Servicing

A quarterly index that attempts to quantify the risk that housing prices will deteriorate over the next two years finds that the likelihood of further home value declines has broadened. The index, created by mortgage insurer PMI, shows the risk of price declines rose in 369 of the 381 metropolitan areas tracked in the survey. PMI estimates that half of the nation's 50 largest metropolitan areas have an "elevated or high" risk of seeing home prices fall further. And a growing number of cities in the industrial Midwest and the East Coast show an increase in the probability that home values will be lower in two years, PMI said. David Berson, PMI's chief economist and strategist, said that "the continued high level of foreclosures and rising unemployment" continue to put downward pressure on home values.

ForeclosureRadar has issued its California Foreclosure Report for December 2008 and year-end summary, noting that notices of default have rebounded from the stall caused by California State Senate Bill 1137, which it said temporarily slowed foreclosures by imposing new requirements on lenders. The Discovery Bay, Calif.-based website, says with 42,421 filings in December, notices of default are back to the record levels reached in the second quarter of 2008, nearly doubling the 21,557 notices recorded in November. In 2008, California saw 249,940 foreclosure properties sold at trustee sale auction, representing $107.8 billion in combined loan value. Of those properties 96.4% went back to the lender after no bid was received from a third party. For the year, there were a total of 437,955 notices of default filed, an increase of 56% over the 279,821 filed in 2007. Notice of trustee sale filings increased 122.9% over 2007 rising from 157,273 filings in 2007 to 350,514 filings in 2008. Properties sold at auction increased by 158% by volume, and 179% by combined loan value. Lenders took back a total of 241,093 properties, with a combined loan value of $103.9 billion, the report said. "While a number of lenders have announced significant loan modification programs to reduce payments to affordable levels, these plans fail to address the fact that the average foreclosure in California now has $180,000 in negative equity," said Sean O'Toole, founder of ForeclosureRadar.

The incoming administration of Barack Obama wants to revamp the Hope for Homeowners program to make the Federal Housing Administration refinancing initiative more "effective," according to Shaun Donovan, Obama's nominee to be the new Housing and Urban Development secretary. Mr. Donovan told the Senate Banking Committee at his confirmation hearing that he is taking an active role in developing a "bold, comprehensive" foreclosure prevention effort that Mr. Obama has advocated. The former New York City housing commissioner and HUD deputy assistant secretary said the H4H program would be an "important piece" of the foreclosure prevention plan. And he said the Federal Deposit Insurance Corp. plan that provides loan guarantees for newly modified loans is "promising." But they want to make sure the incentives are structured to reduce re-defaults and minimize taxpayer costs. The Senate is expected to confirm Mr. Donovan to be the new HUD secretary next week after Mr. Obama is sworn in as president.

In Washington, Fannie Mae is establishing a new national real estate owned rental policy that will allow qualified renters in Fannie Mae-owned foreclosed properties to stay in their homes. The company currently has an eviction suspension in place through the end of January, which will allow for the new policy to be fully operational prior to the end of the suspension. "Renters in foreclosed properties have often been a casualty of the foreclosure crisis the country is facing," said Michael Williams, chief operating officer of Fannie Mae. "This policy will help bring a measure of stability to communities impacted by high foreclosure rates." The new policy applies to renters occupying foreclosed properties at the time Fannie Mae acquires the property. Renters occupying any type of single-family property will be eligible including residents of two- to four-unit properties, condos, co-ops, single-family detached homes and manufactured housing. Eligible renters will be offered a new month-to-month lease with Fannie Mae or financial assistance for their transition to new housing should they choose to vacate the property. The properties must meet state laws and local code requirements for a rental property. While the company markets the properties for sale, Fannie Mae will manage the properties through a real estate broker or a property management company. To find out more, visit www.fanniemae.com.

The electronic registry for tracking ownership of mortgage loans and servicing rights has been expanded to allow the registration of loans where MERS is not the mortgagee of record. These "information only" registrations are being called MERS iRegistrations, and they give members the anti-fraud and tracking benefits of a "MERS as original mortgagee" registration without naming MERS as the mortgagee. The iRegistration procedure can be used to register a loan prior to closing, MERS said. The MERS website is www.mersinc.com.

Phoenix Capital, a Denver-based provider of mortgage servicing analytics, consulting and brokerage services, will begin using Compass's CompassPoint technology in determining the value of mortgage servicing rights. CompassPoint will be used by Phoenix as the cash flow engine and model with which Phoenix applies its market color and assumptions to generate valuations and analytics for MSR portfolios. The two companies said the transition to the Compass technology should be complete by the end of this month.

The Department of Housing and Urban Development is launching a new advertising campaign on Jan. 14 to alert troubled homeowners about foreclosure rescue scams. Outgoing HUD secretary Steve Preston will make the announcement along with New York City Mayor Michael Bloomberg at a press conference that morning to be held at the offices of Neighborhood Housing Services in New York. The new campaign, called "Keep Your Home. Know Your Loan." seeks to fight the proliferation of rescue scams that "often victimize struggling homeowners and push them closer to financial ruin," HUD said. The Federal Trade Commission recently sanctioned a Florida-based operation, Mortgage Foreclosure Solutions, which promised, for a $1,200 fee, to stop foreclosures and save their clients' homes. "Many consumers who paid the company ultimately lost their homes to foreclosure, and others avoided foreclosure only through their own efforts," FTC said.

The inventory of distressed homes in Orange County, Calif. - one of the hardest hit real estate markets in California - dropped slightly over the past few weeks. According to a report by Altera Real Estate of Mission Viejo, the inventory of distressed homes (short sales and foreclosures) fell by 401 units over the past month, bringing the total to 5,118, the lowest reading since March of 2008. Distressed homes account for 45.3% of the homes-for-sale inventory, a slight decline over the past few weeks. Altera's findings were first reported by The Orange County Register. Roughly 79% of distressed homes are priced under $500,000.

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.