Servicing

The outlook for private mortgage insurers for 2009 remains negative as they will have to deal with loans they underwrote in 2007, a report from Fitch Ratings, New York, declares. The 2007 vintage, "a low point in mortgage underwriting discipline," the rating agency said, represents 30% of the industry's risk in force. Furthermore, the business underwritten in the early part of last year has similar characteristics to that 2007 book and is likely to have a similar performance. The business written in the second half of 2008 is expected to perform better than the first half business as a result of tighter underwriting standards. Fitch also said capital constraints remain the most acute problem facing the surviving mortgage insurers. "Mortgage insurers face a real risk of breaching regulatory capital limits, which will likely limit the industry's ability to take advantage of new and potentially more profitable business to offset challenges in legacy portfolios. For certain standalone MIs, holding company liquidity may be at risk from lending covenants tied to net worth and risk-to-capital," said Roger Merritt, Fitch managing director.

If the Treasury supplements injections of capital by removing troubled assets such as mortgages from institutions' balance sheets, as was originally proposed for the U.S. financial rescue plan, Treasury may consider public purchases, as originally proposed, or two other options involving asset guarantees or "bad banks," Federal Reserve chairman Ben Bernanke suggested in a speech at the London School of Economics early Tuesday morning. He addressed criticism of such efforts as unfair bailouts of institutions that chose to take excessive risk as necessary given their influence on the financial system and the economy. He said that, "in the future financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking." Under the asset guarantees, the government would agree to absorb, probably in exchange for warrants or some other form of compensation, part of the prospective losses on specified portfolios of troubled assets held by banks, he said. Alternatively, bad banks could purchase assets from financial institutions in exchange for cash or equity in these banks. The chairman also said the facility that is slated to lend against AAA-rated asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration may, if successful, have its "basic framework" expanded to accommodate additional classes of securities "as situations warrant." Efforts to reduce preventable foreclosures also are being considered, Mr. Bernanke said. The Fed chairman also reportedly said the Obama Administration's proposed stimulus package would be helpful, but not enough to solve the current financial crisis.

The Conference Board, a non-profit publisher of business economic forecasts and analysis, says the U.S. economy may lose another two million jobs this year after shedding more than 2.5 million jobs in 2008. Gad Levanon, senior economist at the Conference Board, said the group's most recent employment trends index "signals that no turnaround in the labor market is to be expected in the near future." The Conference Board employment index has been declining for 17 months.

In what is being billed as "the largest-ever" simultaneous Internet auction of residential properties, 79 loft apartments in a downtown Los Angeles condominium are up for grabs to the highest bidders. Unlike traditional high-pressure auctions, which sell units one at a time, bidders will be able to see the amount other buyers are bidding for every condo in the Rowan during the entire auction on large bidding screens at the auction site or on their own computers through a secure Internet site. The auction clock resets every time a new bid is received so bidders have ample time to consider their next step. The auction ends when there has not been a bid submitted on any of the properties for a specified period of time. Developed by auction pioneer William R. Stevenson, president of Intelligent Market Systems, the proprietary software used for the auction gives potential buyers "ample time to make decisions and switch to other units if they are outbid." This versatility benefits everyone, says Mr. Stevenson, "including the seller who often gets better results because buyers are able to maximize their opportunities to purchase the home they most want." Buyers interested in participating in the auction must first secure pre-qualification for a loan from the seller's preferred lender, complete a registration form and put down a "good fund" deposit. Only 30 of the building's 206 apartments have been sold to date. But if the auction is successful, the property will be more than 50 percent sold at its grand opening.

KDX Ventures, Boston, a partnership of DebtX and KEMA Advisors, will sell $144 million in multifamily and healthcare loans for the U.S. Department of Housing and Urban Development. The portfolio includes 15 multifamily loans and four healthcare loans, ranging in size from approximately $1 million to $30 million. The collateral is located in 12 states in the east, south and midwest. Investors may bid on any individual loan or on pre-determined pools of loans. "KDX Ventures is expecting strong interest in these HUD loans due to increasing demand for product from investors around the world," said DebtX chief executive Kingsley Greenland. "Over the past three months, a significant new number of investors have entered the whole loan marketplace. The increasing liquidity is likely to mean very active bidding for the HUD loans." The transaction announced today is the first since KDX Ventures signed a multi-year agreement with HUD in October to sell loans. Bids will be accepted at http://www.debtx.com on Feb. 4, 2009.

