Servicing

Level 1 Loans, Fort Lauderdale, is auctioning off a $32 million portfolio of Fannie Mae servicing rights. The receivables are backed by loans made in Arkansas. "It's a great time to buy servicing rights," said Level 1 chief Thomas Healy. He said the advisory/brokerage firm is working on another portfolio of receivables that could come to market shortly.

Dreambuilder Investments LLC has agreed to buy $400 million in delinquent second liens from PNC Financial Services, Pittsburgh, for an undisclosed price, according to sources close to the deal. PNC, which for months has declined to comment on the auction, inherited the loans when it bought National City of Cleveland. Executives at the New York-based Dreambuilder, a private equity firm, declined to comment. Originally, PNC was offering $676 million in delinquent HELOCs. At press time it was unclear what happened to the balance of the portfolio. Meanwhile, in one other pending second-lien sale, Jaymes Financial of Virginia is on the verge of completing a $365 million transaction.

The California Senate has cleared a measure that would reinstate the popular $10,000 tax credit for new homebuyers. The measure, which would re-authorize the use of $30 million in credits not awarded during the first program, is expected to be taken up by the General Assembly next week. The state set aside $100 million for the original program, and more than 10,600 buyers were approved for the original credit before the Franchise Tax Board stopped taking applications July 2. But the FTB has since determined that the average credit would be $7,000, not the full $10,000, freeing up $30 million to cover the tax credit extension. Under the bill, only buyers who close after the extension is approved will be eligible. Those who closed after July 2 but before the bill's effective date would not be eligible. On the federal level, lobbyists from the Mortgage Bankers Association and other trade groups are trying to persuade the White House and Congress to extend the $8,000 first-time homebuyer tax credit at least for a few more months.

MGIC Investment Corp., the nation's largest mortgage insurer outside the federal government, posted a massive $518 million loss in the third quarter, sending its share price plunging. Its net loss for the first nine months was $1.04 billion, compared to $249.8 million for the same period last year. Company chairman and CEO Curt Culver blamed the results on a weak economy, higher unemployment and lower home prices. In tandem with the poor results, MGIC said Fannie Mae has approved its insurance unit MGIC Indemnity Corp. (MIC) as an eligible mortgage insurer through the end of 2011. (Mr. Culver said MGIC is seeking similar approval from Freddie Mac.) Loan delinquencies (not including bulk loans) in its book of business were just under 14% for the quarter; one year prior, the delinquency rate was 7.54%. Under the agreement with Fannie, MGIC cannot contribute more than $200 million to MIC, which limits the amount of business it can write going forward. For MIC to start writing new policies, Wisconsin's Office of the Commissioner of Insurance must sanction the unit. In addition, MIC would need a waiver from OCI regarding Wisconsin's capital requirements. There are 16 states, including Wisconsin, that have specific mortgage insurer capital requirements. Under the plan MIC could do business in those states because MGIC would no longer meet minimum capital requirements.

Saddled with delinquent home mortgages, Citigroup reported net credit losses of $9.4 billion in the third quarter, a slight decline from the previous period. Citigroup, which controls the nation's fourth largest residential funder, said its credit losses showed some improvement because of a "higher volume of trial modifications" under the government's Home Affordable Modification Program (HAMP). In total Citi had roughly 63,000 loans in the trial program. The bank said because the modifications are considered "trial" it does not have to charge them off — though the mortgages are considered delinquent. (The bank deferred the recognition of $100 million of net credit losses during the quarter because of the trial designation.) According to its earnings statement, the banking giant completed more than 24,000 mortgage loan modifications during the period. The impact of the HAMP also contributed to the $2 billion sequential increase in loans 90-plus days past due in its North America residential lending business. Citigroup reported net income of $101 million for 3Q09, compared to net income of $4.3 billion in the previous quarter and a net loss of $2.8 billion the same time last year. It posted third quarter revenues of $20.4 billion. Results included $8 billion in net credit losses and an $802 million net loan loss reserve build.

Ocwen Loan Servicing LLC said it has completed almost half of the trial mortgage modifications converted to permanent modifications for distressed homeowners under the Treasury Department's Home Affordable Modification Program. Ocwen said it has completed 44.6% of all of the permanent modifications done by the industry. This includes 27 large banks and servicers whose aggregate loan portfolios comprise the lion's share of the HAMP program, said Paul Koches, executive vice president, Ocwen Financial, West Palm Beach, Fla. The mortgages that Ocwen modified under the HAMP program are subprime mortgages it holds the servicing rights on but does not own, Mr. Koches told MortgageWire. These results show technology and an analytics-based approach to prudent modifications is paying off, added Ocwen president Ronald M. Faris. "We believe it's better for our business, and better for struggling homeowners, for us to do the difficult, detailed re-underwriting work upfront," he said in a press release. According to a recent report by the Congressional Oversight Panel monitoring the government's Troubled Asset Relief Program, only 1.26% of trial modifications under HAMP were able to convert to permanent status as of Sept. 1. Ocwen, however, says it converted 13.9% of its customers' trial modifications during that timeframe, and its conversion rate is now over 20% and climbing. To convert, the servicer must obtain and verify all documentation required of the homeowner and receive three monthly payments on the modified loan during the trial period. The converted modifications can also generate second- and third-year bonus fees for servicers, assuming the loans continue to perform.

REOs jumped 21% from the second quarter to the third quarter in 2009, according to the latest data from RealtyTrac, which says foreclosure filings were reported on 937,840 properties in the 3Q, up 5% from the 2Q and an increase of nearly 23% from 3Q 2008. REO activity increased in all but two states, including Ohio and Rhode Island as well as the District of Columbia. "This indicates that lenders may be working through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties," said CEO James J. Saccacio. Nevada, Arizona, and California continued to post the top state foreclosure rates in the 3Q. Nevada documented the highest rate with one in 23 housing units receiving a filing. The state reported a total of 47,925 filings, and REO activity here increased 29% from the 2Q but defaults decreased 8%. With 250,054 properties receiving foreclosure filings during the quarter, California accounted for nearly 27% of the nation's 3Q total. Default notices here decreased 6% while scheduled auctions increased 5% from and real estate-owned assets increased 16%. The state's foreclosure activity decreased nearly 2% from the previous quarter thanks to a 10% drop in default notices, but scheduled auctions increased 4% and REOs increased 12% from the 2Q.

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.