Servicing

The Comptroller of the Currency is urging national banks to take a look at the Federal Housing Administration loan program that can be used to restore foreclosed homes and help stabilize neighborhoods. The FHA 203(k) program provides government insured financing for the purchase and renovation of a property in a single loan transaction. OCC is promoting the benefits of FHA 203(k) loans in its "Community Development Insights" magazine. "This product can be used by banks to develop new business, mitigate risk, enhance profitability, as well as assist in the revitalization and stabilization of neighborhoods negatively impacted by the current foreclosure crisis," OCC says in the magazine. FHA commissioner David Stevens said he welcomes OCC's efforts to increase bank participation in the FHA loan program "With so many bank-owned properties in need of repairs, this program offers a great way for homebuyers to finance both the purchase and rehabilitation of these homes," Mr. Stevens said.

Freddie Mac reported a profit of $768 million in the second quarter and positive net worth of $8.2 billion so it will not have to seek additional capital from the Treasury Department this quarter. It is a remarkable turnaround for a company that posted a $9.9 billion loss in the first quarter. But after the paying the Treasury $1.1 billion in dividends for previous capital infusions, Freddie had a net loss per common share of $0.11 for the second quarter. "We are pleased that our financial results allow us to finish the quarter with a positive net worth," Freddie interim chief executive John Koskinen said. But he said the company remains cautious due to the recession and rising foreclosures. Freddie absorbed $5.2 billion in credit-related expenses in the second quarter, compared to $9.1 billion in the first quarter. The serious delinquency rate on its $172 billion Alt-A portfolio hit 9.44% in the second quarter. Overall, 2.9% of the GSE's single-family mortgages are 90 days or more past due. "Second quarter results were driven primarily by $4.3 billion in net interest income mainly due to lower funding costs, as well as $4.2 billion in gains on the company's derivative portfolio," Freddie said.

The Government National Mortgage Association has hired Bank of America to service the roughly $25 billion in FHA receivables it seized from Taylor, Bean & Whitaker last week, according to industry sources. One investment banking official also noted that TBW is a major servicer of Freddie Mac-guaranteed loans and that the GSE may soon make a decision regarding its rights. "They haven't serviced for Fannie in years," said the banker. At the end of March TBW, a non-bank, ranked 13th nationwide among residential servicers with $78.2 billion in receivables, according to the Quarterly Data Report. At press time officials at BoA, GNMA, Freddie Mac and TBW were not commenting or had not returned telephone calls about the matter. Last week the Federal Housing Administration suspended the Ocala, Fla.-based TBW as a lender which then caused it to pull the plug on its wholesale division. Shortly before that, TBW's $300 million financial rescue of its chief warehouse provider, Colonial Bancshares, fell apart after the Alabama bank reported a huge loss. Colonial is now the subject of a federal probe of its warehouse lending operations.

Negative equity and unemployment pressures have caused Fitch Ratings to take various ratings actions on 767 alternative-A credit residential mortgage-backed securities deals. "Home price declines have resulted in negative home equity for approximately half of the remaining performing borrowers in the 2005-2007 vintages and approximately 10% of the remaining performing borrowers for all transactions prior to 2005," said Fitch managing director Vincent Barberio. "Unemployment is up significantly since our last alt-A rating review," he added. Although net roll-rates of performing borrowers into a delinquency status "have improved from the seasonal high in December, the net roll-rates for both the pre-2005 and 2005-2007 vintage groups in the first half of 2009 were approximately double that experienced during the same period in 2008 when modified loans are excluded," Fitch said. The number of alt-A loan mods completed "has risen but remains relatively limited to date," Fitch said.

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.