Servicing

The Federal Deposit Insurance Corp. is offering to share its playbook on streamlined loan modifications with all residential servicers. The process was developed at IndyMac FSB, now a ward of the government. FDIC said it will share its "Mod in a Box" guide to provide servicers with the "necessary tools to facilitate streamlined and systematic loan modifications." According to FDIC chairman Sheila Bair, the IndyMac approach is effective in dealing with mortgages in portfolios and securitized pools. "I would encourage all industry participants to adopt the FDIC loan modification program as the standard approach in dealing with the grave problems facing us with continued mounting foreclosures," she said. FDIC inherited 60,000 delinquent mortgages when IndyMac was placed into conservatorship in July. Under the program FDIC mailed 23,000 loan modification proposals to borrowers and completed more than 5,300 transactions after verifying the borrowers' income. On average, the modifications cut a borrower's monthly payment by $380 or 23%.

Fannie Mae and Freddie Mac are suspending all foreclosures and evictions of homeowners during the holiday season -- November 26 to January 9 -- while their servicers get up to speed on a new streamlined loan modification program favored by the Treasury Department. The temporary suspension is expected to give troubled borrowers already 90 days past-due a chance to benefit from the new streamlined approach that servicers are trying to implement by December 15. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step," said Fannie chief executive Herb Allison. Freddie has instructed its servicers and foreclosure attorneys to contact 6,000 borrowers with pending foreclosure sales. If the single-family property is occupied the foreclosure sale will be halted. Fannie estimates the suspension will benefit 10,000 homeowners. Under the streamlined approach, the government sponsored enterprises can reduce the interest rate to 3%, extend the loan up to 40 years and even defer payments on part of the principal if necessary. The objective is to reduce borrowers' payments to 38% of gross income through a fast and simple process. "With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and workout terms to stay in their homes," GSE regulator James Lockhart said.

House Financial Services Committee chairman Frank Barney, D-Mass., is urging the Treasury Department to reduce the cost of mortgage insurance premiums on the FHA's "Hope for Homeowners" program by using money from the Troubled Asset Relief Program. In a new letter to Treasury, Rep. Frank urges the secretary Henry Paulson to use the TARP funds to reduce the "high level" of upfront and annual fees on H4H loans. The Federal Housing Administration is required to charge a 3% upfront and a 1.50% annual premium. "These high fees are depressing program usage, and using TARP funds to pay them down could significantly increase the number of foreclosures averted," Rep. Frank says in the November 20 letter. (On a regular FHA loan, the upfront premium is 1.75%. The annual premium is 55 basis points.) The committee chairman also wants Treasury to begin purchasing whole loans on a "large scale" for the specific purpose of modifying the loans and keeping the borrowers in their homes."

Borrowers who are refinancing out of a one-year adjustable rate mortgage or a hybrid-ARM are overwhelmingly replacing those loans with fixed-rate loans, according to Freddie Mac. In total, 94% of prime borrowers who originally had a one-year, conforming ARM chose a conforming fixed-rate loan when refinancing in the third quarter, according to Freddie Mac's survey. 82% of prime borrowers who initially had a hybrid ARM refinanced into a conforming fixed-rate mortgage. Freddie Mac chief economist Frank Nothaft said that elevated interest-rate volatility in the third quarter has discouraged borrowers from seeking ARM loans. "When borrowers see so much change in interest rates it highlights the payment risk that they may face from future rate increases," he said.

GMAC Financial Services - which controls nearly $400 billion in mortgage servicing rights - has applied with the Federal Reserve to become a bank holding company, a move that may give it access to a cash infusion under the Emergency Economic Stabilization Act. In a statement, the company warns, however, that it may not receive approval from the Fed. GMAC already owns a depository - GMAC Bank of Midvale, Utah, the nation's 16th largest bank in terms of residential mortgage holdings - but is not a bank holding company. GMAC's Residential Capital Corp. division ranks seventh nationwide among home mortgage servicers, according to the Quarterly Data Report. Both GMAC and ResCap are offering to pay cash for outstanding corporate notes or exchange old notes for new ones in an effort to reduce its debt load. General Motors owns 49% of GMAC with the balance controlled by hedge fund giant Cerberus Capital. Cerberus also owns most of Chrysler Corp. Both automakers may file for bankruptcy protection unless Congress can approve emergency loans for them.

