Servicing

A few months after announcing its exit from warehouse lending, JPMorgan Chase has decided to stay in the business after all, National Mortgage News has learned. However, the mega bank only plans to provide lines of credit to just a handful of non-bank customers that tend to sell loans to it on a correspondent basis. A warehouse borrower familiar with the about-face said "they are moving the warehouse group to their commercial banking division." (A JPM spokesman confirmed this.) For full details see the Monday print edition of NMN.

April was the strongest month in more than a year for home sales under $1 million in the Las Vegas-Henderson area, and the region's REO market also appears to be improving even though prices in that range have continued to fall. "The month registered gains in almost every category except price," said Rob Jenson, who works for Jenson Group, a company that specializes in Vegas's high-end market. The monthly supply of unsold houses fell, the overall number of listings declined and, perhaps most importantly, the number of real estate owned listings also slipped. In houses priced under $1 million, moreover, sales were up 7.8%. But the average price in the below-$1 million sector fell by 3.4% to $161,729. It was the ninth monthly price decline in a row, but the 3,063 sales were the most recorded in a year in the beleaguered market. Mr. Jenson also said that above $1 million, listings were up, sales were down " only 12 units priced above the million dollar benchmark sold in April, an 8% decline " but the average price rose 2% to $1.53 million.

The Depository Trust & Clearing Corp. is recommending daily trade netting for to be announced mortgage-backed securities transactions. The DTCC said the move would cut what have been high costs in processing the trades and increase risk protection for the market. "The idea is to streamline the somewhat complex current `balance order' netting process," said Murray Pozmanter, DTCC's managing director, clearance and settlement/fixed income. "The industry's process today requires trading firms to allocate pools of mortgages against the TBA obligations we establish, and then to settle all those pools with multiple counterparties at different prices." He said the DTCC is recommending this be changed to a process where trades would be netted daily and the DTCC's Fixed Income Clearing Corp. subsidiary would "step in as the allocation and settlement counterparty." Currently, MBS trades are netted only once a month, beginning 72 hours prior to the monthly settlement date established for each kind of TMBA security. Because this forces trading firms to meet a netting cut-off on the "72 hour day," the number of trades incorporated in the current netting process can be limited, according to a DTCC report.

Servicing portfolio growth and cost cutting has resulted in Ocwen Financial Corp.'s first-quarter profit tripling from a year earlier, to $15.1 million. The West Palm Beach, Fla., company made $0.24 per share, $0.07 more than the average estimate from analysts. Its shares jumped almost 9% in midday trading on May 7. From the third quarter of 2007 until this past quarter, Ocwen's portfolio of loans serviced had been shrinking, due to prepayments. But in February, Freddie Mac hired Ocwen to service 5,000 low-documentation loans that were at least 60 days delinquent. That contract, combined with a purchase of servicing rights during the first quarter, caused Ocwen's portfolio to grow 1.5% from the end of last year, to $40.8 billion on March 31. Operating expenses dropped 18% from a year earlier, to $72 million. Despite the cost cuts, "we kept more people in their homes and returned more loans to performing status than in any prior quarter in our history," William Erbey, Ocwen's chairman and chief executive, said in a press release. The company said it has been automating processes. The company said it modified 20,651 loans during the period, "despite a slowdown in late March as additional details and specific guidance related to the [Obama administration's] Home Affordable Modification Plan emerged." Ocwen's planned spinoff of its technology unit is expected to be completed in the third quarter.

Bond insurer Assured Guaranty Ltd., Hamilton, Bermuda, is facing uncertainty about mortgage and other structured finance exposures that it said it believes were too pessimistically assessed in recent downgrades. "These assumptions are subject to considerable uncertainty that will dissipate within the next several months as the economy begins to benefit from the federal government's economic stimulus plans and mortgage assistance programs," Assured said, in response to Fitch's downgrades of its debt and insurer financial strength ratings. But the company acknowledged that the ultimate performance of its U.S. residential mortgage-backed securities is "uncertain."

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.