Servicing

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

Home prices continued to decline in four out of every five metropolitan areas during the third quarter, according to the National Association of Realtors. While 28 metro areas showed increases, 120 metro areas saw prices fall and prices were unchanged in four others from one year earlier. NAR President Charles McMillan, a broker in the Dallas-Forth Worth market, said foreclosures are affecting the overall market. "A very large proportion of distressed home sales are taking place at discounted prices compared to more normal conditions a year ago. It's very challenging to understand proper valuation, given the differences between distressed sales and a larger share of traditional homes in sound condition." Data on individual markets is available here: http://www.realtor.org/research/research/metroprice.

The Federal Housing Administration has set aside $12.2 billion in reserves to cover expected losses on its single-family program after closing the books on a record fiscal year in which lenders originated $171.8 billion in FHA-insured loans. The FHA insured portfolio jumped to $479.6 billion in the fiscal year ended Sept. 30, 2008, up from $351.8 billion in FY 2007. And its reserves jumped to $19.7 billion, up from $7.5 billion in FY 2007. The annual FHA management report attributes the sharp rise in "loan guarantee liability" to high default rates on loans with downpayment assistance and house price declines. The nationwide decline in house prices "results in increased claims and lower proceeds from the sale of foreclosed properties," the report says. The FHA report also shows that the capital ratio for the single-family insurance fund fell to 3% in FY 2008, down from 6.4% in the previous fiscal year. By statute, FHA must maintain a 2% capital ratio.

House Democrats are accusing the Treasury Department of "abandoning" Congress' mandate to use part of the $700 billion Troubled Asset Relief Program funds to prevent foreclosures and brushing aside an FDIC program that would use federal loan guarantees to facilitate loan modifications. Treasury Secretary Henry Paulson told a House panel that he continues to look for a TARP foreclosure prevention program that "strikes the right balance" between protecting taxpayers and being effective. Federal Reserve Board Chairman Ben Bernanke testified that the Federal Deposit Insurance Corp. has developed a "very promising approach." However, he has concerns that the "government might be liable for $100,000" in some modifications if a homeowner with large negative equity simply abandons the property. Secretary Paulson noted that Fannie Mae, Freddie Mac and the Hope Now servicers have adopted a streamlined loan modification approach modeled after the FDIC program. But House Financial Services Committee chairman Barney Frank, D-Mass., argued that such initiatives are not a "substitute" for developing a TARP foreclosure reduction program.

Citigroup's latest planned global headcount reduction will include some unspecified positions in the mortgage area but the company considers itself to already have made relatively strong progress in reducing more problematic residential RE loans. The company said in a presentation to investors and employees Monday that it has no remaining exposure to payment-option adjustable-rate mortgages, and the $218 billion of remaining residential RE loans it has represent 11% of its assets. Some competitors still have some option ARM exposure and mortgages represent from 13% to 25% of their assets, Citi said. The company plans to cut its headcount to about 300,000 from 352,000 at the end of the third quarter. Attrition and previous announced divestitures will make up a significant portion of the cuts.