Servicing

Flagstar Bancorp, one of the nation's top ranked wholesaler funders, reported a fourth quarter loss of $71.6 million, an improved showing over the prior quarter and the same period last year. Meanwhile, the Michigan-based lender originated $6.9 billion of home mortgages in the fourth quarter, a 28% increase in fundings from Q4 2008. For the full year, originations rose 15% to $32.4 billion. Even though its quarterly earnings improved, it lost $514 million for the full year, compared to a $275 million loss the prior year. At yearend Flagstar serviced $56.5 billion in loans. (It is currently shopping around a $10 billion package of receivables.) At year end it held $659 million of non-performing residential mortgage loans, a 51% increase from 2008. It also owns $338 in nonperforming commercial mortgages, a 67% spike from 2008.

The Comptroller of the Currency believes that in light of newly proposed accounting rules regarding "sale treatment," the congressional push to impose risk retention or "skin in the game" requirements on MBS issuers will only hamper a recovery in the private label market. Speaking at a American Securities Forum conference, OCC chief John Dugan called risk retention an "imprecise and indirect" way to improve the underwriting quality of residential mortgages. As an alternative, he thinks federal regulators should set minimum mortgage underwriting standards including requirements for verification of income, and minimum downpayments. These minimum standards would insure that newly funded mortgages are financially sound, likely to be repaid, allaying fears that an asset bubble is being created. Mr. Dugan thinks these attributes will attract investors to the securitization process. He supports risk retention but new accounting proposals prevent securitizers from achieving sale treatment on mortgage backed securities if they retain 5% of that risk. The language is part of a House-passed bill and appears in a recent proposal issued by the Federal Deposit Insurance Corp. "I do think...that minimum underwriting should be strongly considered as an alternative to rigid 'skin in the game' requirements," Mr. Dugan told conference attendees.

Refinancings at Fannie Mae and Freddie Mac surged 37% in the month of December to the highest level since August, according to the GSE regulator. The government sponsored enterprises purchased nearly 297,000 refinanced loans from lenders in December, up from 217,100 in November. "Total refinance volume rose in December in response to a gradual June to November decline in rates," the Federal Housing Finance Agency said in a report. December's surge includes refinancings of 33,347 borrowers with Fannie and Freddie loans under a special program for homeowners with loan-to-value ratios between 80% and 105%. Launched April 1, the Home Affordable Refinancing Program has helped 188,250 difficult-to-refinance homeowners take advantage of historically low mortgage rates in 2009 and lower their monthly payments. HARP does not require the purchase mortgage insurance. On October 1, FHFA expanded HARP to refinance underwater borrowers with LTVs greater that 105% and up to 125%. During the fourth quarter, the GSEs refinanced 1,900 of these higher LTV loans, including 1,100 in December.

In a pilot effort "to convince discouraged delinquent [Freddie] borrowers to pursue mortgage workouts," Freddie Mac has joined forces with 13 national and local nonprofits to assist them to avoid foreclosure. Freddie Mac's Borrower Help Centers in Chicago, Phoenix, San Bernardino and Washington will offer free, one-on-one "holistic" counseling to delinquent homeowners. In addition, Freddie has launched a national phone-based counseling Borrower Help Network. Freddie's "holistic" counseling assistance includes a review and feedback on mortgage issues, assessment of debt and credit profiles, and a borrower's ability to stay current after receiving a modification. The effort is based on the belief that fear and frustration are keeping thousands of eligible borrowers from getting help and receiving a loan modification, said Freddie Mac chief executive Ed Haldeman. Participating nonprofits can make a difference, he said since they are "trusted and valued sources in their communities." Freddie also quoted NeighborWorks data showing that compared to other borrowers, those who already are in some stage of foreclosure are 60% more likely to keep their homes, as an additional reason behind the initiative.

Purchasers who intend to be owner-occupants of Fannie Mae-owned homes will receive 3.5% in closing costs or an equivalent amount in home appliances for properties listed on HomePath.com. The offer expires on May 1, 2010. The effort aims to attract to the market more qualified buyers and reduce its real estate owned inventory, Fannie Mae executives said. Therefore it is offering an additional incentive to the homebuyer federal tax credit for first-time buyers and other affordable financing options. For example HomePath Mortgage and HomePath Renovation Mortgage listings also provide a 3% down payment alternative to qualified borrowers.

