Servicing

As the Federal Reserve ends its purchases of mortgage-backed securities, Fannie Mae and Freddie Mac could become buyers if private investors don't return to the market, a Freddie executive said. "There is room for Fannie and Freddie to buy some of these securities and hold them in their portfolios for the near term," said Freddie economist Amy Crews Cutts. The Fed is currently tapering off its MBS purchases so the market can adjust as it exits at the end of the quarter. "The idea is to attract private capital back into the market place," Ms. Cutts told a HomeFree-USA homeownership conference. Freddie Mac economists expect the Fed's exit will have modest impact on mortgage rates. The Freddie deputy chief economist said she would not be concerned if mortgage rates rise to 5.5% or 6% — as long as it happens in an orderly fashion. "A little bit each week," she said. Ms. Cutts also noted that lenders might relax their underwriting standards to compensate for the rise in rates. But she would be worried if rates rise "violently and sharply." In that case, she expects the Fed will move back into the market and start buying MBS again. Minutes from the Fed's last Federal Open Market Committee meeting reinforce this view. "The committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets," according to the minutes of the Jan. 27 FOMC meeting. The minutes also indicate the FOMC members considered, but rejected, changing that language to reflect "the possibility that the committee might decide either to sell securities or to purchase additional securities" in the future.

United Kingdom nonconforming residential mortgage-backed securities continued to show short-term stability for the most part in the latest month, according to Moody's Investors Service. Weighted average delinquencies were 19.7% in both December and November of 2009. This was up slightly from 19.4% six months prior and a marked increase from 13.7% in December 2008. Foreclosures, at 1.7%, were down from 2.0% in November and from 3.5% in December 2008. However, "sales of repossessed properties led to a further increase in losses," according to Moody's. Cumulative losses in December 2009 were 1.5%, up from 1.3% in November and 0.6% in December 2008.

Some default rates for U.S. subprime residential mortgage-backed securities show signs of slowing but only marginally in some cases, and overall prices are continuing to fall, according to Fitch Solutions. U.S. subprime residential mortgage-backed securities prices overall dropped nearly 6% month-to-month to 7.17% in the latest period, down from 7.62% a month ago, according to Fitch Solutions' indices. The 2007 vintage dropped by 17.7% and its historical 90-day delinquencies jumped to 14.2% from 13.7%, according to the credit default swaps of RMBS-based indices. "The rise in delinquencies is signaling a potential increase in 2007 loan defaults," said Fitch managing director Thomas Aubrey. Six-month constant default rates declined but only marginally in 2007 and 2005 vintages. The six-month CDR for the 2007 vintage inched down to 29.3% from 29.5% and the six-month CDR for the 2005 vintage slid slightly to 23.68% from 23.71%. "This is in stark contrast to much larger declines among the 2004 and 2006 vintages," Fitch said.

Altisource Portfolio Solutions, which was spun off by Ocwen Financial Corp. last year, has acquired the management arm of the Lenders One cooperative for an undisclosed sum. Scott Stern, CEO of Lenders One, said Altisource will maintain the existing executive team and employee base of the management company which is called The Mortgage Partnership of America. LO's 155 member mortgage bankers originated $75 billion in product last year, which would make it the nation's fourth largest lender if counted as one. Mr. Stern stressed that the cooperative will "continue to exist" and that Altisource is not buying Lenders One. The Mortgage Partnership handles an array of chores for the cooperative, including program development, marketing, advertising and even legislative advocacy. Mr. Stern himself owned part of TMPA but would not say how much. The publicly traded Altisource provides mortgage-related vendor services to the residential finance industry.

In his first major initiative since taking the helm at PHH Corp., Jerome Selitto laid out his strategy for transforming the nation's largest private label lender/servicer into a leaner, more profitable company — including a major cut in expenses. On a conference call Tuesday, Mr. Selitto, who became chief executive in October, said he plans to slash expenses by $100 million to $120 million annually. The effort will include combining back offices and upgrading technology. Selitto came to PHH "with a mandate from the board to turn this underperforming company into a high performer," said Steve DeLaney, a managing director and mortgage finance research analyst at JMP Securities. "He's sending the message that he's cleaning up and that he's going to do whatever it takes to make the company profitable." According to figures compiled by National Mortgage News and the Quarterly Data Report, PHH Mortgage ranks eighth among lenders nationwide, and ninth among servicers.

