Servicing

House prices fell by only 0.6% from March to April, according to the Standard & Poor's/Case-Shiller 20-city house price index, signaling that home values may be stabilizing. From February to March, prices fell 2.2%. "We are entering the seasonally strong period in the housing period, so it will take some time to determine if a recovery is really here," said David Blitzer, chairman of S&P's index committee. Overall, home prices are down 18.1% from April of last year. In 13 of the 20 metro areas, the annual rate of decline slowed from March to April. Eight metro areas experienced price increases in April, including Cleveland which saw values rise 1.2%. Dallas saw a 1.7% gain, and Denver 1.5%.

The General Accountability Office is urging the Department of Housing and Urban Development to increase its monitoring of housing counselors who provide information about FHA reverse mortgages to senior citizens. GAO auditors secretly participated in 15 counseling sessions and discovered that counselors did not cover all the topics required by HUD. Seven of the 15 counselors did not discuss required information about alternatives to Federal Housing Administration reverse mortgages, which are known as 'home equity conversion mortgages.' GAO also noted some claims made by counselors are potentially misleading. One potentially misleading claim is that seniors are told they will "never owe more than the value of your house." HUD had approved this claim at one time, but later said it is not true in all situations, GAO said. "A borrower or heirs of a borrower would owe the full loan balance — even if it were greater than the value of the house — if the borrower or heirs chose to keep the house when the loan became due," said Mathew J. Scire, director of financial markets and community investment, in prepared testimony released Monday. The report also recommends that other federal regulators need to be "vigilant about emerging consumer protection risks" in the reverse mortgage market.

Mortgage Industry Advisory Corp. is offering investors two different bulk portfolios of mortgage servicing rights, one that includes a package of troubled GNMA receivables. MIAC managing director Dan Thomas cautioned that the bulk market is "not reviving in a big way" but noted that some buyers of servicing rights are beginning to see opportunities in the market. MIAC is offering a $336 million portfolio of Freddie Mac and private investor servicing rights, and what Mr. Thomas called a "high delinquency" Government National Mortgage Association package that represents $250 million worth of underlying loans. "Most of the servicing deals that are getting done are smaller deals," said Mr. Thomas. "You have firms out there that need to sell."

Wells Fargo & Co. has apparently found a buyer for a $600 million portfolio of non-performing subprime loans, according to investment banking officials. However, at press time it was unclear who the investor is. The buyer, noted one source, may not have bought the entire package but most of it. A Wells mortgage spokesman had not returned a telephone call about the matter. In the past the bank — the nation's second largest servicer with $1.78 trillion in receivables — has not commented on such auctions.

The default rate on prime loans backing private-label securities jumped 214 basis points from April to 8.8% in May, according to a report by Five Bridges Advisors Inc. "In dramatic fashion, the performance of prime loans has deteriorated more severely [in May] than either Alt-A or subprime borrowers," the default report says. [Defaults include loans 90 days or more past due, in foreclosure or real estate owned.] The jump in prime defaults partially reflects the lifting of foreclosure moratoriums, as well as the "very tight credit markets for jumbo loans in the United States and the increase in mortgage rates over the last six weeks," according to analysts at Five Bridges, which is based in Bethesda, Md. Prime loans make up 23.5% of all non-agency mortgage loans with Alt-A making up 41% and subprime 35.5%.

Standard & Poor's has placed more than 1,000 U.S. conduit and fusion commercial mortgage-backed securities deals on "watch negative." S&P says the move does not represent a change in the expected performance of pools but rather a change in its CMBS criteria. The main change is a revision of credit enhancement levels in line with an effort to establish ones that enable securities carrying top investment-grade ratings of AAA to "withstand market conditions commensurate with an extreme economic downturn without defaulting." S&P said its analysis has resulted in a AAA credit enhancement figure of 19% for the "archetypical" pool. "We determined the higher enhancement level based on a number of factors, but primarily on our assessment of potential commercial property value declines in the range of 40% to 50% under conditions of extreme stress, such as during the Great Depression," the rating agency said. "This represents a major recalibration of our CMBS criteria and is intended to make U.S. CMBS ratings more comparable with ratings in other sectors." S&P also said, "While the new criteria represents a major change in our opinion of what might happen under highly stressful conditions, it does not represent a change in our view of the expected performance of commercial pools under current conditions."

RealtyBid.com and ValCom Inc. have teamed up through a joint partnership to give away a house in a different state every month through their new promotion, "The House Game." Anyone participating in "The House Game" online trivia game on RealtyBid.com will be eligible to win the selected property of the month. The first home that will be given away by ValCom and RealtyBid.com is a two-bedroom home located in sunny Florida. Through this partnership, ValCom will be handling the ongoing production, promotion, and implementation of distressed real estate inventory to be sold via RealtyBid.com's online auction platform. "Each month through RealtyBid.com, ValCom will be auctioning dozens of post-foreclosure homes at unbelievable prices to home buyers and investors around the country," said RealtyBid.com CEO/President Tony Isbell. "These will be absolute, no-reserve auctions; all properties with bids will be sold." Anyone is able to play and can become eligible to win a house by answering a few online trivia questions. Entrants do not have to answer the questions correctly in order to be eligible or win. "Click A Mouse, Win A House" is our slogan for this promotion, and it really is that easy," Mr. Isebell said. The seven-day auctions include post-foreclosure and no-reserve properties. Participants can register, watch the auction online and bid real-time against other bidders from anywhere in the world through http://www.realtybid.com.

There is a disconnect between how the market prices residential mortgage-backed securities and their intrinsic value, according to a recent study by Fitch Solutions to gauge the factors driving the valuations of RMBS tranches. The case study, entitled, "What Moves RMBS Tranche Values? A Case Study," compared observed valuations of RMBS bonds in the market with internally derived discounted cash flow valuations based on a range of default and loss assumptions. One goal of the study was to find the loss assumptions that would cause the modeled price to converge with the market price. According to the report, the market expectation regarding future losses is on average 32%, which can be decomposed into a pool default rate of 40%, with 80% loss severity. Vintage and performance are key determinants. "With structural features clearly having an impact on price sensitivity, it is now more important than ever to understand slight nuances from deal-to deal through in-depth cash flow modeling," said Richard Hrvatin, Fitch managing director and author of the report.

The Senate Banking Committee has approved the nomination of David Stevens to be the new Federal Housing Administration commissioner, clearing the way for his confirmation by the full Senate. Mr. Stevens' nomination had been held up for several months due to alleged Real Estate Settlement Procedures Act violations by his former employer, Long & Foster — a mid-Atlantic real estate brokerage firm. The RESPA complaints did not name Mr. Stevens and HUD secretary Shaun Donovan continued to support him, claiming his experience as an executive at Freddie Mac and Wells Fargo Home Loans is needed at FHA. The committee approved Mr. Steven's nomination by a voice vote late Thursday afternoon. The Senate adjourned a few hours later so his confirmation will be pending when the senators return from their 4th of July recess on July 6.

UBS has greatly mitigated its exposure to problem mortgage assets through an arrangement with the Swiss National Bank and said its second quarter will look better than its first, but it still is anticipating a loss for the period. "The operating result for the quarter is expected to represent an improvement compared with the first quarter of 2009, largely attributable to better market conditions affecting the investment bank and a reduction in losses and writedowns on legacy risk positions," UBS said. However it also noted that, "Based upon preliminary results for April and May and estimated results for June, UBS expects to incur a net loss for its second quarter 2009." The company said the majority of the expected loss "is attributable to own credit and the restructuring charges that have already been announced."