Servicing

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.

Mortgage banker Residential Capital Corp. -- whose parent recently completed a huge debt swap with bond holders -- continued to bleed red ink in the fourth quarter, posting another huge loss as both its loan fundings and servicing rights suffered. ResCap, which late last year closed its wholesale channel, funded $8.5 billion in home mortgages in the fourth quarter, a 59% decline from the fourth quarter of 2007. Its servicing portfolio fell to $393.8 billion at year-end 2008 from $453.3 a year earlier. Moreover, its non-accrual rate spiked to 23.93% at December 31, compared to 12.13% twelve months earlier. ResCap, a subsidiary of GMAC Financial Services, lost $981 million in the fourth quarter and $5.6 billion for the year. The loss comes despite the fact that it posted a $754 million gain on a debt swap with bondholders. GMAC, on the other hand, earned $7.46 billion in the fourth quarter thanks to proceeds from its debt swap, which extinguished billions of dollars in liabilities. GMAC said that overall the debt swap improved its results by a stunning $11.4 billion. GMAC, partly owned by General Motors and hedge fund giant Cerberus Capital, recently received $5 billion in government TARP money.

Firms that securitize mortgages and other assets will have to take a 10% first loss position on any new issuances under draft legislation being discussed in Congress. House Financial Services Committee chairman Barney Frank, D-Mass., said requiring a first loss hit for securitizers would stop Wall Street firms from providing liquidity on mortgages that borrowers cannot repay. Rep. Frank, a key player in any MBS related legislation, noted that assignee liability on MBS failed to stop bad underwriting practices during the subprime boom. The committee chairman is working with the Senate Banking Committee and Treasury Department in drafting proposals that the Obama Administration will present at an international summit on systemic risk in April.

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. He is being replaced by Charles Spetka, president of CWCapital Investments and CWCapital Asset Management, which are units of CWFS. 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, the loan servicing portfolio has grown from $3 billion to $10 billion, and we launched both an investment management business which currently has $11 billion of assets under management, and a special servicing company that is named servicer on $174 billion of underlying collateral."

MountainView Capital Holdings, Denver, has formed a new unit to provide mortgage servicing rights hedge advisory services. MountainView has hired industry veteran Gregory Harris as president of MountainView Risk Advisors to lead the risk management and hedge advisory company. Mr. Harris has over 19 years of experience in hedging the risks associated with MSR, most recently as manager of the MSR hedge program on the $500 billion plus portfolio at Washington Mutual. MountainView said its 19-year history in the brokerage and third party evaluation servicers for the MSR industry make the company well qualified to add hedge advisory services.

Lend America, a non-depository FHA lender based in Melville, N.Y., expects its origination volume to increase by almost 80% this year to $2.5 billion. The privately held company - which also will announce a new product launch this week - forecasts its servicing portfolio will grow to $1.5 billion by year-end, compared to just $223 million at the end of December 2008. Lend America is headquartered in an office building which once housed executives for American Home Mortgage, a non-depository alt-A and conventional lender/servicer that went bankrupt in the summer of 2007. A spokesman for the company provided the estimates to MortgageWire. Lend America uses warehouse lines to finance its production.

FirstFed Financial Corp., Los Angeles, which recently shut its mortgage wholesale production operations, lost $244.8 million ($17.91 per share) in the fourth quarter of 2008 because of a $220 million provision for loan losses. The company is now operating under an Office of Thrift Supervision cease and desist order. Its level of delinquent mortgage loans was affected by adjustable-rate mortgages which had reached their maximum allowable negative amortization and required an increased payment. In 2008, there were 1,741 loans with a total balance of $802.3 million that were scheduled to recast; in 2009, there are an additional 913 loans, with a total balance of $396 million set to recast. FirstFed chief executive Babette Heimbuch said "we are focused on modifying our adjustable-rate loans where possible so that borrower payments are affordable and stable." The company has $403.8 million in non-accrual single-family mortgage loans as of the end of last year, down from $445.2 million at the end of the third quarter.

Moody's chief economist Mark Zandi says that Troubled Asset Relief program funds should be used to "fund an aggressive foreclosure relief program." During a telephone press briefing with Senators Charles Schumer, D., N.Y., and Jack Reed, D., R.I., to press for passage of an economic stimulus bill, Mr. Zandi said that "mortgage writedowns" are needed to lower the re-default rate on loans that are modified to help borrowers stay in their homes. Also during the call, Sen. Schumer said that legislation to allow bankruptcy courts to modify loan terms would put pressure on bondholders who may be resisting the efforts of mortgage servicers to modify problem loans. Sen. Schumer also said he is confident that Democrats will get the 60 votes needed to avoid a filibuster against the stimulus legislation.

The House Financial Services Committee is slated to mark up a bill on Feb. 4 which, if passed, would revamp the Federal Housing Administration's Hope for Homeowners program and strengthen the Federal Deposit Insurance Corp. The Hope for Homeowners refinancing program has been considered to be a disappointment so far. But the bill, crafted by committee chairman Barney Frank, D-Mass., would eliminate the 3% upfront mortgage insurance premium and cut the 1.5% annual premium in half. If passed, FHA could charge a 55 basis point to 75 basis point annual premium based on the borrower's credit risk. The bill (H.R. 703) also contains a safe harbor for servicers that engage in loan modifications to shield them from investor lawsuits. This safe harbor provision applies to all loan modifications initiated before the end of 2011. Servicers would be required to regularly report their loan modification activities to the Treasury Department. H.R. 703 would also make the temporary hike in deposit insurance coverage to $250,000 permanent and increase FDIC's borrowing authority from $30 billion to $100 billion. Rep. Frank said he wants to move this bill quickly through the House and attach it to legislation the Senate must pass.