The average rate for a 30-year fixed-rate mortgage as tracked by Freddie Mac fell for the 10th consecutive week in a row to another survey-record low of 5.01%, down from 5.09% the week before. "Since the end of October 2008, these rates have declined by almost 1.5 percentage points, or a payment savings of about $184 a month for a $200,000 loan -- an additional $11 dollars from last week," said Freddie Mac chief economist Frank Nothaft in the weekly report. The average 30-year rate was up from 5.87% a year ago. The average 15-year FRM rate was 4.62%, down from 4.83% the previous week and from 5.43% a year ago. It has not been lower since June 13, 2003 when it was 4.6%. The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages was 5.49%, down from 5.57% the previous week and 5.63% a year ago. The average rate for one-year Treasury-indexed ARMs was 4.95%, up from 4.85% the previous week but down from 5.37% a year ago. Average points were 0.6 for 30-year FRMs, 0.7 for 15-year FRMs and five-year hybrids and 0.5 for one-year Treasury-indexed ARMs.

The number of Home Equity Conversion Mortgages originated in calendar year 2008 increased by 6.4% over the previous year, according to new figures released by the Department of Housing and Urban Development. There were 115,176 of the Federal Housing Administration-insured reverse mortgage loan product originated last year, compared with 108,293 in 2007. Dollar volume figures were not available. According to an analysis from Reverse Market Insight, a consulting firm based in Aliso Viejo, Calif., Miami was the No. 1 market for reverse mortgage originations, with 9,561 HECMs originated in 2008, followed by Los Angeles at 4,126; Tampa, Fla., at 3,956; Santa Ana, Calif., at 3,695 and Baltimore at 3,595. Reverse Market Insight also determined that 2,949 lenders produced at least one HECM last year, a 76.5% increase over the previous year. NRMLA president Peter Bell said changes to the program recently put in place, such as a higher loan limit, the ability to use the loan for purchases and co-op eligibility, will lead to further growth of the product.

In early April a U.S district court judge will hear arguments in the National Association of Home Builders' case against the government, challenging newly issued Real Estate Settlement Procedures Act regulations that could hurt builders.NAHB originally filed for a preliminary injunction to block implementation of the "required use" section of the RESPA rule that bans builders from offering discounts and upgrades to buyers that are contingent on their use of an affiliated mortgage company. The trade group dropped that request after the Department of Housing and Urban Development agreed to delay the effective date. HUD extended the implementation date from Jan. 16 to April 16. NAHB claims the RESPA rule will force them to divest their affiliated mortgage and title companies, which could "greatly obstruct" the industry's effort to stimulate demand and sell off the excess supply of newly constructed homes. "In promulgating the final rule, HUD has flouted consumer satisfaction surveys and dampened the housing sector's efforts toward economic recovery," NAHB said in a filing with the U.S district court in Alexandria, Va.

Key senators have reached a compromise with Citicorp that could speed passage of bankruptcy provisions that allow judges to modify mortgages and reduce or "cram down" the principal amount of the loan to the fair market value of the property. As part of the agreement, judges could only modify existing mortgages, not new mortgages. [As press time, it was unclear what the cutoff date is.] "Citigroup's support means that the dam has broken across the mortgage industry. Now we have a real chance to pass this legislation quickly," said Sen. Chuck Schumer, D-N.Y. Senators Dick Durbin, D-Ill., Chris Dodd, D-Conn., and Schumer want to include the bankruptcy provisions in the economic stimulus package that Congress is expected to pass by mid-February.

Under a "worst case scenario," the Federal Home Loan Banks may have to report substantial impairment in the value of their $76.2 billion of private-label MBS, but the true economic losses embedded in the portfolio are manageable, according to Moody's Investment Service. Moody's estimated that the impairment would be so great that only four of the 12 FHLBanks would remain above regulatory capital minimums if all of the MBS are subject to "other than temporary impairment" under accounting rules. But Moody's said this degree of impairment is unlikely. Overall, Moody's estimates that the economic losses embedded in the MBS total less than $1 billion. John von Seggern, president and CEO of the Council of Federal Home Loan Banks, noted that most of the banking industry is upset about the "other than temporary impairment" standard and that bankers are advocating accounting changes. "The real story of the Moody's report is that the economic losses embedded in the FHLBanks' MBS are manageable," Mr. Von Seggern said.