Servicing

Neighborhood Assistance Corp. of America generally finds something "illegal" in about 80% of the payment option ARMs it studies, according to its chief executive, Bruce Marks. Mr. Marks told a congressional panel that his organization conducts forensic underwriting on "pick-a-pay" loans as some payment-option ARMs are known. He noted that the problems his group finds give its housing counselors more weight in getting servicers to modify loans and reduce the monthly payment by $500 to $1,000. Between 2005 and 2007 lenders funded roughly $805 billion of POAs, according to figures compiled by National Mortgage News. The NACA CEO said the Obama administration's Home Affordable Modification Program is not working because servicers are seeking documentation for eligibility after the three-month payment trials. With the backing of Bank of America and other lenders, NACA underwrites the loans at the start of the modification process. During the hearing Rep. Maxine Water, D., Calif., said that when fraud is involved these "loans have to be modified."

House Financial Services Committee chairman Barney Frank, D-Mass., is adding a provision to his massive regulatory reform package that would provide $3 billion in relief for unemployed homeowners. The chairman is tapping the Troubled Asset Relief Program to fund "emergency" loans and advances. Assistance would be capped at $50,000 per homeowner. As expected, House Judiciary Committee Democrats have submitted an amendment that would allow bankruptcy judges to reduce or 'cram down' the principal amount of a homeowner's mortgage. The House Rules Committee decides which amendments will be considered when debate begins on The Wall Street Reform and Consumer Protection Act (H.R. 4173). Meanwhile, a coalition of lender groups has succeeded in getting congressional sponsors to submit a risk retention amendment to the Rules Committee. It requires regulators to create a category of low-risk mortgages that are exempt from risk retention. H.R. 4173 currently gives the regulators the discretion to set risk retention requirements as high as 5% on most mortgages.

CUNA Mutual Group's CUMIS Insurance Society subsidiary is asking a state court to declare that surety bonds held by 26 credit union victims of the $140 million fraud by U.S. Mortgage/CU National Mortgage Corp. do not cover an estimated $125 million of losses suffered by those credit unions. The little-known move came to light in a new civil suit filed last week by Educational Systems FCU, a Greenbelt, Md., credit union that stands to lose $3 million from the fraud and is asking a federal court in Baltimore to order the credit union insurer to cover the losses as part of the bond. Chris Conway, president of Educational Systems FCU, said over the weekend that he was compelled to file the new suit to prevent CUMIS from getting a court order protecting against his credit union's bond claim. "They kind of forced our hand," Conway told The Credit Union Journal on Saturday. "We have a valid claim and it's pretty straightforward. We couldn't just let them sit by and deny our claim." The state suit filed by CUMIS is apparently the second attempt launched by the insurer to get a court to block the claims, which could be the biggest ever against CUNA Mutual. Educational Systems is one of 26 credit unions whose mortgages were being serviced by CU National and were surreptitiously sold by the company's president, Michael McGrath, to Fannie Mae. McGrath pleaded guilty to the massive fraud in June and is scheduled to be sentenced in February.

MIAC Asset Sales Group, New York, is auctioning off a $133 million package of Freddie Mac servicing rights. The initial bid deadline is next Tuesday, Dec. 15. Most of the receivables are backed by fixed-rate loans in Florida. MIAC hopes to complete the sale by the end of January. The company did not identify the selling entity.

AmTrust Bank of Cleveland, which until recently was the nation's third largest residential wholesaler, was seized by the government late Friday with a majority of its assets sold to New York Community Bank, Westbury, N.Y., a top ranked player in multifamily lending. A source familiar with the matter said the government actually took bids on AmTrust's operations two weeks ago, saying interested investors included BB&T, EverBank, Fifth Third Bancorp, Key Bank and others. Its failure is expected to cost the government roughly $2 billion. The lender's demise is yet another blow for loan brokers in search of wholesalers willing to table fund their customers. At press time, it was unclear whether NYCB would keep AmTrust's wholesale division intact. A thrift, AmTrust had $12 billion in assets and until a few years ago was called Ohio Savings and Loan. The thrift was a national correspondent originator, selling its conventional loans to Fannie Mae and Freddie Mac. NYCB paid no premium to assume all of AmTrust's $8 billion in deposits, and also agreed to take over $9 billion of the failed thrift's assets. New York Community and the FDIC will share losses on $6 billion of those assets. The nation's largest privately owned thrift, AmTrust had been stung by a string of losing quarters and mounting losses from construction and development loans. Last Monday its holding company, AmTrust Financial Corp., filed for Chapter 11 bankruptcy protection.

