Servicing

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.

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.