Tony Renzi, a 24-year veteran of GMAC Mortgage and its affiliates, has been forced out of his position as chief operating officer and president, according to company employees who work under him. A spokeswoman confirmed to National Mortgage News that Mr. Renzi is departing effective March 2 due to "streamlining efforts" and that his duties have been given to others at GMAC, which oversees Residential Capital Corp. The company declined to elaborate but issued a statement saying, "Tony has made valuable contributions in the mortgage lending and servicing business during his tenure with the company and we thank him for his many years of service." One employee said he and others at GMAC/ResCap were informed of his departure early in the morning "and even though they said his last day" will be in early March, he has not been at the company since Feb. 5 or so. Over the years, Mr. Renzi helped build GMAC's servicing business into one of the largest in the nation.

Educational Systems Federal Credit Union became the first victim of the massive fraud at CU National Corp. to settle claims with Fannie Mae, setting the stage for other CUs hurt by the $140 million scandal to come to terms with the government-sponsored enterprise. "We've been negotiating with them [Fannie Mae] since July and August of last year," said Chris Conway, president of the Greenbelt, Md.-based ESFCU. Mr. Conway has now turned his eye toward a settlement with CUMIS Insurance Society, which holds a bond with the $340 million Greenbelt, Md., credit union. Mr. Conway said he is prevented from discussing the terms of the settlement under the agreement, but said ESFCU has received all payments and the return of the 32 mortgages Fannie Mae had bought from CU National under false pretenses. He also expressed optimism that the combination of the Fannie Mae payment and an insurance payout will help his credit union recover most, if not all of the $5 million exposure they have in the case. Representatives of nearly two dozens CUs are expected to meet with Fannie in mediation over the next few months to hammer out a settlement of claims. Michael McGrath, who founded U.S. Mortgage — the parent of CU National — pleaded guilty last year to selling $140 million worth of mortgages issued by 28 credit unions to Fannie Me without the CU's authorization and pocketing the money. He will be sentenced next month.

While second liens are stumbling blocks in many modifications, when the interests of the first and second mortgages are aligned it often results in a principal reduction, according to Laura Goodman, senior managing director at Amherst Securities Group. "When a bank owns and services the first and second, 37% of those modifications have gotten some kind of principal reduction," she told an American Securitization Forum conference in Washington recently. In an interview she noted these principal reductions occurred on loans on the balance sheets of banks, not securities. Ms. Goodman noted that negative equity is a major problem and it is particularly true for borrowers with second liens. "You can't solve the negative equity problem without writing down the seconds before the firsts," she said. In the nonagency universe, 51% of option ARM borrowers have second liens and 56% of alt-A borrowers have seconds, Ms. Goodman told the ASF conference. Amherst Securities does not have data on Fannie Mae and Freddie Mac guaranteed mortgages with seconds.

Home-Free USA, a Maryland-based, HUD-approved nonprofit counseling organization, will team with Chase Home Mortgage February 18-19 in a face-to-face modification event for borrowers struggling to make their house payment. Home-Free counselors will discuss each individual borrower's financial and employment situation, obtain a credit report for them, establish a budget that includes a potentially modified mortgage payment, and help them prepare a mortgage-modification application. The owners will then meet with Chase counselors, who will review their applications to ensure they have all the information needed for a loan modification review under the government's Home Affordable Modification Program or Chase's own loan-mod program. The applications will be sent for an accelerated review that averages just 30 to 45 days. Chase already has reached out by phone and mail to borrowers who may be eligible for either program. The sessions, scheduled for 10 hours each day, will be held at Home-Free's headquarters in Hyattsville, a D.C. suburb. "Together with Chase," said the agency's president, Marcia Griffin, "we are putting homeowners on the road to preventing foreclosure."

More than a third of the existing homes sold last year in the seven-county Chicago area were distressed properties, according to the RE/MAX Northern Illinois network. Nearly 38% of last year's sales in the Chicago suburbs were made under duress, as were 31% of the sales in the city itself. The RE/MAX report is based on transactions tracked by Midwest Real Estate Data, the region's multiple listing service, for the counties of Cook, DuPage, Kane, Kendall, Lake, McHenry and Will. "In the last two to three years, distressed properties have gone from being a small portion of the residential marketplace to a significant one," said Jim Merrion, regional director of the RE/MAX brokerages in Northern Illinois. Of the 248 suburban Chicago submarkets, distressed properties accounted for 50% or more of all 2009 sales in 66 areas, with 44 of those areas in Cook County alone. In the city, distressed sales accounted for half or more of all transactions in 37 of the city's 77 neighborhoods. In Winnetka, Kenilworth and the city's Lincoln Park, however, distressed sales accounted for less than 5% of total sales in '09. Foreclosures accounted for 70% of distressed deals, while 28% were short sales, according to RE/MAX. "We continue to see problems with securing lender approval and processing of short sales, even though these transactions typically bring more money for a property than can be obtained after foreclosure," Mr. Merrion also reported.