Servicing

Houston may be one of the country's top performing real estate markets, but it is still suffering right along with most other places. Sales in November were off 33.7% from the same month a year ago, according to the Houston Association of Realtors. It was the 15th straight month that the number of sales in Houston has declined. On the bright side, though, rentals were up - 16% for single-family residences and 2.8% for townhouses and condominiums - as people wait out the economic storm. "Houston consumers are understandably cautious as they absorb news about layoffs, declining oil prices and other negative financial reports," said Michael Levitin, HAR chairman and principal of HTownRealty.com. "Many are opting to rent property for the time being." Despite being held up by the chief economist of the National Association of Realtors as a Mecca of stability, Houston also saw the average price of a single-family house drop 7% in November, from $201,862 last November to $187,766 now. The total number of sales fell from 5,887 to 3,906. Currently, according to HAR, the number of active listings for sale on the local multiple listing service totals 47,354, which is the lowest number since December 2006. That's only a six-month supply compared to 10 months nationally, based on how long it will take to deplete current active inventory based on the prior 12 months' sales activity.

Existing home sales in California are expected to increase by 12% this year, according to the state's Realtor group. But the jump is largely attributable to the sale of distressed properties at heavily marked down prices. Nearly one in five of the 395,600 sales projected for 2008 will be because the property was in default and the houses were sold either via a short sale or at foreclosure, the California Association of Realtors said in its annual state of the housing market report. Also, when all is said and done, almost one in four sales will result in a loss for the seller, said CAR chief economist Leslie Appleton-Young. "Price declines eliminated equity gains," she said. The number of sellers who sold their home with a loss almost doubled from 11.9% in 2007 to a record-setting 22.2% in 2008, well above 1.9% in 2006, and almost triple the long-term average of 7.7%. However, long-term owners who have not refinanced or removed equity from their homes were less likely to experience a loss. Only 3% of sellers who owned their homes for more than five years had a net cash loss from their home sale, while 47% who owned their homes for less than three years had a net cash loss. The median price of existing homes sold this year declined 17.5% to $440,000. That's the largest drop in the median since the inception of the study, surpassing the record decline of 10.2% set in 1995. Ms. Appleton-Young said the market will continue to experience falling prices into 2009.

Morgan Stanley took more than $1 billion dollars in mortgage losses in its institutional securities area that contributed to an overall net loss of roughly $2 billion for the company as a whole during the fourth quarter, but these represented better results for the company than last year at this time. The company during the fourth quarter of 2007 had seen about $9.4 billion in mortgage-related losses and taken an overall net loss of about $3.6 billion. Chairman and chief executive officer John Mack said the global capital markets' "unprecedented turmoil in the past few months" weighed on the company's results.

GMAC Financial Services says it is beginning to make progress on its $38 billion note exchange program, which is key to its financial survival. According to a statement released by the company, investors that control 58% of GMAC's outstanding notes and 37% of Residential Capital Corp.'s have agreed to swap their notes or accept a cash tender offer. GMAC, the parent of ResCap, the nation's sixth largest servicer, needs a 75% participation rate from note holders to reach its goal of amassing enough regulatory capital to become a bank holding company and tap the Treasury's TARP program. The company has offered investors 55 to 85 cents on the dollar in cash or in the form of new bonds and/or preferred shares. Late last week participation in the program was at about 25% or less. ResCap continues to service residential loans but its production network has been cut to the bone. GMAC owns a depository in Utah but is not a bank holding company, at least not yet. It recently extended the deadline for its note exchange programs. GMAC's two owners - General Motors and Cerberus - are still waiting on government loans to bail out their respective auto businesses.

