Servicing

The Financial Accounting Standards Board has approved by a 3-2 vote changes to its other-than-temporary impairment guidance that should reduce the amount of charges banks and other holders of mortgage-backed securities have to report in the fourth quarter. The new guidance (first proposed on Dec. 19) allows management to make a "reasonable judgment" of future cash flows of debt securities in determining impairment. Previous guidance required consideration of what "market participants" would use in determining the current fair value of MBS. At Wednesday's meeting, the board amended the proposed guidance to stress that MBS holders are required to assess collections of future cash flows even when the securities are performing and borrowers making timely payments. In making that assessment, MBS investors must consider all available information reflecting past events and current conditions in developing estimates of future cash flows. "I don't think it represents amnesty on OTTI in the fourth quarter. It still requires an assessment of the collectibility of the cash flows," said FASB member Leslie Seidman. Board members also stressed that the new guidance is not retroactive to the third quarter or previous periods.

The Houston-based Integrated Mortgage Solutions, a collateral protection resource for mortgage servicers, reported a three-fold increase in revenue in 2008 as well as product expansions and several industry awards. In 2008, IMS launched Asset Disposition and Management Services, a division to handle the company's suite of loss mitigation services, as well as its borrower outreach call center and short sale service. In addition, IMS expanded its services to include Notary Service, an e-service product that enables the signing and notarization of loan documents online. IMS' Notary Service eliminates barriers to and increases the success rate of loss mitigation packages, the company said. Cheryl Lang, president of IMS, said the company used 2008 to focus on taking steps to advance the company through professional affiliations. It became a member of USFN - America's Mortgage Banking Attorneys. IMS also received SAS 70 Type II certification from Washington, D.C.-based DuPont & Morgan LLP for control objectives and activities throughout the organization. "Through our product expansions and professional affiliations, IMS took strides in 2008 to ensure that our clients were receiving the most thorough and effective services possible," Ms. Lang said.

RealtyTrac, an online marketplace for foreclosure properties, and Assist-2-Sell, (http://www.assist2sell.com) a discount real estate company, have formed an agreement and strategic partnership that will allow Assist-2-Sell visitors to search nationwide for foreclosure properties, supplied in real time from RealtyTrac's comprehensive database of defaults, auctions and bank-owned homes. "We are committed to providing Assist-2-Sell and its visitors the most comprehensive set of foreclosure properties, and pertinent foreclosure-related editorial content, written to help consumers understand the foreclosure process and the steps involved with buying a home in foreclosure," said Rick Sharga, senior vice president at RealtyTrac. With real estate in a downturn in most markets nationwide, the foreclosure marketplace is one of the few growing areas in real estate. More than 750,000 homes received a foreclosure notice in the third quarter of 2008, up 71 percent from the third quarter of 2007, according to a RealtyTrac report. Said Mary LaMeres-Pomin, co-founder and co-chief executive officer of Assist-2-Sell. "This new alliance between Assist-2-Sell and RealtyTrac will add value to our customers and extend the reach of both companies on the Internet." To find out more, visit http://www.realtytrac.com.

Freddie Mac has priced a new 2.50% $3.5 billion five-year Reference Notes security due Jan. 7, 2014 at 99.437 to yield 2.621% or 95 basis points more than five-year U.S. Treasury notes. It also priced a new 1.50% $3 billion two-year Reference Notes security at 99.873 to yield 1.565% or 77 basis points more than two-year U.S. Treasury Notes. A syndicate of dealers headed by Barclays Capital Inc., Citigroup Global Markets Inc., and Goldman Sachs Group separately offered both securities. The Committee on Uniform Securities Identification Procedures identifier for the five-year security is 3137EABX6 and the CUSIP for the two-year security is 3137EABW8.

Federal regulators have decided to give banks and thrifts Community Reinvestment Act credit for helping to prevent foreclosures. "Examiners may consider favorably" the establishment of loan programs to modify and restructure mortgages for homeowners facing foreclosure, according to a newly revised "Interagency Questions and Answers Regarding Community Reinvestment." Banks can also receive community development services points by providing foreclosure prevention programs to low- and moderate-income homeowners. "The new and revised Questions and Answers encourage financial institutions to participate in foreclosure programs that have the objective of providing affordable, sustainable, long-term restructurings and modifications for homeowners who are facing foreclosure on their primary residences," according to a joint statement by the regulators.

