Servicing

Financial institutions last year filed 62,084 mortgage-related "suspicious activity reports" with government regulators -- a 44% increase from the prior year, according to new figures released by the Financial Crimes Enforcement Network. FinCEN director James H. Fries said one trend the agency found "is the increase in mortgage fraud detection in connection with mortgage purchasers sending home loans back to originators for repurchase." FinCEN also is seeing an increase in foreclosure-related fraud. The SARs figures cover reports filed for the 12-month period ending June 30, 2008.

A civil lawsuit filed against CU National Mortgage last week - hours before the company filed for bankruptcy - charges that the owner and CEO of CUNM masqueraded as an executive vice president of another credit union and approved "allonges," assigning millions of dollars of that credit union's mortgages to Fannie Mae as part of a wide-ranging fraud scheme that may involve hundreds of millions of dollars of credit union loans. CUNM was a private-label lender/servicer for more than a dozen credit unions. During a hearing last week in U.S. bankruptcy court (where CUNM and its parent U.S. Mortgage of Pinebrook, N.J. filed for protection), lawyers for the other CU, Picatinny FCU of Dover, N.J., said CUNM may have sold as much as $14 million of its loans to Fannie Mae without authorization and without sending the receipts to the credit union. "[USM CEO Michael] McGrath endorsed Picatinny's name to a note which assigned the mortgages to Fannie Mae," said James Forte, Picatinny's lawyer in the case. "These loans were sold without our authorization." Picatinny and dozens of other CUs are currently working with officials of USM/CUNM for the return of tens of millions of mortgages sold to Fannie Mae without their authorization, according to a report in Credit Union Journal. Lawyers for Mr. McGrath did not return telephone calls about the matter. The FBI is now investigating the collapse of USM and CUNM.

Freddie Mac said chief executive David Moffett — who took the helm of the GSE when it was placed into conservatorship in early September — has resigned from the company effective March 13. The mortgage investing giant said its board is working with the Federal Housing Finance Agency to appoint a successor and hopes to name an interim CEO before the 13th. Freddie said Mr. Moffett is leaving "to return to a role in the financial services sector." Mr. Moffett retired as vice chairman and chief financial officer of U.S. Bancorp in 2007. After his retirement, and before joining Freddie, he was a senior advisor to The Carlyle Group, working on financial service matters. Freddie Mac is supposed to report earnings soon. Last week Fannie Mae reported an annual loss of $58.7 billion.

Freddie Mac said chief executive David Moffett — who took the helm of the GSE when it was placed into conservatorship in early September — has resigned from the company effective March 13. The mortgage investing giant said its board is working with the Federal Housing Finance Agency to appoint a successor and hopes to name an interim CEO before the 13th. Freddie said Mr. Moffett is leaving "to return to a role in the financial services sector." Mr. Moffett retired as vice chairman and chief financial officer of U.S. Bancorp in 2007. After his retirement, and before joining Freddie, he was a senior advisor to The Carlyle Group, working on financial service matters. Freddie Mac is supposed to report earnings soon. Last week Fannie Mae reported an annual loss of $58.7 billion.

Standard & Poor's has put 3,279 ratings of first-lien prime jumbo U.S. residential mortgage-backed securities from 2006 and 2007 on CreditWatch Negative, citing an increase in projected losses to 40% from 30%. "This change is based on our belief that the influence of continued foreclosures, distressed sales, an increase in carrying costs for properties in inventory, costs associated with foreclosures, and more declines in home sales will depress prices further and lead loss severities higher than we had previously assumed," S&P said. The rating agency said there also has been "a persistent rise in the level of delinquencies among the prime mortgage loans supporting these transactions." Specifically, it said severe delinquencies (payments late by 90 or more days, foreclosures and real estate owned) have increased by 45.60% over the past three months accounting for, on average, 4.41% of current aggregate pool balances on affected transactions.

Urban Settlement Services of Pittsburgh, which performs loan modifications for residential servicers, said it expects to hire 200 new workers this year. Company chief executive Charles Sanders said the new hires will come onboard over the next five to six months. "The positions will include workout specialists, call center and data operators and other people," Mr. Sanders said. The company, which also has offices in Colorado and North Carolina, presently employs about 150. When its subcontractors are counted, its head count is 600, said Mr. Sanders, a former professional football player for the Pittsburgh Steelers.

