Servicing

Refinances tracked by Freddie Mac in the second quarter are expected to cut payments by about $3.4 billion in the coming year. Refinancing borrowers' new interest rates were approximately 1.25% below the old rates on average. "We are anticipating more than one-half of originations to be for refinancing throughout the rest of the year as long as rates stay their current levels of 5.25%," said Freddie Mac vice president and chief economist Frank Nothaft. In the second quarter, cashout refinancing dropped to its lowest share since the third quarter of 2003, according to Freddie's Refinance Report. Sixty two percent of borrowers with a prime credit quality conventional second-lien mortgage either kept the same principal balance or reduced it, up from a revised 57% in the first quarter. The share of refinance loans resulting in new loan amounts that were at least 5% higher than the paid-off second lien mortgage balances fell to a six-year low of 38%. The first-quarter cash-out share was revised down to 43%. "In the second quarter, about $25 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage. This is up a little less than $5 billion from the first quarter volume, but, importantly, the rise reflects the jump in the number of loans refinanced rather than an increase in the amount borrowers are cashing out per loan," said Amy Crews Cutts, Freddie Mac deputy chief economist.

Standard & Poor's Ratings Services has lowered several of Colonial BancGroup's ratings, citing risks linked primarily to its consent to a cease-and-desist order by its regulators. "The rating downgrade largely results from our view that regulatory risk has increased following the company's announcement that it has consented to an order to cease and desist by the Federal Reserve, its primary federal regulator, and the Alabama State Banking Department," S&P credit analyst Robert Hansen said. S&P noted that the cease-and-desist order states that the "company cannot pay any dividends or make any distributions of interest or principal on subordinated debt or trust-preferred securities without the prior written permission of these two regulators. If Colonial BancGroup is not granted permission by these regulators to make interest payments and subsequently misses an interest payment on its subordinated debt, the company's rating would be lowered [to default level]." The company's counterparty credit rating fell to CC from CCC. Its rating on the company's preferred shares fell to C from CC. And its long-term counterparty credit ratings on its subsidiaries fell to CCC- from B-. All short-term ratings on the company and its primary bank remain at C. All ratings remain on CreditWatch with negative implications.

The Senate passed a bill Thursday evening that provides the Federal Housing Administration with additional loan commitment authority so the FHA can continue to endorse single-family loans through Sept. 30 without interruption. The Senate's action clears the measure so it can be sent to President Obama for his signature. The House passed the bill (H.R. 3357) earlier in the week by a 363-68 vote. The bill provides $85 billion in additional commitment authority for FHA and $100 billon for Ginnie Mae. The Senate passed it by a 79-17 vote. The measure also includes emergency funding for the highway trust fund. FHA warned Congress back in June that it had used 75% of its $315 billion in loan commitment authority and later requested additional commitment authority to avoid a shutdown of the single-family program.

Electronic process automation vendor SigniaDocs has expanded its service offerings around electronic loan modifications. With the additional capabilities, Dallas-based SigniaDocs said it is now capable of supporting virtually any loan workout program the industry supports. Most loan modifications negotiated by lenders and servicers are finalized by paper documents sent to defaulting homeowners in a process that is currently taking from 40 to 60 days overall to complete, according to SigniaDocs. With e-modifications, the documents are prepared and posted instantaneously in a secure Web-based environment, where the borrower can be talked through their content and click to sign the documents in minutes, the company said. Data gathered by SigniaDocs is showing that 50% of e-modifications are completed the same day they are approved, and over 80% are executed within two business days.

Based on data collected as of June 30 by Lender Processing Services, Inc., new delinquencies dropped to their second lowest level in the last year and the percentage of loans rolling to a more delinquent status declined across all product types. "At current interest rates there is a lowered risk of increased defaults associated with outstanding hybrid adjustable-rate mortgage resets," LPS said in its report. "Liquidity is becoming increasingly available again to borrowers who are in some stage of delinquency. A dramatic improvement in borrower credit quality has created a significant decline in first payment defaults." In its report, LPS said total loan originations for the first half of 2009 were higher than 2008 levels for the same time. Loan originations for Jan. to June 2009 were 2,333,451 versus 2,211,852 for Jan.- June 2008. These findings from the June LPS Mortgage Monitor could be indicators that the nation's housing market may be turning a corner toward recovery. But according to LPS, foreclosure inventories continued to climb while non-current loans, including defaults and foreclosures, rose to 11.44%. Foreclosure starts in June increased 1.6%, while recidivism rates are not yet showing signs of improvement. Jumbo prime loans continue to experience the highest rates of deterioration with rates up 580% since January 2008. The total U.S. loan delinquency rate was 8.58%, a monthly increase of 1.1% and a year-to-year increase of 44%. June's foreclosure rate was 2.86%, a month-to-month increase of 2.5% and a year-to-year increase of 86.1%. States with the most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Ohio and West Virginia. States with the fewest non-current loans are North Dakota, South Dakota, Wyoming, Montana, Alaska, Vermont, Nebraska, Oregon, Colorado and Washington.

