Servicing

The PMI Group Inc., Walnut Creek, Calif., had a loss of $222.6 million ($2.71 per share) for the second quarter of 2009, a slight improvement over the net loss of $246.3 million ($3.09 per share) for the same period last year. However, the results last year were boosted by a $4.7 million profit from units no longer part of PMI, namely PMI Australia, PMI Asia and PMI Guaranty. Total revenues at its U.S. mortgage insurance operations were $230.8 million for the second quarter of 2009, up from $219.9 million one year prior. The unit was able to improve on its second quarter 2008 loss of $225.9 million, with a loss of $175.8 million for the most recent period. Consolidated losses and loss adjustment expenses for the second quarter of 2009 were $480.8 million, down from $556.1 million for the second quarter of 2008.

Fannie Mae reported a $14.8 billion loss for the second quarter, compared to a $2.3 billion loss a year ago, and the mortgage giant is seeking a $10.7 billion draft from the Treasury Department to maintain a zero net worth. The government sponsored enterprise, which is in conservatorship, absorbed $18.8 billion in credit expenses due to defaults and foreclosures. The company benefited from a change in the accounting rules and recorded a $753 million impairment charge on its Alt-A and subprime private-label securities. In the first quarter, Fannie recognized a $5.7 billion "other than temporary impairment" charge, which contributed to a $23.2 billion loss for that quarter. The GSE also increased its reserves by $13 billion and ended the second quarter with a $54 billion single-family loss reserve. Guaranty fee income fell 5% to $1.7 billion in the second quarter from the previous quarter while net interest income rose 15% to $3.7 billion. Fannie said it is experiencing increasing default rates across its entire guaranty book of business and the serious delinquency rate on its $270 billion Alt-A portfolio hit 11.9% in the second quarter. Overall, 3.9% of the GSE's single-family mortgages are 90 days or more past due, up from 1.7% a year ago.

The Obama administration's Home Affordable Refinance Program jumped into second gear in July as Fannie Mae purchased 16,000 HARP refinancings in a single month. July purchases matched the total number of HARP loans the mortgage giant acquired during the whole second quarter. Fannie noted in its second quarter securities filing that lenders have been ramping up for the HARP program that allows homeowners with loan-to-value ratios of 80% to 125% to refinance their mortgages. But the number of refinancings completed was limited due to capacity. "As a result, we expect an increase in refinancings under this program in the third quarter... as second quarter applications are closed and delivered," Fannie said. Overall, Fannie acquired or guaranteed 843,000 refinanced loans in the second quarter, up 40% from the previous quarter.

Mortgage companies trimmed their payrolls of 500 full-time employees in June and continue to hold back on hiring despite stabilizing home sales and high demand for refinancings. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 265,100 in June from 265,600 in May. The decline in mortgage industry jobs has leveled in the past few months, although the number of jobs is off by 16% since June 2008. Meanwhile, Friday's job report contains some encouraging signs that job losses are slowing, which could also slow foreclosures since layoffs have been driving up defaults. BLS reported that 247,000 U.S. workers lost their jobs in July, compared to 443,000 in the previous month. The nation's unemployment rate edged down slightly to 9.4%. [There is a one-month lag in BLS's reporting of mortgage industry employment data.

Colonial BancGroup Inc. said it is the target of a U.S. Department of Justice criminal investigation relating to its mortgage warehouse lending business. The Montgomery, Ala., company said it is cooperating with the investigation which concerns accounting irregularities on more than one year's audited financial statements and regulatory financial reports. The company also revealed it has provided documents to the Special Inspector General for the Troubled Asset Relief Program and the Securities and Exchange Commission. A Justice Department spokesman said the agency is not commenting on Colonial. Colonial also said its bank subsidiary received notice that the Alabama State Banking Board will meet on Aug. 12 at which time Colonial Bank will be asked to consent to the appointment of the Federal Deposit Insurance Corp. as receiver or conservator if and when the state regulator deems necessary. This news wraps a bad week for Colonial as it reported the death of its recapitalization deal with Taylor, Bean & Whitaker, a $606 million second quarter loss, and a raid by the TARP IG on its warehouse office in Orlando as well as the abrupt closing of TBW.

