Servicing

Fitch Ratings in Chicago has downgraded the long-term issuer default ratings of Birmingham, Ala.-based Regions Financial and its bank subsidiary, Regions Bank, to 'A' from 'A+', reflecting asset quality deterioration, expected earnings pressure, as well as continued economic uncertainty. Fitch said the company has a solid core funding base and good capital position. Problem loans have been mainly centered in the homebuilder, condominium, and home equity (especially Florida second lien home equity) portfolios, which collectively total $9 billion or 9% of the total portfolio. While nonperforming assets are elevated from historical levels, Regions' efforts to actively address its problem assets have helped contain the overall pace and level of deterioration. Although Regions has actively managed its stressed loan portfolios, especially in fourth quarter-2008, Fitch said it expects performance pressures to continue throughout 2009 and it anticipates that it may be difficult for the company to return to profitability in 2009 given the need to address problems elsewhere in its loan book, which could ultimately weaken its recently bolstered capital base.

Industry veteran Tom Donatacci, senior vice president of business development and subservicing for Residential Capital Corp., Horsham, Pa., has left the company. At press time Mr. Donatacci could not be reached for comment. A spokeswoman confirmed that he had left ResCap, noting that his separation was "absolutely voluntary." ResCap added that, "We are aggressively conducting an internal and external search to fill the head of fee-based servicing position. This leadership role is critical to our ongoing commitment to growing volumes in our subservicing business." Among his duties Mr. Donatacci was involved in overseeing ResCap's subservicing business. A former executive at both Lehman Brothers and Cohane Rafferty Securities, he left the lender/servicer about 10 days ago. Cerberus Capital, which is a hedge fund, and General Motors own ResCap.

Mission Capital Advisors, LLC in New York is now accepting bids for a commercial real estate mortgage loan and real estate owned portfolio with an outstanding balance of $48 million. The sale offers prospective bidders an opportunity to acquire nonperforming and REO assets secured by a variety of collateral types, including office, industrial warehouse, retail, condominium, town homes, marinas, single family residential, and commercial development land. On behalf of a Southeastern super regional bank, Mission Capital is soliciting final bids from investors for the purchase of individual loans/REO, any combination of loans/REO, or the entire portfolio. Overall, there are 17 loans or REO assets available, including five loans in Florida, four loans in South Carolina and six loans and two REO assets in Georgia. The portfolio is divided into several single asset pools, allowing investors to target specific assets by performance, collateral type or geography based on their individual acquisition criteria, said Will Sledge, director at Mission Capital Advisors.

The recent performance of prime jumbo residential mortgage-backed securities from 2005-2007 suggests average losses on the securities might be about three or more times what was previously expected, but there appears to be some hope government initiatives could still make a difference, according to Fitch Ratings. Fitch said it "will continue to assess the range of potential impacts of government housing stabilization efforts on nonagency prime RMBS" and also will "continue to closely monitor other potential mitigants to performance deterioration, such as federal financial stability efforts." Currently, Fitch expects 2005, 2006 and 2007 loss estimates to be "approximately three, four and five times higher, respectively, than prior loss estimates." Huxley Somerville, Fitch's U.S. RMBS group head, said dramatic increases in delinquencies resulting from declining home values, rising unemployment and lack of refinancing alternatives, combined with declining credit enhancement are pressuring jumbo ratings. Fitch said borrowers with negative equity in some recent vintage pools "are approaching 50%" and "after adjusting for home price declines to date, loans estimated to have no equity in the property are defaulting at rates approximately three times that of loans estimated to have equity remaining."

The Mortgage Bankers Association has drafted and sent to Washington officials a regulatory reform proposal suggesting how a new federal mortgage regulatory agency the group has been calling for might set lending and servicing rules for the entire mortgage industry, regardless of charter or license. "Under our proposal, we are calling for one federal regulator to implement standards and oversee all mortgage bankers and brokers," MBA president and chief executive John Courson said. State and federal regulators would sit on the board of directors of the newly created Federal Mortgage Regulatory Agency, which will establish uniform lending standards and update them as needed without going to Congress for approval. "The new regulator also will work with federal and state regulators to enforce lending standards for their regulated entities," MBA says in a letter to House and Senate banking committee leaders.

