Servicing

The Federal Deposit Insurance Corp. reported a surge in single-family originations by banks that contributed to a rebound in earnings for the first quarter. Commercial banks and FDIC-insured savings institutions reported combined earnings of $7.6 billion in 1Q, down 60% from a year ago, but a definite rebound from the $38.6 billion loss posted in the fourth quarter. FDIC officials attribute the first quarter profit mainly to securities trading by the larger banks. But they noted that an increase in refinancing activity also contributed to revenues. Originations by commercial banks and savings banks totaled $369.7 billion in the first quarter, a 72% gain from the previous period. (The total does not include originations by federally chartered S&Ls, which the Office of Thrift Supervision will report on Tuesday, June 2). The FDIC says 836 banks and savings institutions that are heavily committed to mortgage lending and investing earned $1.4 billion in the first quarter, compared to a $4 billion loss in the fourth quarter.

The Federal Deposit Insurance Corp.'s effort to sell troubled bank loans is facing headwinds, including congressional skepticism about the public-private investment funds that would provide government financing for investors, according to agency chairman Sheila Bair. "We are finding both on the buyer and seller side there continues to be discomfort about Congress' review of this program," Ms. Bair told reporters. There are concerns the Congress "could potentially change" the rules, she added. The FDIC chairman also noted that Congress has passed a housing bill (S. 896) that directs the Treasury secretary to craft conflict of interest rules for the PPIF program. Critics of the program are concerned sellers and buyers of the bad assets could game the system and make large profits at the expense of taxpayers. "Banks will not be able to bid on their own assets," the FDIC chairman said. However, Treasury needs to clarify other aspects of the conflict of interest rules mandated by Congress. FDIC is working on the structure of its 'Legacy Loan Program' that will give banks an opportunity to sell troubled real estate loans to PPIF investors. However, a "test sale" may be delayed. "Obviously there are issues we have to look at and take into consideration," an FDIC spokesman said. FDIC has been working toward sending the first sales packages to investors in June.

Freddie Mac's purchases of refinanced mortgages slowed in April despite the launch of the Obama administration's new program to help borrowers with high loan-to-value ratios refinance into lower cost loans. The mortgage giant purchased $43.3 in refinanced mortgages in April, down from $52 billion the previous month. "We began the purchase of refinance mortgages originated under the program in April," Freddie Mac said in its monthly activity report. "Due to the implementation of this program and recent declines in mortgage interest rates, our refinancing activity will likely remain high." Meanwhile, the serious delinquency rate on Freddie Mac-guaranteed single-family loans continues to rise. Loans 90 days or more past due or in foreclosure rose to 2.44% in April, up 15 basis points from the previous month. Issuance of mortgage-backed securities by Freddie Mac also slowed to $51.1 billion in April from $57.7 billion in March. The company also reported that its mortgage portfolio fell by $36.8 billion to $830.3 billion during April.

Foreclosure starts jumped 27% in the first quarter to 1.33% of all outstanding residential loans as state foreclosure moratoriums expired and it became clear that certain at-risk homeowners couldn't qualify for government-mandated loan modification programs. At year-end the foreclosure start rate was 1.08%. According to figures compiled by the Mortgage Bankers Association, 9.12% of all home mortgages were in some stage of delinquency/foreclosure at the end of March. National Mortgage News estimates that consumers owe $9.585 trillion on their loans which means some $874 billion of residential loans are late. Also, one-quarter of all subprime loans ($188 billion, according to NMN) are delinquent, compared to 21.88% at year-end. MBA chief economist Jay Brinkmann said it is the highest jump in foreclosure starts ever, adding that 40% of starts involve vacant homes. Mr. Brinkmann noted that prime mortgages had the largest share (53%) of foreclosures starts. Also, prime adjustable-rate mortgages (which include option-ARMs and Alt-A loans) had a higher foreclosure start and a higher 90-day delinquency rate than Federal Housing Administration-insured mortgages. Meanwhile, the serious delinquency rate (loans 90 days or more past due or in foreclosure) rose 94 basis points in the first quarter to 7.28%. Compared to the fourth quarter, the seriously delinquent rate on prime loans jumped 96 bps to 4.7%. On subprime loans it jumped 177 bps to 24.9% and on FHA loans it rose 30 bps to 7.37%.

In April 2009 HOPE NOW members and the industry at large modified 127,000 mortgages and completed 143,000 repayment plans totaling 270,000 interventions, "the largest number in any month" since the alliance started to compile data. The foreclosure prevention alliance of mortgage servicers, non-profit counselors, and investors said however that the data should be analyzed keeping in mind the difference between modifications and pre-modifications within the context of the Home Affordable Modification Program. For example, the increase in payment plans compared to March -reflects the HAMP requirement that loans are subject to a three-month-trial period before a modification can be completed. Meanwhile these loans are often reported as repayment plans or trial modifications that later are reported as modifications, often after 90 days. Furthermore April data show the number of 60+ days delinquencies was the same in April as in March at just under 3 million. Also, foreclosure starts dropped by more than 16% from 290,000 in March to 249,000 in April, meanwhile foreclosure sales increased, from 53,000 in March to 65,000 in April. According to HOPE NOW executive director Faith Schwartz, as HAMP continues to be implemented going forward many alliance members see it an opportunity to assist a progressively larger number of homeowners in trouble.

