Servicing

Flagstar Bancorp of Michigan, one of the few remaining wholesale residential lenders left, reported a net loss of $200 million in the fourth quarter, after taking $292 million in charges during the period. In the fourth quarter, Flagstar originated $5.4 billion of residential mortgage loans, compared to $6.5 billion one year prior. For the full year, it funded $28 billion in home mortgages, a 9% gain from 2007. At year-end it serviced $55.9 billion, with a weighted average servicing fee of 33.3 basis points. In the fourth quarter of 2007 it lost $30.1 million. Among the items associated with the 4Q 2008 charges: an increase in the loan loss provision to ($176.3 million); a $270 million writedown on the value of its mortgage servicing rights (although this was mostly offset by hedging gains); a $16.4 million valuation adjustment; a $9.8 million reserve established to cover anticipated losses in its captive mortgage reinsurance arrangement; and an 'other than temporary' impairment of $43.6 million related to investment securities available for sale. Flagstar's full year loss was $257.3 million or $3.57 per share.

The top executive at James B. Nutter and Co., Kansas City, Mo., is citing a lack of warehouse capacity for both the company's decision to end wholesale production of traditional forward mortgages, and a new moratorium it placed on accepting reverse loan applications from brokers. James B. Nutter Jr., president of the family-run mortgage firm, said the warehouse funding problem exists throughout industry. The company, a non-depository, will continue to close and fund forward and reverse loans in its existing pipeline. The lender estimates it closed 1,100 reverse mortgage loans in January. Mr. Nutter said he hopes to resume wholesale reverse production in March. He added that the company would consider re-entering the wholesale forward mortgage production channel if it gains access to additional warehouse capacity. Nutter & Company's retail business remains strong, he said.

Lehman Brothers Holdings -- which filed for bankruptcy protection back in the fall -- has been shopping around its alt-A servicing division in recent months but with no takers. At one point the unit, Aurora Loan Services of Colorado, had $120 billion in servicing rights on its books. It's unclear how much of that portfolio is servicing versus subservicing contracts. ALS was both a funder and servicer of alt-A loans but also had ventured into subprime in recent years. One investment banker, requesting anonymity, said ALS is housed under Lehman Brothers Bank FSB of Delaware, which was not a party to the bankruptcy. A few years back Lehman hired away CEO Tom Wind from Chase Home Finance to manage its mortgage operations. A spokeswoman for Lehman in New York had not returned a telephone call at press time.

In the fourth quarter 2008, Bank of America, Charlotte, N.C., lent $45 billion through its mortgage unit, of which $11.3 billion went to low- and moderate- income borrowers. This was one of the findings of its first Lending & Investing Initiative, which the bank said covers its business activity in 10 sectors key to reviving the U.S. economy. BofA said in 2008 as part of its loss mitigation efforts, it modified approximately 230,000 mortgage loans representing over $44 billion in financing. Commercial real estate lending in the fourth quarter totaled nearly $7 billion. Through the end of October 2008, the bank delivered nearly $2 billion in "green" commercial real estate debt and equity transactions. For the full year, BofA invested $1 billion in affordable housing by using Low Income Housing Tax Credits. BofA and the recently acquired Merrill Lynch together made $450 million of loans and investments to Community Development Financial Institutions. In the fourth quarter of 2008, BofA had net purchases of $20 billion in mortgage-backed securities.

Mortgage servicers provided 239,000 loan workouts in December, a record monthly total, with modifications accounting for a slim majority of the foreclosure prevention actions, according to Hope Now. Monthly workout volume has now exceeded 200,000 for four consecutive months, Hope Now said. For all of 2008, servicers worked out 2.3 million home loans to prevent foreclosure, Hope Now said. The alliance of servicers said the loan workout share of workouts, in which terms of a mortgage change, also increased. Modifications accounted for 122,000 of the December workout volume, exceeding the repayment plan share of workouts for the first time.