The Office of Management and Budget is considering changes to the estimates the Federal Housing Administration is using for house values over the next several years, which could lead to a possible increase in mortgage insurance premiums FHA charges on single-family loans. Sources also note that losses on FHA loans with seller-funded downpayment assistance continue to rise. A re-estimate by OMB could show "massive losses," which might require a congressional appropriation or higher premiums, said a former Department of Housing and Urban Development official. William Apgar, senior advisor to the HUD secretary for mortgage finance, said HUD is working with OMB, but he could not comment further because the budget projections have not been finalized yet. Mr. Apgar noted that FHA is vulnerable to rising unemployment, declines in house prices and a weak economy. The FHA program has weathered many housing downturns, Mr. Apgar said. "FHA has historically played the role as the stabilizer in tough markets." OMB is expected to send the President's fiscal year 2010 budget to Congress in late April to early May.

New homes sales jumped 4.7% in February from January and it could be a sign that the housing market is finally bottoming out. "We have been looking for a bottom to form sometime in the first half of the year and it looks like things have firmed up a little bit," said Scott Anderson, senior economist at Wells Fargo & Co. The U.S. Census Bureau reported that sales of new single-family homes rose from a seasonally adjusted annual rate of 322,000 in January to 337,000 in February. The bureau revised the January sales number upward from 309,000. The new home sales report combined with the 4.4% jump in sales of previously owned homes is "very encouraging at this point," Mr. Anderson said. But he wants to see a couple more months of good reports before calling a bottom. "Now that the Federal Reserve is trying to push down mortgages, we are seeing a refi boom and it seems like it is helping to give some confidence to buyers to go ahead with a purchase."

Freddie Mac purchased $40 billion of mortgages in February, an 84% increase from the previous month as declining interest rates led to increased business for the government-controlled giant. However, compared to the same month a year ago, purchases fell 16%. According to new figures released by the company, Freddie now holds $123 billion of whole loans (not securitized) in its portfolio, a 43% increase over 12 months. The GSE ended the month with a retained portfolio of $822 billion, a 16% increase compared to February 2008. But there was some negative news in the new numbers: its mortgage "purchase and sale agreements" fell to $4 billion in February, from $17 billion the prior month. Fannie Mae has not yet released its February numbers.

The Mortgage Bankers Association on Monday laid off about 16% of its workforce — about 20 full-timers — including four of its vice presidents.A spokeswoman for the trade group said the layoffs "were across the board" affecting all of its departments, including communications, government, marketing and research. Since last year MBA has lost about 30% of its staff. After the cutbacks the organization will employ about 110. Recently, mortgage technology vendors said MBA would eliminate its annual technology trade show to save money, but the spokeswoman shot down such talk in part. Sources say it is unlikely the MBA will hold a standalone technology show and may fold it into other shows or hold smaller regional conferences. MBA's membership ranks have been hurt by the worst housing downturn since the Great Depression, resulting in hundreds of non-banks and depositories closing their doors over the past 18 months.

Federal Deposit Insurance Corp. officials are ready to begin discussions with banks that want to sell pools of troubled real estate loans under its new "Legacy Assets" program, but it could be three or more months before the agency is ready to conduct the first competitive sealed bid auctions. FDIC intends to solicit public comments on the new program, which is designed to cleanse banks of high-risk residential mortgages and commercial real estate loans. Although the comment period will be very short, FDIC officials want to "nail down" the structure before they begin marketing the program to private investors who will be asked to take a 50% equity position in the loan pools as part of a public-private investment fund. FDIC also has to provide private investors time for due diligence to evaluate the assets before they submit bids. FDIC chairman Sheila Bair estimates that the Legacy Asset program could remove $500 billion in high-risk mortgages from the banking system if private investors put up $50 billion in capital. There are "huge challenges of implementing a program of this magnitude quickly," Ms. Bair said. "We intend to move forward with this program in a methodical and a transparent fashion."