Servicing

Seven out of every 10 mortgages originated this year will be replacing loans already on the books, which means servicing "runoff" could accelerate dramatically, according to the Mortgage Bankers Association.In his forecast to the MBA's Peer Group Roundtable and the Risk Management Association in Chicago, Jay Brinkman, the group's chief economist predicted that refinancings will more than triple in 2009, from a dollar volume of $765 billion last year to $1.925 trillion in 2009. The volume of purchase money mortgages, on the other hand, is expected to decline nearly 6%, from $855 billion in 2008 to $806 billion this year. Mr. Brinkman said "plain old refis" will total $1.5 trillion while ones done under a special Fannie Mae/Freddie Mac effort that include underwater loans will reach $400 billion. The number of purchase money loans will fall only 1%, the MBA economist said. But because of shrinking loan sizes, the dollar volume will be down 5.7%. Overall, the MBA is projecting a banner year for mortgage production, $2.73 trillion.

CitiMortgage has hired former Fannie Mae servicing executive Harold Lewis to head its Homeowner Assistance Program. He will officially join the bank-owned lender next Monday. According to an official at CitiMortgage, Mr. Lewis, while at Fannie, worked with the Obama administration to develop the GSE's new Making Home Affordable program, which is geared toward refinancing troubled as well as healthy borrowers. At Fannie he held the title of senior vice president of national servicing and was responsible for overseeing 1,400 GSE servicers.

The Federal Reserve Board has no particular exit strategy in mind when it comes to leaving the MBS market once it reaches the $1.25 trillion net purchase goal it set for 2009, said former FRB governor Randall Kroszner. Speaking at the Mortgage Bankers Association's National Secondary Market Conference, Mr. Kroszner said the central bank will "do whatever it takes" to keep rates in check until the MBS market returns to some semblance of normalcy. For the most part, the central bank is now the secondary market for mortgage-backed securities issued by Fannie Mae and Freddie Mac, having purchased more than $300 billion worth of the bonds in the first quarter. But the MBA is worried that when the Fed reaches its goal, its exit from the market will cause mortgage rates to shoot upward. Mr. Kroszner, who spent three years at the central bank before returning to the University of Chicago in January, said, "The real challenge is to thread the needle. Whether the Fed will purchase more or less will depend on the facts and circumstances at the time." If the central bank is satisfied by 2010 that the market is coming back, it will reduce it purchases, said Mr. Kroszner, who was a member of the President's Council of Economic Advisors from 2001 to 2003, and "mortgage rates should rise at a normal pace."

In a sign that the bulk market for servicing rights could be heating up, Interactive Mortgage Advisors is auctioning off a $2.1 billion package of receivables for an undisclosed seller.Over the past few months the bulk market has been virtually dead with few of the megabuyers willing to consider an investment except at rock bottom prices. The receivables - which include the rights to 18 delinquent loans - have a weighted average coupon of 4.95%. The loans have been purchased by Freddie Mac, which has been operating under a federal conservatorship since early fall. A majority of the loans are collateralized by homes in Illinois, Massachusetts, Michigan, and Colorado. Final bids are due April 28.

Moves to encourage active and more innovative account management by servicers might bring federal efforts aimed at clearing the problem mortgage asset glut and restoring the nonagency secondary market closer to their goals, according to one Mortgage Bankers Association Secondary Market conference panelist. Clearing problem assets should be a priority and done quickly in order to restore the market, Jeremiah Buckley, partner at BuckleySandler LLP, told this publication. He told attendees at the Chicago meeting while speaking as part of a panel discussion on secondary market impacts of government relief programs, that he believes the mortgage industry may make more progress toward this end by taking a page from the credit card industry, which manages its unsecured borrowers' payments more closely and on a monthly basis. He and fellow panelist Tom Knox, managing director in PriceWaterhouseCoopers structured finance group, told attendees that efforts like TALF and PPIP that recently have taken steps toward helping revive the nonagency secondary mortgage market currently are too preliminary or vague when it comes to how ultimately effective they will be when it comes to reaching this goal.

