Servicing

Banks are holding up loan modifications by refusing to subordinate or extinguish second liens that are "virtually worthless," according to two powerful banking committee chairmen who want federal regulators to intervene. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Christopher Dodd, D-Conn., contend that the banks don't want to recognize their losses on second liens and they are preventing borrowers with underwater first mortgages from refinancing under the FHA Hope for Homeowners program. "Carrying these loans at potentially inflated prices may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus stand in the way of increasing participation in the H4H program," the chairmen say in a letter to the banking and thrift regulators. "We urge you and your staff to look into this issue as expeditiously as possible to ensure that we can achieve the vital goal of the H4H to help American families build equity and keep their homes," the July 10 letter says.

Freddie Mac has slashed its origination forecast for the third quarter by $265 billion mainly due to a drop off in refinancings. Freddie's latest housing market forecast shows that loan production in the third quarter coming in at $625 billion, down from its $890 billion estimate a month ago. All of the reduction in loan production comes from conventional loans that Freddie and Fannie Mae purchase. The new forecast shows a slight pickup in originations of Federal Housing Administration and Department of Veterans Affairs-guaranteed loans. The government sponsored enterprise now is forecasting that lenders will originate $2.3 trillion in single-family loans in 2009, down $400 billion from its previous forecast. The Mortgage Bankers Association recently cut its 2009 origination forecast by $700 billion to $2.03 trillion.

Raising the loan-to-value ratio on refinances of underwater mortgages to 125% could help 2.25 million Fannie Mae and Freddie Mac borrowers lower their monthly payments, according to analysts at Amherst Securities Group. The special refinancing program that Obama administration officials unveiled in February originally limited the refinancing option to loans with LTV ratios of 80% to 105%. On July 1, the Federal Housing Finance Agency raised the LTV limit on the GSE Home Affordable Refinance Program (HARP). "We think expanding the HARP's limit to 125 makes the program accessible by an additional 8% of the current outstanding agency mortgage universe," an Amherst Mortgage Insight report says. At today's mortgage rates, "the bulk of borrowers in HARP's expanded LTV range are currently in-the-money," the analysts point out. But any rise in mortgage rates will "immediately begin to reduce the number of borrowers able to take advantage of the program," the July 8 report says. Fannie will start accepting delivery of the higher LTV refinancings on September 1. Freddie says some borrowers can apply now. "The expanded LTV ratios are available now when borrowers apply for Relief Refinance Mortgages through their current servicers and will be become available October 1 when borrowers apply through any lender affiliated with Freddie Mac."

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.