Servicing

Industry groups are urging Senate Banking Committee members to consider a proposal that would exempt mortgages with strong underwriting standards from the risk retention requirements of a financial regulatory reform bill. The backers of a "qualified mortgage" exemption are concerned the current language in the bill treats securitizations of risky and non-risky mortgages the same, which will increase costs for creditworthy borrowers using low-risk mortgages. An early version of the Senate bill required securitizers to retain 10% of the credit risk when they sell loans into the secondary market. A new study commissioned by mortgage insurer Genworth Financial shows that nonprime mortgages originated between 2002 and 2008 performed 2.9-times worse than traditionally underwritten mortgages that had full documentation and safe product designs. "This study demonstrates why Congress should not impose an arbitrary risk retention requirement on all loans sold in the secondary market," said Glen Corso, managing director of the Community Mortgage Banking Project. Committee members are still trying to reach a bi-partisan agreement on a reform bill. CMBP, the Mortgage Bankers Association, and the Financial Services Roundtable Housing Policy Council are hoping the committee will totally exempt qualified mortgages from the risk retention requirements.

Barclays Capital is taking orders from investors on at least one Federal Deposit Insurance Corp. structured note deal with two others on the way as the government moves to monetize at least $4 billion worth of product, according to hedge fund and investment bankers familiar with the matter. Two offerings by Barclays - both private placements - are actively being discussed in the market: a $1.33 billion floating rate deal, and a $480 million fixed-rate transaction. "The FDIC is putting a 100% guarantee on these," said one investment-banking source. The collateral includes residential and construction loans culled from failed banks. The buyer will pay a fraction of the assets' value, work the underlying loans, and share some of the upside with the government. But by selling structured notes, the agency will receive some cash upfront. At least one of the deals could close this week. The FDIC and Barclays declined to comment.

Specialized Asset Management, a national provider of asset marketing and disposition services, is partnering with RealtyTrac to market its foreclosed property listings. The move will help SAM display its assets to RealtyTrac's customers. "Marketing our REO assets to RealtyTrac's visitors provides us with additional marketing visibility to help liquidate our REO assets," said Rudy Krupka, vice president of REO at Specialized Asset Management. "Our strategic partnership with RealtyTrac will assist our agents in promoting the properties to interested buyers across the country." RealtyTrac says the number of foreclosures is expected to increase significantly in 2010 as millions of payment option ARMs and alt-A mortgages reset in the next 12 to 18 months and double-digit unemployment plagues the national economy this year.

The Eleventh Federal Home Loan District Cost of Funds Index declined by four basis points between December 2009 and January 2010 as it continues to seek its new normal level following the disruption in the November calculation. For January, COFI is 1.786%, compared with December's 1.828%, according to the Federal Home Loan Bank of San Francisco. In November, Wachovia Mortgage FSB was removed as a contributor to the Index, which is calculated using data from the eligible thrift members of the FHLB-SF. As a result, there was a spike in COFI for November. The total average funds for the January calculation is $34.7 billion, while the total interest expense is $55.7 million. Both figures are in line with the data used to make the November and December calculations. When compared with January 2009, COFI is 67 basis points lower; at its lowest point during 2009 in October, the Index was 120 bps lower than in January. For comparative purposes, the Freddie Mac Primary Mortgage Market survey found the average 30-year fixed rate mortgage rate for January 2010 is only 2 bps under January 2009 and the lowest it fell to for the year was only 24 bps below the start of the year in April. For the one-year adjustable, the January 2010 rate is 59 bps lower than one year prior, a 2 bps increase over the lowest point recorded in 2009, for December.

DebtX is auctioning off two separate commercial nonperforming loan portfolios totaling $411 million, the largest of which consists of 25 multifamily loans controlled by the Department of Housing and Urban Development. The HUD portfolio - $306 million in size - also includes a mortgage backed by a healthcare facility. DebtX, a government approved auction company, has set March 24 as the bid date. The company said it also is taking bids on a $105.5 million portfolio of nonperforming residential and commercial loans on a behalf of a "commercial bank in the western U.S." DebtX would not identify the seller. The bid date on the second offering is March 22.

