Servicing

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.

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.