Servicing

A wave of GSE buyouts of delinquent loans widely expected to affect higher-coupon agency mortgage-backed securities this year failed to materialize in 2010's first month of prepayment data, according to Wall Street research reports. Prepayments also slowed despite record low rates during the period, but analysts had widely expected that would occur due to tight underwriting and the fact that many loans had already refinanced. More surprising to some analysts was the lack of buyouts. Credit Suisse researchers said the buyouts may have failed to materialize due to operational challenges involved in implementing the accounting changes expected to spur them. "We believe the economic incentive for the GSEs to buy out delinquent loans is still there and hence buyout risk remains in place in the short term," the analysts said. "However, we would start fading out buyout risk should it not materialize in February." Barclays Capital researchers said some MBS investors have been concerned about massive GSE buyouts, but they have been reassuring them that it may not happen due to portfolio caps and other factors. Overall, 30-year fixed rate prepayments declined by 16%, according to Credit Suisse. Both firms said prepayments were slower than they had expected.

An unidentified hedge fund has agreed to buy a $400 million portfolio of nonperforming residential loans from Citigroup, according to vulture fund investors that play in that market. A spokesman for Citi's mortgage unit declined to comment. One investor said the final sale price was in the range of 50 cents on the dollar. No other details were available on the deal. Wells Fargo & Co. is also in the market with a large NPL market, the bank confirmed to National Mortgage News. (See the Monday edition of NMN for the full story.) With the Citi and Wells deals, it appears the market is seeing an increase in the willingness of some large banks to finally unload some of their delinquent residential loans but with roughly $1 trillion worth of mortgages in arrears it's still a fraction of the entire market. "From the prices I'm seeing some of these banks are still asking too much," said one west coast-based investor.

The Federal Reserve is prepared to act as a backstop for the mortgage market after it officially ends its MBS purchase program on March 31, according to New York Fed Bank President William Dudley. The Fed is on track to complete its planned purchases of $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae MBS at the end of this quarter. But Mr. Dudley told the Associated Press that the Fed is not on "automated pilot" and will restart MBS purchases if mortgage rates spike. "If there is a sharp turn in the road," Mr. Dudley said, the Fed will intervene. Wall Street mortgage experts seem divided on how the market will react when the Fed stops its MBS purchase program. The Fed bank president expects it will be orderly since the central bank has telegraphed its intentions well in advance of the March 31 cut off.

The Federal Housing Administration had $32.6 billion in liquid assets on hand at Dec. 31 — a slight increase from three months earlier — to cover potential losses on its $700 billion-plus book of business, according to new figures provided by the agency. Compared to the same period a year earlier, the FHA 'Reserve Fund' saw its cash and "investment" balances improve by 13%. However, FHA would not provide a capital ratio for the December 31 period, noting that the figure is "only calculated once a year, at the end of each fiscal year." In the fall, the reserve fund had a capital ratio of just 0.56%, well below the 2% minimum FHA prefers. Analysts fear that unless the insurance fund can quickly raise premiums, FHA might be overwhelmed by claim payments with the reserve fund going into the red. (For the full analysis see the Monday edition of National Mortgage News.)

The number of foreclosures on the market in the Las Vegas area fell in January for the eighth consecutive month, according to the latest figures from local RE/MAX broker Rob Jenson. Nevertheless, distressed sales — foreclosures plus short-sales — continued to account for roughly three out of every four deals closed in the Vegas-Henderson market in January. It was the fourth month in a row that 78% of all transactions were by troubled owners, give or take 1.5% either way. Twice as many short sales are currently being offered, but foreclosures outsell the "shorts," nearly three to one, according to the RE/MAX broker. Only 2,437 properties with price tags under $1 million sold in January, which was a 20% drop-off from December. The average sales price was $156,385. Nine properties sold for $1 million or more, one less than in the previous month.

