Servicing

Two congressmen have introduced a bill to provide the Federal Housing Administration with greater resources to increase its staffing and upgrade its technology systems. The bill (H.R. 3145) also gives FHA additional tools to oversee lender performance and implement new programs to reduce foreclosures. Two members of the House Financial Services Committee — Reps. John Adler, D-N.J., and Christopher Lee, R-N.Y., — introduced the FHA bill. The National Association of Realtors endorsed the bill. "FHA continues to be a stable, affordable, safe option for American families seeking to purchase a home," NAR says in a letter to the congressmen. "Your legislation will provide FHA with the means necessary to play this important role," the Realtors said.

In what is believed to be one of the largest government auctions of mortgage servicing rights in quite some time, the Federal Deposit Insurance Corp. is offering a $1 billion package of residential receivables that belonged to the now defunct Franklin Bank S.S.B. of Houston. The agency has hired Interactive Mortgage Advisors, LLC, Denver, to broker the sale. Franklin — whose largest single shareholder was MBS co-inventor Lewis Ranieri, was closed by the government in November. A source familiar with the deal said it has taken the FDIC all year to finally approve the transaction. Bidders are likely to include some of the nation's largest banks as well as several hedge funds that are acting as "vulture funds" in the distressed whole loan market. The bid deadline is August 14.

American International Group subsidiary United Guaranty Corp., Greensboro, N.C., has a new chief operating officer who — like the company's recently named chief executive — at one time worked for Safeco Corp., Seattle. Kim Garland will have responsibility for UGC's claims service and operations, business development, underwriting, marketing and risk management functions. Most recently, he was the president of the Open Seas Solutions group for Safeco. UGC president and CEO Eric Martinez, before joining the mortgage insurer's parent company AIG, New York, earlier this year, was executive vice president — claims, customer care and business operations for Safeco. Mr. Garland's previous positions also include being vice president, auto product management at Safeco, and before that he held various senior management and actuarial positions at Safeco and GEICO.

The commercial real estate sector has shown signs of increased market volatility across all major sector types, according to Fitch Ratings' latest annual U.S. Property Market Metric update report. With the average cash flow volatility score rising to 3.62 in 2008 from 2.98 in 2007, volatility in commercial real estate has reached its highest levels since Fitch launched its PMM scores in 2000. The office sector was hit the hardest, with the average volatility score jumping to 3.68 last year from 2.62 in 2007. The office markets showed greater volatility in the three largest metropolitan statistical areas: New York, Chicago and Los Angeles. Multifamily properties' average volatility scores jumped to 3.15 in 2008 from 2.5 in 2007, with San Francisco, Phoenix and Miami among the more volatile markets. Retail markets also reflected more volatility with a 3.7 average PMM score last year as opposed to 3.12 in 2007. Several MSAs in Texas were affected, including Dallas-Ft. Worth and Houston.

Foreclosures dropped 11% nationally to 205,031 in the second quarter as moratoriums, bailouts, reforms, and negotiations helped some strapped homeowners hang on to their properties, according to Foreclosures.com's latest index. In the Northeast, 32% fewer homeowners lost their properties to foreclosure. Across the country, pre-foreclosures fell 10% in the second quarter to 494,078, with the biggest quarterly drop — 42% — in the Midwest. June's 61,573 foreclosures, as measured by the number of REO filings, dropped 13% from May, and more than 24% from February's high. Pre-foreclosures in June (132,529 filings) fell 24% from May, and were off nearly 35% from March's high. "These huge drops — double-digit in many parts of the nation — are a sigh of relief for the economy and housing markets as they bump along toward recovery," says Alexis McGee, president of Foreclosures.com. "Despite higher unemployment rates, industry and government stimuli are making a difference." In the Midwest, for example, foreclosures have slowed in part due to an Illinois moratorium. June REOs in Illinois were off nearly 45%, yet pre-foreclosures in the state were up more than 88% in June over May. "This year's second quarter REO numbers also were up nearly 17% from 2nd quarter 2008. When this and other moratoriums expire we'll likely see more uptick in foreclosures and pre-foreclosures as homeowners run out of options." She said now is the time for homebuyers and investors to press banks to unload their REO inventory.