No Paws Left Behind, Inc, a non-profit organization dedicated to bringing awareness to finding solutions for the growing epidemic of foreclosure pets, has accepted a $4,000 contribution from PMH Financial. The Denver-based provider of real estate, asset management, subservicing and default services generated collections through sales of No Paws Left Behind-sponsored stuffed animals with all proceeds benefiting pet rescue efforts. In exchange for their contributions, donors received a pair of No Paws Left Behind's PawStrong mascot animals. PMH Financial also matched the total sales intake, donating an equivalent amount to No Paws Left Behind. NPLB asks market participants for both donations and to let the organization know of any foreclosed animals. It helps match the latter with direct rescuers based on their ZIP code, local animal shelters and other alternative housing providers for pets in need. No Paws Left Behind can be found on the Web at www.nopawsleftbehind.org.

Goldman Sachs Group Inc.'s Litton Loan Servicing LP said Thursday it has agreed to rework mortgages under the Obama administration's Home Affordable Modification Plan. The Houston servicer said that since March, it has "offered more than 38,000 modifications to struggling homeowners using terms in accordance with the broad principles of HAMP, and has built infrastructure to fully implement the program." Larry B. Litton Jr., the unit's president and chief executive, said in a press release that modifications are its "primary method of helping homeowners avoid foreclosure. In the 12 months prior to the announcement of the Home Affordable Modification program, we modified more than 44,000 loans, representing about 10% of our loan portfolio. As the details of the federal program emerged, we continued to modify loans." This week the Treasury Department released its first monthly report card on the program. Officials expressed disappointment that only 235,247 trial modifications have started. But some servicers said obtaining documentation of borrower incomes has slowed down the process.

Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., has suspended origination operations effective immediately. The company was suspended or terminated as a seller/servicer on Aug. 4 by the Federal Housing Administration, Ginnie Mae and Freddie Mac. In a memo, the company said it was unsuccessful in its efforts to reverse those decisions and as a result must cease all origination activities immediately. Loans currently in its pipeline will not be funded, the memo states. The memo also states that the company is working with the agencies regarding its servicing operation and expects to continue to service mortgage loans as it restructures its business. However, the announcement from Ginnie Mae said it was taking control of a $25 billion mortgage servicing portfolio of its products.

Federal regulators are advising banks that their ownership of a second lien should not influence their decision to modify the first mortgage that they are servicing for other investors. Banks that service the first and second mortgages on the same residential property may face "potential conflicts of interests," the regulators say in a joint statement. "A servicer's decision to modify the first mortgage should not be influenced by the potential impact on the subordinated lien and vice versa," according to the Federal Financial Institutions Examination Council statement. An investor group recently told Congress that four banks that own $44 billion in second liens also service 55% of all first mortgages. The regulators stress that servicers have an obligation to modify the first lien if it would "produce a greater anticipated recovery" for the investors. "Failure to do so would be a breach of the servicer's obligation to those owners/investors," the FFIEC says.

PHH Corp. generated a $106 million profit for the second quarter, up from $16 million a year ago, mainly due to the strong performance of its mortgage production and servicing business. The Mount Laurel, N.J.-based company said it had stronger mortgage production margins, a higher volume of first mortgage originations and an increase in mortgage servicing rights mark-to-market valuation and benefited from cost efficiency efforts in both segments. PHH Corp. originated $11 billion in single-family loans during the quarter and the production unit posted earnings of $82 million. The servicing unit posted $86 million in earnings. Acting chief executive and president George Kilroy said PHH has reduced its fixed general and administrative costs by $14 million year-to-date over the prior year period. "Moving forward, we expect the near-term environment to provide attractive consumer mortgage interest rates, and we are well-positioned to leverage those dynamics. We also believe that the wider production margins we are currently experiencing are reflective of a longer term view of the returns required to manage the underlying risk of a mortgage production business, which is another encouraging trend. Our mortgage servicing portfolio may continue to see some erosion from loan defaults and prepayments due to ongoing recessionary trends. However, the servicing we are now adding is more valuable than the current portfolio given lower note rates, better credit quality and a longer expected life," he said.