Servicing

Consumers that are trying to modify their mortgages are carrying, on average, about $19,000 in additional unsecured debt, and this poses a major obstacle to rewriting such loans, according to the Consumer Credit Counseling Service. Speaking at SourceMedia's Mortgage Servicing Conference in Dallas, CCCS president Suzanne Boas said, "Now, consumers are paying their credit cards before other bills." She noted that consumers are essentially using credit cards for such daily living expenses as food and gas. Tom Deutsch of the American Securitization Forum noted that whatever a servicer does in regard to loan mods "it's critical" that any second liens on the title should not be wiped out. North Carolina's deputy banking commissioner Mark Pearce reminded the audience that 70% of seriously delinquent homeowners are not involved in any type of loss mitigation process at all.

The size of Freddie Mac's real estate-owned inventory is being driven by various foreclosure moratoriums which have led to a 32% vacancy rate, said Ingrid Beckles, senior vice president of default asset management. Speaking at the SourceMedia Mortgage Servicing Conference in Dallas, she said Freddie Mac saw 52,000 in real estate-owned inflow in 2008 with 5,400 properties going through disposition last month. Ms. Beckles stressed how imperative it is for servicers to get to borrowers earlier and restructure loans by using operational efficiencies and proper risk management, parallel to what happens in the origination process. "It's a new concept. Think of it more as offerings and fulfillment. We have to collect documents and get the loan package approved." Its loan modifications over the past five years have seen a 22% redefault rate. Ms. Beckles encouraged servicers to know what loans are sitting in their portfolios and to use targeted risk-based dialing to connect with borrowers. Use automated tracking and case management as well as some type of scoring mechanism to get to these folks earlier, she said. "Foreclosure prevention is moving forward to help add some stability to this tumultuous market."

Federal and state authorities announced a new joint effort to stop scam artists who target troubled owners struggling to hold onto their homes. "If you prey on vulnerable homeowners," U.S. attorney general Eric Holder said at a press conference, "we will find you and we will punish you." As part of the initiative, the Treasury Department's Financial Crimes Enforcement Network has issued an advisory to help financial institutions spot questionable loan modification schemes and report that information to the authorities. FinCEN, working with other law enforcement agencies and regulators, will identify possible suspects for civil and criminal investigations. "We will shut down fraudulent companies more quickly than before," said Treasury secretary Timothy Geithner, vowing to target "companies that otherwise would have gone unnoticed under the radar." Calling perpetrators of fraudulent rescue schemes "bottom feeders," Federal Trade Commission chairman Jon Leibowitz said five new cases have been brought against companies who "kick people when they are down, sabotaging" their efforts to save their homes. Four of the cases name outfits which use "copy-cat names and logos" to try to trick homeowners into thinking they are working with legitimate government agencies, while the fifth calls itself the "Federal Loan Modification Center" even though it has no federal connection. The FTC also has sent warning letters to 71 additional possible scam artists who promise to stop foreclosures, save people's houses and claim a 97% success rate of doing so. Such companies "will promise" to do these things "but they don't," said Illinois attorney general Lisa Madigan. "All they do is take your money."

Triad Guarantee recently received a corrective order from the Illinois director of insurance, which would impact its insurance subsidiaries, Triad Guaranty Insurance Corporation and Triad Guaranty Assurance Corporation.Under the order, effective June 1, all valid claims under Triad's mortgage guaranty insurance policies will be paid 60% in cash and 40% by the creation of a deferred payment obligation. "Continuing volatility in the housing and mortgage markets, a high incidence of fraud and noncompliance with underwriting programs in the loan origination process make it very difficult to forecast Triad's future financial position and claims," said Triad CEO Ken Jones. The company said "there is more uncertainty today than when we entered run-off in July 2008." The MI, the nation's smallest, is in the process of self-liquidation. Its shares trade for just 29 cents each.

Nearly one third of Federal Housing Administration foreclosures completed in 2008 involved FHA loans with seller-funded downpayment assistance, HUD secretary Shaun Donovan told senators. FHA loans where the downpayment assistance was arranged by non-profit housing groups represented only 12% of all FHA loans at the start of 2008. "Much or our recent loss activities have been attributed to the growth of seller-funded downpayment assistance," the Department of Housing and Urban Development secretary testified. Congress banned such down payment assistance on FHA loans. That ban went into effect October 1, 2008. "The termination of this program should substantially reduce FHA losses in new originations in the years ahead," Mr. Donovan testified.

