Servicing

Some agency mortgage-backed securities speeds seen slowing in the most recent prepayment reports may be bottoming out and could inch up slightly next time around. "We think this is probably the bottom, near term at least" for certain MBS, said Art Frank, director and head of mortgage backed securities research at Deutsche Bank, New York. He said lower 4.5% and 5% MBS coupons might not change but speeds for 5.5% and 6% coupons might be "marginally faster," while speeds for higher coupons could be tougher to predict due to the impact of federal programs. Collectively, Mr. Frank and Wall Street prepayment reports seen at press time indicated aggregate 30-year Freddie prepays slowed about 27%-30% in the most recent month while equivalent Fannie prepays slowed about 17%-19%. Although some slowing had been expected, the extent seen in 5%-5.5% coupons brought them to constant prepayment rates that were lower than projected. Primary market mortgage rates in the period that affected agency MBS speeds in the most recent report were higher than the previous month by 14 basis points and there was one less business day, but "even given that, the declines [in the speeds of 5-5.5% coupons] were bigger than most people expected," Mr. Frank said. Rates expected to affect the next prepayment report have been about 7 bps lower, he said.

Default rates on commercial MBS could hit 6% by yearend as the recession finally takes its toll on the performance of commercial and multifamily properties, the president of the Commercial Mortgage Securities Association said Tuesday. CMSA chief president Patrick Sargent noted that the default rate (loans 60 days or more past due) generally averages 50 basis points. "Now we are starting to see these default rates go up to 3% and 4% and by yearend they could perhaps go up to 5% or 6%," he said on CNBC. The CMBS default rate rose nearly 100 bp to 2.39% in the second quarter from the first quarter, according to Trepp LLC data. CMSA's main focus is to bring liquidity back into the CMBS market, Mr. Sargent said. He noted the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) has been helpful so far but noted that it will take more time to be effective. The Fed has already extended the TALF program for newly issued CMBS by six months to June 30. "We would like to see TALF extended [again] if it makes sense after next June," Mr. Sargent said.

The Credit Managers' Index combined score for August was 48.1, up from 48 in July, according to the National Association of Credit Management, Columbia, Md. NACM said it originally stated the gain incorrectly as slightly higher. As a result, a news item that originally ran Sept. 2 incorrectly stated the combined index score for August.

In the week after the Federal Deposit Insurance Corp. eased its stringent private-equity proposal, firms appear wary but ready to bid on failed banks again. Observers said even though the final guidelines are more palatable, they are restrictive enough that private-equity bidders still face tougher standards than competitors and investors must carefully determine if a bid's reward justifies the regulatory cost. "It's at least encouraged me enough to where we will try" to bid, said Wilbur Ross, the chairman and chief executive of WL Ross & Co. LLC. Ross has also been a bottom fisher of troubled mortgage assets, buying large residential servicing portfolios from such bankrupt non-prime lenders as Option One Mortgage, Irvine, and American Home of Melville, N.Y.

The action is picking up in Sin City, one of the hardest hit housing markets in the nation. Lower interest rates and an average sales price under $160,500 (for homes priced under $1 million) are attracting more bargain hunting foreclosure and short-sale buyers to the Las Vegas-Henderson market, according to local broker Robert Jenson, who reports that the inventory in that sector has dropped to a 6.5-month supply - 2.8 months if houses under contract are not counted. Prices actually inched upward 1.3 percent for single-family residences in August, only the second month in the last 12 that they have moved higher. In another hopeful sign, Mr. Jenson, who hangs his hat at RE/MAX Central, reports that the number of foreclosures on the market is down 7.4 percent. On the flip side, the number of short-sale offers is up. "There are twice as many short-sale listings, but REOs outsell short sales, five to one," the realty broker says. Distressed properties accounted for 82% of all sales in August, including one short sale at over $1 million.

CMG Mortgage of San Ramon, Calif., is re-launching a once popular first lien home equity product - and is even accepting applications from third-party loan brokers. The California-based non-depository stopped offering its 'Home Ownership Accelerator' a year ago when its secondary market investor -- GMAC Bank and its affiliates -- faced liquidity problems and had to pull the plug on the loan. At the time CMG was funding about $100 million a month in HOAs. It has found a new HOA investor - Ameriprise Bank of Minneapolis. (For more details see the Monday edition of National Mortgage News.)

Warren Buffett's Berkshire Hathaway Inc. and Leucadia National Corp. have teamed up to buy Capmark Financial Group's struggling commercial mortgage servicing and production units for a reported $490 million. At June 30, Capmark ranked third among all commercial servicers with $248 billion in receivables. According to figures compiled by National Mortgage News, Capmark is a top five ranked commercial funder. The announced sale comes a few days after Capmark said it might file for Chapter 11 bankruptcy protection after delinquent commercial mortgages left it with a $1.62 billion second-quarter loss. It said stockholders had negative equity of $1.14 billion as of June 30. In 2006 an investor group led by affiliates of Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners bought a majority stake in Capmark's predecessor company, GMAC Commercial Mortgage of Horsham, Pa.

Mortgage companies added 3,600 full-time employees to their payrolls in July while the number of active mortgage brokers fell to a level not seen since September of 2001. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector rose to 267,200 in July from 265,500 in June. The BLS survey counted 70,100 existing mortgage brokers in July, a 1,900 drop from the previous month. After a slight decline in the second quarter, employment at mortgage banking companies is now at first quarter levels. Meanwhile, Friday's employment report contains some encouraging signs that job losses are continuing to slow -- which could mean mortgage delinquencies might subside somewhat. BLS reported that 216,000 U.S. workers lost jobs in August, down from 276,000 in July. The nation's unemployment rate rose to 9.7%, up from 9.4% in July. (There is a one-month lag in BLS's reporting of mortgage industry employment data.)

The Federal Housing Administration mortgage insurance fund will not need a capital infusion from Congress, the FHA commissioner said in response to concerns that the program is experiencing larger than expected credit losses due to delinquencies and home price declines. "FHA will not need a congressional subsidy even if the congressional capital reserve ratio falls below 2%," FHA commissioner David Stevens said in response to a report in The Wall Street Journal that rising defaults have "eaten through" FHA's capital cushion and that the fund is in danger of falling below the statutory minimum of 2%. FHA's capital reserve is based on an annual actuarial study that is generally completed by October. The FHA commissioner said he would not comment on FHA's reserve ratio until he sees the study. At the end of the second quarter, 6.88% of FHA single-family loans were 90 days or more past due, up 35 basis points from June 2008, according to FHA. FHA foreclosures are up 17%, however. Meanwhile, the new commissioner has been conducting a thorough review of FHA's credit parameters. "It is expected that FHA will be coming out with some new tightening measures in the next several weeks, which the industry will welcome," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington.

The U.S. Department of Housing and Urban Development plans to speed federal disaster assistance to homeowners in three western New York counties recently forced from their homes by recent severe storms and flooding. The assistance is aimed at supporting homeowners and low-income renters in Cattaraugus, Chautauqua and Erie counties in New York who were affected by the flooding and storms. Assistance is available through, among other things: a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration-insured home mortgages, HUD's Community Block Grant and HOME programs, and HUD's section 203(h) mortgage insurance program for disaster victims who have lost homes and are seeking to rebuild new ones.