Servicing

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.

Freddie Mac reported that 4% of its single-family mortgages are 90 days or more past due, up from 2% in January of 2008. The serious delinquency rate edged up 16 basis points in January to 4.03%, according to the GSE's monthly activity report. The secondary market agency's report also provides investors with an update on the delinquent mortgages the GSE is buying out of its existing mortgage backed securities. On Feb. 10, Freddie said it will purchase all loans that are 120 days or more past due out of its MBS. The update on MBS coupons affected shows that $71.5 billion in loans were eligible for purchase as of Jan. 31. Freddie will disclose its initial purchases in a March 4 report. Meanwhile, Freddie purchased $22.6 billion in refinanced loans in January, down from $27.3 billion in the previous month. MBS issuance totaled $36.6 billion, down from $44 billion in December. For all of 2009, Freddie issued $475.4 billion in MBS, compared to $357.9 billion in 2008.

Two-thirds of the households that sold their homes in California last year did so because they couldn't make their mortgage payments, as changes in family and employment status took hold, according to the state's brokerage community. California is the largest mortgage market in the nation. Tighter loan underwriting standards and a decline in equity also continued to impact the market in 2009, leaving owners with little equity and making it difficult, if not impossible, to refinance, the California Association of Realtors said in its latest survey of home sellers in the Golden State. "Many homeowners chose to sell last year because their adjustable-rate mortgage reset at the same time home prices were experiencing an unprecedented decline," said CAR president Steve Goddard. Financial difficulties also impacted the ability of sales to close on time, with 63% of all deals falling out of escrow prior to closing. Nearly seven out of 10 of sellers cited "buyer could not get an acceptable mortgage" and more than six of 10 said "buyer backed out" as the primary reasons the sale fell through. Other reasons included "buyer's remorse," 26%; "lender withdrew and did not fund," 24%; and "home prices continued to decline," 18%. Once a deal made it to the closing tables, half the sellers reported that escrow did not close on time. The median difference between the selling and listing price was $32,315, but the list-to-sold-price ratio was significantly larger for first-time sellers ($30,000 below list price) than those who had previously sold a home ($8,000 below list).

GMAC Financial Services has forced out six managers in the servicing division of Residential Capital Corp. as part of a belt-tightening effort at the company. A GMAC official confirmed the layoffs to National Mortgage News but would not provide any further details. (For the full story including who was let go see the Monday paper edition of NMN.) Meanwhile, GMAC is quietly shopping around more than $2 billion in troubled loans to investment banking companies and hedge funds, according to officials familiar with the talks. "There's no offering circular yet," said one New York hedge fund executive "but there are plenty of conversations." A GMAC spokesman declined to comment about the troubled loan talks. The cutbacks at ResCap came a few days before GMAC CEO Michael Carpenter told a Congressional panel that the company is planning an initial public offering in the next two years. Elected officials pressed Mr. Carpenter on his plans for ResCap and once again he repeated that GMAC, which is 56% owned by the government, is exploring its strategic options. He noted that ResCap has been successfully walled off from the rest of the organization. "I look at ResCap as a problem to be solved, not an opportunity," he said. A spokeswoman added that GMAC wants to minimize risk at the company but wants to "support our role as the fifth largest servicer serving three million homeowners."

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.