Servicing

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.

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.