Servicing

The Obama administration is planning to release a proposal for restructuring Fannie Mae and Freddie Mac in February when the President sends his budget to Congress. "Between now and then, we will be holding a series of public meetings as well as engaging in our own internal deliberations," Treasury assistant secretary Michael Barr told a Senate panel. The Bush administration forced Fannie and Freddie into conservatorships in September 2008 when it became clear the two would not able to finance their operations without government support. Mr. Barr urged the Senate Banking Committee to move ahead and pass the administration's proposals to create Consumer Financial Protection Agency and other financial regulatory reforms before addressing the GSEs. "We could move forward expeditiously on financial reform measures and then turn to government sponsored enterprises in February," he testified. The Treasury assistant secretary also noted that the administration will soon send up a legislative draft of its proposal to create a systemic regulator for the largest financial institutions. The capital and liquidity requirements will take away "any incentive to be large," he said.

U.S. District Judge Roger W. Titus sentenced Kurt Fordham of Ft. Washington, Md., to 10 years in prison, followed by five years of supervised release, for his involvement in the Metropolitan Money Store mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit. Judge Titus also ordered Fordham to pay $13.13 million in restitution and forfeit three residential properties and three vehicles. Fordham aided his wife, Joy Jackson and others with MMS to fraudulently promise to help homeowners avoid foreclosure by convincing them to put title to their homes in the names of straw buyers for a year, during which time MMS promised to improve the homeowners' credit ratings and help them obtain more favorable mortgages. Using the properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and submitted fraudulent loan applications to lenders to obtain inflated loans on the properties. Fordham also served as straw buyer on at least six properties. Nine other defendants have pleaded guilty in this case, including Jackson and McCall.

FBR Capital Markets has raised its ratings on PHH Corp., Mt. Laurel, N.J. to "outperform" because of improvement in its mortgage banking fundamentals and the change to its management team.The leadership change occurred as a result of a successful proxy challenge by Pennant Capital Management LLC, Chatham, N.J. " With respect to mortgage banking, gain-on-sale margins have held up surprisingly well over the first half of 2009 due to less competition in the mortgage origination space; we expect margins to remain strong throughout the year; however, volumes will be significantly lower in the second half of the year due to higher rates," said analysts Paul J. Miller Jr., William Wallace and Jessica Halenda. The analysts at the Arlington, Va., firm said they expect the new management team, led by acting chief executive George Kilroy, to have a focus on creating shareholder value. FBR has assigned a price target of $23 per share for PHH, up from $13. Their valuation for the mortgage banking business is $15, based on the company's first quarter tangible book value of $22.50. The remaining $7.50 is from the fleet management business.

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.