Servicing

The mortgage servicing division of IBM has agreed to buy the core operating assets of Wilshire Credit Corp., a non-prime subservicing specialist, from Bank of America for an undisclosed sum. IBM expects to retain most of Wilshire's 900 employees. Earlier in the decade Merrill Lynch bought the Beaverton, Ore.-based Wilshire, which at one time had been a subprime originator. (BoA inherited Wilshire when it bought Merrill.) Wilshire services roughly $20 billion in loans, according to industry sources. Wilshire's operating assets will become part of IBM's Lender Business Process Services business unit, a wholly-owned subsidiary of the Armonk, N.Y.-based technology giant. Wilshire will work with its clients, IBM and Bank of America to transition its mortgage servicing rights and related assets to Bank of America. The agreement remains subject to customary closing conditions.

Lisa Torres, formerly of Johnston, R.I., pleaded guilty to a $1.7 million mortgage fraud scheme in which she purchased properties that had recently been foreclosed upon, and then used the names of straw purchasers in sham sales to finagle mortgage financing. According to Peter F. Neronha, U.S. attorney for the District of Rhode Island, between October 2007 and June 2008, Torres purchased nine residential properties in Providence. She then enlisted the aid of others, some willing participants, others unwitting dupes, to arrange sham sales of the properties at inflated prices in order to obtain mortgage financing. The loan proceeds went to Torres, the purported seller of the properties, so she profited the difference between what she had paid for the properties, about $1.1 million, and what she purportedly sold them for, about $1.7 million. Torres is currently serving a federal prison sentence for obstruction of justice, conspiracy and making false statements, a case that was prosecuted in U.S. District Court, Massachusetts. She is due to be released on Jan. 26, 2010. Sentencing for the fraud scheme has not yet been scheduled.

LoanMarket.net, Irvine, Calif., has received more investment capital including a commitment from Bill Cvengross, a founder and former chief executive at bond fund Pimco. According to LoanMarket.net principal Jeff Freud, other recent investors in the loan auction website include Richard Conn, a former equity partner at Latham & Watkins, and Bob Allison, a venture capitalist from Orange County. Mr. Freud declined to say how much money the men invested in LoanMarket.net. "They've invested in the company and are taking an active role in it," said Mr. Freud. The website currently has 600 loans listed for auction with another 1,000 or so ready to board, said Mr. Freud. Buyers of the loans must pay cash.

Three more investment funds — with combined commitments of at least $1.5 billion — have applied for and received approval from the Treasury Department to participate in the 'Public-Private Investment Program' in regard to buying troubled securities. The three are: AllianceBernstein LP and its sub-advisors Greenfield Partners LLC and Rialto Capital Management LLC; BlackRock, Inc.; and Wellington Management Company LLP. Treasury says each has completed initial closings and has at least $500 million of committed equity capital from private investors. To date, at least five funds have been established with total debt capital of $12.27 billion. So far, no PPIP sales have been disclosed publicly. Treasury says more PPIP funds will close and be announced by the end of October.

Freddie Mac is warning potential buyers of its foreclosed properties that they have to submit a bid by Oct. 30 to take advantage of its temporary offer to cover part of the closing costs. Freddie has 34,700 in real estate owned properties. To expedite REO sales the government-sponsored enterprise will put up to 3.5% of the house price toward closing costs. "Every home shopper should know there are only 30 days left to save potentially thousands of dollars in transaction costs when they buy a HomeSteps home," said Freddie vice president Chris Bowden. HomeSteps is Freddie's REO sales unit. Buyers also have to complete the closing by Dec. 31 to get the closing cost discount.

Prestwick Group, Alexandria, Va., said it has sold a $25 million package of Freddie Mac servicing rights which include Florida loans. "The deal was just completed," said company EVP George Christo. The firm declined to name both the buyer and seller. Delinquencies on the package are less than 4%. Prestwick has a $9 million package of Michigan servicing rights out for bid. In one other servicing note, last week was the bid deadline on a $1.04 billion package of GNMA servicing rights offered by MIAC, New York. The advisory firm did not return telephone calls about the transaction. Mr. Christo said there is a growing interest among smaller GNMA lenders about getting involved in servicing the loans they originate instead of selling them servicing-released.

