Servicing

The Mortgage Bankers Association Tuesday afternoon asked Congress to provide short-term government guarantees on warehouse lines of credit to address what it believes is a liquidity crisis facing non-depository residential funders. The trade group also thinks it might be a good idea to allow Fannie Mae and Freddie Mac to buy participations in warehouse lines of credit, a move it thinks will add liquidity to the sector. In years past mortgage bankers -- and warehouse executives -- were adamantly opposed to allowing the GSEs to get anywhere near the warehouse niche. MBA claims warehouse lending capacity has shrunk to just $25 billion or so compared to $200 billion two years ago. "This sub-crisis is the result of a shortage of warehouse lines of credit, meaning independent mortgage bankers are doubly hamstrung to originate new mortgages threatening their viability," said MBA chief John Courson in written testimony before the House Financial Services Committee. According to exclusive survey figures compiled by National Mortgage News, there are just 10 or so active warehouse lenders compared to 30 two years ago. Many warehouse providers have either failed or closed down that line of business including most of the Wall Street firms that played in the space. Active warehouse firms include Horizon Bank, Flagstar, GMAC-RFC, National City, and a few others. MBA wants the government to provide federal guarantees on warehouse lines for 12 to 24 months -- but only on Fannie Mae, Freddie Mac and government-backed loans, which currently accounts for most of the market.

Under a pilot program involving reduced documentation loans from California, Nevada and other high delinquency states, Freddie Mac is turning calls over to third-party servicers to perform loan workouts. Ingrid Beckles, Freddie Mac's senior vice president for default asset management, said the strategy is designed to help lenders manage "unprecedented call volume" by directing calls to a specialist in handling alt-A and other high-risk loan products. Under the pilot, a selected portfolio of 5,000 loans that are at least 60 days delinquent will be given to a specialty servicer that can implement a Freddie Mac workout option, including a streamlined loan modification. Ocwen Financial Corp. is one of the servicers Freddie Mac has selected for the pilot. Freddie Mac said that alt-A mortgages account for half of its seriously delinquent home loans.

The number of vacant houses for sale edged up 2.3% in 2008 and remains stubbornly high at 2.23 million units, according to the U.S. Census Bureau. The number of vacant houses on the market rose above two million in the fourth quarter of 2006 and has not retreated due to distress in the housing market and rising foreclosures. Earlier in the decade, the number of vacant homes for sale averaged 1.25 million. This inventory of vacant new and existing homes is concentrated in the most troubled housing markets -Arizona, California, Florida, Nevada, Michigan and Ohio. The National Association of Home Builders estimates that builders reduced their inventory of unsold homes by 100,000 units since December 2007. But they still have an inventory of 400,000 to 450,000 of newly constructed and vacant homes, despite a precipitous drop in building over the past 18 months. The Census Bureau report also shows the nation's homeownership rate dropped to 67.8% in the fourth quarter from 68.9% in the same period in 2007.

Senate Republicans want to attach several housing amendments to an economic stimulus bill that would expand a homebuyer tax credit and create an interest rate buydown program that would reduce mortgage rates to 4%. "We must stabilize home values if we are going to reverse this deep and precipitous slide in our economy," said Sen. John McCain, R-Ariz. The mortgage rate buydown program would stimulate home sales and soak up excess inventory, according to Sen. John Ensign, R-Nev. It would also help 40 million creditworthy homeowners save $400 per month, the Nevada senator said. "This is like a permanent tax cut, which economists believe is the best stimulus for our economy." Republicans also are proposing to expand a $7,500 first-time homebuyer tax credit to $15,000 or 10% of the purchase price that would be available to all buyers. The tax credit could be used in one year or spread out over two years. To facilitate loan modifications, the Republicans want to shield servicers from investor lawsuits. The amendments also would change a one-time $1,000 fee for loan modifications to $60 a month over the life of the loan.

