Servicing

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

President Barack Obama has signed two housing bills that will provide relief for troubled homeowners that need to refinance, and will crack down on mortgage fraud. The Helping Families Save Their Homes Act addresses the "administrative and technical hurdles" that make it difficult for families with underwater mortgages to use the Hope for Homeowners program and refinance into Federal Housing Administration loans, according to the President. "This bill removes those hurdles, getting folks into sustainable and affordable mortgages, and more importantly, keeping them in their homes," he said at a White House signing ceremony. The bill (S. 896) also shields mortgage servicers that modify loans from investor lawsuits. The President also praised the mortgage fraud bill (S. 386), which doubles the resources of the FBI to pursue mortgage fraud and other financial crimes. He noted the bill expands the federal bank fraud and false claims statutes to cover independent mortgage companies and mortgage brokers. "It expands the Department of Justice's authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes - institutions where more than half of all subprime mortgages came from as recently as four years ago," Pres. Obama said.

The Treasury Department is prepared to lend roughly $7 billion to GMAC Financial Services, the parent company of the nation's sixth largest residential servicer, according to published reports. At press time both Treasury and GMAC officials were not commenting on the matter. Wire reports say such a loan would be a step toward making GMAC a quasi-federal company. GMAC has already received $5 billion in TARP funds and needs to raise an additional $11.5 billion in equity within six months. GMAC is a bank holding company. It recently changed the name of its depository to Ally Bank from GMAC Bank. Ally makes warehouse lines of credit to non-depository mortgage firms. Over the past year GMAC has closed the retail branch arm of its Residential Capital Corp. affiliate and exited the wholesale channel. Over the past year ResCap's owned servicing portfolio has fallen by 20% to $365 billion in housing receivables, according to the Quarterly Data Report. The government now owns 5 million shares of GMAC and recently told the lender that it must extend financing to bankrupt Chrysler Corp.

Fannie Mae plans to put in place a new head of its single-family mortgage business on June 1 ahead of a retirement set to take place at the end of the month. The government-sponsored enterprise said Karen Pallotta, Fannie's senior vice president, product acquisition strategy and support, is slated to take the post at that time. Thomas A. Lund, executive vice president, single-family mortgage business, plans to retire from the company on June 30.

The Senate has approved a housing bill that revamps the FHA Hope for Homeowners program and strengthens federal deposit insurance, clearing the measure for the President's signature. As MortgageWire went to press, President Obama was scheduled to sign the housing/FDIC bill at a White House ceremony along with a separate bill (S. 386) that clamps down on mortgage fraud and other financial crimes. The House passed the bill (S. 896) Tuesday afternoon and the Senate followed very quickly to approve the measure, which does not include a controversial bankruptcy cramdown provision. Senate leaders stressed during discussions to reconcile the House and Senate versions of the bill that they can't get a cramdown provision through the Senate. The new Department of Housing and Urban Development secretary has been waiting for Congress to act so the Federal Housing Administration can make the H4H program a viable option for underwater homeowners to refinance into a FHA loan. However, HUD secretary Shaun Donovan has warned that the H4H program is dependent on the willingness of investors to write down the principal amount of the mortgages. "I do believe, frankly — given the drop in values, given what we have seen terms in foreclosures — we are starting to see some willingness of the investors" to take writedowns, he said recently. The housing bill also gives HUD new powers to police the FHA mortgage insurance program and penalize and debar lenders. It shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. "S 896 will increase the FDIC's borrowing authority to $100 billion, enabling the agency to reduce the proposed special premium assessment on all banks," said Floyd Stoner, the American Bankers Association's chief lobbyist.

Franklin Credit Holdings, which made a name for itself as an investor in troubled mortgages, has restructured and is operating mostly as a subservicer. But the firm's servicing rights are now housed on the balance sheet of Huntington Bancshares, Columbus, Ohio, which still has financial ties to Franklin. In the first quarter, the bank restructured its relationship with Franklin, buying certain assets from the nonbank. (Huntington is a large receipient of government money through the Troubled Asset Relief Program.) "We used to put troubled loans on our balance sheet but now we're just a provider of services," said Franklin CEO Gordon Jardin. Mr. Jardin noted that Franklin has a "financial commitment" to Huntington, which used to bank Franklin. Currently, the Jersey City-based Franklin has $2 billion of subservicing contracts, most of which are tied to Huntington. "We're the subservicer for them," said Mr. Jardin. "We're going to try and grow our subservicing business," he added, saying the firm will focus on "scratch and dent" loans, subprime, and alt-A. FCH's shares are still publicly traded but in the OTC "pink sheets" market.

