Servicing

The average weekly rate for a 30-year fixed-rate mortgage fell to 5.97% during the week ending Nov. 26 from 6.04% the week previous in a move Freddie Mac attributed to recent statistics signaling economic decline. "Signs the overall economy is flagging lowered most interest rates marketwide," said Frank Nothaft, Freddie Mac vice president and chief economist, noting that "economic growth in the third quarter was revised downward this week, led by the first decline in consumer spending since the fourth quarter of 1991 and the largest drop since the second quarter of 1980." In addition to falling week over week, the average rate for a 30-year FRM was down from the same period last year, when it was 6.10%. The average rate on the five-year Treasury-indexed hybrid adjustable-rate mortgage, at 5.86%, inched down to 5.86% from 5.87% but was the same as it was the year previous; while the average rate on the one-year Treasury-indexed ARM, at 5.18%, fell from 5.29% the previous week and 5.43% the year before. However, the average rate for a 15-year FRM, at 5.74%, was slightly up from the previous week and the previous year when it was 5.73%, in both cases. Points averaged 0.7 for 30- and 15-year FRMs, 0.6 for five-year hybrids and 0.5 for one-year ARMs.

Fannie Mae issuance of mortgage-backed securities fell to $28.6 billion in October, the lowest level since February 2001, and Ginnie Mae edged out the mortgage giant by issuing $29.2 billion in single-family MBS in the same month. Fannie's monthly activity report shows it purchased $13 billion of its own guaranteed MBS and its mortgage portfolio grew by $15.7 billion to $777.1 billion as of Oct. 31. The government-sponsored enterprise has been hampered by high funding costs in providing more support for the mortgage market. But the Federal Reserve Board's new initiative to purchase GSE debt and MBS should give Fannie a boost in the months ahead and hopefully lower mortgage rates. Meanwhile, the delinquency rate (90 days or more past due) on Fannie guaranteed mortgages rose to 1.72%, up from 1.52% in September and 0.78% in October 2007.

The Department of Housing and Urban Development should reopen the FHA 203(k) loan program to investors temporarily so they can purchase and renovate rundown foreclosed properties, according to the National Association of Realtors. "Investors utilizing the 203(k) program could purchase dilapidated foreclosed properties for rehabilitation and conversion to rental properties," NAR says in a letter to HUD secretary Steve Preston. Federal Housing Administration 203(k) loans cover the cost of buying a property and the estimated renovation costs in a single transaction. HUD closed the 203(k) program to investors in the late 1990s because of fraud and mounting loan losses. The NAR suggests allowing investors to participate in the FHA program for three years.

Federal Deposit Insurance Corp. researchers have calculated that 638,000 mortgages entered foreclosure in the second quarter while servicers had to deal with a larger crop of newly delinquent loans. Single-family mortgages becoming 60 to 90 days past due in the second quarter totaled 736,000, up from 670,000 in the first quarter and 618,000 in the fourth quarter of 2007. "What this tells us is that the number of problem mortgages is still rising and that finding alternatives to foreclosure remains a policy priority," said FDIC chief economist Richard Brown. There were 1.2 million foreclosures in the first half and it could hit 2 million by year-end, Mr. Brown said. "More needs to be done to modify loans," he added. The FDIC has developed a streamlined loan modification program. FDIC chairman Sheila Bair wants the Treasury Department to fund a loss-sharing loan guarantee program to facilitate more modifications.

Poorer than expected performance in certain prime adjustable-rate jumbo mortgages issued in 2006 and 2007 deals has led Moody's Investors Service to downgrade some Wells Fargo Mortgage Backed Securities Trust and Bear Stearns tranches while confirming a smaller number of ratings from these deals. Moody's has downgraded 77 tranches from 15 WFMBST transactions and 17 tranches from three Bear deals. It also confirmed 15 tranches from the 15 MFMBST deals and one tranche from three Bear transactions. The ratings reflect an expected loss methodology for the jumbo sector that Moody's revised in September.

Servicers participating in the Hope Now alliance provided loan workouts to a record 225,000 homeowners in October, up 13,000 from the September figure. At the current pace, Hope Now estimates that 2.2 million homeowners will avert foreclosure with the help of a loan workout from their loan servicer this year, an increase of 45% from 2007. Faith Schwartz, executive director of Hope Now, said the data shows that alliance members "are helping more homeowners avoid foreclosure than ever before." The October total included 103,000 loan modifications and 122,000 repayment plans, a monthly record for each category.

The financially struggling Residential Capital Corp. has sold $12.7 billion in Fannie Mae-related servicing rights. The company confirmed the sale -- first reported in the American Banker -- but declined to say who the buyer was. "We're not giving out any more information about the sale," a spokeswoman said. GMAC Financial Services -- the parent of ResCap -- recently 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. The company has warned, however, that it may not receive approval from the Fed. GMAC owns a depository based in Utah. Among servicers, ResCap ranks sixth nationwide, according to the Quarterly Data Report.

Defaults on single-family mortgages and construction loans continued to accelerate in the third quarter as banks and thrifts added $50 billion to loan loss reserves for the second consecutive quarter, according to the Federal Deposit Insurance Corp. FDIC chairman Sheila Bair said institutions are "aggressively growing reserves. But overall reserve growth continues to lag behind the growth of troubled loans." The serious delinquency rate (90-days or more past due) on single-family mortgages rose to 3.9% in the third quarter, up from 3.3% in the second quarter. Charge-offs in single-family loans totaled $3.9 billion, down from $4.6 billion in second quarter. The decline may be attributable to J.P. Morgan Chase's acquisition of Washington Mutual. Commercial banks originated $228.8 billion in single-family mortgages during third quarter, down 19% from the second quarter. After closing 22 banks this year, FDIC officials said the deposit insurance fund has declined to a 0.76% reserve level and the FDIC board will meet in December to consider a hike in insurance premiums. The FDIC's problem bank list has jumped to 171 institutions with $115.6 billion in assets, up from 117 institutions in second quarter.

The risk of delinquency continues to rise in the fourth quarter of this year, according to First American Corelogic's Core Mortgage Risk Index. The CMRI showed that delinquency risk rose 12% from a year earlier for the fourth quarter of this year. First American said the risk reading remains high at 54% above the base period established in the first quarter of 2002, a period near the end of the last U.S. economic recession. Due to current economic conditions, First American predicts that the risk index will either stabilize near its current level or rise to higher levels over the next 12 months.

The Federal Reserve's plan to purchase up to $500 billion of housing-related government-sponsored enterprises' mortgage-backed securities as well as up to $100 billion of their debt could mean a refinancing boom if the initial positive MBS market reaction to the move lasts. The immediate reaction to the move largely was "euphoria" in the MBS market, said Art Frank, director and head of MBS research at Deutsche Bank. "If this holds it's going to kick off a refi wave of some size," Mr. Frank said. But as of late Tuesday morning the market had "given up a little bit" of its initial outperformance based on the reaction of the benchmark Fannie Mae current coupon, he said. Premiums were not performing quite as well due to anticipation of a possible refi wave, Mr. Frank added. Overall, the MBS market as of Tuesday morning had done "very well" in reaction to the Fed's decision to join Fannie Mae, Freddie Mac and the Treasury in buying MBS in hopes of spurring purchases and refinancing that would be helpful to the larger economy, according to Ken Hackel, managing director at RBS Greenwich Capital.