Servicing

The struggling GMAC Financial Services sold $2.9 billion in government-backed debt late on Oct. 28, ahead of a regulatory deadline in November that will test the mortgage/auto lender's capital levels and ability to absorb losses. The bonds are senior fixed rate notes guaranteed by the Federal Deposit Insurance Corp. under its Temporary Liquidity Guarantee Program. Thanks to the government guarantee, the notes will be rated AAA by all three major rating agencies. GMAC is a bank holding company that controls Residential Capital Corp., the nation's fifth largest residential lender and servicer. The government has invested $12.5 billion in the company to date and owns 35% of it. Concerns that GMAC could fail the impending capital test had sent the cost of insuring debt at its residential mortgage arm, Residential Capital, spiraling in the past week as investors worried that the unit would need to be spun off.

A cease and desist order has been signed by McIntosh State Bank, the Georgia Department of Banking & Finance and the FDIC to correct identified problems "in a good faith effort" in regards to the bank's concentration in residential real estate acquisition, development and construction loans. Pete Malone, chief executive officer, said the Jackson, Ga. bank has already met many of the order's requirements. "The bank has plans to raise additional capital to meet the terms of the agreement. This is in addition to the $3 million in capital injected by the bank's directors and executive officers in December 2008," said Mr. Malone. One of the biggest accomplishments in 2009, he said, was the company's ability to sell over $8.4 million of foreclosed real estate, he said. McIntosh State Bank also has an additional $1.5 million in real estate under contract. According to the company, many Georgia banks with significant concentrations of nonperforming assets are believed to be subject to some form of enforcement action. McIntosh State Bank has two banking offices in Henry County, one of the hardest hit areas in Georgia. "Because much of our bank's market is located in the South Atlanta region, we participated in the area's real estate growth and its subsequent slowdown. We are very focused on addressing our problems and working through them," said Mr. Malone.

Refinancings of Federal Housing Administration-backed reverse mortgages doubled in the past fiscal year as the loan limit jumped to $625,000 and interest rates fell. Seniors refinanced 8,985 FHA-insured home equity conversion mortgages in fiscal year 2009 (which ended September 30), compared to 4,435 refinancings in FY 2008. Refinancings became more attractive because Congress established a nationwide HECM loan limit of $417,000 in November 2008 and then raised it to $625,500 in February 2009. Overall, lenders originated $29.9 billion in HECMs in FY 2009, compared to $24.7 billion in FY 2008. In terms of the number of loans insured, HECM originations rose just 2.3%. Congress also passed legislation last year making it possible for seniors to purchase a home with a HECM for the first time. The new purchase option went into effect January 2009. During the first nine months of the year 550 seniors used a HECM to purchase a home.

Zillow Mortgage Marketplace, an online lead generation site, says consumer requests for refinancing their loans rose 39% in the first half of October compared to the same period in September. Zillow says the catalyst for the searches was mortgage rates dropping below the 5% level during that time frame. "When rates drop to record lows we see homeowners move quickly to take advantage," said Stan Humphries, Zillow's chief economist. "But, as the Federal Reserve ramps down its purchase of mortgage-backed securities, I expect rates will rise somewhat by the end of the first quarter of 2010."

For the third quarter of 2009, five of the top 10 metro areas reported decreasing foreclosure activity from the third quarter of 2008, while many other regions with top 50 foreclosure rates saw sharp increases in foreclosure activity, according to the latest Metropolitan Foreclosure Market Report from RealtyTrac. In Merced, Calif., a total of 3,092 Merced properties had a foreclosure filing during the quarter, down 11% from a year ago. Despite a 13% decrease in foreclosure activity, the city posted the nation's second highest foreclosure rate, with 3.72% of its housing units receiving a filing. Foreclosures in the Cape Coral-Fort Myers metro area in Florida also decreased from the previous quarter and from a year ago. Among the top 50 metro rates, the three biggest year-over-year increases were in Boise City-Nampa, Idaho, and Provo-Orem and Salt Lake City in Utah. In several states the largest increases were posted in cities not previously a focal point for foreclosures. The Chico metro area posted the biggest year-over-year increase in California, with activity up 98% from a year ago. The medium-sized metro about 100 miles north of Sacramento had a 12.8% unemployment rate in August, above the state and national averages. A similar trend was seen in cities like Reno-Sparks, Nev., with an 80% year-over-year increase in foreclosures; Prescott, Ariz., with a 77% increase; Jacksonville, Fla., with a 64% increase; Rockford, Ill., with a 64% increase; and Lansing-East Lansing, Mich., with a 41% increase.

