Servicing

The percentage of homeowners late on their mortgage - or in foreclosure - soared to a new high in the third quarter: 10.27%, according to new figures released today. A quarterly survey by the Mortgage Bankers Association found that 7.29% of mortgagors are 30 or more days delinquent with another 2.97% in foreclosure. (The figures are not seasonally adjusted.) According to new figures released by National Mortgage News, Americans owe roughly $9.54 trillion on their residences, which means almost $1 trillion in home mortgages are late. MBA said that 6.99% of all home loans outstanding were at least 30 days past due in the third quarter, up 58 basis points from the second quarter and 140 basis points from one year earlier. The foreclosure rate of 2.97% rose by 22 basis points from the second quarter and 128 basis points from 3Q 2007. In one possible bright spot for the industry, the ratio of new loans entering foreclosure stood at 0.29%, flat from the second quarter and only 29 basis points higher than one year earlier. However, MBA chief economist Jay Brinkman said the foreclosure start data is being affected by moratoria on foreclosures by companies that are holding loans in the 90-day-plus delinquency category during the modification and workout process. The survey found a 45% increase in 90-day-plus delinquencies, the biggest jump ever seen in the survey's history. He said that prime and subprime ARM loans in California and Florida continue to drive the sharp increases in foreclosures.

MGIC Investment Corp., Milwaukee, is Zacks Equity Research's Bear of the Day for Dec. 4, 2008. Back on Sept. 10, Zacks also gave the struggling mortgage insurer that title. In its statement for this most recent designation, Chicago-based Zacks said that MGIC's core results for the third quarter of 2008 "were slightly worse than we anticipated. The results continued to be impacted by increases in both the number of delinquent loans and foreclosures due to a further decline of home prices and slowing of economy. In addition, higher loss severities, especially in California and Florida, also negatively affected the results. The company has taken several combative actions to bolster its capital. We expect significant overhangs for the industry in general and for MGIC in particular, for at least the next several quarters. Our Sell rating is maintained on the shares."

DBRS has downgraded class K through class O of commercial mortgage-backed securities deal COMM2004-LNB3, citing projected liquidation losses from a delinquent Franklin Township, N.J., loan in special servicing. The Chicago office of the Canadian ratings agency said foreclosure proceedings involving the loan are expected to be completed by April 2009 and the property recently was appraised with an estimated "as is" value of $10.5 million and projected market values (after curing and deferred maintenance) of $12.5 million. Both of these values are "well below" the loan's outstanding balance of $22.4 million, DBRS said. The lowered ratings were as follows: class K to BB (low) from BB, class L to B (high) from BB (low), class M to B (low) from B (high), class N to CCC from B and class O to CCC from B (low). DBRS also said it "changed the trend on the BB (high) class J rating to Negative from stable" and confirmed the ratings of the remaining classes in the transaction.

The United Kingdom's government has made plans for a program designed to help those experiencing a temporary loss of income stay in their homes, according to the U.K. Treasury. "The new Homeowner Mortgage Support Scheme will enable households that experience a significant and temporary loss of income as a result of the economic downturn to defer a proportion of the interest payments on their mortgage for up to two years," the U.K. government entity said. "The government will guarantee the deferred interests payments in return for banks' participation in the scheme," it added. The plan is set to become available early in 2009 and the U.K. government said the eight of largest banks have pledged to work with it in developing the program.

Improving the disclosure of information on underlying assets for residential mortgage-backed securities has been identified among four priorities for immediate action by a group of securitization organizations that met Tuesday in New York to discuss and coordinate global efforts to restore market confidence. The Global Joint Initiative to Restore Securitization Markets said its other immediate priorities are to enhance transparency with regard to underwriting and origination practices, restore the creditability of credit rating agencies and improve confidence in valuations, methodologies and assumptions. The Securities Industry Financial Markets Association, the American Securitization Forum, the European Securitisation Forum and ASF-Australia set the four immediate priorities and also set eight other recommendations for restoring confidence in the securitization markets in line with their ongoing efforts to this end. Half of the other recommendations center on RMBS market improvements and standards. Specifically, the groups called for better RMBS issuer information, due diligence/quality assurance, representations and warranties, and servicing.

