Servicing

Central States Mortgage, Wauwatosa, Wisc., which provided residential origination services to more than 250 credit unions, shut its doors on Monday, the second closure of a major CU-related mortgage firm in as many months. CSM is owned by 25 credit unions and the Wisconsin Credit Union League. Central States originated $538 million in residential loans in 2008, compared to $707 million the year before. The lender has been embroiled in controversy over the past eight months - first with the firing of its CEO and founder Richard Jungen, then with a suit claiming Mr. Jungen defrauded it of $15 million through a secondary funding vehicle he owned called Interim Funding. (The alleged fraud took place while he was still managing Central States.) Members United Corporate FCU of Illinois, which provided a warehouse line of credit to Central States, is also preparing to write-off millions of dollars in loans to CSM. A message at the Central States switchboard this morning says the company has suspended operations. Mr. Jungen founded Central States in 1984, then sold a majority stake to the credit unions in 1997. He continued to head the operation until last July when he was fired.

Fannie Mae and Freddie Mac are extending the suspension of all eviction proceedings through March 31, 2009 as Fannie Mae implements the Home Affordable Refinance and Home Affordable Modification initiatives. Both programs are available to its servicers and borrowers as part of the Obama Administration's Making Home Affordable program. Most borrowers refinancing an existing Fannie Mae loan will not be required to buy new or additional mortgage insurance if the loan at the time of the refinance is more than 80% of a home's value. Fannie Mae can refinance loans up to 105% of a home's value with this new flexibility, so even borrowers who are "underwater" may be able to refinance. Beginning in April, all 1,600 lenders and 29,000 mortgage brokers using Fannie Mae's Desktop Underwriter platform will be able to process an application to refinance any existing Fannie Mae loan, allowing for greater origination capacity and easier refinancing for borrowers. Through the Home Affordable Modification, loan servicers participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31% of the borrower's gross income. Fannie Mae has also issued special foreclosure sale requirements. A foreclosure sale may not occur on any Fannie Mae loan until the loan servicer verifies that the borrower is ineligible for a Home Affordable Modification and all other foreclosure prevention alternatives have been exhausted.

The Department of Housing and Urban Development wants to reconsider a new Real Estate Settlement Procedures Act provision that prohibits builders from offering homebuyers discounts and upgrades that are tied to the use of the builder's affiliated mortgage and title companies. "HUD will delay the planned implementation of RESPA's 'required use' provision for 90 days, or until July 16, as it solicits public comment on whether to withdraw its new definition that would have taken effect in January," the department said. The Bush administration postponed the effective date of the RESPA provision from January 16 to April 16 after the National Association of Home Builders sued HUD to block implementation of the required use provision. A U.S district court is scheduled to hear arguments on the controversial RESPA provision April 3. NAHB declined to comment on HUD's latest move. "This is welcome news to home builders and their affiliated companies, which now have more time to continue business as usual under existing RESPA requirements," said RESPA attorney Phillip Schulman.

Fitch Ratings blamed deteriorating credit quality in SunTrust's prime mortgage portfolio for downgrading the Atlanta bank's long-term issuer default ratings. The rating agency dropped the company's IDR to 'A-' from 'A+'. "Although the credit problems still arise largely from its home equity, Alt-A mortgage, and residential construction portfolios, problems are beginning to surface in the company's core prime mortgage portfolio," said the rating agency. Additionally, Fitch is concerned that continued economic stress will weigh on SunTrust's commercial book, leading to increased credit problems in that portfolio. In Fitch's opinion, the escalating credit issues will facilitate significantly higher loan loss provisioning, which will make it difficult for SunTrust to return to profitability in 2009 and weaken its capital position.

At least one sector of the real estate market is doing fairly well. Although the dollar volume of goods and services sold at auction last year declined by almost 1%, gross receipts from real estate increased for the sixth consecutive year, according to the National Auctioneers Association. Revenues from residential real estate sales grew by 1.1% in 2008, while receipts from land and agricultural real estate was up 0.5%, NAA reported. Only the commercial real estate category fell last year, dipping 1.4%. Real estate owned properties were "a major contributor" to the auction business's growth, NAA said. Banks frequently contract professional auctioneers to sell foreclosed properties at auction, as well as refer auctioneers to customers with troubled assets and use them to sell their own foreclosed properties. Headquartered in Overland Park, Kan., the NAA represents some 5,000 auctioneers.