PHH Corp., Mt. Laurel, N.J., said its mortgage production segment was profitable in December, allowing that unit to break even for the fourth quarter; but its mortgage servicing segment lost $382 million in the three-month period due to $445 million of valuation adjustments on mortgage servicing rights, contributing to a 4Q loss for the company as a whole. For the fourth quarter, the company lost $216 million ($3.98 per share), compared with net income of $12 million ($0.21 per share) for the same quarter of 2007. For the full year, PHH lost $254 million ($4.68 per share), vs. a net loss of $12 million ($0.23 per share) in 2007. The servicing adjustment consists of a $390 million writedown of the mortgage servicing asset and $55 million reduction in MSR value due to prepayments and portfolio decay. There also were foreclosure-related charges of $16 million and a net reinsurance loss of $13 million. PHH serviced just under $150 billion at the end of last year. The production segment's break-even results included $12 million of writedowns for scratch-and-dent and second-lien mortgage loans plus $4 million of reorganization costs. PHH originated $5.4 billion during the quarter, down from $8.3 billion in the same period in 2007. However, because of cost savings initiatives, the company said it believes it has lowered the break-even point for the production segment from $39 billion in annual volume to $27 billion.

The FBI is investigating claims of a massive fraud at U.S. Mortgage Corp., Pinebrook, N.J., the privately held owner of Credit Union National Mortgage, which has filed for bankruptcy. More than three dozen credit unions allege the failed mortgage company owes them more than $110 million of loan proceeds it had collected for them as a servicer. The company's attorney said he is working with the U.S. Justice Department, the National Credit Union Administration, and regulators in several states in investigating the case. Lawyers for U.S. Mortgage could not be reached for comment. In documents filed earlier this week with the U.S. Bankruptcy Court, Picatinny FCU claims CU Mortgage sold more than $14 million worth of its mortgages to Fannie Mae without its knowledge and without paying the Dover, N.J.-based credit union the proceeds of the sale. Picatinny is one of more than three-dozen credit unions that have filed claims against the troubled lender. The largest unsecured claim is by Fannie Mae for $99.2 million, but the next 19 largest unsecured claims are all credit unions -- including the Treasury Department's CU.

Operating as a ward of the federal government, Fannie Mae posted a massive $25.2 billion loss in the fourth quarter, blaming its abysmal performance on asset- and derivative-related writedowns. For the year the GSE lost an eye popping $58.7 billion. The Congressionally chartered mortgage investing giant declared that it had a negative net worth of $15.2 billion at year-end - a gap that must be filled with taxpayer money. FHFA director James Lockhart already has requested that the Treasury Department cover the financial hole by increasing its preferred stock ownership stake in the company. In 2007, Fannie lost just $2.1 billion. It was taken over by the Federal Housing Finance Agency in early September of 2008. Its common stock continues to trade on the NYSE but at just 40 cents a share. Its main competitor, Freddie Mac, also is a ward of the government.

Moody's Investors Service is again increasing its loss expectations for U.S. subprime residential mortgage-backed securities issued between 2005 and 2007, raising them to a range of 28% to 32% of the original pool balance from 22% and placing 7,942 tranches of subprime RMBS with an original balance of $680 billion on review for possible downgrade. It said that ratings actions expected to occur as a result of this move make it likely that "mezzanine and subordinate certificates currently rated B or above would be downgraded to ratings of Caa or below, particularly for bonds issued in 2006 and 2007" while actions on senior bonds "will differ based on payment priority and protection relative to projected losses." The rating agency added however, that "given the losses currently being projected, a majority of senior certificates will likely be downgraded below investment grade" and "many are expected to be downgraded to Caa or below, particularly longer duration bonds from 2006 and 2007." Moody's said the Homeowner Affordability and Stability Plan "is expected to have a mitigating impact" on this. It added that while it already has formed a preliminary estimate of the impact of the plan and included that estimate in its numbers, that estimate could change when additional detail of the plans are released on March 4.