Servicing

New home sales in the Golden State were anything but golden in November, according to the latest figures released by the California Building Industry Association. Sales for the month were 63% below November 2008, "which was an extremely bad month," says CBIA President Robert Rivinius. "And it's looking like December wasn't any better." A mere 1,336 new homes and condominiums were sold in November in the subdivisions tracked by Costa Mesa-based Hanley Wood Market Intelligence, compared to 3,592 a year earlier. Single-family sales were down by 62%, while townhouse and condo sales were off 71%. The decline is a result of the usual slowdown in sales around the holidays plus the continued difficulty in securing financing. The median base price of homes sold during the 12-month period fell 13.5%. CBIA's Mr. Rivinius continued to hammer on lawmakers in both Sacramento and Washington to deal with the foreclosure situation and enact a stimulus package that has housing at the top of the list.

The Government National Mortgage Association will consider the effect of the Hope for Homeowners program before taking action against security issuers whose pools have high delinquencies. The agency requires issuers to maintain delinquency rates on outstanding pools below certain thresholds. Ginnie can take a variety of actions against a lender that fails to do so, such as forbidding it to issue new mortgage-backed securities or yanking its license to do business with the agency. In a memo to lenders dated Friday, Thomas R. Weakland, the agency's acting executive vice president, wrote that Hope for Homeowners loans "may experience higher delinquency levels than other FHA loans." The higher delinquency rates may become starkly apparent, because, as Mr. Weakland pointed out, Hope for Homeowners loans can only be pooled into one type of Ginnie security. Hence, "if an issuer's delinquency levels exceed Ginnie Mae's threshold, Ginnie Mae will consider the impact of H4H loans when determining the nature of any action it may take." Hope for Homeowners is a temporary program created last year under which borrowers who are at risk of being foreclosed on can refinance into a new, more affordable loan insured by the Federal Housing Administration. Ginnie also said Friday that Hope for Homeowners loans must have a term of 30 or 40 years, not one in between, to be included in its securities. The agency will create separate pools for the 40-year loans, which may not be commingled with the 30-year ones, Mr. Weakland wrote. Originally the maximum term for the new loan was 30 years, but this month the FHA extended it to 40 years, and said it would let lenders set the term at "some intermediate number of years."

Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be "underwater" soon, according to a former Fannie Mae executive who served as the GSE's chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008. Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cramdowns, the government will be "cramming down the loans they are responsible for," Mr. Pinto said.

The number of large commercial real estate loans going into default is on the rise, according to Fitch Ratings. In December, the delinquency rate on loans packaged into commercial mortgage-backed securities rose to 0.88%, Fitch said, due in large part to the default of two loans with balances greater than $100 million. In November, two loans greater than $70 million went into default, and Fitch managing director Susan Merrick expects more large CMBS loans to go into default. "What began as weakness in the performance of smaller properties located in tertiary markets now includes larger collateral in secondary and primary markets," she said. Fitch also noted that young loans from 2008 CMBS deals are seeing defaults rise at a historically fast pace. Fitch blamed high leverage on loans in recent CMBS vintages coupled with the economic recession for the rising default rate. Fitch predicts the CMBS default rate will rise to about 2% by the end of this year.

MGIC Investment Corp. is not going to be profitable in 2009, the top executive at the Milwaukee-based mortgage insurer declared, even though its fourth quarter and full year results were improved over the previous year. Curt S. Culver, chairman and chief executive, said falling home values and the impact of the recession have caused a significant increase in delinquencies in the fourth quarter at MGIC. However, in spite of the difficult operating environment, he continued, MGIC has adequate resources to meet its claim obligations. Total delinquencies, including bulk loans, was 12.37% at the end of the fourth quarter, up from 7.45% one-year prior. Remove the mostly subprime bulk loans from the equation and MGIC had a delinquency rate of 9.51%, up from 4.99% at the end of 2007. The company reported a net loss for the quarter of $273.3 million ($2.21 per share), an improvement over the fourth quarter 2007 loss of $1.47 billion ($18.17 per share). For the full year, MGIC lost $518.9 million ($4.55 per share), compared with a loss of $1.67 billion ($20.54 per share) one-year prior. New insurance written during the fourth quarter was just $5.5 billion, a substantial decrease from the $24 billion written in the fourth quarter 2007.

