Servicing

Re-defaults of newly modified loans are "remarkably high," according to the Office of the Comptroller of the Currency. The OCC released data showing that 36% of modified loans are 30 days past due after three months. "After six months, the rate was nearly 53% and after eight months, 58%," Comptroller John Dugan said at an Office of Thrift Supervision housing forum. Using first quarter data, the OCC also found that 35% of modified loans were 60-days past due after six months. "Not all re-defaulted mortgages go to foreclosure," Mr. Dugan said. But the OCC is beginning to ask servicers why the re-default is so high. The Comptroller also gave a preview of the third quarter OCC/OTS report on loan workouts and foreclosures that will be released soon. He noted that loan modifications have nearly doubled since the first quarter and foreclosure starts fell 2.6%. Foreclosure starts totaled 288,740 in the second quarter.

The Federal Housing Finance Agency this week will release "standards" for Fannie Mae and Freddie Mac servicers engaging in loan modifications, agency chief James Lockhart said Monday. Speaking at the Office of Thrift Supervision forum on housing, Mr. Lockhart said he wants servicers to begin thinking about how they can modify loans that are in private label securities. He provided no details. Meanwhile, Federal Deposit Insurance Corp. chairwoman Sheila Bair defended the concept of government involvement in loan modifications after a new study by the Comptroller of the Currency found that in some cases half of all modified loans wind up delinquent again just months after being restructured (see related item below). Ms. Bair said the OCC study offers no "granular" detail on borrowers going delinquent after having their loans modified. She said the OCC study offers no information on debt-to-income ratios, borrower income and other metrics.

The plummeting yield on the 10-year Treasury - which historically has served as a benchmark for mortgage rate direction - hit a new 45-year low on Friday. Early in the afternoon the benchmark yield was at 2.57%, more than 20 basis points lower than where it was earlier in the week. The last time the 10-year Treasury yield was lower came in 1962 when it was at 2.55%, according to Thomas L. di Galoma, managing director and head of U.S. Treasuries at Jefferies & Co. An employment report released Friday morning has been a "focus" for Treasuries as has "the plan to lower mortgage rates by the Fed/Treasury," Mr. di Galoma and fixed-income researchers at Jefferies said in their Friday morning Treasury market report. International rate cuts also have played a role, the researchers said.

Mortgage companies dropped 8,400 full-time employees from their payrolls in October after mortgage originations fell to an eight-year low in the third quarter. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 343,400 positions from 351,800 in September, a 9% decline from a year ago. The mortgage industry took its biggest job hit in 2007 when 110,000 workers lost their jobs or left the industry. Friday's job report shows "we are the deepest part" of the recession, said Brian Bethune, chief U.S. financial economist at IHS Global Insight. The overall U.S. unemployment rate rose to 6.7% as 533,000 workers lost their jobs in November. Although the government's response to the financial crisis came six to 12 months too late, said the economist, he expects mortgage rates to fall below 5%, and spur a surge in refinancing activity. "It is going to get hot," Mr. Bethune said. But he warned there will be a "huge bottle neck" because the banks don't have people in place in process the applications.

Apollo Management, an investment fund controlled by Leon Black, is one of three finalists for the government controlled IndyMac Bank, mortgage and investment banking officials told MortgageWire. Apollo is backing Vantium Capital, managed by Amy Brandt, the former head of subprime lender WMC Mortgage of California. Vantium is investing in both troubled mortgages and functioning as a "scratch and dent servicer." A spokesman for Apollo declined to comment. A FDIC spokeswoman would not discuss the status of the sale except to say, "We'll announce the winning bidder by year end." Early on in the bidding process two other investment funds - Cerberus Capital and J.C. Flowers & Co. - expressed an interest in the thrift, which services roughly $180 billion in mortgages. IndyMac, created by Countrywide Home Loans two decades ago, is based in Pasadena, Calif.

There's little hope to stem the tide of rising mortgage delinquencies and defaults in the short term, according to economists who follow the industry. Jay Brinkmann, chief economist for the MBA, said that declining home values, which limit the ability of troubled borrowers to sell a home, have increased the "roll rate" of 30-days delinquent loans in one quarter that go into foreclosure during the next quarter. In the 1990s, about 10% of 30-day past due loans moved into foreclosure. Today, about 30% of short-term delinquencies roll into foreclosure, he said during a conference call to discuss the MBA's delinquency survey. Moreover, in hard hit states, the roll rate is even higher, 75% today in California, for instance. And with unemployment rising fast, there's little hope for relief in the short term, according to Ryan Sweet, an economist at Moody's Economy.com. He told MortgageWire that he expects the unemployment rate to rise to 8.5% by early 2010. "Mortgage credit quality is going to decline well into 2009," Mr. Sweet said.

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.