting on the market waiting for buyers dropped as well, according to the California Association of Realtors. Sales were off 10.6% from the same month a year ago, CAR said. Nevertheless, the pace of sales remained above the half-a-million-units-a-year threshold for the 17th consecutive month. In that regard, the sales pace is "holding steady at prepeak levels from early in the last decade," said CAR president Steve Goddard. At a seasonally adjusted rate, sales were running at a 539,040-unit-a-year pace in January, according to data collected from more than 90 local Realtor associations statewide. The median price of an existing, single-family detached house in January was $287,440, a 15% jump from the revised median for January 2009 of $259,960. But the January median was down 6.3% compared with $306,820 in December 2009. The year-over-year gain was the largest since December 2005, said CAR's chief economist, Leslie Appleton-Young. And though the month-to-month decline was large, it was not as great as the dropoffs in the same time period in both 2008 and 2009, when the median fell by more than 11%. Better yet, according to the economist, "the median price still is 17.2% ahead of the trough in this cycle."

MGIC Investment Corp., the nation's largest mortgage insurer, is cutting premiums to better compete with the Federal Housing Administration. In a new filing with the Securities and Exchange Commission, the Milwaukee insurer said that beginning May 1 it will offer lower rates for borrowers with credit scores of 720 or greater, and higher rates for borrowers with credit scores between 620 and 679. There will be no change in rates for borrowers with scores between 680 and 719, MGIC said. Previously, MGIC did not include a borrower's credit score in its pricing model. Lenders that find the transition difficult have the option of continuing to use the insurer's old rate structure, MGIC said. Since the housing bubble burst, the FHA has become a more formidable contender in the mortgage insurance business, gaining market share in the coverage of loans with small downpayments as private insurers tightened their underwriting standards. In fact, MGIC said in the filing that it did not consider the FHA a significant competitor until 2008. Over the past few months — in an effort to improve the quality of its loans and protect its reserve fund — FHA has hiked downpayments for borrowers with lower credit scores and raised its upfront mortgage insurance premium.

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.