Servicing

The seasonally adjusted delinquency rate on closed-end home-equity loans jumped 43 basis points to a record high of 4% in the second quarter, according to an American Bankers Association survey. At the same time, the survey shows that 1.92% of home-equity lines of credit are 30 days or more past due, up 3 bps from the first quarter. "Six consecutive quarters of job losses have taken their toll" on the performance of home-equity loans, ABA chief economist James Chessen said. The Federal Deposit Insurance Corp. reported that 1.73% of home-equity lines of credit are 90 days or more pass due or considered uncollectible, down 25 bps from the previous quarter. However, FDIC-insured institutions charged-off $5.1 billion in HELOCs, up from $4 billion in the first quarter.

In August the Government National Mortgage Association had one of its best months ever — while the private mortgage insurance industry continued to see its new policy business skid. According to figures compiled by the Mortgage Insurance Cos. of America, the nation's six active MIs wrote $5.76 billion in new policies, a 43% decline from the same month last year. Actually, the decline could be worse as the August 2008 data did not include Radian Guaranty, which had not yet rejoined MICA. Its book of business (primary insurance in force) fell to $900.7 billion from $906.1 billion in July. However, compared to the same month in 2008, its book of business rose 12% (this comparison is also affected by Radian rejoining MICA). Most of MI firms are capital restrained and have been tightening up their underwriting guidelines the past year. GNMAs are backed by FHA and VA insured mortgages.

Nations REO Inc., a division of Foreclosure Management Co., located in Overland Park, Kan., has chosen to use DepotPoint Inc.'s TrackPoint platform to power its REO workflow and property management operations. The TrackPoint platform allows Nations REO to scale on demand, improve its operational efficiency and lower its total cost of managing properties for its clients, the company said. The REO application is one of a set of default management applications offered by DepotPoint. The applications are used for short sales, foreclosure and loan modification. Large mortgage lenders, servicers and private equity firms work with Nations REO to scale their businesses to dispose of the growing number of bank-owned foreclosure properties.

A nonperforming second-lien portfolio with a face value of $365 million is about to change hands, according to an investment banker close to the transaction. Final contracts could be signed by the end of next week. The product includes distressed closed-end second liens and open-end HELOCs that have been frozen. At press time no further details were available. Nonperforming second-lien portfolios tend to trade for just pennies on the dollar.

Loan modifications and payment restructurings by the nation's residential servicers rose 75% in the second quarter to 439,574 units, with a noticeable increase in principal reductions, according to new figures released by the Office of the Comptroller of the Currency. The loan mods were undertaken by the nation's largest servicers including Bank of America, Wells Fargo & Co. and others. The percentage increase reflects gains from the second quarter of 2008. Compared to the first quarter, loan restructurings rose 21.7%. OCC said 10% of modifications involved reductions in the principal amount owed by consumes compared to 3.1% in 1Q. OCC, however, does not know the dollar volume on principal reductions. "We don't collect that information from servicers," said an agency spokesman. The government said the number of "seriously delinquent" mortgages continued to rise but there was a lull in foreclosures initiated because lenders moved to implement the Obama administration's Making Home Affordable modification program. Servicers reported that they engaged in 114,538 MHA trial modifications in the second quarter. According to the Quarterly Data Report, there are 66.5 million residential loans outstanding in the United States.

FHA is giving its servicers a directive to lower mortgage rates on loan modifications after finding too many borrowers ended up with higher payments. In the past, FHA allowed servicers to increase the interest rate when it was appropriate. But now that interest rates have come down, "FHA is not really happy with what they are seeing," said Bob Lyons, a servicing consultant with Lyons and McCloskey in Fairfax Station, Va. A new mortgagee letter (2009-35) directs FHA servicers to reduce the interest rate on newly modified loans to a rate that is not more than 50 basis points above the Freddie Mac Weekly Primary Mortgage Survey rate. The FHA mortgagee letter also directs servicers to extend the term of the new mortgage so the borrower has 30 years to pay it off. To qualify for incentive payments, "the modified loan must meet the term and interest rate requirements prescribed in this mortgagee letter," according to the letter signed by FHA commissioner David Stevens.

The benchmark 10-year Treasury yield slid below 3.30% Tuesday afternoon, putting downward pressure on longer-term rates. A little less than a week ago, the 10-year yield was as high as 3.50%. Some analysts believe long-term mortgage rates could hit record lows again this year but others say the Federal Reserve's phasing out of its rate-lowering MBS purchases will gradually put upward pressure on mortgage rates.

Distressed mortgage investor Kondaur Capital, Santa Ana, Calif., is open to the idea of buying a bank, according to a company spokesman. Earlier in the year Kondaur seriously considered such a move because it would allow the firm to "competitively acquire performing loans with low-cost bank capital," said the spokesman. He said Kondaur is still "exploring the possibilities" but has nothing more specific to report. Launched a few years ago Kondaur is managed by Jon Daurio, its CEO, and John Kontoulis who serves as president. During his career Mr. Daurio has worked for Encore Credit, The Prieston Group, and other firms.

Marshall & Ilsley Corp., a top 40 ranked residential servicer, said it is extending its moratorium on foreclosures by another 90 days. The new moratorium means struggling home owners have until December 31. (The bank first initiated a moratorium in late December 2008.) The Milwaukee-based depository is the parent of M&I Mortgage, Cedarsburg, Wisc., a $10.4 billion residential servicer. The moratorium applies only to owner-occupied residential loans for customers who work to reach a repayment agreement. Loans in all the bank's markets are eligible.

Home prices rose 1.6% in July following a 1.4% increase in June as the Standard & Poor's/Case-Shiller 20-city house price index registered its third monthly increase — the first such increase since mid-2006. The chairman of S&P's index committee David Blitzer noted that prices increased in 18 of the 20 cities in July. Prices declined in Seattle and Las Vegas. In addition, 13 of the cities have seen price increases for least three consecutive months. "These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the federal first-time homebuyer tax credit in November, anticipated higher unemployment rates and a possible increase in foreclosures," Mr. Blitzer said. Overall, prices are down 13.3% from a year ago and down 32.6% from the second quarter 2006 peak in home prices. Economists at Moody's Economy.com expect house prices won't bottom out until the second quarter of 2010. By then the peak-to-trough decline in the S&P/Case-Shiller HPI will be 40%.