Servicing

The U.S. Attorney and Department of Housing and Urban Development are seeking a court injunction to ban Lend America, Melville, N.Y., from originating FHA loans, accusing the nonbank lender with fraud in regard to $14 million in product. The company issued a statement saying it was taken by surprise by the complaint and expects to continue doing business. It added that it plans to "respond more completely once all allegations are reviewed." In a joint statement from the U.S. Attorney for the Eastern District of New York, and the HUD Inspector General's office, the government says Lend America/Ideal "falsely certified" that borrowers met FHA underwriting requirements. Using the civil courts, the government is seeking injunctive relief from both the company and its chief business strategist Michael Ashley. According to figures compiled by National Mortgage News, Lend America ranks 18th nationwide in terms of GNMA MBS issuance. It services about $850 million in GNMA-backed products. Lend America recently stepped up plans for expansion into correspondent mortgage banking and wholesale that included FHA production.

Regions Financial Corp., Montgomery, Ala., a top 20 player in mortgages, swung to a third-quarter loss amid higher loan loss provisions. Regions saw a loss of $377 million, or 32 cents a share, compared with a year-ago profit of $79 million, or 11 cents a share. Loan-loss provisions grew to $1.03 billion from $912 million in the previous quarter and $417 million a year earlier. Net charge-offs — loans the bank doesn't expect to collect — jumped to 2.86% of average net loans from 2.06% and 1.68%, respectively. "The operating environment remains challenging and credit-related costs continue to be elevated," said chief executive Dowd Ritter. "However, the economy appears to have bottomed and that bodes well for customers and for us." Regions ranks 20th among all residential originators, according to the Quarterly Data Report.

The Obama administration late Monday unveiled a long-awaited temporary bond purchase and liquidity program designed to help state and local housing finance agencies provide billions of dollars in low-cost mortgage money to consumers. Even though officials from the Treasury Department and other agencies — including the Federal Housing Finance Agency — refused to quantify the effort, it's believed to be in the range of $30 billion. The plan is aimed at boosting the struggling market for mortgage revenue bonds, which is currently operating at about 25% of capacity. Year-to-date, state and local housing finance agencies have issued just $4 billion in mortgage revenue bonds, the proceeds of which are used to provide low-cost residential loans and build or renovate rental housing. As part of the plan to increase liquidity, Treasury will purchase Fannie Mae and Freddie Mac securities, which will be backed by new MRBs. The GSEs also will provide partial credit enhancements, which will serve as a guarantee of sort on the bonds. Some HFAs have completely shut down their lending programs because of a lack of liquidity caused by the housing crisis. Officials stressed that the programs will be paid for by state and local HFAs, through fees, and not taxpayers. Asked who would be on the hook for losses, Treasury assistant secretary Michael Barr said, "The HFAs are in the first loss position," followed by the Treasury and then Fannie Mae or Freddie Mac.

Senate Banking Committee chairman Chris Dodd, D-Conn., went on the record Tuesday calling for a seven-month extension of the $8,000 first-time homebuyer tax credit, which is set to expire in five weeks. Chairing a hearing on the state of the housing market, Sen. Dodd said home prices are stabilizing but "we still need to use every tool at our disposal to try and fix this problem." The White House has yet to reveal its position on the extension. The Mortgage Bankers Association and other trade groups, predictably, support the extension. MBA chief economist Jay Brinkmann told the committee that one great unknown facing the market is what will happen to interest rates when the Federal Reserve stops purchasing mortgage-backed securities from Fannie Mae and Freddie Mac. He noted that there is growing concern over the issue saying, "While the most benign estimates are for increases in the range of 20 to 30 basis points, some estimates of the potential increase in rates are several times those amounts."

PNC Financial Services is continuing to talk to at least one interested bidder that wants to buy the warehouse lending division of National City Corp., according to officials close to the situation. PNC, which bought NatCity late last year, declined to discuss the issue. One warehouse analyst told National Mortgage News that PNC will not extend warehouse credit to nondepository mortgage bankers beyond midyear 2010. In some cases, the cut-off will be March 31, said the analyst, requesting anonymity. After the failure of Colonial Bank this summer, the NatCity unit is believed to be one of the largest warehouse providers in the industry. PNC, though, has declined to release commitment figures.

