Servicing

The First American Corp., Santa Ana, Calif., said it has introduced what it believes is the first "reverse mortgage score," a data-based numerical value designed to help servicers quantify the likelihood that struggling senior borrowers can avoid foreclosure on their current loans by qualifying for government-insured Home Equity Conversion Mortgages. The score, introduced at the National Reverse Mortgage Lenders Association conference in Los Angeles, examines factors specific to the government reverse mortgage program such as the new $417,000 HECM national loan limit, the number of borrowers on the loan and their ages, living trusts and powers of attorney. It also examines homeowner and property information from First American's data repository. The combined examination of these factors results in a weighted average score ranging from one to five in which "one" indicates the borrower is "least likely" to qualify for a HECM and "five" indicates the loan is "most viable," an external spokesman said. The spokesman also said score may be helpful to originators as well as servicers.

Congress needs to pass legislation that "unlocks" securitized trusts so servicers could sell distressed mortgages to the Treasury Department for restructuring, according to a former Treasury official in the Clinton administration. Michael Barr told a House panel that the Real Estate Mortgage Investment Conduit statute could be amended so that mortgage-backed securities investors don't face a tax penalty when loans are sold to Treasury, which is administering the Troubled Asset Relief Program. "We need to free servicers from the conflicting requirements and give them an incentive to sell mortgages to Treasury for refinancing and foreclosure avoidance," he testified. Mr. Barr is a law professor and a senior fellow at the Center for American Progress, a liberal think tank. He served as a special assistant to former Treasury secretary Robert Rubin and as Treasury deputy assistant secretary for community development (1997-2000). His testimony could signal options that the President-elect Obama's transition term is considering. Mr. Barr also supports a Federal Deposit Insurance Corp. plan to guarantee modified loans. "FDIC has proposed a plan to use guarantee authority, and the [Bush] administration should implement it," he said.

Genworth Financial - after recently posting a large third quarter loss - struck a deal over the weekend to buy a $1 billion thrift in Minnesota, which it will use to file an application for a capital infusion under the $700 billion bailout bill. Genworth of Richmond, Va., also owns a mortgage insurance division, which it is considering selling. At press time a Genworth spokesman had not returned a telephone call about the thrift purchase. In conjunction with its planned purchase of InterBank FSB of Maple Grove, Minn., Genworth also has filed a savings and loan holding company application with the Office of Thrift Supervision. To participate in the Treasury's capital purchase program, it must first file an application with OTS. Last week Genworth said it has borrowed $930 million of a $1.7 billion credit line.

Chevy Chase Bank of Bethesda, Md., a top 40 ranked residential funder, could be in play, according to combined press reports. In a statement, the thrift's executive vice president, Thomas H. McCormick, declined to comment on the reports, saying, "Not surprisingly rumors have risen from time to time over the years about the interest of other banks in seeking" to acquire the lender/servicer. Among servicers, CCB ranks 36th nationwide, according to the Quarterly Data Report. The depository is privately held, controlled mostly by developer B.F. Saul and members of his family. The Saul family fortified the thrift's capital position two decades ago during the height of the S&L crisis.

The key to combating mortgage fraud is "regulation, regulation, regulation," the director of research and policy for the Community Law Center told attendees at SourceMedia's Mortgage Fraud Conference in Las Vegas. Robert J. Strupp said part of the problem is that existing laws were not enforced. He warned against what he called "self-proclaimed" loss mitigation specialists and "certified" foreclosure consultants. No state certifies foreclosure consultants, Mr. Strupp declared, adding, "In my opinion, this whole industry needs to be regulated and it is not." Rodney Nelsestuen, research director for TowerGroup, took an opposite position on increased and detailed regulation. At first, he said, it can be prescriptive in dealing with the problem, but in the end it will fail because the prescription will provide fraudsters with a road map to get around the problem. Any solution to fraud needs to be principal-based, Mr. Nelsestuen said.

Residential loan modifications could be ripe for mortgage fraud, according to panelists speaking at a SourceMedia mortgage conference in Las Vegas. Gary Lacefield, executive vice president and director of compliance at WR Starkey Mortgage of Texas, said part of the problem is that lenders are modifying loans, keeping homeowners in a product that was not suitable for them in the first place. The modification continues the predatory pattern and practice, he said. Al Macdonald, chief executive and founder of NominoData, when asked about borrowers who were involved in mortgage fraud, said before just simply modifying the loan, the originator should re-screen the borrower to make sure there was not fraud. He later said that technology is merely a tool to help catch fraud. Lenders need to be constantly monitoring their systems to make sure technology is filling the role that was originally intended.

Genworth Financial - which posted a large third-quarter loss - said it has borrowed $930 million of a $1.7 billion credit line. Among other things, Genworth is considering selling its mortgage insurance division, one of the largest in the U.S. Formerly a division of General Electric, Genworth offers not only mortgage insurance but life, long-term care, retirement and other policies. In the third quarter, the publicly traded company lost $258 million, compared to net income of $339 million in the same period last year.

Realtors, homebuilders and mortgage bankers are asking Congress to extend and make permanent, before year-end, the $729,750 maximum loan limit for Fannie Mae, Freddie Mac and Federal Housing Administration loans. Congress increased the loan limits in high-cost markets back in February as part of a stimulus bill to revive lending in the jumbo loan market. The increase, though, expires on Dec. 31. Without an extension, the loan limit will fall to $625,500 on Jan. 1. "Specifically, we ask that Congress eliminate the forthcoming decreased limit for high cost areas," the Mortgage Bankers Association said in a Nov. 13 letter to House and Senate leaders. MBA also wants Congress to increase the conforming loan limit from $417,000 to $625,000 to provide a "broader range of secondary market support.

Bayview Financial of Coral Gables, Fla., is offering a $500 million "scratch and dent" portfolio, according to investment banking sources. At press time the company had not returned a telephone call about the matter. More scratch-and-dent portfolios are hitting the market now that Treasury has pulled the plug on its plan to buy troubled mortgage assets from financial institutions. "We think it's going to be a great time to buy," said George Ostendorf, president of American Mortgage Capital Group of Chicago. (For the full story see the Monday edition of National Mortgage News.)

Freddie Mac posted a $25.3 billion loss in the third quarter, admitted that its negative net worth now totals almost $14 billion, and mentions in a new filing that unless it receives a cash infusion it could be placed into receivership. The company, however, fully expects that Treasury will lend money to bolster its net worth, bringing the firm into a positive cash position. "We expect to receive such funds by Nov. 29," it says in a new filing with the Securities and Exchange Commission. It notes that maintaining a positive net worth "could constrain some of our business activities," including buying residential loans from banks, mortgage companies and other originators. Freddie and its "sister" company Fannie Mae have been operating under a government conservatorship since Sept. 6. The GSE blamed its third-quarter loss on money set aside to deal with its deferred tax assets ($14.3 billion) and $15.1 billion in charges and impairments on "available-for-sale" MBS and other holdings. Earlier this week Fannie Mae posted a $29 billion third-quarter loss and said it was having trouble rolling over its debt.