Servicing

With the nation's unemployment rate busting through the 10% mark in October, President Obama on Friday signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up. Passed overwhelmingly by Congress, the bill would provide a $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1. The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous eight. But there are caps on the tax credits. They only apply to individual buyers who make no more than $125,000 and $250,000 for couples. There is also an anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money. The FTHB was extended to cover consumers signing a contract by April 30 and closing by June 30. Meanwhile, the Department of Labor reported Friday that the nation's unemployment rate rose above 10% for the first time since 1983 in October, a much worse jump than expected. The increase in joblessness will lead to an upswing in residential mortgage delinquencies. In October the unemployment rate spiked to 10.2%, compared to 9.8% in September. Economists had forecast an increase to 9.9%.

Residential servicers, a sector that is grappling with a potential tidal wave of loan modifications, are beginning to hire "like crazy" according to Mary Coffin, a senior servicing executive with Wells Fargo Home Mortgage. Ms. Coffin, speaking at SourceMedia's Loan Modification Conference in Dallas, noted that new servicing employees working on modifications are receiving four to five weeks of training in order to deal with the volumes they are facing. An EVP in charge of loan servicing for the nation's second largest player in mortgages, she said servicers are going much deeper in collecting financial information from the borrower. "Servicers have become very holistic looking at the entire problem. We are actually underwriting the financial condition of the borrower in order to pick the right solution that is sustainable," she told conference attendees. The Wells executive noted that there is still much confusion regarding documentation under the government's Home Affordable Modification Program, including re-requesting documents and losing documents. "Because of all the attention on mods, we went from a day when borrowers called to say, 'What can I do?' to sorting through calls and educating borrowers. We are still educating them on what you have to look like before you can get a mod. Borrowers have a high anxiety and fear when signing complex documents."

Even though residential originations swelled in the third quarter, the mortgage banking and brokerage sectors continued to shed jobs in September, according to new government figures. The mortgage banking industry employed 192,400 full-timers during the period, a loss of 1,800 positions from the previous month. (The mortgage numbers trail the national figures by one month.) Broker-related positions dropped 1% to 66,900 positions. (The numbers are exclusive of each other.) According to figures compiled by National Mortgage News and the Quarterly Data Report, residential lenders are on track to fund $2.1 trillion in loans this year, compared to $1.6 trillion last year. The Mortgage Bankers Association believes lenders will fund just $1.5 trillion in 2010, setting the stage for layoffs. Jay Brinkmann, chief economist for MBA, said lenders are holding off on making any personnel decisions until they have a clearer picture of what next year will look like in terms of production. If MBA's forecast proves correct, fundings will fall by 29% next year. However, firms are increasing their staff levels in servicing, loan modifications and compliance, which could buffer the layoff picture for mortgage professionals. During the height of the origination boom three years ago bankers and brokers employed more than 500,000 full time workers.

Wilshire Credit Corp., Beaverton, Ore., is talking to Fannie Mae about becoming a "force-placed" servicer for the GSE, according to investment banking sources familiar with the situation. A Fannie Mae official had no comment and Wilshire did not return a telephone call about the matter. A source close to the situation noted that Fannie is talking to IBM - which recently bought Wilshire's operating assets - about a contract of some type but declined to elaborate. IBM bought Wilshire from Bank of America in October. Merrill Lynch, now a part of BoA, bought Wilshire earlier in the decade.

GMAC Financial Services said during its third-quarter conference call that it would no longer provide separate quarterly or annual reports for Residential Capital Corp., its troubled residential mortgage division. The decision angered analysts that follow the company, which is 35% owned by the government. "It just doesn't send a very good signal to people on our side of the market," Sarah Thompson, a bond analyst at Barclays Capital, said on the call. Craig Emrick, a vice president and senior credit officer at Moody's Investor Service, lamented that there would be a "significant decline in the level of information provided publicly." Because only 300 investors hold ResCap's $4 billion of debt, Securities and Exchange Commission rules do not require it to file financials with the agency. GMAC's chief financial officer, Robert Hull, said the change would save it a "tremendous" amount of money, though he did not specify how much. The row with analysts comes as the $178-billion-asset GMAC has been trying to become less reliant on the capital markets for its funding by expanding the deposit gathering ability of its depository, Ally Bank. ResCap lost $747 million in the third quarter - thanks in part to loan repurchase liabilities - but its performance was a marked improvement over a $2 billion loss in the same period last year. It ranks fifth nationwide in originations.

