Servicing

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.

President-elect Barack Obama signaled that he wants the Treasury Department to move ahead with a loan guarantee program advocated by the FDIC that could facilitate loan modifications, but so far the Treasury and the White House are not on board. "It is absolutely critical that Treasury work closely with the FDIC, HUD and other government agencies to use the substantial authority that they already have to help families avoid foreclosure and stay in their homes," Mr. Obama said during his first press conference on Nov. 7. As part of the $700 Troubled Asset Relief Program bill, Congress provided Treasury with the option of purchasing or guaranteeing troubled mortgage loans. And section 109 of the bill allows the use of loan guarantees to facilitate loan modifications. Section 109 has "tremendous potential," a banking consultant said, but the Treasury Department hasn't "bought" into the Federal Deposit Insurance Corp.'s loan modification program. "As a result, the 109 authority, even if not deployed now, could prove formidable in the next Administration," said Karen Shaw Petrou, managing partner of Federal Financial Analytics.

The National Credit Union Administration has approved a new charter for Realtors FCU of Orlando, which will be an Internet-based credit union for an estimated 1.2 million members of the National Association of Realtors. Service will be provided by a 24/7 call center in addition to the Internet support, according to Michael Brodie, who will chair the start-up. "Realtors Federal Credit Union will be sensitive to the work habits and lifestyles of Realtors, most of whom are independent contractors who are compensated by commissions," said Brodie. Among its products, the new CU will offer first mortgages and HELOCs. -- <1>Credit Union Journal

JPMorgan Chase & Co., the nation's third largest mortgage lender, is warning that additional deterioration in the performance of its $117 billion home equity portfolio and $107 billion mortgage portfolio is likely. In a filing with the Securities and Exchange Commission, JPM said its initial analysis shows that "a substantial portion" of the consumer loans acquired from Washington Mutual are "credit impaired," and that fourth quarter results will show more details about the impact of falling home prices are having on "risk layered" loans. Chase's year-to-date loss provision includes $1.2 billion for home equity loans and $1.3 billion for prime and subprime mortgages. The company said that its non-interest expense also has increased to reflect higher mortgage reinsurance losses and increased servicing expense.

The usually positive National Association of Realtors struck a decidedly downbeat chord at its annual convention in Orlando, predicting that housing prices would fall this year by the largest percentage since the Great Depression. Lawrence Yun, NAR's chief economist, said the average sales price of existing homes would slide 9.8% in 2008, "by far" the sharpest decline since the group began keeping records in 1968 and "probably" since the Depression. The record for the largest decline was set last year, when the average slipped a mere 1.4%. For 2009, NAR is expecting prices to go back up by 1.1%. But Mr. Yun told reporters that the slight increase is akin to "essentially no change." By 2010, though, the group is expecting price appreciation to return to the historical norm of 4-5% as the inventory of unsold houses returns to normal. "We have hit bottom, we believe, in terms of sales activity," he said. "But not prices. The only way to stabilize prices is to get inventory down, and we're not there yet."