Servicing

Somewhere out there, five borrowers are paying an interest rate of 17% or better. And 20,000 are paying 10% or more.These, along with some 600,000 who are still paying at least 8.5%, are all soldiers, sailors and aviators whose mortgages are backed by the Veterans Administration, Mark Bologna, the DVA's new director of the VA Loan Guaranty program, told the MBA government policy and loan production conference. He said it's understandable why the five vets haven't turned in their 17% loans for new ones at lower rates; after all, their average balance is just $8,800. But Mr. Bologna told the meeting that he's hard pressed to figure out why the others haven't already jumped at the opportunity to take advantage of some of the lowest loan rates on record. He said one of his first priorities will be to reach out to borrowers who might want to refinance. He also reported that through the first six months of fiscal 2009, the VA has put its stamp on 150,000 mortgages for America's veterans. In all of fiscal '08, the agency guaranteed 150,000 loans.

The Government National Mortgage Association is expanding its reach internationally, according to its president. Joseph Murin.In what he called a "telling statistic" for his "no frills organization," Mr. Murin told the MBA government lending conference that 48% of Ginnie Mae's issuances currently are being gobbled up by foreign investors compared to 32% a year ago. "The international community loves our bonds," he said.

Treasury officials are revising the President's loan modification plan to deal with second mortgages and give servicers the option of paying off second lien holders.Treasury would use TARP funds to fund the partial payoffs that would be based on a formula originally designed for the FHA 'Hope for Homeowners' program. In exchange for a lump sum payment, the second lien would be extinguished. Second lien holders can make it very difficult to modify a first mortgage even when the first mortgage is underwater and there is no equity under the second lien.

Sen. Richard Durbin, D-Ill., said he will offer a bankruptcy cramdown amendment to a housing bill later this week, although he does not have the votes to pass the proposal which would allow judges to reduce the principal amount of delinquent mortgages that cannot be modified. "It's time for Congress to act and I hope we can muster the courage and find the votes, although I know it is going to be hard to image that today the mortgage bankers would have the clout in this Chamber, but they do," Sen. Durbin said. The assistant majority leader said he is disappointed that the American Bankers Association, Mortgage Bankers Association and Financial Services Roundtable refused to work with him on a cramdown compromise. "I have worked with them on so many issues. I have never found them more unyielding and unreasonable than on this issue," Sen. Durbin said in addressing the Senate. Under Durbin's cramdown amendment, at-risk homeowners could not file for a bankruptcy cramdown if they qualify for relief under the President's loan modification program or the FHA Hope for Homeowners initiative.

Kondaur Capital of Orange County, Calif., recently bought two large non-performing loan portfolios — one of them from Citigroup, according to investment banking sources.Moreover, Kondaur is beefing up its staff and reportedly has hired 300 or so new employees in the Orange County area over the past month. At press time officials from both Kondaur and Citi could not be reached for comment about the NPL portfolio. One investment banker said the NPL portfolio bought from Citi had 1,800 loans in it. The other had about 1,100 mortgages. No other details were available.

Analysts at FBR Capital Markets have cut their earnings per share estimates at Flagstar Bancorp, Troy, Mich., citing higher credit costs for the company that will pressure capital levels. Flagstar had a net loss to common stockholders for the first quarter of $67.4 million ($0.76 per share). But the company was able to successful raise new capital, including $566 million from private investors and the TARP program. Plus Flagstar expects to add $50 million of private capital during the quarter. FBR said the new capital is a positive for the company but would result in significant dilution to existing common shareholders. On the bad news side, the analysts said, is Flagstar's exposure to weak markets, namely California, Florida, Michigan and Atlanta, which have yet to show signs of stabilization. As a result, FBR expects credit losses to remain elevated. Like a number of banks, Flagstar benefited from a strong performance in the residential mortgage area. But the FBR report said, "Although Flagstar's mortgage banking revenues were strong this quarter, we expect the revenues to taper to more normalized levels in the coming quarters as spreads narrow."

U.S. home prices may fall further than previously expected, by another 12.5% to 2002 levels, before showing more stability in late 2010, according to Fitch Ratings. "Currently, prices are hovering around levels seen in mid 2003," Fitch said. The rating agency said it previously had expected a 10% further decline. Huxley Somerville, group managing director and U.S. residential mortgage-backed securities group head at Fitch, said reasons for the revised forecast include "very weak employment, limited refinancing opportunities and turbulent financial markets have extended into the first months of 2009." He added that "government initiated programs have yet to yield any positive benefits."

Bank of America is rolling out new tools and products aimed at providing transparency and responsible lending to consumers, among them a flat closing fee loan that has no application fee, and a one-page loan summary for customers taking out retail purchase and refinance loans. The latter, the Clarity Commitment, spells out the key aspects of loan terms — the monthly payment, the date it's due, the rate, what the rate and monthly payment could reset to, if it is an adjustable rate mortgage and the closing cost. BoA also said it was introducing a new interactive Home Loan Guide website as part of the rollout, done as part of its Bank of America Home Loans rebranding for mortgage operations that now include its home equity business and the former Countrywide Home Loans. Bank of America said it extended more than $85 billion in mortgage credit in the first quarter of 2009, helping more than 382,000 customers purchase a home or save money on the one they already own. Seventy-five percent of first quarter originations were for refinance. BofA is bringing two companies together when interest rates are at an all-time low and the economy is in a recession. The company has added 3,000 positions and is in the process of adding 1,000 more to its fulfillment to keep pace with the demand on the refi and purchase side.

Senate Democratic leaders want to force a vote on the bankruptcy cramdown issue this week even though they have not reached agreement on the cramdown provisions and it appears they don't have the votes to pass it. The 41 Republican senators are united in opposition to cramdowns and observers expect at least six Democrats will vote against legislation that would allow bankruptcy judges to reduce or cramdown the principal amount of a residential mortgage to the fair market value. Nevertheless, Sen. Richard Durbin, D-Ill., is continuing to work with Wells Fargo, J.P Morgan Chase and Bank of America on compromise cramdown legislation. If an agreement is reached, the cramdown language could be attached a House-passed bill that strengthens the Federal Deposit Insurance Corp. and enhances the Federal Housing Administration loan modification programs. If Sen. Durbin losses that fight, cramdown opponents are concerned Sen. Durbin may try to attach his cramdown provisions to the credit card reform bill that the House is expected to pass later this week.

Freddie Mac's issuance of mortgage-backed securities totaled $57.7 billion in March — nearly double its activity in February as a result of the surge in refinancings. The mortgage giant purchased $52 billion in refinanced mortgages in March, its largest refinance purchase month since 2003. The company also said it added $45.1 billion in mortgage assets to its investment portfolio, including $19.1 billion of its own MBS. And the mortgage investment portfolio grew to $867.1 billion as of March 31. Meanwhile, delinquencies continue to creep up. In March, the percentage of Freddie single-family loans that are 90 days or more past due or in foreclosure rose to 2.29%, up 16 basis points from the previous month, and up from 0.77% in March of 2008.