Servicing

A study by the National Consumer Law Center has found that programs in 14 states requiring either pre-foreclosure mediation or conferences with troubled homeowners have done little to ease the foreclosure crisis, largely because the programs impose no significant obligation on servicers. If no requirements are placed upon servicers, the report said, it is unlikely that mediation that will lead to fewer foreclosures. Many of the 25 foreclosure mediation programs reviewed for the study lack mandatory rules and fail to impose sanctions for noncompliance with what minimal rules exist, the study said. It also faulted the programs because they do not require servicers to provide information substantiating a right to foreclose and do not mandate analyses of loan modification alternatives. And it said many programs set such "unreasonable procedural barriers" that large numbers of homeowners were restricted from participating. "Under most of the existing foreclosure mediation programs, servicers have all the discretion and homeowners have little or no power," said the study's author, NCLC staff attorney Geoffrey Walsh. "If the programs continue to demand little or no accountability from servicers, they will likely go the way of federal efforts to control foreclosures that have failed as a result of relying on voluntary compliance by the lending industry." The National Consumer Law Center is a nonprofit organization that seeks marketplace justice on behalf of low-income and vulnerable Americans. Among a litany of recommendations: A requirement that servicers give borrowers a document showing its affordable loan modification calculation and net present value calculation; produce specified documents, such as a pooling and servicing agreement, loan origination documents, an appraisal, and loan payment history; establish proof of their standing as the real party in interest, and document that they have considered alternatives to foreclosure.

Fannie Mae and Freddie Mac are approaching a combined total of 100,000 in real estate-owned assets with Fannie at 63,000 and Freddie, 35,000, according to former director of FHFA James B. Lockhart III. As a featured speaker at The Five Star Default Servicing Conference and Expo in Fort Worth, Mr. Lockhart said while HAMP and HARP are getting borrowers into safer mortgages, everyone is waiting to see if the modifications take or if they will re-default quickly. Their history has not been good, he said. Based on first quarter 2008 data, Fannie and Freddie only lowered payments for 3%. "If you aren't lowering payments, it's not surprising you are not getting good results." He did say there was a more dramatic change in the second quarter, which will hopefully help more people stay current. Fannie and Freddie have lowered interest rates from 6.5% to 5%. Unfortunately, economic trends and growing unemployment could still hurt the market. Looking at the future of Fannie and Freddie, with 5.5 trillion of mortgage exposure, he said the industry has to decide what it wants the secondary market to look like. "Up a until a year and a half ago, it was a successful secondary mortgage market. We allowed them to leverage themselves too much. They gave people cheaper mortgages than they should have had and now taxpayers are paying for it." As to whether there will be a private label market comeback, he said it will take some time for that to happen, adding that it is important to divide the private from the public sector. "If you don't draw the lines clearly you have what we had. We had the private sector taking profits and then the public picking up the losses. That was the big problem. We need a better understanding of what the private-public sector should be."

The Federal Housing Administration is playing a larger role in the origination market and could end the year with a 30% market share, according to FHA commissioner David Stevens. FHA currently has a 23% market share, he said, and is no longer just a "countercyclical agency." FHA has become a "significant source of primary capital to fund the needs of homeownership," Mr. Stevens told a National Association of Federal Credit Unions conference. Meanwhile, the origination of mortgages has become very concentrated among several large banks, he said. He encouraged credit union executives to become more involved in mortgage lending to serve their members. He noted that FHA is increasing its net worth requirements, tightening credit standards, and taking other steps to control risks, such as hiring FHA's first credit risk officer. "FHA will never be able to fulfill its mission long-term or short-term if it is under scrutiny for not being well managed from a risk management standpoint," he said. The CRO candidate has already been picked and should be on board by year-end, he added.

