Servicing

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.

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.