David Stevens' nomination to head the Federal Housing Administration is still in limbo. The Senate — which returns on Monday — left town for the Memorial Day recess without acting on his confirmation. Senate Banking Committee leaders are trying to sort out issues involving alleged RESPA violations by his former employer — the real estate brokerage firm of Long & Foster. Just before the recess, committee leaders were unsure whether they would be able to act on Mr. Stevens' appointment. Mr. Stevens managed Long & Foster's affiliated mortgage, insurance and title company unit. He is a former Freddie Mac and Wells Fargo Home Mortgage executive. Housing secretary Shaun Donovan still wants Mr. Stevens to run FHA and his supporters are hoping the nominee will be confirmed by the July 4th recess.

Hedge fund Pennant Capital Management has ratcheted-up its proxy battle for seats on the board of mortgage banker PHH Corp., with two candidates it hopes will unseat the lender/servicer's chairman and long time CEO. The dissident candidates are Gregory Parseghian, the former head of Freddie Mac, and Allan Loren, former chairman and CEO of Dun & Broadstreet. The two would replace PHH chairman A.B. Krongard, and CEO Terence Edwards, whose director terms expire at the June 10 shareholders meeting. PHH is the nation's fifth largest residential servicer with $150 billion in housing receivables, according to the Quarterly Data Report and National Mortgage News. At last check Pennant was PHH's largest shareholder with a 9.94% stake at the end of March. The hedge fund said its candidates will help reinvigorate the company. However, compared to many of its mortgage banking competitors, PHH's share price has held up rather well: in trading Wednesday, its stock was selling for $16.36, well above its 52-week low of $4.27 and just a few dollars below its high of $19.98. PHH reported net income of $2 million for the first quarter, though it lost $254 million last year. PHH is the nation's largest private label lender/servicer and has a large base of credit union customers.

National housing prices fell 11.5% as of March compared to a year ago, a slight improvement from an 11.7% annual decline as of February, according to new data from First American CoreLogic and its LoanPerformance Home Price Index While declines are slowing in states that have had the highest declines over the past three years, they are accelerating in places that have been experiencing only moderate decreases. "The problems are no longer confined to a handful of 'Sand States,'" said Mark Fleming, chief economist for First American CoreLogic. "Homeowners in many parts of the country are coming under stress from a loss in equity, rising delinquencies and foreclosures. This is particularly pronounced in more expensive neighborhoods where the median value of all properties is over $1 million." Roughly 33 states have exhibited acceleration in the rate of price declines in the last three months, and 14 states exhibited double-digit annual declines as of March - up from seven states a year ago. Nevada (-25.9%) remained the top ranked state for annual price depreciation, followed by California (-24.9%). Price declines in both states appear to be decelerating as California's decline was the smallest since March 2008 and Nevada's was its smallest decline in six months. Rhode Island (-21.2%) jumped to third and is currently the only state among the top five that continues to experience a consistent acceleration in price declines. Florida (-21.1%) and Arizona (-20.7%) round out the top five annual price depreciation states.

Home prices fell 18.7% in March from a year ago, according to Standard & Poor's/Case-Shiller 20-city house price index, which has declined 32.2% since the second quarter of 2006. Despite the plunge, the rate of decline in prices appears to have stabilized in the first quarter at a record 19.1%. The annual decline in January was 19% and 18.6% in February. Freddie Mac economists are forecasting that house price declines will slow in the coming quarters. They expect the S&P Chase-Shiller National HPI will decline by 14% in the second quarter and by 10% in third quarter. Overall, house prices will decline by 12.8% in 2009 and by another 3% in 2010, according to Freddie.

Freddie Mac has begun marketing its first multifamily securitization package as part of an effort to increase liquidity in the apartment loan sector. The first offering of the new Series K-003 structured pass-thru certificates involves 62 highly rated multifamily mortgages totaling $1.06 billion. Deutsche Bank Securities is the lead underwriter for the securities, that will price and be settled during the second week of June. "Freddie Mac is responding to difficult conditions in the multifamily housing finance market by finding innovative ways to link affordable rental housing to the capital markets," said Mike May, senior vice president for multifamily housing. Freddie capital markets vice president David Brickman noted that Deutsche Bank is selling the A-1 through A-5 senior classes to the public with 20% subordination. The senior classes along with A-6 (a subordinated class representing 12.5% of the deal) are guaranteed by Freddie. A subordinated bond (7.5% of the deal) was sold privately. Freddie has another $1 billion of mortgages in the pipeline but the next securitization has not been scheduled. "It is going to be a growing product of ours," Mr. Brickman said, and "people can expect a steady stream of deals."