Servicing

Hudson City Bancorp, a top ranked residential lender in the New York metro area, wants to convert its thrift subsidiary to a national bank charter. However, company CEO Ronald Hermance Jr. is vowing that the institution will not change its current business model of "originating and purchasing first mortgage loans on residential properties." He said the strategy will continue if it becomes a national bank. He said the thrift may become a national bank because its regulator, the Office of Thrift Supervision, may be eliminated by legislation being promoted by the Obama Administration. "At a time when trust and confidence in the banking industry is being challenged like never before, we believe it is important to stay ahead of any legal and regulatory changes implemented with regard to federal financial oversight," he said. In 2009, Hudson City originated $6 billion and purchased $3 billion in residential mortgage loans.

The Federal Deposit Insurance Corp. is planning to extend its "safe harbor" policy past March 31 while its board continues to work on new securitization standards. The safe harbor provides comfort to investors that FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. FDIC chairman Sheila Bair said the current safe harbor will be extended while the agency works with industry and other regulators on securitization standards. One of the standards involves risk retention where banks are required to retain 5% of the credit risk when they securitize mortgages and other assets. "These reforms would prevent the conflicts of interest we've seen in the past and give investors confidence that they can understand and manage the risks associated with asset-backed securities," Ms. Bair told a joint meeting of minority real estate groups. The comment period on permanently extending the safe harbor and establishing new securitization standards ended Feb. 22. Industry groups, including the American Securitization Forum, are urging FDIC to extend the current safe harbor until the end of this year. ASF noted that Congress is currently working on financial regulatory reform that includes risk retention requirements. "We are concerned about the potential impact of multiple layers of securitization legislation and regulation without coordination among legislators and regulators," ASF says in its comment letter.

GMAC Financial Services has auctioned off $250 million of problem mortgage assets, using Citigroup as its broker on the deal. A spokeswoman for GMAC said the bid process "went very" well but at press time no other details were available on the process including information about bidders and what they offered. The spokeswoman said, "Our plan is to continue to sell assets through the year in our normal course of business and as we have done historically." She added, "We are not interested in pursuing transactions that don't have the right economic value." GMAC and its mortgage division, Residential Capital Corp., are saddled with billions of dollars of troubled non-prime loans and securities. One investor involved in the bid process said he passed on making an offer on the pool "because they wanted us to bid based on 2008 appraisals that they did." He said he was not allowed to take a hard look at current values on the underlying assets. "We will not bid on assets without the ability to determine the underlying value." This investor, requesting anonymity, said many large sellers are operating in a fashion similar to GMAC.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.

The mortgage industry shed 3,500 full-time workers in January, after shedding 1,900 jobs the previous month, according to new government figures. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 250,000 from 253,500 in December. Overall, the mortgage industry reduced its workforce by 9% over the past 12 months. Major lenders have relied on outsourcing and temporary workers to deal with fluctuating loan demand. BLS reported that 48,000 temporary jobs were created in February. Since September 2009, "temporary help services employment has risen by 284,000," BLS said. The nation's unemployment rate held steady at 9.7% in February and only 36,000 workers lost their jobs despite severe winter weather in parts of the country. It also may be a good sign for servicers that the number of long-term unemployed persons has been holding steady for the past three months, but still remains at a high level. The new jobs report shows the number of persons that have been unemployed for more than 27 weeks was 6.1 million. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

The 30-day delinquency rate on securitized multifamily mortgages hit 9.87% in February, up 16 basis points from January, according to Trepp LLC. The expected default on the Stuyvesant Town and Peter Cooper Village apartments in Manhattan could push the delinquency rate close to 13%, according to the New York firm, which tracks the performance of commercial mortgage-backed securities. The owners are still current on the $3 billion in mortgage debt. But they have nearly depleted the 11,000-unit complex's reserves in making the last payment, according to Trepp analysts. The Trepp report shows that the 30-day or more past due delinquency on all securitized multifamily and commercial mortgages hit 6.72% in February, up from 1.67% a year ago. The serious delinquency rate (60-days or more past) on CMBS is 5.97%, up from 1.3% a year ago. The Federal Deposit Insurance Corp. recently reported that 1.2% of multifamily mortgages held by banks and thrifts are 30-89 days past due. The delinquency rate on other commercial mortgages is 1.24% as of December 31.

There are flat quarter-over-quarter price changes against year-over-year home price gains of 5% said the latest Clear Capital Home Data Index Market Report. This is based on data through February 2010. According to the Truckee, Calif.-based data provider all four regions posted very consistent 1.4% quarterly price changes, which company analysts called encouraging. Despite the slowdown due to negative economic news and the threat of more real estate owned properties hitting the market "prices have remained positive through the first two months of the year," said Alex Villacorta, senior statistician at Clear Capital. Providence, R.I., rose to the top of the highest performing markets list with a 6.1% quarterly price change. In Los Angeles, prices gained 2.2% for the quarter, giving California five of the 15 highest performing markets. REO saturation edged up in 11 of 15 of these markets this month by an average of 1.3%. At the same time REO saturation is expected to increase this month, while traditional non-distressed sales wait to be listed in the spring and summer months, the report says. An increase in demand may precede the end of the April tax credit deadline when home prices may dip slightly into negative territory before getting an added boost back. The Boston area, one of the first to see prices drop at the beginning of the downturn, saw yearly home prices recover 6.9%.

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.