Servicing

The addition of 432 commercial real estate loans totaling approximately $5.2 billion resulted in a 7% increase in U.S. CMBS "loans of concern" between June and last month, according to Fitch Ratings in the latest edition of "What's in Special Servicing." One notable entry is the $227.9 million Resorts International Casino Portfolio loan, which transferred to special servicing in July due to monetary default when the borrower failed to make their July payment citing significant declines in cash flow at the properties. "Properties directly tied to consumer spending such as hotels are the first to exhibit signs of performance declines," said Fitch senior director Adam Fox in a statement. Declining property performance and increasing CMBS defaults within remain the chief contributors to the rising amount of loans of concern. Fitch designated loans with declining performance as a concern because they have a higher probability of future default and current market conditions would result in significantly higher losses if the loans were liquidated in today's market. To date, Fitch has identified more than $80.7 billion in commercial real estate loans (17% of its rated U.S. CMBS portfolio) as having declining performance or defaulted loans. Recent vintage loans account for more than 12% of the $80.7 billion in loans of concern.

Wells Fargo Home Mortgage and Bank of America continued to dominate the GNMA servicing business in the second quarter with a combined market share north of 46%, according to new figures released by the Government National Mortgage Association. Wells serviced $192 billion of GNMA MBS at June 30, ranking first with BoA finishing second with $153 billion. (JPMorgan Chase was a distant third with just $57 billion.) At year-end the two had a combined market share of 44%. Issuance of GNMA securities has boomed this year with outstanding MBS at $740 billion, a 16% jump in six months. The securities include FHA and VA loans and carry higher servicing fees than Fannie Mae and Freddie Mac products. Wells had a 25.8% market share compared to 20.5% for BoA. BoA has three different units represented in the rankings including BAC Home Loan Servicing of Simi Valley, which is a master subservicer for GNMA itself. BACHLS recently was assigned a 180,000 unit GNMA portfolio by the agency. The rights belonged to Taylor, Bean & Whitaker, which is now in bankruptcy. The TBW assignment, however, is not represented in the June ranking because the assignment occurred after that date.

Fannie Mae and Freddie Mac — which are wards of the government — are seeking significant revisions to a regulatory rule that forces them to submit all new products and activities for review, arguing it is too restrictive and goes against congressional intent. In a rare joint comment letter sent this week to the Federal Housing Finance Agency, the two GSEs objected to several parts of the July 2 interim rule, saying it was unnecessarily burdensome and ineffective, and could make it difficult for the GSEs to help during a financial crisis. The letter marked one of the first times the two companies have publicly taken issue with their regulator, which seized them nearly a year ago and continues to manage them in conservatorship. No doubt because the companies are writing to their conservators, the letter is exceedingly polite, but it still makes clear that the GSEs think the current rule needs critical changes. On Wednesday the Mortgage Bankers Association released a working paper on overhauling the secondary mortgage market which assumes that Fannie Mae and Freddie Mac will no longer exist in the future but also calls for the creation of up to five mini-GSEs that would act as loan guarantors but without holding large on-balance sheet portfolios.

Delinquencies and losses in the United Kingdom's securitized nonconforming mortgage market are continuing to increase, according to Moody's Investors Service's latest available index data for the sector. Delinquencies and losses continue to rise at a rapid pace, as unemployment continues to rise, said Nitesh Shah, a Moody's economist and co-author of a second quarter report on the index. With only a few exceptions, deterioration can be observed for all U.K. vintages and transaction series, according Georgij Ludmirskij, a Moody's senior associate and also a co-author of the report. According to the report, 54 U.K. nonconforming transactions have more than 20% of 90-plus days delinquent loans in their portfolios, while 22 transactions posted 90-plus days delinquencies higher than 30%. In the second quarter, Moody's placed on review for possible downgrade 133 classes of notes in 13 U.K. nonconforming transactions. Eighty-eight transactions worth £27.3 billion ($44.4 billion) are currently outstanding in this market, according to Moody's.

Equi-Trax Asset-Solutions, Santa Barbara, Calif., is offering a service designed to provide clients with a way to quickly scan their portfolios and identify properties currently on the market that could be potential short sale, loan modification, portfolio retention or origination opportunities. The new Current Listing Search is designed primarily for use by servicers but Equi-Trax chief executive officer Guy Taylor said it also could serve as a source of sales leads for originators if the borrowers involved are moving. He said the search provides information as soon as it is available on multiple listing services. It draws on data from about 72% of multiple listing services in the country, which the company said represent most major Metropolitan Statistical Areas. Data available includes contact information for brokers that can be imported into servicers' contact databases on properties. Mr. Taylor said he believes the new service improves on alternatives such as other services that offer less extensive information, or borrower contact that may involve offering borrowers home valuation data in exchange for information about their future real estate plans.