A loss of $139 million in its mortgage servicing segment was the primary reason for a third-quarter net loss of $52 million at PHH Corp., Mount Laurel, N.J. The mortgage servicing loss was driven by a negative valuation adjustment on mortgage servicing rights of $186 million. Prepayments and portfolio decay were responsible for a $97 million reduction in the value of MSRs while lower rates forced the company to take an $89 million valuation adjustment. Prepayments of the MSRs' underlying mortgages went from $33 million in the third quarter of 2008 to $50 million for the most recent period. Sandra Bell, executive vice president and chief financial officer, noted, "We expect higher delinquency rates to continue to impact credit-related charges through the balance of the year and into 2010, which will likely negatively impact our mortgage servicing segment." Delinquencies at the end of the third quarter by percentage of unpaid balance were 2.28% for loans 30 days late, 0.79% for 60 days late and 1.47% for 90 days or more late. A year ago, those numbers were 2.03%, 0.55% and 0.53%, respectively. The mortgage production segment had a profit of $46 million for the quarter. PHH had origination volume of $9 billion for the period, with 50% coming from purchase loans. Jerry Selitto, PHH's new president and chief executive, said the improved results in the mortgage origination and fleet services businesses were more than cancelled out by the MSR issue. "PHH has been making steady progress in recent quarters, including the signing of a major new private-label account with $1.5 billion in annualized potential origination volume, but we are not satisfied with our financial performance - and we need to move quickly and aggressively to make PHH as competitive as possible for the long term, while staying true to our core, client-focused values," he said.

Cary Sternberg has been appointed president of the newly formed asset management company Excellen REO, a subsidiary of Titanium Holdings Inc. He plans to gear up this month by hiring asset managers to start servicing assets by January 2010. Mr. Sternberg, a former senior vice president in American Home Loan Servicing Inc.'s real estate-owned department, has over 40 years of experience in asset preservation, management and liquidation. According to Titanium, Mr. Sternberg will manage the strategic direction of the company, overseeing day-to-day operations, creating policies and procedures and establishing the internal growth of the company. The company plans to develop a base network of real estate agents nationally that could grow as large as 1,200 agents. Many of those agents are slated to come from Titanium Solutions' housing retention consultants with past REO experience. All brokers and agents will be required to have passed the REO practices and advanced valuation courses and will be using the RES.NET software system, according to the company.

Old Republic International Corp., Chicago, is in a dispute with its auditors, PricewaterhouseCoopers LLC, over the reporting of reinsurance transactions undertaken by its mortgage guaranty business. In the third quarter, Republic Mortgage Insurance Co. recaptured business that was ceded to several captive reinsurers. ORI recorded proceeds of $149 million on the deal but established claim reserves of $68.4 million and premium reserves of $82.5 million. ORI had planned to shift the premium reserves to earned premiums in future quarters based on an amortization schedule. However, PwC said based on its analysis of the recapture transactions and its interpretation of generally accepted accounting principles, the $82.5 million should have been recognized in the third quarter 2009 results. ORI said its management believes recognition of that amount in the current quarter would create the appearance of much improved results where none existed or occurred. ORI said it would petition the Securities and Exchange Commission to resolve the matter. If PwC's position prevails, ORI's net operating loss of $66 million in the third quarter would be reduced to a net operating loss of $12.5 million. RMIC's net operating loss would be reduced from $103 million down to $49.3 million for the quarter, while the pretax operating loss would be whittled from $160.4 million down to $77.9 million.

Treasury Department officials are warning state and local housing finance agencies that the Obama administration's recently unveiled temporary bond purchase program is oversubscribed and that agencies will likely receive less assistance than they requested as a result. The officials issued the warning late last week and asked the HFAs to identify their peak years of issuance from 2004 to 2008 for both single-family and multifamily issues to help determine how much they should receive under the relief program. The agencies had to provide that information to the Treasury by noon on Monday, including CUSIP numbers or other ways to verify the information. The scale-back comes after Michael Barr, Treasury assistant secretary for financial institutions, last month declined to put a dollar amount on the program and instead told reporters it would be sized to meet demand. "We felt it is important to build estimates for the program from the ground up," he said during an Oct. 19 press conference when the temporary New Issue Bond Program was announced. Mr. Barr said at the time that there would be some form of ceiling on the size of the programs, but did not give any specifics. Program participants said yesterday that they do not know the total amount of allocations requested by the HFAs under the program and federal regulators could not be reached for comment.

The mortgage division of GMAC Financial Services lost $747 million in the third quarter — thanks in part to loan repurchase liabilities — but its performance was a marked improvement over a $2 billion loss in the same period last year. GMAC's residential unit, Residential Capital Corp., is still grappling with a large portfolio of nonperforming mortgages, $7 billion compared to $8.5 billion a year ago. ResCap originated $15.8 billion in the third quarter, a 33% gain from the third quarter of 2008. Year-to-date, its fundings are almost on par with last year. According to the earnings statement, GMAC took a $515 million charge because of mortgage repurchase requests. No details were provided. ResCap is the nation's fifth largest player in mortgages, according to National Mortgage News and the Quarterly Data Report.