The delinquency rate on home equity lines of credit reached its highest level ever in the American Bankers Association's third quarter 2008 consumer credit delinquency bulletin. The HELOC overdue rate rose seven basis points from the second quarter to 1.15% in the third, according to the ABA. The percentage of closed-end home equity loans that were past due rose to 2.63% from 2.56% in the previous quarter. And consumer delinquency rates likely have not peaked, according to ABA chief economist James Chessen. Noting that a composite ratio of overdue rates on eight types of consumer loans rose by 22 basis points to 2.90% in the third quarter, he said the data point to continuing financial stress for consumers. With job losses continuing to mount, he predicts that delinquencies on all types of consumer loans will continue rising in the coming quarters.

The National Association of Home Builders is willing to discuss a temporary change in the bankruptcy code to facilitate loan modifications as they lobby Congress for passage of key provisions to boost home sales. "It is a 180 degree turn for us. But desperate times call for desperate measures," NAHB chief executive Jerry Howard said. The builders are concerned foreclosures are making it difficult to sell off excess inventory and vacant homes are pushing appraisals on new homes down to liquidation prices. NAHB also supports a loan modification program developed by the Federal Deposit Insurance Corp. and it is urging Congress to provide $25 billion for the loan guarantees. The builder's main legislative agenda calls for passage of an interest rate buy-down program and an expanded homebuyer tax credit as part of the massive economic stimulus bill that Congress is expected to pass in mid-February. Builders and executives from related industries met in Washington Wednesday to lobby for the buy-down and tax credit provisions. NAHB estimates enactment could increase new home sales by 200,000 and existing home sales by 1 million this year.

In the face of the growing concern among middle age and older Americans about their ability to make their house payments, the AARP has put helping people facing foreclosure remain in their homes near the top of its agenda for the 111th Congress. Specifically, the AARP supports legislation that would give bankruptcy judges the discretion to modify the primary mortgage debt of people who can't afford to pay their loans. "Our political leaders need to make some tough choices," CEO Bill Novelli said at a press briefing outlining the group's legislative goals. Elaine Ryan, AARP's vice president for government relations and advocacy, said during a recent three-month period, more than 700,000 older Americans faced foreclosure. "It's not just first-time buyers, but seniors who are victims of predatory reverse mortgages and persons who had houses willed to them" and were then scammed by mortgage fraudsters, she said. Released along with the group's advocacy agenda were the results on a December telephone survey, including "a new finding" that one third of the 1,097 respondents were worried about being able to afford their mortgage or rent over the next 12 months. Almost half the respondents have already found it tougher to pay their utility bills. AARP's housing plank also calls for a one-year moratorium on foreclosures, an expansion of home equity mortgages as a foreclosure avoidance tool, and great accountability for abusive lending practices.

Sen. Dick Durbin, D-Ill., has introduced a bill that would allow bankruptcy judges to modify mortgages on primary residences and he is working to include it in the economic stimulus package. The Senate assistant majority leader said Congress has already committed over $1 trillion to address the financial crisis. "Why don't we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?" Sen. Durbin asked. The Financial Services Roundtable said the Durbin bill and a similar measure introduced by Rep. John Conyers, D- Mich., in the House would be "counter-productive" and encourage bankruptcies. "They will inject additional risk into home buying and the markets will respond by increasing interest rates, fees, downpayments, or all three," FSR president and chief executive Steve Bartlett said.

Investment funds affiliated with PennyMac -- a "scratch and dent" firm headed by a former top executive at Countrywide Financial Corp. -- have purchased a $558 million portfolio of 2,800 residential loans from the government using a cashflow sharing arrangement. Initially, the Federal Deposit Insurance Corp. will receive 80% of the cashflow on the mortgage portfolio with the balance going to the investor group. A spokesman said eventually the FDIC will receive 60% of the cashflow. "Once it hits a certain threshold it adjusts downward," said the spokesman. He declined to say what that threshold is. The portfolio consists of outstanding first and second liens scattered throughout the U.S. with the heaviest concentration in Arizona, California, Florida, and New York. PennyMac's servicing division will service and work out the loans, the company said in a statement. Investment funds managed by a PennyMac affiliate called PNMAC Capital Management LLC bought the loans from the FDIC, paying cash for them. The portfolio belonged to First National Bank of Reno, which failed this summer. PennyMac is headed by Stanford Kurland, who was forced out of Countrywide in 2006 in a power struggle with then chairman and CEO Angelo Mozilo. (On July 1 CFC was sold to Bank of America.) At one time Mr. Kurland was considered to be Mr. Mozilo's successor at the company. PennyMac was formed by Mr. Kurland last year with financial backing from BlackRock Inc. and other investors.