Servicing

The serious delinquency rate on prime loans has doubled over the past year and hit 3.6% in the third quarter, up 20% from the previous quarter, according to the Office of the Comptroller of the Currency and Office of Thrift Supervision. Overall, 87% of the loans in the servicing portfolios of large banks and thrifts are performing and 6.2% are 60-days or more past due (seriously delinquent), according to the OCC/OTS quarterly Mortgage Metrics Report. The third quarter report also shows continued deterioration in the performance of payment-option adjustable rate mortgages. Only 67.7% of options ARMs are performing, 16% are seriously delinquent and 11.9% are in the process of foreclosure. In the second quarter, 15.2% were seriously delinquent and 10% were in the process of foreclosure. The national bank and thrift servicers completed more than 130,000 loan modifications in the third quarter. In total, more than 680,000 home loan modifications and payment plans (including those done on a trial basis) were implemented during the period. Despite the growth of loan modifications, more than half of all modifications are 60-days or more past due after six months. In cases where the monthly principal and interest payment is reduced by at least 20%, the redefault rate is only 26.7%. After 12 months, the redefault rate is 38.6%, compared to 66% where the modification leaves the borrower's payment unchanged. In the third quarter, more than 80% of the loan modifications resulted in some reduction in monthly payments.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating also said it also 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."

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 Wednesday (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.

Concerns that housing and employment woes will persist into the second half of next year have contributed to a rating criteria change at Moody's Investors Service that leaves thousands of prime jumbo residential MBS on review for possible downgrade. Moody's has placed 4,474 tranches of jumbo RMBS with an original balance of $234 billion and a current outstanding balance of $143 billion on review. The rating agency said the move "will have the greatest impact on senior securities issued in 2005." At 3.8%, this vintage's new projected cumulative losses are much less than for 2006 securitizations of this type (8%) as well as 2007 and 2008 jumbo RMBS (10.9% and 12.3%, respectively). "Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months," the rating agency said. "Adding to borrowers' financial pressure, unemployment is now projected to peak at around 10.6% from previous projections of 9.8% from the first quarter of this year. Both measures are expected to reach their peaks some time in the second half of 2010, after which recovery is expected to be slow."

By the end of the third quarter the estimated number of homes heading toward foreclosure, but not yet included in "unsold inventory" figures, reached 1.7 million units, up from 1.1 million a year earlier, according to new First American CoreLogic data. The increase in this estimate of real estate-owned by depositories and mortgage firms is affecting home sale rates and is in contrast to the shrinking visible supply of unsold inventory, which decreased from 4.7 million in the third quarter of 2008 to 3.8 units during the same period this year. The visible inventory supply fell to 7.8 months in September 2009, down from 10.1 in 2008. But the supply of REO home estimates, also referred to as "shadow housing inventory," is at 3.3 months, up from 2.4 months a year ago. Combined, the total unsold inventory by September 2009 reached 5.5 million units, down from 5.7 million in 2008. Shadow housing inventory is comprised of mortgages that are 90 days or more delinquent and that are not included in unsold inventory.

Loan Value Group, Rumson, N.J., is close to partnering with a national mortgage lender to begin rolling out a patent-pending program aimed at heading off "strategic defaults," according to industry sources. An LVG representative declined to comment and the lender was not identified. The sources told NMN the program avoids the use of loan modifications or reduction of principal. Instead it provides an alternative way to keep at-risk borrowers who might otherwise be encouraged to default due to negative equity paying on their original mortgage notes. The program is said to be designed to align the interests of lenders, servicers, government-sponsored enterprises and taxpayers while avoiding costs to homeowners or taxpayers. The sources said it is set for roll out and implementation on a private-label basis to eligible homeowners as early as the first quarter of 2010.

Cenlar FSB has leapfrogged over Dovenmuehle to become the nation's largest subservicing vendor thanks to a new contract with Freddie Mac as well as strong growth in its core primary business. Company senior vice president Dave Miller said the New Jersey-based firm has benefited from the GSEs wanting mortgage bankers of all sizes to retain servicing, making these lenders have "more skin in the game." However, many small- to medium-sized nonbanks (and depositories) are opting to use a subservicer instead of building the infrastructure themselves. "Some mortgage bankers used to sell everything they originated 100% servicing-released but that's changing," he said. Also, lenders have complained about the poor premium they receive from aggregators when they sell servicing-released. At June 30, Cenlar ranked third among all subservicers with $46 billion in contracts but saw its business spike to $93 billion in the third quarter. A large chunk of that growth came from 260,000 loans once serviced by Taylor, Bean & Whitaker. When TBW went bankrupt a few months back Freddie Mac — which controls the servicing rights on its loans — looked for a subservicer and eventually decided on Cenlar. For years Dovenmuehle Mortgage of Illinois has ranked first among subservicers. At Sept. 30, Dovenmuehle had roughly $70 billion in contracts, according to figures compiled by National Mortgage News and the Quarterly Data Report.

The Federal Deposit Insurance Corp. is contemplating securitizing at least $10 billion of delinquent and underperforming whole loans belonging to failed banks in the first quarter, according to investment banking sources who have been briefed about the plan. These sources, requesting their names not be used, said the bond issuance could rise to as much as $30 billion. The FDIC will be the issuer of record on the MBS. "Right now it's a prototype they're talking about," said a source. At press time, the agency had not returned telephone calls about the matter. The FDIC has hired former secondary market executives that worked for UBS Securities and Option One Mortgage to advise them on the securitization process, said one advisor. "These are smart guys who know their way around the securitization business," he said.

The closure of ISGN Solutions Inc.'s acquisition of Fiserv Inc.'s loan fulfillment services business is helping the former company move forward with its larger plans to reorganize, according to an ISGN spokeswoman. The deal, slated to close in November, took slightly longer simply because of holiday season delays, the spokeswoman told NMN. The company's larger reorganization refocuses servicing and origination functions for marketing purposes, she said. This was done to mirror the organization structure of the lending industry, the company serves, according to the spokeswoman.

Chase is adding another 24 mortgage counseling centers within the next four months bringing the number of such centers that provide face-to-face assistance to distressed homeowners in 14 states up to 51. These centers are located in Cleveland, Dallas, Houston, Seattle, Boca Raton, Fla., and Fort Lauderdale, Fla. The addition, according to the head of retail financial services at Chase, Charlie Scharf, responds to the unusually high demand for loan modifications and follows the so far successful engagement of its initial 27 centers in providing a complete document packages looking for permanent payment relief. Borrowers can schedule appointments or walk in six days a week. Since they first opened 11 months ago, Chase centers have provided counseling for over 60,000 borrowers, the bank said.