Servicing

The Federal Reserve Bank of New York has invested at least $248.3 billion in MBS and debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, according to a budget addendum released Monday by the White House.The figure represents asset and debt purchases as of March 31. A spokeswoman for the New York Fed was asked to provide an updated figure for the end of April but at press time had not gotten back to National Mortgage News. The MBS (Fannie/Freddie guaranteed) bought by the government total $201.5 billion, with the debt at $46.8 billion. The debt number includes $11.1 billion in bonds issued by various FHLBs. In the new "Analytical Perspectives, Budget of the U.S. Government" the White House also discusses the future of the GSEs, mentioning — as one option — their dissolution.

The U.S. mortgage insurance business of Genworth Financial Inc. had a net operating loss of $135 million for the first quarter, as higher captive reinsurance benefits were more than offset by higher incurred losses. The first quarter loss was substantially higher than the $36 million net operating loss the unit had in the first quarter 2008. Gross losses before the impact of captive reinsurance benefits were $522 million. The Richmond, Va., insurer benefited from $119 million (on a pre-tax basis) of captive reinsurance coverage. Paid claims were $205 million for the quarter, up by $121 million over the first quarter 2008, while average paid claim leaped to $55,500, versus $42,200 one year ago. Genworth approved approximately 5,800 workouts, which resulted in $57 million of reduced loss exposure. New insurance written was substantially down from the previous year, $3.6 billion in the first quarter 2009 ($2.5 billion flow, $1.1 billion bulk), compared with $15.1 billion (all but $0.1 billion flow) one year prior. Genworth chief financial officer Ronald Joelson expects to see an increase in new insurance written during the rest of 2009. "New business levels are expected to trend up from the first quarter as we have the capital flexibility to take advantage of strengthening market conditions," he said. The parent company lost $469 million ($1.08 per share) for the quarter.

In a hypothetical situation in which the economy is worse than expected over the next two years, the 19 bank holding companies participating in federal "stress tests" would find first-lien mortgages to be responsible for about one-sixth of the losses they would cumulatively have to absorb. This category of losses, estimated to represent $102.3 billion of a total $599.2 billion in losses under the "more adverse" scenario for the BHCs, was the largest in the Supervisory Capital Assessment Program report. The next largest category was second/junior lien mortgages, which was estimated in the scenario to potentially account for $83.2 billion of losses. Commercial real estate loans was the fourth largest category of potential losses, behind commercial and industrial loans. Potential losses tied to these categories were respectively estimated at $53 billion and $60.1 billion.

Fannie Mae posted a $23.2 billion loss in the first quarter and is asking the Treasury Department for $19 billion in new assistance so it can maintain a positive net worth position as its real estate owned portfolio continues to grow dramatically. At-year end Fannie Mae owned 62,371 homes, a 44% increase over the past 12 months. It reported that its guaranty book of business has $145 billion in non-performing mortgages — a 12-fold increase from the same period last year. In posting yet another enormous loss, Fannie blamed the poor performance on the nation's housing depression which caused it to take impairments on its MBS holdings, and increased credit reserves. In the same quarter last year the GSE lost $2.5 billion. Even though the industry is in the throes of a refi boom, Fannie's guaranty fee income (money it receives from its seller/servicers) actually fell in the first quarter by 37% to $1.8 billion. In 4Q Fannie had 'g-fee' income of $2.8 billion. It blamed the decline in g-fees on revenue recognition factors, including expected prepayment rates. Fannie has been a ward of the government since early September 2008.

The Mortgage Bankers Association has developed a warehouse lending proposal that could be administrated by Ginnie Mae if the agency receives Treasury Department approval. MBA, which has been working closely with the Government National Mortgage Association in developing the proposal, has sent Treasury Secretary Timothy Geithner an outline of the program along with a term sheet. The proposal calls for Treasury to initiate a temporary lending facility administered by Ginnie Mae to provide warehouse loans to lenders making Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service guaranteed loans. "MBA would like to meet with you in order to obtain Treasury's input and refine the proposal," MBA chief John Courson says in a letter to secretary Geithner. "Treasury has not made a commitment to the proposed program," an MBA spokesman said.

