Servicing

Housing starts will jump 38% next year and finally contribute to economic growth as the housing sector breaks out of a three-year spiral, according to a new National Association of Business Economists survey. In the consensus opinion of 44 NABE members, housing starts will hit 800,000 in 2010 compared to 580,000 this year. House prices will rise too. Based on the Federal Housing Finance house price index, prices will increase 2% next year, after falling 3.4% in 2009. "The nascent housing recovery will gather momentum and deliver robust growth in 2010, albeit from a depressed level," NABE said in a summary. The survey results show wide disagreement on the outlook for housing, however. The five most optimistic economists see housing starts hitting 920,000 in 2010 and prices jumping 6.2%. The most pessimistic five see prices falling 5.1% with housing starts essentially flat at 600,000.

Residential servicers using the Obama administration's loan modification program are ramping up to modify 25,000 to 30,000 a week, but it will not be enough to keep pace with rising foreclosures, according to the Congressional Oversight Panel, which watches over the Troubled Asset Relief Program. The Treasury Department's "own projections" show that "fewer than half of the projected foreclosures" will be prevented by the Home Affordable Modification Program, a new COP report says. The oversight panel also warns that HAMP is not designed to address defaults associated with negative equity and the coming wave of resets on interest-only and payment-option mortgages. The authors note that negative equity has become a drag on self cure rates. Historically, "nearly half of all prime defaults would cure on their own," but now it is only 6.6%. The COP also cites research showing that 77% of payment option ARMs are underwater and 25% are seriously delinquent or in foreclosure. "It increasingly appears that HAMP is targeted at the housing crisis that existed six months ago, rather than as it exists right now," the report says. The IO and POA resets will last through 2012.

Although new FHA Commissioner David Stevens denies doomsday predictions that his will be the next mortgage giant to fall, two longtime industry consultants told National Mortgage News at the MBA convention they believe the agency is in big trouble -- bigger even than what a former Fannie Mae executive warned of last week before a House subcommittee. Scott Cooley and Thomas LaMalfa said it is almost a foregone conclusion that the Federal Housing Administration will go under. The agency will be "the next Fannie Mae" and will cave "within two or three years," predicted Mr. LaMalfa, who began saying in 1996 that Fannie Mae and Freddie Mac were accidents waiting to happen. By the agency's own admission, one of four borrowers who took out FHA-insured loans in 2007 are currently behind on their payments, as are one in every five borrowers who obtained their mortgages last year. Mr. Stevens has said the FHA is currently recording its best book of business in years. Both Mr. LaMalfa and Mr. Cooley (a pioneer in mortgage software) also said the mortgage market has much further to tumble before it begins a long, slow climb back from the depths of the housing depression.

Freddie Mac late Friday announced a warehouse lending pilot program where it will provide participating firms with standby commitments to purchase qualifying loans in the event a seller/servicer cannot meet its funding obligations or fails. A source close to the situation told National Mortgage News that the GSE has been operating a version of the pilot since June. The participating warehouse provider in that program is Natty Mac of Florida. Freddie said pre-funding reviews are required. Fannie Mae is working on a similar program. "The warehouse lending industry has nearly exited the market making it increasingly difficult for lenders to fund loans," said Freddie CEO Charles E. Haldeman. "We're proud to help bring much-needed additional liquidity to the residential and apartment financing community." The GSE noted that seller/servicers interested and that qualify for the program will need to enter into a separate agreement directly with the participating warehouse lender. The credit line from the warehouse lender that is supported by the standby commitment will fund only the loans the participating seller/servicer intends to sell to Freddie.

A Federal Housing Administration loan modification program that was rolled out in August is gaining traction with larger residential servicers. "We're seeing some surprising activity with that program," FHA commissioner David Stevens told National Mortgage News. The FHA 'Home Affordable Modification Program' (HAMP) allows servicers to reduce the current principal amount of an existing FHA mortgage by up to 30% to make the monthly payments affordable. Servicers can file partial claims for the principal reduction and the borrowers end up carrying a zero-interest lien for the deferred principal. HAMP is a permanent program that also allows servicers to reduce the interest rate, extend the term of the loan and employ all of FHA's loss mitigation tools, said Bob Lyons, a servicing consultant with Lyons and McCloskey in Fairfax Station, Va. "FHA HAMP is all the home retention options rolled into one and supercharged," Mr. Lyons said.

