Servicing

United Guaranty Residential Insurance Co., Greensboro, N.C., has had its insurer financial strength rating cut by Fitch Ratings, New York, from "AA-" to "BBB" because the mortgage insurer will remain a part of American International Group and not be spun off with AIU Holdings Inc. "While UGRIC continues to maintain explicit capital support in the form of a net worth maintenance agreement with AIG and a substantial stop-loss treaty with an 'AA-' rated insurance company of AIU, Fitch believes that the announced restructuring reduces the level of support for UGRIC and raises uncertainty as to AIG's strategic intent with respect to the U.S. mortgage insurance operations. Consequently, today's rating action reflects Fitch's assessment of UGRIC on a stand-alone basis, inclusive of current capital support agreements, the ratings agency said. Fitch put UGRIC on "Ratings Watch Evolving" because of what it said was increased uncertainty about the future of the mortgage insurer, whether AIG would maintain it as a going concern or put it into run-off.

It could be a challenge for Colonial Bancgroup — the nation's largest warehouse lender — to satisfy some of the conditions attached to a $300 million investment in the bank by a group led by mortgage banker Taylor Bean & Whitaker of Ocala, Fla., according to Fitch. In an interview with National Mortgage News Fitch analyst Kenneth Ritz said "there's a risk the transaction will not go through." Mr. Ritz cautioned that "there have been some positive movements" surrounding the investment by TBW and its unidentified partners. Fitch noted that a number of approvals must first take place including regulatory hurdles and a conversion to a thrift charter. Also, before TBW will invest, there must be solid guarantees that Colonial will, in fact, receive TARP money from the Treasury. The Alabama-based bank saw a net loss of $168 million for the quarter ended March 31. The bank has not reported a profit in the last four quarters. Fitch recently downgraded Colonial's issuer default rating to B- from BB. A Colonial spokeswoman declined to comment on the transaction. A TBW executive did not return a telephone call about the matter. Under terms of the investment, both parties have the right to back out of the transaction if it has not closed by July 31.

The last chance for bankers to voluntarily modify mortgages may be at hand, according to a report in American Banker. For the past year and a half, the government has pressed for modifications and set incentives for them — but has stopped short of forcing them. Though servicers have pledged to improve their efforts, progress has been slow, and many still refuse to modify loans in ways that lead to lower payments for the borrower. The result is a wave of re-defaults and increasing evidence that public and private efforts to stop the foreclosure crisis have failed. Observers say if changes being pressed by the Obama administration cannot improve the situation, Congress or regulators are likely to take more drastic action, including a renewed push for legislation to allow judges to rework loans in bankruptcy. "If modifications don't pick up, I think mortgage bankruptcy returns with a vengeance," said Jaret Seiberg, a policy analyst with Washington Research Group. "Bankruptcy is the tool that the government can use to modify contract terms without incurring liability. If we enter the fall, and we've helped hundreds of people rather than tens of thousands, there's going to be tremendous pressure to pass full-scale mortgage bankruptcy. So there's a lot riding on the implementation of the mortgage modification plan."

Blaming unrealized mark-to-market losses on derivatives and continuing increases in mortgage insurance defaults, Radian Group Inc., Philadelphia, lost $217.4 million in the first quarter. In the same period last year the MI — the nation's third largest in terms of policies-in-force — earned $196 million. Radian Group chief executive S.A. Ibrahim said in a statement, "We believe that our mortgage insurance franchise remains strong with sufficient capital to continue writing quality new business throughout 2009."

The mortgage markets have responded positively to the Federal Reserve's purchases of GSE debt and mortgage-backed securities, Fed chairman Ben Bernanke said, but mortgage credit is still tight."The decline in mortgage rates has spurred a pickup in refinancing as well as providing support for housing demand. However, the supply of mortgage credit is still relatively tight and mortgage activity remains heavily dependent on the support of government programs and government sponsored enterprises," Mr. Bernanke told the Joint Economic Committee. In his testimony, the Fed chief noted that that the housing market is showing signs of bottoming and sales have been fairly stable for the past few months.

