Servicing

May foreclosures marked the third straight month where the total number of foreclosure filings exceeded 300,000, according to the May 2009 U.S. Foreclosure Market Report from RealtyTrac. Default notices, scheduled auctions and bank repossessions, were reported on 321,480 U.S. properties, a decrease of 6% from April but an increase of nearly 18% from April 2008. "Bank repossessions or REOs were up 2% thanks largely to substantial increases in several states, including Michigan, Arizona, Washington, Nevada, Oregon and New York," said James Saccacio, chief executive officer of RealtyTrac. "We expect REO activity to spike in the coming months as foreclosure delays and moratoria implemented by various state laws come to an end." The top 10 states accounted for nearly 77% of foreclosure activity. California reported 92,249 properties with foreclosure filings in May, the highest total of any state, up 23% from a year ago. REOs in California were down 1% from April and defaults were down 18%, but scheduled auctions were up 18%. Filings in Florida were down compared to April, but the state still posted the nation's second highest number of properties with foreclosures: 58,931, up 50% from May 2008. Nevada documented 17,157 properties with filings, the third highest total of any state, up nearly 83% from May 2008. A 23% increase in REOs helped push Nevada foreclosure activity up 5% from April. Rounding out the top 10 were Arizona (16,865), Michigan (13,891), Ohio (11,360), Illinois (10,942), Georgia (10,516), Texas (9,813) and Virginia (5,385).

The average weekly Freddie Mac rate for a 30-year fixed rate mortgage has risen to a seven-month high of 5.59%, up from 5.29% the previous week but down from 6.32% a year ago. Last time the 30-year rate was that high was the week of Nov. 26, 2008, when it was 5.97%. The 15-year FRM rate was 5.06%, the highest it has been since the week of Dec. 11, 2008 when it averaged 5.20% and up from 4.79% the previous week. But the 15-year rate still remained lower than it was a year ago, when it was 5.93%. The average rate for five-year hybrid Treasury-indexed adjustable-rate mortgages was even higher than the rate for 15-year product at 5.17%, up from the previous week's 4.85% but down from 5.51% a year ago. The average rate for one-year Treasury ARMs was 5.04%, up from the previous week's 4.81% and down just slightly from 5.09% a year ago. Points for 30- and 15-year FRMs, as well as for one-year Treasury ARMs, averaged 0.7. Points for five-year hybrid Treasury ARMs were 0.6.

The Department of Housing and Urban Development has suspended three lenders from originating Federal Housing Administration single-family loans while the agency completes investigations of their lending practices. HUD's Mortgagee Review Board placed Golden First Mortgage Corp. of Great Neck, N.Y., Great Country Mortgage Bankers, Inc. of Coral Gables, Fla., and Beneficial Mortgage Corporation of San Juan, P.R., on suspension. The board cited Golden First Mortgage and Beneficial Mortgage for failing to notify HUD of investigations of their operations by other regulators. Golden First Mortgage's president David Movtady is the subject of an Office of Thrift Supervision investigation, HUD said. Mr. Motvady, who is also the chairman of Golden First Bank, a $27.4 million-asset thrift, said the OTS allegations are "unfounded" and he continues to contest them. However, Golden First Mortgage has surrendered its FHA license and will suspend lending operations "until further notice," he said. Beneficial Mortgage failed to notify HUD of an investigation and sanctions imposed by the Puerto Rico commissioner of financial institutions, including revocation of license to originate mortgages, HUD said. In an audit of Great Country Mortgage Bankers, HUD said it discovered multiple violations of FHA requirements, including failure to ensure that employees worked exclusively for GCMB; failure to disclose business affiliations between GCMB and real estate and title service providers; and failure to properly verify key credit information in 55 FHA-insured mortgage loans. Executives from Beneficial Mortgage and GCMB did not return phone calls.

Congress needs to increase the Federal Housing Administration's loan commitment authority in fiscal year 2010 by $85 billion because private mortgage insurers are too weak to meet the demand for new loans, according to HUD secretary Shaun Donovan. "Even as the housing market recovers, we believe it will take some time for the mortgage insurers to build back up their financial strength," the secretary told Senate appropriators. The Department of Housing and Urban Development is seeking authority to insure up to $400 billion in single-family loans in FY 2010, up from $315 billion in the current fiscal year, which ends Sept. 31. The HUD secretary told the appropriators that FHA's single-family business will be in the "black" in FY 2010. However the FHA's reverse mortgage program needs an appropriation of $800 million to cover estimated losses. "We have not chosen to raise premiums given the stress that seniors are under right now," Mr. Donovan said. However, HUD is willing to tighten loan-to-value ratios and make other changes to "eliminate" the need for government subsidies, he said.