Reverse mortgage lenders are learning that the Federal Housing Administration is moving quickly to implement a reduction in the loan proceeds that seniors can receive from a FHA-insured Home Equity Conversion Mortgage. National Reverse Mortgage Lenders Association president Peter Bell said FHA is expected to issue a mortgagee letter soon — possibly this week — on the HECM cut that could go into effect Oct. 1, the beginning of FHA's fiscal year. The reverse mortgage program faces an estimated $800 million shortfall due to declining house prices and it appears that congressional appropriators are not going to cover this credit subsidy shortfall. As an alternative (suggested by Congress), FHA is moving to cut HECM loan proceeds by 10%, according to sources. An analysis by NRMLA of the loan production by three large HECM lenders shows 21% of seniors would not be able to pay off their existing mortgage if their loans proceeds were cut by 10%. For seniors that need a HECM to remain in their home, the reduction in loan proceeds means they might have to sell or face possible foreclosure. "This is highly disruptive for the reverse mortgage industry, but more importantly to seniors' ability to access the equity in their homes to pay off their current mortgage," Mr. Bell said. FHA declined to comment.

Just over one in four existing homes sold in Orange County last month had been through foreclosure some time in the past year, according to MDA DataQuick. According to a report in The Orange County Register, it's the smallest percentage of total home resales in 18 months. It's believed that most of the homes (685) were repossessed houses and condos being resold as real estate-owned (REO) by banks and other lenders. Others may be homes being resold by investors who picked up the homes at foreclosure auctions. Previously foreclosed homes have accounted for a dwindling share of Orange County home sales since January, when almost one out of every two homes sold had been through foreclosure, DataQuick figures show.

Home prices rose 0.3% in July from the previous month, according to a Federal Housing Finance Agency price index that has registered three straight monthly increases in values. The home price index rose 0.1% on a seasonally adjusted basis in June and 0.6% in May. FHFA previously reported a 0.5% increase in June and revised it downward. The index is based on the purchase price of homes backed by mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. Overall, the July HPI is roughly at the same level as the March 2005 index.

The chairman of a key subcommittee is predicting that the House of Representatives will pass a regulatory reform bill this year, including new standards for securitizing mortgages and other assets. Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and GSEs, said, "We're coordinating our efforts with the European Community and the United Kingdom to try and come up with similar responsibilities when it comes to securitization." Speaking to reporters at a National Association of Federal Credit Unions conference, he said securitization became too speculative during the subprime crisis. He thinks the business can be rebuilt with less risk and more security. "I think having skin in the game is a good principle," he said, adding that this is particularly true when it comes to mortgage makers. Separate from regulatory reform, Rep. Kanjorski said there are discussions going on within his subcommittee about how to restructure Fannie Mae and Freddie Mac and "how we can better use the Federal Home Loan Bank System."

Final bids are due later this week on a $1 billion portfolio of mortgage servicing rights that once belonged to Franklin Bank of Texas, Houston. The receivables are being offered by Interactive Mortgage Advisors, Denver, on behalf of the Federal Deposit Insurance Corp. The loans that are being serviced include both performing and delinquent notes. Franklin was taken over by the FDIC in November 2008.

Envoy Mortgage of Houston, a nondepository, expects its loan origination volume will increase to $2 billion this year, a growth rate of almost 200%. The firm, formerly known as First Houston Mortgage, underwent a change of control about 18 months ago. Its CEO and owner is industry veteran Rick Thompson who during his long career in mortgages has managed such nonbanks as Troy & Nichols and Aegis Mortgage. Envoy - which depends on warehouse lines of credit - is in the process of obtaining its Freddie Mac and Government National Mortgage Association servicing approvals. It already has Fannie Mae approvals, said Mr. Thompson in an interview with National Mortgage News.

The mortgage insurance division of Genworth Financial has knocked nine states off its list of declining/distressed markets, leaving its troubled list to just five: Arizona, California, Florida, Michigan and Nevada. Genworth, the nation's fourth largest MI, on Monday liberalized some of its underwriting guidelines, telling its mortgage banking customers that it will insure cash-out refis and second homes in non-declining markets. However, the cash-out refi rule changes apply to loans with maximum LTVs of 85% and minimum credit scores of 700.