Servicing

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.

The Federal Housing Administration's single-family mortgage insurance fund could be sitting on a deficit of at least $40 billion, according to a former Fannie Mae executive who now bills himself as an expert on affordable housing. Testifying before a House subcommittee Thursday morning, Ed Pinto, who served as Fannie's chief credit officer two decades ago, said FHA has $30 billion in reserve funds but at the end of September probably had $70 billion in losses on its $725 billion book of business. Mr. Pinto called the current $30 billion cash cushion at the government's mortgage insurance agency a "bookkeeping entry" that has already been spent by the government to reduce the federal deficit. Today, FHA originations account for about 25% of the market — and growing. According to figures compiled by National Mortgage News, FHA had a market share of just 2.5% back in 2006. (Some of that includes VA-backed loans.) FHA commissioner David Stevens has said repeatedly that the insurance fund would not need a taxpayer bail out. Mr. Stevens told NMN recently that, "I have read so many stories attacking FHA without relevant data." He added that, "We are insuring the best quality book of business we have ever seen in history — bringing in a lot of fresh MI premiums." Mr. Pinto worked at Fannie Mae from 1987 to 1989.

Existing home sales in the Golden State will slow somewhat "to a more sustainable pace" in 2010, according to the latest forecast from the California Association of Realtors. Thanks to a strong market for distressed properties, sales in the Golden State rebounded this year from double-digit declines in 2007 and 2008. But next year will be "the new normal," said CAR president James Liptak, with a steady stream of sales driven by distressed properties at the low end and moderate price appreciation. The group, the country's largest state organization of realty professionals, expects the median price to rise 3.3% next year, from $271,000 to $280,000. But it is calling for sales to dip 2.3%, from a projected 540,000 units in 2009 to 527,500 in 2010. About a third of the projected sales will be foreclosures or short sales. "Housing in California has become a tale of two markets," Mr. Liptak said at CAR's annual convention in San Jose. "The low-end continues to attract first-time buyers and investors, with a resulting shortage in the number of homes for sale. But sellers at the high end continue to be challenged by the ability of homebuyers to secure financing as well as their concerns about where prices are headed." Chief economist Leslie Appleton-Young listed several "wild cards" that could impact the forecast, with distressed properties being paramount. "Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year," she said.

Housing prices have finally bottomed out in most parts of the country and a year from now prices could be up by 5%, according to Allen Sinai, chief economist at Decision Economics. "The bursting of the housing price bubble is over now," Mr. Sinai told MortgageWire. The founder of Decision Economics expects prices could be 5% to 7% higher by the end of the third quarter of 2010, based on the Standard & Poor's/Case Shiller house price index. "Despite big inventories, despite foreclosures in lots of areas, generally speaking housing prices are headed up," Mr. Sinai said.

Securitization and yield spread premiums are incentives for bad loans to be made in a volume-driven reverse mortgage market, according to a new study by the National Consumer Law Center. The group issued a report saying that many of the ingredients behind the subprime crisis are now being seen in the reverse mortgage business. During a conference call, Rick Jurgens of NCLC said "arrangers get paid when deals get done and they don't get paid when no deal is done and that's a problem. The lesson from the subprime debacle is even stronger in this market." The approach to allow market forces to drive out the bad players was tried during the subprime crisis and didn't work, he said. When asked whether it made a difference that almost all of the reverse mortgages being securitized today are through government channels (unlike subprime loans which went through Wall Street firms), Mr. Jurgens said "I don't think we can take too much comfort that the capital markets are in bad shape right now to think that we won't see some of that same drive to do deals coming out the other side." NCLC believes reverse mortgage customers need strong consumer protections and "the tiger of securitization has to be harnessed before we go for a ride on that one again," he said.

Thirty-year mortgage-backed securities prepayments generally came in slower than expected in September, Wall Street research reports show. Aggregate speeds on 30-year Fannie Mae MBS during the month were 11% slower than in September while 15-year product saw smaller declines, according to two firms' reports. A Credit Suisse research report said the slowdown in 15-year product was in line with its expectations and the slowdowns in respective prepayment speeds for different coupons in all products "were similar across the two agencies." Thirty-year 5s, 5.5s and 6s slowed by 9%, 13% and 10%, respectively, and were "significantly slower than expectations," according to a Deutsche Bank report. "September's slow speeds indicate that mortgage originators are not engaging in the aggressive outreach to in-the-money borrowers as they did in 2003 and other recent refi waves, and that borrowers who refi on their own mostly already refinanced last spring," Deutsche Bank said. Speeds could slow going forward due to lower rates, but "any October speedup should be modest," according to the Deutsche Bank report.

Fannie Mae and Freddie Mac have been given the green light by their regulator to aid the warehouse lending market by issuing guaranteed purchase agreements on residential loans that are in the process of being funded, according to industry officials familiar with the plan. At deadline, the GSEs and their regulator had not returned telephone calls about the matter. It's believed that if Fannie and Freddie issue a commitment to purchase a loan (a loan that is in the process of being funded) the warehouse lender of record will have to hold little or no capital against it, said one observer. This would make warehouse lending - which is already a profitable niche - even more so. Until now, the capital banks must hold against these credits has been one of the stumbling blocks to new entrants coming into the business. Over the past few months two of the largest players in warehouse lending - Colonial Bank of Alabama and National City of Cleveland - have either exited the sector or announced plans to do so. NatCity's warehouse group may be sold by its current owner, PNC Financial Services. Colonial failed this summer. Some of its clients are still being served by it acquirer, BB&T.

U.S. subprime residential mortgage-backed securities prices are continuing to stabilize but there is little sign of any increase in value, according to a Fitch Solutions index. The index, which tracks credit default swaps of RMBS, as of Sept. 1 had fallen just slightly from the previous month, dropping three basis points to 8.31 from 8.34. The index also showed improvement in some vintages' default rates. The 2007 vintage's default rates were 18% less than they were in May while the 2006 vintage's default rates were 14% less than they were in May. Despite this, "asset values have not shown any sign of recovery," the company said.

DebtX, which brokers non-performing loan sales for the government and other sellers, is now charging certain bidders a $500 non-refundable vetting fee. Company CEO Kingsley Greenland told National Mortgage News that only FDIC-insured banks and government sponsored enterprises will be excluded from the charge. A posting on its website says the DebtX market is "limited to sophisticated, qualified investors." Mr. Greenland said the non-performing loan market has grown dramatically in recent years, noting that "We're seeing folks who may not have the required experience" get involved in the bid process. He added that the NPL market is "maturing and evolving" and "we need more research."