Servicing

Standard & Poor's has downgraded the ratings on five mortgage insurance companies, saying industry losses have exceeded its prior expectations and the recession has had a deeper impact on their portfolios than expected S&P said claims payments remain below expectations as a result of the backlog of foreclosures and the moratoria implemented earlier in the year. However, the report notes "the lower-risk books of business within the mortgage sector (such as those with higher FICO scores or lower loan-to-value ratios) have been and will be more adversely affected than we had anticipated and U.S. mortgage insurers' losses will continue to be greater than previously expected overall." The company hardest hit by the downgrade was Republic Mortgage Insurance Co., whose rating was dropped from "A-" to "BBB-". Ironically, S&P said RMIC received a two-notch uplift, "reflecting that company's strategic importance to Old Republic International (RMIC's parent company) and management's requirement that the mortgage insurance group capital be self sustaining." United Guaranty was dropped from "BBB+" to "BBB", with S&P giving it "a four-notch benefit because of a net-worth-maintenance agreement from its ultimate parent, American International Group Inc., and a reinsurance treaty from a higher-rated affiliate." Genworth was dropped from "BBB+" to "BBB-" with one notch of benefit because of the potential for support from its parent company. PMI and Radian were cut from "BB-" to "B+". Back in October, MGIC was downgraded to "B+". S&P said it is still reviewing CMG Mortgage Insurance Co. and California Housing Loan Insurance Fund.

A pair of Bank of America subsidiaries, Countrywide Home Loans Inc., and BAC Home Loans Servicing LP, is suing Mortgage Guaranty Insurance Corp. seeking a declaratory judgment against the mortgage insurer. The complaint states MGIC is denying paying Countrywide "millions of dollars in valid mortgage insurance claims." In a Securities and Exchange Commission filing, MGIC Investment Corp. said it intends to defend the mortgage insurer against the allegations "vigorously," although it added a disclaimer stating it is unable to predict the outcome of the case or its effect on the company. Countrywide had obtained mortgage insurance on the loans in question via a flow policy. According to the court filing, MGIC is denying claims based on allegations that misrepresented information was provided by or on behalf of the borrower. Countrywide counters in the filing that MGIC is basing its decisions on "second or third-hand accounts of one-sided, self-serving and/or unsubstantiated hearsay and would not be admissible." The court filing does state a substantial number of loans involved are stated income loans and MGIC was aware of that fact. The filing said MGIC did not demand income information for all loans, not just the stated income loans, which Countrywide submitted for insurance underwriting. The suit also alleges MGIC is denying claims payments based on faulty review appraisals the mortgage insurer is conducting.

Freddie Mac servicers had completed 7,300 HAMP modifications on Freddie loans as of Nov. 30, which represents 23% of all permanent modifications made under the Obama administration's Home Affordable Modification Program. Freddie's monthly activity report also showed that it purchased $19.3 billon in refinanced loans in November, including $2.1 billion worth with loan-to-value ratios of 80% to 105%. The new disclosures on loan modification and refinancings of underwater mortgages also show that Freddie purchased $60 million in refinanced loans with LTVs above 105%. A total of 115,600 borrowers with Freddie owned or guaranteed loans are participating in the HAMP payment trials and nearly 24,500 have been in the trials for more than the required three months. The monthly report also shows that Freddie issued $26 billion in mortgage-backed securities in November, down over 50% from June at the peak of the refinancing boom. In June, Freddie purchased $50.9 billion in refinanced loans from lenders and issued $61 billion in MBS. Single-family delinquencies increased by 18 basis points in November from the previous month. The report shows of 3.72% of Freddie's loans are 90 days or more past due.

New home sales plunged 11.3% in November from the previous month, but some experts are brushing it off as an aberration due to the expiring of the first-time homebuyer tax credit. Weiss Research real estate analyst Mike Larson noted that November sales fell to the lowest level in seven months. "Some giveback was to be expected given the feared expiration of the tax credit (on Nov. 30) and the pull-forward of some demand." But Congress has extended the tax credit and expanded it to repeat buyers, "I suspect sales going forward will find support," Mr. Larson said. The U.S. Census Bureau reported that sales of new single-family homes fell to a 355,000 seasonally adjusted annual rate in November from 400,000 in October. The bureau also revised downward the sales numbers for the previous three months. IHS Global Insight economist Patrick Newport noted that the inventory of unsold new homes has fallen for 31 consecutive months. And the tax credit has focused buyers on purchasing completed homes and less expensive homes. Now there are only 101,000 completed units for sale. "The decline in inventories implies that builders, at some point soon, will need to ramp up housing starts, or they will lose sales," Mr. Newport said.

