Servicing

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.

Departing Treasury Secretary Henry Paulson on Wednesday weighed in on the future of Fannie Mae and Freddie Mac, suggesting a 'public utility' model might be the best way to "resolve the inherent conflict between public purpose and private gain." Speaking before the Economic Club of Washington, Mr. Paulson repeatedly emphasized that the "pre-conservatorship" structure of Fannie Mae and Freddie Mac is not an option for policy makers who will weigh in on the issue this year. Mr. Paulson said the nation needs what he called a "vibrant private market" for mortgages, saying the government might want to "enhance" the ability of depositories to fund mortgages as a possible substitute should Fannie and Freddie be dismantled. He provided no details but discussed four options: expanding the role of FHA and GNMA in mortgages; creating a partial government guarantee for MBS issued by GSEs; completing privatizing the housing GSEs; and the public utility model where private sector money would be used to purchase and securitize mortgages (but not hold them) and where the government would set interest rates and yields.

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.

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.

In downgrading its ratings on Carmel, Ind.-based insurance company Conseco Inc., Fitch Ratings cites concerns with the company's commercial and residential mortgage investments. "Fitch believes Conseco's statutory capital will be pressured by impairments in the deteriorating market for commercial mortgage backed securities and commercial mortgages. Fitch also notes Conseco's exposure to a sizable but highly rated alt-A residential mortgage-backed security portfolio and below-investment-grade fixed maturity corporate securities that are greater than 100% of statutory capital. The company has a meaningful exposure to GAAP unrealized losses on its investment portfolio that under statutory accounting rules are not reflected in capital," the rating agency said. The report added that Conseco is working on various initiatives to improve statutory capital and the future of its ratings will be based on the ability to improve is financial profile.

A survey conducted for Reecon Advisors, an independent real estate economics and information company, finds that most people oppose using federal bailout funds to help pay the mortgages of homeowners who are in default. While 51% of respondents opposed using the bailout to help homeowners in trouble, 43% supported helping troubled homeowners, according to the Reecon Advisory Report. David Lereah, a former Mortgage Bankers Association and National Association of Realtors chief economist who is president of Reecon Advisors, said the findings indicate that there are "significant political barriers to proposals now being drafted in Congress to use some of the remaining $700 billion of bailout funds to help stem foreclosures by helping defaulted homeowners with their mortgages." Reecon Advisors publishes a new weekly newsletter about residential real estate, which can be found at www. reeconadvisoryreport.com.