Servicing

The bankruptcy court overseeing the liquidation of mortgage lender Taylor Bean & Whitaker has approved a "stalking horse" bid on the nonbank's real estate-owned portfolio which includes almost 2,000 properties, according to a memo obtained by National Mortgage News. The memo notes that the portfolio has been appraised at $330 million. A stalking-horse bid is a strategy used by a bankrupt company (in this case, TBW) whereby it obtains an initial bid on its assets from an interested buyer of their choosing. Even though the REO portfolio has been appraised at $330 million, it's unclear what the stalking-horse bid is. TBW's chief restructuring officer plans to accept competing bids on Dec. 9. Ocala, Fla.-based TBW filed for bankruptcy protection in August after the Department of Housing and Urban Development pulled its FHA credentials.

The mortgage industry continues to shrink in terms of full-time employees as companies rely more on temporary workers to deal with servicing and origination demand. The U.S. Bureau of Labor Statistics reported that mortgage companies cut 3,700 full-time workers from their payrolls in October, including 1,700 mortgage brokers. Overall employment in the mortgage banker/broker sector fell to 255,500 in October from 259,200 in September. "You have a lot of temps being hired," a Mortgage Bankers Association executive said, noting that those figures do not show up in the BLS mortgage sector data. MBA associate vice president of industry analysis Marina Walsh said that mortgage firms are definitely hiring servicing-related workers but it is hard for them to justify hiring full-timers given the volatility in the market. "To forecast what it going to happen with originations and interest rates is very difficult," she said. Meanwhile, Friday's jobs report provided some good news with the national unemployment rate falling to 10% from 10.2% previously. BLS also revised downward the job losses in October and September - by a combined 150,000. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Foreclosures declined in 68 of the 84 ZIP codes in Orange County, Calif., tracked by MDA DataQuick in the third quarter of this year compared to the same period last year, according to a report in The Orange County Register. Some market watchers say government loan modification programs are the main cause of foreclosure preventions and delays. To put things in perspective, in August 2008 banks seized 1,441 houses and condos from delinquent borrowers - the highest monthly total in the roughly 20 years DataQuick has been keeping track. But foreclosures began falling the next month when California implemented a law requiring banks to try to discuss with borrowers options to avoid foreclosure. Such talks must be held at least 30 days before starting the foreclosure process on loans made during the final years of the housing boom.

MGIC Investment Corp., Milwaukee, has cleared another hurdle in its plan to write new business through a reactivated unit, MGIC Indemnity Corp. The Office of the Commissioner of Insurance for Wisconsin has waived a requirement that MGIC maintain a specific level of minimum regulatory capital; the waiver lasts until Dec. 31, 2011. MIC is a subsidiary of the company's primary operating unit, Mortgage Guaranty Insurance Corp. The regulator also approved a change in the business plan for MIC where the reactivated subsidiary would only write new policies in states which MGIC's primary mortgage underwriting unit no longer met minimum capital requirements. There are 17 states that impose some sort of requirement, including Wisconsin, where MGIC is domiciled. Previously, Fannie Mae had approved MIC as an eligible mortgage insurer through Dec. 31, 2011. However, Freddie Mac has yet to approve MIC. MIC has been capitalized by MGIC with $200 million.

Former New York mayor Rudolph Giuliani and some of his advisors attended talks between Lend America officials and the Department of Housing and Urban Development last week, hoping to find a solution to the lender's problems, according to sources familiar with the matter. A source close to Lend America told National Mortgage News that Mr. Giuliani "was there" at the meetings but at press time it was unclear whether he attended as a representative of his law firm, Bracewell & Giuliani, or in an outside capacity. A spokeswoman for Bracewell said to the best of her knowledge, Lend America and its 'dba,' Ideal Mortgage Bankers, are not clients of the law firm. Also in attendance was Lend America president Michael Primeau. Before going into politics, Mr. Giuliani was U.S. Attorney for the Southern District of New York and made his name by busting junk bond king Michael Milken. On Monday HUD ordered the New York-based Lend America to halt the origination of FHA-backed loans. The next day the company laid off most of its work force - roughly 550 workers. HUD fined the company $512,000, accusing it of underwriting fraud and other misrepresentations.

