Servicing

Specialty servicer Wingspan Portfolio Advisors in Carrollton, Texas, is partnering with National Claims Filing LLC, Irvine, Calif., to automate the handling of claims audits and compliant filings with bankruptcy courts across the country. With bankruptcies rising quickly, the company says lenders and servicers need accuracy in filing the necessary "proof of claim" forms and exhibits in order to protect their rights when borrowers seek bankruptcy protection. Proof of claims are the basic forms used in bankruptcy proceedings that establish the validity of a lender's "standing" in the eyes of the court. Without an accurate and approved POC, a lender's access to proceeds from the sale of their mortgaged property can be denied or delayed, despite the lender's possession of documents signed at the time the loan was originated. National Claims Filing provides an automated POC preparation and risk management system. The system is designed to prepare the POC, attach all supporting documentation, and file the claim with the correct court in accordance with that court's specific filing conventions. Thus far in 2009, Chapter 13 filings rose 10.9% over 2008 levels, while Chapter 7 filings rose by 46.3%. These increases indicate that over two million borrowers will have declared bankruptcy in 2009, potentially representing over $400 billion in mortgage balances, said Wingspan CEO Steve Horne. Prior to this partnership, proofs were mostly done manually at Wingspan, which has 14 clients and specialty services over 7,000 loans at present.

Fitch Ratings has found that 60% of borrowers with performing loans in 2006 and 2007 U.S. mortgage securitizations are in negative equity positions and hundreds of seasoned deals are stressed as well, albeit to a lesser extent. Fitch said it has taken various rating actions on 649 seasoned, prime residential mortgage-backed securities transactions issued prior to 2005, citing pressure from negative home-equity positions and unemployment. However, it noted that in seasoned deals, while it has downgraded a significant number of mezzanine and subordinate classes, less than 5% of senior classes with top AAA ratings were negatively affected. Despite positive home price figures over the summer, Fitch projects over the next year a further home price decline of approximately 10% nationally. Even with the modifications and the first-time homebuyer tax credit helping home prices to some extent, the growing distressed inventory expected to result from continuing borrower stresses will cause prices to continue falling, according to Fitch senior director Grant Bailey. This means performing-to-delinquency roll-rates could stay high in prime as well as alternative-A and subprime credit RMBS from 2006/2007 into next year, Fitch said. The rating agency forecast in a recent global economic outlook report that unemployment would continue to rise and peak at 10.3% in the middle of 2010. It noted that this is a particular concern in California, where the greatest percentage of 2006/2007 RMBS borrowers is located. In California, unemployment is at 12.2% as compared to 9.8% nationally.

New Financial Accounting Standard Board rules that go into effect Jan. 1 could force bank issuers and servicers to consolidate "hundreds of billions of dollars" of private-label residential and commercial mortgage securities on their balance sheets, according to industry trade groups. The Mortgage Bankers Association and Commercial Mortgage Securities Association warn that such a consolidation of securitized assets would "artificially increase" bank risk-based capital and loan loss reserve requirements at the worst time - forcing some to raise additional capital. Anything regulators can do to delay implementation "will serve to postpone the pro-cyclical, anti-consumer, anti-affordable housing impacts" of the FAS rules 166 and 167, MBA and CMSA say in a joint comment letter to the federal banking agencies. The groups say FASB is reacting to credit card issuers that provided credit support for their securities to shield investors from losses and prevent rating agency downgrades. They argue, "There is no business case for sponsors to provide credit support" for static pools of securitized mortgages. "MBA and CMSA recommend that the agencies take the time to study the risks inherent in each of the major securitization structures so that the regulatory capital treatment is more precisely aligned with the risk of the reporting bank." Capital One Financial Corp., McLean, Va., is urging the regulators to delay the capital impact of consolidation for six months. The American Bankers Association wants a one-year delay. The banking agencies have suggested a phase-in over four quarters would reduce the costs and burdens.

Even though JPMorgan Chase posted strong third quarter earnings, the mega bank set aside $4 billion in mortgage-related credit charges, including $1.1 billion tied to Washington Mutual, which it bought a year ago. It also posted a $1 billion loss in its consumer lending division, which includes mortgage banking, a business center that it is scaling back. The charge related to WaMu reflects "deterioration" in its "purchased credit-impared portfolio," JPM said. The bank said it took credit hits on subprime loans ($422 million), prime ($525 million) and home-equity loans ($1.1 billion). All were easily more than double the dollar amount of charge-offs in 3Q 2008. In an analyst report, Credit Suisse notes, "We had expected only nominal reserve increases on the consumer side this quarter." CS analyst Moshe Orenbuch called the WaMu charge a "catch-up" noting that "while there may be one more of these marks" it should not be recurring. Overall, JPM earned $3.6 billion in the quarter, a 583% jump from the same period last year.

