Servicing

The supply of ready-to-occupy new houses has fallen to a point where the lack of inventory "could become a problem in certain markets and certain prices ranges," the chief economist for the National Association of Home Builders warned in Las Vegas at the group's annual convention. While there's still a six-month supply of houses sitting on builders' shelves, David Crowe said the actual number of new units that are finished and waiting for buyers is at the lowest level since 1971. That point was part of a rather upbeat forecast by the housing economist, who told the meeting that "we are starting to see some improvements" in the housing landscape. Mr. Crowe's annual outlook wasn't without some negatives, or, as he called it, "not so good news." But he pointed out that the recession is over, inflation is in check, mortgage rates will remain under 6% through the rest of the year, and house prices have "finally settled down" to a point where they are now at 3.28 times median income, which is roughly in line with long-term stability. At the height of the housing bubble, the price-to-income ratio had reached 4.7% nationally - and 9.2% in California. Noting that "conditions are ripe for people to come back into the market," Mr. Crowe predicted that it won't be long before buyers recognize that the bottom has been reached. He also said by the end the year, ten states - Mississippi, Alabama, Louisiana, Texas, Oklahoma, Nebraska, New Mexico, Wyoming, North Dakota and Montana - will be back at 100% or more of normal production. At the same time, though, 10 others - California, Nevada, Arizona, Florida, Michigan, Ohio, Illinois, Minnesota, Vermont and Maryland - will still be below 70% of normal.

There is a growing concern among financial service executives that the Federal Housing Administration is turning the screws too tightly through its new credit requirements. Bernie Glierberman, once one of Detroit's largest builders who has taken to remodeling abandoned houses to remain in business, said at the NAHB convention that without FHA-insured financing, there may be no buyers for the houses he is reclaiming in distressed neighborhoods. And if there are no buyers, Mr. Glieberman, a member of the NAHB's Finance Committee, warned, it could lead to even further abandonment. Former FHA Commissioner Brian Montgomery said he had similar concerns that the agency he headed during President Bush's second term "may not be able to help those who need a life-line." While cautioning that he does not want to knock the efforts of his successor, David Stevens, or HUD Sec. Shaun Donovan — "They have to do what OMB says in order to protect the value of the FHA portfolio," he said — Mr. Montgomery told an NAHB subcommittee that he would be lowering FICO score requirements and insurance premiums rather than raising them. "In the middle of a housing crisis," he told National Mortgage News, "a rescue agency should be expanding capacity, especially for high-risk borrowers who need to refinance or lose their homes." Between Oct. 1 and Dec. 31, according to the agency, just 23% of all FHA loans have gone to minorities. "I've never seen it that low," Mr. Montgomery remarked. By contrast, between Oct. 2007 and January 2008, 29% of FHA originations were to minorities. A year later, that figure had fallen to 26%.

Citigroup marked up the asset value of its residential mortgage servicing rights by 15% in the fourth quarter to $6.5 billion, even though the dollar volume of its portfolio of housing receivables is declining. The mark-up in MSR value is mentioned in a new SEC filing accompanying its fourth quarter results, which were released Tuesday morning. The bank's CitiMortgage affiliate services roughly $740 billion in home mortgages compared to $809 billion at year-end 2008. (At Dec. 31, 2008 it valued its residential MSRs at $5.66 billion.) The mega-bank — which is experiencing major declines in residential production — reported total company-wide credit losses of $7.1 billion in the fourth quarter. It took a $2.1 billion net credit loss on its $177.2 billion North American residential loan portfolio, a 7% drop from the previous quarter. Citi said the decline reflected lower losses on second mortgages and an increase of distressed borrowers that have been placed in payment trials for a possible loan modification. "Increasing volumes of trial modifications under the Home Affordable Modification Program contributed to the sequential decline in losses; the loan loss reserve was increased to offset this impact," Citi said in a summary of its quarterly earnings. Overall, 8.3% of its U.S. residential portfolio is 90 days or more past due, an increase of 114 basis points from the third quarter.