More than 7.2 million mortgage loans are now behind on payments and one million properties are now in real estate-owned status, according to the January 2010 Mortgage Monitor report from Lender Processing Services in Jacksonville, Fla. Home delinquency rates have surpassed 10%. The total foreclosure inventory rate is 3.2%, and the total non-current rate, which combines foreclosures and delinquencies, sits at 13.3%. The percent of "new" serious delinquencies is 4.64%, higher than any other year analyzed for the same period. Of loans that were current as of Dec. 31, 2008, by Dec. 2009 there were 2.3 million new loans that were considered seriously delinquent. Prime loans, including agency, non-agency and jumbo, have experienced deterioration at a worse pace on a relative basis than subprime, FHA and all loans as a whole. Within the prime category, loans with current unpaid principal balances between $417,000 and $600,000 have performed the worse, LPS said. States with most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Illinois and Ohio. States with fewest non-current loans are North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

Residential Capital Corp. — which is on the auction block — posted a $4 billion loss in the fourth quarter after reclassifying some of its troubled mortgages and being forced to repurchase loans from Fannie Mae and Freddie Mac. A year ago, the GMAC-owned ResCap lost $790 million. GMAC is trying to unload several billion dollars in troubled loans held by ResCap and said in a statement Thursday that it continues to "explore strategic opportunities" for the unit. Loan repurchases by ResCap cost the company $573 million in the fourth quarter 2009. It also marked down the value of its mortgage servicing rights by $122 million. (According to the Quarterly Data Report, ResCap ranks fifth nationwide in terms of housing receivables with $380 billion.) There was some good news, though. The mortgage lender originated $18.1 billion in the quarter, more than double its fundings in the same period a year earlier. GMAC Financial Services is majority owned by the U.S. government, which has spent more than $15 billion to keep the company in operation through the credit crisis and recession. The parent company lost $5 billion in the fourth quarter ($4 billion of that amount tied to ResCap.)

DebtMarket of Los Angeles, which operates an online marketplace for trading whole loans, has officially named Stuart McFarland, a former Fannie Mae chief financial officer, as a top advisor to the firm. The company said Mr. McFarland will serve as a special advisor for capital and federal markets. The company also named Jim Jones and Bob Feller to its board. During his long career in mortgages, Mr. McFarland has worked for GE Capital Asset Management, and Pedestal, an early B2B online trading platform. Mr. Jones is a former CEO of GMAC's Residential Capital Corp. unit and Mr. Feller is a former CEO of Capmark Financial Group, a company that recently went through bankruptcy. Mr. McFarland first began working with DebtMarket late last year.

MetLife Bank posted strong operating earnings in the fourth quarter and full year, citing stellar results in its residential lending and servicing division. The bank, the nation's 11th largest funder of residential mortgages, had operating earnings of $65 million in the fourth quarter, a 400% increase from the same period a year earlier. For the full year, the Bridgewater, N.J.-based depository earned (on an operating basis) $298 million. In 2008 the unit had profits of $44 million. As reported by National Mortgage News recently, MetLife's mortgage division is exploring entering the warehouse and correspondent sectors.

Fannie Mae and Freddie Mac have $2 billion at stake in the Stuyvesant Town and Peter Cooper Village debacle in Manhattan — but their former regulator believes they won't be big losers. "They have the most senior piece and they are well positioned," said former Federal Housing Finance Agency director James Lockhart, speaking at the American Securitization Forum conference in Washington. The GSEs are investors in commercial mortgage-backed securities that were issued in 2006 when Tishman Speyer Properties and BlackRock Realty acquired the 11,000-unit apartment complex for $5.4 billion. (At the time of purchase, Mr. Lockhart was the FHFA chief and the GSEs were not wards of the government.) On Jan. 25, Tishman and BlackRock defaulted on $4.4 billion in loans, including $3 billion in senior mortgages. The properties are now valued at $2 billion. "Obviously, that was a bubble transaction. It will have to be unscrambled and it is going to be very messy," said Mr. Lockhart, who is now vice-chairman of WL Ross & Co., a New York vulture fund that specializes in distressed mortgage-related investments.