Servicing

Market reaction to the government's public-private programs for troubled MBS and commercial loans has put upward pressure on the benchmark 10-year Treasury yield as of midday Tuesday, partially reversing the steep drop it saw less than a week ago.The 10-year yield at noon Tuesday was at about 2.7%, up from a recent drop to a low near 2.5% from a point close to 3.0%. That decline had marked the largest one-day drop in the 10-year yield since Oct. 20, 1987, according to Freddie Mac chief economist Frank Nothaft. A Federal Reserve plan to buy longer-dated Treasuries and purchase more agency mortgage-backed and debt securities had triggered the earlier decline in the benchmark yield.

Triad Guaranty Inc., the parent of the nation's smallest mortgage insurer, said in a new public filing that it may not continue as a going concern.Its MI affiliate, Triad Guaranty Insurance Corp., has been in run-off since last July, and as a result, the company has been operating under a regulatory corrective order with the Illinois Department of Financial and Professional Regulation, Division of Insurance. "This uncertainty is based on the ability of Triad to comply with the run-off provisions of the corrective order, the company's recurring losses from operations and a deficit in assets at Dec. 31, 2008," it says in a new SEC filing. Triad has a deficit in assets of $136.7 million as of Dec. 31, 2008. It expects to report a deficiency in policyholders' surplus starting with the first quarter 2009 and running through 2011. "Management is currently working with the Division to structure a revised corrective plan in a manner that is expected to provide for a solvent run-off. If the revised corrective plan is unsuccessful, the Division may be forced to place (the mortgage insurance subsidiary) into receivership which would effectively compel the parent, Triad Guaranty Inc., to declare bankruptcy," it says.

Jim Clapp, senior vice president in charge of warehouse lending at Guaranty Financial Group, is leaving the bank, industry sources told National Mortgage News.Mr. Clapp declined to comment on the matter. He is expected to take a job with a mortgage banking company based in Texas. The Austin-based GFG is winding down its warehouse lending business but will continue to fund lines that are not set for expiration until 2010. GFG, whose shares trade for less than $1, is trying to shrink its balance sheet in an effort to preserve capital. In a recent filing with the Securities and Exchange Commission, the depository said it would not file its annual report and 10-K on time. The thrift has been hit by large markdowns on its MBS and commercial real estate portfolios.

Even though the mortgage insurance business is in the tank, the former head of the Radian Group is in the process of forming a new MI firm that also will act as a reinsurer, industry executives confirmed to National Mortgage News.The company, whose CEO and co-founder is former Radian chief Mark Casale, is called Essent U.S. Holdings and is based in suburban Philadelphia. Mr. Casale could not be reached for comment. One MI source said Mr. Casale "has recruited a number of people from Radian, PMI and other MIs." He noted that Essent is not yet rated and is waiting on state approvals to write insurance. (See next Monday's NMN for the full story.)

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. First 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."

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. It is unlikely the MBA will hold a standalone technology show, but rather fold technology into its other shows or do smaller regional technology shows. Its 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. The trade group has been criticized by members and past employees for two large, somewhat recent blunders: building a new $100 million headquarters in Washington and then struggling to lease out its empty floors. It also merged with a subprime lending trade group, most of whose lending members have failed. Discussing the office building, one former MBA executive said, "They basically traded paying the rent for bodies." The executive, requesting anonymity, said the staff cuts "will impact a lot of long-term projects they have."

Sales of single-family existing homes rose 4.4% in February from the previous month and sales may be stabilizing as the spring selling season begins. The National Association of Realtors reported that sales of existing SF homes rose from a seasonally adjusted annual rate of 4.05 million in January to 4.23 million in February. The median price of a home sold in February was $164,600, up $400 from January. However, the median house price is down 15% from a year ago. NAR chief economist Lawrence Yun noted that foreclosures and short sales make up 40% to 45% of sales. "Our analysis shows that distressed homes typically are selling for 20% less than the normal market price, and this naturally is drawing down the overall median price." Meanwhile, sales of condominiums and co-ops jumped 11.4% in February, compared to the previous month.

A survey conducted for Move Inc., Los Angeles, found that 23% of adults plan to purchase a home in the next five years, and more than half of them (53.5%) are first time homebuyers. Despite today's challenging market conditions, 18.1% of adults plan to buy a home this year in order to take advantage of the $8,000 tax credit recently passed by Congress in the administration's economic stimulus package. Another finding was that 18.9% of respondents plan to take advantage of the Obama administration's foreclosure prevention plan. Just over half of the respondents, 52%, said they are concerned they or someone they know will face foreclosure in the next six to 12 months. In the past 12 months, 21% of respondents with a mortgage contacted a lender to restructure their loan. Half (10.6%) of those homeowners that contacted their lender experienced success while 5% still await an answer. Nearly three-quarters (72%) of adults reduced spending in the past year in order to make monthly mortgage or rent payments, mostly by cutting discretionary spending such as vacations, entertainment and eating out (75%), personal items such as clothing, personal care and personal luxuries (72%) and energy costs such as gasoline and utilities (71.6%). "It's not all doom and gloom. We found Americans are optimistic about homeownership despite concerns," said Move Inc., chief executive Steve Berkowitz. "They're doing everything they can, from reducing discretionary spending to pay their mortgages, to planning to take advantage of the administration's new program to stop foreclosures. They're also working with lenders to modify loans. Even more impactful are numbers that show interest in home ownership is strong as nearly a quarter of all adults plan to buy a home in the next five years."

The National Credit Union Administration seized control of the nation's two largest corporate credit unions on Friday due to growing losses on their private label mortgage-backed securities. NCUA placed into conservatorship Western Corporate FCU, San Dimas, Calif. which provides services to 1,022 regular credit unions, and U.S. Central FCU, Lenexa, Kan., which serves as a banker to both WesCorp and 25 other corporate credit unions. Friday's action came just hours after U.S. Central released financial figures for February showing that unrealized losses on its securities rose by $1.2 billion, to $10.5 billion, with almost all of the new losses accruing on private-label mortgage-backed securities. The unprecedented government takeover came after NCUA received an independent review of the investments in U.S. Central, WesCorp. and the 25 other corporates conducted by Pimco Investors. Pimco found that the corporates' current holdings could result in losses of more than $16 billion, which would wipe out the capital of every corporate CU. The Pimco report runs 4,500 pages. According to The Credit Union Journal, regulators are discussing a plan to combine the distressed corporate investments into a single "bad bank," while trying to rescue the remnants of the corporate credit union system, which provides critical investment and payment system services to the nation's 8,000 regular credit unions. U.S. Central holds $34 billion in credit union funds and WesCorp $24 billion.

The Treasury Department on Monday unveiled two separate programs for the removal of more than $500 billion in toxic private-label mortgage-backed securities and bad real estate loans from the balance sheets of financial institutions. Both initiatives involve the participation of private investors willing to partner with the federal government, which is putting up financing and 50% of the capital for the these public-private partnerships. Under the new effort, federally insured depositories can sell troubled real estate loans into pools that the Federal Deposit Insurance Corp. will auction off to the private investors. Treasury and private capital will provide equity financing and the FDIC will provide guaranteed debt financing issued by the public-private investment funds. The second program is designed to remove formerly AAA-rated residential and commercial MBS from the balance sheets of banks and other financial institutions. However, Treasury and the Federal Reserve Board are still working the details of this program, which will provide non-recourse loans to investors willing to purchase these "legacy securities" and employ a long-term buy and hold strategy. "Haircuts will be determined at a later date and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes and loan duration have not yet been determined. Asset managers selected by the Treasury and FDIC will oversee the public-private investment funds."