The Federal Reserve on Wednesday cleared the way for "legacy" commercial mortgage-backed securities to be included as collateral under the government's Term Asset-Backed Securities Loan Facility (TALF) program, come July 1. The Fed issued a statement noting that the move to include CMBS as "eligible TALF collateral ... is intended to promote price discovery and liquidity for legacy CMBS." According to the central bank, the CMBS market finances 20% of outstanding commercial mortgages. It said the market came to a standstill in mid-2008. The TALF program allows investors to use government money to buy certain asset-backed bonds. (To date, the effort has focused mostly on credit cards.) In regard to CMBS, the Fed said that only "senior" (in payment priority) CMBS are eligible for TALF. The Federal Reserve Bank of New York said it "will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk."

Redwood Real Estate Partners Inc., Rancho Santa Margarita, Calif., is launching a new investment fund focused on distressed residential real estate. The company plans to acquire $500 million in distressed residential RE in conjunction with the launch of the Occasio Distressed Residential Fund. The fund will be lead by John Duden, one of the founding partners of Fasthold Capital, a company that has specialized in the acquisition, restructuring, and liquidation of residential whole loans and real-estate owned portfolios.

Extremely high redefaults are forcing Fannie Mae to scale back its HomeSaver Advance program, which uses small personal loans to enable delinquent homeowners to catch up on their mortgage payments. A Federal Housing Finance Agency report shows 70% of borrowers redefaulted on their first mortgages in the first 3,300 advance transactions Fannie servicers completed in early 2008. "Fannie Mae is deemphasizing HomeSaver Advance and focusing attention on the Making Home Affordable modification program," an FHFA spokesperson said. Fannie Mae launched the advance program in February 2008 as a loss mitigation tool aimed at allowing the government-sponsored enterprise to avoid the cost of purchasing nonperforming mortgages out of securitized pools. The advances of up to $15,000 are supposed to help homeowners that have landed a new job or resolved other problems that got them into financial trouble so they can resume regular payments again. However, the FHFA report to Congress said the redefault rate "calls into question the program's assumption that borrowers have the capacity to make payments going forward." Fannie made 71,000 HomeSaver Advances in 2008 and another 20,400 advances in the first quarter with an average balance of $7,100. Fannie's first quarter financial report shows the mortgage giant had $516 million in HomeSaver Advances on its books as of March 31 after taking a $115 million charge-off. The quarterly report also notes the program's high redefault rate and says that the company is placing more emphasis on loan modifications.

The Senate has approved a housing bill that revamps the FHA Hope for Homeowners program and strengthens federal deposit insurance, clearing the measure for the President's signature. The House passed the bill (S. 896) Tuesday afternoon and the Senate followed very quickly to approve the measure, which does not include a controversial bankruptcy cramdown provision. Senate leaders stressed during discussions to reconcile the House and Senate versions of the bill that they can't get a cramdown provision through the Senate. The new Department of Housing and Urban Development secretary has been waiting for Congress to act so the Federal Housing Administration can make the H4H program a viable option for underwater homeowners to refinance into a FHA loans. However, HUD secretary Shaun Donovan has warned that the H4H program is dependent on the willingness of investors to write down the principal amount of the mortgages. "I do believe, frankly — given the drop in values, given what we have seen terms in foreclosures — we are starting to see some willingness of the investors" to take writedowns, he said recently. The housing bill also gives HUD new powers to police the FHA mortgage insurance program and penalize and debar lenders. It shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. "S 896 will increase the FDIC's borrowing authority to $100 billion, enabling the agency to reduce the proposed special premium assessment on all banks," said Floyd Stoner, the American Bankers Association's chief lobbyist.