Wells Fargo & Co. is said to be auctioning off a $65 million portfolio of sub- and non-performing residential loans and is set to take final bids next week. "They've been offering a lot of stuff lately," said one bidder requesting his name not be used. There is more to come, he said. At press time a company spokesman had not returned a telephone call about the auction. In the past the bank has rarely commented on its offerings. A few years back Wells Fargo Home Mortgage was one of the largest correspondent buyers of subprime loans but eventually exited that business.

After six months of gains, the Credit Managers' Index is showing slower progress, according to the National Association of Credit Managers, Columbia, Md. The index climbed inched up to an August score of 48.3 from July's combined index score of 48. While this represented some positive movement in the index as a whole, there also was some weaknesses in terms of credit availability, credit applications and sales. "This suggests that the proposed recovery is a little weaker than some of the indicators reflect, especially in terms of availability of money," NACM said. "There are some shoes left to drop, most notably the commercial property sector," said NACM chief economist Chris Kuehl. "It is mildly encouraging to note that the index has not fallen, but an anemic .3 gain was much less than had been anticipated," he said. The index had been expected to rise to closer to 50 in August.

The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form. Under the plan, the creation of mortgage-backed securities would rely on risk-based premiums paid into a federal insurance fund with loan level guarantees provided by what the trade group calls a "small number of privately-owned government-chartered and regulated mortgage credit-guarantor entities" or MCGEs. MBA wants ownership of at least one of the MCGEs to be in a co-op form with mortgage lenders as shareholders. "A co-op could be attractive to mortgage bankers," said MBA chief executive John Courson. (Ownership of Freddie Mac stock was limited to savings and loan associations under a co-op structure until 1989, when the company first sold shares on the New York Stock Exchange.) Even though Fannie and Freddie would no longer exist under this blueprint for the secondary market their "technology, human capital, standard documents and relationships" could serve as the foundation for the new MCGEs, MBA says. The plan — which played a role in driving down the GSEs' share price on Wednesday morning — was drafted by a special task force of MBA members including top executives in the industry who work for lenders, servicers, mortgage insurance firms, title companies and other players in the business. Fannie and Freddie declined to comment on the proposal. Some members of the task force work for companies that were once part of FM Watch, a lobbying group whose mission was to curtail the powers of Fannie and Freddie.

Mortgage document company DocMagic is suing mortgage software firm Ellie Mae for alleged antitrust violations and, in a second suit, for misuse of intellectual property. DocMagic also is seeking a permanent injunction against Ellie Mae for alleged misuse of DocMagic's intellectual property in the Ellie Mae Docs system. The antitrust suit alleges that DocMagic was provided access to Ellie Mae's ePASS network until Ellie Mae terminated its ePASS agreement and then took steps to prevent its users from accessing DocMagic products through unfair and anti-competitive behavior, including sabotaging clients from accessing DocMagic altogether through alternative web service calls. The filing said Ellie Mae notified ePASS Network users that DocMagic would no longer be available on ePASS or Encompass Closer and that DocMagic users would instead be moved to Ellie Mae's loan document service. It further alleges Ellie Mae began changing the terms of the Encompass user agreements to prohibit the transfer of data from Encompass to any third-party service provider outside of the ePASS network. "We've had a long relationship with Ellie Mae and have also been a long-standing client of ePASS. It has become clear that Ellie Mae wants to replace us as their document provider. They really didn't give us any alternative," said Don Iannitti, president and CEO of DocMagic. "I think they want to save money. I think the client is the victim. It can't be about monopolization." The complaint for injunctive relief DocMagic filed is based on Ellie Mae's alleged unauthorized use of DocMagic's intellectual property, including DocMagic's user interface, workflow, terminology and overall look in Ellie Mae's document system. "When we were working with them, we helped them in creating the workflow in the Encompass project. We recreated our screens and workflow for them. In replacing us, the look remained the same," Mr. Iannitti added. Ellie Mae was unable to comment at deadline but said it plans to release a statement in the future.

FDIC-insured banks had to buy back $1.9 billion of defaulted mortgages during the second quarter after facing heavy repurchase demands from investors during the first and fourth quarters. According to Federal Deposit Insurance Corp. call report information, banks repurchased $3.4 billion of mortgages in the first quarter and another $3.3 billion in the fourth quarter of last year. The two banks repurchasing the most in single-family loans in 2Q were JPMorgan Chase ($380 million) and Bank of America ($252 million). However, in the first quarter JPM had $2.2 billion in buybacks. BoA had $299 million. Both are on the hook for troubled loans they took control of when they purchased two ailing mega-mortgage lenders — Countrywide in the case of BoA, and Washington Mutual in the case of JPM. Secondary market investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that do not comply with their underwriting requirements. Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.