George Schwartz, a former managing director for Bank of America, has been named executive vice president and division president of default services at ServiceLink, a unit of Fidelity National Financial, Jacksonville, Fla. Mr. Schwartz will be responsible for such items as loss mitigation, title, closing and escrow, valuations, asset management and disposition. Mr. Schwartz has more than 25 years' experience in the areas of default administration, loss mitigation and mortgage servicing. Prior to his tenure at Bank of America, Mr. Schwartz served as senior vice president, loan administration at Cenlar FSB, director of servicing management at Fannie Mae and EVP of real estate operations at FNRS Financial Corp. For more information about ServiceLink, visit http://www.servicelinkfnf.com.

Pockets of housing market improvement have been seen regionally and locally but overall there is some concern that prices could soften as the market moves toward the challenging winter months, according to the October Clear Capital Home Data Index Market Report. "As anticipated, the strong gains we've been experiencing this summer are showing signs of softening," said Clear Capital president Kevin Marshall. "But growth remains sufficiently strong, providing hope as we head into a winter that will test the strength of the recovery." As of Sept. 25, on a quarterly basis, prices had appreciated by 6.3% and the saturation rate of national real estate owned properties had fallen to 28.6%. During the 12-month period between Aug. 27, 2008 and Sept. 25, prices fell by -9.9%. This marks the first return of the year-over-year national price decline to a single-digit number since the summer of 2007. "Prices remain low, driving investor activity into the non-REO marketplace across the nation. This is a good sign that the recovery is reaching beyond the distressed segment," said Mr. Marshall. "Historically, investors move in at the bottom which creates confidence for the bargain hunting fair-market buyers to enter the market as well." Regionally, housing prices continue to improve in the West, where they posted a 2.9% gain quarterly and a 1.6% six-month gain. Clear Capital's Metropolitan Statistical Area drilldown and micro market analysis also showed some positive quarterly developments as Riverside, Calif., and Orlando, Fla., generated quarterly gains for the first time in three years, while Baltimore, Md. featured a quarterly price gain of 0.1% after seven consecutive quarters of decline.

Fitch Ratings has downgraded 748 bonds in 479 residential mortgage-backed securities transactions to D, indicating that the bonds have taken principal writedowns. All the bonds in question had ratings of CCC, CC or C, indicating that a default was expected. Three hundred and seventy-five of the bonds downgraded are backed by subprime credit mortgages, 177 are backed by alternative A credit mortgages, 123 are backed by second-lien loans, 72 are scratch and dent transactions and the balance are other types of transactions.

Essent Guaranty, a new mortgage insurance company, has agreed to buy the operating platform and technology systems of Triad Guaranty, the nation's smallest MI, which is in the process of self liquidating. Based in Radnor, Pa., Essent will pay $30 million in cash and assume what it calls "certain software contractual obligations" that the publicly traded Triad is on the hook for. Essent said it would establish its operational and software center in Winston-Salem where Triad is headquartered. Essent CEO Mark Casale said the purchase of the assets from Triad "is the next major step in the formation" of the young company's MI business. Essent has yet to write any coverage but has received $500 million in financial backing from a group of investors that includes Goldman Sachs & Co. In after hours trading Wednesday, after the deal was announced, Triad's share price shot up 11% to $1.37.

Servicers participating in the Obama Administration's Home Affordable Modification Program have placed over 500,000 borrowers in trial modifications, according to government officials, meeting a benchmark goal several weeks before the Nov. 1 deadline. Administration officials and HAMP servicers are meeting in Washington and they are expected to agree on new streamlined documentation requirements for the loan modification process. Preliminary numbers show HAMP servicers have picked up the pace of moving troubled borrowers into 90-day trial modifications. In addition, some of the modifications are being finalized. Wells Fargo Home Mortgage said it has done 63,000 trials and completed modifications in September, up from 33,200 trials in August. "We have remained focused on exceeding our share of the government's goal to reach 500,000 Home Affordable Modifications by Nov. 1," WFHM co-president Mike Heid said. Bank of America said it has close to 95,000 borrowers in trials, up from 59,900 in August.