Servicing

A U.S. district court judge has ruled in favor of Wells Fargo Bank NA and dismissed a lawsuit by the City of Baltimore seeking reimbursement for expenses and loss of revenues due to foreclosures and vacant homes. The city alleged that Wells Fargo targeted minority neighborhoods with subprime loans, which lead to foreclosures and deterioration of inner city neighborhoods. Judge Frederick Motz noted in his opinion that the bank is responsible for only a "negligible portion" the city's vacant properties and other factors such as high unemployment, drug use and violence also are factors. The city's allegations of a "casual connection between Wells Fargo's alleged misconduct and the damages the city claims is not plausible," the judge ruled. The opinion says the number of vacant homes in Baltimore range from 16,000 to 33,000 and the city has identified only 401 vacant properties involving Wells Fargo loans. "From the beginning, we have consistently maintained that Baltimore's economic problems could not be attributed to the small number of foreclosures Wells Fargo has done in Baltimore," said Cara Heiden, co-president of Wells Fargo Home Mortgage. "We are pleased the court's decision rejects the city's claim and reflects this point of view." Judge Motz has opened the door for the city to file an amended complaint that seeks damages for "specific houses that became vacant allegedly because of Wells Fargo's lending activities." No comment from the city was available at press time.

Suffolk Federal Credit Union of Long Island, one of the biggest victims in the U.S. Mortgage/CU National Mortgage fraud case, has filed suit against The CUMIS Group Ltd. in federal court, the latest effort by a CU to prevent the credit union insurer from voiding coverage in the $140 million scandal. The $840 million credit union says it lost $42 million when CU National's president Michael McGrath fraudulently sold 189 of the real estate loans it was servicing to Fannie Mae without the credit union's authorization, and CUMIS, a unit of CUNA Mutual Group, has denied its bond claim. "They have directly told us they are not going to pay the claim," said Patrick Boyle, a New York attorney representing Suffolk FCU. The latest suit comes as CUMIS has asked the federal court in Wisconsin for a declaratory judgment voiding bond claims by 26 credit unions in the case. Two other credit union victims of the fraud, Educational Systems FCU, in Greenbelt, Md., and TCT FCU, in Ballston Spa, N.Y., have also filed suit challenging the CUMIS denial of the bond claims. At least two other credit union victims, Picatinny FCU and Sperry Associates FCU, are suing Fannie Mae. In its suit, Suffolk FCU said under its bond CUMIS agreed to indemnify the credit union for "all losses arising from the dishonest acts of employees, officers and directors" and "its servicing contractor, CU National." The credit unions are continuing to negotiate with Fannie Mae over return of the mortgages and of the funds, a source told The Credit Union Journal. Several have petitioned Congress to intervene because Fannie Mae is currently being run under conservatorship by the federal government. CUMIS officials did not immediately respond to a request for comment.

The Clear Capital Home Data Index Market Report shows a 1.7% national quarterly price gain for the 30-day period ended Dec. 24, 2009. Yearly national home prices went from a decline of over 20% on a year-to-year basis for 2008 to a much more modest decline of 1.3% for 2009. On a quarterly basis all four regions showed gains: at 4.1% in the Midwest, 1.2% in the South and the West and a modest 0.4% in the Northeast. What is remarkable about these gains, according to Clear Capital president Kevin Marshall, is that home prices for the nation as a whole were generally flat for 2009 despite yearlong volatility that included record declines early in the year, followed by the gains during the summer and fall. Also, by year-end the annual national real estate owned saturation rate dropped 16 percentage points to 25.5%. Some encouraging results came from several micro markets. For example, the Las Vegas metropolitan statistical area drilldown showed its first positive quarterly price gain in over three years at 1.1%, even though yearly price declines in the area remain high at -27.4%. According to Clear Capital, Las Vegas "is showing signs of transitioning from home-price free-fall, to more traditional trends."

The seasonally adjusted 30-day delinquency rate on home equity lines of credit jumped 20 basis points in the third quarter from the previous quarter to a new record of 2.12%, according to an American Bankers Association survey. On closed-end second mortgages, the seasonally adjusted delinquency rate shot up 29 BP to 4.3% in the third quarter, also a new record. At the start of the year, 1.46% of HELOCs were 30 days or more days past due and 3.0% of closed-end second liens were 30 days or more past due. Banks and thrifts held $667.5 billion in HELOCs as of Sept. 30, according to Federal Deposit Insurance Corp. Call Report data. Of that, $9 billion or 1.3% was 30-to-89 days past due. Banks charged off $5.1 billion in HELOCs in the third quarter. FDIC-insured institutions held $187.7 billion in closed-end second liens and 2.6% or $4. 9 billion were 30-89 days past due. Charge-offs on second liens totaled $2.8 billion.

