Servicing

The Prestwick Mortgage Group of Virginia is offering a $966 million package of Fannie Mae and Freddie Mac servicing rights, setting a bid deadline of Nov. 19. The receivables are backed by loans in Michigan with an average unpaid principal balance of $113,319. The seller is a Michigan bank, which originated the product through its retail branches. Prestwick declined to identify the firm. Just under 5% of the portfolio is delinquent, including foreclosures. In other servicing deals, investment bankers still hope to sell a $12 billion package of jumbo servicing rights belonging to the now-defunct Thornburg Mortgage of Santa Fe. A final decision on the proposed auction — which hinges on bankruptcy court approval — could come in the next week.

The Treasury Department is relying on Fannie Mae and Freddie Mac to oversee servicers participating in the Home Affordable Modification Program but the two GSEs have completed a very low percentage of those modifications on their own loans. The Obama administration launched HAMP in April and so far 650,000 borrowers have been placed in trial modifications, including 150,000 borrowers in October. Freddie reported that its servicers have enrolled 88,000 delinquent homeowners in the HAMP trials and reduced their mortgage payments. But only 471 borrowers had successfully completed the trial-payment period and received permanent modifications as of Sept. 30. Fannie Mae servicers have placed 189,000 borrowers in HAMP trials. But the government-sponsored enterprise said in its third-quarter financial report that only a "low percentage of our trial modifications had converted into completed loan modifications." In their third-quarter securities filings, the GSEs cite several reasons for the low completion rate, including the time and difficulty servicers face in collecting borrower information to document and finalize the modifications. "Because some borrowers may not make all the required trial period payments, and because of the additional time that has been provided to obtain the required documentation, it is difficult to predict the rate at which our trial modifications will convert into completed modifications," Fannie said. The Treasury Department regularly reports on the number of borrowers in HAMP trials but not the completion rate.

Paladin Strategic Partners has acquired a controlling interest in HomeSaver Mortgage Management LLC, an asset management company that uses private capital to acquire bank owned portfolios of troubled mortgages. "HomeSaver employs an aggressive and 'socially responsible' workout approach toward loan remediation," said Carl Webb, managing partner of Paladin. "We feel that HomeSaver has demonstrated what the nonbank private sector, unburdened by legacy assets, can do to achieve ultimate resolution of the residential mortgage nightmare." HomeSaver and its partners believe that the number of borrowers facing foreclosure will increase considerably over the next 12 months.

The Peter Cooper Village/Stuyvesant Town $3 billion A-Note loan has been transferred to CWCapital, a specialty servicer, due to the sponsors' request for relief. Details of the request for relief by Tishman Speyer Properties, LP and Blackrock Realty have not been disclosed. New York-based Fitch Ratings expect debt service reserves to be depleted by the end of December. In addition, Fitch expected the transfer of the loan to special servicing as cash flow generated by the property remains insufficient to service the debt. Peter Cooper Village/Stuy Town comprises 56 multi-story buildings situated on 80 acres and includes a total of 11,227 apartments. The loan sponsors Tishman Speyer Properties and BlackRock Realty acquired the property with the intent of converting rent-stabilized units to market rents as tenants vacated the property. However, the conversion of units has since been determined to be illegal by the New York State Court of Appeals. In addition to the $3 billion securitized balance, there is an additional $1.5 billion of mezzanine debt held outside the trust.

The Government National Mortgage Association guaranteed a record $418 billion in mortgage-backed securities in fiscal year 2009, but it turned out to be less profitable than in previous years. Net income totaled $509.6 million in FY 2009, down from $1 billion in FY 2008 when Ginnie MBS issuance totaled only $277 billion. Low interest rates appear to be the culprit, according to an audit of Ginnie Mae's financial status and internal controls by the accounting firm Carmichael, Brasher, Tuvell & Co. The annual audit shows that Ginnie's interest income fell to $109.5 million in FY 2009 from $633.5 million in FY 2008. MBS program revenue totaled $547.8 million, up from $373 billion in the previous year. The audit also shows that defaulted Ginnie Mae issuers have left the agency with $26.2 billion in single-family loans, up from $400 million in FY 2008. Ginnie Mae also could suffer losses due to the recent bankruptcy filing of Capmark Financial, which has issued $7.5 billion in Ginnie Mae multifamily MBS. "Estimated losses on this default are not readily determinable," the auditors said. However, Ginnie Mae has $560 billion in a loan loss reserve that "management believes ... is adequate to cover any losses" related to Capmark's MBS.

