Servicing

The Federal Deposit Insurance Corp.'s experiment in modifying loans at IndyMac Bank is still showing good results in terms of keeping borrowers in their homes with a low redefault rate of less than 16%. The Pasadena-based thrift failed in July 2008. As receiver, FDIC developed an innovative loan modification program to reduce the mortgage payments of delinquent borrowers down to 38% of their income. Starting in early 2009, monthly payments were reduced to 31% of mortgage DTI on new modifications. Overall, the weighted average payment reduction is 24% per loan. The bulk of the modifications were completed in the fourth quarter of 2008. As of May 31, the redefault rate on nearly 17,400 FDIC modifications was 15.6%. The redefault rate on most loan modifications completed in the fourth quarter was 27% as of March 31. Most servicers in the fourth quarter did not emphasize the importance of reducing the borrowers' monthly payments and only 37% of loan mods resulted in payment reductions of more than 10%. Unless the payments are reduced, "you are almost guaranteeing a redefault," a FDIC official said.

Many residential servicers are desperately trying to gauge the impact of job losses on loan modifications, according to Javid Jaberi, vice president of national servicing for Fannie Mae. Speaking at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas, Mr. Jaberi said loan modification professionals need to stay connected with borrowers who report financial difficulties or admit they are struggling to make payments. "Find out their financial issues and challenges," he told a room full of loss mitigation and servicing professionals. "And how do we remedy that with a short-term or longer-term solution? There is a program for them." As the account gets more delinquent, the borrower often stops calling the servicer, he said. The Fannie Mae executive said it's important for servicers to properly train staff but admitted that with all the new government programs challenges arise. New employees fresh from college but with no practical experience in mortgages can take a long time to train, he said. He noted that from peak to trough housing values have been decimated in several once-hot markets. Five states have seen a decline of more than 30% in values: California, Nevada, Arizona, Florida and Michigan.

National housing prices recorded their smallest year-over-year decline in May — and the smallest decline since December 2007, according to the First American CoreLogic Home Price Index. The decline between May 2008 and May 2009 is 9.2%, compared with a revised 9.7% for April. Since the start of the year, there has been a 2.5 percentage point improvement in the rate of home price decline. First American CoreLogic said preliminary data from June shows even further improvement. But even with the good news, 41 states still had declines from May one year ago to now and 16 of those states had double-digit declines. Nevada, down 26.4%, remained the top-ranked state for annual price depreciation with Florida, down 25.5% close behind. California, Arizona and Illinois round out the top five states for price declines. By market, Riverside-San Bernardino-Ontario, Calif., saw prices decline nearly 30%. The Metro Miami market was down over 29%; neighboring Fort Lauderdale was down 27%, sandwiching Fort Myers and Las Vegas. The four markets with price appreciation were Houston, Dallas, Austin and San Antonio. "Although there has been some improvement in the national HPI, collateral risk will continue to be the main driver of the housing market for the remainder of 2009," said Mark Fleming, chief economist for First American CoreLogic. "Until home prices and the economy stabilize, mortgage performance will continue to worsen and home sales activity will remain flat nationally through 2010."

Mortgage bankers are experiencing a dramatic increase in new servicing hires and loss mitigation staff in order to handle the tidal wave of delinquencies sweeping the nation. Speaking at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas, Stephanie Lowe, vice president for special servicing and loss mitigation for GMAC Financial Services, said her company has added more than 500 employees and developed a technology system in-house to deal with bulk decisions. GMAC Financial Services offers three weeks of classroom training as well as a week of intense on-the-ground training for employees to learn more about how to explain the Home Affordable Modification Program to borrowers. There is no shortage of excellent originators who have the skill set to deal with delinquent borrowers — and servicers are capitalizing on that talent pool, added Scott Gillen, vice president, Stewart Lender Services. Many shops are migrating large numbers of staff from other products, including in-house processors, to early stages of default. These employees are being trained while the company works on technology advancements. "A lot of re-tasking is being done, especially now that refis have leveled off a bit," said Mr. Gillen. "No one wants to let anyone go."

