Servicing

The Department of Housing and Urban Development late Tuesday unexpectedly delayed the release of a much-anticipated audit of the FHA's capital reserves, raising questions about the accuracy of some of the findings. The delay fueled industry speculation that the government insurance fund is perilously close to reaching the zero mark. In a statement, FHA commissioner David Stevens said the government asked its outside auditor, IFE Group of Rockville, Md., "to run additional economic scenario testing above and beyond what was going to be included in the actuarial study to better understand a broader range of risk scenarios." Based on what it saw of the results, FHA raised questions about the accuracy of IFE's modeling. The auditor then told FHA that it should not treat the report as final. IFE is now running additional tests to ensure that the final report is accurate, FHA said. FHA insures just over $700 billion in mortgages. At midyear its reserves stood at just under $8 billion. But with claims rising that number may have fallen below $5 billion, according to industry sources. Ed Pinto, an industry consultant and FHA critic, said Tuesday that he believes the audit results will be based on "overly optimistic" assumptions relative to the fund's delinquencies, cure rate on defaulted loans and success rate on loan modifications. Mr. Pinto told National Mortgage News that if the FHA's reserves do in fact go negative, "however small that number is, it will be ominous." HUD officials could not be reached for comment.

Despite changes by the Financial Accounting Standards Board in March that were expected to stem fallout caused by other-than-temporary impairment charges at the Federal Home Loan banks, the system is continuing to suffer massive losses on its portfolio of mortgage backed securities. Many FHLB representatives praised the FASB after it amended its rules concerning OTTI to limit them solely to credit risk. But it has become clear that the credit risk embedded in the system's portfolios of private-label mortgage-backed securities is significant. During the third quarter alone, the system's credit-related OTTI charges totaled $1.042 billion. That is more than half of the $1.995 billion in OTTI charges the system has taken all year. The impact of the charges has been painful; the system said last week it lost $165 million during the quarter. "This is an indication of the magnitude of their exposure to these kinds of securities," said Brian Harris, an analyst at Moody's Investors Service. "The credit pieces are becoming larger." Home Loan Bank representatives acknowledged that, even with the FASB's change, OTTI charges will remain a big challenge for the system. "The private-label mortgage-backed securities market continues to be a weight on the Federal Home Loan banks' earnings," said John von Seggern, president of the Council of Federal Home Loan Banks.

Telemetry Investments, a New York-based hedge fund that has been investing in non-performing residential loans, is reportedly leaving the space. According to brokers and investors that play in the market, Telemetry is trying to unload the last of its residential holdings. The company did not return a telephone call about the matter. It is not believed to be that large of a player in the NPL market.

Technology provider Lender Processing Services, Inc. plans to give servicers more REO management options through its acquisition of the Chicago-based auction company, Rising Tide Auctions. The move will allow LPS, located in Jacksonville, Fla., to help servicers minimize REO timelines and reduce costs through its new component called LPS Auction Solutions. Buyers and investors will now have the ability to purchase individual or multiple bank-owned properties directly from the nation's leading REO disposition service provider. Servicers working with LPS Auction Solutions will benefit from the company's ability to manage all aspects of the auction process from beginning to end, including data collection, property due diligence, open house showings and the auction event, said Chad Neel, president of LPS Asset Management and Field Services. To help ensure timely REO dispositions, LPS utilizes a broker outreach program to encourage broker participation in the auction events. Web-based technology is used to communicate property details to potential buyers, enables the initiation of pre-emptive sales and allows simultaneous online bidding. Reporting functionality keeps servicers informed by providing access to sales metrics, auction day selling data and post-auction escrow information.

