Servicing

The FHA's nearly forgotten Hope for Homeowners program may get a jump-start now that Joel Harrison of Banker's Portfolio has lined up an investor willing to make a multibillion-dollar bet on underwater mortgages. The H4H program turns conforming Fannie Mae and Freddie Mac loans that are "underwater" into new Federal Housing Administration-backed mortgages. Mr. Harrison said the investor — who he refused to identify — is willing to buy Ginnie Mae II H4H mortgage-backed securities. He hopes his Irvine, Calif., firm can deliver $25 billion to $50 billion in H4H loans before the congressionally approved refinancing program sunsets in September 2011. "We are really open to mortgage investors and asset managers contacting us," he said. Mr. Harrison said he has arrangements with several originating servicers to refinance the loans. Under the program, underwater mortgages must be written down to a 96.5% loan-to-value ratio based on a current appraisal with any subordinated liens being extinguished. (The Department of Housing and Urban Development is authorized to pay incentives to second-lien holders for releasing their liens.) Mr. Harrison started his shop two years ago and he believes mortgage holders are ready to accept such writedowns. "A H4H refinancing can be completed in 45 days with a 15% to 20% higher return than going through the foreclosure process, which can take 8-10 months," he said.

Stifel Nicolaus has initiated coverage of PennyMac Mortgage Investment Trust, calling the publicly traded vulture fund a "hold." There are now four investment firms following the company which went public last summer but has yet to turn a profit. PennyMac is trying to branch out from buying troubled mortgage assets into servicing and even lending through a conduit. Based in Calabasas, Calif., the company was formed two years ago by former Countrywide Financial Corp. president Stanford Kurland. It has been actively bidding on both nonperforming loan packages and servicing. It came in second in the bidding for an $11 billion package of jumbo servicing rights auctioned off by the bankruptcy trustee for Thornburg Mortgage of Santa Fe.

Mortgage servicers completed nearly 50,000 permanent HAMP modifications in January, up from 35,000 in the previous month, as the government's Home Affordable Modification Program appears to be finally gaining traction. The Treasury Department reported that HAMP servicers have completed 116,300 permanent modifications since the modification program was launched last spring. The first 5,000 permanent modifications were completed in October. Another 830,500 homeowners are participating in three-month payment trials and their monthly payments have been reduced on average by more than $500. "With nearly 1 million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP is doing the job it was designed to do," said Phyllis Caldwell, chief of Treasury's Home Preservation Office. Treasury also reported that 60,500 borrowers have dropped out the payment trials during the life of program and 1,000 permanent modifications have been cancelled.

Essent Guaranty, the upstart mortgage insurer, has received approvals to write coverage for mortgages purchased by Fannie Mae and Freddie Mac, and hopes to issue its first MI policy early in the second quarter. Obtaining GSE approvals is essential for any new mortgage vendor because the two, today, account for roughly 70% of all originations. The MI industry currently boasts six active firms that write new policies. Triad Guaranty of Winston-Salem is in liquidation mode and recently sold its operating platform to Essent. One MI veteran, requesting his name not be used, called Essent's GSE approvals "a good development for all of us," adding that, "It shows this industry can attract fresh capital." Few MIs are earning money because of their "legacy" coverage, but observers note that Essent will have no such issues to deal with. Essent's management team includes former top executives from Radian Guaranty as well as Fannie Mae. National Mortgage News broke the story about the approvals Wednesday afternoon.

California now has the highest risk of mortgage fraud with an index value of 222, according to a report from Interthinx. Nevada, which had the highest index for the previous five quarters, drops to second place with an index of 220, and is closely followed by Arizona with an index of 211, according to the Mortgage Fraud Risk Report for the fourth quarter of 2009. Florida remains in fourth place at 179, while Colorado is fifth at 153. The occupancy fraud risk index rose 16% since last quarter, the first significant increase in the index since the fourth quarter of 2006. The magnitude of the quarter-on-quarter increase suggests that occupancy fraud risk will be a serious issue going forward, as continuing price declines and get-rich-quick schemes lure investors back into the market and as builders face continuing difficulty in moving unsold inventory. Despite a 4% quarter-on-quarter decrease, the property valuation fraud risk index is up 40% over last year and up more than 100% from two years ago. Schemes involving short sales, real estate owned inventories, wholesale flipping, and refinancing by borrowers whose equity has been impaired by falling real estate values continue to drive this index. Interthinx analysts expect lenders to focus more closely on fraud risk mitigation as they work to emerge from the downturn. This will help guard against the potential for fraud as a large number of adjustable rate mortgage loans, especially option adjustable rate mortgages with negative amortization features which reset between now and the first quarter of 2012.

National home prices, including distressed sales, declined by 3.7% in December 2009 when compared with December 2008, according to First American CoreLogic and its LoanPerformance Home Price Index. This was a significant improvement over November's year-over-year price decline of 5.3%. Excluding distressed sales, year-over-year prices declined in December by 3.3%; and in November the non-distressed HPI fell by 5.0% year-over-year. This improvement is taking place as the real estate market is getting further from the period of peak distress in home prices, according to First American CoreLogic. On a month-over-month basis the national average of home prices declined moderately, falling by 1.0% in Dec. 2009 compared to November 2009, indicating seasonal slowing in a fledging housing recovery. The national HPI is projected to fall an average of 4.4% through April 2010, as high levels of unemployment, housing inventories and foreclosures continue to exert downward pressure on prices. The forecast indicates that the future path of house prices after April will be significantly impacted by whether the tax credit is allowed to expire or is once again extended. Nationally, the HPI 12-month forecast is expected to rise 3.5% excluding distressed sales; and up 2.7% including distressed sales by December 2010. When distressed sales were included, Nevada (-20.8%) remained the top-ranked state for annual price depreciation in December, followed by Arizona (-12.6%), Idaho (-11.4%), Florida (-11.3%) and Michigan (-10.8%). Of these five states, all but Michigan showed month-over-month decreases in their HPI between November and December 2009. Excluding distressed sales, the worst five states for year-over-year price declines changed slightly. Nevada (-18.8%) still holds the top spot, followed by Arizona (-11.8%), Florida (-10.3%), Michigan (-10.0%) and Maine (-9.1%).

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.