Servicing

The Federal Home Loan Banks may see substantial impairment in the value of their $76.2 billion of private-label MBS, according to Moody's Investment Service. Under a "worst case" scenario, Moody's estimated that the impairment would be so great that only four of the 12 FHLBanks would remain above regulatory capital minimums, though Moody's said this degree of impairment is unlikely. Under a "base case" scenario, the writedowns could still be "material to the banks' capital bases," Moody's said in a report. The degree of impact depends upon whether the banks must report the writedowns as "other than temporary impairment," which would significantly affect capital levels, according to the rating agency. In related news, the Federal Home Loan Bank of Boston president and chief executive, Michael A. Jessee, will be retiring from the Bank effective April 30, 2009. Mr. Jessee has agreed to remain in his current executive capacity during the next four months to ensure a smooth transition.

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.

Fannie Mae and Freddie Mac will extend its suspension of foreclosure sales and evictions until January 31 to give their servicers more time to help troubled borrowers and to implement a new streamlined loan modification program. In November, the mortgage giants said they would suspend evictions during the holidays, but that was due to end Jan. 15. This extension will "give servicers additional opportunities to help put more families on the path to stable homeownership," Freddie Mac chief executive David Moffett said. Fannie Mae said the extension also gives servicers more time to implement its new policy that allows renters to continue to live in foreclosed properties. Previously, renters were automatically evicted. Freddie is developing a similar policy to allow renters to remain in their homes, a company spokesman said.

President-elect Barack Obama wants Congress to pass his massive economic stimulus bill shortly after he takes office on Jan. 20 and he will hold off on proposing a "sweeping" plan to prevent foreclosures. In a CNBC-TV interview, Mr. Obama said he will work with the chairmen of the House and Senate banking committees in developing the foreclosure plan. "I expect to unveil plans to prevent foreclosures in consultation with [Rep.] Barney Frank and [Sen.] Chris Dodd, who've done some very good work on this, sometime in the next month or two," he told CNBC. On Wednesday, Sen. Richard Durbin, D-Ill., told MortgageWire he didn't know when Obama's team would send the stimulus bill to Congress, but he is urging them to include a bankruptcy provision that allows judges to modify mortgages on primary residences. Meanwhile, it appears that some in the mortgage industry may put aside their long-standing opposition to bankruptcy modifications -- provided it is a last resort and servicers have tried to modify the loan first. The Wall Street Journal reported that Citicorp is in discussions with key Senators on a possible bankruptcy compromise.

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.