Servicing

Federal Reserve chairman Ben Bernanke criticized residential loan servicers for being slow to add "capacity" to their loan modification programs. Speaking at a Fed conference on housing, Mr. Bernanke said he also backed the idea of giving cash incentives to servicers that engage in loan restructurings. He also supports a reduction in the rate being charged to consumers who try to restructure their loans through the Federal Housing Administration's 'Hope for Homeowners' modification program. "At present, this rate is expected to be quite high, roughly 8%, in part because it is tied to the demand for the relatively illiquid securities issued by Ginnie Mae to fund the program," he said. "To bring down this rate, the Treasury could exercise its authority to purchase these securities, with the Congress providing the appropriate increase in the debt ceiling to accommodate those purchases. Alternatively, the Congress could decide to subsidize the rate." The H4H program has received little usage in the mortgage industry. The Fed chairman nixed the idea of a government-funded insurance program to offer price supports on home values.

Howard Gaines, an attorney and licensed title agent from Delray Beach, Fla., has been convicted of charges relating to his participation in a $10 million mortgage loan scheme to defraud mortgage lenders on properties located in Broward County. Sentencing is scheduled for Feb. 10, 2009. According to the evidence presented at trial, Gaines was a licensed title agent at Your Title Choice in Deerfield Beach, Fla. Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD-1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10 million in loans during 2004, 2005, and 2006, including $5 million in fraudulent mortgages. There were seven who were originally arrested and Gaines' conviction was the sixth conviction in this matter. The following five conspirators have pleaded guilty: Anthony Dehaney, Marcia Mestre, Angela Angela Manalaysay, Beverly Ireland and Donna Patricia Grant. The seventh defendant, Andrea Dehaney, is still pending trial.

Fitch Ratings said it will now seek and evaluate third-party loan-level reviews on all residential mortgage pools it is asked to rate in order to better identify poor underwriting practices. The ratings agency said the reviews will be conducted by a "due diligence" company prior to Fitch providing ratings on the transactions. Fitch said an independent company with no ties to the loan originator, the issuer of the notes, or the security underwriter must be used in conducting reviews. Companies conducting reviews also "will need to have the appropriate company and management experience for the type of loans being reviewed and have the procedures and controls, staff experience levels, technology, and tools to adequately conduct and report on the reviews," the ratings agency said.

New York City pedestrians will get tips on how to avoid foreclosure from a giant billboard in Times Square, New York State Superintendent of Banks Richard H. Neiman said during a teleconference. This effort is a creative public service announcement that will also run on local television stations across the state, he said. It targets two specific groups of homeowners, those falling behind on their mortgage payments and those who already are facing foreclosure. Viewers are advised to either call the New York Banking department or visit its website to find default and foreclosure related information, such as how to find qualified counselors in their area. The state estimates 1.5 million people, including New Yorkers, surrounding area commuters and tourists, pass through Times Square during the holiday season.

Thornburg Mortgage of Santa Fe, once a top ranked jumbo lender, said it will not appeal a decision by the New York Stock Exchange to delist the company. It's expected that Thornburg will be officially kicked off the NYSE before the market opens on this Friday. The company - whose shares trade for about 25 cents compared to a 52-week high of $140 - will trade, instead, on the OTC Bulletin Board or "pink sheets." In a recent interview with National Mortgage News, company CEO Larry Goldstone said TM has "four to five months" to find alternative financing for its $21 billion portfolio. TM no longer funds new loans. In the third quarter the company posted a net profit of $140 million but only because the value of some of its liabilities fell. Mr. Goldstone said TM - which as of September 30 had just 300 delinquent loans - "is seeing a noticeable increase in our defaults." The interview took place in late November. The publicly traded REIT narrowly escaped bankruptcy in April thanks to a new fundraising plan and a renegotiation of its bank lines.

FDIC chairman Sheila Bair has been talking with the Obama transition team about funding a loan guarantee program to facilitate loan modifications and she is encouraged by president-elect Barack Obama's commitment to foreclosures prevention. "We are certainly sharing our best ideas," Ms. Bair told a Fortune 500 forum. The FDIC has developed a systematic loan modification program that could be expanded through the use of loan guarantees or loss sharing arrangements on newly modified loans. But the Bush administration has blocked funding for the loan guarantees. Ms. Bair said such a program could prevent one-third of foreclosures and help stabilize housing prices, which continue to spiral downward due to "unnecessary foreclosures."

The Federal Housing Administration just completed one of its best years ever in terms of loan originations and the mortgage insurer's auditor expects the surge in FHA originations to continue for several years. FHA endorsed a record 154,240 single-family loans in FY 2008 and it is projected to endorse 280,400 loans in FY 2009 and 331,100 in FY 2010, according to a FY 2008 actuarial review. However, declining house prices are expected to undermine the performance of FY 2008 loans and result in high claims rates. The independent auditor pegged the economic value of the FY 2008 book of business at a negative $3.6 billion over the life of the loans. The auditors also reduced the estimated economic value of the FHA Mutual Mortgage Insurance fund by 39% to $12.9 billion. This reduction, combined with a 29% increase in the number of insured FHA loans, decreased the capital ratio of the MMI fund to 3% from 6.4% in FY 2007. The auditors estimate that loans originated in the current year (FY 2009) will perform better and have a positive $2.4 billion economic value.

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.

The Royal Bank of Scotland Group and NatWest said they have promised to give newly delinquent borrowers a six-month grace period before instituting foreclosure proceedings until at least the end of 2009. RBS and NatWest said they also have made a "further commitment" to give customers "the opportunity to seek advice from independent money advice organizations before any steps [are] taken." The Royal Bank of Scotland can be found online at http://www.rbs.com.

Mortgage delinquencies will not peak until early 2010 after reaching their highest level in decades, according to projections from credit reporting bureau TransUnion. TransUnion, which reported that 3.96% of home loans were 60 or more days delinquent in the third quarter, believes the 60-day delinquency rate will rise to 4.66% in the fourth quarter, up 55% from a year earlier. TransUnion projects that by the fourth quarter of next year, 7.17% of home loans will be at least 60 days past due. Ezra Becker, principal consultant in TransUnion's financial services group, told MortgageWire that lenders should expand collection efforts and add to loss reserves in response to current conditions. But he also said lenders shouldn't overlook the opportunity to make good loans to low risk customers in the current low interest rate market. "For the first time in recent memory, demand for credit outstrips the supply of credit," he said.