Fannie Mae has given more than three-dozen credit unions until next week to accept an offer of pennies on the dollar for some $125 million of their mortgages that defunct U.S. Mortgage/CU National Mortgage fraudulently sold to Fannie. So far, only two of the credit unions have accepted the offer, detailed this afternoon in a letter to Fannie Mae's federal regulator from National Credit Union Administration chairman Deborah Matz, who expressed concern at the losses faced by affected credit unions. "I appreciate Fannie Mae is also a victim of this crime," said Mr. Matz in a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency. "However, the financial impact of CU National's fraud on these member-owned cooperatives is significant. Indeed, for some of the credit unions, their losses will be so great as to force our agency to take drastic action under the prompt corrective action rules." Neither Fannie nor the FHFA returned telephone calls. Both the credit unions and Fannie were victims of a massive fraud perpetrated by Michael McGrath, the president of U.S. Mortgage and its CU National subsidiary which sold $140 million of mortgages held on behalf of credit unions to the GSE without authorization and kept the money. McGrath has pleaded guilty to the huge fraud, agreeing to forfeit almost $15 million in assets, leaving a $125 million loss for the CUs. Fannie has given the credit unions until Nov. 16 to accept the offer but so far only two have agreed. Fannie, which has rejected requests to give the mortgages back, has offered to settle with the credit unions for what would amount to less than 20% of the value of the mortgages. If those credit unions realize the 80% of losses it could push several of them into insolvency.

Short sale listings, all 10,383 of them, outnumber foreclosures two-to-one in the Las Vegas area, but take-backs are outselling short-sales by a ratio of four to one, according to local broker Robert Jenson of the Jenson Group. And together, distressed properties of both varieties accounted for 79% of the 3,235 Sin City properties which changed hands in October. That's down two percentage points from 81% last month, Mr. Jenson reports, and it's the lowest share of the market since September a year ago. Overall, the luxury broker says in his monthly report, inventory, sales and prices have remained relatively flat. The total number of properties on the local MLS is 19,891, including 626 manses and 30 condos offered at $1 million or more, and the average price paid in October was $159,959. That's $24 more than in September, but $83,000 lower than the average in September 2008.

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. 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, the chairman told reporters. Sen. Dodd said he will 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 plans focuses on companies that "pose the greatest risk to consumers — mortgage bankers, brokers, finance companies and the largest institutions," according to a legislative summary.

Fraud continues to flourish in unstable metro areas in Arizona, Nevada, Southern California and Florida and is popping up in surprise locations like Bend, Ore., according to panelists at the SourceMedia Loan Modification Conference in Dallas. Ann Fulmer, vice president of business relations at Interthinx, said fraud is increasing in these markets among distressed borrowers through foreclosure rescue and loan mod scams. The industry is seeing illegal flipping of REO properties, false appraisals, tarnished broker price opinions and loan reductions in short sales. "There is no training in fraud recognition for servicers. They are pressed for time," she told conference attendees. It is crucial to find ways to train key loss mit staff and to verify a property's listing history, the speakers stressed. Lenders and servicers should create a red flag list within the shop of what to look out for, including a list of other parties and companies they work with on a regular basis, and identify borrowers with multiple loans for properties. In Dallas alone, Chris Day, a special agent in mortgage fraud from the FBI, said there are 75 cases of fraud, each one with at least $1 million in losses, and Dallas "isn't even a fraud hot spot." It is members of the industry who will correct this problem, he said. "Separate each transaction out. Identify things that don't fit. False companies and associations to maybe another case."

Over the past nine months Freddie Mac has received $658 million from mortgage insurance firms to cover losses on delinquent loans, but in a new public filing the GSE reveals that if the MI industry collapses its risk exposure would be $63.4 billion. Eight different MI firms have written policies on Freddie Mac loans with MGIC and Radian being the two largest in terms of outstanding coverage, $15.5 billion and $12.1 billion, respectively. Despite the shaky state of the housing market not one MI has failed, though one company, Triad Guaranty, is in self-liquidation mode. In a filing with the Securities and Exchange Commission, Freddie notes that it has "institutional credit risk" relating to "the potential insolvency or nonperformance of mortgage insurers" that cover its loans. But the GSE also says that based on "currently available information" it expects that all of its MI counterparties will continue to pay claims even though many have received "credit watch negative" ratings. The $63.4 billion figure represents the "remaining aggregate contractual limit for reimbursement of losses" of principal, Freddie says.