Servicing

In a month-long campaign to convert 375,000 borrowers in payment trials into permanent loan modifications, Treasury Department and Fannie Mae staffers will be hounding servicers on a daily basis to achieve the highest conversion rate. Starting Wednesday, Treasury/Fannie teams will visit the eight largest servicers for three days to monitor their Home Affordable Modification Program efforts and troubleshoot any problems. In addition, each HAMP participating servicer will report to Treasury twice a day on their conversion progress during the month of December, according to Treasury assistance secretary Michael Barr. One-third of the 375,000 borrowers have submitted all the necessary documentation to qualify for a permanent loan modification and they "deserve" a timely decision from their servicer, Mr. Barr told reporters. Meanwhile, 37% of the borrowers have submitted some documentation and more 20% have not submitted anything. "Borrowers need to submit the necessary information or they could lose their eligibility for a permanent affordable modification," said Phyllis Caldwell, who joined Treasury in November to oversee the conversion campaign. Servicers are expected to continue their outreach efforts while Treasury engages in a "robust" communications and outreach campaign to reach those borrowers. "We are also working with 300 outreach partners — including state, local and community officials as well as homeownership counselors and advocacy groups," Ms. Caldwell said. Several years ago she headed community development banking for Bank of America.

Essent Guaranty of Philadelphia has been greenlighted by 35 states to write mortgage insurance policies and hopes to close its first policy early next year. "Early 2010 is when they'll start writing coverage," said a company spokeswoman. She noted that back in October Essent — which was formed by former Radian executive Mark Casale — had approvals from 24 states. On Tuesday Essent announced that it has closed on its purchase of technology assets and the operating platform of Triad Guaranty, an MI that is in self-liquidation mode.

A group of former executives for Triad Guaranty is exploring the possibility of creating a new mortgage insurance company, according to MI executives and other industry officials familiar with the situation. If the company gets off the ground, it would be the second new MI company formed since the credit crisis begun in earnest in the fall of 2008. (See related story on Essent.) At press time few details were available concerning the company which has the working name of 'MAC.' Triad, which is headquartered in Winston-Salem, N.C., is self liquidating and has roughly $57 billion of policies-in-force left on its books. The company is the smallest of the nation's seven operating MIs, according to National Mortgage News and the Quarterly Data Report.

Fannie Mae is raising its minimum credit score to 620 from 580 and lowering its maximum debt-to-income ratio to 45% to reduce future defaults. These underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter - Fannie's automated underwriting system. "The adjustments reflect careful analysis of a borrower's ability to repay their mortgage obligation over the life of the loan," said Fannie spokesman Brian Faith. Fannie claims that borrowers with credit scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. In modifying loans, "we have seen too many borrowers where their other consumer debt has jeopardized their success at homeownership," Mr. Faith said. He noted that none of these changes apply to Fannie's Refi Plus program, which provides a streamlined refinancing option for existing Fannie borrowers that have loan-to-value ratios greater than 80% and up to 125%.

Phoenix-based CCG Catalyst now offers contract negotiation services to financial institutions for vendors such as loan origination systems, servicing and online banking providers. As banks seek ways to cut costs, many are looking to contract negotiations with their existing vendors as a way to streamline operating expenses. In the case of contracts that were signed during prosperous times in the industry, institutions are looking at renewals in regards to their decreased budgets and investigating whether they are receiving enough value from their investment. CCG Catalyst has found significant savings for institutions that enter into early renewal talks with their vendors. The service also helps to assess if an organization has gone too far with concession requests so a vendor no longer views the business as profitable.

Lenders Asset Management Corp., a nationwide default asset manager in Littleton, Colo., is expanding its REO liquidation management process to effectively handle the intricacies of each account. LAMCO's system for managing these teams enables the company to deliver customizable REO solutions that give lending institutions, servicers, investment firms and insurance entities the ability to scale operations and liquidate REO assets while mitigating risk in approximately half the time of the industry standard while ensuring data security and integrity.

Homeowners with combined loan-to-value ratios greater than 120% are more likely to fall behind on their payments than other borrowers who lose their job, according to analysts at the Amherst Securities Group. At a CLTV ratio above 120%, job loss "amplifies the likelihood a borrower will default," the analysts say in an Amherst Mortgage Insight article entitled "Negative Equity Trumps Unemployment in Predicting Defaults." The ASG analysts contend that the loss of a job is more of a "catalyst" that can trigger default. "When confronted with a catalyst that forces re-evaluation of financial priorities, the borrower will place an underwater mortgage much further down on the list. This pattern is most clear for prime borrowers," the article says. As of Sept. 30, an estimated 5.3 million or 11.3% of mortgaged homeowners have CLTVs of 120% or greater, according a recent report by First American CoreLogic. Fannie Mae recently reported 20% of its single-family mortgages with LTV ratios greater than 100% are 90-days or more past due.

Fannie Mae issued $40.7 billion in mortgage-backed securities in October, down 14.5% from September, according to the government-sponsored enterprise. October's issuance is the lowest since January, when the GSE issued $21.3 billion in MBS and it most likely reflects a decline in refinancing volume. Freddie Mac reported a similar 13.5% drop in MBS issuance in October. Freddie also reported that its purchases of refinanced loans fell by 15% month-over-month. Fannie did not report its purchases of refinanced loans. Recently it appears Fannie and Freddie MBS issuance has been tied to the refinancing market, while Ginnie Mae issuance has been tied to the homebuying market. Ginnie Mae MBS issuance totaled $38.7 billion in October, down only 2.5% from the previous month.

Marathon Asset Management LP, after raising $500 million from investors, has been cleared by the Treasury Department to participate in its 'Public-Private Investment Program' to buy toxic mortgage assets. The New York-based Marathon had already been prequalified by Treasury to invest in legacy assets by partnering with the government, but needed to raise the minimum $500 million to participate. On Monday it publicly announced that it had met the capital goal. The asset manager plans to buy subprime ABS, including both performing and subperforming asset classes. It has been actively reviewing and bidding on portfolios over the past year. Now that it has met the federal capital raise minimum, it can partner with Treasury 50-50 on toxic asset purchases and receive government financing.

The Treasury Department is setting up a Homeownership Preservation Office to ride herd on servicers that are failing to turn trial loan modifications into permanent modifications. The Obama administration also is threatening to impose sanctions and fine servicers with low conversion rates. Servicers participating in the administration's Home Affordable Modification Program have placed over 650,000 borrowers into trial modifications and 375,000 are due to convert to permanent modifications by yearend. The administration wants to achieve the highest conversion rate for those 375,000 borrowers. "We must now refocus our efforts on the conversion phase to ensure that borrowers and servicers know their responsibilities and are converting trial modifications to permanent ones," said Phyllis Caldwell, who heads the new Homeownership Preservation Office. Treasury/Fannie Mae account liaisons are being assigned to monitor servicers' performance. "Servicers failing to meet performance obligations under the Servicer Participation Agreement will be subject to consequences, which could include monetary penalties and sanctions," according to Treasury.