Servicing

The Federal Trade Commission has filed complaints against two loan modification companies for allegedly making false claims that they could obtain a mortgage modification in virtually all cases. One complaint, filed in the U.S. District Court for the District of Columbia, charges Nations Housing Modification Center and its principals, Michael A. Trap, Glenn S. Rosofsky, and Bryan P. Rosenberg, with violating the FTC Act and the FTC's Telemarketing Sales Rule by allegedly misrepresenting themselves as a government agency and falsely claiming to obtain mortgage mods for consumers. The FTC alleges that very few homeowners got mods and the defendants accepted advance fees for their services. The other complaint, filed in the U.S. District Court for the Central District of California's Southern Division, charges Infinity Group Services and its president, Kahram Zamani, with violating the FTC Act by falsely representing that they would obtain a loan modification in all instances and would allegedly obtain loan refinancing for an up-front fee. The FTC alleges that the company often failed to obtain loan mods and either failed to answer or return consumers' telephone calls or update them about their status. The defendants were unavailable for comment.

A few months ago it was a buyer's market for senior tranches of residential mortgage-backed securities, but no more, according to a recent report by Redwood Trust, Mill Valley, Calif. A publicly traded REIT that invests in and services MBS, Redwood said that in the second quarter prices for senior RMBS rose 10% to 15%. "This trend continued early into the third quarter, as prices have moved significantly and steadily higher," it writes. Redwood, which bought RMBS during the market's "nadir," said the negative investment psychology for this asset class has turned positive "and in some cases, is showing signs of animal spirits." The REIT hinted that it may be a selected seller of its positions, noting that "prices could stay at elevated levels for some time."

Thornburg Mortgage, which is operating under bankruptcy protection, soon will auction off $12 billion in jumbo servicing rights — $2 billion more than previous estimates, according to investment banking officials. Sources indicate that an auction of receivables is indeed coming but that the company's managers have to proceed with the bankruptcy court's approval. Thornburg's legal counsel in Baltimore did not return a telephone call about the matter. Even though the once publicly traded company is based in Santa Fe it filed for Chapter 11 in Maryland. Its legal counsel is Venable LLC in Baltimore. A REIT, Thornburg filed in May, listing assets of $24.4 billion and debts of $24.7 billion.

The nation's six active mortgage insurance firms wrote $22.89 billion worth of coverage in the second quarter, a 61% decline from the same period last year, according to figures compiled by National Mortgage News. Even though originations are on the rise, the MIs have been constrained by their weak capital positions which hurts their ability to write news business. They also have lost customers to the Federal Housing Administration's insurance program. In the second quarter MGIC Investment Corp. ranked first with $5.9 billion in coverage, followed by Radian Guaranty ($5.49 billion), and United Guaranty Inc. ($3.9 billion). UGI is for sale. Investor Wilbur Ross has been mentioned as being a leading candidate to buy the company.

Mortgage Industry Advisory Corp. is selling a $1.04 billion package of Government National Mortgage Association servicing rights backed by mortgages that are mostly located in the Northeast. The offering is yet another sign of life in the secondary market for housing receivables. The average loan size in the pool is $198,845. All of the notes are fixed rate. The seller is a mortgage banker based in the Northeast but MIAC did not identify the firm. The broker had not returned a telephone call about the offering at press time. Currently, the two largest players in the GNMA servicing market (in terms of market share) are Wells Fargo & Co., and Bank of America, according to the Quarterly Data Report.

Residential Credit Solutions is the winner of the first FDIC Legacy Loan sale involving $1.3 billion in residential mortgages from the failed Franklin Bank in Houston. RCS, a residential mortgage investor and servicer based in Fort Worth, Texas, bid $64.2 million in cash to purchase a 50% equity stake in a limited liability company that will own the troubled assets. The Federal Deposit Insurance Corp. said the pilot sale was "very competitive" and it expects to recover 70% of the outstanding balance on the nonperforming loans. "The bid received from RCS for the financed sale of assets to the LLC using 6-1 leverage was determined to be the offer that would result in the greatest return to the [Franklin] receivership of all competing bids," FDIC said. RCS will manage the LLC portfolio and service the loans under the Home Affordable Modification Program. The company could not be reached for comment.

The Internal Revenue Service and Treasury Department have issued new regulations related to certain modifications of commercial mortgages held by real estate mortgage investment conduits. The new regulations, which were not expanded to include mods of commercial mortgages held by investment trusts as some in the industry have proposed, would allow lenders to modify commercial real estate loans held by REMICs in some cases without incurring tax penalties. The IRS and Treasury Department said they would continue to consider whether the new regulations should also be expanded to investment trusts. The Real Estate Roundtable has been a proponent of the REMIC change.

The downgrade of the insurer financial strength and issuer default ratings of Fidelity National Financial Inc., Jacksonville, Fla., by Fitch Ratings, Chicago, means the rating agency has downgraded three of the four remaining national title underwriting groups in the past week. Fitch cut FNF's IDR by two notches, from "BB" down to "B+". The two-notch downgrade, the Fitch report said, reflects not only the IFS cut on FNF's title insurance subsidiaries, but the greater weight given the substantial amount of goodwill at the holding company level. FNF has a debt-to-tangible capital ratio of 44% as of June 30, which Fitch categorized as outside its expectations. A positive is that FNF reduced financial leverage by paying down debt after an equity offering in April 2009. The IFS downgrade affects all FNF title subsidiaries except the former LandAmerica operations. The rating was dropped to BBB- from BBB. Fitch feels FNF has an aggressive capital management strategy, resulting in a higher operating leverage at the underwriting units than its competition. Despite this, Fitch retains an investment grade IFS rating on FNF in recognition that its historical results through the first half of this year have been better than its competition's. Another positive is that FNF now has a 46% market share, thanks to the LandAmerica acquisition.

In order for Radian Group to continue writing new mortgage insurance policies in 2010 and beyond, the company is considering a number of alternatives, including reactivating a subsidiary, said chief executive S.A. Ibrahim. Speaking at the Barclays Capital Global Financial Services Conference, he said the company is exploring the use of its Amerin Guaranty subsidiary to write new business in the 14 states that have risk-to-capital limits if necessary. The company supports industry efforts for regulatory or statutory relief by reducing the 25-to-1 risk requirement in those states. Among the states where such action has recently occurred is Arizona. Radian is also evaluating its reinsurance relationships in order to reduce its risk-to-capital ratio. As of June 30, Radian was in compliance with a risk-to-capital ratio of 15.9-to-1. But, Mr. Ibrahim said, this ratio is sensitive to future defaults, so it has the two initiatives underway. Depending on regulatory approval, one or both can be in place. When asked by an attendee why loans are less likely to cure in this downturn than in the past, Mr. Ibrahim said his opinion was that the decline in home values removed the opportunity for a borrower in trouble to have the ability to sell the property and get out of trouble.

Fannie Mae has named former PHH Mortgage chief Terry Edwards — who steered that nonbank through the worst of the mortgage crisis — as its new EVP in charge of portfolio management. At Fannie he will focus on the GSE's foreclosure prevention and loss mitigation activities for its single-family book of business. Until a few months ago Mr. Edwards was PHH's CEO but when a new control group — led by former Freddie Mac CEO Greg Parseghian — took charge of PHH he found himself serving only as a consultant. (PHH is a top ten ranked lender/servicer.) Even though subprime and alt-A lending boomed from 2003 to 2008 PHH stood mostly on the sidelines, concentrating on GSE and FHA lending. PHH is the nation's largest private label funder/servicer.