Servicing

With its holdings of non-performing and performing mortgages beginning to swell, the Federal Deposit Insurance Corp. plans to hold more legacy loan auctions in the first-half of 2010. "We are continuing to develop the legacy sales program and gauging market interest in the program," said FDIC chairman Sheila Bair. The FDIC's board of directors is still working on several policy issues that need to be resolved, including eligibility requirements and how to prioritize institutions. FDIC has completed one legacy loan sale involving $1.3 billion of residential mortgages that belonged to the failed Franklin Bank in Houston. The winning bidder put up $64.2 million in cash to purchase a 50% equity stake in the pool and FDIC provided leverage financing for the purchase of the assets. But the Franklin sale involved a failed bank. FDIC wants open banks to use the 'Legacy' program to unload problem assets. "Cleansing balance sheets is absolutely necessary to strength the industry's capacity to lend to businesses and consumers," she said.

Sales of single-family existing homes jumped 9.7% in October following an 8.7% jump in September, as first-time buyers rushed to take advantage of the $8,000 tax credit, according to the National Association of Realtors. NAR economist Lawrence Yun expects robust sales in November and a drop off in December. "With such a sales spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer," he said. The Realtors reported that sales of previously owned single-family homes jumped to a seasonally adjusted annual rate of 5.33 million in October from 4.86 million in September. The first-time buyer tax credit was due to expire at the end of November, but Congress extended it and created a new $6,500 tax credit for repeat and move-up buyers. The extension runs from Dec. 1 through April 30 and it gives buyers with a binding sales contract an extra 60 days to close. The median sales price of a single-family home in October was $173,100 in October, down 6.8% from a year ago. The Realtors noted that 30% of sales involved short sales and foreclosed properties. Meanwhile, inventories of unsold homes, including condominiums and coops, fell to a seven-month supply at the current sales pace. The supply of homes on the market is now at the lowest level in two and a half years, the NAR chief economist said.

The National Reverse Mortgage Lenders Association is in the final stages of "publicly naming" an overly aggressive third-party lead generation company which has consistently violated the group's ethics and standards policies. A public naming is the last of six different sanctions that NRMLA can place against its members. The company, which still has the opportunity to appeal, already has been placed on probation, then suspended and finally expelled from the group, according to President Peter Bell, who declined to reveal the identity of the rogue company. "Now we're ready to report (the company) to the authorities and alert our members," he said. Four to six cases a month come before NRMLA's ethics panel, 70% because of problems with their advertising, the NRMLA leader told the conference.

False and misleading advertising was described at the National Reverse Mortgage Lenders Association's annual conference in San Diego as a "cancer" on the reverse lending business. "Even legal is not a high-enough standard, not in the eyes of the people looking over our shoulders," said NRMLA president Peter Bell during a session which covered many of the words, phrases and other come-ons that have attracted the ire of consumer advocates and policy makers. "Bad advertising is a poor reflection on each and every one of us," agreed moderator Jean Noble of Senior Lending Network, Melville, N.Y., a reverse mortgage servicer. Misleading advertising is "a huge liability for everybody in this room," Richard Peters, a direct marketing expert and a consultant to MetLife Bank's Reverse Mortgage Division, told the 650 attendees. "It takes 20 good ads to overcome one bad one." Poorly worded direct mail pieces, many of which are designed to look like they came from a government agency, "have policy makers hopping mad," Mr. Bell said. "Most of the regulatory issues we face are triggered by this kind of stuff." Noting that reverse mortgage lenders are working with a vulnerable population that is a protected class, the NRMLA president said the industry "has a duty to do more than use effective advertising."

Bank of America plans to sell $460 million of mortgage securities backed by commercial real estate loans without relying on a Treasury program to aid lending in that market. According to Bloomberg, the security is backed by mortgages on office and industrial properties in Florida. The bonds are split into four portions, the largest of which is $350 million of top-rated debt. Fortress Investment Group LLC is the sponsor of the transaction.