GMAC Financial, which controls the nation's fifth largest mortgage banking franchise, is talking to the Treasury Department about the government investing up to $5 billion in additional capital into the struggling mortgage and auto lender. According to published reports, Treasury officials have confirmed the talks but GMAC, for now, is saying little about the situation. "GMAC continues to work with the Federal Reserve regarding the remaining capital requirements related to the Supervisory Capital Assessment Program," said a company spokeswoman. "We will comply with the Federal Reserve Bank's final assessment for additional capital." Earlier in the year Treasury told GMAC to raise an additional $11.5 billion in capital after undergoing a "stress test" along with other large banks. While other banks deemed undercapitalized have been able to raise money from private investors, GMAC has been forced to go back to the government via the TARP program. At mid-year Residential Capital Corp., the mortgage banking arm of GMAC, ranked fifth nationwide with $383 billion in housing receivables.

A group of credit unions whose mortgages were fraudulently sold by defunct U.S. Mortgage Corp./CU National Mortgage to Fannie Mae are lobbying Congress for return of their stolen funds, part of a $140 million fraud by the former owner of U.S. Mortgage. The group of 16 credit unions are asking Congress to direct Fannie Mae, which is now owned by the federal government, to return their mortgages, which U.S. Mortgage President Michael McGrath confessed in June to selling to Fannie Mae without their knowledge or consent. So far, Fannie Mae has rejected legal pleas for the return of the mortgages and is fighting a suit brought by one of the credit union victims, Picatinny FCU of New Jersey. "I don't know what the full story is about what McGrath did with the money but we do know that he sold them to Fannie Mae," said Alfred Scipio, president of Treasury Department FCU, who claims Fannie Mae illegally holds $8.8 million of his credit union's mortgages. "We believe that they bought stolen merchandise and they should return it." McGrath confessed to selling more than $138 million of mortgages his company was servicing for about 30 credit unions and lost almost all of the money on stock trading. Fannie Mae did not respond to requests for comment.

House prices rose 1.2% in August from the previous month, according to the Standard & Poor's/Case-Shiller house price index, which is up 4.4% since May. The 20-city HPI has registered three consecutive monthly increases but home prices are still down 11.3% from a year ago and 29.3% since the prices peaked in the second quarter of 2006. "Broadly speaking, the rate of annual decline in home price values continues to improve," said David Blitzer, chairman of S&P's index committee. The HPI data shows that prices rose in August from July in 17 of the 20 metropolitan areas. Only Charlotte, Cleveland and Las Vegas posted declines.

The foreclosure rate on subprime mortgages held steady at 17% in the second quarter, according to figures compiled by National Mortgage News and the Quarterly Data Report. NMN/QDR found that late payments on A- to D loans stood at 36% at June 30. Even though the foreclosure rate held steady when compared to the first quarter, delinquencies rose slightly. Many of the firms now reporting to the publications are subservicing firms that have taken over these delinquent assets on behalf of their owners or previous owners.

American Home Mortgage Servicing Inc. this week will start servicing loans from six residential mortgage-backed securities transactions that were serviced by the now-bankrupt Taylor, Bean & Whitaker, according to Moody's Investors Service. "Transferring servicing to a stable platform should eventually prove a positive for the RMBS pool's performance," Moody's says in a report by vice president and senior analyst Sally Acevedo. "We say 'eventually,' because regulators froze the transaction accounts held at the failed Colonial Bank in mid-August. Their resolution remains a work in progress." Wells Fargo Bank terminated TBW as servicer almost two weeks before TBW's bankruptcy filing, according to Moody's. "It took two months, following multiple court proceedings to finally transfer servicing," the rating agency said, noting that "the transfer happened only after Wells Fargo and TBW struck a behind-the-scenes deal blessed by the court." In the interim -- and until more information about the effectiveness of what is now a potential transfer is known -- notes in the deals that once carried the highest rating of Aaa will remain at a lower Aa3 rating with the direction of that rating uncertain. "Most of the other notes have been placed on review for possible downgrade," Moody's added. An AHMSI representative confirmed the transfer. Wells declined to comment.