Servicing

Fannie Mae and Freddie Mac likely will not need to sell agency MBS to make room in their capped portfolios for massive distressed loan buyouts, although it still could happen, according to a new report from Barclays Capital. If rates fall off sharply, reducing runoff at Fannie Mae, the GSE theoretically might be forced to sell off a significant portion of its MBS holdings, according to Barclays. However, the report says this outcome is unlikely because federal officials would not allow Fannie to sell MBS into a market with high rates and risk pushing rates even higher. As for prepayment speeds, Barclays said it expects Freddie Mac's Gold securities will increase 3- to 5-fold in March with 15-year securities proving most immune to the increase. Fannie Mae speeds after March are expected to increase by a constant prepayment rate of 15-35 and stay there through the June report.

CitiMortgage is offering its distressed borrowers an expanded deed-in-lieu-of-foreclosure option that will allow them to stay in their home for six months if they agree to sign off their property rights to the bank at the end of that period. Initially the Citi Foreclosure Alternative Program will be tested in Texas, Florida, Illinois, Michigan, New Jersey and Ohio as of Feb. 12. The program is a pilot initiative that also will offer a minimum of $1,000 in relocation assistance to facilitate these borrowers' eventual transition to another residence. Relocation counseling by trained professionals will assist with monthly budgeting advice as necessary, Citi said. Executives said it is the newest addition to a series of similar initiatives Citi has been introducing since the foreclosure crisis began. To qualify borrowers first must be eligible for a permanent loan modification. If not, a short-sale option will be considered.

Fannie Mae has set a timetable and released preliminary figures that show tens of billions of dollars worth of unpaid principal balance are involved in its accounting-driven plan for increased purchases of certain delinquent loans from mortgage-backed securities pools. Fannie said the purchases will begin in March with the first ones reflected in MBS pool factors released on the fourth business day in April. "We expect to purchase a significant portion of the current delinquent population within a few-month period, subject to market, servicer capacity and other constraints," Fannie said. The government-sponsored enterprise said that as of Dec. 31, 2009 the total volume of loans delinquent by four or more months — which single-family MBS trust documents allow Fannie to buy out of pools — was about $127 billion. Of this amount, roughly $82 billion worth is backed by outstanding 30-year amortizing fixed-rate MBS. Other types of MBS comprise the rest. A division of the $82 billion by vintage shows the largest percentage of UPB — almost twice that of any other year or the pre-2004 period — is found in 2007 (approximately $30.70 billion). The UPB from the 2006 vintage is about $16.75 billion, for 2008 it is roughly $13.75 billion, for the pre-2004 period it is approximately $10.35 billion, for 2005 it is about $9.36 billion, and for 2009 it is roughly $1.02 billion. Fannie said it would release additional information on the buyouts "within the next two weeks." The buyouts are due to new accounting standards that result in the cost of purchasing most delinquent loans from MBS and holding them in portfolio to be less than the cost of advancing delinquent payments to security holders, according to Fannie. The accounting rules have been in effect since Jan. 1 and Wall Street researchers have been anticipating related increases in government-sponsored enterprise buyouts.

Lennar Corp. late Wednesday purchased $3.05 billion of troubled loans from the Federal Deposit Insurance Corp., through a "structured transaction" deal. By creating limited liability corporations, Lennar is splitting the ownership stake in the loans 40/60 with the government taking the latter share. Overall, the Miami-based homebuilder is buying two pools of notes (5,500 mortgages) including distressed residential and commercial real estate assets. The packages were culled from 22 failed banks. In total, Lennar is putting up just $243 million in cash to acquire its stake with the FDIC providing 0% non-recourse financing of $627 million. Lennar said its subsidiary, Rialto Capital Advisors, would handle "the day-to-day management and workout of the portfolios."

BOK Financial has purchased $4.1 billion in residential servicing rights from the now defunct Charter Bank of Albuquerque and is open to purchasing even more receivables, said the bank's mortgage chief. No purchase price was disclosed. Ben Cowan, president of BOK Mortgage, Tulsa, noted that prior to the FDIC seizing control of Charter Bank a few weeks ago, his company already had a 'purchase and sale' agreement inked. "We had a deal in place and then the FDIC came in," said Mr. Cowan. Eventually, the FDIC, after reviewing the sale, let BOK proceed with the purchase. He noted that the portfolio consists of mostly Fannie Mae, Freddie Mac and GNMA servicing rights. "It's a great opportunity," he said. "It's very clean stuff." He said the company is open to buying additional pools of servicing rights. In this package it bought the receivables only and will not take title to Charter Bank's servicing platform. Beale Bank of Texas bought most of the Albuquerque bank's assets. The new rights portfolio boosts BOK Mortgage's total residential servicing balance to $11.5 billion, a gain of 46%. Mountain View Financial brokered the deal.