Loan workouts by Fannie Mae and Freddie Mac totaled over 99,000 in the third quarter, up from nearly 88,000 in the second quarter, but loan modifications make up only 13.6% of the workouts, according to a Federal Housing Finance Agency report. The report shows the mortgage giants modified 4,785 delinquent mortgages in September and initiated 30,183 repayment plans. However, the government sponsored enterprise regulator points out that Fannie "reinstated" nearly 27,300 loans in the third quarter as part of its HomeSaver Advance program. In April, Fannie servicers began offering delinquent borrowers advances of up to $15,000 to cover missed payments and allow the borrower to resume timely payments. Freddie does not offer HomeSaver Advances, which are unsecured loans with a 5% interest rate. The two GSEs had 678,500 mortgages that are 60 days or more past due as of Sept. 30 and reported nearly 41,000 foreclosure starts in September.

According to the Zillow Mortgage Marketplace, consumers were being offered 30-year, fixed-rate mortgages for rates below 5% on Monday. Zillow.com said that the average rate for 30-year FRMs offered on the Zillow Mortgage Marketplace dipped to 4.98% on Monday, Dec. 15. That is contributing to a spike in loan applications for refinancing. Refinancing during the first half of December was up 230% from the first half of November, Zillow.com said. Refinancing accounted for more than half of home loan applications in the December period.

Over the next 12 months, 15% of loans pooled into residential mortgage-backed securities between 2005 and 2007 will be modified, Fitch Ratings predicts. The projection is based on the number of loans that banks have modified from their own portfolios, the rating agency said. Fitch said the 14 largest banks and thrifts modified 187,000 mortgages in the first half of 2008. "There will be increases in securitized loan modifications if only to ensure that borrowers in a securitized pool are being treated equally to borrowers whose mortgages are held by a bank, as well as to fulfill the servicers' duties to maximize returns to the trust," said Huxley Somerville, group managing director for RMBS at Fitch. Because modifications to avert foreclosure can benefit the investor as well as the borrower, Fitch said it plans to "confirm current ratings when proposed changes in the deal documents" allow servicers broader authority to modify loans.

The FDIC board of directors has approved a 7-basis point hike in deposit insurance premiums for 2009 to address the high cost of bank failures and a declining reserve ratio. The across-the-board premium hike will raise assessments for most healthy banks from 5 basis points to 12 basis points and doubled first quarter assessment revenue to $2.3 billion. Federal Deposit Insurance Corp. staff estimate that bank failures in 2008 will cost the Deposit Insurance fund $18.9 billion. And, its reserve ratio has sunk from 1.19% on March 31 to 0.76% as of Sept. 30. Meanwhile, the agency is boosting its operating budget by nearly 85% to $2.2 billion to deal with a rising number of bank failures and receiverships in 2009.

Hilco Real Estate LLC, Northbrook, Ill., has named Neil R. Aaronson as its new chief executive and Gregory S. Apter as its new president. Mr. Aaronson replaced Mitchell P. Kahn, 48, who has decided to pursue opportunities outside the Hilco family of companies. Most recently Mr. Aaronson had been executive vice president with Hilco Trading LLC, the parent company of Hilco Real Estate. Mr. Apter was promoted from chief operating officer and will now formally lead Hilco Real Estate's agency transactions group, managing owned and leased property disposition and lease restructuring services. Hilco Real Estate provides comprehensive real estate repositioning services. For more information about the company, visit http://www.hilcorealestate.com.

Fitch Ratings, New York, has downgraded to RPS4 the primary servicer, master servicer and special servicer ratings for Residential Capital LLC, Minneapolis. The rating downgrades are due to ResCap's deteriorating financial condition, specifically the continued pressure on ResCap's liquidity position and financial flexibility and the potential impact on the company's servicing operations. A company's financial condition is an important component of Fitch's servicer rating analysis, the rating agency explained. As of June 30, 2008, ResCap serviced 3.1 million loans for $437 billion. The servicing portfolio was comprised of 14.3% non-agency prime first and second liens, 9.7% subprime first and second liens, 8.1% Alt-A, 2.4% HLTV, and 9.5% HELOC products, with the balance consisting of conventional conforming, FHA, VA, and manufactured housing loans. ResCap's master servicing portfolio was comprised of over 592,000 loans for $119.3 billion.