Prosecutors in New York City have indicted 13 individuals and a mortgage origination company for allegedly perpetrating more than $100 million in mortgage fraud over four years in the metropolitan area. According to Manhattan district attorney Robert M. Morgenthau, AFG Financial Group, Aaron Hand, Eugene Culbreath, Eric Shields, Matthew McDermott, Marc Zirogiannis, Kenneth Law, Kathleen Scanlon, Jeffrey Phelan, Jerry Strklja, Marilyn Mateo, Darlita Bostic, Allyson Hinds and Rajmohan Autar have been charged. In addition, 12 individuals have already waived indictment and pleaded guilty to felonies relating to their participation in the mortgage fraud scheme. According to the indictment, AFG Financial Group, along with a network of co-conspirators and accomplices, allegedly located distressed residential real estate properties in New York City and surrounding counties and then schemed to steal millions of dollars from lending banks in Manhattan and elsewhere using sham sales of those properties. The conspirators, who were unavailable for comment, are alleged to have caused the banks to front millions of dollars to finance purchases of the properties. They then allegedly walked away with most of the cash, leaving behind over-valued properties and worthless mortgage papers.

The national Realtor.com Homeownership Survey found the same motivating factors for homebuyers that are coming back into the market that a similar survey from its California affiliate found. According to the survey, over two-thirds of potential buyers are being lured into the market by affordability; low interest rates are also being cited by respondents. Nearly 20% of the potential buyers are being motivated by foreclosed property being sold at bargain prices; over 15% believe prices are as low as they will go, while a similar number state they want to buy before interest rates rise. Just fewer than 15% of first-time buyers said the Obama administration tax credit is bringing them into the market. The survey asked participants if they or someone they knew was facing foreclosure and what steps did they take: 20% said they haven't done anything; 22% have not done something now but plan to take advantage of the Making Homes Affordable program before it expires; 37% talked to their lender about a modification; 44% asked about a refinance; and 26% have or are planning to refi in the Making Homes Affordable program. Only 28% said they believe the program is working, compared with 41% who said it isn't.

A group of 20 Democratic senators want servicers to be prepared for a coming wave of resets on payment-option adjustable-rate mortgages and start contacting borrowers that may not be able to afford the increase in their monthly payments. In a joint letter to Treasury secretary Timothy Geithner, the Democratic senators, including Jack Reed, D.-R.I., note that one million option ARMs could reset over the next four years. "Without servicers taking pro-active steps to reach these homeowners and careful vigilance by the Department of Treasury and others to ensure that outreach translates into relief, efforts to stabilize the housing market could be undermined," the letter says. Senate Banking Committee chairman Christopher Dodd, D.-Conn., is one of the signers. The senators also expressed concerns that servicers don't have enough capacity to deal with the demand for loan modifications. And homeowners that want help before they go into default are being put on hold. "It is also our understanding that as servicers take a triage approach to responding to inquiries, homeowners who are still current on their payments but at risk of foreclosure are being told to wait for assistance — even as their economic conditions worsen," the letter says.

World Alliance Financial Corp. has halted the origination of all new reverse mortgages at its Long Island-based subsidiary, Senior Lending Network, after failing to find a buyer for the division. A source familiar with the matter said a Delaware bank had agreed to buy Senior Lending Network — whose pitchman is actor Robert Wagner — but the sale fell apart last week. SLN started out several years ago selling reverse mortgage leads to loan brokers but then moved into loan production. World Alliance is owned by the Belgium-based KBC Group. SLN executive vice president Jean Noble confirmed the production shutdown but stressed that it will continue to service its portfolio of reverse loans which totals about 19,000 units. Roughly 140 workers were laid off. She said the company is continuing to look at "opportunities" and is talking to investors about raising capital. She confirmed that a sale of SLN had fallen apart but declined to name the institution. SLN originated reverses under the Federal Housing Administration Home Equity Conversion Mortgage program. SLN ceased taking new applications on July 7.

The Treasury Department has decided to put up only $30 billion in capital and debt to fund the first public-private ventures that will invest in pools of non-agency residential and commercial mortgage-backed securities. Originally, Treasury proposed a much larger program to purchase $500 billion in bad assets that were originally triple-A rated from financial institutions but the banks shunned this concept. So the investment funds will purchase legacy securities in the open market to increase liquidity for the toxic MBS. Treasury also picked nine fund managers to raise capital and run the private-public investment funds. These managers, which include BlackRock and Invesco, now have 12 weeks to raise at least $500 million in equity to launch the first funds. Treasury will match the funds' capital and provide financing for the purchase of assets. A senior Treasury official said the Trouble Asset Relief Program would provide $10 billion in equity, $20 billion in debt and the managers are expected to raise $10 billion in equity. So the total amount of equity and debt for this program would be $40 billion. Separately, the Federal Deposit Insurance Corp. has developed a Legacy Loan Program and it is planning a sale of receivership assets in this summer.