Servicing

To jumpstart the Hope for Homeowners program, the Treasury Department will pay servicers hefty bonuses to use the FHA refinancing program and purchase Ginnie Mae securities backed by H4H loans. "These purchases will increase secondary market liquidity for new Hope for Homeowners loans, supporting additional assistance to homeowners," Treasury says in an update to the Obama administration's loan modification program. Participating servicers are expected to evaluate homeowners that are going through a trial loan modification to see if they can qualify for a principal writedown under the Federal Housing Administration H4H program. If the investor agrees to a writedown, the servicer would receive a $2,500 up-front incentive payment for a successful H4H refinancing, instead of the $1,000 that is paid for a standard loan modification. In addition, "lenders who originate the new H4H loan are eligible for success fees of up to $1,000 per year for up to three years, so long as the refinanced loan remains current," Treasury says.

The Treasury Department has revised the President's loan modification plan to require participating servicers to consider the FHA Hope for Homeowners program as an option and write down the principal amount of the mortgage. "For borrowers where Hope for Homeowners works, it can be a better option for them," because it allows underwater borrowers to re-establish equity in their homes, HUD secretary Shaun Donovan said. If the investor is willing to do a writedown, "that will be first alternative to a modification," the Department of Housing and Urban Development secretary told reporters. The HUD secretary admitted the FHA H4H program is flawed and it has only refinanced 50 homeowners. However, the Obama administration is urging Congress to pass a housing bill (H.R. 1106) to revamp the H4H program and make it a more effective part of the administration's loan modification program. The new HUD secretary also said 11 of the largest servicers have signed up to participate in the President's loan modification program and they are beginning to modify mortgages in private-label securities. "Servicers are moving forward with modifying PLS loans." He also noted that an increasing number of investors are willing to do principal write downs under the FHA program.

RealtyTrac, an online marketplace for foreclosure properties, and Enormo, a global real estate portal, are forming a strategic alliance that will give Enormo's international user base of potential homebuyers and investors access to RealtyTrac's database of U.S. foreclosures. RealtyTrac's foreclosure listings are integrated into Enormo's search functionality, allowing users to browse more than 1 million foreclosure properties from 2,200 U.S. counties.

Data through February 2009 show continued broad-based declines in the prices of existing single family homes across the U.S. with 10 of the 20 metro areas showing record rates of annual decline, and 15 reporting declines in excess of 10% versus February 2008, according to Standard & Poor's Case-Shiller Home Price Indices. The three worst performing cities continue to be in the Sunbelt, each reporting negative returns in excess of 30%. Phoenix was down 35.2%, Las Vegas declined 31.7% and San Francisco fell 31%. Dallas, Denver and Boston faired the best in terms of annual declines down 4.5%, 5.7% and 7.2%. Dallas also had the distinction of being the best performer for the month, returning -0.3%. "We witnessed some deceleration in the rate of decline in some of the markets," says David M. Blitzer, chairman of the index committee. "All 20 metro areas recorded a decline in February, but 16 of the 20 metro areas saw an improvement in their monthly returns compared to January. We will certainly need a few more months of data before we can determine if home prices are finally turning around." Nine of the 20 metro areas showed improvement in their annual returns compared to their returns in January. In February, Cleveland was the only metro area having a record monthly decline, returning -5%. Cleveland, Charlotte, New York and Washington were the only MSAs showing larger declines in home prices in February compared to January's report.

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."