The Obama administration wants servicers to start verifying borrowers' income and eligibility for the Home Affordable Modification program upfront before they start the three-month payment trial. Under the new guidance from Treasury and the Department of Housing and Urban Development, HAMP servicers are expected to a use a "simple, standard package of documents" including pay stubs, to qualify borrowers starting June 1 or sooner. This update "should enable servicers to transition borrowers more quickly and easily from trial to permanent modification," said HUD senior advisor William Apgar. In jump-starting the HAMP program last spring, servicers were allowed to place borrowers into trial modifications without checking their income. This rush has resulted in a low rate of conversions to permanent modifications. Some servicers, including CitiMortgage, have already started verifying income up front. "We believe this will limit the number of borrowers who ultimately fall out of the trials," said a Citi official.

Fitch Ratings has downgraded 1,186 bonds in 871 residential mortgage-backed securities transactions that have experienced principal writedowns. Fitch said it had issued ratings in the case of all the downgraded bonds that indicated defaults were expected. Subprime credit collateral backed 290 of the downgraded, 286 were backed by prime credit collateral, 275 were backed by alternative-A credit collateral, and the 20 remaining were other unspecified types of transactions.

Fannie Mae bought $71.86 billion of loans from its seller/servicers during December, a 67% spike from the previous month. Compared to December 2008, purchases were up 50%. Even though Fannie had a good month in terms of new business acquisitions, its serious delinquency rate on single-family loans hit a new high: 5.29% in November, more than double the rate in the same period a year earlier. The figure includes all late payments that are 30 days or more past due. Late payments on its multifamily loans rose to 0.66% from 0.25% in November 2008. Fannie's late payments lag by one month behind disclosure of its acquisitions and other data points.

Genworth Financial's U.S mortgage insurance unit reported a net operating loss of $74 million for the fourth quarter, a considerable improvement from the same period a year ago. The Richmond, Va.-based company attributed two thirds of its fourth quarter losses to its GSE alt-A business, which soon will be mitigated by a reduction in its coverage on those high-risk loans. Genworth executed an agreement effective Jan. 1, 2010 that will result in the cancellation of approximately 80% of the GSE alt-A bulk risk-in-force. The agreement resulted in a total claim payment of approximately $182 million in January 2010 which was already fully reserved. This will reduce the GSE Alt-A bulk RIF from $295 million to approximately $65 million in the first quarter of 2010. Flow delinquencies totaled approximately 107,500, up from approximately 100,200 and 87,600 in the third and second quarters of 2009, respectively, reflecting seasonal increases and a decline in cured delinquencies. Loss mitigation activities, including workouts, presales and policy rescissions, resulted in $290 million of savings in the quarter, bringing total 2009 savings to $847 million. This included approximately $35 million in savings from delinquent loans that were modified through HAMP. Based upon reporting from the GSEs and certain servicers, Genworth estimates that there are approximately 22,200 delinquent loans that are currently pending within HAMP, nearly double the number at the end of the third quarter 2009. In Q4 2008 Genworth's MI business lost $114 million.

Richard Shelby, the ranking Republican on the Senate Banking Committee, believes Fannie Mae and Freddie Mac eventually should be spun off by the government and privatized. However, he warned that doing so will take a lot time and money. The "GSEs are in our lap," the Alabama lawmaker told American Banker. "You know, we own them. I would like to see them cleared up and spun off, whatever, see if anybody wants them. It's going to take a lot of money. There's a lot of guarantee out there. It's not implicit; it's explicit." When asked if he was saying he wants to privatize the GSEs, Shelby confirmed he does. "That's what I'd like to see done with them, because if you create a hybrid deal like this it's never worked." The Obama administration is expected to unveil its proposal for the GSEs in its 2011 budget, which is due Monday. Today, Fannie and Freddie in their role as secondary market investors, account for almost 70% of all residential originations.