Servicing

Local municipalities across the country are increasing penalties and fining lenders as much as $100 a day for code violations such as each broken window on an REO home, according to speakers on the vacant property registration panel at the Mortgage Bankers Association's National Mortgage Servicing Conference in Tampa. Robert Klein, chief executive of Safeguard Properties, said servicers need to make sure their property preservation units communicate with code enforcement officials at the city and county levels to open up dialogue and prevent this from happening. "If you won't listen, they will look for every legal measure they can to inflict some pain," he said. Cary Sternberg, senior vice president, American Home Mortgage Servicing, said servicers are searching for creative and aggressive strategies to dispose of these properties while figuring out the best way to preserve the assets. They are partnering up with preservation vendors to update the carpet, paint, and if needed, replace the roof, in order to make sure the home is in "lendable condition." Caroline Reaves, president and chief operating officer, Mortgage Contracting Services, said more mid-value and high-end properties are seeing cosmetic enhancements with furniture staging. The panelists also said home managers are sometimes being used to maintain the property and travel from house to house, to occupy and maintain the house.

Servicers are seeing increased cases where borrowers are trying to stall or stop foreclosures by filing "right to rescind" notices as violations of the Truth in Lending Act, according to speakers at the MBA's National Mortgage Servicing Conference in Tampa. During a panel on mortgage litigation, Terry Hutchens, president of the law firm of Hutchens, Senter & Britton, said that debtors attorneys are claiming that borrowers were given inadequate documents at the time of closing and did not understand the loan, which judges are starting to honor. It's worth it for servicers to try and negotiate a settlement or consider a loan modification with the borrower rather than take the case through expensive litigation, he said. "We're not so vulnerable that we are rolling over in every case, but we have to consider doing things differently than we have in the past," said Mr. Hutchens. The cost of defending these types of cases has gone up in the past year, he said. Shaun Ramey, a partner with Sirote & Permutt PC, said servicers must decide how to handle these new cases. Cities, states and counties are putting giant roadblocks up to fight foreclosures, he said. "There are new claims and new defenses. Public nuisance lawsuits are coming up because foreclosures are driving up the cost of mounting properties sitting around and the cost it takes to maintain them." It was also said that claims of reverse redlining are being brought against lenders at the city level as well as borrowers bringing suitability actions against lenders. "If the judges feel that something isn't right, they will stop the foreclosure."

CU National Mortgage, a private label funder that served the nation's smaller credit unions, closed its doors recently, according to industry sources. As MortgageWire went to press, CUNM officials could not be reached for comment. A subsidiary of U.S. Mortgage Corp. of Pine Brook, N.J., the company was founded 13 years ago. USMC officials also could not be reached for comment. According to The Credit Union Journal, CUNM had 50 offices and 200 employees. CUMAnet, in Basking Ridge, N.J., told the newspaper that it would assist CUNM's credit union clients. "There are many, many good people at CU National and our hearts go out to them during this difficult time," said CUMAnet president Daniel von Schaumburg. "Even though they are our direct competitor in the credit union space, we do respect them for their work in providing credit unions with mortgage lending packages to members who want to become homeowners."

Obama administration officials have decided to limit refinancings of "underwater" Fannie Mae and Freddie Mac mortgages to a loan-to-value ratio of 105% so the new mortgages can be securitized, according to Federal Housing Finance Agency director James Lockhart. "That is why the line is drawn there," Mr. Lockhart said at a meeting of government accountants. The refinancing program is designed to lower borrowers' mortgage rates, which the Federal Reserve Board and Treasury Department are trying to drive down by aggressively purchasing GSE mortgage-backed securities. About 75% of the mortgages with LTVs above 80% the government sponsored enterprises own or guarantee fit under the 105% cap. If the program is successful, four million to five million mortgages may be refinanced. Servicers are already "overwhelmed," Mr. Lockhart said, and they didn't want to push the LTV any higher because of capacity issues. He also noted that the GSEs have other loan modification programs to deal with more problematic underwater mortgages.

Bensalem, Pa.-based ISGN Corp. said it has increased the flexibility of its LenStar technology, a Web-based attorney and referral communication system for the default management market. ISGN said at the MBA Servicing Conference in Tampa that LenStar's new functionality enables servicers to adapt to market changes. Among the enhancements are an executive dashboard that allows users to create customized views of LenStar reporting data based on their own management criteria. This dashboard provides a complete view of the loan timeline, including vendor and user performance, file status and portfolio management. LenStar also now offers a Referral Toolkit, which can be used to create new referral types such as additional bankruptcy types, litigation, lien monitoring, real estate-owned, loss mitigation and title claims.