The Securities and Exchange Commission is putting out for public comment a new set of proposed credit agency reform measures, noting that the agencies' ratings of mortgage securities "backed by subprime mortgage loans" and collateralized debt obligations linked to subprime loans "contributed to the recent turmoil in the credit markets." The new measures "impose additional requirements on credit rating agencies," the SEC said. This is the second set of credit rating agency reforms since the SEC received its new regulatory authority from Congress to register and oversee credit rating agencies. According to Mortgage Bankers Association chairman John A. Courson, the SEC also delayed a vote on a measure that would have "imposed different ratings symbols for structured finance versus other investment products" and likely would have led to "confusion" and "continued disruption to secondary market transactions."

Commercial real estate markets "weakened broadly," according to the Beige Book, which noted that many Federal Reserve district banks reported falling rents and rising vacancy rates. "Leasing activity was down in almost all districts," the Beige Book says. Vacancy rates rose in the Boston, New York, Richmond, Chicago, and Kansas City districts while rents fell in the Boston, New York and Kansas City districts. Meanwhile, CRE and residential lending contracted. Home sales were down in most districts. The only bright spot in the Beige Book is that some district banks reported "relatively stronger demand" for starter homes. In a recent speech, Federal Reserve Board chairman Ben Bernanke noted that the housing correction still has a way to go. "Housing markets remain weak, with low demand and the increased number of distressed properties on the market contributing to further declines in house prices," the Fed chairman said.

A Federal Reserve Board study discovered that banks and thrifts made only a small percentage of subprime loans in their Community Reinvestment Act assessment areas and these findings refute critics who claim CRA lending contributed to the subprime crisis. "Only 6% of all higher-priced [subprime] loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas," Fed governor Randall Kroszner said. This evidence does not support the view that CRA contributed in any substantial way to the subprime mortgage crisis, he added. In examining foreclosure data, Fed researchers also discovered that foreclosure filings have increased at a faster pace in middle-income and higher-income areas than in lower-income areas served by CRA lenders.

Capital One Financial Corp., McLean, Va., has gotten a thumbs up from two of the rating agencies in how it is treating the option adjustable-rate mortgage portfolio it will acquire in its $520 million purchase of Chevy Chase Bank FSB, Bethesda, Md. Capital One will take a net credit mark of $1.75 billion for potential losses in the loan portfolio. Fitch Ratings, New York, said it believes Capital One "has made the appropriate valuation adjustments to the $11.4 billion loan portfolio, which includes $4.1 billion in option ARMs originated largely through a broker network." A statement from Standard & Poor's noted that it believes "the substantial $1.75 billion in credit marks that Capital One has factored into the price of this acquisition will buffer the firm from future loan credit losses as the gross credit mark equals 33% of the existing Chevy Chase option ARM portfolio." In addition, Capital One has a good track record of integrating institutions into its operations, especially ones with residential mortgage portfolios, S&P said, which added that on a pro forma basis, Capital One's residential mortgage portfolio will total $20.1 billion or 12.8% of total loans, equivalent to its current loan mix.

The national subprime delinquency rate climbed to 33.88% at the end of September, a 60% increase over the past twelve months, according to exclusive survey figures compiled by National Mortgage News. The newspaper also found that 11.19% of all subprime loans ($93 billion) are in foreclosure. Compared to the June 30 period, subprime delinquencies rose slightly. NMN and its affiliate, the Quarterly Data Report, found that consumers owe roughly $840 billion on the their subprime mortgages, which means $284 billion in A- to D loans are in some stage of delinquency. The figures are based on responses and estimates from 21 mortgages companies that are engaged in the servicing of subprime mortgages. The results are affected, to some degree, by the failure of a handful of companies which had A- to D receivables that cannot be accounted for. (For more details see the Monday edition of National Mortgage News.)