The House Financial Services Committee has approved an amendment that cuts a 10% risk retention requirement on sales and securitizations of mortgages down to 5%. Industry groups supported the amendment by Rep. Walt Minnick, D-Idaho, that was approved by a voice vote and attached to a regulatory reform bill. The Mortgage Bankers Association and others are disappointed, however, that the amendment does not exempt Federal Housing Administration, Fannie Mae and Freddie Mac eligible loans from the 5% risk retention requirement. "It is a step in the right direction. But we would like them to go further," said MBA senior vice president Steve O'Connor. The Minnick amendment gives regulators the discretion to set the risk retention requirement between zero and 5%, depending on the quality of the loans. But industry groups really wanted a total exemption for FHA, Fannie and Freddie loans that was included in a subprime lending bill (H.R. 1728) the House passed in May. Only loans guaranteed by the Department of Veterans Affairs and the Rural Housing Service are totally exempt under the Minnick amendment.

Credit scores on FHA single-family loans have risen steadily over the past three years with the average score reaching 689 at the end of September, a 10% improvement from a year ago. Lenders originated a record $328.1 billion in Federal Housing Administration loans in FY 2009 and 44% of the loans have FICO scores above 680. Only 13% have FICO scores below 620, which is generally considered subprime. In FY 2007, when FHA endorsements totaled $55.5 billion, only 19% of the loans had FICO scores above 680 and 47% of the loans had FICO scores below 620. (FICO stands for Fair Isaac & Co., which compiles credit scores on consumers.) "The improved credit quality of FHA's recent originations debunks the myths that FHA is being overrun by subprime loans," said Brian Chappelle, a partner in Potomac Partners of Washington. Mr. Chappelle is basing his beliefs on a recent audit of FHA's single-family portfolio and a FHA report to Congress. He noted that loans with FICO scores above 680 perform four-times better than loans with FICOs below 620.

The sale of $11.5 billion in jumbo servicing rights belonging to the bankrupt Thornburg Mortgage of Santa Fe has cleared another hurdle but it's still unclear when bids will be taken. According to investment bankers familiar with the deal, Thornburg's trustee in Baltimore has approved an advisor to sell the receivables. (The jumbo lender/servicer filed for bankruptcy protection in Maryland earlier this year.) It's still unclear when a formal bid process might start but brokers in the servicing market are aware the deal is in the works. Meanwhile, The Prestwick Group, Alexandria, Va., is selling two small servicing packages - a $34 million package of Fannie Mae/Freddie Mac and private investor rights. The seller is a national bank and the liens are on homes in South Carolina. The company also is selling a $16 million FHA Government National Mortgage Association portfolio. Interactive Mortgage Advisors, Denver, and MIAC, New York, also have packages out for bid.

Tourmalet Advisors, a Connecticut-based hedge fund, is in the process of raising $500 million to invest in nonperforming mortgages, according to an offering circular provided to National Mortgage News. Tourmalet has already invested $460 million in nonperforming loans (NPLs) through its "Matawin Fund" and has formed joint venture partnerships with other vulture funds including Kondaur Capital, Irvine, Calif. Tourmalet was founded earlier this year by Michael Corasaniti, a former managing director of Pequot Capital. During his career he also has worked in research at Keefe, Bruyette & Woods where he served as a vice president. At press time Tourmalet's investor relations department had not returned a telephone call about the capital raise. Hedge funds have been raising money and eyeing the NPL market for 18 months, but to date, few large sales have taken place.

LoanMarket.net, Irvine, Calif., which operates a website offering individual mortgages for purchase, has branched out into offering loan pools. It closed its first pool sale in August and currently has several more packages out for bid, said company principal Jeff Freud. "We hope to close a pool or two a month," said Mr. Freud. For now, the firm is focusing on package sizes ranging from $20 million to $100 million. The company is offering both performing and nonperforming mortgages as well as commercial and residential. Mr. Freud said banks are selling nonperforming loans (usually in small amounts) but noted that none are publicizing their deals. "Deals are closing," he said, "but no one wants to talk about it."