Lending is steady or slower and residential real estate generally remains weak with signs of improvement, according to the Federal Reserve's Beige Book. Residential real estate lending is decreasing in New York, Richmond, and St. Louis, according to the Fed. Dallas' outstanding mortgage volumes are steady but low, while Kansas City's rise in mortgages is slowing. Refinancing activity is dropping dramatically in Richmond, decreasing in New York and Cleveland, and maintaining its pace in Dallas. Credit quality is varying by district with commercial real estate concerns leading to tighter credit in some areas as generally credit standards continue to tighten or remain stable. The only district where residential real estate sales are failing to improve is St. Louis, where they instead are seeing a steep drop. The Fed said the low end of the market, particularly entry-level sales, continues to do relatively well, with some districts attributing this to the first-time homebuyer tax credit. The Boston and New York districts said condominium sales are still far below 2008 levels. Home prices continue to decline in most cases although some districts see possible signs of stabilization. Three districts said foreclosure sales are putting downward pressure on prices. Residential construction appears to remain slow, with three districts noting that financing is difficult, according to the report. Respondents said commercial real estate sales volume is low, or even "non-existent" in some districts, citing a combination of tight credit and weak demand. Tight credit also was cited as a factor in limited or declining commercial construction in most districts, exceptions being health and institutional construction in the St. Louis district, public sector construction in the Chicago district and World Trade Center reconstruction in Manhattan.

A Senate appropriations subcommittee has approved new funding for the Federal Housing Administration to hire additional staff and update its aging information systems as part of the Department of Housing and Urban Development budget for fiscal year 2010. "It provides funds to start modernizing its technology systems in order to track its mortgages and obligations, which — I regret to tell you — it cannot do right now," said Sen. Christopher Bond, R-Mo. Sen. Bond also expressed concerns about the rapid growth of the FHA program and the lack of staff and expertise to manage the FHA single-family program effectively. "It may be at the edge of a meltdown," he warned. Sen. Richard Shelby, R-Ala., expressed similar concerns. "If we don't watch out we could have another Fannie Mae or Freddie Mac," Sen. Shelby said at a subcommittee markup of the HUD appropriations bill.

PennyMac Mortgage Investment Trust, Calabasas Hills, Calif., said its initial public offering of 16 million common shares has been priced at $20 per share, raising $320 million. The amount raised was somewhat below expectations, according to combined news reports. PennyMac Mortgage Investment Trust intends to use the net proceeds from the offerings to purchase residential mortgages and mortgage-related assets, a substantial amount of which may be distressed. Merrill Lynch & Co., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities are the joint book-running managers for the offering. JMP Securities and Stifel Nicolaus are acting as co-managers. PennyMac Mortgage Investment Trust trades on New York Stock Exchange under the ticker symbol "PMT."

Starting August 15, servicers can reduce the principal amount of a troubled Federal Housing Administration-insured mortgage by up to 30% so the homeowners' monthly payments are reduced to 31% of income. "Tens of thousands of FHA borrowers will now be able to modify their mortgages," said HUD secretary Shaun Donovan. Under the new program, borrowers have to be 30-days delinquent to qualify and traditional FHA loss mitigation options would not be effective. "There is no net present value test for eligibility," the guidelines say. However, borrowers have to make timely payments during a three-month trial before the modification is finalized. Mortgage banking consultant Brian Chappelle said the new program should be able to help a high percentage of FHA troubled borrowers because their loans were not underwritten based on stated incomes or second mortgages to avoid paying mortgage insurance. Servicers will receive $1,250 incentive payments for completing these FHA modifications.

Flagstar Bancorp, Inc., Troy, Mich., saw its mortgage banking unit's loan production in the second quarter decline compared to the first quarter, but it was still better than it was during the same period last year. The company's agency-dominated loan production decreased to $9.3 billion for the second quarter, as compared to $9.5 billion in the first quarter, but increased from the $8.2 billion seen in the second quarter of 2008. The company as whole took a $76.6 million net loss, compared to $67.4 million during the same period a year ago. "Although it is always disappointing to lose money, we were able to continue to generate positive income on an operating basis and are encouraged by ... improvement in mortgage delinquency trends that we experienced towards the end of the quarter," said Mark T. Hammond, Flagstar's chief executive officer.