Servicing

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.

Two investment funds have filed a class action lawsuit to stop Countrywide Financial Corp. from passing off losses on loan modifications to investors in mortgage-backed securities. The complaint alleges that Bank of America's settlement with state attorneys general could lead to the modification of nearly 400,000 Countrywide loans totaling $80 billion and to a reduction in payments to investors by $8.4 billion and a reduction in value of the MBS. Under the pooling and servicing agreements, Countrywide must purchase the loans out of the securitized pools at par with accrued interest before the loans can be modified, according to the plaintiffs, Greenwich (Conn.) Financial Services and QED LLC. "The only way to modify the loan according to the contract is to purchase it," said William Frey, who manages both funds. There is no contractual ability for CFC to modify the loans and keep them in the securitized trusts, he added. Bank of America said loan modifications benefit both homeowners and investors. "We are confident any attempt to stop this program will be legally unsupportable," a statement issued by the bank said. The plaintiffs filed the class action lawsuit in a New York state court on behalf of investors in 373 CFC MBS totaling $150 billion.

Home prices fell at a 7.3% annualized rate during the third quarter, according to Freddie Mac's conventional mortgage home price index. That was the largest quarterly decline in the index's 39-year history. Frank Nothaft, Freddie Mac's chief economist, said disruptions in the credit markets during the third quarter likely weakened demand for housing and contributed to the continuing price declines. "With the unemployment rate having risen to 6.5% in October, there will likely be further weakening in housing demand, which could push the market bottom in home sales and housing starts out at least until middle to late next year and result in further declines in house prices," Mr. Nothaft said.

With the pace of bank failures quickening, the Federal Deposit Insurance Corp. is going outside the banking community to line up investors to bid on the assets and deposits of failed banks and thrifts. "FDIC recognizes that investors not organized as an FDIC-insured depository institution or holding company may potentially be interested in bidding on a failing institution," according to the agency. The FDIC has designed an expedited application process to get conditional approval for deposit insurance and to get on the FDIC's bidders list. However, investors still have to get preliminary regulatory approval for a bank charter. Applicants should have a business plan that is compliant with the Community Reinvestment Act, readily available capital and an identified management team, the FDIC said. There are 171 institutions on the FDIC's problem bank list with $115.6 billion in assets.

Fannie Mae's use of HomeSaver advances to cure delinquent loans in securitized pools peaked in June and July and two-thirds of the personal loans went to nonprime borrowers, according to a report by the Federal Housing Finance Agency. Fannie launched the HomeSaver program in February and it had made more than 45,000 advances totaling $301 million as of Sept. 30, according to the company's latest financial report. The average size of these unsecured loans is $6,700 and it has helped the mortgage giant fix the loans without purchasing them out of pools and recognizing a loss. From February through August, Fannie made 36,415 HomeSaver advances and 23,177 went to alt-A and subprime borrowers. Fannie made 11,725 advances in June and 10,599 advances in July. Advance activity dropped to 7,914 in August, according to the government-sponsored enterprise regulator.