Servicing

The major mortgage servicers are preparing for the Treasury Department to roll out a short sale program and they are signing up vendors that specialize in handling these difficult real estate transactions that help troubled homeowners avoid foreclosure. Loan Resolution Corp. chief operating officer Travis Olsen said one of the top 10 servicers has hired his firm to manage the short sale process. "We will take their borrowers who have been denied a home retention plan and hand-hold them during the rest of the process," he said. The COO also noted that his Scottsdale, Ariz.-based pre-foreclosure asset-management company has received requests for bids from several top-five servicers. Treasury is expected to provide incentives for servicers to conduct short sales and share some of the costs of paying off second lien holders. "The final details of the [short sale] program are being finalized, and will be announced as soon as completed," HUD assistant secretary David Stevens told a congressional panel on Wednesday (Sept. 9). In a short sale, the lender agrees to accept a loss on the sale of the property and forgive the remaining balance on the mortgage. If a short sale doesn't work, the next stop is foreclosure. It usually takes LRC a couple of days or weeks to complete a short sale after the buyer makes an offer, while the timeline for servicers can be 60-120 days. "We can sometimes approve short sales the same day the offer is received," Mr. Olsen said.

U.S. subprime asset values may be showing some early signs of stabilizing along with U.S. home prices, according to a report by Fitch Solutions, New York. Fitch said its total market U.S. subprime index as of the beginning of this month was 8.34, which was higher than its all-time low of 7.27 seen in May, but was still significantly lower than its opening value of 42.56 on in November 2007. Fitch managing director and author of the report, Thomas Aubrey, said his company — which is introducing five new asset-backed securities credit default swap indices — has found that the synthetic subprime market is still seeing more activity than its cash equivalent and is still being looked to as a proxy for asset values.

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.)