Otéra Capital, a Montreal-based commercial real estate financing subsidiary of the Caisse de dépôt et placement du Québec, is purchasing the ownership interest held by Todd Schuster in the Needham, Mass.-based commercial real estate finance company CW Financial Services. Otéra will now control 81% of the firm. Mr. Schuster, who had been chief executive of CWFS, has resigned. Charles Spetka, president of CWFS units CWCapital Investments and CWCapital Asset Management, is replacing him. Michael Berman will assume the role of CEO of CWCapital, the company's Fannie Mae DUS, Freddie Mac and FHA lending entity. Mr. Berman has served as president of CWCapital since 1991 and will report to Mr. Spetka in this new role. In a statement, Mr. Schuster said since CDP invested in CWFS in 2002, annual loan production has grown from $600 million to a peak of nearly $3 billion and the servicing portfolio has grown from $3 billion to $10 billion. In addition, the company has launched an investment management business that currently has $11 billion of assets under management as well as a special servicing company that is the named servicer on $174 billion of underlying collateral.

Reflecting continuing loan performance woes, Standard & Poor's has downgraded to "D" thousands of often already speculative-grade ratings on U.S. residential mortgage-backed securities, especially in the alternative-A credit sector. S&P also put thousands of U.S. RMBS ratings on watch. In the alt-A sector, S&P downgraded 1,078 alt-A ratings from 650 deals. In the subprime credit sector, it downgraded 737 ratings on 516 transactions. It also downgraded 117 ratings from 94 prime deals. In addition, downgrades also hit 89 ratings on 68 closed-end second-lien deals. Seventy-three ratings from 48 scratch-and-dent RMBS deals have slid to "D." S&P also downgraded 11 classes from a miscellaneous set of seven RMBS deals in which four of the downgraded classes are backed by re-REMIC transactions, three are backed by seasoned loan collateral, two are backed by home equity line of credit collateral, one is backed by prime-conforming collateral and one is backed by first-lien high loan-to-value collateral.

Citigroup, New York, said it authorized the use of $25.7 billion of Troubled Asset Relief Program Funds for its residential mortgage activities in the fourth quarter 2008 but only an undisclosed portion of the money was spent during that period. That is by far the biggest chunk of the $36.5 billion of TARP money authorized for use during that period. The company said it made $75 billion in new loans of all types during the fourth quarter. The report also covered Citi's activities with troubled residential mortgage borrowers. The company said it has worked with approximately 440,000 homeowners whose mortgages totaled $43 billion since the start of the housing crisis in an effort to prevent foreclosure. In 2008, Citi said it kept approximately four out of five distressed borrowers whose loans it serviced in their homes. Citi said it is adopting the streamlined model for post-delinquency modification programs developed by the Federal Deposit Insurance Corp. In addition, through the Citi Homeowner Assistance Program, it is reaching out to those who may be experiencing some form of economic distress although they are current on their mortgage payments.

Jim Miller, a former managing director at J.P. Morgan Chase, has joined First American Information and Outsourcing Solutions as managing director of operations for the company's outsourcing and technology business lines. In his new role, Mr. Miller will be responsible for the unit's seven businesses, which include national default outsourcing, national claims outsourcing, loss mitigation services, loan production solutions, real estate owned servicing, default technologies and global offshore services. Mr. Miller has nearly 25 years of experience in prime, nonprime, and home equity servicing. He managed J.P. Morgan Chase's default servicing operations for the past three years.

Even though the U.S. housing market is still flat on its back, there were signs of improvement in December, according to the National Association of Realtors' pending home sales index. But NAR president Brian McMillan, a broker with Coldwell Banker, is warning that a rebound in the market is not necessarily afoot. "Housing activity remains weak compared with potential demand and the market is fragile given the economic drop," he said. NAR's pending home sales index (PHSI) rose to 87.7 in December, the best reading since September. The biggest improvements in the PHSI came in the Midwest and South with declines in Northeast and West. NAR's index, as the name indicates, is based on pending sales of existing homes where a contract for sale has been signed. The higher the index, the healthier the housing market is. Falling interest rates and declining home prices have been credited with the improvement.

Home values fell almost 12% nationally in 2008, with much of the decrease coming in the fourth quarter, according to Zillow.com. That means homeowners lost $3.3 trillion in equity value for the year, with $1.4 trillion of the decline in housing values coming during the fourth quarter alone. Home values have now fallen for eight consecutive quarters, Zillow said. Since the housing market's peak in 2006, homeowners have lost $6.1 trillion in equity value, according to the Zillow index. Foreclosure sales made up more than one of every five transactions last year, Zillow said. Another 11% of sales in 2008 involved short sales. Zillow estimates that 18% of homeowners with a mortgage at the end of last year were "underwater," meaning they owed more than the home was worth.