Federal Housing Administration is experiencing elevated defaults and foreclosures, but FHA loans continue to outperform subprime loans, according to HUD secretary Shaun Donovan. "Although this is a challenging time for all entities in the mortgage market, FHA is unlikely to face the catastrophic losses borne in the subprime sector," the Department of Housing and Urban Development secretary told a Senate appropriations subcommittee. He noted that only 7% of FHA loans are seriously delinquent or in foreclosure, compared to 23% for subprime loans. In addition, FHA is not overexposed in high-cost markets like California because of its loan limits. The Office of Management and Budget is expected to release its fiscal year 2010 budget in a few weeks. It will include re-estimates of FHA's performance and financial strengths. It is unclear if this re-estimate will lead to losses that Congress will have to cover or force FHA to charge higher mortgage insurance premiums. "We should, within a few weeks, be able to present to you our estimates of whether it will be self financing," Mr. Donovan told a Senate appropriations subcommittee. FHA single-family insurance program has always operated without congressional appropriations.

California's real estate professionals are putting their money where their collective mouths are. The California Association of Realtors is dedicating $1 million to back a mortgage protection plan for first-time buyers. Under the group's Housing Affordability Fund, should buyers who haven't owned a home within the last three years lose their jobs, they will receive up to $1,500 a month to cover their house payments for six months. A qualified co-buyer also can participate in the program, and receive an additional monthly benefit of $750 per month for up to six months. The plan is for W-2 employees only, self-employed persons need not apply. "The Mortgage Protection Program was developed to help ease the anxiety of consumers who are concerned about potential job loss," said CAR President James Liptak, who estimated that as many as 3,000 families will benefit from the plan. There are some other requirements. A CAR member must be involved in the transaction. And the property must be located in the Golden State. The program, which will be open to rookie buyers who close by the end of the year, also includes coverage for accidental disability and a $10,000 death benefit. With 180,000 members, CAR is the largest state affiliate of the National Association of Realtors.

Mortgage companies pared their payrolls by only 200 full-time employees in February and it appears employment is finally stabilizing with the increasing demand for refinancings and loan modifications. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 271,300 in January to 271,100 in February, down 18% from a year ago. Orawin Velz, director for economic forecasting at the Mortgage Bankers Association, expects the refinancing boom will be sustainable and mortgage executives will have to begin hiring. "We should see some pickup in the coming months," Ms. Velz said. But she cautioned industry employment will rise very slowly, possibly to 300,000 by the end of the year.

Fannie Mae has warned its servicers that they face a new wave of mortgage buyback requests — this time for defects on unsecured loans that were extended to delinquent mortgage borrowers. According to a report in American Banker, the GSE last week cited six errors that servicers frequently make as it issued new guidelines for its HomeSaver Advance program, under which an unsecured loan for up to $15,000 is given to the borrower to cover arrears. These range from clerical mistakes, such as filling out the wrong form, to more significant problems like using the program on mortgages that are ineligible. Such errors can put a servicer on the hook to repurchase the unsecured loans, Fannie said. The new guidelines apply retroactively, meaning the GSE can make a servicer buy back any of the 71,000 advances Fannie has bought since it started the program last year, if they are found to be defective. "Everybody gets the sense that there's going to be a big 'gotcha' because delinquencies are rising and they want to put the risk on somebody else," said Cheryl Lang, the president of Integrated Mortgage Solutions, a Houston consulting firm.

Wells Fargo & Company plans to expand its presence in warehouse lending using a platform it acquired when it bought Wachovia Corp. at year-end, according to industry officials familiar with the matter. Two sources at Wells confirmed the move but at press time a spokesman could not be reached for official comment. "The good news is that not only are they going to stay in it but they're going to expand it out," said one warehouse advisor. It's believed that at year-end Wachovia had commitments of about $1 billion. Non-depositories depend on warehouse credit to make loans in the primary market. Warehouse lending has been severely restricted because many banks and Wall Street firms have left the sector because of losses, failures, or capital restraints.