Lenders originated nearly $300 billion in Federal Housing Administration single-family loans through August with one more month to go in fiscal year 2009. In August, FHA endorsed $31.8 billion in loans bringing the 11-month total up to $298.6 billion, a 94% increase from the same period in FY 2008. As of Aug. 31, FHA's year-to-date portfolio of insured loans totaled $675.6 billion, an amount greater than what was seen during the full fiscal year ending Sept. 30, 2008 when it was $474.4 billion. Meanwhile, FHA defaults are up, too. The federal mortgage insurance agency had an 8.1% serious delinquency rate as of Aug. 31, compared to 6.9% on Sept. 30, 2008. At the end of August, 430,300 FHA loans were 90 days or more past due or in foreclosure. The agency has managed to keep its inventory of foreclosed houses relatively flat. But sales of real estate-owned totaled 61,900 for the first 11 months of FY 2009, up 48% from the same period in FY 2008. FHA currently has 39,000 in REO with an estimated value of $4.7 billion.

In order to help clients manage the overwhelming number requests for assistance in creating financial packages for review and decisioning, Heart Financial Services LLC is starting a division to assist mortgage loan servicers with preforeclosure or short sales. The new short sales division will field consumer inquiries, guide consumers through the creation of a complete financial and hardship package, and where appropriate delegated authority is granted, make the underwriting decision to approve transactions, the company said. "By leveraging our experience in handling well over one million borrower contacts in traditional loss mitigation, we can free up vital mortgage servicing and investor resources that can be better spent on approving these sales," said Gerald Alt, president and CEO of the Northbrook, Ill.-based company.

Short-sale listings passed the 10,000 mark in the struggling Las Vegas-Henderson housing market in September, even as underwater deals that closed during the month were up 22%, broker Robert Jenson of the Jenson Group reports. There are now almost twice the number of short sales on the market as there are bank-owned listings, the luxury Re/Max broker reports, but REO properties outsell short sales, four-to-one. Short sale offerings account for more than half the 19,366 houses currently listed for sale at $1 million or less with the local multiple listing service. By Mr. Jenson's count, 3,217 houses sold in the Vegas-Henderson market in September. That's an increase of 5.3% from August. But it pales in comparison to the nearly 20,000 houses listed with the MLS. In the $1-million-plus category, 17 properties sold in September, leaving 649 desert palaces still up for grabs. Forty-two of those listings are short sales, 21 are foreclosures. Overall, distressed sales account for four out of every five sales in the region, the broker said.

The Obama administration is set to announce a new program to help troubled borrowers whose mortgages are deemed ineligible for modification. "Maybe this week but certainly next week," said Laurie Maggiano of the Treasury Department's Office of Homeownership Preservation. Speaking at the Mortgage Bankers Association's annual convention, Ms. Maggiano said Treasury would set out the parameters under which servicers can earn financial incentives if they offer borrowers the option of participating in a short sale and deed in lieu of foreclosure. "There's really no magic. We haven't reinvented the wheel," Ms. Maggiano told industry executives in San Diego. To cut down on the paperwork, the program will provide a standardized set of forms. It will also cap the amount of money that can be paid to subordinate lien holders who agree to waive their interest in a property. The government expects that some second mortgage investors will "walk away" from the program because the compensation being offered will be too little. But Ms. Maggiano, who is director of policy in the preservation office, told a standing room only session that by setting a limit, the White House is hoping to eliminate time consuming back-and-forth negotiations between servicers, borrowers and investors. "We are hoping to set an industry standard so investors will know exactly what they can expect," she said.

Lend America, a nonbank mortgage originator, is launching a new correspondent program to buy closed Federal Housing Administration loans from certain lenders on a flow and bulk basis. The Melville, N.Y.-based firm said it hopes to buy its first pool of loans by this Thursday. The mortgage banker will buy pools as small as $1 million. It is calling the new channel its "Mini Ginnie Correspondent" program and the company is a Government National Mortgage Association servicer. However, the program is not related to nor done in conjunction with Ginnie Mae. The effort is part of Lend America's strategy to build servicing volume. The company estimates that by the second quarter of 2010 it will be purchasing $500 million per month in product. Lend America is aiming to compete in the space by offering to small to midsized mortgage bankers what chief business strategist Michael Ashley said will be stronger servicing, fewer credit overlays and more considerate business relationships.

Stewart Lender Services, Houston, has reorganized its operations, removing all of the silos customers had to go through to access its services. The company announced the reorganization at the Mortgage Bankers Association convention in San Diego. Jason Nadeau, president and chief executive of SLS, said in an interview that up until now SLS was organized in such a way that a customer had to contact a different person every time they wanted to use a different service. The new system creates a single point of contact. Given the consolidation in the mortgage industry, it was necessary for SLS to reorganize its approach to match the direction the market is going, he explained. Mr. Nadeau also spoke about the recent growth of SLS, whose revenues have increased 20-fold. The company started with a center in Houston and then added one in Tampa with others following in Dallas, San Diego, Irvine and Phoenix. SLS also has been aggressively recruiting new employees.