Servicing

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.

UBS during the second quarter still was working on reducing monoline insurance risks that can be traced partially back to U.S. residential real estate finance exposures, but it said in an earnings report that as of July it had agreed to commute certain trades with insurers, mitigating those bond insurance risks. Monoline risk exposures, about one-third of which were linked to credit protection on subprime and other U.S. residential mortgage-backed security collateralized debt obligations, were among "identified risk concentrations" listed in the company's first-quarter financials. But UBS said that during the period and in July it "agreed to commute certain trades with three monoline insurers which significantly decreased remaining exposures." During the second quarter, UBS took a loss of 1.4 billion Swiss francs ($1.3 billion). This was greater than the net loss of 395 million Swiss francs ($372 million) seen during the same period last year but an improvement over the loss of 1.97 billion Swiss francs ($1.86 billion) seen in the first quarter. The company said its second quarter loss "was driven by lower losses on risk positions now exited or in the process of being exited by the investment bank" and "significantly affected" by charges for own credit on financial liabilities designated at fair value, restructuring and goodwill impairment charges in relation to the sale of a unit.

Barclays PLC saw a $1.1 billion loss on its U.S subprime loans during the first half of 2009 but the London banking company still generated £2.98 billion ($5.05 billion) in pretax profit for the period. Overall, Barclays saw about £4.68 billion ($7.93 billion) in total gross losses due largely to real estate and mortgage-related writedowns. The company said in its interim results that £1.44 billion ($2.44 billion) of the losses stemmed from commercial real estate, £654 million ($1.11 billion) came from U.S. subprime credit residential mortgages, £549 million ($930 million) stemmed from monoline insurer-wrapped commercial mortgage-backed securities, £398 million ($674 million) came from alternative-A credit residential mortgages and £256 million ($434 million) came from monoline-wrapped U.S. residential MBS.

Even though Radian Group Inc. had a mortgage insurance provision of $142.8 million because of higher delinquencies, the company still saw net profits of $231.9 million ($2.82 per share) for the second quarter. For the same period last year, the Philadelphia-based company lost $392.5 million ($4.91 per share). Still mortgage insurance claims paid of $167.7 million were lower than Radian forecast. For the third quarter, the company said it expects between $275 million and $300 million in mortgage insurance claims; for the full year, it predicts $1.1 million, down from between $1.2 million and $1.4 million. Radian wrote $5.5 billion of primary new insurance during the quarter. The company trumpeted the fact that nearly all of it was prime quality, with 98.4% having a credit score of 680 or higher. Furthermore, in the 2009 book of business, Radian said there has been a significant decrease in the number of early payment defaults, which shows it has improved its underwriting. The mortgage insurance segment had net income of $13 million, compared with a net loss of $434 million one year ago. Radian's most profitable segment was its financial guaranty business, with net income of $215.7 million, up from $32.5 million for the second quarter of 2008. As of June 30, Radian had a primary insurance default rate of 14.84%, compared with 8.36% on the same day in 2008. Persistency as of the end of the second quarter 2009 was 87%, up from 81.2% a year ago.

Fitch has downgraded 270 bonds from 59 residential mortgage-backed securities transactions to "D." Forty-nine of the transactions are second-lien deals and the rest of the transactions are "scratch and dent" or subprime deals. All of the bonds had previously had CC or C ratings, indicating a default was expected. A D rating indicates a principal writedown has occurred.

Often pointed to as the poster child for real estate excess, the Las Vegas housing market is showing some signs of improvement, local agent Rob Jenson reports in his monthly market study. "Lower interest rates and a drop in the average sales price to under $158,500 for homes priced under $1 million is attracting more bargain-hunting foreclosure and short sale buyers," says Mr. Jenson, whose Jenson Group flies under the Re/Max banner. The recent spate of sales in Sin City's lower price ranges has brought down the inventory to a healthy 5.9-month supply. And if houses under contract are subtracted, the supply drops to 3.1 months. That's the good news. The bad news is that more than four out of five sales are still distressed deals, with foreclosures outselling short sales, seven-to-one, even though there are four times more short-sale properties on the market as REO. Overall, there were nearly 19,000 listings on the market in July, according to Mr. Jenson's "Las Vegas Real Estate Market Report." Some 3,300 properties sold in the month — 2,750 of them under duress — at an average price of $158,392, a drop of $84,620 from July a year ago.

The banking industry has to do a "much better" job of preventing foreclosures, according to Sen. Richard Durbin, D-Ill. He wants servicers to stop foreclosure proceedings when homeowners are seeking a loan modification. "I am asking servicers to make a commitment that they avoid scheduling a foreclosure on any homeowner who is actively working in good faith on a loan modification that is fair, responsible and sustainable," Sen. Durbin said in a speech at the Center for American Progress in Washington. In a letter to the 34 servicers participating in the administration's Home Affordable Modification Program, the high-ranking Senate Democrat also is asking servicers 20 questions about their efforts to help homeowners avoid foreclosures. Sen. Durbin made it clear that he is not impressed with servicers' efforts so far and he said the administration's goal of getting 500,000 homeowners into trial HAMP modifications by Nov. 1 is "easily attainable." The Illinois senator put the industry on notice, however, that he is willing to make another try at passing a bankruptcy cramdown bill if they "don't make real progress in reducing the number of avoidable foreclosures." But he indicated such a legislative drive is not imminent. "I am afraid it is going to take a lot more misery to move a lot more votes," Sen. Durbin said.