Servicing

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.

A leading indicator of future home sales rose 3.2% in July to a level not seen since the summer of 2007, according to the National Association of Realtors. The NAR pending sales index hit 97.6 in July, up from 94.6 in June. The index has risen for six straight months, according to NAR chief economist Lawrence Yun, as homebuyers take advantage of very affordable prices and the $8,000 first homebuyer tax credit. NAR estimates that 1.8 million to 2.0 million first-time homebuyers will use the tax credit before it expires at the end of November. The tax credit, the group believes, will generate approximately 350,000 sales that would not have happened without it. NAR, the National Association of Home Builders and other housing groups are urging Congress to extend and expand the tax credit this fall. "Unless the tax credit is extended no one should be surprised to see home sales drop in the first quarter of next year," Mr. Yun said. However, NAR is forecasting that existing home sales will pick up again in the second quarter and be stronger in 2010 than this year even without the tax credit. The economic recovery appears "fragile," a NAR spokesman said. An extension of the tax credit will provide a sounder footing for the housing market, he said.

Servicers completed 80,170 loan modifications in July, down from 96,000 in the previous month, as more troubled homeowners participated in 90-day trial modifications as part of the President's foreclosure prevention programs, according to the servicer alliance Hope Now. The number of delinquent borrowers that entered into repayment plans also fell in July. "The good news is that in July, over 253,000 borrowers were helped through loan workout solutions," said Hope Now executive director Faith Schwartz. Treasury Department recently reported that servicers initiated 230,000 trial modifications in July. Treasury is expected to report on the first completed loan modifications under the President's Home Affordable Modification Program this month (September). "It is anticipated that modification numbers will increase in the Hope Now industry surveys in the coming months," the servicer alliance said. Participating HAMP servicers have pledged to complete 500,000 loan modifications by November 1.

With PHH Corporation's stock nearing its 52-week high of almost $23 a share, company insiders — including mortgage chief Mark Danahy — have been unloading shares. According to trading records, Mr. Danahy sold 16,120 shares over the past month at a price between $20.10 and $20.49. In total, he grossed $327,000. William F. Brown, an officer of the company, sold 10,000 shares for $21 each, grossing $210,000. The Mt. Laurel, N.J.-based PHH, which underwent a proxy battle and management shakeup earlier this year, is the nation's 11ith largest residential lender, according to the Quarterly Data Report. It services $149 billion in product, ranking 10th nationwide. Its 52-week low is $4.27, reached back in November of last year.

Under current economic conditions, nonprime investors and lenders should expect defaults on loans currently being originated to be 137% higher than the average of loans originated in the 1990s, according to the latest UFA Mortgage Report. The Default Risk Index from the University Financial Associates in Ann Arbor, Mich., for the third quarter of 2009 rose to 237 from last quarter's revised 230, but remains below the 2008 Q4 peak. After extraordinary price declines in many housing markets around the country, the UFA says steep increases in unemployment are almost fully offsetting the positive effects of lower, and in some areas, stabilizing house prices. "As house prices return to more sustainable levels, we are transitioning to a phase where high unemployment rates will exacerbate the level and extend the period of elevated foreclosures," said Dennis Capozza, professor of finance with the Ross School of Business at the University of Michigan and a founding principal of UFA.

Outstanding foreclosures in the United Kingdom may be declining a bit but employment and industry trends suggest the performance of prime residential mortgage-backed securities market will generally continue to deteriorate, according to a Moody's Investors Service report. Moody's senior associate Daron Kularatnam attributes performance woes to a combination of increasing unemployment and lack of financing options. A Moody's index report that the senior associate co-authored shows RMBS delinquencies in the second quarter rose to 1.80%, up 18.3 basis points from the previous quarter, while outstanding repossessions "decreased marginally to 6.6 basis points on average." The report also noted that no new U.K. prime RMBS deals were issued during the second quarter.

The fair value of loans held by the nation's largest commercial banks continues to decline, indicating that credit markets have not yet turned around and raising serious questions about the effectiveness of the government's efforts to help the industry through the credit crisis. Among the banks that were stress-tested by the government in May, the difference between carrying values and fair values grew 14.4% from Dec. 31 to June 30 - to $164.4 billion. Observers said the data shows that it is getting even more difficult to find buyers for stressed loans and that banks' efforts to jettison bad assets could be delayed. And if the Financial Accounting Standards Board advances a sweeping mark-to-market proposal, some banks might have to raise more capital to close their valuation gaps. "It is clearly a sign of stress that surprises me," said Tim Yeager, a finance professor at the University of Arkansas and a former economist at the St. Louis Federal Reserve Bank. "I thought by now that we would have turned the corner, but things seem to be getting worse."

Freddie Mac soon may be receiving a notice from the New York Stock Exchange, saying it is back in compliance with the NYSE's listing requirements. At press time Freddie's common was trading at $2.22, which means that its average share price will have been north of $1 for the past 30 days - that is, as long as its stock price doesn't collapse by close of business Monday. Under NYSE rules, the exchange can initiate delisting proceedings for companies whose 30-day average price falls below $1. "We're waiting for official notification from the NYSE," a company spokeswoman said Monday. In a week it will mark the one-year anniversary since Freddie and its sister company, Fannie Mae, were taken over the government and placed into conservatorship. The share price of both GSEs has been rising over the past month. Some stock analysts attribute the price increase to bottom fishing and speculation by short sellers. Freddie's 52-week low is 25 cents, its high $5.52. In the second quarter Freddie actually posted a profit while Fannie lost money.

The nation's beleaguered mortgage insurance companies wrote $7.54 billion of new traditional MI policies in July, its third worst volume month of the year. Compared to the same month a year ago, new business fell by 39%, according to figures compiled by the Mortgage Insurance Companies of America, a trade group. July was the industry's weakest month in terms of new applications received: 44,532 -- almost half the number received in July 2008. Meanwhile, MICA reported that primary insurance defaults rose to 94,571 units in July, the second highest reading of the year for the industry. January was the worst month of the year for defaults at 106,482. The data was culled from six of the nation's seven MI companies. Triad, which is self-liquidating, is not represented in the numbers.