Servicing

Consumers extracted just $11 billion in equity from their homes using cash-out refinancing loans in the fourth quarter, the smallest such volume in nine years, according to new figures released by Freddie Mac. "It's not free money any more," said Amy Crew Cutts, the GSE's deputy chief economist. Ms. Cutts said declining home values and a lack of "no cost refis" for consumers have severely hammered the market. "Unless you have been in the house for a long time you may not have much to take out," she said. According to research done by Freddie, cash-out refis by consumers peaked in the second quarter of 2006 when $83.6 billion in equity was taken out of homes. Since then, the amount of money stripped out of homes using refis has fallen steadily. The GSE did find one encouraging trend: in Q4 roughly 33% of borrowers using Freddie Mac loans actually lowered the principal balance on their loans.

The Federal Housing Administration is expected to ask for Congressional approval to raise the annual insurance premium on its loans to at least 75 basis points and perhaps higher, according to industry officials interviewed by National Mortgage News. The exact figure will be released Monday when the President's 2011 budget is unveiled. Currently, the annual premium is capped at 55 basis points. The additional money raised would be used to bolster its reserve fund which is barely in the black. Some sources think increasing the premium to 100 basis points is a possibility but likely will not happen. "They have half-a-million in delinquencies," said one insurance executive, requesting anonymity. "They are absolutely going to hike it; it's just a matter of how much." FHA recently raised the upfront mortgage insurance premium (MIP) to 2.25%, a 50 basis point increase that becomes effective this spring. The budget document likely will include FHA's estimates on how much the premium hike will rise and a timeline for restoring the fund's capital ratio back to 2%. (At last check it was at 0.53%.) The Department of Housing and Urban Development budget also will have projections for FHA loan losses and claims in the current (2010) fiscal year and FY 2011. HUD wants Congress to enhance FHA's authority to seek indemnification from lenders for loans that go bad. Mortgage bankers are anxious about the proposal because it will increase their liability and risks of doing business with the FHA.

Freddie Mac purchased $44 billion in mortgages from its seller/servicers in December, a handsome 58% spike from November, according to new figures released by the company. For the full year, the government-controlled GSE bought $548 billion of loans from its customers, a 19% jump in acquisitions. Meanwhile, its total delinquencies climbed to 3.87% during the month, more than double the rate a year ago. Its retained portfolio fell to $755.3 billion at year-end, a 1% decline from the previous month. However, as the Federal Reserve begins to exit the GSE MBS market, Freddie and its sister company, Fannie Mae, could wind up buying more MBS for its balance sheet. Fannie is expected to release its monthly purchase numbers shortly. Both will report earnings in February but an exact date has not been released.

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.