Cadle Co. of Ohio has agreed to sell a $285 million portfolio of nonperforming second liens to Heritage Funding, Dallas, for less than one penny on the dollar. The sale was brokered by Jaymes Financial, Springfield, Va. The second liens included both secured and unsecured credits. The Cadle Co. is owned by Daniel C. Cadle. According to its website, it has been around since the late 1980s, collecting on various types of debts. No information was readily available on Heritage.

The Department of Veterans Affairs guaranteed $68.2 billion of single-family loans for the fiscal year ending Sept. 30, an 80% spike from last year. Refinancings drove most of the increase with VA guaranteeing 144,800 transactions. A year ago it backed just 37,300 refis. Purchase mortgage transactions rose 27% to 180,900 loans in FY 2009. Despite these impressive volumes, VA officials seem most pleased with the performance of the new loans. "VA is performing extremely very well," said Mark Bologna, the director of the VA home loan guarantee program. "We outperform every other product on the market including prime loans," he told National Mortgage News Online. The VA's seriously delinquent rate is 4.69%, compared to 5.44% for prime loans, according to the latest delinquency figures compiled by the Mortgage Bankers Association. VA officials contend that one of the reasons for the performance is that the agency did not bend to industry pressure during the housing boom to allow loan officers and mortgage brokers to select their own appraisers. VA approves, monitors and selects appraisers for property evaluations. This has resulted in "good solid values," he said. "It has proven to be a good decision."

Ginnie Mae issuers securitized a record $418.1 billion in residential mortgages in fiscal year 2009 as lenders flocked to loan programs tied to the Federal Housing Administration and Veterans Administration. Overall, GNMA issuance rose by 55% compared to the prior fiscal year. (By comparison, Fannie Mae issued $612 billion in MBS through the first eight months of the year.) The Government National Mortgage Association ended fiscal 2009 (Sept. 30) guaranteeing $39.7 billion in mortgage-backed securities during the month. In August its volume was a bit higher at $44.2 billion. In the last two quarters alone the agency backed $247.7 billion in mortgage securities. Fannie and Freddie Mac securitize conventional mortgages. Ginnie Mae MBS are backed by FHA, VA and Rural Housing Service loans. FHA, which is in danger of falling below its minimum capital requirement, accounts for by far the largest portion of GNMA collateral.

The stock of Fannie Mae and Freddie Mac is worthless and any hope of recapitalizing the two lies with their seller/servicers, according to a new research report from Keefe, Bruyette & Woods. "In our view, in order for Fannie Mae and Freddie Mac to survive going forward, they need to be recapitalized through investments by the banks that benefit from their guarantee," KBR writes. The firm says that seller/servicers should be required to retain 5% of the loan balance on mortgages sold to the GSEs, adding that the "new agencies" would be capitalized at a "solid 5% level of the new expanded balance sheets" under Financial Accounting Standards Board rules 166 and 167. It says that even under a "bad bank" approach to restructuring them the government would be owed $100 billion. The Federal Housing Finance Agency placed the two into a conservatorship 13 months ago. To date, the Treasury has invested $98 billion in capital into them. Both continue to trade on the New York Stock Exchange -- Fannie for $1.25, Freddie at $1.40.

After rising over 30% a year for the last four years, foreclosures started will finally begin to decline nationally next year according to UFA LLC, a risk management firm that forecasts mortgage and consumer loan performance by zip code. A combination of factors including a slowing of house price depreciation, a reviving economy, tighter underwriting of recent loan vintages, and burnout of the worst vintages from three — five years ago will make the improvement possible, said Dennis Capozza, professor of finance with the Ross School of Business at the University of Michigan and a founding principal of UFA in Ann Arbor, Mich., which conducted the research. "Working against the welcome decline in foreclosures is the steep increase in unemployment, which will interact with the large numbers of homeowners who are underwater to prevent even greater declines in foreclosures that could have been expected without high unemployment," said Mr. Capozza. Each quarter UFA analyzes representative mortgage loans in the serviced portfolio of all mortgages outstanding and estimates the probability of default and prepayment at each month in the future life of each loan. Inputs to the assessment include underwriting variables like loan-to-value ratios and credit scores as well as UFA's own zip code level economic scores, ForeScore Zip.