The House of Representatives is slated to debate and vote on a massive regulatory reform package next week that includes several bills addressing abusive mortgage lending practices and risk retention on sales and securitizations of mortgages. The House Financial Services Committee completed action on the reform package on Wednesday when it approved a bill to set up a resolution process for "too big to fail" institutions. The "systemic risk" bill also gives regulators the discretion to set risk retention requirements as high as 5% on Federal Housing Administration, Fannie Mae and Freddie Mac loans. The regulatory reform package also includes bills that create a Consumer Finance Protection Agency, regulates the trading of derivatives, and a bill (H.R. 1728) the House passed in May that curbs subprime lending practices. The mortgage industry prefers the risk retention provisions in H.R. 1728, which totally exempts lenders and securitizers from retaining a portion of the credit risk on FHA and GSE loans. Some industry lobbyists have been wondering how committee chairman Barney Frank, D-Mass., would deal with the different risk retention provisions. Rep. Frank told reporters he would drop the original provision in H.R. 1728. "The risk retention section of the subprime bill will conform to what we did in the systemic risk bill," the chairman said.

The November Mortgage Monitor report by Lender Processing Services, Inc. in Jacksonville, Fla., reveals a nationwide loan deterioration ratio higher than 3:1, indicating that for every one loan which improved, three more loans are deteriorating. Of home loans that were current as of December 2008, more than two million, or 4.02%, were delinquent or in foreclosure by the end of October. October's foreclosure rate stood at 3.14%, a month-over-month increase of 0.7% and a year-over-year increase of 85.1%. The total U.S. loan delinquency rate was 9.4%. Delinquencies edged up 0.85% over September's figures and were 32% higher than in 2008. Nearly 30% of properties that have been in foreclosure for 12 months have not yet been put on the market for sale, twice the level of the prior year. Foreclosure inventories continued to climb to record levels. Roll rates into foreclosure remain low as a result of loss mitigation efforts and elevated delinquent loan volumes. There are 31 states which have non-current loan rates ranging from 10% in Missouri to as high as 22.7% in Florida. Foreclosure sales jumped in October, with the rate at 5.6% of foreclosures in inventory. The number of foreclosures on the market continues to stall as foreclosure timelines extend, LPS said. The total non-current loan rate was 12.6%. States with most non-current loans were Florida, Nevada, Mississippi, Arizona, Georgia, California, Michigan, Indiana, Ohio and Illinois. States with fewest non-current loans were North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

A suit that left securitized commercial mortgages affiliated with the bankrupt General Growth Properties exposed to potential losses and highlighted the limits of securitizations' "bankruptcy remote" nature is close to finalizing a settlement that would alleviate the loss concern, according to Fitch Ratings. "Settlement terms have been reached between a group of special servicers and GGP for 73 CMBS loans securitized in various CMBS transactions included in the April 2009 Chapter 11 filing of GGP," the rating agency said. The settlement would "convert U.S. CMBS loans affiliated with [GGP] back to performing status" and if confirmed by the bankruptcy court, 92 properties would emerge from bankruptcy within the next 60 days and would return to performing loan status 60 to 90 days thereafter." The bankruptcy remote special-purpose entities that commercial mortgage-backed securities and other securitizations are issued through are not - as Fitch notes and the case illustrates - completely "bankruptcy proof." However, if the case is settled as agreed it would show SPEs are still effective, as it would demonstrate that they do allow for a situation in which mortgages can be removed intact from a bankruptcy, according to Fitch senior director Adam Fox.

Foreclosures across the country are expected to drop next year after peaking at approximately 2.75 million this year, according to a University of Michigan researcher. By early 2012, foreclosures should be less than 1.5 million, according to Dennis Capozza, professor of finance and real estate at the University of Michigan's Ross school of business. Mr. Capozza said the expected eventual decrease in foreclosures should result from economic, home price and underwriting improvements. But "for the time being, however, steep increases in unemployment are continuing to mitigate the positive factors, which means that housing markets will continue to take a beating for some time, despite federal stimulus incentives," he said.

The Treasury Department has issued new guidance to expedite short sales and deed-in-lieu transactions for struggling borrowers that cannot qualify for a permanent loan modification under the government's Home Affordable Modification Program. The guidance establishes procedures for HAMP servicers to provide borrowers with pre-approved terms prior to listing the property for a short sale. Once the borrower submits a signed sales contract and all the required attachments - including status of subordinated liens - the servicer has 10 days to approve the sale. Treasury also is providing incentives to make sure that short sales actually happen. Servicers will receive a $1,000 incentive payment for each completed short sale. The former homeowner receives $1,500 for relocation costs. Investors can receive up to $1,000 if they pay $3,000 to subordinated lien holders that relinquish their claims. The investor's reimbursement is based on a one-for-three match. One of the major stumbling blocks in short sale transactions is getting the second lien holders to settle their claims, according to Joe McCloskey, a senior advisor to HomeTelos, a Dallas real estate services firm that specializes in short sales. The incentives may not seem like a lot, Mr. McCloskey said, but the "ability to recoup something is very attractive. Treasury has made a very effective use of incentives," he added.