Sales increased a bit in Las Vegas last month, and the number of listings declined. But the average price of houses sold also dipped, according to monthly figures supplied by Robert Jenson, a realty agent who specializes in luxury properties. In February, a total of 20,953 units were listed for sale in the city, a decline of just 19 units from January. Only 2,023 units were sold last month, an increase of 28 units. But the average sales price fell 2.2%, to $179,303, Mr. Jenson reported. Nearly half the units listed for sale were properties that have been foreclosed on by lenders (9,037) while most of the rest were listed as short-sales (7,416). Despite the glut of houses for sale, the number of luxury units priced over $1 million that sold in February increased to eight, from just three the previous month. The average selling price was $1.99 million. Mr. Jenson's data does not include sales by builders.

The yield on the benchmark 10-year Treasury dropped to 2.8% as of noon on March 6 from 3% at mid-week, a sign that mortgage rates could be headed lower soon. The yield moved below its recent range as investors — discouraged by the stock market's current bleak prospects — moved into Treasuries as a safe haven, according to a market update from Jefferies & Company. Also causing investors to flock to Treasuries, boosting prices (which move in the opposite direction from their yields) was a relatively pessimistic employment report. (See related story above.) Meanwhile, Quicken Loans is advertising a 30-year fixed-rate conventional loan at 4.7% if the consumer pays 1.6 in upfront points.

The mortgage insurance division of Genworth Financial lost $368 million in 2008 compared to a $167 million profit the year before as default claims swamped the unit.According to the Quarterly Data Report, Genworth — one of the industry's most conservatively managed MIs — ranks fourth nationwide in terms of policies-in-force with $147 billion. Genworth's shares have been trading under $1 for the past two weeks. Meanwhile, according to a recent report in Reuters, the U.S. Treasury Department has no current plans to give the ailing MI sector an injection of capital using Troubled Asset Relief Program funds. As reported by National Mortgage News, Federal Housing Finance Agency chief James Lockhart is in favor of the MIs receiving a capital injection under TARP.

The House of Representatives on Thursday night approved legislation 234 to 191 that would let bankruptcy judges modify or "cram down" mortgages, but the bill's fate in the Senate remains unclear. Though the House leadership had enough of a majority to pass the bill over opposition from Republicans and several conservative Democrats, Senate leaders do not have as much leeway. Some Senate Democrats, including Sen. Evan Bayh of Indiana, continue to push for ways to narrow the bill, encouraged by the banking industry, which believes the legislation will drive up the cost of credit. The bill passed on Thursday included language designed to encourage borrowers to attempt to seek a loan modification from their lender before bankruptcy. For example, if a servicer offered a borrower a loan modification, the homeowner would have to consider it before heading to bankruptcy court. The judge would retain the ultimate say in determining if the borrower acted in good faith and could still reduce the terms of the mortgage. The borrower also would have to wait 30 days between trying to receive assistance from the servicer and going to bankruptcy. The National Association of Consumer Bankruptcy Attorneys said the bill "will not excuse families from paying their mortgage. It simply gives bankruptcy court judges the authority to modify loans and puts a floor on the downward spiral of home values in neighborhoods across the country."

Employment in the loan brokerage sector fell to an eight-year low in January to 73,600 positions, yet another sign that this third-party lending channel is facing a grim future. According to new figures released Friday morning by the Bureau of Labor Statistics, total employment in the mortgage industry (which includes loan brokers) fell to 271,800 full-time positions, also a multi-year low. Year-over-year broker employment fell by 20% while total residential finance employment declined by 18%. In recent months more lenders have eliminated their wholesale production channels, and several mortgage insurers have placed restrictions on broker-sourced loans. Meanwhile, the national unemployment rate jumped to 8.1% in January, the highest since 1983. More Americans collecting unemployment means these families will have a harder time paying their monthly mortgages. Meanwhile, one investment banker told National Mortgage News that some large banks that are still involved in correspondent lending are considering increasing their net worth requirements on third-party lenders, which could cause more job displacement in the industry.