The newly released Home Data Index from Clear Capital, Truckee, Calif., shows small local areas of price stabilization are appearing even within largely troubled markets such as Cleveland. According to Clear Capital president Kevin Marshall, these data are fueling expectations that there will be more neighborhood-by-neighborhood-based pricing recovery that will renew strategic investor interest in these areas. For example, a specific segment within Cleveland in the index has "returned the first quarter-over-quarter gain since its downturn began in mid-2005, signaling some very specific investment activity," Mr. Marshall said. Another example is Sacramento, one of the hardest hit areas in California, where several of its MSAs are now outperforming not just that region but the national trend as well. In addition, Clear Capital said that although price declines continue across the country, they appear to be slowing down — especially in the Midwest and South. Clear Capital's index report includes a national and regional overview and ranking of the country's 15 highest and lowest performing metropolitan statistical areas. Highlights include quarter-over-quarter price gains of 8.9% in Birmingham, Ala., and 6.7% in Cleveland. The biggest losses were seen in Phoenix, Ariz., (17%) and Las Vegas, Nev. (15.5%).

Many Federal Reserve district banks are seeing an increase in home sales, according to the Fed's Beige Book. "A number of districts reported an uptick in home sales, and many said that new home construction appeared to be stabilizing at very low levels," the Beige Book says. The reporting district banks cited seasonal factors, low interest rates and declining house prices as well as the tax credit available for certain first-time homebuyers. They noted that, "much of the sales increase was found in the lower-priced end of the market." The New York and Cleveland Federal Reserve banks said they saw "strong demand" for refinancings. But the Richmond bank indicated there has been "waning" demand due to rising interest rates. Commercial real estate markets continued to "weaken," the Beige Books says, as rising vacancy rates have been putting downward pressure on rents.

After pleading guilty to participating in a complex fraud scheme in which he filed and foreclosed on false mortgages in Florida, Sergej Tews was sentenced to 33 months in prison. He also was sentenced to three years of supervised release following the prison term and ordered to pay $636,000 in restitution. According to R. Alexander Acosta, U.S. attorney for the Southern District of Florida, Tews induced homeowners to transfer their properties to him in exchange for his promise to assume their mortgage payments and caused the homeowners to execute warranty deeds, which gave the appearance that the properties were sold to a third party instead of being transferred to Tews. He then fabricated the amount paid for each property, paid the filing taxes based on the false amount and filed fraudulent mortgages on each property. At the foreclosure sales, third-party purchasers were deceived into believing that there were no pre-existing mortgages on the properties and bid on and bought the properties at auction. After the third-party purchasers paid for the properties, the court issued checks to Tews in the names of his purported foreclosing lenders.

New York attorney general Andrew Cuomo is joining other state crime fighters that are going after what they believe are foreclosure rescue scams targeting vulnerable homeowners. The New York AG this week filed a civil complaint against American Modification Agency Inc. and its owner and president, Salvatore Pane Jr., for allegedly charging illegal up-front fees and engaging in consumer fraud. The Uniondale, N.Y.-based firm markets itself as a foreclosure rescue company. It operates in all 50 states. The AG's office says American Modification targets homeowners facing foreclosure by claiming it can save their homes, but often fails to provide the services promised. In a statement released late Tuesday AMA — also known as "Amerimod" — said it is compliant with state foreclosure assistance laws and regulations. "Amerimod has been and will remain a frontrunner for compliance as well as a reliable source for distressed homeowners and consumer advocacy groups," the company said. Meanwhile, the New York AG's office has subpoenaed 14 other loan modification-related firms. Other large states that are investigating and filing charges against loan mod firms include California, Florida, and Georgia.

Citing the uncertainty of its strategic direction, as well as overall concerns about the mortgage insurance business, Fitch Ratings, New York, has assigned United Guaranty Residential Insurance Co., Greensboro, N.C., a negative outlook. Fitch has affirmed the "BBB" insurer financial strength rating of the company, saying it reflects its view on UGRIC's risk profile and capitalization, including existing support agreements and a recently executed reinsurance agreement with MG Reinsurance. The statement from Fitch also noted that Eric Martinez — who United Guranty Corp.'s ultimate corporate parent AIG recently appointed as chief executive of UGC — "is part of the management team tasked with restructuring and/or disposing of businesses and assets as part of AIG's effort to repay U.S. government funds. For the past two months, [Mr.] Martinez has led a comprehensive strategic review for UGC. Should UGC be placed into run-off and/or if steps are taken to reduce current levels of capital and/or capital support, then additional negative rating action may result."

Fitch Ratings has downgraded its rating on Colonial Bancgroup — the nation's largest warehouse provider to non-banks — saying a new federal cease and desist order against the Alabama bank may have a negative impact on a $300 million investment in the company. At press time the bank had not commented on the Fitch note. The C&D order from the Federal Deposit Insurance Corp. and state regulators requires it to increase Colonial Bank's Tier I capital ratio to 8% by the end of September. Recently, mortgage banker Taylor, Bean & Whitaker finalized its commitment to pump $300 million of equity into Colonial. Once Colonial receives the equity it will then be eligible for $550 million in Troubled Asset Relief Funds from the Treasury Department. TBW has several investment partners on the deal. Colonial's stock continues to sell for less than $1 and was down 27% in trading to 88 cents Wednesday afternoon. The Alabama-based bank — stung by large commercial real estate loans — reported a net loss of $168 million for the quarter ended March 31.