Servicing

Thomas Marano, CEO of Residential Capital, says his company supports the streamlined mortgage modification plan as espoused by the government-sponsored enterprises and the Federal Housing Finance Agency. He noted that ResCap has held 4,300 face to face homeownership counseling sessions with troubled borrowers whose loans are serviced by the company this year. It has also helped 251,000 customers avoid foreclosure, Mr. Marano said. "Through a combination of outbound calls, letters and home visits, we have achieved a 14% customer contact rate in an effort to work with our customers and preserve homeownership."

Triad Guaranty Inc., Winston-Salem, N.C., lost $160.1 million ($10.69 per share) in the third quarter 2008 as the amount of risk in default or in foreclosure continues to increase and as a result. In the second quarter this year, it lost $198.8 million ($13.36 per share). Paid losses for the quarter were $59.8 million, down from $68.2 million in the second quarter 2008. The company said the improvement was due to increased loss mitigation efforts, servicer delays in filing claims and foreclosure moratoriums. Ken Jones, president and chief executive, said because of the increase in defaults and the related provision for expected future paid losses, Triad has a deficiency in assets (negative stockholder equity) of $28.4 million as of Sept. 30, 2008. "Our underlying performance during the quarter was generally consistent with our run-off plan, as the plan projected significant losses in the early stages of the run-off period. Additionally, we have not realized a significant portion of the structured benefits on the modified pool stop losses and captive reinsurance benefits that we anticipate in the subsequent years of the run-off. Finally, it should be noted that no benefit has been recognized in these financial statements from our $95 million excess of loss reinsurance policy that is presently in arbitration," said Mr. Jones.

Fannie Mae and Freddie Mac have adopted a "streamlined" approach to modifying delinquent mortgages that regulators and industry groups hope will be accepted by investors in private-label nonprime mortgage-backed securities. For borrowers who are 90-days past due and not in bankruptcy, servicers of Fannie and Freddie MBS can reduce the interest rate to 3%, extend the loan up to 40 years and defer payments on part of the principal. The objective is to reduce borrowers' payments to 38% of gross income through a process that is fast and simple and helps homeowners who have seen their credit scores deteriorate and their home equity disappear. GSE regulator James Lockhart announced the new streamlined modification program and urged private-label securities investors to quickly adopt the program as an industry standard. "Broad acceptance and effective implementation could stabilize communities and property values," he said. The two government-sponsored enterprises will require their servicers to implement the new modification program by Dec. 15.

The federal government should consider extending a lending facility to non-bank mortgage servicers to avoid "significant disruptions" if they run short of funds in making advances on delinquent mortgages, according to the American Securitization Forum. ASF deputy executive director Tom Deutsch told a congressional committee that the amount of advances servicers have to pay to investors in mortgage-backed securities has "risen exponentially," while the numbers of banks that help servicers finance advances has "shrunk dramatically." If servicers cannot pay the advances, the servicing must be transferred to another mortgage servicer, which can be disruptive to borrowers and any on-going loan workouts. "Federal government provision of lending or guarantee facilities for liquidity constrained servicers" would pose "little or no risk to the taxpayer," Mr. Deutsche testified.

Triad Guaranty Inc., Winston-Salem, N.C., lost $160.1 million ($10.69 per share) in the third quarter 2008 as the amount of risk in default or in foreclosure continues to increase and as a result, loss reserves at the company increased significantly. In the second quarter this year, it lost $198.8 million ($13.36 per share). Paid losses for the quarter were $59.8 million, down from $68.2 million in the second quarter 2008. The company said the improvement was due to increased loss mitigation efforts, servicer delays in filing claims and foreclosure moratoriums. Ken Jones, president and chief executive, said because of the increase in defaults and the related provision for expected future paid losses, Triad has a deficiency in assets (negative stockholder equity) of $28.4 million as of Sept. 30, 2008. "Our underlying performance during the quarter was generally consistent with our run-off plan, as the plan projected significant losses in the early stages of the run-off period. Additionally, we have not realized a significant portion of the structured benefits on the modified pool stop losses and captive reinsurance benefits that we anticipate in the subsequent years of the run-off. Finally, it should be noted that no benefit has been recognized in these financial statements from our $95 million excess of loss reinsurance policy that is presently in arbitration," said Mr. Jones.