Foreclosure filings, including default notices, scheduled auctions and bank repossessions were reported on 315,716 U.S. properties in January, a decrease of 10% from December 2009 but still 15% higher than a year ago, according to RealtyTrac. Real estate owned activity nationwide was down 5% from December but still up a whopping 31% from January 2009 while default notices decreased 12% month-to-month but increased 4% from a year ago. "If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works," said James J. Saccacio, chief executive of RealtyTrac. Despite a year-over-year decrease in foreclosure activity of 18%, Nevada's foreclosure rate remained highest among the states. RealtyTrac found one in every 95 Nevada housing units was the subject of a filing. California, Florida and Arizona posted the three highest state totals in terms of properties with filings, and together they accounted for more than 44% of the national total. Illinois reported 18,120 properties with a foreclosure filing, a 2% increase from December and a 25% increase from January 2009. Michigan posted the nation's fifth highest total, with 17,574 properties receiving a foreclosure filing, and Texas posted the sixth highest total, with 12,225 properties. Other states with totals among the 10 highest in the country were Nevada (11,854), Georgia (11,274), Ohio (11,105) and New Jersey (6,146).

Treasury Department and bank supervisors must undertake a coordinated effort to address a developing commercial real estate "crisis" that could be very damaging to the economy, according to a Congressional panel that oversees the government's Troubled Asset Relief Program. Nearly half of the $1.4 trillion in commercial real estate loans that need to be refinanced between 2010 and 2014 are under water and this could lead to a "significant wave of CRE defaults" and "prolong an already painful recession" the Congressional Oversight Panel says in a new 190-page report. CRE losses at banks could range as high as $200 billion to $300 billion with small and mid-sized banks facing the greatest exposure to write-downs and losses, the report warns. The banking regulators are encouraging banks to refinance CRE loans if the borrowers have the capacity to make the payments on the restructured loan. This policy allows banks to avoid writedowns of problematic loans for now but its success depends on a quick recovery of the overall economy. "Lenders obviously like" this policy, the COP report says. But investors looking to buy distressed properties warn it will push losses into the future and slow the recovery of the CRE market. "It is critical that bank supervisors fully recognized and are publicly clear about the potential for a CRE crisis and are quick to force loss recognition where necessary," the COP report says.

Consumer Mortgage Audit Center, a due diligence provider based in Florida, has opened a new fulfillment division to process loan modifications and refinancing files. CMAC told National Mortgage News that it is "acquiring talent externally and internally" for this new division but declined to provide a specific head count. CMAC describes itself as a consulting firm that specializes in mortgage forensic research and analysis. The company provides back-end support to lenders and servicers with high caseloads of distressed loans.

Flagstar Bancorp Inc., which controls one of the nation's largest wholesale lenders, came up nearly $200 million shy of its capital-raising goal in a rights offering that expired earlier in the week. The company is also in the process of trying to sell a $10 billion package of mostly Fannie Mae servicing rights. In an interview with American Banker, Flagstar CEO Joseph Campanelli acknowledged that the rights offering did not bring in as much capital as Flagstar desired. But he said the total was still in line with the capital level targeted in its business plan. The $300.6 million raised, he said, "brings us north of 8% capital, which we believe is a good, solid number." As part of a plan to diversify its portfolio this year, Mr. Campanelli noted recently that Flagstar would seek to broaden its revenue stream with ventures outside its national mortgage banking model. According to figures compiled by National Mortgage News and its Quarterly Data Report affiliate, Flagstar ranks eighth among residential wholesale funders with a quarterly run-rate just shy of $3 billion. Flagstar is also an active warehouse lender. In the fourth quarter it lost $72 million, an improvement over its third quarter loss of $298 million. Its shares continue to trade for less than $1 on the New York Stock Exchange.

Agency mortgage-backed securities investor Annaly Capital Management Inc. has priced a public offering of $500 million in an aggregate principal amount of its 4% convertible senior notes due 2015 and plans to use the proceeds, in part, to buy MBS for its investment portfolio. The company said it would also use the proceeds for general corporate purchases. It estimated net proceeds of about $485 million after deducting underwriting discounts and expected offering expenses. The offering is slated to close Friday. Interest on the notes is set to be paid semi-annually at a rate of 4% per year with the notes maturing on Feb. 15, 2015 unless they are repurchased or converted earlier. The notes will be convertible into shares of Annaly's common stock at an initial conversion rate of roughly 46.6 shares per $1,000 principal amount of notes. This is equal to about $21.46 per share of common stock, subject to adjustment in certain circumstances. Credit Suisse Securities (USA) LLC is the sole underwriter for the offering.