Servicing

Terence Mayfield of Phoenixille, Pa., pleaded guilty before U.S. District Judge Joseph H. Rodriguez to charges stemming from his role in operating two ponzi schemes upon members of a Toms River church. The first defrauded members of the Church of Grace and Peace of more than $1 million through a phony real estate investment scheme. In this scheme, Mayfield spoke to church members about an investment opportunity he had developed through investments in income-generating real estate. He required each potential investor to pay between approximately $1,000 and $1,500 as an "entry fee" to the program and that they provide the investment funds directly to him. Mayfield neither maintained the funds in escrow accounts nor purchased investment properties, but rather used the investors' funds to repay earlier investors and to pay his personal expenses. The second scheme defrauded three sets of homeowners, who participated in three "foreclosure bailouts" purportedly involving two properties in Georgia and one in Pennsylvania, of more than $75,000. In this scheme, Mayfield solicited potential investors to buy homes facing foreclosure and lease the homes back to the homeowners for a two-year period. The homeowners would place two years' worth of rent payments into an escrow account maintained by Mayfield as a security deposit. At the closing of the foreclosure bailout transactions, Mayfield directed the homeowners to directly deposit funds intended for an escrow account into his company's bank account. He again used these funds for his own benefit. Judge Rodriguez released the defendant on a $100,000 bond pending sentencing, which is scheduled for July 14.

The Pennsylvania Department of Banking is seeing growth in advertising for companies offering to help people modify their mortgages for a fee. The reality is that some of these offers are scams intended to prey upon people who are in financial distress, said Secretary of Banking Steve Kaplan. "At the very least, they are charging consumers for a service they can get for free or do by themselves," said Mr. Kaplan. The department is urging borrowers with questions about modifications to seek out professional housing counseling agencies that are certified by the Pennsylvania Housing Finance Agency. There is never a cost to the consumer for using these certified professionals, he said. Consumers should be wary of marketing techniques and come-ons that can mislead people into believing a company is associated with the federal government or the federal stimulus package, added Mr. Kaplan. In addition, he urged that consumers study carefully use of the words "law," "legal" and "attorney" in advertising as well as any guarantees or claims of extraordinary success rates.

The securitization process that led to the subprime meltdown has been "absolutely discredited" and retention of a portion of the credit risk is one way to reform the mortgage market, according to a Senate Banking Committee staffer. Requiring lenders to retain 5% of the credit risk on nonprime loans, as proposed under a House bill, is "one way to get at the issue," said Jonathan Miller, a professional staff member. He works closely with committee chairman Christopher Dodd, D-Conn., on housing issues. He stressed that mortgage reform also should give consumers a way to get relief if mortgage lenders violate the rules. Mr. Miller spoke at a Washington meeting of Real Estate Services Providers Council and he noted his views should not be interpreted as Sen. Dodd's views. But he said the Federal Reserve Board has resisted using its consumer protection authority until recently. And the Fed could lose that authority by the time Congress passes a regulatory modernization bill.

Ginnie Mae's growing mortgage-backed securities issuance has hit a record monthly high of $34.5 billion. The record was set in March. Total single-family issuance was $34.1 billion with the balance coming from multifamily issuance during the month. Within the single-family category, Ginnie I s represented $28.2 billion of the total and Ginnie II s represented the remaining $5.9 billion.

Standard & Poor's on Thursday downgraded the entire mortgage insurance industry, saying it will continue to post operating losses through 2010.S&P based the downgrade on falling home prices, rising unemployment and increasing loan delinquencies. Despite the downgrades, the rating agency said it is "comfortable" that insurers have the resources to pay their claims and other obligations — even though the industry ultimately will have to absorb $34 billion to $54 billion in losses. "We expect most of these companies will continue to report operating losses at least through 2010," said S&P senior analyst Rodney Clark. Genworth Mortgage Insurance Corp., Republic Mortgage Insurance Corp. and United Guaranty Residential Insurance Corp. retained their investment grade ratings, mainly because they have lower risk profiles and stronger diversified parent companies. But S&P dropped the ratings of the monoline insurers — Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co. and Radian Guaranty Inc. — to slightly below investment grade.

