Servicing

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.

Farmer Mac said it no longer owns securities issued by troubled CIT Group Inc. in its investment portfolio. A few weeks back the GSE said it sold its entire position ($35 million principal amount) of CIT bonds to mitigate its risk of loss on those securities. The same day, Farmer Mac also sold its Fannie Mae preferred stock holdings realizing a book gain on this transaction, thereby partially offsetting the loss on the sale of the CIT bond holdings. The net loss realized by Farmer Mac on the two transactions will be included in its third-quarter results and was approximately $1 million. Farmer Mac said it issued the statement after inquiries driven by the end of CIT's bailout talks with the government.

American General Financial Services, a subsidiary of the government-controlled AIG, is considering a plan to liquidate up to $10 billion in whole loans using the securitization market, investment banking sources told NMN. The first part of that liquidation was revealed in a new regulatory filing where the company said it would securitize roughly $1.6 billion in subperforming and nonperforming whole loans — many of which are nonprime in quality — through Credit Suisse. PennyMac, which is controlled by former Countrywide president Stan Kurland, is involved in the transaction as a servicer. At press time both CS and AIG declined to comment on the record. Initially, CS will purchase the loans and then issue securities. In an SEC filing AGFS and "sellers" could reap net cash proceeds of up to $975 million. The transaction is expected to close by the end of July. The company said it will use the cash to support its liquidity position and funding needs, "including the discharge of approximately $313 million of debt security obligations under an indenture dated Jan. 1, 1988 that are due during 2009."

Mortgage Guaranty Insurance Corp., the nation's largest MI company in terms of policies-in-force, posted a $340 million loss in the second quarter, warning that it may not meet minimum capital standards that would allow it to continue writing new policies. The company stressed to this publication, however, that it is continuing to write new MI policies. In a statement, MGIC — which insures $223 billion in home mortgages — warned that there are no plans by the U.S. Treasury to provide it, or any other MI, with capital support. "Nothing's going on in that regard," a company spokesman told NMN. MGIC hopes to activate a subsidiary called MGIC Indemnity Corp. that would allow it to begin writing new policies in January of next year. MGIC is supplying the unit with $1 billion in fresh capital. Despite all the bad news for the company, MGIC's share price was up $0.37 in trading early in the afternoon of July16.

Andrea Goode-James, a closing attorney from Roxbury, Mass., pleaded guilty before U.S. District Judge Douglas P. Woodlock to mortgage fraud for pocketing more than $1 million in proceeds of loan closing transactions. According to Michael K. Loucks, acting U.S. attorney for the District of Massachusetts, Goode-James performed closings on three different properties between 2005 and 2007 and pocketed more than $1 million in lender proceeds rather than using those funds to pay off pre-existing mortgages as directed by the lenders. To conceal her fraud, Goode-James made some monthly payments on the pre-existing mortgage loans. She also issued title insurance commitments to the new lenders, which bound the title insurance company for title defects and misled lenders to believe that she had in fact cleared title by paying off prior loans and obtaining discharges of those mortgages. Judge Woodlock scheduled sentencing for Oct. 29.

Sorrento Capital, a private asset management firm in Irvine, Calif., has acquired Irvine, Calif.-based REO.com, a consumer service portal for bank owned real estate and provider of customized disposition solutions. This acquisition adds to the depth of the strategically aligned businesses that make up the Sorrento Capital portfolio. This now includes InformationLogix and its MOS Group, Inc. (MOSGroupInc.com), which provides loss mitigation services; Revise My Loan (ReviseMyLoan.com), a consumer service that assists borrowers with options to improve their debt profiles; and MortgageOutreach.org, an education and information resource for consumers seeking to improve their financial condition and wellbeing. The company plans to expand further into the financial services segment by organically developing and acquiring organizations that service the varied financial needs of a wide spectrum of consumers.

The mortgage insurance industry should survive, declared analysts at Keefe, Bruyette & Woods, but any fundamental recovery is still well down the road. Meanwhile, the second quarter spike in interest rates has made estimated volumes for the rest of the year at the title insurers "more tenuous" and as a result, KBW is lowering its earnings estimates and price targets for those companies. For Fidelity National Financial, it lowered its second quarter 2009 earnings estimate to $0.37 per share from $0.48 per share primarily due to lower fee-per-file expectations, slightly higher expenses and reduced commercial activity. The EPS estimate for First American Corp. was cut from $0.87 to $0.73 and for Stewart Information Services Corp. from $0.52 to $0.39 for the same reasons. As for the mortgage insurers, the KBW analysts "expect the second quarter will see an increase in the sequential growth rate in delinquencies, likely returning to the mid-teens percent range rather than the single-digit growth rates seen in the first quarter." The analysts increased their estimates for the loss at Old Republic (which operates in both segments, but which was grouped with the MI companies) to $0.18 per share from 0.13 per share on lower orders and lower fee per file in the title segment. For MGIC, KBW's second-quarter operating EPS estimate was increased to a loss of $1.28 from a loss of $0.74 primarily on the elimination of the tax benefit from operating losses due to the establishment of a valuation allowance. PMI had its loss estimate increased by $0.01 per share to $1.62, while KBW held its estimates for Radian at a loss of $1.19 per share. For the mortgage insurance segment at Genworth, analysts Nathaniel Otis and William Clark predict it will lose $23.0 million or $0.05 per share for the second quarter.