Servicing

Financial services executives would like to think the cramdown issue is dead for this year, but it could crop up again - sooner than expected. On Thursday, the Senate killing a cramdown amendment offered by Sen. Richard Durbin, D-Ill. was widely anticipated. (The amendment would have allowed bankruptcy judges to reduce the principal amount of mortgage on a primary residence.) But House leaders want to keep the issue alive and they may attach a cramdown amendment to a conference report on an FDIC/housing bill. The House has already passed the bill that includes improvements to the Federal Housing Administration's 'Hope for Homeowners' program, legal protections for servicers, and more borrowing authority for the Federal Deposit Insurance Corp. The Senate is expected to pass a similar bill in a few days now that the Senate has voted down the Durbin cramdown amendment. On the eve of that vote, Rep. Debbie Wasserman Schultz, D- Fla., told a Mortgage Bankers Association meeting that House leaders plan to attach a cramdown provision to an FDIC/housing bill in conference with the Senate. "We look forward to working with you on a revised bill once the legislation returns to the House side," Rep. Shultz said. Voluntary modifications are not working and "doing nothing is simply not an option," she added. The congresswoman chairs an appropriations subcommittee. The next day, the Senate voted down the Durbin amendment by a 45-51 vote. "Given the resounding vote in the Senate, the conference report probably will not include cramdown," said Scott Talbott, chief lobbyist for the Financial Services Roundtable. "Cramdown appears to be dead for this year," he said.

The American Bankers Association secondary market program has helped its members sell more than $100 billion in single-family mortgages to preferred investors such as Fannie Mae and CitiMortgage. The trade group's 8-year-old 'Mortgage Solutions' program has "passed a milestone when total deliveries of mortgages surpassed the $100 billion mark," ABA said. In 2008, ABA members sold $9.7 billion in mortgages to their secondary market partners, which also include Freddie Mac, Farmer Mac, and Bank of America Home Loans. Participating banks accrued aggregate savings of $11.6 million last year, ABA said.

Thornburg Mortgage of Santa Fe, N.M., filed for bankruptcy protection late last week, listing debts of more than $1 billion. The filing had been anticipated. The company's fate is now in the hands of its bondholders who are expected to liquidate its assets which include on-balance sheet jumbo mortgages and bonds of at least $17 billion. Its lenders include Credit Suisse, JPMorgan Chase, Greenwich Capital, and Royal Bank of Scotland. Up until last year Thornburg was a publicly traded REIT. Its shares now trade on the "pink sheets" for about one penny. It stopped funding loans last year but continued to service jumbo and super jumbo assets held on its balance sheet.

The percentage of CMBS loans delinquent by 30 or more days in April skyrocketed to roughly five times its level a year ago, according to Trepp LLC. Thirty-plus day CMBS delinquencies have not ever seen a year-to-year spike like this in the history of the CMBS market, Trepp senior managing director Manus Clancy told MortgageWire. He added that CMBS delinquencies have been accelerating month-by-month since January. Delinquencies during the past two months have been at highs not seen since February 2004 and April's month-to-month jump in delinquencies was the largest seen since November 2001. When asked whether CMBS delinquencies may continue to ramp up, Mr. Clancy said he could not provide a forecast. However, he noted that, "It's a bad sign the fact that they're accelerating. In other parts of the economy people are looking for floors, but this seems to be accelerating." Despite the high delinquency rates, spreads on AAA CMBS eligible for the government's TALF program under new terms added Friday have been tightening, Mr. Clancy said.

Loans with five-year maturities will be available for June funding through the government's Term Asset-Backed Securities Loan Facility to finance purchases of AAA-rated commercial mortgage-backed securities. Previous to this expansion of the program, TALF had only allowed maturities of three years. The Federal Reserve had said in February it could broaden eligible collateral for TALF to encompass other types of newly issued AAA-rated asset-backed securities such as commercial mortgage-backed securities and private-label residential MBS.