The Pennsylvania Office of Attorney General said it has reached a $150 million settlement with Countrywide Financial Corp. to obtain mortgage relief and cash assistance for thousands of Pennsylvania residents with subprime loans sold through Countrywide. More than 10,000 homeowners may be eligible for loan modification, relocation assistance and mortgage foreclosure relief as part of the negotiated settlement, according to the AG's office. Attorney General Tom Corbett's investigation found that Countrywide violated the state's consumer protection law by misrepresenting in its advertising that mortgage and loan packages were created by "personal loan consultants" and tailored to the needs of individual consumers. The AG alleged that the lender failed to exercise due diligence and increased its sales and profits by relaxing its underwriting standards, which allowed consumers to obtain loans that were risky and ill-suited for their income levels. He said Countrywide engaged in "bait and switch" tactics by offering one interest rate, but actually giving a higher one. Mr. Corbett said that this settlement will allow eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining modified and more affordable loans. Countrywide has agreed to provide more than $2.7 million in foreclosure relief benefits. According to the agreement, Countrywide - which is now part of Bank of America - has made a commitment to put a freeze on the foreclosure process until each eligible consumer has had his or her financial status verified.

REOTrans, Los Angeles, has seen some $45 billion of defaulted-upon real estate sold through its online system since the company was founded in 2003. More than a half a million properties have been handled through the platform, according to CEO Chris Saitta. Mr. Saitta describes REOTrans as both a workstation and a marketplace. The workstation is a configurable system that allows lenders and servicers to execute their REO, short sale and loss-mitigation strategies with real-time oversight and compliance, according to the CEO. The marketplace is an exchange where 6,500 sellers, 10,600 vendors, 485,000 real estate agents as well as other market participants handle more than 150,000 transactions every day, the company said. REOTrans operates offices in Los Angeles and Newport Beach, California; Dallas, Texas; Portland, Oregon; and Chicago, Illinois.

Illiquid asset marketplace SecondMarket, New York, plans to launch its markets for mortgage-backed securities, collateralized debt obligations and certain limited partnership interests in the first quarter of this year. The limited partnership interests that will be allowed when the platform is expanded will be in hedge funds, venture capital funds and private equity funds, the company said. The company provides a free online trading platform that uses a proprietary matching algorithm to connect buyers and sellers, with bidding on listed assets restricted to qualified institutional buyers and accredited investors. The platform also provides access to research and market activity information. The company has traded $1 billion face value of securities since 2004, including auction-rate securities, bankruptcy claims and illiquid blocks of restricted securities in public companies.

The Federal Housing Finance Agency, which has just instituted a final rule on the dollar size of Fannie Mae's and Freddie Mac's respective on-balance sheet holdings, also is seeking comment from the industry regarding what criteria should govern their holdings in the future once they return to health. By law, Fannie's and Freddie's portfolios cannot grow any larger than $850 billion each, a cap that pertains to the last day of this year. After that, each must shrink its portfolio with the eventual goal of holding just $250 billion in mortgage-related assets. FHFA has published a list of 20 issues including "benefits and risks associated with mortgage portfolios" that it wants comments on. Respondents have 120 days to send in their answers. Fannie and Freddie were taken over by the government in early September and continue to bleed red ink.

The Federal Reserve Board said it would modify certain distressed residential mortgages that it inherited when it made loans at the discount window to Bear Stearns and American Insurance Group. It's unclear how many consumers might benefit or what the dollar amount involved might but the Fed is expected to try different methods to help struggling mortgagors, including interest rate and principal reductions, loan term extensions, and payment deferrals. AIG - which is mostly owned by the government - and Bear (now the property of JPMorgan Chase) pledged mortgage-backed securities to the central bank in exchange for discount window loans. Fed chairman Ben Bernanke told Congress that the Fed governors have adopted a policy to help avoid preventable foreclosures based on its authority under the Troubled Asset Relief Program. The Federal Reserve Bank of New York is expected to hire asset managers to handle the workouts.