VantageScore, the credit scoring algorithm developed by the three major credit repositories, has been integrated in Standard & Poor's Rating Services' Levels 6.6 mortgage analytical model. Levels analyzes a loan, or a pool of loans, and assigns a risk grade; it also determines foreclosure frequency, loss severity and credit enhancements required for securitization. A spokesman for VantageScore Solutions, the Stamford, Conn.-based company that holds the intellectual property rights to the algorithm, said that with S&P's approval, mortgage loans that were scored using VantageScore can now be included in pools analyzed by Levels. S&P managing director David Goldstein said VantageScore would provide banks greater flexibility by allowing Levels to be used as a risk management tool to monitor their mortgage loan portfolio. Previously, Fitch Ratings incorporated VantageScore into ResiLogic 2.1, its quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans.

In March the credit performance of securitized subprime and alt-A loans improved for the first time since December 2007, but the bonds are far from being out of the woods, according to a new research report by Five Bridges Advisors. Five Bridges chief Michael Youngblood warns that although there is improvement, March does not "represent a turning point in credit performance" but reflects the ability of some troubled borrowers to refinance their GSE loans or successfully use loan modification programs. Five Bridges also notes that the default rate on securitized prime loans fell to 6.33% in March from 7.07% in February. The alt-A default rate fell to 19.2% from 20.56% and the subprime rate declined to 33.15% from 34.4%. "The declines in payroll employment, increases in household unemployment rates, and declines in existing house prices that have occurred through April 2009 will fuel higher default rates in" most metropolitan areas throughout the year. Mr. Youngblood recently left Friedman Billings Ramsey to form Five Bridges, which is based in Bethesda, Md.

Bank of America is hiring thousands of new employees to keep up with surging residential originations even though its mortgage business posted a $500 million loss for the first quarter due to deteriorating loan performance. The giant bank originated $85.2 billion in single-family loans in the first quarter, up 91% from the previous quarter. Nearly one quarter of the funding involved home purchases, according to BoA chief financial officer Joe Price. The mortgage business is "going full bore as evidence of the fact we have added or intend to add almost 5,000 new positions in addition to transferring another 700 associates from other parts of the bank to fulfill the increased volume," Mr. Price said during a conference call on the bank's earnings report. The bank reported $5.2 billion in total revenues from its home loan and insurance business, up 60% from the fourth quarter. "However, earnings were negative due to a high level of provisions," the CFO said. The first quarter loss provision was $3.4 billion, up $1.7 billion from the previous quarter. Net charge-offs on its $261.6 billion mortgage portfolio increased $319 million to $785 million in the first quarter. "Nonperforming loans increased by $3.8 billion from the fourth quarter and now represents 4.13% of loans," BoA said.

The House Financial Services Committee is holding a hearing April 23 on a regulatory reform bill that would restrict nonprime mortgage lending and lender compensation. Committee chairman Barney Frank, D- Mass., originally wanted the committee to mark up and approve the bill (H.R. 1728) before Congress left April 6 for its two-week break. But the chairman agreed to postpone the markup due to objections by committee Republicans and industry groups. Now it appears the committee markup will be April 28 or April 29. The mortgage reform bill (H.R. 1728) requires lenders to retain 5% of the credit risk when they sell single-family loans that are not prime fixed-rate mortgages to investors. Lenders say the 5% is too high and they are looking for some middle on the risk retention issue. H.R. 1728 also restricts yield spread premiums and mortgage bankers are concerned the language is ambiguous and could restrict servicing release premiums.

GMAC Mortgage said it is hiring new staffers at its nationwide lending and servicing centers.On April 13, the company joined the Home Affordable Modification Program and the hires are needed to accommodate the increase in loan modifications, as well as the recent surge in refinance activity. Even before becoming formally part of the program, the Fort Washington, Pa., based company sent out more than 100,000 financial packages to homeowners who are potentially eligible for modifications under the new program. While the press release issued by GMAC Mortgage did not give a number for the new hires, other published reports say the company is adding 1,000 people. A call to GMAC Mortgage for confirmation was not returned by deadline.