Detecting a change in attitude among both buyers and sellers — not to mention what is now a three-month increase in the benchmark price indices that bear his name — economist Karl Case believes the housing market has hit bottom. Not that housing is ready to bounce back with a vengeance, but at least it is no longer in a free-fall, the co-founder of the S&P Case Shiller indices said at the New England Mortgage Bankers Conference in Providence, R.I. "We're not going to come roaring out of this," said Mr. Case, who has been teaching economics at Wellesley College for more than 30 years. "We'll come out of this slowly. There will be some bad days and good days, but the mood began changing in March." The economics professor cited several signs that a recovery has begun, including a 25% increase in housing starts since April and "the best number of all," a sharp drop in unsold inventory of new homes. The huge number of completed but unsold houses has "been a real drag" on the market, he said. "The building industry has been getting killed like it's never been killed before," he said. But Mr. Case also warned that if he is reading the tealeaves incorrectly, the mortgage market could take another hit. If housing continues to falter, the economist said, "then we are writing bad paper now." To illustrate just how far the housing sector has fallen, the economics professor pointed to housing starts, which nosedived from 2.273 million units at the peak of the cycle in January 2006 to 598,000 units in August. That decline cost the economy roughly $588 billion, or 4.2% of GDP, he said.

Mortgage companies cut their payrolls by 6,100 full-time workers in August as employment in the residential finance industry hit a new low. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 261,200 positions in August from 267,300 in July. Jay Brinkmann, chief economist for the Mortgage Bankers Association, said servicers are hiring workers to deal with rising delinquencies and loan modifications. However, that hiring has been offset by reductions in staff due to bank mergers, back-office consolidation and a reliance on temporary workers and contractors, Mr. Brinkman said. He noted that the bankruptcy of Taylor, Bean & Whitaker, Ocala, Fla., will not show up in the BLS mortgage jobs data until next month's report. (Some of TBW's West Coast AEs were recently hired by CMG Mortgage, San Ramon, Calif.) Meanwhile, Friday's national employment report shows a higher-than-expected 263,000 U.S. workers lost their jobs in September. The unemployment rate edged up to 9.8% from 9.7% in August. (There is a one-month lag in BLS reporting of mortgage industry employment data.)

Bank of America chief executive Kenneth Lewis — the man responsible for the bank buying both Countrywide Financial and Merrill Lynch — is stepping down at yearend. Late Wednesday BoA said its board is evaluating successors, with expectations of having the new CEO named by the time Mr. Lewis departs. Thanks to the Countrywide purchase, which closed last summer, BoA is the nation's largest servicer of home mortgages and second largest originator. His departure ends what has been a stormy 12 months for the handpicked successor to Hugh McColl Jr. In regard to the Merrill deal, Mr. Lewis tussled with regulators over the purchase (the bank almost backed out), and drew ire from shareholders and others over disclosure decisions over bonuses and losses at the investment bank late last year. (Merrill was a large player in the subprime ABS, CDO and warehouse lending market.) Mr. Lewis, 62, in his most recent pubic appearance, gave no indication that he might step down, instead using a Sept. 14 speech in Japan to sound a positive tone about the company and the global economy.

Prior to initiating any foreclosure actions, lenders and servicers would have to evaluate the borrower for a loan modification and provide relief for qualified homeowners, according to a bill introduced by Sen. Jack Reed, D-R.I. The bill (S. 1731) indicates that a borrower should be offered a modification plan if the net present value of the modification is greater than foreclosure. "My bill provides targeted relief to qualified homeowners so that more families can keep their homes," Sen. Reed said. The bill is aimed at stopping servicers from pursuing foreclosure actions while borrowers are being considered for modifications or in a trial period. S. 1731 "establishes meaningful penalties by making noncompliance a defense to foreclosure," a summary of the bill says. It also places limits on foreclosure fees and prohibit costly mark-ups of fees. Democrat Sens. Dick Durbin (Ill.), Sheldon Whitehouse (R.I.) and Jeff Merkley (Ore.) are co-sponsors of the "Expand and Improve Loan Modification Programs" bill.