Servicing

Fannie Mae and Freddie Mac are projected to force mortgage originators to buy back over $1 billion in whole loans in 2009 because of misrepresentations or fraud, according to their regulator. "In 2006 and 2007, the underwriting was so poor and there was a lot of mortgage fraud," Federal Housing Finance Agency director James Lockhart told reporters. "They have the right under their agreements to require the originator to repurchase the loan," he added. The government sponsored enterprise regulator indicated the buybacks could range from $1 billion to $1.5 billion. Buybacks can put "some real discipline into the origination system," the GSE regulator told a Women in Housing and Finance luncheon. "If you know you are going to get the mortgage back, you may be a little more careful in the future," he said.

The foreclosure crisis is not only impacting homeowners, but also displacing renters who are involved in an estimated one-fifth to two-fifths of all foreclosures, according to Eric Belsky, executive director of housing studies at Harvard University. He told a NeighborWorks training symposium that that 35% of renters live in single-family homes and automatic evictions due to foreclosures have become a "major rental housing issue." The federal government has provided $4 billion for cities and municipalities to purchase foreclosed properties and fix them up for homebuyers or renters. But the city of Boston is receiving only $15 million," Mr. Belsky said. "It's just pathetic." Housing groups are urging President-elect Barack Obama's transition team to increase funding for this program and to drop a requirement that foreclosed properties must be purchased at a discount, which has the effect of driving down property values. House Financial Services Committee chairman Barney Frank, D-Mass., wants to get a provision in Obama's economic recovery bill that would protect renters from being evicted after a foreclosure.

Sen. Dick Durbin, D-Ill., slammed the Mortgage Bankers Association for continuing to oppose his bankruptcy bill and for grossly underestimating the foreclosure problem. At a press conference, the second ranking Democrat in the Senate noted that MBA chairman David Kittle recently testified at a committee hearing that allowing bankruptcy judges to modify mortgages would result in a $295 tax per month on every homeowner. The Senate Judiciary Committee member said he challenged that tax number and MBA has provided no evidence to support it. "It is just a number thrown at the committee by the mortgage bankers who I don't believe enjoy the greatest credibility," Sen. Durbin said. "We are in the process of responding to the committee's questions," said MBA spokesman John Mechem. But allowing bankruptcy cramdowns will increase the mortgage rates by 150 to 200 basis points, he said. "We stand behind that estimate." Allowing judicial modifications would give servicers an "incentive to modify mortgages," Sen. Durbin said at the press conference, and it would give struggling homeowners "some leverage" in negotiating with servicers.

GMAC Financial Services warned Wednesday that unless more of its note holders agree to an exchange program, its plans to become a bank holding company and potentially tap TARP funding will collapse. The exchange offer involves $38 billion worth of corporate notes. (GMAC extended the "early delivery" time of the exchange three days to 5 p.m. this Friday.) To date 21% of GMAC, and 21% of Residential Capital Corp. note holders, have agreed to an exchange, far shy of the 75% needed. In a statement, GMAC Financial - the parent of ResCap, the nation's sixth largest mortgage servicer - said the Federal Reserve is requiring GMAC to have minimum regulatory capital of $30 billion to become a bank holding company. The note exchange offer is key to achieving that goal. The exchange offer involves cash and/or issuing new corporate notes. In a public filing back in November ResCap warned that if GMAC stops providing liquidity to its mortgage division it could be forced into bankruptcy. GMAC Financial is 51% owned by hedge fund giant Cerberus Capital and 49% owned by General Motors, the ailing automaker. ResCap services $391 billion in home mortgages, according to the Quarterly Data Report.

Congressional approval for the second $350 billion installment of TARP funds may depend on the Treasury Department's ability to show that banks are actually using their government investment money to make new loans, House Financial Services Committee chairman Barney Frank, D-Mass., said Wednesday. At a House hearing lawmakers lambasted TARP chief Neel Kashkari and his agency for not adopting the FDIC's loan modification model and pulling a "bait and switch" on Congress by abandoning their stated early goal of buying troubled mortgages in favor of making preferred stock investments in banks. Mr. Kashkari, an assistant secretary at Treasury, said his boss, Henry Paulson, has made no decision on when he will ask for the remaining $350 billion. To date, 87 banks in 30 states have received government investments under the $700 billion Troubled Asset Relief Program. Members of the House Financial Services Committee complained that there is no requirement for the recipients to increase their lending and no mechanism to measure it.

A study suggests that stock market losses and falling home values are disproportionately affecting senior citizens, making it harder for them to recover from the financial crisis compared to younger Americans. Data from Golden Gateway Financial, a reverse mortgage lender, also show 25% of survey respondents are "either borrowing against their home or trying to sell it in order to generate income to survive." At the same time, Golden Gateway Financial reported, during the September-October-November period, its offices saw a 200% increase in the number of incoming calls by senior citizens facing foreclosure. In this economic climate, experts believe there will be a further increase in demand for mortgage products that will allow seniors to benefit from their equity. "As savings accounts continue to shrink, alternatives such as reverse mortgages are an even more attractive and natural way for senior citizens to make retirement easier," assistant professor at Haas School of Business, University California Berkeley, Thomas Davidoff, said. Golden Gateway Financial also said "seniors understand their precarious situation and are exploring aggressive actions to stay afloat in this economy."

RealtyBid.com, a national online auction company based in Rainbow City, Ala., is offering more than 2,000 REO properties for auction during the month of December. CEO Tony Isbell said the 18 lending institutions offering foreclosure homes are highly motivated to sell. "These lenders need to get as much of this foreclosure inventory off their books before the end of the year as possible," Mr. Isbell said. "Plus, they are preparing for the large influx of new foreclosure properties they will be dealing with in 2009. Many of them have mandated that these properties must sell by Dec. 17." Thousands of homes are available each month on RealtyBid.com from lenders, builders and real estate brokerage firms.

Rosario Divins, a self-represented foreclosure prevention specialist from San Antonio, has been arrested for allegedly engaging in a fraudulent foreclosure prevention scheme. According to Johnny Sutton, U.S. attorney for the Western District of Texas, Divins allegedly unjustly enriched herself by collecting large sums of cash or property titles from individuals in desperate financial situations who responded to her mail offering to stop their residential foreclosures. Despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients, the indictment alleges that Divins has continued to implement her scheme.

The ratio of commercial mortgages that are past due crept up in the third quarter but remained historically low, according to the Mortgage Bankers Association. Overall, 0.63% of loans in commercial mortgage-backed securities were 30 or more days past due in the third quarter, up 10 basis points from the second quarter. In addition, 1.38% of commercial mortgages held by FDIC insured banks were at least 90 days past due, up 29 basis points from the second quarter. Other investor categories, including life insurance companies, reported lower delinquency rates. Jamie Woodwell, MBA's vice president of commercial real estate research, said that commercial and multifamily mortgages have not seen the same kind of credit deterioration that has been seen in residential real estate, but he said that delinquencies are likely to continue rising due to "economic and credit market stress."

A home price index from default management and collateral valuation provider Integrated Asset Services estimates that home prices declined 1.7% in the month of October. On a year-over-year basis, the IAS360 index shows prices were down 12.9% in October, a slight drop in the annualized rate of decline from September. The index also found signs of improvement in both the Florida and Arizona markets. But declines in prices continued to be widespread, with all four U.S. Census Bureau regions showing lower home prices. "Housing prices at the national level continue to look bleak," IAS said.