Servicing

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."

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.