Servicing

Three former Wall Street executives have formed the Rumson, N.J.-based Loan Value Group, an independent, third-party provider of advisory services aimed at helping clients assess, evaluate and manage residential mortgage risk. The startup company's three principals are former Morgan Stanley executives Howard Hubler, Jason MacRae and Frank Pallotta. Loan Value Group's clients include mortgage and mortgage insurance companies as well as banks, funds and rating agencies. The group plans to operate at least three business lines: data aggregation, which compiles statistics from multiple sources to create a multidimensional portfolio profile; research, which focuses on identifying the main drivers of default and performance through analysis and statistical modeling; and advisory services, which are aimed at helping clients drive present value with loan modification and optimization strategies.

Waves of commercial mortgage-backed securities downgrades are following in the wake of Moody's Investors Service's review of large loan and single borrower U.S. CMBS ratings, in which the rating agency found the current economic recession is hurting cash flows and likely to lead to a marked increase in term defaults. "Due to the current economic recession, Moody's expects a significant overall decline in future property cash flows as a result of a higher incidence of tenant defaults and bankruptcies and a sharp decline in lease renewal rates," the rating agency said. "This drop in cash flows is likely to lead to a marked increase in term defaults on commercial mortgage loans particularly for those loans that were underwritten with significant upside at a peak point in the real estate cycle and valued using historically low capitalization rates."

Freddie Mac saw a spike in delinquencies in the month of January along with lackluster issuance of mortgage-backed securities and portfolio activity. The mortgage giant said its serious delinquency rate shot up 26 basis points since December to 1.98%. In January 2008, the percentage of loans 90 days for more past due was 0.71%. Meanwhile, the secondary market agency issued $16.3 billion in MBS, up slightly from $15.8 billion in December. Ginnie Mae issued $26.5 billion in single-family MBS in January. Freddie also said the size of its mortgage portfolio declined slightly to $798.9 billion. The Treasury Department recently doubled its financial backing of Freddie to $200 billion to increase market confidence in the government-sponsored enterprise, which is expected to report a large loss for the fourth quarter. Treasury also increased the GSE's portfolio limit by $50 billion to $900 billion.

Single-family existing home sales fell 4.7% in January from the previous month, but Realtors are optimistic the economic stimulus package passed by Congress will boost home sales this year. National Association of Realtors found that sales of previously owned homes fell from a seasonally adjusted annual rate of 4.25 million in December to 4.05 million in January. NAR economists estimate the stimulus package, which includes an $8,000 first-time homebuyer tax credit and higher loan limits, along with lower mortgage rates, will result in 900,000 additional sales this year. Meanwhile, the median single-family sales price was $169,900 in January, down 13.8% from a year ago. A preliminary analysis by NAR suggests that house prices in traditional sales are holding up better the distressed sales involving foreclosures and short sales. However, Wellesley College professor Karl Case estimates 1 million homes were sold in auctions last year, which is one reason Standard & Poor's Case-Shiller Housing Price Index has registered steeper price declines than other indexes. In addition, the auctions were heavily concentrated in the hardest-hit states - Arizona, Florida, California and Nevada. Auctions comprised 54% of sales in those four states, Mr. Case said.

Gov. Arnold Schwarzenegger has reportedly signed into law a 90-day moratorium on California home foreclosures — but the measure carries certain exemptions for servicers. According to a report in The Orange County Register, state regulators can grant loan servicers and lenders exemptions, if they have a mortgage modification program in place that meets certain criteria. The measure covers owner-occupied homes and first mortgages originated between 2003 and 2007. The loan mod exemptions cover programs that defer a portion of the principal, lower interest rates for at least five years, or extend loan terms. Sen. Ellen Corbett, D-San Leandro, introduced the moratorium language as an add-on to the California budget package.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high ranking Republicans on the House Judiciary and Financial Services Committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage-backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.

In their fight to stop bankruptcy cramdowns, financial services groups can no longer count on the support of the Realtors and homebuilders as the House prepares to vote on a housing bill that would allow bankruptcy judges to reduce or cram down the principal amount of residential mortgages. The National Association of Realtors is supporting passage of the bill (H.R. 1106) because it enhances the FHA Hope for Homeowners program that allows certain troubled borrowers to refinance and provides legal protections for servicers that engaged in loan modifications. The National Association of Home Builders recently changed its position on bankruptcy cramdowns. And the trade group is willing to accept a temporary change in the bankruptcy code to facilitate loan modifications. Meanwhile, the House is slated to vote Thursday (Feb. 26) on the housing bill and financial services lobbyists are working to narrow the negative effects of the bankruptcy provisions.

JPMorgan Chase has decided to close its warehouse lending division and is giving its non-bank customers just a few months to secure new lines. Meanwhile, mortgage advisors close to the warehouse issue say at least one more warehouse provider, a large regional bank, is seriously considering exiting the warehouse arena. Late on Feb. 24 a spokesman for JPM confirmed to National Mortgage News that the bank's warehouse business - bought from Washington Mutual last Spring - would be shuttered. Eight non-banks currently have lines of credit with JPM. (WaMu was sold to JPM in the fall with government assistance.) One advisor who has been tracking the warehouse issue, said he is not sure how large a player JPM is in terms of commitments but added, "This cannot help the industry." Earlier this year JPM began winding down its wholesale/broker division. Non-depository residential lenders that depend on warehouse credit are facing a funding crisis because so many banks and Wall Street firms have closed their warehouse divisions or scaled back credit. According to National Mortgage News there are about 10 banks or thrifts that are still active in warehouse lending compared to roughly 30 two years ago.

JPMorgan Chase has decided to close its warehouse lending division and is giving its eight current customers a few months to secure new lines. Late on Tuesday a spokesman for JPM confirmed to National Mortgage News that the business — bought from Washington Mutual last spring — would be shuttered. (WaMu was sold to JPM in the fall with government assistance.) One advisor who's been tracking the warehouse issue, said he is not sure how large a player JPM is in terms of commitments but added, "This cannot help the industry." Earlier this year JPM began winding down its wholesale/broker division. Non-depository residential lenders that depend on warehouse credit are facing a funding crisis because so many banks and Wall Street firms have closed their warehouse divisions or scaled back credit. According to National Mortgage News there are about 10 banks or thrifts that are still active in warehouse lending compared to roughly 30 two years ago.

Key Republican congressmen say they are willing to work with the Obama administration on bankruptcy cramdown legislation that exempts Fannie Mae, Freddie Mae, the Federal Housing Administration and government-related loan programs. Four high-ranking Republicans on the House Judiciary and Financial Services committees said they oppose the "broad" bankruptcy bill that the House is scheduled to vote on this Thursday. "It is our hope the Obama administration will work with us in a bipartisan effort to narrow the proposed changes to the bankruptcy code," the four House members said in a letter to Treasury secretary Timothy Geithner. Reps. Lamar Smith (Texas), Trent Franks (Ariz.), Spencer Bachus (Ala.) and Shelly Capito (W.Va.) signed the Feb. 23 letter. Meanwhile, financial services trade groups are urging House leaders to strip the bankruptcy provisions from the housing bill (H.R. 1106) that is slated to go to a vote on Thursday. "We appreciate the fact that provisions have been added to H.R. 1106 that improve the bill reported by the Judiciary Committee (H.R. 200) with respect to FHA and VA loans and how losses are allocated to investors in mortgage backed securities pools. However, H.R. 1106 still does not address the president's recommendations for narrowing the scope of the cramdown to a targeted approach that makes bankruptcy a last resort rather than a first option," says a joint industry letter to House Democratic and Republican leaders.