Servicing

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.

The fourth and final defendant involved with a scheme targeting Maryland homeowners facing foreclosure via local television ads has pleaded guilty to related charges. Earnest Lewis of Takoma Park, Md., admitted in U.S. District Court to participating in a scheme were his brother Michael K. Lewis aired television advertisements that targeted financially vulnerable individuals, representing that he could improve their credit, save their homes from foreclosure and assist them with bankruptcy. The co-conspirators fraudulently told the homeowners that they had to sign their homes over to Earnest Lewis and, in turn, he would use his credit to temporarily refinance their homes. They could repurchase the homes in a year, or once they regained their financial footing. During the interim, they could remain in their homes by paying "rent" and fees to Earnest Lewis by having their bank accounts directly debited by an account belonging to another co-conspirator. Co-conspirators Michael Lewis, Cheryl Brooke and Winston Thomas have also all pleaded guilty to participating in this scheme.

Generation Mortgage Company, Atlanta, closed 1,405 government backed 'Home Equity Conversion Mortgages' (HECMs) in the first quarter of 2009, a 233% increase from the first quarter of 2008.GMC says it is the nation's sixth largest funder of reverse mortgages. Company president Joe Morris said higher loan limits for reverses (HECMs) "provide greater liquidity in homes with higher values. This in turn makes the reverse mortgage more attractive than ever before for older boomers and seniors seeking greater financial independence."

Fair Isaac Corp. is offering Mortgage Recovery Initiative, a foreclosure prevention and management tool based on consumer credit behavior feedback.The tool was developed to help facilitate mortgage modifications and mitigate new delinquencies by reducing re-defaults and preventing foreclosures. The Minneapolis-based firm said MRI assists borrowers and lenders to be aware of and comply with the federal Making Home Affordable guidelines. MRI users can also contact program partners such as the Homeownership Preservation Foundation, a national network of HUD certified counseling agencies, Money Management International, a full-service credit counseling agency, and Equifax.

Homebuyer traffic is beginning to pick up in certain parts of the country, a sign that lower interest rates and tax credits are working, according to the Federal Reserve's new 'Beige Book.'Still, the government reports that residential prices, overall, are weak with home values and construction "still falling in most areas." The Fed reported this one positive note: "better-than-expected" buyer traffic led to a scattered pickup in sales in a number of its 12 regional districts. Districts seeing an increase in homebuyers include Atlanta, Kansas City, Minneapolis, Richmond and San Francisco. In the commercial real estate sector the outlook is negative: "Nonresidential real estate conditions to deteriorate," the Fed says. "Difficulty obtaining commercial real estate financing was constraining construction and investment activity." The government notes, however, that "Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement."

Foreclosure filings were reported on 803,489 properties in the first quarter of 2009, a 9% increase from the fourth quarter of 2008 and an increase of nearly 24% from Q1 2008.Filings were reported on 341,180 properties in March, up 17% from February and 46% from March 2008, despite a decrease in bank repossessions (REOs), which were down 13% from the fourth quarter of 2008 and 3% from February totals. Since much of the March activity was in new foreclosure actions, it suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays, said James J. Saccacio, chief executive officer of RealtyTrac. "The drop in REO activity can be attributed to these processing delays, rather than to any of the foreclosure prevention programs currently in place." Nevada, Arizona and California continued to document the nation's highest state foreclosure rate. Filings were reported on 41,296 Nevada properties during the quarter, up nearly 111% from Q1 2008. REO in Nevada were down 3% from the previous quarter, but defaults increased 27% and auction sale notices increased 35%. California accounted for nearly 29% of the nation's total. Foreclosure activity increased 35% from the previous quarter and 36% from Q1 2008. Despite a 12% decrease from the prior quarter, Florida reported filings on 119,220 Florida properties, a 36% increase from the first quarter of 2008.

Fannie Mae and Freddie Mac experienced a stunning 152% increase in loan delinquencies in the 90-days or more past due category, according to a new report by their regulator, the Federal Housing Finance Board. The late payment rate rose to 2.14% from 0.85%. Meanwhile, the agency's 'Foreclosure Prevention Report' shows the GSEs increased their assistance for troubled borrowers and suspended most foreclosures from November 26 into the first quarter of this year. The foreclosure suspensions caused 12,600 troubled loans to remain on the government sponsored enterprises' balance sheets in December — "increasing the 90-day plus delinquency rates," the GSE regulator said. Nevertheless, the two had 655,900 seriously delinquent loans on their books as of December 30, compared to 511,166 on October 31, a sequential increase of 28%. Fannie and Freddie completed 3,400 foreclosures in December, down substantially from 14,400 in November. Overall, they foreclosed on 34,845 properties in the fourth quarter, compared to 47,500 in the third quarter. Their real estate owned (REO) inventory declined 3% in the fourth quarter to 92,800.