Servicing

The nation's credit union regulator has ruled that a federal CU may provide residential mortgage loan processing and servicing services to other institutions under a third-party contract. The legal opinion by the National Credit Union Administration is significant because federal credit unions are generally limited in the kinds of activities they can engage in because of the potential threat it may pose to their federal tax exemption. Many credit unions use third-party subservicing companies to process their loans on a monthly basis. Under a proposal approved by NCUA, a larger credit union is planning to service and process mortgages for a number of smaller credit unions which would fund and close the loans to their members, according to a report in Credit Union Journal. After the loan closing, the larger credit union would purchase the loan from the smaller credit union and sell it to Freddie Mac with the larger credit union retaining the servicing rights. "We conclude this would be permissible as a correspondent service and note, as required for all incidental powers activities, (federally chartered credit unions) must comply with any applicable NCUA regulations, policies, and legal opinions, as well as state and federal law applicable to the activity," NCUA said in its opinion. The opinion was provided to the Washington law firm Venable LLP, which is representing the larger credit union in the case.

Astoria Financial of New York posted a small profit in the fourth quarter as its nonperforming residential loans crept up slightly to $330 million at yearend. The Lake Success-based thrift — a player in both residential and multifamily funding — earned $8.1 million in the quarter, compared to a profit of $29.4 million in the fourth quarter of 2008. Astoria had net-charge offs of $32.6 million, of which $22.8 million was tied to one- to four-family loans, and $9.2 million for multifamily. Astoria chief executive George Engelke said he is encouraged "by the stabilizing trends we are seeing in non-performing loans, which if sustained, will have a positive impact on future credit costs and earnings." Astoria ranks 30th nationwide among all residential lenders, according to figures compiled by National Mortgage News.

Flagstar Bancorp Inc., Troy, Mich., has raised $300 million of capital through a previously announced rights offering, which closes on Feb. 8, 2010. The company's controlling stockholder, MP Thrift Investments LP, is purchasing an additional nearly 423 million shares of Flagstar common stock. That works out to a price of $0.71 per share. Flagstar was trading at $0.65 per share the morning of Jan. 28. In addition, Flagstar has entered into agreements with the Office of Thrift Supervision to address certain banking issues. Among other items, the agreements require the company to within 90 days, adopt specific timeframes for the remediation of certain issues related to mortgage servicing rights. It also within 30 days, must revise the asset concentration policy to establish the existing concentration limit for MSRs at a level consistent with the business plan. Todd McGowan joins Flagstar as its chief risk officer after 22 years at Deloitte Touche, where he last served as its regional quality risk management partner and advised companies in areas including enterprise risk management, business process controls, and Sarbanes-Oxley compliance.

Old Republic International Corp., Chicago, lost $99 million for the full year 2009, a loss that would have been nearly $50 million greater except for the restatement of its third quarter results earlier this week. That restatement was done to conform to GAAP requirements on certain mortgage reinsurance contract terminations. ORI noted that substantially all of the premiums being recognized as income now will be likely absorbed by loss costs related to future years' risk exposures. In the fourth quarter, ORI lost $36.7 million. Its mortgage guaranty insurance business has a pretax operating loss of $126 million for the quarter and $486 million for the year. However, its title insurance business made $1.5 million for the quarter and $2.1million in 2009 on a pre-tax basis. The company also reported the fair value of its investments in competitors MGIC and PMI went from $82.7 million at the end of 2008 to $130.7 million at the end of last year. New insurance written by Republic Mortgage Insurance Co. was just $7.9 million for 2009, compared with $20.8 million in 2008 and a peak of $31.8 million in 2007. However, the title insurance business reported 358,935 direct orders opened in 2009, up from 257,743 in 2008.

