Servicing

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.

EverBank, Jacksonville, Fla., is negotiating to buy a $10 billion package of residential servicing rights from Flagstar Bancorp, according to investment banking sources familiar with the matter. A spokesman for Flagstar said the company does not comment on rumors. EverBank did not return a call about the matter. The bid price is in the range of 75 basis points, said one official, but that figure could not be confirmed. According to the Quarterly Data Report, EverBank services roughly $46 billion in residential loans, ranking 22nd nationwide. If it winds up with Flagstar it would move up in the rankings to No. 20. Troy, Mich.-based Flagstar is one of the largest thrifts in the nation. In 2009 it lost $513.8 million compared to $275.4 million the year before. Despite its problems, its depository is considered "well capitalized" for regulatory purposes, with capital ratios of 6.19% for Tier 1 capital and 11.68% for total risk-based capital.

Major banks "rebooked" $19 billion in seriously delinquent Ginnie Mae loans in the fourth quarter and pushed the percentage of single-family loans held by FDIC-insured institution that are 90 days or more past due up to 9.3%, from 8.1% in the previous quarter. The Federal Deposit Insurance Corp. reported that banks and thrifts held $178.5 billion in single-family loans that are seriously delinquent or "noncurrent" as of Dec. 31, up $23.2 billion or 15% from the third quarter. "Most of this increase — $19.1 billion — consisted of rebooked GNMA loans that have government guarantees," the FDIC says in its fourth-quarter report on bank performance and earnings. FDIC economists have never seen such a jump in rebooked Ginnie Mae loans before. Rebooking is an accounting convention that requires banks to recognize loans that are seriously delinquent even though it is not an indicator of significant losses. Ginnie Mae securities are mostly back by Federal Housing Administration-guaranteed loans. The FDIC also reported that banks and thrifts charged off $10.1 billion in single-family loans in the fourth quarter, up 6.8% from the previous quarter and 48% from the fourth quarter of 2008.

Bucking traditional beliefs regarding secured and unsecured credit, the risk of consumers with high credit scores defaulting on their mortgage is higher than the risk of this group defaulting on their credit cards, according to the FICO Score Trends Service. In 2009, 0.3% of consumers whose scores were between 760 and 789 defaulted on their real estate loan, compared with 0.1% who defaulted on their credit card. For the entire credit spectrum, in 2008-09, credit card accounts were just 1.6 times more likely to become 90 days delinquent; in 2005, they were over three times more likely. Mark Greene, chief executive of Minneapolis-based FICO, said, "Economic instability is creating unknown risk in lenders' credit portfolios as well as counter-intuitive trends in consumer behavior." On the originations side, FICO statistically showed that lenders tightened their credit criteria for giving new loans. In 2005, nearly 46% of consumers who got a new mortgage had a credit score under 700. In 2008, this fell to 25%.

Mortgage rates will rise no more than 50 basis points after the Federal Reserve stops purchasing agency MBS in March, according to a new survey of business economists. "Three-quarters of the panelists believe mortgage interest rates will increase 50 basis points or less," a summary of the survey results says. The 48 professional forecasters surveyed by the National Association of Business Economics generally say economic expansion is on a "firm track" and the rebound in the housing market is "ongoing and sustainable." The economists expect housing starts will hit 730,000 this year, up from 550,000 in 2009. And starts will jump to 1 million units in 2011. House prices will rise 1.6% this year and 2.6% in 2011, based on the Federal Housing Finance Agency housing price index. "Such increases would barely keep up with inflation," the survey says. The February survey does not include a forecast for mortgage rates. However, the economists see the 10-year Treasury rate drifting upward to 4.25% by yearend and 4.5% by the second quarter of 2011.