Servicing

Triad Guaranty Inc., Winston-Salem, N.C., now has a deficit in assets of $625 million, as the company lost $102 million for the third quarter 2009. This is an improvement over a loss of $359 million in the second quarter and a loss of $160 million in the third quarter last year. President and chief executive Ken Jones said first-time defaults declined slightly from the second quarter, but new defaults still remain at a high number. Furthermore, the cure rates on existing defaults are at a historic low "and have shown little sign of improving." Triad currently is in run-off. Mr. Jones said to meet all of its existing obligations the company would need to earn $625 million during the run-off. At the end of last year, the deficit in assets was just $137 million.

The average appraiser in most metro markets traveled 13 miles or less to value a property, according to a new survey by the Title Appraisal Vendor Management Association in Pittsburgh. The group is using the results to counter an argument made by the opponents of the Home Valuation Code of Conduct, that appraisal management companies are assigning work to appraisers who have to travel long distances and are not familiar with the neighborhood. One of the reasons AMCs are getting a bad rap is because the whole mortgage industry is changing and more work is going through them, which means there can be pushback from some appraisers and mortgage brokers that may not like how business is business done, says Jeff Schurman, executive director of TAVMA. "We polled our AMC members in light of unsubstantiated statements that AMCs send out-of-market appraisers great distances to value properties," he said. "Based on what our members are reporting to us that's simply not the case." AMCs typically use one of three methods for controlling how far appraisers travel: Geo-coding; ZIP code to ZIP code mapping; and/or order form instructions not to exceed defined distance parameters. The 40 companies in TAVMA represent 85% of the market share in the appraisal management space. That an appraiser services a particular area, how often, and how recently are three critical selection criteria that AMCs use in selecting the most appropriate appraiser for an assignment. "The nature of the business is that appraisers sometimes travel outside of their own neighborhood but that doesn't mean outside of their sphere of professional expertise," said Steve Haslam, CEO, StreetLinks National Appraisal Services.

A pair of real estate investment trusts managed by Vestin Mortgage Inc. saw net losses for the third quarter of 2009 due in large part to their level of nonperforming loans and the increase in properties acquired through foreclosure. Vestin Realty Mortgage I reported a net loss of $4.7 million for the period, compared with a net loss of $6.4 million in the same period in 2008, while Vestin Realty Mortgage II reported a net loss of $17.4 million for the third quarter of this year, compared with a net loss of $40.1 million for the third quarter of 2008. As of Sept. 30, 2009, Vestin I had 21 loans outstanding with an aggregate principal amount of $36.1 million, of which 10 loans with an aggregate principal amount of $24.5 million were considered nonperforming. Vestin II had 28 loans outstanding with an aggregate principal amount of $143 million, of which 11 loans with an aggregate principal amount of $79.5 million were considered nonperforming.

In the short-term, things might be looking up in the housing industry with the news that foreclosure activity is actually down for the third month in a row, according to the October 2009 U.S. Foreclosure Market Report from RealtyTrac. But that doesn't mean the foreclosure tide is turning, an executive from the company said. "The fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery," said RealtyTrac CEO James Saccacio. Default notices, scheduled foreclosure auctions and bank repossessions were reported on 332,292 properties in October, down 3% from September but still up nearly 19% from a year ago. Despite a 26% decrease in foreclosure activity from September, Nevada continued to document the nation's highest state foreclosure rate. A total of 13,842 properties received a filing during the month, a 4% decrease from October 2008. Nevada default notices were down 10% from a year ago, and scheduled foreclosure auctions were down 6%. REO was up 8% from October 2008. A total of 85,420 California properties received a foreclosure notice, 1% less than September but still nearly 50% above October 2008. Default notices and scheduled foreclosure auctions in California increased 120% and 73% from October 2008, when California foreclosure activity was in the midst of a three-month trough after a law (SB 1137) requiring lenders to give distressed homeowners extra notification before initiating foreclosure took effect in September 2008. Florida was third with total of 51,911 Florida properties receiving a filing, down 6% from September and 4% from a year ago. It was the first year-over-year decrease in overall Florida foreclosure activity since July 2006.

The Department of Housing and Urban Development believes the Federal Housing Administration mortgage insurance program has enough cash reserves to stay in the black during the housing downturn — even though its capital ratio is near zero — but is not ruling out a hike in mortgage insurance premiums charged to consumers. In response to a question from National Mortgage News, HUD secretary Shaun Donovan said the agency is "actively looking at its options" to bolster the FHA reserve fund but is "not ready to make an announcement" regarding mortgage insurance premiums. Lenders fear that a hike in the MIP would raise costs for consumers and slow the housing recovery. A much-anticipated actuarial study on the FHA's "Mutual Mortgage Insurance" fund found that the agency had a 0.53% capital ratio at the end of September to cover a $685 billion book of business. In a two-hour public presentation, HUD secretary Donovan stressed that the MMI has $30.7 billion in cash but it has had to set aside $27.1 billion to cover anticipated losses on FHA-backed mortgages, leaving it with a cash cushion of just $3.6 billion. (The FHA reserve fund is required to have a capital base north of 2%.) The new study believes the MMI will stay in the black unless the housing recession deepens. If that happens, the fund will have a negative capital ratio of 0.46%. But if the mortgage market suffers what FHA calls a "downward interest rate shock" the fund could go negative by as much as 2.33%. But Mr. Donovan and FHA commissioner David Stevens said they do not anticipate that happening.