Fannie Mae's and Freddie Mac's acquisition of foreclosed properties jumped 25% in the third quarter to a 9,167 monthly rate and the GSEs' inventory of real estate owned also jumped by 25%, according to their regulator, the Federal Housing Finance Agency. The mortgage giants held 95,550 REO properties as of Sept. 30, compared to 76,150 at the end of the second quarter. The latest data also show that the government-sponsored enterprises started 47,100 foreclosures in October, up from 41,000 in September and completed 17,000 foreclosure sales, up from 15,600 in September. Meanwhile, the Fannie and Freddie delinquency rates also continue to rise. But FHFA says loan modifications are increasing. "Loan modifications completed increased to 5,639 for October from a monthly average of 4,475 for the third quarter - an increase of 26%," the regulator says in a report to Congress. The two companies own or guarantee 30.6 million mortgages. In an attached letter, FHFA director James Lockhart said he met with the some of the largest trustees and servicers of private-label Alt-A and subprime mortgage securities on Dec. 23. "As a result of the discussion, the group agreed to work on a set of best practices and alternatives to eliminate as many of the barriers to modifying loans as possible and to encourage public and private participants to work together to eliminate obstacles," Mr. Lockhart says in the Jan. 16 letter.

Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be "underwater" soon, according to a former Fannie Mae executive who served as the GSE's chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008. Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cramdowns, the government will be "cramming down the loans they are responsible for," Mr. Pinto said.

Credit quality -- including mortgages -- continued to deteriorate at Bank of America, contributing to its fourth quarter net loss of $1.79 billion. The nation's largest bank released earnings Friday morning, a day after the Treasury Department agreed to invest another $20 billion of taxpayer money into it. The government also will backstop as much as $118 billion in potential losses on various assets, primarily those brought by Merrill Lynch. The 4Q loss includes Countrywide's operations, but not Merrill Lynch's. Preliminary figures show that Merrill Lynch -- a large issuer of subprime ABS and CDOs -- lost $15.31 billion for the fourth quarter. At year end BoA had $18.23 billion in non-performing assets, compared to $5.95 billion a year earlier. The company increased its loan loss provision to $8.54 billion. During 2008, BoA and Countrywide modified approximately 230,000 home loans. In the fourth quarter, BoA extended $115 billion in new credit: $45 billion in mortgages, $7 billion of commercial real estate, and roughly $5 billion in home equity products. For the full year, BoA earned $4.01 billion.

Steep losses on asset-backed securities and additional loan loss provisions contributed heavily to Citigroup's $8.29 billion fourth quarter loss. Lower mortgage servicing income, as well as rising delinquencies on both first and second mortgages, also weighed on Citi's results, contributing to a 22% decline in consumer banking revenue. Citi's consumer banking division, which includes its mortgage operations, suffered $1.6 billion in fourth quarter credit losses. And the company added $2 billion to its consumer banking loan loss reserves, reflecting an increased volume of loan modifications across product lines. Overall, the North America consumer banking segment lost $2.2 billion in the fourth quarter. Meanwhile, Citi's securities and banking group lost $10.6 billion, reflecting writedowns on derivatives and securities, including a $4.6 billion downward adjustment on subprime mortgage securities. Citi also wrote down Alt-A mortgages, net of hedges, by $1.3 billion. It wrote down commercial real estate positions by nearly $1 billion. Citi also announced it is splitting its business into two operating units, Citicorp and Citi Holdings. Citicorp will be the company's global universal bank in more than 100 countries. Citi Holdings, described as "non-core" businesses, will be made up of brokerage and retail asset management, local consumer finance, and a special asset pool whose management will focus on managing risks and losses. Citi said management will focus on "value enhancing disposition and combination opportunities" for the Citi Holdings businesses as opportunities emerge.

Mortgage rates will remain below 5% for the first half of this year which will help stabilize home sales and keep a refinancing wave going, according to a consensus forecast by banking economists. "A surge of refinancings is already under way and lower home prices and interest rates will gradually support an increase in home sales," said Bruce Kasman, chief economist at JPMorgan Chase. Mr. Kasman is chairman of the American Bankers Association Economic Advisory Committee, which expects the government's efforts to stabilize the financial system and stimulate the economy will lead to a recovery in the second half with gross domestic product rising to 3.8% in the fourth quarter of 2009. However, the bank economists see house prices continuing to fall and mortgage delinquencies rising throughout 2009. The refinancing wave will be "substantial," predicted Mr. Kasman, noting that a high rate of applications may be rejected and cash-out refis will be modest.