Servicing

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.

Even though the White House is trying to use Fannie Mae and Freddie Mac to prop up the residential mortgage market — including massive loan modifications — their regulator issued a new "Five Year Plan" on July 9 that leaves in place the targeted goal of shrinking each of their portfolios to $250 billion. At the end of May the two, together, boasted $1.6 trillion in on-balance sheet assets. The Federal Housing Finance Agency's five-year plan offers no new major revelations about their future. FHFA notes that Fannie and Freddie "have not met and may continue to be unable to meet many regulatory standards." The two were taken over by the government and placed into separate conservatorships in September.

Fiserv Inc. is updating its Loan Servicing Platform to make it more fully compatible with recent guidelines from the U.S. Treasury Department on home loan modifications. "From its inception the Fiserv platform was the first loan servicing system that was fully capable of supporting the Making Home Affordable modification program," the company said. But now, "in addition, several enhancements are underway, including additional deferred principal functionality, enhanced ability to gather personal financial information, and an [Home Affordable Modification Program]-specific screen to present a full picture of the modified loan," Fiserv said Wednesday. The Fiserv platform offers integrated default management tools that allow servicers to track and study loans being modified with the aim of helping servicers formulate best-option workout scenarios based on operational business rules while meeting HAMP guidelines.

Home purchase activity is at least temporarily on the rise in California, the state's Realtor association said, because of favorable prices, relatively low interest rates and consumer belief that rates will increase in the near future. According to the "2009 Survey of California Home Buyers," 68% of consumers said price declines were the motivating factor in their decision to purchase a home, while 39% said low interest rates helped them move to a better location. There were 23% who said a rate increase pushed them to buy recently. Nearly half of the sales were "traditional market sales," while 38% were real estate owned properties. Just 13% were short sale transactions. The survey also found that those buying REO had the highest level of difficulty in obtaining financing, 8.9 on a scale from 1-to-10; for traditional sales buyers it was 7.7 and for short sales buyers it was 7.6. Fixed-rate mortgages dominated in some cases, with 88% of traditional sales and 75% of short sales being financed with these loans. However, just 43% of those buying an REO property used an FRM. The California Association of Realtors survey said that financial literacy is a problem, especially among those going through the traditional sales process, with 32% saying they did not know or were not sure of their loan terms, compared with 12% of REO and 7% of short sale buyers stating the same thing. First-time buyers had an average downpayment of 19.7%, while repeat buyers put down an average of 28.3%.

Mortgage fraud-related Suspicious Activity Reports referred to law enforcement increased 36% to 63,713 during 2008, compared to 46,717 reports in 2007, according to the Federal Bureau of Investigation's 2008 Mortgage Fraud Report. While the total dollar loss attributed to mortgage fraud is unknown, financial institutions reported losses of at least $1.4 billion, an increase of 83.4% from 2007. The report showed that more than 3.1 million foreclosure filings were reported on approximately 2.3 million properties nationally during 2008, up 81% from 2007 and 225% from 2006. As of 2008, the Western region of the U.S. had the most pending FBI mortgage fraud-related investigations. According to the FBI's report, the top 10 mortgage fraud states for 2008 were California, Illinois, Texas, Georgia, Ohio, Colorado, Maryland, Florida, Missouri and New York. Rhode Island, Massachusetts, Pennsylvania and the District of Columbia were newly identified as having significant mortgage fraud problems.

Though the banking industry has a strong chance of defeating the Obama administration's call to eliminate the thrift charter, its arguments for defending it appear weaker than ever. According to a report in American Banker, two of the primary reasons for preserving the charter — stronger preemption powers and broader interstate branching rights — appear headed for the chopping block, and the third — a focus on mortgage lending — is now increasingly suspect. Many observers doubt the wisdom of keeping a charter that focuses primarily on real estate lending, arguing that thrifts caused the savings and loan crisis and helped fuel the current crisis. "Why do you need it?" said Chuck Muckenfuss, a partner at Gibson, Dunn & Crutcher LLP. "It has certain restrictions in it, and so why not just make it one better charter in which you can do whatever you want to do? That's pretty compelling."

Dyck-O'Neal of Arlington, Texas, a national debt collection agency, has been slapped with a cease and desist order by regulators in Georgia for engaging in loan brokering/lending activities without a license or obtaining the proper exemption. At press time the company had not returned a telephone call about the matter. Among its many services, Dyck-O'Neal purchases and serves as a collection agent on first and second mortgage liens.

The 30-day delinquency rate on "open-end" home equity lines of credit jumped 43 basis points in the first quarter to a record high of 1.89% on a seasonally adjusted basis, according to an American Bankers Association survey. The delinquency rate on closed-end second liens jumped 49 bps to 3.52% in the first quarter -- also a new high. "The number one driver of delinquencies is job losses," said ABA chief economist James Chessen. He noted that 2 million Americans lost their jobs in the first three months of this year. "Even if home prices stop falling this year, employment will keep home equity delinquencies high for some time," he added. The Federal Deposit Insurance Corp. recently reported that charge-offs on HELOCs totaled $4 billion in the first quarter, compared to $3.3 billion in the previous quarter. Charge-offs on closed-end second liens totaled $2.5 billion, a 25% increase from the fourth quarter. Meanwhile, a new report from PMI Mortgage Insurance says that 85% of the nation's metropolitan areas are "now facing an increased risk" of lower home prices into 2011. The only good news PMI could offer is that the rate of home price declines has slowed and that falling values are making homes more affordable in many metro areas.

After being convicted of 51 counts of conspiracy, fraud and money laundering in connection with a mortgage fraud scheme, Harold Stafford of Sumner County, Tenn., has been sentenced to eight years in prison, followed by three years of supervised release. His co-defendants, Miles Jackson Black and Jeffrey Dunn Hathcock, also from Sumner County, were each sentenced to a year and a day in prison, followed by five years of supervised release. All three defendants were ordered to jointly pay $1 million in restitution and a special assessment of $5,100. According to the U.S. attorney's office for the Middle District of Tennessee, Stafford engaged in a scheme that involved the purchase of 22 luxury homes in Hendersonville, Gallatin and Goodlettsville through unqualified straw buyers. Stafford, Black and Hathcock caused the submission of false mortgage loan applications to lenders that overstated the straw buyers' income, falsely stated that the homes would be the straw buyers' primary residences and failed to disclose other recent home purchases by the same straw buyers. All of these mortgage loans ended in default and foreclosure, resulting in losses to mortgage lenders, after foreclosure, totaling $2,214,700.

Standard & Poor's credit analysts expect higher levels of defaults this year as performance of prime jumbo loans continues to deteriorate. "Most losses in subprime and riskier alt-A mortgages have been taken, but we still expect more losses in the prime jumbo market due to economic reasons and seepage into the traditional prime conforming market," an S&P report said. The report showed that 6.7% of jumbo loans originated in 2006 and 2007 are 90 days or more past due, in foreclosure or real estate owned as of April 30. "While jumbo borrowers generally have better jobs and more wealth, "we think many are being overcome by the economic conditions (job losses) and asset-value depreciation that we believe is causing worst-than-historical performance in this asset class," the S&P analysts said.