Servicing

Construction of new one-to-four family homes fell to an annualized rate of just 531,000 units in October with the nation's largest homebuilding trade group describing the market as a crisis situation. According to figures compiled by the U.S. Census Bureau and the Department of Housing and Urban Development, the results were the lowest since 1959. The previous low was January 1991. Compared to the same month in 2007, starts fell by 40%. The sequential decline was a more modest 3.3%. "The housing downturn has already cost America three million jobs in construction and related industries, and this downward momentum cannot be stemmed without substantive government intervention," said NAHB's new chief economist David Crowe. Not surprisingly, NAHB's Builder Confidence index now stands at its lowest level since January 1985 when the trade group first launched the measurement. Multifamily starts fell to 247,000 units during the month, a 30% decline from a year ago.

Fitch Ratings has revised its surveillance methodology for evaluating subprime residential mortgage-backed securities to reflect higher loss expectations on loans originated between 2005 and 2007. Fitch now expects more than half of the remaining loans in subprime RMBS from those years to go into foreclosure. Specifically, Fitch predicts that of the remaining loans in transactions from 2005, 2006 and 2007, the shares that will go into foreclosure are 49%, 60% and 52%, respectively. When loss severity is added to the equation, Fitch estimates that investors will lose 30% of the remaining principal balance on 2005 transactions, 39% on 2006 transactions and 34% on 2007 transactions.

The National Credit Union Administration has come up with a plan to refinance billions of dollars of at-risk mortgages by funneling new loans to credit unions through the Central Liquidity Facility, the lending arm of the NCUA. NCUA chairman Michael Fryzel said the agency has allocated $2 billion in loans to facilitate the Credit Union Homeowners Affordability Relief Program, or CU HARP, which could be expanded if its proves successful. Refinanced mortgages could carry rates as low as 1.75%, according to a report in The Credit Union Journal. "My principal reason for advancing CU HARP is simple," said Mr. Fryzel, "The consumer must not be left out of the broader government efforts to mitigate the housing and credit market dislocations." (Member credit unions own the CLF, which exists within the NCUA.) Credit unions believe they are not eligible for the Treasury's capital purchase program since they are nonprofits.

Sen. Arlen Specter, R-Pa., has introduced a bill that would make it harder for investors to sue servicers for loan modifications and it would temporarily amend pooling and service agreements so at least 25% of underlying loans in mortgage-backed securities could be modified. "The bill addresses the litigation threat by requiring investors' attorneys to conduct a careful inquiry into the factual and legal basis of their claims, including consideration of the recent statutory clarification that the servicer's duty is to the entire pool of investors," Sen. Specter said. In addition, the attorneys would have to get an opinion from a newly created Treasury Department office of foreclosure evaluation that the modification was "unreasonable or not permitted" under the Real Estate Mortgage Investment Conduit regulations. Sen. Specter indicated at a Judiciary Committee hearing that he wants to pass legislation before the end of year to increase loan modifications.

Sen. Dick Durbin, D-Ill., has expanded his bankruptcy reform bill so that servicers are required to use the FHA Hope for Homeowners program for qualified borrowers. "Virtually every economist agrees that the financial crisis will not diminish, and the economy will not begin to recover, until we address the root cause of the problem: the failed mortgage market," Sen. Durbin said. Congress created the Federal Housing Administration's Hope for Homeowners program to "encourage" servicers to write down the loan amount on underwater mortgages and refinance borrowers into affordable FHA loans. But the Senate majority whip wants to make it mandatory and require servicers to survey their portfolios for delinquent loans that could be restructured through the Hope for Homeowners program. For banks receiving capital injections from the Treasury Department, the Durbin bill would prohibit an increase in dividends and reduce dividends by the amount of compensation paid to the top five executives in excess of $500,000. Like the original bill, the new bill allows bankruptcy judges to modify mortgages on primary residences. The mortgage industry strongly opposes such bankruptcy "cramdowns." Sen. Durbin called the bill a "marker for future action" that he wants to pass next year.

