Servicing

The Federal Home Loan Bank of New York is concerned it may have to take an impairment charge against $2 billion in private-label mortgage-backed securities and it has reduced the fourth quarter dividend to 1.1%. The FHLBank has subjected its private-label MBS to a "substantial review," under the "other than temporary impairment" accounting rules that should be completed in late February, according to FHLBank president Alfred DelliBovi. "Based on our current knowledge, we do not expect to record material impairment charges in relation to our non-agency portfolio," Mr. DelliBovi said in a report to shareholders. Once the OTTI review is completed, the board of directors will consider a supplemental dividend. The New York bank paid a 3.5% dividend in the third quarter.

Ellington Management Group and six of its hedge funds sued Ameriquest Mortgage Co. and several subsidiaries for allegedly misrepresenting the loans backing securities the fund manager bought for $354 million from 2005 to 2007. The bonds Ellington purchased, which are known as "net interest margin" securities, are extremely risky by nature. They generally only pay out if, near the end of the terms of the deal, reserves set aside to absorb losses on all of the other tranches have not been exhausted. But Ellington alleges in a complaint filed in the U.S. District Court for the Southern District of New York last week that a large number of loans backing these securities failed to meet Ameriquest's own stated underwriting criteria, as described in the prospectus and in other places. As a result, the income streams from the securities were not what Ellington expected. The complaint says Ellington asked Ameriquest to provide loan samples in 2007, after a high number of mortgages backing the securities defaulted. The fund manager said its analysis revealed that a large percentage of these defaulted loans violated Ameriquest's underwriting guidelines. Additionally, Ellington's analysis showed that many of the underlying loans broke laws against predatory or high-cost lending by, for example, violating "borrower's bill of rights" laws, charging exorbitant fees or failing to give proper disclosures and notices. Ellington alleges that internal documentation in Ameriquest's possession at the time it created the securities showed the deficiencies, which "were so apparent that they would have been readily discovered had the mortgage company defendants conducted even a minimal compliance review."

Steve Dibert, founder of MFI-Miami, LLC, a forensic mortgage auditing firm in West Palm Beach, Fla., is launching MFI-Mod Squad LLC, to expose illegally run loan modification and foreclosure rescue companies and the people who run them. According to Mr. Dibert, these firms convince desperate homeowners to pay them huge upfront fees by playing on homeowner's fears when their real intent is to take the home owner's money and run. Many operate by doing business in states that have not adapted their laws to include loan modifications, he said. They solicit clients in states outside their own even if the state where the homeowner lives has laws that govern loan modifications, Mr. Dibert said. "This is done intentionally because they think the client won't know how to find them or they think a homeowner facing foreclosure does not have the funds to pursue them across state lines or in federal court. Some of these companies are even run by convicted felons who are barred from working real estate or lending." He hopes the site will give homeowners a place on the Internet where they can educate themselves about loan modifications and these companies so they can protect themselves. The website, www.mfi-modsquad.com, is in a blog format so homeowners can share their stories.

Homes in the Western U.S. and South led in price declines in November, according to new figures compiled by the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac. FHFA - which calculates its numbers solely on the value of homes collateralizing mortgages bought or guaranteed by Fannie and Freddie - said that nationwide home values fell 1.8% in November compared to the previous month. Year-over-year, prices fell 8.7%. In November the steepest declines occurred in the West North Central region of the nation (-2.7%), Mountain (-2.4%), South Atlantic (-2.3%) and Pacific (-2.2%). The Pacific region, which includes California, had the largest 12-month decline: -22.1%.

House Financial Services Committee chairman Barney Frank, D-Mass., is looking to attach major amendments to the Hope for Homeowners program, the economic stimulus bill or any bill that is moving quickly. "It is a major priority for us," committee spokesman Steve Adamske told MortgageWire. The amendments to the Hope program would revamp the Federal Housing Administration refinancing program to make it more attractive to borrowers and servicers. The changes would eliminate the 3% upfront insurance premium, cut the 1.5% annual premium in half and drop shared appreciation where the government could take 50% of the price increase when the house is eventually sold. For servicers, the bill ensures they will receive a fee for refinancing underwater mortgages and eliminates liability for a first payment default. Rep. Frank incorporated the Hope changes in a bill that spells out how the new Obama administration should spend the remaining $350 billion of the Troubled Asset Relief Program funds. The House passed the TARP bill (H.R. 384) by a 260-166 vote on Wednesday. But the Senate is not expected to consider H.R. 384. So Rep. Frank is looking for alternative legislative vehicle for the Hope amendments. The Senate already passed a resolution that allows the new administration to use the remaining $350 billion TARP funds and House action is unnecessary.

