Servicing

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.

A.M. Best Co., Oldwick, N.J., has given Stewart Title Group a financial strength rating of "B++(Good)" and an issuer credit rating of "bbb+," stating the Houston-based global title insurer's ratings reflect its adequate capitalization along with its moderate underwriting leverage. Parent company Stewart Information Services Corp. received an ICR of "bb+." In its statement, Best added that in spite of the 35% decline in statutory surplus at the company, this is still "relatively moderate compared to that of the title insurance industry as a whole." The rating agency said it expects the statutory surplus to increase at the end of this year as Stewart Title Guaranty Co., the lead underwriting unit, retires short-term debt through the use of longer term debt issued by the parent company in the form of convertible senior notes. Stewart's underwriting results in 2009 have been affected by reserve strengthening because of an increase in claims from prior policy years, along with large title claims, some resulting from agency defalcations. Best noted that Stewart is not only the third largest underwriter of title insurance with a 14% market share in the U.S., it does business in approximately 40 countries, enhancing its geographic diversification.

Specialized Portfolio Servicing LLC, Salt Lake City, Utah, has had its primary servicer ratings for alt-A, subprime and home equity lines of credit upgraded by Fitch Ratings, New York, from "RPS3+" to "RPS2-." The company's residential special servicer rating and residential primary specialty servicer rating for second lien products received the same upgrade. Fitch cited the company's seasoned management team, technology enhancements and improvements in customer service and default management, which have increased its ability to proactively target problem accounts. The special servicer rating reflects Specialized Portfolio Servicing's "ability to liquidate nonperforming assets utilizing its focused default management expertise." These ratings also reflect the company's ability to attract, hire and retain key employees. It also reflects the ratings of its parent company, Shinsei Bank Ltd., which are "BBB/F2" with a negative outlook. Specialized Portfolio Servicing has a portfolio with an unpaid principal balance of $9.35 billion, of which 2.3% is special servicing. Approximately 37% of the loans are first lien and 63% second lien. By product it includes 20% subprime loans, 28% closed end seconds, 8% HELOCs and 6% alt-A.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating agency also said it has assigned negative rating outlooks to 22 classes totaling $1.1 billion that currently have fairly high AAA and AA+ investment grade ratings. "The Rating Watch Negative placements are the result of the significant stress on cash flow experienced by floating-rate loans in 2009 and Fitch Ratings' expectation that cash flows will continue to be stressed for the foreseeable future," Fitch said. "Floating-rate loans are transitional in nature and more susceptible to declining market conditions."

Luxembourg-based investment companies affiliated with private investment firm Elliott Management Corp. have agreed to buy all of the outstanding shares of Capmark Financial's Tokyo-based servicing business, Premier Asset Management Co. Financial terms for the transaction were not disclosed. Elliott said it will keep Premier's current management in place and expects to maintain its existing platform in the Japanese market. Premier is a commercial mortgage-backed securities and warehouse non-recourse loan servicer that also provides special servicing to defaulted non-recourse loans as well as third party nonperforming loan collections. A U.S. bankruptcy court has approved the transaction and it is expected to close by Jan. 29, 2010.

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Dec. 16, Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

The Treasury Department has purchased over $200 billion in Fannie Mae and Freddie Mac mortgage-backed securities to support the mortgage market, but now it has to decide if will continue that support. "We expect to provide guidance by the end of the year," Treasury spokeswoman Meg Reilly said. Treasury began the MBS purchase program after the two government-sponsored enterprises were placed in conservatorships in September 2008. At the time, Treasury said it would terminate the MBS purchase program by the end of 2009. During the summer, Treasury reduced its MBS purchases and it is currently buying about $10 billion a month. The Federal Reserve is slowing its $1.25 trillion agency MBS purchase program at the same time and plans to end the program by March 31.