The GSE regulator has extended the Home Affordable Refinance Program for one year so that Fannie Mae and Freddie Mac can continue to refinance high LTV and underwater mortgages. Launched last April, HARP gives the government-sponsored enterprises the flexibility to go beyond their normal underwriting and mortgage insurance standards to refinance mortgages they already own or guarantee. In 2009, the two GSEs refinanced 190,000 single-family loans with loan-to-value ratios of 81% up to 125%. Fannie Mae disclosed that it requested a HARP extension in its 2009 annual financial report. "Unless our regulator grants our request for an extension," Fannie said, the HARP program will expire after June 10 and "we will no longer have the flexibility" to refinance these loans. Federal Housing Finance Agency acting director Ed DeMarco said current market conditions warrant an extension. It will "support and promote market stability," he said, and encourage more lenders to "fully adopt the HARP program." Fannie has already refinanced over 100,000 families under the HAMP program, reducing their monthly payments by $150 on average. "Extending HARP for another year will enable us to help even more families achieve an affordable mortgage," said Fannie president and chief executive Michael Williams.

The IRA Advisory Service, an analytics firm, says GMAC Financial Services could be forced into bankruptcy protection, despite receiving more than $15 billion in federal assistance. In a report to clients, the Torrance, Calif.-based advisor called GMAC (whose holdings include the troubled Residential Capital Corp.) a "bank holding company searching for a business model." A spokeswoman for GMAC said it has no intention of filing for bankruptcy. "The company has taken a series of steps recently to strengthen its capital position," she said. But IRA told its clients it has concerns about GMAC's source of funding: "GMAC has essentially substituted FDIC-insured deposits for commercial paper, and has done so with terms and conditions that allow investors to walk out the door at any time and without penalties."

Fannie Mae plans to purchase up to 200,000 delinquent loans out of its mortgage-backed securities in March, but is holding off on giving guidance on whether it can maintain that run-rate over the coming months. It's expected that premium coupons will be bought out first with lower coupons acquired over subsequent months. The release of Fannie's promised second wave of information on its plan for massive buyouts has brought clarity to a market that has been somewhat volatile due to lingering uncertainties about the process. New information released by Fannie sheds more light on the pace and priority of the buyouts - as well as on Fannie's 120-day-plus delinquency rates. A Barclays report released Tuesday says the information about timing is more important in its view but still lacks specifics. Fannie said it plans to repurchase 150,000 to 200,000 delinquent loans in March, giving researchers information that helps them price MBS. As far as the new information about Fannie's 120-day-plus delinquencies, this generally puts Fannie "on par in terms of disclosures with Freddie Mac," according to Barclays.

DebtX, a full-service loan sale advisor based in Boston, is selling $105.5 million in primarily non-performing loans for a regional bank in the western United States. The portfolio is comprised of 71 loans and 33 relationships. The collateral includes commercial and residential properties located primarily in California, Washington, Oregon and Arizona. The three largest loans in the pool have a combined principal balance of $47.6 million. Bids are due by 2 p.m. Eastern Daylight time on Monday, March 22, 2010. Due diligence materials are now available at www.debtx.com. "Over the past six months, the number of bids per offering at DebtX has increased an average of 25% due to heightened demand for performing and non-performing loans," said DebtX CEO Kingsley Greenland. "A growing number of equity buyers are seeking to re-enter the commercial real estate market by purchasing loans because many distressed properties are in default or are unable to service their debt."

The Obama administration's loan modification program is a "failure" that is hurting more homeowners than it is helping, according to a report issued by Republicans on the House Oversight and Government Reform Committee. Representatives Darrell Issa, R-Calif., and Jim Jordan, R-Ohio, claim the administration's Home Affordable Modification Program is "misguided" and hundreds of thousands of borrowers in HAMP payment trials will never qualify for a permanent modification. "Money that could have been spent on affordable rental housing is instead being spent on mortgage payments when many of these homeowners have little hope of permanently keeping their homes," Rep. Jordan said. The congressmen offer few suggestions for improving HAMP but press the Treasury Department to release more information about its net present value test, which is used to evaluate mortgages for a modification. "If the secret NPV test underestimates the re-default rate, servicers will grant too many futile modifications," the report says. Committee Democrats have opened a HAMP investigation and have raised similar concerns about the NPV test. Separately, a public opinion poll commissioned by the National Association of Home Builders shows that 65% of homeowners believe the government needs to do more to keep families from losing their homes.