Servicing

The GSE regulator and the Treasury Department have approved $6 million pay packages for the chief executive officers of Fannie Mae and Freddie Mac. On top of a base salary of $900,000, the CEOs are targeted to receive $3.1 million in deferred pay and $2 million in performance incentives in 2009 and 2010. Both of the CEOs are new this year. Michael Williams was Fannie's chief operating officer before his July promotion to be the government-sponsored enterprise's new president and CEO in April. Mutual fund executive Charles Haldeman was appointed Freddie's CEO in July. Compensation for 2009 will be prorated and all compensation is in cash. (The GSEs were placed in conservatorships in September 2008 and they cannot issue stock.) At the beginning of 2008, former Freddie CEO Richard Syron was targeted to receive $15.2 million in compensation. Former Fannie CEO Daniel Mudd received $12.2 million in compensation in 2007, including $9 million in stock. Under the new compensation program, the second highest paid executives are Fannie's chief financial officer David Johnson ($3.5 million) and Freddie's chief operating officer Bruce Witherell ($4.5 million). Except for CEOs, CFOs and COOs, the base salaries for all other GSE executives cannot exceed $500,000 a year, according to the Federal Housing Finance Board. "On average, the total compensation for executive officers at the two enterprises for 2009 is down 40% from pre-conservatorship levels," FHFA said.

Third-party and retail lender SunTrust Mortgage Inc.'s servicer quality rating of SQ2+ as a primary servicer of prime residential mortgages has been removed from watch for a possible downgrade. The move follows improvements in its call center and incentive compensation scorecard that resulted in Moody's upgrading its assessment of the company's loss mitigation abilities to above average from average. "Since the prior review, the company increased outbound collection call volumes and extended collection call center hours," Moody's said. The rating agency also said that it views SunTrust's foreclosure and real estate owned timeline management abilities to be above average. It views the company's servicing stability as average. The senior unsecured debt rating for SunTrust Mortgage's parent company SunTrust Banks Inc. has a negative outlook. Moody's rates servicers somewhere on a scale between SQ1 and SQ5 on which servicers rated SQ1 are considered strong and those rated SQ5 are considered weak, with plus or minus signs indicating interim points along that scale.

The inventory of unsold existing single-family houses in California is now down to a manageable 4.5 months, according to the monthly roundup of sales activity by the state's Realtor association. In November a year ago, there was a 7.1 month's supply of housing awaiting buyers. "With sales bottoming out more than two years ago, and the median home price reaching its trough in February 2009, California remains ahead of the nation in market recovery," said Leslie Appleton-Young, chief economist at the California Association of Realtors. According to CAR's latest report, sales were up 4.7% in November from the same month a year ago to a seasonally adjusted rate of 536,720 units, while the median price increased 5.8%, from $287,880 in November 2008 to $304,520. On a month-by-month basis, closed sales in November were actually down 4.6% from October, but the November median price was up 2.4% from $297,500 the month before. According to CAR president Steve Goddard, rookies continue to drive the California market because of the $8,000 federal first-time buyer tax credit, while efforts by lenders and the government to assist owners at risk of foreclosure have cut into the number of properties on the market. CAR's price and sales data for detached homes are generated from a survey of more than 90 Realtor associations throughout the state. Data for condominiums are based on a survey of more than 60 state groups.

Home prices rose 0.6% in October and rebounded from a 0.4% decline in September, according to a house price index compiled by the Federal Housing Finance Agency. The index, however, only reflects homes funded by Fannie Mae and Freddie Mac loans. Regionally, the FHFA HPI registered a 3.7% jump in the Pacific states, which includes California. The Mid-Atlantic states ranked second with a 1.8% increase in house prices. The South-Atlantic region, which runs from Maryland to Florida, experienced the worst monthly performance with a 1.6% price decline in prices. FHFA bases its house price index on Fannie Mae and Freddie purchase mortgage transactions. Overall, U.S. prices are down 1.9% since October 2008, according to the regulator's HPI. The FHFA index is 10.8% below the April 2007 peak in prices.

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.