House Financial Services Committee Chairman Barney Frank said Tuesday that he will postpone next week's planned vote on legislation to create a consumer protection agency until after the August recess.The delay was due in part to the panel's busy schedule, but committee officials also said they wanted to give consumer groups more time to respond to lobbying by the banking industry, which is opposed to the bill. Industry lobbyists said this week that their arguments to curb the powers of a new agency were gaining traction. Steve Adamske, a spokesman for Frank, said consumer groups needed time to respond to industry arguments against the new agency and efforts to limit its authority. "Consumer groups and advocates have planned a ground campaign in August and we want to give them time to preserve this agency," said Adamske. The goal is to allow lawmakers more time to "hear from their constituents," he said.

Fortress Investment Group, which controls a mid-sized subprime servicing operation, has hired former Fannie Mae chief Daniel Mudd to be its new chief executive. Mr. Mudd was forced out of the money-losing Fannie Mae in September when the company and its sister firm, Freddie Mac, were placed into separate conservatorships. Mr. Mudd became CEO of the GSE in 2004 in the wake of a $6 billion accounting scandal where the firm's former management understated its prior years earnings. Under Mr. Mudd's stewardship Fannie became a large investor in MBS backed by alternative-A credit loans. The declining value of those securities has forced the GSE to book multibillion-dollar losses. A few years back Fortress bought Centex Home Equity of Dallas, once one of the nation's largest subprime lenders. Centex changed its name to Nationstar Mortgage and eventually ceased originating new loans but remains as a servicer. Mr. Mudd will take the reins of the publicly traded Fortress on Aug. 11. He is currently a director of the company. Fortress, whose shares trade for $3, manages $26.5 billion in assets.

Not only will PennyMac be servicing nonperforming mortgages for Credit Suisse — which is buying the loans from a troubled American International Group unit — but the vulture fund/servicer has agreed to buy $170 million in notes that will be issued from the deal. Earlier this week it was revealed that CS agreed to buy $1.6 billion of subprime and alt-A whole loans from AIG's American General Financial Services unit with PennyMac servicing the loans. CS plans to issue securities backed by the troubled loans. A report by Bloomberg, which quotes a regulatory filing, says PennyMac will buy some of those securities. A spokeswoman for the company declined to comment. "We're in our quiet period," she said. PennyMac hopes to go public some time over the next few months.

The Obama administration is considering ways to provide mortgage relief for unemployed workers to help them stay in their homes, according to a Department of Housing and Urban Development official. "As the economy has weakened, unemployment has become an increasing cause of mortgage default and foreclosure," said HUD senior advisor William Apgar. "Recognizing this, the administration is now exploring a series of programmatic options that can help unemployed workers get the mortgage assistance that they need." Bank of America servicing executive Allen Jones noted that there is a significant population of unemployed homeowners and a growing need for assistance. "We would welcome the opportunity to work with Treasury on a program that would officer short-term relief while unemployed borrowers seek re-employment," Mr. Jones said. Both men made their comments before the Senate Banking Committee Thursday.

Bank of America saw its residential mortgage income increase more than fivefold in the second quarter to $2.6 billion as it originated $110 billion worth of home loans during a strong refinancing boom. Refinancings accounted for 71% of its residential loan production. In the year-ago quarter, the bank did not own Countrywide Financial Corp., which at the time was still the nation's largest lender. Even though BoA posted strong mortgage (and overall results) its 2Q mortgage earnings fell compared to 1Q when it earned $3.4 billion.

Federal Reserve policy makers "revised upward" their outlook for economic growth at a June 23 meeting and decided to keep the $1.25 trillion mortgage-backed securities purchase program on track without any changes. The Fed launched the MBS purchase program in December to lower mortgage rates and support the housing market. So far, it has purchased $622 billion in Fannie Mae, Freddie Mac and Ginnie Mae MBS. The purchase program is due to expire at yearend. The minutes of the Federal Open Market Committee meeting indicate the members see the housing market as "vulnerable to further weakness." And they are concerned increases in mortgage rates could "further depress demand for housing and thus impede an economic recovery." Nevertheless, home sales appear to be leveling off and they expect the economy will expand in the second half of this year. However, unemployment could hit 10% this year and remain above 9.5% during 2010, according to the Fed's revised outlook.