Servicing

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.

As the number of distressed hotel assets continues to rise — many with foreclosure eminent — an increasing number of hotel lenders will be transitioning to a more active ownership role, according to one management firm. Capital Hotel Management in Beverly, Mass., said it expects to see an exponential leap in demand for hotel asset management services from lenders as they look for qualified hotel receivers. "The lending community has reached the stage where they no longer can delay foreclosure issues," said Chad Crandell, president of CHM. "We certainly will see more foreclosures in 2010 than any year since the RTC days of the early '90s." The current lack of available financing, coupled with a continued decline in performance projected for at least the first half of 2010, could likely push the transaction window well into 2011 or 2012, according to the company. The company said the pressing decision for lenders will be to sell short or commit to a potentially longer hold period. In either case, special servicers and lending groups will need hotel-specific experts, the firm believes.

Federal Housing Administration is giving its mortgage servicers more latitude to assist borrowers who are running into financial problems but have not yet missed a payment. Under a new policy, servicers can offer these borrowers forbearance or even a reduction in principal under the FHA-HAMP program. Previously, the servicers could not consider these options until homeowners with a FHA-insured loan had missed several monthly payments. "Now servicers will have additional options for those borrowers who seek help before they go delinquent, which increases the likelihood that the borrower will be able to retain their home," FHA commissioner David Stevens said. The FHA-HAMP program allows servicers to reduce the principal amount of a FHA-insured mortgage by up to 30%.

All banks and thrifts are having problems with commercial real estate loans, not just small community banks, according to FDIC chairman Sheila Bair. "Despite what you may be hearing, CRE credit problems are affecting big and small banks alike," the Federal Deposit Insurance Corp. chairman said in a prepared speech delivered at a Commercial Mortgage Securities Association conference in Washington, D.C. As of Sept. 30, FDIC-insured institutions held $1.3 trillion CRE and multifamily mortgages — nearly 18% of total loans. And $44.8 billion are classified as noncurrent (90-days or more past due or considered uncollectible). Banks and thrifts hold another $500 million in construction and development loans and 15% of these are noncurrent. "The annualized net charge-off rate of 6% on C&D loans in the third quarter significantly exceeds the highest rate of the last crisis, which was about 4%," Ms. Bair said. FDIC expects delinquencies and charge-offs will move higher in the coming quarters.

Mortgage banking income at U.S. Bancorp, Minneapolis, increased by $195 million in the fourth quarter 2009 over the same period one-year prior, driven by mortgage loan production volume of $11.1 billion. For the full year, the company had mortgage loan production volume of $55.6 billion. The company reported fourth quarter 2009 mortgage banking revenue of $218 million, down from $276 million in the third quarter but up from just $23 million in the fourth quarter 2008. For the full year, mortgage banking income was over $1 billion, compared with $270 million for all of 2008. The fourth quarter year-over-year increase is due, U.S. Bancorp said, to the lower interest rate environment. This led to strong mortgage loan production and related production gains. In addition, the net change in the valuation of mortgage servicing rights and related economic hedging activities was favorable and servicing income increased compared with the same period in 2008. Residential mortgage loan net charge-offs were $153 million in the fourth quarter of 2009, an increase over $129 million in the third quarter of 2009 and $84 million in the fourth quarter of 2008. Commercial and commercial real estate loan net charge-offs increased to $457 million in the fourth quarter of 2009, compared with $433 million in the third quarter of 2009 and $216 million in the fourth quarter of 2008.

For the fourth quarter of 2009, nonperforming assets decreased from the prior quarter by $289 million for KeyCorp in Cleveland, Ohio, for the first time since the fourth quarter of 2006. Most of the reduction came from nonperforming loans held for sale and a decrease in nonaccrual loans in the commercial portfolio, resulting from the charge-off of two large commercial real estate related relationships in the real estate capital and corporate banking services line of business within the national banking group. As a result of increased loan losses, write-downs of commercial real estate related investments, the provision for losses on lending-related commitments and costs associated with other real estate owned, at the end of the quarter, allowance for loan losses was $2.5 billion up from $1.6 billion one year ago. For the full year, Key had a net loss from continuing operations of $1.581 billion compared to a net loss of $1.337 billion for 2008. CEO Henry L. Meyer III said during the fourth quarter the company saw improvement in its credit metrics, including decreases in delinquencies, nonperforming loans and nonperforming assets. "Our allowance for loan losses stood at 4.31% of total loans and 116% of nonperforming loans at December 31." At Dec. 31, 2009, nonperforming loans totaled $2.2 billion. Nonperforming assets totaled $2.5 billion and represented 4.25% of portfolio loans, OREO and other nonperforming assets, compared to 4.46% at September 30, 2009, and 2.00% at December 31, 2008.

The residential mortgage banking segment at PNC Financial Services Group, Pittsburgh, recorded earnings of $25 million for the fourth quarter and $435 million for the full year 2009. Income for the third quarter was $91 million; the quarter-to-quarter decline is due to lower loan sales revenue, reduced net hedging revenue on its mortgage servicing rights, lower servicing fees and lower net interest income. Loan volume in the fourth quarter was $2.3 billion, down from $3.6 billion in the third quarter. The mortgage servicing portfolio was $145 billion as of Dec. 31, 2009, compared with $158 billion at the end of the third quarter. PNC said during the fourth quarter, it sold $7.9 billion of mortgage servicing rights; in addition, run-off slightly outpaced new loan origination volume. Overall PNC earned $1.1 billion in the fourth quarter and $2.4 billion for the full year. The company reemphasized the residential mortgage origination business following its acquisition of National City Corp. at the end of 2008.

Fitch Ratings on Thursday upgraded the short- and long-term issuer default ratings on GMAC Inc., in the wake of the Treasury Department recently pumping $3.8 billion into the struggling company. GMAC is the parent of Residential Capital Corp., the nation's fourth largest servicer of home mortgages. Fitch upgraded both ratings to 'B,' noting that GMAC "has addressed the capital shortfall identified through the Supervisory Capital Assessment Program." Treasury is now a 56% shareholder in GMAC, which has been contemplating selling ResCap, or some of its assets. Fitch said the new capital from Treasury provides "further cushion and flexibility to address the mortgage business in an orderly manner." Fitch anticipates that GMAC will remain above the 15% total risk-based capital requirement, even factoring in the adoption of FAS 166 and 167, which require consolidation of off-balance sheet vehicles. Concurrent with the capital actions, GMAC took large write-downs on mortgage-related assets, classifying some as held-for-sale. Fitch believes future volatility emanating from GMAC's residential mortgage business will be significantly lower, particularly given the continued contraction of mortgage loans at the company — $28 billion at Sept. 30.