Servicing

Fitch Ratings has downgraded 119 bonds in 85 residential mortgage-backed securities transactions to 'D,' saying the securities have suffered writedowns on the underlying principal. All the bonds affected previously had had 'C' ratings that indicated a default was expected. Eighty of the bonds downgraded were from subprime credit deals and 33 of the bonds downgraded were from alternative-A credit deals. The remaining six bonds were from miscellaneous other RMBS transaction types, according to Fitch.

Mortgage banking firms are now servicing a record $843 billion in GNMA securities, a 46% spike from a year ago, reflecting the increasing popularity of both the FHA and VA loan programs. Moreover, when measured against the on-balance sheet portfolios of Fannie Mae and Freddie Mac, GNMA is now larger than both by tens of billions of dollars. According to figures compiled by National Mortgage News and the Quarterly Data Report, Wells Fargo & Co., continues to dominate the GNMA servicing market with a portfolio that has grown to $215 billion. Bank of America is second with $189 billion. (Figures as of September 30.) Combined, Wells and BoA have a GNMA market share of almost 48%, NMN found, dwarfing the rest of the industry.

Over the past two months the Federal Housing Administration has suspended or "eliminated" at least eight mortgage banking firms from using its insurance program, according to Assistant Housing Secretary David Stevens. Mr. Stevens told reporters at a press conference that the eight firms — which were not identified — "were originating a poor quality book of business." He noted that mortgage banking firms that were approved to do business with the agency between 2005 to 2009 account for just 5% of its overall business. "A vast majority" of FHA's $685 billion book of business consists of what Mr. Stevens called "long tendered institutions." One mortgage banking source told National Mortgage News that the government is now looking into a large number of early payment defaults at a New Jersey-based FHA lender. No further details were available. On Thursday HUD released an audit showing that at the end of September the FHA's Mutual Mortgage Insurance fund had a razor thin capital cushion of just $3.6 billion, or 0.53% of its entire coverage universe. HUD is considering raising premiums to bolster the fund. HUD officials say that despite the thin capital base of the MMI, the fund is constantly bringing in new cash through premiums and that almost 30% of borrowers using the program in fiscal 2009 had a credit score of 720 or better, an all-time high. Four years ago just 12.6% of FHA borrowers had a credit score that high.

Outstanding foreclosure auction notices in Orange County, Calif. — one of the hardest hit housing markets in the state — climbed to 8,895 at the end of September, the highest in this housing downturn and probably the highest ever, according to ForeclosureRadar.com. September's total was up 5% from August and 90% from a year ago. An auction notice, also known as a notice of trustee's sale, is a warning that a home will be offered for sale, usually at a local courthouse. According to The Orange County Register, lender/servicers are facing intense political pressure not to foreclose. The newspaper quoted Sean O'Toole, president and founder of ForeclosureRadar, who said that if foreclosures keep rising politicians might move to stop them, possibly granting bankruptcy judges the power to slash outstanding debt on properties to current market value.

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.