Servicing

Freddie Mac forced its seller/servicers to buy back $951 million of bad mortgages during the second quarter, a 21% increase from the first quarter. Fannie Mae also saw its outstanding buyback requests continue to increase in the second half of 2009 - but the GSE, unlike Freddie, does not disclose the dollar amount in its securities filings. Lenders that sell loans to Freddie and Fannie are required to make "representations and warranties" that the loans comply with the GSEs' underwriting requirements. If the loans do not perform as expected and underwriting deficiencies are flagged, the lender is obligated to buy back the loans. The GSEs are concerned that their credit losses will grow if lenders cannot muster the financial wherewithal to meet their buyback obligations. Freddie recently noted that it terminated Taylor Bean & Whitaker's status as a seller/servicer on Aug. 4. "We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us. The amount of our losses in such an event could be significant," Freddie said in its second-quarter securities filing. The Federal Housing Administration recently suspended TBW as a lender.

Weak house prices are likely to continue in the Netherlands due to a high degree of leverage in households and a continuing economic recession, according to a Moody's Investors Service report on Dutch RMBS trends. Delinquencies of more than 60 days in Dutch residential mortgage-backed securities increased slightly to 0.42% in the second quarter compared to 0.35% during the same period a year ago, Moody's said. Weighted average cumulative foreclosures during the same two comparative periods jumped to 0.42% from 0.35%. The rating agency said it did not rate any new Dutch RMBS during the second quarter.

First American CoreLogic, Santa Ana, Calif., has launched a free Apple iPhone application that enables individuals to view market data on over 140 million residential properties in the United States using their iPhone. The product, called RealQuest Home Value Pro, provides mobile access to First American's database of property data. Users of RealQuest Home Value Pro can view property values, foreclosure information and housing trends. Specifically, RealQuest Home Value Pro features include estimated home values for a given subject property and neighboring properties, nearby foreclosure data including pre-foreclosures, auctions and real estate owned (REO) properties; graphs of 12-month median home price trends, foreclosure rates and home sales trend activity; interactive maps to view estimated home values in a neighborhood; and sharing tools that enable real estate agents and homebuyers to save, organize and share properties in real time.

Marshall & Ilsley Corp. has sold a pool of troubled residential loans in a move that bodes well for the Milwaukee company and for other depositories looking to sell problem assets. Even though the bank announced the sale publicly it would not name the investor. The sale of 800 mortgages — mostly on single-family homes in Arizona — is a boon for M&I, as it clears its books of about $297 million of housing loans that could continue to sour as unemployment rises. It's good for the industry because it shows that demand might be picking up for the kinds of troubled assets that banks, for the most part, have had a hard time unloading. "There are buyers out there," said Dennis Klaeser, an analyst with Raymond James & Associates. "That would confirm that the real estate market is reaching a bottom."

Lower coupon mortgage-backed security prepayment speeds, which largely decelerated as expected in July, are forecast to continue decelerating to some extent in August. "I think we slow again," said Art Frank, director and head of mortgage-backed securities research at Deutsche Bank. But the slowdown in speeds could decelerate somewhat due in part to August's seasonal increase in housing sales, he added. Mortgage-backed security prepayment speeds during July came in closer to expectations than they have been recently with the exception of certain "cusp" coupons. There was a pronounced deceleration in these 5% and 5.5% coupons, according to researchers at three investment banks.

The bulk of more than 150 recent CMBS-backed synthetic CDOs ratings lowered in a recent Standard & Poor's review could face could face further downgrades. Standard & Poor's has lowered 179 ratings from 63 commercial mortgage-backed security-backed synthetic collateralized debt obligation transactions, 169 of which remain on CreditWatch Negative. S&P also lowered five ratings from five CDO retranchings referencing residential MBS transactions and placed one of these ratings on CreditWatch Negative. The rating changes follow a monthly review of the synthetic CDO sector in which 173 ratings from 116 U.S. corporate-backed transactions also were lowered. S&P left 65 of these ratings on CreditWatch Negative.

Standard & Poor's Ratings Services has lowered its ratings on 37 classes from three residential mortgage-backed securities transactions backed by U.S. prime jumbo loans, alternative-A and subprime credit mortgage collateral issued in 2004 and 2006. S&P also removed 22 of the lowered ratings from CreditWatch with negative implications. "Although cumulative losses were generally low compared with our projected lifetime losses for the transactions reviewed, we are projecting an increase in losses due to increases in delinquencies and the current negative condition of the U.S. housing market," S&P said. In addition to lowering the ratings of 37 classes, S&P affirmed its ratings on 13 classes from the same transactions.

Ambac's ratings by Standard & Poor's Corp. appear relatively steady for now, but continuing residential mortgage-backed securities deterioration held to be largely responsible for the company's second quarter loss of close to $2.4 billion could be a concern going forward. Standard & Poor's analysts said they have revised their outlook on Ambac Assurance Corp.'s counterparty credit rating to negative from developing and that their outlook for Ambac Financial Group Inc.'s counterparty credit rating remains negative. But they also noted that they continue to consider the outlook for AAC's financial strength rating outlook to be "developing" because they could raise that rating going forward.

The Federal Home Loan Bank of San Francisco had net income of $303 million for the second quarter of 2009, up from $233 million for the same period last year, as it benefited from $168 million in net gains associated with derivatives, hedged items and financial instruments carried at fair value. However, FHLB-SF also took a non-credit impairment charge of $1.2 billion and a credit impairment charge of $88 million related to non-agency mortgage-backed securities in its held-to-maturity portfolio. The impairment was due to a lack of liquidity in the MBS market affecting the valuation of the securities. As of June 30, 2009, FHLB-SF had a regulatory capital-to-assets ratio of 6.1%, well above its 4% regulatory requirement, and its risk-based capital was $14.6 billion, also well above the $8.2 billion regulatory requirement.

The net loss for Triad Guaranty Inc., Winston-Salem, N.C., ballooned to $359.4 million ($23.91 per share) for the second quarter of 2009, compared with a loss of $55.2 million ($3.68 per share) for the first quarter of 2009 and $198.8 million for the second quarter of 2008 ($13.36 per share). Company president and chief executive Ken Jones said the cure rates on loans in default had a further decline during the second quarter of 2009, plus Triad had higher severity on settled losses. Settled losses increased significantly at the company as more loans from its 2006 and 2007 book of business completed the foreclosure process. Triad increased its loss reserves by $279 million during the quarter. As of June 30, 2009, total insurance in force at Triad, which is in run-off status, fell to $57.5 billion, a decline of just under 5% from March 31, 2009. Net loss and loss adjustment expenses at Triad were $431.4 million for the second quarter of 2009, compared with $101.6 million for the first quarter of 2009 and $292.7 million for the second quarter last year. During the second quarter, Triad recognized benefits of $285.4 million from risk-sharing arrangements, including captive reinsurance programs. This compares with $97.4 million in the first quarter of 2009 and $52.4 million in the second quarter last year.