Servicing

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.

Freddie Mac said there will be no change to its business relationship with three mortgage insurance firms recently downgraded by Moody's Investor Service. The GSE clarified that there is no change to the "Type I" mortgage insurer status it has assigned to Mortgage Guaranty Insurance Corp., Radian Guaranty Inc., or PMI Mortgage Insurance. All three were downgraded by Moody's Investors Service on Feb. 13 to below investment grade. The share price of all three fell sharply Tuesday, along with the overall market. Moody's also downgraded United Guaranty Inc., Genworth Mortgage Insurance Corp. and Republic Mortgage Insurance - but maintained investment grade ratings on all three of those firms. A call to Fannie Mae to confirm if that company was still treating these firms as Type I insurers was not returned by deadline. In a statement, Radian Group chief executive S.A. Ibrahim said Moody's action did not reflect the company's "substantial claims-paying resource and the improving quality of our mortgage insurance portfolio." He added the move should not affect Radian's ability to insure loans sold to Fannie Mae or Freddie Mac. MGIC and PMI said they had no comment about the downgrade.

PHH Corp., which owns the nation's ninth largest residential servicer, said its ability to borrow money under existing lines of credit will not be impacted by a ratings downgrade on its debt taken by Standard & Poor's. S&P lowered its ratings on the company, including its counterparty credit rating, to BB+/B from BBB-/A-3 and maintained a negative outlook on the company. PHH Mortgage of Mount Laurel, N.J. services roughly $144 billion in residential mortgages. Its credit facility, struck back in early 2006, is for $1.3 billion. PHH Mortgage is the nation's largest private label funder and servicer.

Fannie Mae and Freddie Mac have joined several major banks in declaring a foreclosure moratorium, a move designed to give the Obama administration a few weeks to roll out its homeowner retention plan. During the Christmas holiday season the two GSEs put a foreclosure moratorium in place but it expired at the end of January. Fannie Mae said it is suspending all foreclosures and evictions of owner-occupied properties through March 6 in anticipation of the administration's national foreclosure prevention and loan modification program. President Obama, Treasury secretary Timothy Geithner and Housing secretary Shaun Donovan will present their plan to address the foreclosure crisis at a Feb. 18 event in Mesa, Ariz. Chase, Wells Fargo, Bank of America and Citigroup have all suspended foreclosures. Citigroup said its moratorium will extend until President Obama has finalized the details of the loan modification program or March 12, whichever comes first.

The pace of new home sales continued to slow in California - the nation's largest housing market - in December, according to new figures released by the California Building Industry Association. The latest sales and pricing report from the CBIA, in conjunction with Hanley Wood Market Intelligence, found that a paltry 1,117 units were sold in projects of 10 or more units in December. That's 59% fewer than the 2,695 units sold in December 2007. No sector of the for-sale market prospered: Sales of single-family homes were down 55%, townhouse sales were off 73% and condos were down 60%. "December is always slow for new-home sales," said Jonathan Dienhart, director of published research for HWMI, "but the problems with credit, consumer confidence and plummeting resale values made it an especially bad month." Mr. Dienhart said the December sales figures "should be close to the lowest absolute monthly sales number we see during this downturn." But he also warned that "the next couple of months are not likely to be much better."

The nation's top five residential servicing firms, as a group, now control almost 67% of all housing debt in the U.S., another sign that consolidation in the struggling industry is rampant, according to exclusive survey figures collected by National Mortgage News. The group of five < Bank of America, Wells Fargo, Chase Home, CitiMortgage and Residential Capital Corp. < owned $6.513 trillion in servicing rights at year-end, a 27% increase from the same period 12 months earlier. At year-end 2008 the top five had a combined market share of 66.94%, compared to 55.93% 12 months earlier. Twelve months prior to that, the five had a 52.92% share, which might have indicated that consolidation was not picking up much speed. (For the complete story and rankings see the print edition of National Mortgage News.)

Fitch Ratings has removed IndyMac and reverse mortgage lender Financial Freedom from its "rating watch evolving" list and upgraded its servicer ratings on IndyMac. Fitch raised IndyMac's servicer ratings for alt-A, subprime, prime and special servicing to a "2" level from a previous rating of "3." Fitch also affirmed Financial Freedom's "3" rating as a primary servicer of reverse mortgages. IndyMac Mac serviced 725,000 loans with an outstanding principal balance of $179 billion as of Sept. 30, 2008. Financial Freedom, a wholly-owned subsidiary of IndyMac, serviced 161,375 loans with an unpaid principal balance of $22.3 billion as of November 30, 2008. Over 90% of the Financial Freedom portfolio consists of reverse mortgages backed by the Federal Housing Administration. IndyMac was seized by the FDIC last summer. At the end of last year, the FDIC signed a letter of intent to sell IndyMac to a consortium of private equity investors controlled by IMB Management Holdings.