Javid Jaberi, a former senior vice president of servicing in charge of loss mitigation for Residential Capital Corp., has joined Fannie Mae, industry sources told National Mortgage News. At deadline Mr. Jaberi and Fannie officials could not be reached for comment. Late last year Mr. Jaberi left ResCap, which is 51% owned by hedge fund giant Cerberus Capital. One associate of Mr. Jaberi's said part of his new job will include oversight of the nation's "mega servicers" which sell loans to, and service them for Fannie. One of those servicers might possibly include ResCap.

Wells Fargo & Co. hit a residential home run in the first quarter with originations soaring by 51% to $100 billion, and mortgage-related commitments topping $175 billion.Released early Thursday morning, the figures were preliminary and included an earnings estimate of $3 billion, which could prove to be a record for the bank. Final numbers will be released when it discloses earnings on April 22. Wells' strong residential quarter was aided by historically low interest rates and its 2008 acquisition of Wachovia Corp., a bank with a strong (but somewhat troubled) mortgage operation. The results also indicate that the San Francisco-based bank is poised to gain a huge amount of market share in the mortgage space as other lenders either fail or sell out to stronger competitors. In the fourth quarter Wells had a loan production market share of 18.37% and a servicing share of 18.58%, according to National Mortgage News and the Quarterly Data Report. Late last year Wells received a $25 billion capital injection via the government's TARP program.

Some consumers who do not need help with their mortgages are clogging up the loan modification efforts of servicing companies, according to participants at SourceMedia's annual servicing show. One mortgage executive, requesting anonymity, said her shop currently has 4,000 loan modification cases in the pipeline but "1,700 are for people who are current. We're seeing people who don't need the help." Servicing professionals attending the show relayed stories of mortgagors who attempt to get their loans modified because friends and family are doing the same. Meanwhile, Jay Brinkmann, chief economist for the Mortgage Bankers Association, told attendees that loan modification efforts are driving servicing costs "way up," resulting in a reduction in productivity. MBA is working on a new servicing cost study but has not finalized its findings.

The key to successful loan modifications is a more robust data exchange and feedback between all parties involved before and after the modification, the president of Consumer Credit Counseling Service of Atlanta said during a foreclosure panel at the SourceMedia Mortgage Servicing Conference in Dallas. Suzanne Boas sees a developing trend in the fact that more and more servicers are now interested in consistent data feedback between counseling agencies and servicers, a step that helps loss mitigators ensure data transparency for all parties including investors. "We need more information on how the loan is performing after the modification," she said, adding industry interest to that end is growing. A more robust data exchange between foreclosure counselors like CCCS who are directly involved in achieving a loan modification agreement and servicers has proven to benefit borrowers as much as servicer efficiency in loss mitigation, she said. Following that path CCCS is expanding its Early Resolution Counseling Portal platform it has pilot tested in partnership with Bank of America and Wells Fargo. Another eight counseling agencies are joining CCCS into the program, which helps reduce processing and approval time for workouts on BoA and Wells Fargo loans. After counseling is completed the portal (created by Computer Sciences Corp.) analyzes the data servicers have included in the portal's database for counselor's review. It screens specific lender and investor requirements, so by the time a counseling session ends the borrower is presented with accurate workout options. If an agreement is reached it is immediately sent to the servicer for a quick decision.

Tension is evident in the mortgage servicing industry as federal regulators along with state lawmakers and consumer protection groups are coming after servicers, according to speakers on the legislative roundup panel at the SourceMedia Mortgage Servicing Conference in Dallas. "The rules are all being changed," said David M. Bizar, a partner with McCarter & English. The attorneys general of New York and Connecticut are enforcing federal law and claiming suitability violations under the Truth In Lending Act, he said. The speakers described how there is an increased demand for transparency in data for servicers, but they do not have the resources to provide it and run the risk of providing conflicting data. The industry needs to see uniformity in data reporting, they said. Robert Power, senior vice president, Bank of America, said there is a lot of talk of across the board about foreclosure moratoriums and foreclosure counseling/mediation. Local government ordinances are mirroring this. These laws can have unintended consequences, he said. If a borrower waits 30-60 days until mediation they can fall further behind in their payments and into more debt. They may have fewer options by the time of mediation or lose their best option for a loan modification by this time, Mr. Power said. A whopping 125 cities have local ordinances dealing with vacant properties and the number is growing. A national system is being formed to gather information for cities to identify the servicer, property preservation company and local real estate agent connection to the REO properties in each community.