Servicing

Thanks to a poor national jobs outlook, home prices will continue to slide next year and a new wave of foreclosures will hit the market, according to Dave McCarthy, president and CEO of Integrated Asset Services, Denver. Mr. McCarthy believes the $8,000 first-time home buyer tax credit -- which was recently extended by the government -- "persuaded some buyers to make their purchase sooner than they otherwise would have." The leading U.S. housing benchmark has fallen by more than 25% since its peak in July of 2006, and is roughly back to its January 2004 level, he noted. The executive warns that the home price slide could continue as rising unemployment causes more Americans to fall behind on their mortgage payments and end up in foreclosure. IAS is a vendor that offers default management and residential collateral valuations.

Low rates have led to adverse selection and performance deterioration in 2005 subprime residential MBS while low loan-to-value ratios have limited the prepayment concern for other recent vintages, according to a new report from Fitch Solutions. The company's monthly subprime RMBS index for the 2005 vintage dropped 11.4%. Managing director Thomas Aubrey said this reflects the fact that higher credit quality loans have been able to refinance out of the pool, leaving relatively poorer credit quality mortgages behind. The refinancing has affected the six-month constant prepayment rate for the securities, which over the last three months has risen to 4.3% from 3.5%. Fitch Solutions' Subprime RMBS Price Index, which is based on credit default swaps of RMBS, as a whole registered just under a 10% drop in the most recent month to 7.25 from 8.02. This is due primarily to the 2005 vintage's performance decline.

LoanMarket.net of California, which auctions nonperforming residential loans over the Internet, has launched a new program to sell distressed commercial loans too. Most of the product is low-balance commercial, the company said. "Your Taco Bells and stuff like that," said LoanMarket principal Jeff Freud. For now, the firm will offer commercial mortgages "off line," said Mr. Freud. The company currently has $50 million (unpaid principal balance) available for purchase. "We're marketing them off line and not in a pool," said Mr. Freud. It has three to four sellers interested in using its services.

Salene Residential Mortgage Opportunity Fund, which counts MBS pioneer Lewis Ranieri among its managing partners, has been identified as being the "stalking horse" bid on a portfolio of homes owned by the now-defunct Taylor, Bean & Whitaker of Ocala, Fla. Salene has made an offer on roughly 2,000 repossessed properties, according to investment banking sources familiar with the matter. 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 its choosing. A bankruptcy court is overseeing the liquidation of TBW, which failed this summer. The REO portfolio has been appraised at $330 million. Additional bids will be taken in the coming weeks.

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.