With demand for its product red hot, the Government National Mortgage Association issued $24 billion of mortgage-backed securities in December, and moved to ask the Obama Administration for a 50% increase in staff. "We sent in a request for additional people," GNMA president Joseph Murin told MortgageWire. The guarantor wants to add 30 people to its current staff of 61. Mr. Murin said the Obama transition team has supported his request. "We're just waiting for appropriations," he said. "We're looking for analytic types." For calendar year 2008 GNMA issued a record $270 billion in MBS. In recent selected months it has been issuing even more MBS than Fannie Mae and Freddie Mac. (For the full story see the Monday edition of National Mortgage News.)

In the wake of the poor earnings report and disclosures about additional government assistance at Bank of America Corp., Charlotte, N.C., Fitch Ratings has cut the long-term issuer default rating on the company's bank subsidiaries from "AA-" to "A+". The parent company's long-term IDR, as well as the IDR of newly acquired Merrill Lynch & Co., were affirmed at "A+". Furthermore, the preferred stock ratings were cut from "A" to "BBB" and placed on ratings watch negative. The actions, Fitch said, are because the combined BofA/Merrill Lynch would experience ongoing operating and asset quality pressures in the current environment. "The actions, which result in a convergence of BofA's IDR at its support floor, also reflect the fact that government support has been forthcoming and additional support will likely be provided in the future if necessary, due to BofA's prominence in the global and domestic banking system," said Fitch. Merrill Lynch's individual rating has been cut to "F", which Fitch said reflects its "view that this entity would likely not have survived absent assistance provided by the U.S. Treasury."

In a few weeks, President Barack Obama will lay out a comprehensive plan to stabilize the banks, revive credit markets and address the housing crisis, according to Timothy Geithner, the president's nominee to be Treasury secretary. The president of the New York Federal Reserve Bank told a Senate panel that the plan will include a bankruptcy provision to help struggling homeowners and possibly a proposal to move toxic assets off bank balance sheets into a "bad bank." Mr. Geithner stressed the comprehensive plan is still under development and he did not want to provide specific details. But he noted the administration wants to craft the bankruptcy proposal so it does not harm the mortgage market and drive capital away. "We are supportive of doing that in the most careful possible way," he said during his confirmation hearing. He also noted it's "enormously complicated" to draw up a bad bank plan that is cost effective. A team is looking at it today, he testified. "It is possible it will be part of the solution going forward." In stabilizing the banks, the administration wants to get the credit markets going again, including commercial and residential mortgage markets. "We also have to provide much more substantial direct support for credit markets," Mr. Geithner said.

The Prestwick Mortgage Group is brokering the sale of mortgage loan servicing rights on a $12 million portfolio of loans primarily backed by homes in Michigan. The average principal balance on the Fannie Mae loans is $57,412 with a weighted average note rate of 7.2% and a weighted average servicing fee of 0.2912%. The loans have an average seasoning of 125 months. All the loans are fixed rate. Bids are due on Thursday, January 29.

State Street Corp., Boston, has $15 billion of low-yielding securities maturing this year that it plans to re-invest in AAA-rated mortgage- and asset-backed securities at higher yields "if government programs begin to normalize markets." The company's chief executive and chairman Ronald E. Logue mentioned the plans for possible MBS/ABS purchases in conjunction with projections for net interest income in 2009, which he said he expects to be flat compared to 2008. The company on Tuesday said "ongoing illiquidity in the markets" caused after-tax unrealized mark-to-market investment losses of $6.3 billion in 2008. It said that none of its securities are in default and all are current on principal and interest. In the fourth quarter, State Street's net income fell to $65 million from $223 million during the same period a year ago.