National home prices, including distressed sales, declined by 7.8% in October 2009 compared to October 2008, according to First American CoreLogic and its LoanPerformance Home Price Index. This was an improvement over September's year-over-year price decline of 9.5%. On a month-over-month basis, national home prices declined by 0.7% in October 2009 compared to September 2009. When distressed sales are taken out of the equation, year-over-year prices in October fell by 5.8%. The HPI forecast is for prices to continue to fall by an average of 4.2% in the nation's 45 largest metropolitan areas before bottoming out in March 2010. By October 2010, the forecast is for an average price appreciation of 1% in these markets. Over the next six months, large declines in the HPI are predicted in Detroit (12.7%), Warren-Troy-Farmington Hills, Mich. (11.4%) and Cleveland (6.3%). California will see the strongest recovery next year as its three major markets, plus the state capital will all see gains: San Francisco, projected to increase 5.7%; Los Angeles, up 5.0%; San Diego, up 4.7%; and Sacramento, up 4.6%.

The California Association of Realtors has extended its popular job-loss insurance program for 12 months. Now, under CAR's Mortgage Protection Plan, if first-time buyers who used one of the group's 163,000 members are laid off from work through Dec. 31, 2010, they will receive $1,500 a month for up to six months to help cover their mortgage payments. Qualified co-buyers also are eligible for monthly benefits of $750 a month for six months. "The home-buying process can be one of the most stressful periods in a person's life," said CAR President Steve Goddard. "Our goal is to help alleviate some of the anxiety home buyers feel when purchasing a home by providing a layer of security." To date, benefits have been provided to more than 3,100 first-time buyers at no cost under the program, which is being offered through CAR's Housing Affordability Fund, a non-profit 501(c)(3) organization funded mainly by contributions from members. CAR is the largest state affiliate of the National Association of Realtors.

The number of home mortgage payments at least 30 days late in November set another record, according to the Equifax monthly Credit Trend Report. For November 2009, 7.91% of dollars owed was late, up from 7.76% in October and 5.89% in November 2008. Delinquencies on home equity lines of credit went from 3.39% in October to 3.43% in November; for November 2008, they were at 2.95%. Equifax noted there are approximately 855,000 fewer HELOC accounts compared with the peak at September 2008. Year-to-date through September HELOCs opened totaled 761,000, down 47% from the same period in 2008. HELOC lenders are searching for better quality borrowers. In September, the last month for which this data is available, 81% of borrowers who got one of these loans had an Equifax risk score of 740 or over compared with 66% for September 2007. Overall U.S. consumers reduced all types of debt by $575 billion or more than 5%. Home mortgage debt dropped 5.4%.

The Federal Housing Administration is telling consumers to continue making their monthly mortgage payments to the recently shuttered Lend America of Long Island but is warning that this advice could change. Lend America controlled the servicing rights to roughly $1.3 billion worth of FHA-backed loans. Late last month the agency suspended the company which promptly laid off most of its 650-person work force. Mortgage attorney Robert Lotstein said he has several vendor clients that are owed money by the company and confirmed earlier reports that while refinancing existing loans, the company has failed to pay off the prior lien. In a "frequently asked question" memo on the HUD website, FHA says mortgagors should continue making monthly payments to the company "until you receive notice that your loan has been transferred to a new servicer." Mr. Lotstein said he expects Lend America to file for bankruptcy protection. A company spokesman declined to comment.

The multifamily sector is taking a beating and experiencing record vacancy rates due to high unemployment and low household formation, according to Freddie Mac. Freddie Mac and its sister company, Fannie Mae, are major investors in multifamily loans, and could experience greater delinquencies if the situation persists. High jobless rates among teenagers (27%) and 20-24-year olds is forcing many to postpone household formation or move back with family and friends, according to Freddie Mac chief economist Frank Nothaft. In addition, the vacancy rates have moved up as federal tax credits for first-time homebuyers have encouraged renters to become homeowners. A Census Bureau report shows the vacancy rate on buildings with ten or more apartments is 13.5% as of Sept. 30. For apartments built since the start of 2000, the vacancy rate is 23.2%, "reflecting in part the slow rental rate of newly built dwellings," Mr. Nothaft says in a paper on housing trends. "As a result of rising vacancies and lack of opportunity to increase rents," he said, multifamily property values are falling and delinquency rates on multifamily mortgages are rising. The Freddie economist points out that the National Council of Real Estate Fiduciaries has reported that multifamily property values have declined 29% from their mid-2008 peak. The Federal Deposit Insurance Corp. reported that the number of multifamily loans 90 days for more past due has doubled since last year and hit 3.6% in the third quarter — the highest since 1993.

Interactive Mortgage Advisors expects at least 60 investors to take an initial look at an $11.1 billion package of jumbo servicing rights belonging to the now defunct Thornburg Mortgage of Santa Fe. However, final bids likely will involve just five to 10 firms, said Tom Piercy, managing member of the Denver-based IMA. The Thornburg package of "bulk" receivables is the largest 'portfolio only' deal to hit the servicing market in quite some time. But not just any firm can bid. IMA is requiring that bidders have a minimum net worth of at least $15 million and be certified by Fannie Mae/Freddie Mac to service loans. Even though Thornburg was based in New Mexico, it filed for bankruptcy in Maryland. A judge recently approved the sales procedures for the auction.