Federal regulators have issued guidance that encourages banks to refinance or restructure commercial real estate loans despite declines in property values and rents. "The financial regulators recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions," according to a policy statement issued by the Federal Financial Institutions Examination Council. The policy statement provides examples of prudent CRE workouts. It also stresses the importance of the borrower's willingness and capacity to repay the mortgage. The guidance tells examiners not to adversely classify prudent workouts, even in cases where the borrower is associated with an industry that is facing financial difficulties. CRE loans that are "renewed or restructured in accordance with prudent underwriting standards should not be adversely classified or criticized unless well-defined weaknesses exist that jeopardize repayment," the guidance says.

DebtX, the loan market place whose list of clients includes the government, has named Bill Looney president of U.S. loan sales. Promoted from his position as executive vice president, he will continue to manage all of the firm's loan sale operations, including oversight of residential and commercial auctions. He has worked for the Boston-based company since 2000. He joined the then-upstart from the law firm of Looney, Cohen, Reagan & Aisenberg where he represented banks and investment bankers on commercial loan sales and related matters.

The incidence of property valuation fraud rose 46% in the third quarter compared to the same period a year ago, according to a new report from risk mitigation firm Interthinx. Interthinx noted that on a sequential basis property valuation fraud jumped 25%. The company, whose software helps lender/servicers track fraud, said it is seeing a continued shift to fraudulent schemes involving short sales, real estate owned inventories and refinancing by borrowers whose equity has been impaired by falling real estate values.

Concerned about a coming wave of foreclosures on payment option ARMs, California Attorney General Edmund wants some of the state's largest servicers — including Bank of America and Wells Fargo — to detail their plans on how they will help homeowners facing dramatic monthly payment increases on these controversial loans. According to figures compiled by National Mortgage News and the Quarterly Data Report, Wells and BoA (through acquisitions of failing franchises) are two of the largest holders of POAs. In total, AG Brown sent a letter to 10 residential servicers including JPMorgan Chase, Litton Loan Servicing (a unit of Goldman Sachs), Residential Capital Corp., Ocwen Financial Corporation, OneWest Bank (formerly IndyMac), American Home Mortgage Servicing, Saxon Mortgage (a unit of J.P. Morgan), and Select Portfolio Servicing. The companies need to respond to the AG's office by November 23. Mr. Brown called POAs "ticking time bombs that the lending industry has the power to defuse," adding that "Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures." According to NMN/QDR, there at least $500 billion in outstanding POAs in the U.S.

PennyMac, the mortgage vulture fund founded by a former top executive at Countrywide Financial Corp., has registered $25.8 million worth of additional stock, according to a new public filing. In total, the firm registered 1,368,851 shares at a proposed maximum offering price of $18.91, according to the company's S-8 filing with the Securities and Exchange Commission. Formally known as PennyMac Mortgage Investment Trust, the company went public this past summer and has yet to release any earnings. In trading Friday its stock was at $18.55 compared to a low of $18.34 and a high of $20. A spokesman for the company did not return a telephone call about the filing. Besides investing in delinquent loans, PennyMac is also a specialty servicer.

Even though Genworth Financial posted a small profit in the third quarter, its U.S. mortgage insurance division continued to lose money, albeit at a lower rate. The MI unit posted a $116 million net operating loss in the quarter compared to a $121 million loss in the same period a year ago. Genworth said its primary insurance-in-force declined by $25.8 billion versus the prior year from a combination of lower net insurance written, rescissions, and higher claims paid. Genworth recently increased its maximum loan-to-value ratio to 95% in 199 metropolitan areas (from 90%) but has maintained more stringent LTVs in such battered markets as California, Florida, Arizona, Nevada and Michigan. The company noted that its U.S. MI business "achieved three consecutive quarters of increased loss mitigation savings and decreased losses." The life and mortgage insurer reported net income available to common shareholders of $19 million compared to a loss of $258 million in the year ago period. Meanwhile, in Friday afternoon trading most mortgage insurance stocks were tumbling along with the rest of the Dow, which fell 268 points in mid-day trading. However, Genworth, and Triad Guaranty of Winston-Salem, were exceptions. Triad, whose stock rose slightly, is in the process of self liquidating.