Farmer Mac had net income of nearly $18 million for the third quarter as the company continued its turnaround. A year ago, it had a third-quarter loss of $106 million. Farmer Mac is benefiting from increased guarantee and commitment fees as well as an improved net interest spread. During the quarter, it added $708 million to its portfolio of loans, guarantees and commitments, bringing that total to $10.8 billion as of Sept. 30. Nonperforming assets fell from $97 million at the end of the second quarter to $84.8 million at the end of the third. During the same timeframe, 90-day delinquencies increased from $42.3 million to $59.4 million. The decline in NPAs is because of the sale of three ethanol facilities that were classified as real estate owned. During the quarter Farmer Mac had an other-than-temporary impairment of $1.6 million to write down a $50 million investment in the unsecured debt of HSBC Finance to its fair market value. Since the end of the quarter, Farmer Mac sold $20 million of the debt for $19.5 million. But since the sales price was higher than the carrying value of the debt, the company will record a fourth-quarter gain of $100,000 on the sale.

Six special-purpose property-owning subsidiaries of Los Angeles-based Maguire Properties went into default on their mortgages during the real estate investment trust's third quarter, directly impacting its earnings. The defaults occurred as a result of Maguire's board approving a plan to cease funding cash shortfalls at these properties. The properties are Stadium Towers in Central Orange County, Park Place II in Irvine, 2600 Michelson in Irvine, Pacific Arts Plaza in Costa Mesa, 550 South Hope in downtown Los Angeles and 500 Orange Tower in central Orange County. During the quarter, Maguire accrued default interest totaling $4.6 million as well as regular scheduled interest totaling $7.3 million related to properties currently in default, both of which were unpaid. The net loss for the third quarter of 2009 was $46.8 million, compared to a net loss of $72.5 million for the same period the year prior.

U.S. subprime residential mortgage-backed securities from 2004 are seeing notable deterioration in performance while other recent vintages continue to show signs of stabilization, according to Fitch Solutions indices. "As the good quality loans are refinanced, the remaining pools are on average of lower credit quality, a factor that largely caused the drop in price for the 2004 Subprime Price Index," said Fitch Solutions managing director Thomas Aubrey in a report based on the company's credit default swaps of RMBS indices. "Credit quality among the pools will continue to converge over time as better quality borrowers take advantage of refinancing opportunities, thus leaving the pool with more consistent weaker borrowers." The 2004 vintage Subprime RMBS Price Index dropped by 16.7% to 11.57 in the latest month from 13.91 in the previous month, while the Fitch Total Market Subprime RMBS Price Index dropped more marginally to 8.02 from 8.40 and vintages from 2005 through 2007 experienced slight increases during the same time period. While refinancing affected the 2004 vintage, 2005-2007 vintages were less affected because their loan-to-value ratios precluded refis in many cases, according to Fitch Solutions.

Senate Banking Committee chairman Christopher Dodd, D-Conn., has produced a "discussion draft" of a comprehensive regulatory reform bill that requires sellers of mortgage-backed securities to retain 10% of the credit risk. However, the draft provides a risk retention exemption for government-guaranteed mortgages as well as mortgages purchased and securitized by Fannie Mae and Freddie Mac. In addition, regulators can approve a "total or partial" risk retention exemption for other MBS and allocate risk retention between securitizers and the lenders. The House Financial Services Committee is moving toward approving a similar bill to address systemic risk that also requires 10% risk retention, a mandate that the mortgage industry opposes. "To restore confidence in our markets and encourage investment, we will require companies that sell products such as mortgage-backed securities to keep 'skin in the game' so that they won't sell worthless securities to investors," Sen. Dodd said. His bill also creates an independent Consumer Financial Protection Agency to protect consumers from "hidden fees and abusive terms" so they know they are being offered "safe" mortgages and other products, he said. Sen. Dodd said he would seek input on his draft bill and reach out to Republicans in an attempt to mark up and approve a bill by the first week of December. Dodd's CFPA plan focuses on companies that "pose the greatest risk to consumers — mortgage bankers, brokers, finance companies and the largest institutions," according to a legislative summary.

The Florida housing market continues to suffer from high delinquencies with 22% of all mortgages in the state reported as noncurrent at the end of September, according to a new report from Lender Processing Services. Jacksonville, Fla.-based LPS called Florida one of the most troubled states, noting that 10.4% of mortgages there are in foreclosure. LPS says the nationwide foreclosure rate grew to 3.12% at the end of September, a sequential increase of 2.6% and a 12-month spike of 88.9%. The software and analytics firm warns that there are looming problems on the way. "The number of loans deteriorating further into delinquent status is now more than twice the number of foreclosure starts, indicating another major wave of troubled loans in an already clogged loan pipeline," it says in its report. "Nearly one-third of foreclosures remain in presale status after 12 months, twice as many as the year prior."