Servicing

Moody's Investors Service has lowered Prime Property Fund's senior unsecured debt rating to Baa2. The ratings agency said it was lowering the rating due to "limited financial flexibility and Moody's expectation that the fund will face liquidity pressures in the coming quarters." The fund is comprised of high quality properties actively managed by Morgan Stanley Real Estate.

Valley National Bancorp, Wayne, N.J., the holding company for Valley National Bank, said that it has repaid the Department of the Treasury the final 100,000 shares of Valley's Series A Preferred Stock outstanding that was held by Treasury under the Capital Purchase Program. As announced on Dec. 22, Valley had received approval from Treasury to repay the remainder of the outstanding TARP funds. On Dec. 23, that transaction was consummated, ending Valley's participation in the Capital Purchase Program.

By restructuring certain modified pool mortgage insurance policies, PMI Mortgage Insurance Co., Walnut Creek, Calif., has seen an aggregated statutory capital benefit of $51 million. As part of this restructuring, PMI paid a counterparty aggregate accelerated discounted claim payments of approximately $264 million. The capital benefit is because the deal had a positive impact on PMI's loss reserves for the fourth quarter of 2009.

First Franklin Corp., the parent of Franklin Savings and Loan Co., Cincinnati, revised its earnings for the quarter ended Sept. 30. The revision is due to an increase in loan loss reserves of $334,000 resulting primarily from updated information received on the underlying value of the collateral on a group of loans. This resulted in an increase in the loss for the quarter and year-to-date period of $221,000 ($0.14 per basic share). The company revised the net loss for the third quarter to $1.13 million ($0.68 per basic share) and the net loss for the nine months ended Sept. 30 to $865,000 ($0.52 per basic share). This compares to a net loss of $39,000 ($0.02 per basic share) for the third quarter of 2008 and a loss of $809,000 ($0.48 per basic share) for the nine months ended Sept. 30, 2008.

The Federal Housing Administration has tightened its guidelines on short sales so that borrowers who defaulted on their previous mortgages can't get a new FHA-insured loan. The new guidance is designed to prevent borrowers who want to take advantage of the decline in house prices to buy a new home at a reduced price using an FHA loan for doing so. "Borrowers in default on their mortgage at the time of a short sale (or preforeclosure sale) are not eligible for a new FHA-insured mortgage for three years," FHA says in a mortgagee letter. The new policy has been causing problems for some lenders with loans in the pipeline, according to Bud Carter, an FHA consultant with Potomac Partners in Washington. In general, FHA will not approve loans if the borrower has defaulted within the past three years. However, FHA never provided specific instructions on short sales, Mr. Carter said, so lenders were dealing with this issue on a "case-by-case basis." Mortgagee Letter 09-52 also addresses cases where a lender takes a principal writedown and refinances the borrower into an FHA-insured mortgage. The agency clarifies that the borrower has to be current on all their payments to qualify for an FHA refinancing.

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.