Bank of America expects to release about 6,000 foreclosed properties into the Nevada housing market in 2010, or about 500 a month, according to a report in the The Las Vegas Review-Journal. The homes are part of a "phantom inventory" of foreclosed units being held by banks as they work through loan modifications and negotiate short sales. Throughout the country, estimates of homes being taken back by Bank of America range from 11,000 to 14,000 a month in the early part of this year to 29,000 to 35,000 by November and December, said John Ciresi, vice president and portfolio manager for Bank of America in Towson, Md. The system became clogged by a voluntary moratorium on foreclosures while banks met the requirements of the Making Home Affordable program and by state rules requiring mediation before banks can start the foreclosure process, Mr. Ciresi said at a panel discussion sponsored by the Nevada chapter of the National Association of Hispanic Real Estate Professionals.

The Federal Housing Administration is temporarily lifting an "anti-flipping" rule, allowing borrowers using government-insured loans to be more competitive in bidding on foreclosed properties recently purchased from banks and even the government. The Department of Housing and Urban Development's anti-flipping policy prohibits FHA financing on purchase transactions where the seller has owned the property for only 90 days. HUD found this policy blocked potential FHA borrowers from taking advantage of quick resales of real estate owned. REO sellers, generally, are unwilling to go with FHA borrowers because of holding costs and vandalism risk during the 90-day holding period. FHA is lifting the 90-day rule for one year starting February 1. FHA borrowers have "often been shut out from buying affordable properties," said FHA commissioner David Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity." FHA has been burned by property flipping scandals before. This time around it insists that all sales must be arms-length transactions with no evidence of flipping in the previous 12 months. If the resale price is 20% higher than the REO sales price, the lender has to provide supporting documentation and a second appraisal in some cases.

The Treasury Department's push for residential servicers to complete more HAMP loan modifications appears to be working as the number of permanent restructurings soared during December and now stands at 66,000 units. The Obama administration launched the Home Affordable Modification Program last spring but only 31,382 modifications had been completed by the end of November. But In December, another 35,043 HAMP modifications were completed. Treasury assistant secretary Michael Barr acknowledged this acceleration in modifications as well as the status of another 46,000 borrowers who are close to signing the final documents for a HAMP modification. But Mr. Barr said the conversion rate of borrowers going from the three-month payment trials to a permanent modification is still "disappointing." He wants some servicers to "pick up the pace." Last month, Treasury officials began ratcheting up the pressure by monitoring HAMP servicers' modification conversion rates on a daily basis. They also initiated a consumer outreach effort to get borrowers in HAMP trials to submit the documents needed to complete a modification.

Jaymes Financial of Virginia said it is no longer involved in brokering the sale of a $61 million portfolio of nonperforming loans in the Florida market. The offering was reported on the NMN website earlier in the week.

Moody's Investors Service says hundreds of billions of dollars of Alternative-A residential mortgage-backed securities from 2005-2007 could face another wave of downgrades in the second half of this year. The ratings on 10,330 tranches of RMBS with a current balance of $330.1 billion and an original balance of $572.7 billion are being reviewed to see if they need to be downgraded due to revised loss projections, Moody's said. The rating agency now projects 2007 securitizations in this category will see cumulative losses of 35%, 2006 bonds of this type will experience losses of 29% and 2005 alt-A RMBS will see losses of 14%. The outlook for these bonds is considered worse due to deterioration seen in their performance to date as well as "macroeconomic conditions that remain under duress," Moody's said. While there have been signs of eventual recovery, the rating agency's Economy.com unit said the drop in home prices and employment is expected to persist and not peak until the second half of this year, after which there could be a slow rebound.

Morgan Stanley said John Klopp is joining the company as head of Americas real estate investing and global real estate debt, investing effective February 1. Mr. Klopp is a 30-year veteran of the real estate industry, recently serving as CEO of the investment management and real estate finance firm he co-founded, Capital Trust. During his career he was also a founder and managing partner of private merchant banking boutique Victor Capital Group, a specialist in workouts and distressed debt.

There were 2,180 active short sales on the market last week in Orange County, Calif., a 1% increase from two weeks earlier, according to figures compiled by Altera Real Estate of Aliso Viego. The company noted that there were 7,000 short sales that are "either active listings on the market, pending sales, or are currently on 'Hold' in Orange County." ARE's numbers were first reported by The Orange County Register. The county was once home to several subprime lenders, including Ameriquest Mortgage and New Century Financial. In a short sale, a consumer sells a home for less than the outstanding mortgage on the property. But the mortgage owners must approve the sale. According to the OCR, not all short sales listed actually get approved.