Ellie Mae, a provider of loan processing software, is creating and updating loan modification closing packages for several top ten lenders, the company said. Ellie Mae said clients are currently using the service to process more than 5,000 loan modifications per week. The service creates loan modification packages with Web-based data entry that requires no re-keying of data. All documents are compliant with Fannie Mae, Freddie Mac and MERS requirements, Ellie Mae said. The service assesses the needs of the lender's workflow, accommodates lender-specific workout plans, and handles all recording, notary, and compliance monitoring needs, the company said.

The 12 Federal Home Loan Banks saw combined earnings of $506 million in the third quarter, down 30% from the second quarter, after taking $146 million in charge-offs on private-label mortgage backed securities. The Seattle FHLBank took a $18 million loss for the third quarter after taking a $49.8 million "other than temporary impairment" charge against three private-label MBS. The bank says it only expects to see a $4.9 million principal loss over the life of those three MBS. The 12 FHLBanks held $81.4 billion in private-label MBS as of June 30. FHLBank System Office of Finance said the banks also saw $252 million in "write-offs/ reserves on receivables due from the Lehman Brothers Special Financings unit," which filed for bankruptcy on Oct. 3. It was previous reported that the Atlanta FHLBank is suing LBSF for the return of $179 million in excess collateral and the Pittsburgh FHLBank is suing for the return of $41 million in cash.

The Financial Services Roundtable is urging the Treasury Department to "explicitly" guarantee Fannie Mae and Freddie Mac debt and reverse falling demand for the mortgage-backed securities issued by the two enterprises. FSR president and chief executive Steve Bartlett told a House panel the financial markets are "confused" about the extent of federal support for the government-sponsored enterprises. "Treasury should eliminate market confusion" by "explicitly guaranteeing GSE debt in a manner identical to the FDIC support for bank debt," Mr. Bartlett testified before the House Financial Services Committee. Treasury also should purchase GSE debt and MBS on a "more systematic and public basis," he said, which would reduce mortgage rates and stimulate the housing market.

Housing secretary Steve Preston wants Congress to allow his agency to assess civil money penalties on lenders that do not follow new disclosure requirements on the revamped "Good Faith Estimate" sheet. Speaking at the National Press Club, the HUD secretary said he is working "on a list" of new powers he would like Congress to grant the agency. HUD recently unveiled the new GFE form, which is covered under the Real Estate Settlement Procedures Act. Lenders have a full year to comply with new GFE rules and train their staffs accordingly. Changes made to GFE rules require lenders to make clear disclosures on a borrower's monthly payment, rate and other items, and adhere to terms quoted on the price sheet.

In an attempt to spur usage of its Hope for Homeowners refinancing program, the Department of Housing and Urban Development said Wednesday it will buy out second-lien holders - likely for pennies on the dollar. Speaking at the National Press Club, HUD secretary Steve Preston admitted that the H4H program has failed to catch fire with residential servicers looking to refinance struggling homeowners into new FHA insured mortgages. Mr. Preston unveiled several changes to the H4H program, including extending new loans with terms as long as 40 years (compared to 30 years previously). Also, HUD will now allow lenders to write down the value of the house to 96.5% of its current value. Previously, the requirement was 90%. And in one other change, borrowers using H4H can have debt-to-income ratios as high as 50%. Mandated into law this summer, the original H4H program required that holders of a second mortgage relinquish their lien in exchange for sharing in a homes' price appreciation once a new mortgage is written. Mr. Preston noted that second-lien holders "have low expectations already" adding that HUD likely will pay "pennies on the dollar" for these seconds. The housing secretary said he is "confident the changes will increase participation significantly."