Servicing

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.

When banks modify a mortgage to make the payments more affordable, it is not only considered a troubled debt restructuring by the federal banking regulators, the regulators also expect banks to increase their allowances for loan losses. "It could result in more significant allowances for TDRs," said Kathy Murphy, chief accountant for the Office of the Comptroller of the Currency. The OCC official told the certified public accountants at their annual banking conference that most banks don't have a history of doing loan modifications. Nevertheless, banks are expected to do a Financial Accounting Standard 114 analysis of future cash flows on modified loans using current market trends to determine the appropriate impairment, she said. "Trends right now don't look like real estate is recovering," OCC's chief accountant said. Tom Kelly of PriceWaterhouseCoopers told the CPAs that a lot of firms are struggling with the complexity of FAS 114 and TDRs. "It is complex from an accounting standpoint and from an operational aspect," Mr. Kelly said.

The mortgage and finance company subsidiaries of bank holding companies will now be subject to consumer compliance reviews by the Federal Reserve Board. "The policy, which takes effect immediately, also provides for investigation of consumer complaints against nonbank entities," the Fed said. The Fed is the primary supervisor of bank holding companies but it has traditionally taken a hands-off approach to nonbank subsidiaries. There have been exceptions, however. Fleet Finance, the Atlanta subsidiary of a BHC, was charged and settled state allegations of predatory lending in 1992. Under chairman Ben Bernanke, the Fed initiated coordinated exams of nonbank subs with the Federal Trade Commission and state regulators in 2007. The new policy "builds on the pilot program and responds to a need for more effective supervision and consumer protection," the Fed said.

The House of Representatives late Tuesday approved legislation to beef up the Federal Housing Administration program — including a provision that encourages the Obama administration to provide support for warehouse lending. The "21st Century FHA Housing Act" gives the Department of Housing and Urban Development secretary more flexibility to appoint and fix the compensation for FHA personnel and to fund technology projects to replace FHA's aging information systems. Passed on a voice vote, the bill (H.R. 3146) also says that the Treasury Department, HUD and the Federal Housing Finance Agency should work together to provide financial support and assistance to increase warehouse lending capacity to nonbanks. The National Association of Home Builders, National Association of Realtors and Mortgage Bankers Association supported the bill.

Former top executives at Fannie Mae, PMI, and Countrywide have launched and are seeking to expand a new advocacy group that will lobby on behalf of what it calls "independent, community and regionally-based" mortgage banking firms. The Community Mortgage Banking Project already has 26 members and is talking to eight more, said group founder, Glen Corso, a former senior vice president for The PMI Group, a mortgage insurance firm. His partners in the project include Robert Engelstad, a former senior vice president at Fannie, and Pete Mills, who was Countrywide Financial Corp.'s top lobbyist in Washington. In an interview with National Mortgage News Mr. Corso said his group would not compete with the Mortgage Bankers Association per se but would be involved in lobbying, and legislative and regulatory analysis on behalf of its members. Mr. Corso noted that the CMBP is a "not-for-profit company" but for tax purposes will not be filing as a nonprofit (which enjoy certain federal tax breaks). The MBA, by contrast, is a (Form 990) nonprofit organization with annual results that are publicly available. He said the CMBP would stay away from holding trade shows and getting involved in educational programs — two major sources of revenue for MBA. Mr. Corso is a founding member of The Warehouse Lending Project. That group has been lobbying regulators for government help with efforts aimed at increasing warehouse-lending capacity for nonbanks.

Fitch Ratings, Chicago, has downgraded the insurer financial strength rating of Stewart Title Guaranty Co., Houston, from "A-" to "BBB+" and the issuer default rating of Stewart Information Services Corp., from "BBB" to "BBB-" citing a below average profitability relative to peers and declines in statutory surplus. Through the first half of 2009, Stewart's GAAP pretax operating margin was -7.7% compared to a peer average of 2.8%. Similarly, Stewart's statutory capital levels were down 13% since year-end compared to a dollar weighted peer average of positive 4%. In the past Stewart's ratings benefited from the assumption that the company's technology-related investments would allow it to show better margins than the competition during a down market, but Fitch said this has not been the case. Separately, Fitch downgraded the IDR of First American Corp., Santa Ana, Calif., from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+". The change in ratings "reflects a heightened scrutiny of the company's 47% debt to tangible capital ratio as of June 30, 2009 given the current stressful environment," Fitch said. FAF has long planned to spin-off its title and specialty insurance business from the information services business. The rating agency said an unfavorable result of the spin-off is that FAF would lose the benefits of the unregulated cash flows of the information solutions business.

California Assemblyman Ted Lieu (D-Torrance) has introduced a bill that would provide for what he calls "state-appointed monitors to ensure homeowners have a chance to work out with their lenders a plan to prevent home foreclosure." California leads the nation in the number of home foreclosures. Mr. Lieu said in a statement, "As distressed homeowners continue to be at the mercy of lenders unwilling to modify their loans, it is imperative that we do whatever we can to keep people in their homes." The Orange County Register questioned whether the bill has any chance of passing but noted that the Assemblyman "has had some success with related bills since the housing crash began. He was one of the key sponsors of the 90-day statewide moratorium — most sizable servicers quickly got exemptions by showing they are doing loan mods — and he backed another bill that passed authorizing the Department of Corporations to collect data on servicers, though the Department cannot release data on individual company performance and consumer advocates say that compromise essentially neutered the bill."

Genworth Financial, Richmond, will take a $65 million provision to settle a $531 million bulk insurance dispute concerning payment option ARMs. In a new filing with the Securities and Exchange Commission, Genworth said it went to arbitration with an undisclosed lender and reached a settlement. The company, which owns the nation's fourth largest MI (in terms of policies-in-force), said "After giving effect to the premiums retained, settlement payments, and other consideration exchanged by the parties, we have made an additional provision for obligations" that will cost it $65 million. Meanwhile, Genworth has commenced a $500 million public offering of common stock in a deal underwritten by Goldman Sachs, Bank of America/Merrill Lynch, and Deutsche Bank. A new research note from Sandler O'Neill says the company is still considering "strategic alternatives" for its MI business.

PNC Financial Services is close to picking a winning bidder on a $600 million portfolio of mostly non-performing second mortgages that belonged to National City Mortgage. Several hedge funds have been mentioned as possible bidders, said one investment banker close to the deal. PNC bought National City and its mortgage business late last year. NCM was a large player in the second lien market, including 80-10-10 structures. A PNC spokesman did not return a telephone call about the matter. Meanwhile, traders say that Bank of America recently came to market with a $100 million package (perhaps larger) of mostly non-performing first liens, some of which came from Countrywide Home Loans. BoA has a policy of not commenting on its NPL auctions.