WL Ross & Co. has reportedly ended negotiations with American International Group, New York, to buy its mortgage insurance division, United Guaranty, Greensboro, N.C., according to MI industry sources. Wilbur Ross, chairman and chief executive of the company, was out of the country and could not be reached for comment. But he issued a statement to National Mortgage News which said, "We never confirmed we were in the deal." However, this past fall reports began to surface that WLR&C was indeed negotiating with AIG and even had an exclusive with the company for several months. Sources familiar with the original parameters of the talks say WLR&C wanted to purchase all of UG's licenses, operating systems, and its entire 2009 book of business, leaving the "legacy" coverage with AIG. No price was ever mentioned. According to the Quarterly Data Report, UG ranks fifth nationwide in terms of policies-in-force with $127 billion. AIG has received pledges of up to $180 billion in taxpayer aid since its near collapse 16 months ago. The U.S. Treasury owns about 80% of the company, which is still publicly traded after undergoing a reverse stock split last year.

A Standard & Poor's review of 15 U.S. subprime transactions issued between 1998 and 2004 has ended with lower ratings on 48 classes from 14 transactions. The rating agency also removed seven of the lowered ratings from CreditWatch with negative implications. In addition, it affirmed ratings on 45 classes and removed one of these ratings from CreditWatch Negative. "The downgrades reflect our belief that credit enhancement for the affected classes will be insufficient to cover projected losses due to increased delinquencies and the current condition of the housing market," S&P said.

Access to employment services is needed by nearly one in four homeowners to help keep their homes, according to a MortgageKeeper Referral Services' analysis of 400,000 homeowners at year-end 2009. MortgageKeeper Referral Services, which connects homeowners with qualified nonprofit and government agencies, found that employment assistance was the most requested of 19 service categories provided by their database. In the top five also were requests for food assistance, help paying utility bills, prescription drug assistance and legal assistance. The company said its database gets an average of 1,000 hits a day, helping over 30,000 families every month. These findings highlight that foreclosures are a symptom of much larger economic problems that need to be addressed to avoid redefaults on modified loans, said MortgageKeeper Referral Services president Rochelle Nawrocki Gorey.

The TCW Group Inc., an international asset management firm, has voluntarily withdrawn its UST/TCW Senior Mortgage Securities Fund LP from the U.S. Treasury's Public-Private Investment Program. TCW, a subsidiary of France's Societe Generale, said it will liquidate the fund and distribute capital to the fund's investors. "Given that we are at a very early stage of investment in this particular product, and in light of the recent changes in the portfolio management team, we believe this action is appropriate and in-line with TCW's commitment to act in the best interests of our clients," said Marc I. Stern, chief executive officer. "This will also benefit the holders of older TCW vintage funds, as we will be able to dedicate even more resources to those investments." TCW has been in the process of acquiring fixed income investment management firm Metropolitan West Asset Management. The UST/TCW Senior Mortgage Securities Fund LP, which has approximately $500 million in assets under management, completed its initial closing on Sept. 30, 2009. A call to TCW for additional comment had not been returned at deadline.

GMAC Financial Services has written down the value of the riskiest mortgage assets of its mortgage division by 41%, a move that could be a precursor to a sale of the unit. To date, GMAC has declined to comment on reports that Berkshire Hathaway has shown an interest in Residential Capital Corp., the nation's fourth largest home lender. (Berkshire also has declined to comment.) The risky mortgage assets that were marked down by 41% once had a face value of $9.2 billion. Company executives said the markdowns came as a way to make these assets attractive to buyers. "The values we have put on these assets would be sellable in the market," said GMAC chief of mortgage operations Thomas Marano. He noted GMAC sells loans on a regular basis and major capital market players have been consulted. "Yes we do believe we can sell those assets in the market," he added in response to an analyst's question. The writedowns, restructuring and recapitalization of ResCap leave the entity with $19.7 billion in mortgage assets, servicing rights and real estate owned. GMAC chief executive Michael Carpenter noted there are "potentially different strategic alternatives" for the mortgage assets and the servicing business. He also said ResCap can be operated as a wholly owned subsidiary for some time. "We are not in a hurry to do anything." GMAC noted that it will take $3.8 billion of mortgage-related charges for the fourth quarter. GMAC said ResCap owns $4.3 billion in assets that have "greater economic exposure." According to the Quarterly Data Report, ResCap ranks fifth among all residential servicers with $380 billion in servicing rights. To date, the government has pumped $15.1 billion of capital into GMAC through preferred stock and other maneuvers.

The Federal Housing Administration is temporarily delaying the effective date of its new policy to shield appraisers from loan officer and mortgage broker pressure until Feb. 15. The new policy would put FHA in synch with Fannie Mae and Freddie Mac and prohibit commission-based staff and brokers from selecting appraisers. FHA officials initially set a Jan. 1 effective date. But they concluded FHA lenders need more time to change to their systems and decided to give them 45 more days, according to sources. Back in September, FHA officials outlined a number of risk management initiatives, including the new appraisal policy. "FHA does not require the use of appraisal management companies or other third party providers, but it does require lenders take responsibility to assure appraiser independence," FHA officials said.