Servicing

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.

Half of all home sales in the first quarter involved first-time homebuyers and the National Association of Realtors expects more new buyers will be entering the market to take advantage of low prices and distressed property sales. "Close to 455,000 buyers purchased their first home during the first quarter, and those are likely just the first wave of new buyers coming into the market," NAR chief economist Lawrence Yun said. "Housing affordability conditions are at record levels and we expect a measurable increase in home sales in the second half of this year, which would help stabilize prices in most areas," he said. An NAR survey also found that half of all sales in the first quarter involved foreclosed properties and short sales, which continue to put downward pressure on prices. At NAR's Washington conference, some Realtors noted that first time buyers are competing with investors for foreclosed properties.

Looking to "take advantage of a space screaming for help," Mortgage Warehouse Network, Houston, is rolling out a turnkey solution to help depositories enter the 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 is in the throes of a severe credit crisis with many banks and Wall Street firms leaving the business or 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.

After losing money for all of last year, Farmer Mac earned $34 million in the first quarter of 2009, citing valuation gains from financial derivatives and trading assets. In trading Tuesday its share soared 112% to $7.69. Michael Gerber, president of the government-sponsored enterprise, said, "As we look ahead, we expect any credit losses to remain within manageable levels." He noted that, lenders in the agricultural and rural utilities sectors continue to face capital markets and economic challenges. Farmer Mac increased its capital surplus to $67 million at the end of March from $13 million at December 31. Its delinquencies totaled 1.9%. Formerly known as the Federal Agricultural Mortgage Corp., Farmer Mac provides liquidity to agricultural real estate and rural housing lenders. It purchases eligible loans directly from lenders and guarantees securities.

Ginnie Mae guaranteed $34.5 billion in mortgage-backed securities in April for the second consecutive month, compared to $28 billion in February and $27.3 billion in January. "We are steadily growing," said Ginnie president Joseph Murin. Ginnie Mae single-family MBS totaled $33.8 billion and multifamily totaled $707 million in April. Ginnie I single-family MBS totaled $26.8 billion in April — $1.4 billion less than in the previous month. However, Ginnie II single-family multiple issuer pools totaled $6.6 billion, up $1.1 billion from the previous month.

The ten largest unsecured creditors of the recently bankrupted Thornburg Mortgage include banks and Wall Street firms that were owed at least $4.6 billion, according to court records. The nature of the debts include senior subordinated notes, master repurchase agreements, and junior notes. The top three unsecured creditors are owed (combined) $3.2 billion and include Wilmington Trust ($1.3 billion), Royal Bank of Scotland ($1 billion), and Credit Suisse ($911 million). A jumbo lender based in Santa Fe, Thornburg filed for Chapter 11 protection in Maryland, listing debts of more than $1 billion. It was a publicly traded REIT. At last check this once high flying "super jumbo" lender had a servicing portfolio of about $16 billion — all of it jumbos or super jumbos.

The Department of Housing and Urban Development will ask Congress for expanded commitment authority for Ginnie Mae and the Federal Housing Administration single-family program, allowing the government to insure up to $400 billion of new mortgages in fiscal 2010. HUD estimates that FHA will endorse $290 billion of single-family loans in FY 2009, which ends September 30. The government estimates that FHA loan production will continue at a torrid pace until private mortgage markets recover. "For FY 2010, we are asking Congress for the authority to endorse up to $400 billion of loans," HUD secretary Shaun Donovan told the National Association of Realtors at its mid-year legislative conference. The housing secretary stressed that FHA will be able to provide this level of support for the mortgage market without a congressional appropriation and without raising FHA mortgage insurance premiums or changing the premium structure. "FHA will continue to be a source of stable, reasonably priced safe financing in the marketplace." Mr. Donovan said.

Byte Software, Kirkland, Wash., has released the BytePro Loan Modification Edition, designed to help servicers process modifications under the Treasury's Home Affordable Modification Program (HMP). The BytePro Loan Modification Edition allows servicers to process HMP modifications from initial borrower contact through completion of the modification. It automatically calculates the interest rate, term, and balance of the modified loan in accordance with Treasury mandates, and it produces all the documents that must be executed by the borrower and servicer. For loans that do not qualify for the HMP program, the software provides the ability to modify loans according to the lender's own parameters.

Lend America, Melville, N.Y., has launched a new website for institutional investors looking to monetize their distressed residential mortgage portfolios. The company, a Ginnie Mae issuer, has been working to help institutional investors monetize portfolios by using the government's Hope for Homeowners program to handle loans that meet that program's expanding qualifications. The company has been one of the most aggressive in its use of the H4H program and recently said it was one of the first to complete to a "satisfactory" level the Department of Housing and Urban Development's pre-closing review period for direct endorsement of the H4H program. This allows it to underwrite, close and insure H4H deals without prior HUD review. The new website can be found at http://www.refiportfolio.com.