Sen. Dick Durbin, D-Ill., has expanded his bankruptcy reform bill so that servicers are required to use the FHA Hope for Homeowners program for qualified borrowers. "Virtually every economist agrees that the financial crisis will not diminish, and the economy will not begin to recover, until we address the root cause of the problem: the failed mortgage market," Sen. Durbin said. Congress created the Federal Housing Administration's Hope program to "encourage" servicers to write down the loan amount on underwater mortgages and refinance borrowers into affordable FHA loans. But the Senate majority whip wants to make it mandatory and require servicers to survey their portfolios for delinquent loans that could be restructured through the Hope program. For banks receiving capital injections from the Treasury Department, the Durbin bill would prohibit an increase in dividends and reduce dividends by the amount of compensation paid to the top five executives in excess of $500,000. Like the original bill, the new bill allows bankruptcy judges to modify mortgages on primary residences. The mortgage industry strongly opposes such bankruptcy "cram downs." Sen. Durbin called the bill a "marker for future action" that he wants to pass next year.

U.S. Bancorp topped Thomson Financial's rankings of U.S. mortgage-backed debt trustees for the first three quarters of this year followed by The Bank of New York Mellon, which was named the leading trustee for all U.S. debt securities across the board. USB served as trustee for 19 MBS deals during the period ended Sept. 30 while The Bank of New York-Mellon served as trustee for 16 deals. According to Thomson Financial data during the first nine months of 2008, the Bank of New York Mellon acted as trustee for over 1,300 debt issues, covering 30% of the market, valued at over $411 billion in proceeds. In addition to mortgage-backed debt, the firm services all major debt categories, including corporate, collateralized debt obligations, derivative securities and international debt offerings. The company delivers its corporate trust and agency services through The Bank of New York subsidiary. Its corporate trust business services $12 trillion in outstanding debt from 56 locations in 18 countries around the world.

August Blass, a former wholesale mortgage executive, has started a company that will provide quality control, risk assessment, and fraud prevention services to banks and lenders. The Walnut Creek, Calif., company, National Loan Auditors Inc., said Monday that it will "assist loan modification professionals, review loan documents for errors or misrepresentations and help in reducing the high foreclosure rates that have overcome the real estate market." Mr. Blass is a former Western regional correspondent manager for Wholesale Lending Online in Millbrae, Calif. In the 1990s he wrote "Internet Strategies for the Mortgage Banking Industry," published by Faulkner & Gray, which is now part of NMN's publisher SourceMedia Inc. "There is a need in the current market to provide an in-depth look at loan portfolios and financial documents to find potential errors and expose hidden liabilities," Mr. Blass said in a press release Monday. National Loan Auditors "will help financial institutions save millions in foreclosure dollars by providing them with an accurate report of which loans present the most risk."

The National Reverse Mortgage Lenders Association has launched an electronic resource guide that it said provides extended technical knowledge about reverse mortgages. The group introduced its NRMLAPedia at its 2008 Annual Meeting & Expo in Los Angeles. The guide has 100 user-requested topics, among them appraisals, disclosures, marketing and sales, processing, underwriting and servicing. The group expects the list to grow in response to further lender and borrower user requests. The association said it plans to initially sell NRMLAPedia to member on disks for a nominal fee and later make it available on the NRMLAOnline.org website. Various contributors will update information as needed.

The performance of mortgage pools that support the senior bonds in many restructured REMIC securities are performing worse than other loan pools, according to Fitch Ratings. The Fitch analysis found that loan groups in re-REMIC bonds have delinquency rates that are 25% worse on average than loan pools outside of re-REMIC transactions. Fitch said its approach to analyzing re-REMIC bonds analyzes each loan group independently to ensure that the underlying credit support justifies the rating on the senior bonds. In response to deteriorating residential MBS performance, issuers are re-securitizing the senior notes to create additional credit support. The restructured REMIC results in two new bonds, a senior bond with more credit protection and a subordinate bond with the same credit support as the underlying bonds. "As long as the additional credit support from the new subordinated bond is sufficient, the senior bond of the re-REMIC should continue to maintain its 'AAA' rating even if the underlying bonds are downgraded," said Huxley Somerville, the head of Fitch's U.S. RMBS group. The full report can be found at: http://www.fitchratings.com/corporate/sectors/special_reports.cfm?sector_flag=3&marketsector=2&detail=&body_content=spl_rpt