Servicing

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.)

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.