Bank loan officers expect to see continued deterioration in their residential and commercial real estate mortgage portfolios for the rest of this year, according to a periodic survey conducted by the Federal Reserve. The survey of senior loan officers shows that 78% of 50 banks expect delinquencies and charge-offs on prime single-family loans will increase "somewhat" and three are bracing for substantial deterioration. Only 14 banks expect loan quality to stabilize and only two expect some improvement. More than 90% of the banks surveyed see continued deterioration in the performance of CRE loans. Only four banks said loan quality should stabilize or improve. Meanwhile, loan officers reported a "substantial" increase in demand for prime mortgages since the last survey in January. However, demand for CRE loans continue to weaken to the lowest level since 1995 when the Fed first started asking survey questions about CRE lending.

The Federal Deposit Insurance Corp. is preparing for a "test sale" of troubled real estate loans under its new 'Legacy Loan Program' and wants to send the mortgage package to investors by next month."We have received initial positive interest from institutions after contacting them to assist us in this pilot and hope to have the first sales package out to investors in June," the agency said in a statement. FDIC has already solicited public comments on the Legacy Loan Program, which could remove $500 billion in high risk mortgages from the banking system if private investors put up $50 billion in capital to invest in public-private investment funds. The public comments have been "useful," the agency said, and it continues to "craft a "workable framework" to sell pools of residential and commercial real estate loans. The test sale will "help guide and build the foundation for the larger program," FDIC said.

The Senate on Tuesday moved closer to passing a housing bill after defeating two amendments that would weaken legal protections for residential servicers engaged in loan modifications and potentially handcuff the Federal Housing Administration's single-family program.The bill (S-896) includes improvements to the FHA Hope for Homeowners program to refinance underwater mortgages and increases Federal Deposit Insurance Corporation's borrowing authority to deal with rising bank failures. The legislation also tries to increase loan modifications by creating a "safe harbor" that protects servicers from investor lawsuits. Sen. Bob Corker, R-Tenn., said the provision goes too far and gives big banks a license to act in their self interest by modifying loans. His amendment would require servicers to "make sure homeowners and investors are both treated fairly," he said. Sen. Mel Martinez, R-Fla., warned that the Corker amendment would weaken the safe harbor and increase the number of foreclosures. The Cocker amendment failed by a 39-63 vote. The Senate also voted down an amendment by Sen. David Vitter, R-La., that could trigger a cut back in FHA lending if the agency is headed toward insolvency. The Vitter amendment was defeated by a 36-56 vote.

Safeguard Properties, a privately held mortgage field services company, has moved to its new Valley View, Ohio, headquarters, doubling the company's office space and staffing capacity. The new facility, with approximately 63,000 square feet of finished space for the company's current 700 employees has expansion capacity to 75,000 square feet. Safeguard added 200 employees in 2008 and plans to add 125 more in 200. Safeguard's investment to purchase, expand and build out the new facility was approximately $6 million, plus approximately $2 million invested in additional IT infrastructure.

The Treasury Department and HUD are providing up to $5 billion in cash assistance and grants to state finance agencies to finance the construction and renovation of 150,000 low-income housing units. Congress allocated the funds in the economy stimulus bill to jumpstart housing projects that where shelved or abandoned after the market for low-income housing tax credits dried up. The Department of Housing and Urban Development is providing grants through the Tax Credit Assistance program to complete the construction of 35,000 low-income housing units. Treasury is providing the cash or equity for affordable housing projects that developers previously raised through the sale of LIHTCs to investors. HUD also is soliciting applications from state/local governments and nonprofit housing groups for $2 billion in funds to acquire and rehabilitate foreclose properties. HUD wants to see collaborations between government units and nonprofits to help stabilize neighborhoods and prevent blight.