Servicing

Mortgage bankers are experiencing a dramatic increase in new servicing hires and loss mitigation staff in order to handle the tidal wave of delinquencies sweeping the nation. Speaking at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas, Stephanie Lowe, vice president for special servicing and loss mitigation for GMAC Financial Services, said her company has added more than 500 employees and developed a technology system in-house to deal with bulk decisions. GMAC Financial Services offers three weeks of classroom training as well as a week of intense on-the-ground training for employees to learn more about how to explain the Home Affordable Modification Program to borrowers. There is no shortage of excellent originators who have the skill set to deal with delinquent borrowers — and servicers are capitalizing on that talent pool, added Scott Gillen, vice president, Stewart Lender Services. Many shops are migrating large numbers of staff from other products, including in-house processors, to early stages of default. These employees are being trained while the company works on technology advancements. "A lot of re-tasking is being done, especially now that refis have leveled off a bit," said Mr. Gillen. "No one wants to let anyone go."

House Financial Services Committee Chairman Barney Frank said Tuesday that he will postpone next week's planned vote on legislation to create a consumer protection agency until after the August recess.The delay was due in part to the panel's busy schedule, but committee officials also said they wanted to give consumer groups more time to respond to lobbying by the banking industry, which is opposed to the bill. Industry lobbyists said this week that their arguments to curb the powers of a new agency were gaining traction. Steve Adamske, a spokesman for Frank, said consumer groups needed time to respond to industry arguments against the new agency and efforts to limit its authority. "Consumer groups and advocates have planned a ground campaign in August and we want to give them time to preserve this agency," said Adamske. The goal is to allow lawmakers more time to "hear from their constituents," he said.

Fortress Investment Group, which controls a mid-sized subprime servicing operation, has hired former Fannie Mae chief Daniel Mudd to be its new chief executive. Mr. Mudd was forced out of the money-losing Fannie Mae in September when the company and its sister firm, Freddie Mac, were placed into separate conservatorships. Mr. Mudd became CEO of the GSE in 2004 in the wake of a $6 billion accounting scandal where the firm's former management understated its prior years earnings. Under Mr. Mudd's stewardship Fannie became a large investor in MBS backed by alternative-A credit loans. The declining value of those securities has forced the GSE to book multibillion-dollar losses. A few years back Fortress bought Centex Home Equity of Dallas, once one of the nation's largest subprime lenders. Centex changed its name to Nationstar Mortgage and eventually ceased originating new loans but remains as a servicer. Mr. Mudd will take the reins of the publicly traded Fortress on Aug. 11. He is currently a director of the company. Fortress, whose shares trade for $3, manages $26.5 billion in assets.

Not only will PennyMac be servicing nonperforming mortgages for Credit Suisse — which is buying the loans from a troubled American International Group unit — but the vulture fund/servicer has agreed to buy $170 million in notes that will be issued from the deal. Earlier this week it was revealed that CS agreed to buy $1.6 billion of subprime and alt-A whole loans from AIG's American General Financial Services unit with PennyMac servicing the loans. CS plans to issue securities backed by the troubled loans. A report by Bloomberg, which quotes a regulatory filing, says PennyMac will buy some of those securities. A spokeswoman for the company declined to comment. "We're in our quiet period," she said. PennyMac hopes to go public some time over the next few months.

The Obama administration is considering ways to provide mortgage relief for unemployed workers to help them stay in their homes, according to a Department of Housing and Urban Development official. "As the economy has weakened, unemployment has become an increasing cause of mortgage default and foreclosure," said HUD senior advisor William Apgar. "Recognizing this, the administration is now exploring a series of programmatic options that can help unemployed workers get the mortgage assistance that they need." Bank of America servicing executive Allen Jones noted that there is a significant population of unemployed homeowners and a growing need for assistance. "We would welcome the opportunity to work with Treasury on a program that would officer short-term relief while unemployed borrowers seek re-employment," Mr. Jones said. Both men made their comments before the Senate Banking Committee Thursday.

Bank of America saw its residential mortgage income increase more than fivefold in the second quarter to $2.6 billion as it originated $110 billion worth of home loans during a strong refinancing boom. Refinancings accounted for 71% of its residential loan production. In the year-ago quarter, the bank did not own Countrywide Financial Corp., which at the time was still the nation's largest lender. Even though BoA posted strong mortgage (and overall results) its 2Q mortgage earnings fell compared to 1Q when it earned $3.4 billion.

Federal Reserve policy makers "revised upward" their outlook for economic growth at a June 23 meeting and decided to keep the $1.25 trillion mortgage-backed securities purchase program on track without any changes. The Fed launched the MBS purchase program in December to lower mortgage rates and support the housing market. So far, it has purchased $622 billion in Fannie Mae, Freddie Mac and Ginnie Mae MBS. The purchase program is due to expire at yearend. The minutes of the Federal Open Market Committee meeting indicate the members see the housing market as "vulnerable to further weakness." And they are concerned increases in mortgage rates could "further depress demand for housing and thus impede an economic recovery." Nevertheless, home sales appear to be leveling off and they expect the economy will expand in the second half of this year. However, unemployment could hit 10% this year and remain above 9.5% during 2010, according to the Fed's revised outlook.

Farmer Mac said it no longer owns securities issued by troubled CIT Group Inc. in its investment portfolio. A few weeks back the GSE said it sold its entire position ($35 million principal amount) of CIT bonds to mitigate its risk of loss on those securities. The same day, Farmer Mac also sold its Fannie Mae preferred stock holdings realizing a book gain on this transaction, thereby partially offsetting the loss on the sale of the CIT bond holdings. The net loss realized by Farmer Mac on the two transactions will be included in its third-quarter results and was approximately $1 million. Farmer Mac said it issued the statement after inquiries driven by the end of CIT's bailout talks with the government.

American General Financial Services, a subsidiary of the government-controlled AIG, is considering a plan to liquidate up to $10 billion in whole loans using the securitization market, investment banking sources told NMN. The first part of that liquidation was revealed in a new regulatory filing where the company said it would securitize roughly $1.6 billion in subperforming and nonperforming whole loans — many of which are nonprime in quality — through Credit Suisse. PennyMac, which is controlled by former Countrywide president Stan Kurland, is involved in the transaction as a servicer. At press time both CS and AIG declined to comment on the record. Initially, CS will purchase the loans and then issue securities. In an SEC filing AGFS and "sellers" could reap net cash proceeds of up to $975 million. The transaction is expected to close by the end of July. The company said it will use the cash to support its liquidity position and funding needs, "including the discharge of approximately $313 million of debt security obligations under an indenture dated Jan. 1, 1988 that are due during 2009."

Mortgage Guaranty Insurance Corp., the nation's largest MI company in terms of policies-in-force, posted a $340 million loss in the second quarter, warning that it may not meet minimum capital standards that would allow it to continue writing new policies. The company stressed to this publication, however, that it is continuing to write new MI policies. In a statement, MGIC — which insures $223 billion in home mortgages — warned that there are no plans by the U.S. Treasury to provide it, or any other MI, with capital support. "Nothing's going on in that regard," a company spokesman told NMN. MGIC hopes to activate a subsidiary called MGIC Indemnity Corp. that would allow it to begin writing new policies in January of next year. MGIC is supplying the unit with $1 billion in fresh capital. Despite all the bad news for the company, MGIC's share price was up $0.37 in trading early in the afternoon of July16.