The liquidity-strapped American Express Co. is continuing to handle credit-card-based mortgage payments for customers of IndyMac Bank and the program will not be affected by AmEx's licensing as a bank holding company, according to a spokeswoman. The company currently operates two U.S. bank entities: American Express Centurion Bank, an industrial loan bank chartered in Utah, and American Express Bank FSB, a federal savings bank, according to Standard & Poor's, which has said it is leaving the company's rating unchanged in the wake of the move. The spokeswoman said neither bank entity has mortgage involvement. American Express last year also had started a program that allowed consumers to make their mortgage payments through their credit cards but IndyMac, a bank that this year was taken into receivership by the Federal Deposit Insurance Corp., has been its only participant, the spokeswoman said.

Thornburg Mortgage Inc. continued to take losses on securitized loans in the third quarter, but was able to offset them with gains related to its senior subordinated secured notes, a principal participation agreement and warrant liability to produce a $140 million profit for the period. The mortgage-related losses stemmed from further impairment of its mortgage-backed securities portfolio's fair value totaling $654.7 million and a $8.2 million net loss on the sale of adjustable-rate mortgages and real estate-owned. The fair value gain related to the notes due 2015 totaled $594.6 million and the fair value gain related to the PPA and additional warrant liability totaled $160.2 million.

Subprime servicer Ocwen Financial Corp. and Gov. Martin O'Malley of Maryland have signed a compact designed to reduce foreclosures through a technology-assisted program of modifying loans that are delinquent or at risk of becoming delinquent. Ocwen services approximately 341,000 mortgages, including 7,072 in Maryland, 85% of which are subprime. "It's productive to work hand-in-hand with a state government to formalize a commitment and approach to foreclosure prevention and loan modifications," said Ronald Faris, president of Ocwen. In their compact, the state and Ocwen have agreed to designate Ocwen home retention consultants as "Team Maryland" to service homeowners who are working with the state's Foreclosure Prevention Assistant Network. They will accept a letter of commitment for homeowner assistance from Maryland's Department of Housing and Community Development's Bridge to Home Loan program as an initial payment in a loan modification. "Ocwen has provided our counselors clear instructions for the submission of loss mitigation packages," said Anne Balcer Norton, director of Foreclosure Prevention at the St. Ambrose Housing Aid Center Inc. in Baltimore. So far this year, Ocwen has achieved loan workouts for approximately 55,000 homes across the country. With the help of its technology, the company manages a large and challenging subprime portfolio, which has an aggregate unpaid balance of $42 billion.

Citi has joined other lenders in offering streamlined workouts to home loan borrowers who are at risk of default. Over the next six months, Citi says it will pre-emptively reach out to 500,000 homeowners whose loans Citi owns and who are not currently in default but are at risk of foreclosure. Citi estimates the effort will result in $20 billion of loan workouts, and the company said the effort is focused primarily on borrowers in areas facing "extreme economic distress." In addition, Citi said it will extend its foreclosure moratorium against homeowners when Citi owns the mortgage loan on a principal residence. Citi said it is working with investors to expand the program to home loans that are serviced by Citi but not owned by the banking giant. Citi said that since the beginning of 2007, it has already helped 370,000 borrowers whose loans it services avoid foreclosure through loss mitigation and workouts.

The number of foreclosure notifications fell for the second consecutive month in October, according to ForeclosureS.com. Pre-foreclosure filings, which include notices of a default or a foreclosure auction, declined by 7% from September and were off 10% from their August high. The number of foreclosure notices dropped in about half of all states, according to ForeclosureS.com. Properties newly repossessed by lenders also declined, falling 22% from the high reached in September. The 84,286 repossessed homes in September was the lowest monthly total since May, the company said. Alexis McGee, president of ForeclosureS.com, said the numbers are "great news because pre-foreclosures are early signals of what's to come." She acknowledged, however, that recent numbers might be skewed by lender programs for homeowners that delay rather than eliminate foreclosures.