A few months after announcing its exit from warehouse lending, JPMorgan Chase has decided to stay in the business after all, National Mortgage News has learned. However, the mega bank only plans to provide lines of credit to just a handful of non-bank customers that tend to sell loans to it on a correspondent basis. A warehouse borrower familiar with the about-face said "they are moving the warehouse group to their commercial banking division." (A JPM spokesman confirmed this.) For full details see the Monday print edition of NMN.

April was the strongest month in more than a year for home sales under $1 million in the Las Vegas-Henderson area, and the region's REO market also appears to be improving even though prices in that range have continued to fall. "The month registered gains in almost every category except price," said Rob Jenson, who works for Jenson Group, a company that specializes in Vegas's high-end market. The monthly supply of unsold houses fell, the overall number of listings declined and, perhaps most importantly, the number of real estate owned listings also slipped. In houses priced under $1 million, moreover, sales were up 7.8%. But the average price in the below-$1 million sector fell by 3.4% to $161,729. It was the ninth monthly price decline in a row, but the 3,063 sales were the most recorded in a year in the beleaguered market. Mr. Jenson also said that above $1 million, listings were up, sales were down " only 12 units priced above the million dollar benchmark sold in April, an 8% decline " but the average price rose 2% to $1.53 million.

The Depository Trust & Clearing Corp. is recommending daily trade netting for to be announced mortgage-backed securities transactions. The DTCC said the move would cut what have been high costs in processing the trades and increase risk protection for the market. "The idea is to streamline the somewhat complex current `balance order' netting process," said Murray Pozmanter, DTCC's managing director, clearance and settlement/fixed income. "The industry's process today requires trading firms to allocate pools of mortgages against the TBA obligations we establish, and then to settle all those pools with multiple counterparties at different prices." He said the DTCC is recommending this be changed to a process where trades would be netted daily and the DTCC's Fixed Income Clearing Corp. subsidiary would "step in as the allocation and settlement counterparty." Currently, MBS trades are netted only once a month, beginning 72 hours prior to the monthly settlement date established for each kind of TMBA security. Because this forces trading firms to meet a netting cut-off on the "72 hour day," the number of trades incorporated in the current netting process can be limited, according to a DTCC report.

Servicing portfolio growth and cost cutting has resulted in Ocwen Financial Corp.'s first-quarter profit tripling from a year earlier, to $15.1 million. The West Palm Beach, Fla., company made $0.24 per share, $0.07 more than the average estimate from analysts. Its shares jumped almost 9% in midday trading on May 7. From the third quarter of 2007 until this past quarter, Ocwen's portfolio of loans serviced had been shrinking, due to prepayments. But in February, Freddie Mac hired Ocwen to service 5,000 low-documentation loans that were at least 60 days delinquent. That contract, combined with a purchase of servicing rights during the first quarter, caused Ocwen's portfolio to grow 1.5% from the end of last year, to $40.8 billion on March 31. Operating expenses dropped 18% from a year earlier, to $72 million. Despite the cost cuts, "we kept more people in their homes and returned more loans to performing status than in any prior quarter in our history," William Erbey, Ocwen's chairman and chief executive, said in a press release. The company said it has been automating processes. The company said it modified 20,651 loans during the period, "despite a slowdown in late March as additional details and specific guidance related to the [Obama administration's] Home Affordable Modification Plan emerged." Ocwen's planned spinoff of its technology unit is expected to be completed in the third quarter.

Bond insurer Assured Guaranty Ltd., Hamilton, Bermuda, is facing uncertainty about mortgage and other structured finance exposures that it said it believes were too pessimistically assessed in recent downgrades. "These assumptions are subject to considerable uncertainty that will dissipate within the next several months as the economy begins to benefit from the federal government's economic stimulus plans and mortgage assistance programs," Assured said, in response to Fitch's downgrades of its debt and insurer financial strength ratings. But the company acknowledged that the ultimate performance of its U.S. residential mortgage-backed securities is "uncertain."