Servicing

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."

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.