Servicing

Orange County prosecutors arrested two Ladera Ranch men - and issued a warrant for a third - accusing them of defrauding more than 400 homeowners in an alleged $1.25 million loan modification scam, according to a report in The Orange County Register. Christopher Lee Diener, 42, Terrence Green Sr. 43, and Stefano Joseph Marrero, 40, are each charged with a felony count of conspiracy and 97 felony grand theft counts, according to the Orange County District Attorney's office. Messrs. Diener and Green were taken into custody and are each being held on $1.5 million bail. They will be arraigned by midweek, at the latest. The business partners are accused of getting upfront fees from homeowners, and falsely promising they can get them loans with cheaper payments in less than 90 days and offering a 100 percent money-back guarantee, prosecutors said.

Farmer Mac raised $250 million in additional capital in a private offering of shares of non-cumulative perpetual preferred stock of Farmer Mac II LLC, a Delaware limited liability company in which it owns all of the common equity. Farmer Mac II LLC is now operating the Farmer Mac II business that has operated since 1992 purchasing and holding U.S. Department of Agriculture-guaranteed loans. Farmer Mac is using the proceeds from the sale to repurchase and retire $150 million of Farmer Mac's currently outstanding Series B preferred stock and to further enhance its regulatory capital position. Farmer Mac's president and chief executive Michael Gerber said, "Today's transaction further strengthens Farmer Mac's financial position in support of our core business. It provides Farmer Mac with additional capital at a significantly lower cost."

MGIC Investment Corp., the largest mortgage insurer in the nation, lost $280 million in the fourth quarter, its tenth straight quarterly loss. In the same period a year earlier, the Milwaukee-based firm lost slightly less, $275.6 million. At Dec. 31, the percentage of loans it guarantees that were delinquent, excluding bulk loans, was 15.46% compared with 9.51% a year ago. Curt S. Culver, chairman and chief executive, said in a statement that the weak economy, higher levels of unemployment and lower home prices have led to an increase in the delinquent inventory and elevated incurred losses. But there was some good news: MGIC has seen a sequential decline in the number of new notices received and its book of business written since implementing tighter underwriting guidelines in 2008 has improved the credit risk profile of its insurance-in-force. Total revenue fell 1% to $405.5 million in the quarter, but beat analysts' view of $393.8 million. Despite the bad news, its stock was up as much as 14% on Tuesday.

Flagstar Bancorp, Troy, Mich., is selling a $10 billion package of residential bulk servicing rights, according to investment banking sources. The offering could hit the market as early as Tuesday afternoon. A company spokesman declined to comment. The thrift, which raised fresh capital last year, is also one of the nation's top wholesale lenders, according to figures compiled by National Mortgage News and the Quarterly Data Report. If the servicing sale is successful it would help the lender raise cash. Besides the Flagstar offering, two other large bulk deals are on the market: a roughly $20 billion package of rights from AmTrust Bancorp, Cleveland, and $11 billion from Thornburg Mortgage of Santa Fe. AmTrust's servicing is controlled by the FDIC. Thornburg is in bankruptcy.

Prestwick Mortgage Group is auctioning off a $228 million portfolio of bulk Government National Mortgage Association servicing rights for an undisclosed seller. Prestwick would not disclose details but the client is believed to be a nonbank. The delinquency rate on the portfolio is 3.97%, including foreclosures. The bid deadline is February 4. Prestwick is based in Alexandria, Va. Over the past quarter, the value of servicing rights has increased somewhat thanks to rising mortgage rates.

The outlook for the performance of residential mortgage-backed securities and asset-backed securities in Europe, the Middle East and Africa is negative for 2010, according to a recent Moody's Investors Service report. "Rating migrations are still expected, especially on the 492 tranches currently on review for downgrade and which include significant exposures to Spanish and U.K. nonconforming RMBS," said Mehdi Ababou, a Moody's vice president-senior analyst. The report, which reviews the past year as well as a forecast for the current one, notes that in 2009 the number of RMBS and ABS downgrades jumped to 741 compared to 408 in 2008. In 2009, "over two-thirds of the downgrades for RMBS were in Spain and the U.K. nonconforming sectors," said Mr. Ababou.