Lobbyists are hearing that the House Judiciary Committee wants to tack a bankruptcy cramdown amendment onto the massive regulatory reform package that the House of Representatives will debate and vote on this week. The House Rules Committee will decide on Wednesday which amendments will be in order when the House starts debate on the Wall Street Reform and Consumer Protection Act (H.R. 4173). The House passed a cramdown bill (H.R. 1106) in March by a 234-191 vote that would allow bankruptcy judges to reduce or cram down the principal amount of a homeowner's mortgage. It is unclear if Judiciary Committee Democratic leaders want to attach all of H.R. 1106 to the regulatory reform bill or offer a narrower cramdown amendment. Meanwhile, a coalition of lender groups are hoping the Rules Committee will accept an amendment that would create a category of mortgages that are exempt from the risk retention requirements on sales and securitizations of mortgages. H.R. 4173 currently gives the regulators the discretion to set risk retention requirements as high as 5% on most mortgages. The coalition-backed amendment would give the regulators the option to totally exempt Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages from risk retention.

The Federal Deposit Insurance Corp. is considering amending its loss-sharing agreements with acquirers of failed banks, allowing certain homeowners who are "under water" on their mortgages to reduce the principal amount owed. "There would be no requirement that they perform principal forgiveness - though there would be financial incentives under the 'loss share,' particularly for deeply underwater loans," said FDIC spokesman Andrew Gray. Under the current loss sharing agreements, FDIC agrees to absorb 80% of the losses on the failed bank's assets. But the acquirer is required to modify residential loans for struggling homeowners and reduce their payments to an affordable level. These agreements cover $44.7 billion in single-family loans. Now, FDIC is "actively considering" making debt forgiveness a modification option. "It would be based upon the use of tools that would maximize the value of the mortgage and provide long-term sustainable mortgage payments for the borrower," Mr. Gray said.

Nuveen Investments, which provides investment services to institutional and high net worth investors, recently completed the initial public offering of a new "opportunity" fund that will buy distressed MBS. The fund, which trades under the stock symbol "JLS," is called Nuveen Mortgage Opportunity Term Fund and its stated goal is to "generate attractive total returns through opportunistic investments in mortgage-backed securities." The IPO raised $400 million. It hopes to participate in the government's Public-Private Investment Program established by the Department of the Treasury. The fund began trading on the New York Stock Exchange earlier in the week.

Bid4Assets, an online real estate auction company in Silver Spring, Md., has added eRealAnalyzer, a browser-based, financial calculator that computes metrics to help bidders determine the investment potential of a property. The service is free to use and is integrated into the auction listings for most improved residential properties on the Bid4Assets website. "It can be extremely time-consuming and complicated for a bidder to accurately calculate a property's potential to meet their financial needs," said Matt Baker, chief executive of Bid4Assets.

The housing recovery is still at a fragile stage, but with inventories of unsold homes receding and home sales and prices rising "we may be finally seeing the light at the end of the tunnel," HUD secretary Shaun Donovan said. The Department of Housing and Urban Development secretary made his remarks at a Consumer Federation of America conference. He stressed to reporters afterwards that it is "far too early to say we are out of the woods." But he noted that completed foreclosures have declined three months in a row and the Obama administration's loan modification program is a contributing factor. Foreclosures are "still too high," he said, and the administration is considering several options to assist unemployed homeowners. "We will make an announcement relatively soon," he added. The HUD secretary noted that a Pennsylvania state mortgage assistance plan does not require lenders or private investors to absorb any of the principal reduction. "I would not support a process where there is no principal reduction by whoever owns the loan," he told reporters.