Financial services executives would like to think the cramdown issue is dead for this year, but it could crop up again — sooner than expected. On Thursday, the Senate killing a cramdown amendment offered by Sen. Richard Durbin, D-Ill. was widely anticipated. (The amendment would have allowed bankruptcy judges to reduce the principal amount of mortgage on a primary residence.) But House leaders want to keep the issue alive and they may attach a cramdown amendment to a conference report on an FDIC/housing bill. The House has already passed the bill that includes improvements to the Federal Housing Administration's 'Hope for Homeowners' program, legal protections for servicers, and more borrowing authority for the Federal Deposit Insurance Corp. The Senate is expected to pass a similar bill in a few days now that the Senate has voted down the Durbin cramdown amendment. On the eve of that vote, Rep. Debbie Wasserman Schultz, D- Fla., told a Mortgage Bankers Association that House leaders plan to attach a cramdown provision to an FDIC/housing bill in conference with the Senate. "We look forward to working with you on a revised bill once the legislation returns to the House side," Rep. Shultz said. Voluntary modifications are not working and "doing nothing is simply not an option," she added. The congresswoman chairs an appropriations subcommittee. The next day, the Senate voted down the Durbin amendment by a 45-51 vote. "Given the resounding vote in the Senate, the conference report probably will not include cramdown," said Scott Talbott, chief lobbyist for the Financial Services Roundtable. "Cramdown appears to be dead for this year," he said.

The percentage of CMBS loans delinquent by 30 or more days in April skyrocketed to roughly five times its level a year ago, according to Trepp LLC.Thirty-plus day CMBS delinquencies have not ever seen a year-to-year spike like this in the history of the CMBS market, Trepp senior managing director Manus Clancy told MortgageWire. He added that CMBS delinquencies have been accelerating month-by-month since January. Delinquencies during the past two months have been at highs not seen since February 2004 and April's month-to-month jump in delinquencies was the largest seen since November 2001. When asked whether CMBS delinquencies may continue to ramp up, Mr. Clancy said he could not provide a forecast. However, he noted that, "It's a bad sign the fact that they're accelerating. In other parts of the economy people are looking for floors, but this seems to be accelerating." Despite the high delinquency rates, spreads on AAA CMBS eligible for the government's TALF program under new terms added Friday have been tightening, Mr. Clancy said.

PHH Corp. recorded a $71 million write-down on its mortgage servicing assets for the first quarter, which crimped profits.The Mt. Laurel, N.J., mortgage company reported a decline in net income at the company to $2 million ($0.04 per share) from $30 million ($0.55 per share) for the first quarter of 2008. By segment, mortgage servicing had a loss of $118 million, canceling out the $113 million profit of the mortgage production segment. PHH originated $8.9 billion in the first quarter 2009, down from $10 billion in the same period one year prior. Terry Edwards, president and chief executive, said the mortgage production segment "had its strongest quarter since the spin-off, as we experienced increased refinance volumes" adding that PHH expects this to continue through the summer months. Only 29% of PHH's first quarter 2009 volume was from home purchases. But refinancings drove PHH to the servicing asset write-down as well as forcing it to take a $92 million reduction in the value of its MSRs. The company does not hedge its MSRs.

The deteriorating performance of commercial mortgage-backed securities has resulted in a "dramatic jump" in the transfer of commercial real estate loans to special servicers during the first quarter, according to a Fitch Ratings report.The Fitch CMBS report: "What's in Special Servicing?" shows the dollar balance of specially serviced CMBS loans rose to $23.7 billion in the first quarter, up 48% from the previous quarter. Many of the "loans of concern" are jumbo vintage loans originated in 2006-2007 and Fitch said 20 of the largest specially serviced loans have balances ranging from $360 million to $73.5 million. "Later vintage CMBS transactions are backed by loans originated at the height of the market and are thus susceptible to significant income and value declines," said managing director, Mary MacNeill. Fitch said actual delinquencies remained relatively low at 1.53%. But the number of loans transferred to special servicing "due to imminent default" is growing.

Kondaur Capital Corp. of Irvine — an investor in non-performing mortgages — expects its work force to triple to 900 workers by year-end.In an interview with National Mortgage News, company chairman and CEO Jon Daurio described Kondaur's business of buying and selling troubled loans "as very good right now. We're definitely in a growth mode." Indeed, rumors abound that Kondaur is quite active in the market but Mr. Daurio declined to comment on specific deals except to say that his company currently holds about 2,500 loans on its books. (For the full story see the Monday edition of NMN.