Servicing

A temporary restraining order has been issued by the Supreme Court of South Carolina involving loans subject to modification under the Home Affordable Modification Program. In a nutshell, the order issued by Chief Justice Jean Hoefer has shut down foreclosure sales in South Carolina, according to William LeRoy, president and chief executive, American Legal Financial Network. Under the order, the lender, investor or plaintiff will have to execute an affidavit by May 15 indicating that the loan does not qualify for any government programs or that it did qualify but the lender has exhausted all loss mitigation efforts required under the programs. The TRO applies to loans owned or guaranteed by Fannie Mae or Freddie Mac, or a servicer participating in the HMP. Larry Platt, a partner with the Washington law firm of K&L Gates, says Fannie is wearing two hats here. The first is as either the owner of mortgage loans in foreclosure or the guarantor of the related mortgage-backed securities. "It essentially is saying that it wants to postpone foreclosures until it is clear that the borrower has realized his or her right to be considered for a loan modification under Fannie's eligibility guidelines. Any owner has a right to postpone a home loan foreclosure that is being pursued on its behalf," he said. Second, Mr. Platt says Fannie is acting as agent of the Department of Treasury in cases where a servicer has signed a Servicer Participation Agreement. "That agreement obligates participating servicers to delay the finalization of foreclosures until after the servicer has determined whether the borrower qualifies for a modification. In this case, Fannie is using the courts to enforce compliance with the contracts that it is administering on behalf of Treasury."

The Treasury Department has expanded its loan modification program by providing incentives for short sales and insurance to "partially offset" price declines on modified loans during the first two years. The "Home Price Declines Protection incentives are designed to address investor concerns that recent home price declines may persist," according to a Treasury fact sheet. And it provides cash payments based on average local price declines. The incentives accumulate each month the modified loan is current and payments are made at the end of the first and second year. "It's just an additional incentive to participate in the program," Treasury secretary Timothy Geithner told reporters. For homeowners that are eligible for a Home Affordable Modification but can't keep up with the payments, Treasury is providing incentives for servicers, investors and homeowners to try a short sale or deed-in-lieu if the property is not sold in 90 days. Secretary Geithner noted 14 servicers have signed up for the modification program and they have made modification offers to 55,000 borrowers so far. "This is just the beginning," the secretary said. Treasury is prepared to expand and improve the program to "reach as many Americans as we can," he added. Treasury also reported that Fannie Mae has purchased 2,150 Home Affordable Refinance loans so far. The mortgage giant has received over 51,000 eligible refinance applications where the loan-to-value ratios are between 80% and 105%. Freddie Mac has purchased 1,500 of these refinanced loans that do not require new mortgage insurance.

The attorney for Countrywide Financial Corp. founder and former CEO Angelo Mozilo acknowledged that civil SEC charges could be brought against his client but said there is no "fair basis" for them. As reported by The Wall Street Journal late Wednesday, staff at the Securities and Exchange Commission has recommend filing civil fraud charges against Mr. Mozilo, but it is unclear what those charges might entail. The SEC has been investigating his insider stock sales which totaled more than $300 million during his last three years as head of the company. In the past Mr. Mozilo has stated that his sales were disclosed publicly and made in accordance with SEC rules. Mr. Mozilo's attorney David Siegel issued a statement that said, "We do not believe there is any fair basis for allegations to be made against Mr. Mozilo. All of Mr. Mozilo's stock sales were made in compliance with properly prepared and approved trading plans and reflected recommendations by his financial advisor over a long period of time. The persistent innuendo in the media and political circles that Mr. Mozilo was selling Countrywide stock because he was aware of some supposedly 'secret' adverse information about the Company is scandalous and inconsistent with even a cursory examination of the facts surrounding the history of his stock holdings." Mr. Mozilo retired from the company on July 1 when it was sold to Bank of America for about $4 billion. Its shares once traded as high as $45 but by the time BoA bought the company it was only selling for a few dollars a share. Mr. Mozilo co-founded the lender in the 1960s with then partner David Loeb. CFC was once the nation's largest overall residential lender/servicer and the largest funder and servicer in the subprime sector.

Foreclosure filings were seen on 342,038 U.S. properties during April, an increase of less than 1% from March and an increase of 32% from April 2008, according to the latest data from RealtyTrac. "Much of this activity is at the initial stages of foreclosure while bank repossessions, or REOs, were down on a monthly and annual basis," said CEO James Saccacio. "Many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It's likely that we'll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months." Despite an 18% decrease in foreclosure activity from March, Nevada continued to post the nation's highest state foreclosure rate in April, with one in every 68 housing units receiving a filing. This was driven by a 44% drop in bank repossessions from March. A 37% month-over-month increase in foreclosure activity boosted Florida's foreclosure rate to the second highest. The increase in Florida was due to a spike in default notices and auction notices, but REOs were down 7%. Foreclosure activity in California decreased 10% from March, while it was up 42% from April 2008. The 10 states with the most filings in April accounted for more than 75% of the national total. California documented the highest total (96,560), followed by Florida (64,588), Nevada (16,266) and Arizona (16,245).