Wingspan Portfolio Advisors, a Carrollton, Texas, firm specializing in saving seriously delinquent loans from foreclosure, has selected SigniaDocs' e-vaulting and e-signing capabilities to provide faster service for its loan modification efforts. "One of the most common reasons for loan modifications to fail before they get started is that borrowers will often give up on the transaction during the period between agreeing to the loan modification and signing the paper documents that create the new loan," said Steven Horne, Wingspan Portfolio Advisors' founder and CEO. "With SigniaDocs' eModification service, it all happens very quickly, and speed is essential to making the process work. They allow us to execute loan modifications in minutes by using the Internet and SigniaDocs' eMortgage electronic vault, instead of waiting for courier services." Wingspan Portfolio Advisors works mainly with borrowers who have given up hope because they are so far behind on their payments that lenders have often already begun the foreclosure process. Getting the loan modification executed quickly, Mr. Horne says, is essential to that process.

Loan servicers are incorporating more borrower verifications, such as those validating income and employment, into the evaluation process when considering borrowers for loan modifications according to Rapid Reporting. The Fort Worth, Texas-based vendor said at the MBA Servicing Conference in Tampa that until recently, loan servicers have largely relied on information compiled in loan origination when evaluating borrowers for loan modifications. Verifying income and employment reflects the servicing industry's move toward more thorough underwriting standards as the industry struggles to correct itself amidst the current foreclosure crisis. "We've seen a significant increase in loan servicers that are signing up for income verification for loan modifications, which represents a big change as servicers had previously not been involved with borrower qualifications," said Jay Meadows, chief executive officer of Rapid Reporting. "This indicates that the servicing industry is learning from industry problems and making definitive changes to proactively ensure higher quality loans. According to the Federal Bureau of Investigation, there is a strong correlation between mortgage fraud and loans that result in default or foreclosure, so it only makes sense to verify borrower information on loans in delinquency to ensure that the modified terms fit the borrower's capacity to repay the loan."

President Barack Obama is endorsing changes to the bankruptcy code that will allow judges to modify mortgages that were made in the "past few years" and don't exceed the $417,000 conforming loan limit, according to the president's foreclosure prevention plan. "This provision will apply only to existing mortgages under the Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don't clog the bankruptcy courts," the summary says. The bankruptcy legislation being proposed by the president is designed to help families that have "run out of other options." But they must certify that they tried to get a loan modification and worked with a servicer before filing for bankruptcy. The legislation also provides authority for the Federal Housing Administration and the Department of Veterans Affairs to pay partial claims in the event of a bankruptcy or loan modification "so the holders of loans guaranteed by FHA and VA are not disadvantaged."

Residential servicing firms could reap rewards of up to $2,000 per year (per loan) under the White House's new initiative to help struggling homeowners. Under the "stability" portion of the Obama administration's $75 billion Homeowner Affordability and Stability Plan, servicers will receive an upfront payment of $1,000 per loan for each eligible modification. As long as the borrower stays current on his modified loan the same servicer can receive a second payment of another $1,000 at year-end. The White House/Treasury/HUD program also is offering a $2,000 incentive to lenders and mortgage holders if they modify "at risk" loans before the borrower actually goes delinquent. Under this clause the servicer can make $500 and the investor $1,500 per loan. Roughly $75 billion in taxpayer money will be used to help 3 million to 4 million homeowners that might lose their homes to foreclosure.

The Fitch Commercial Real Estate CDO Delinquency Index increased by 111 basis points in January as 20 newly delinquent loans pushed the index to 3.83% for January 2009, compared to 2.72% in December 2008. "The inherently transitional nature of CREL CDO collateral has resulted in an increasing number of these assets becoming delinquent or failing to meet expectations in this stressed economic environment," said Fitch senior director Karen Trebach. Fitch said it anticipates that delinquencies on loans backed by land for development, turnaround projects and construction properties will continue to increase as interest reserves burn off and sponsors become unable or unwilling to come out of pocket to cover debt service payments. Meanwhile, defaults on three 2007 vintage loans ranging in size from $130 million to $225 million led to a 27 basis point increase for January U.S. commercial mortgage-backed securities loan delinquencies to 1.15%, according to Fitch. "High-profile loans secured by larger properties, which were often not stabilized at transaction issuance, have begun to default," said Susan Merrick, managing director and head of the U.S. CMBS group. Fitch said it expects that performance defaults on larger loans will push up the loan delinquency index in coming months, to approximately 3% by year-end 2009. With pools consisting of many larger assets, the 2006 and 2007 vintages are likely to be the largest contributors to delinquencies.