Fitch Ratings, New York, is maintaining its negative outlook for the private mortgage insurance business in 2010. It expects a high number of prime credit mortgage delinquencies, coupled with home prices unlikely to rebound any time soon, which will lead to elevated default and loss rates for the industry. The MIs have been benefiting from rescissions but Fitch does not expect that to continue, as prime loans will form a greater percentage of overall delinquencies. The longer term outlook for the mortgage insurance business is uncertain as it is likely to be tied to the ultimate future form of Fannie Mae and Freddie Mac and whether the secondary market will continue to have a need for private mortgage insurance. "The importance of housing to the U.S. economy, however, suggests a future that includes a role for private capital in the mitigation of mortgage losses to the GSEs. While 2008 and 2009 saw an increasing use of FHA-insured loans, the FHA has been insuring much of the business that no longer qualified under tightened private MI guidelines. However, the FHA has recently fallen below its mandated minimum capital level and its ability to provide additional insurance at historically high levels may be limited," the report from Fitch said.

As a result of the devastation in Haiti, Pro Teck Valuation Services said it has made a $10,000 contribution to the American Red Cross International Response Fund specifically for Haiti relief. The Waltham, Mass.-based company said it hopes that employees, clients, vendor and others in the industry will also help. The Port-Au-Prince area of Haiti was badly damaged by a Jan. 12 earthquake.

Outstanding foreclosure auction notices for Orange County, Calif., homes hit 10,513 at the end of December, the highest on record, according to ForeclosureRadar.com. According to a report in The Orange County Register, the total has more than doubled in the nine months since March, when it was 4,573. Located in southern California, Orange County is one of the hardest hit real estate markets in the state. ForeclosureRadar tracks outstanding notices of trustee sales where a home (or condo) will be sold at auction. Such notices are usually good for only one year. Sean O'Toole, head of ForeclosureRadar, told the newspaper that although foreclosure filings overall decreased at the end of 2009, the backlog of delinquent loans keeps growing. He noted that only a portion of borrowers are getting loan modifications enabling them to avoid foreclosure.

Interactive Mortgage Advisors is telling investors they can bid on all, or part, of a $10 billion package of bulk servicing rights that it is selling on behalf of an undisclosed firm. The receivables are tied to mortgages controlled by Fannie Mae. The Denver-based IMA would not comment on the identity of the seller. (On Tuesday National Mortgage News reported that Flagstar Bancorp, Troy, Mich., is selling a $10 billion package of residential bulk servicing rights but the thrift would not comment.) IMA has set a Feb. 4 bid deadline on the package. In a statement the brokerage said, "Prospective purchasers will actually have the option of bidding smaller portions of $2 billion and $8 billion or the entire $10 billion." IMA is also selling an $11 billion package of jumbo servicing rights on behalf of Thornburg Mortgage of Santa Fe. That sale must first be approved by a bankruptcy trustee. Meanwhile, Milestone Merchant Partners is marketing a $20 billion package of rights that once belonged to the now-defunct AmTrust Bancorp, Cleveland.

Fannie Mae recently completed a bulk sale of 260 homes with 10 different investors acquiring the properties, which were classified as real estate owned. "This was the worst of the worst," said one investor, requesting anonymity. The sale of the lots are in the process of closing, said the investor. National Mortgage News first reported on the auction this past fall. No price was disclosed. Sources close to the auction confirmed the sale results. Moreover, the GSE is contemplating a larger bulk sale in coming months. A company spokeswoman declined to comment but stressed that Fannie's preference is to sell its REO inventory to owner occupants and not investors. At the end of September Fannie had an REO inventory of 72,275 homes.

The Obama Administration is finally making headway in its effort to get Bank of America and other large servicers to modify second liens when they modify first mortgages. Bank of America said it is the first to sign an agreement with the Treasury Department to participate in a second lien modification program (2MP), which will become a component of the government's Home Affordable Modification Program. Treasury is expected to issue guidelines for 2MP shortly. "For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment of the second lien may not produce an affordable combined mortgage payment," said Barbara Desoer, president of Bank of America Home Loans. The 2MP program is designed to address cases where the bank services the first mortgage and owns the second lien. Since last summer Treasury has been working with BoA and several large banks on a second lien modification initiative. Four banks with $441 billion in second liens also service 55% of all first mortgages, according to some estimates.