Staff at the Securities and Exchange Commission have recommended filing civil fraud charges against Angelo Mozilo, the co-founder of Countrywide Financial Corp., The Wall Street Journal reported Wednesday afternoon. The newspaper quoted sources "familiar with the investigation." Mr. Mozilo, who lives in Granada Hills, Calif., not too far from the old Countywide headquarters, could not be reached for comment. His telephone number is not listed. It was widely known that the agency was investigating his insider stock sales over a three-year period. He retired from the company on July 1 when it was sold to Bank of America for about $4 billion. Its shares once traded as high as $45 but by the time BoA bought the company it was only selling for a few dollars a share. Mr. Mozilo co-founded the lender in the 1960s with then-partner David Loeb. His stock sales, which were publicly disclosed, totaled more than $300 million. CFC was once the nation's largest overall residential lender/servicer and the largest funder and servicer in the subprime sector.

Mortgage Warehouse Network, Houston, is rolling out turnkey operations aimed at helping depositories enter the underserved warehouse-lending arena. Company chief operating officer Jeff White said its services consist of everything but "pushing the button on the wire for the bank." MWN said it provides the back office and systems, plus experienced personnel, while the bank controls the credit parameters. The warehouse-lending sector has been in the throes of a severe credit crisis because many banks and Wall Street firms have left the business or been unwilling to lend because of high capital requirements and eroding home values. The target bank for Mortgage Warehouse Network is one with $5 million in capital and willing to leverage it on a 10-to-one basis.

House leaders are preparing to vote on a housing bill next week that will fix a Federal Housing Administration refinancing program for underwater borrowers and likely make the $250,000 deposit insurance coverage permanent. However, the bill is not expected to include a controversial cramdown provision that would hold up final passage by the Senate. House majority leader Steny Hoyer, D-Md., told a bankers meeting that House and Senate bank committee chairmen "have pretty much reached agreement that the $250,000 is going to be made permanent." Congress temporarily raised the deposit insurance limit from $100,000 to $250,000 last fall. "There are a lot of good things in this bill," Rep Hoyer told MortgageWire after speaking at an Independent Community Bankers of America event. But Rep. Hoyer said Senate Democratic leaders stressed that they can't get a cramdown provision through the Senate. The House passed a cramdown provision that would allow bankruptcy judges to modify mortgages. But the Senate decisively rejected cramdowns in approving its version of the housing bill.

Freddie Mac — whose customer base traditionally has been more aligned with depositories — posted a $9.8 billion loss in the first quarter, a far better performance in the period than its sister company, Fannie Mae. Freddie's conservator, the Federal Housing Finance Agency, is asking the Treasury for a $6.1 billion infusion to maintain Freddie's net worth position above zero. Freddie said it had impairments of $7.1 billion on "available-for-sale" securities and $8.8 billion of provisions for credit losses. Its net interest income grew by almost 400% in 1Q to $3.8 billion (compared to just $798 million in 1Q08) because its funding costs plummeted thanks to government intervention in the credit markets. Fannie Mae, which released earnings on Friday, lost $23 billion and disclosed that it had $145 billion in nonperforming loans on its books. Fannie's earnings have been hammered by its huge investment in alt-A loans. Also, Fannie's largest customer for many years was Countrywide Home Loans. Countrywide's delinquencies were among the worst in the industry.

Freddie Mac's guaranteed loan portfolio is becoming more vulnerable to defaults due to a growing number of single-family mortgages with high loan-to-value ratios. The percentage of Freddie loans with LTV ratios above 90% had doubled over the past four quarters to 28% as of March 31. These mortgages are "more likely to default in the event of financial hardship," the mortgage giant says in its first quarter financial report. The company expects home prices will decline 5% to 10% this year and unemployment to rise, which will increase credit losses. In March, the percentage of single-family loans 90 days or more past due rose to 2.29%, up 57 basis points from Dec. 31. "We expect our delinquency rates will continue to rise in the remainder of 2009," Freddie says.

Freddie Mac — whose customer base traditionally has been more aligned with depositories — posted a $9.8 billion loss in the first quarter, a far better performance in the period than its sister company, Fannie Mae. Freddie's conservator, the Federal Housing Finance Agency, is asking the Treasury for a $6.1 billion infusion to maintain the Freddie's net worth position above zero. Freddie said it had impairments of $7.1 billion on 'available-for-sale' securities and $8.8 billion of provisions for credit losses. Its net interest income grew by almost 400% in 1Q to $3.8 billion (compared to just $798 million in 1Q08) because its funding costs plummeted thanks to government intervention in the credit markets. Fannie Mae, which released earnings on Friday, lost $23 billion and disclosed that it had $145 billion in nonperforming loans on its books. Fannie's earnings have been hammered by its huge investment in alt-A loans. Also, Fannie's largest customer for many years was Countrywide Home Loans. Countrywide's delinquencies were among the worst in the industry.