On average, it takes more than six months to complete a loan modification, which is "unacceptable," according to the State Foreclosure Prevention Working Group. The group, which includes state attorney generals and banking lawyers, notes in its fourth-quarter report that servicers have steadily increased the number of employees dedicated to loss mitigation. The report says that, on average, one full-time employee is handling 133 modification cases, down from 246 cases back in June. "However, the increase in loss mitigation staff has not prevented an increase in the backlog of loss mitigation resolutions," the January report says. State officials point out that the ratio of modifications "in process" to completed modifications has "ballooned" from 3-to-1 in October 2008 to 7-to-1 in October 2009. The working group is concerned that 72% of completed modifications result in an increase in the principal amount of the mortgage. "Servicers routinely capitalize delinquent interest, corporate advances, escrow advances and attorney fees and other foreclosure-related fees and expenses into the loan balance when completing a loan modification," the report says. With so many underwater mortgages, increasing the loan balance "only adds to the likelihood of ultimate default."

As the Obama Administration wrestles with ways to help unemployed and underwater homeowners, the Federal Housing Administration is going back to see what it can do to kick start the Hope for Homeowners program. "The Hope for Homeowners could help underwater borrowers," FHA commissioner recently told reporters. The H4H program has gone through several makeovers since Congress first created the special refinancing program in 2008, but it has never lived up to its promise. FHA lenders made only 22 H4H loans in fiscal year 2009, which ended September 30. In the fourth quarter of this calendar year, 23 H4H loans have been approved. The H4H program depends on mortgage investors writing down the principal amount of the loan to a 96.5% loan-to-value ratio and taking a hit. The only benefit for investors is the existing loan is refinanced into a new FHA-insured loan and they are protected from further losses. FHA made some changes to the H4H program last year. "We are now assessing how well that is going to work and what we need to do differently," Mr. Stevens said.

BlackBox Logic LLC, founded in 2007, said that after years of designing and testing work, it is now offering to the broader market a comprehensive database of loan-level collateral underlying nonagency residential MBS. The company, which is majority owned by a private equity affiliate of the Denver-based Braddock Financial Corp., said it has available a trademarked loan-level data aggregation service called BBxData that covers jumbo-A, subprime and alternative-A credit mortgage markets. This includes more than 7,200 RMBS, 21 million loans and almost 600 million remittance records dating back to 1999. The company is aiming to provide monthly full-set data faster than other providers and to also differentiate itself by allowing users to purchase only the data they need rather than the full 21-million loan dataset. The company's top brass includes three former Fannie Mae executives. Chief executive Larry Barnett was once Fannie's vice president for secondary mortgage trading operations, chief technology officer William Pugh was at one time responsible for all technology development and loan processing systems at Fannie, and lead data modeler Marty Schwartz once managed mortgage loan processing systems for Fannie, including its liquidation and recourse system.

Online home auction company RealtyBid.com, Rainbow City, Ala., is offering close to 1,000 real estate owned properties to investors and homebuyers around the country during January. Hundreds of properties have been added to the home auction website, many from the states of Missouri, Ohio, Utah and Wisconsin. RealtyBid.com chief executive and president Tony Isbell said despite government moratoriums on foreclosures in 2009 that kept the number of REO properties available to buyers flat during the second half of the year, RealtyBid.com continued to break sales records last year. "In 2010, we have already seen increased activity, and we are expecting that trend to continue. We do not expect a tidal wave of properties but a continued increase in inventory as loan modification programs fall well short of expectations." Mr. Isbell said he expects lenders will free up more of their post-foreclosure inventory through the online bidding system.