Servicing

Fitch Ratings has lowered Nationstar Mortgage's primary servicer rating for subprime mortgages to 'RPS2-minus' from 'RPS2'. Nationstar, based in Lewisville, Texas, serviced just over 89,000 predominantly subprime loans as of August 31, 2008, with an outstanding principal balance of nearly $12 billion. Nationstar is owned by the private equity firm Fortress Investment Group. Fitch said the downgrade reflects Nationstar's "reduced financial flexibility resulting from overall market illiquidity."

Fannie Mae and Freddie Mac servicers will begin sending thousands of letters of delinquent borrowers this month offering them the chance to sign up for a streamlined loan modification that could reduce their mortgage payments to 38% of gross monthly income. The government sponsored enterprises issued servicer guidelines for the new streamlined modification program (SMP) on Dec.12 and they held a press conference in Washington to kick off the new foreclosure prevention program. "Along with other recently announced initiatives to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component our company's foreclosure prevention efforts," Fannie president and chief executive Herb Allison said. The SMP is available to borrowers who have missed at least three payments on their existing mortgage and have no more than 10% equity in the property. The mortgage interest rate can be reduced to 3% for five years to make the modified loan affordable.

Brookfield, Wis.-based Fiserv Inc. has enhanced capabilities to its Home Retention Solutions offering that enable financial institutions to identify and contact troubled borrowers with customized repayment solutions to try to keep them out of foreclosure. In addition, Fiserv is supporting programs such as Fannie Mae's Home Saver Advance Program, which provides an advance to cover past-due mortgage payments in exchange for a separate, unsecured loan, and the newly introduced Streamlined Modification Program, in which borrowers receive reduced interest rates or longer loan terms to make their payments more affordable. Among the enhancements developed since the initial launch of Home Retention Solutions in June 2008 are "one-touch" customer contact and advanced loss mitigation workflow tools that more fully automate the loan modification process, including secure electronic delivery of modification documents to borrowers with an electronic signature option when available. One-touch contact and the electronic fulfillment of the documents dramatically accelerate the completion of the modification process, even enabling the process to be completed in one phone call with the borrower.

Fannie Mae is tightening its lending standards on condominiums and it is introducing a new project eligibility review service (PERS) for new and newly converted condos that will be mandatory in Florida starting Jan. 15 and optional elsewhere. The delinquency and default rates on condo loans in Florida are "at an all time high," Fannie says in a notice to lenders. And the secondary market agency is reducing the maximum loan-to-value ratios for established condos in Florida when lenders don't use PERS or don't conduct full lender reviews. Use of PERS will cost lenders $30 per unit. Effective immediately, Fannie has eased its owner-occupied requirements for condominiums with bank-owned foreclosed units. Real estate owned units that are for sale (not rented) will be counted in the owner-occupancy ratio. The National Association of Realtors asked for this change. Meanwhile, lenders are bracing for loan buy-backs demands from Fannie and Freddie Mac and the lenders expect to face a lot of buy-backs involving condo loans, a source said.

Compass Analytics LLC, San Rafael, Calif., and Radar Logic Inc., New York, have integrated the latter's property index into the former's mortgage analytics and will expand on the business relationship going forward. The existing integration allows investors, portfolio managers, servicers and whole loan traders to "update property values as part of data load processes and leverage better loan-level property value, loan-to-value ratio and equity data for more accurate valuations," the companies said. Compass also will integrate the Radar Logic's residential price index derivatives into its CompassPoint mortgage analytics in the future. The derivatives integration would "enable analysts to mark-to-market RPX derivatives and model and employ the derivatives to hedge property value and credit risk in loan portfolios," according to the companies.

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.