Servicing

The prices of existing homes declined at an unprecedented annual rate during the first half of this year, according to the Standard & Poor's/Case-Shiller home price indexes. In August, existing home prices were down 17.7% from a year earlier in the 10-city index, and down 16.6% in the larger 20 city index, a slight increase from the July rate of decline. "The downturn in residential real estate prices continued, with very few bright spots in the data," said David Blitzer, chairman of the index committee at S&P. He noted that for the fifth straight month, every region of the country posted declines. Both the 10 city and 20 city composite indices have been declining on a year-over-year basis for 20 straight months.

In September, HOPE NOW, the foreclosure prevention alliance of mortgage servicers, counselors, investors and the broader mortgage industry helped 212,000 homeowners avoid foreclosure. It is the first time that the number of foreclosures prevented through the alliance in one month exceeded 200,000. Since July 2007, when the organization started recording these data, it has helped nearly 2.5 million homeowners stay in their homes. The September total is 15.6% or 30,000 higher than the previous record of 192,000 foreclosure preventions set the month before, August 2008. This data shows that during these very challenging time for many homeowners, HOPE NOW's executive director Faith Schwartz said, the industry is making a difference. "HOPE NOW members are continuing to explore new ways to help more homeowners avoid foreclosure and will keep looking for additional options." HOPE NOW reported that so far this year approximately 1.6 million homeowners had been able to avoid foreclosure, compared to approximately 1.5 million helped in all of 2007. If the current trend continues, HOPE NOW expects to assist up to 2.1 million homeowners by the end of 2008, a 40% more than in 2007.

Freddie Mac purchased or guaranteed $27.2 billion of mortgages in September, a slight gain from the multi-year low of $25.8 billion established the month before. The GSE was placed in a conservatorship on September 7. Its regulator, the Federal Housing Finance Agency, has directed the secondary market giant to increase purchases of its own mortgage-backed securities. However, Freddie reported that its holdings of its own MBS declined by $22.6 billion to $375 billion in September. Its investment portfolio declined by $24 billion to $738.9 billion. Freddie issued $22 billion in guaranteed MBS in September, nearly matching its issuance in the previous month. The mortgage company has added a new data table ("Other Investments") to its monthly summary report. The September issue shows that Freddie purchased $10.4 billion of private-label "non-mortgage" asset backed securities.

U.S. Central FCU said its mortgage-backed securities portfolio took a beating over the past month, declining in value by another $700 million, increasing the corporate credit union's unrealized losses to $3.8 billion at September 31. That doesn't include additional losses of $2.3 billion when U.S. Central marks-to-market its entire portfolio - a total fair value loss of $6.1 billion - which U.S. Central is required to report under generally accepted accounting principles. The largest portion of the losses are on so-called private label mortgage backed securities, those not issued by Fannie Mae or Freddie Mac. U.S. Central reported a book value of $19.9 billion of private label MBS that it is carrying for $17.1 billion, but has a fair market value of just $14.8 billion - a whopping unrealized loss of $5 billion on those securities. U.S. Central has indicated an intent to hold most of those securities to maturity, allowing it to account for them at carrying value, instead of fair market value. The corporates' corporate is also sitting on $880 million of unrealized losses on $12 billion worth of other asset backed securities, backed by credit card loans, student loans, auto loans, and commercial real estate, as well as $145 million of losses on corporate bonds and notes that it holds. -- Credit Union Journal

The Federal Deposit Insurance Corp. is in the process of mailing 15,000 loan modification proposals to mortgage customers of IndyMac Bank of California. The effort is part of the agency's pilot program to help 40,000 mortgagors who are delinquent on their IndyMac home loans. FDIC chairman Sheila Bair testified before a Senate Committee yesterday that, "Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards." FDIC has been operating IndyMac as a conservatorship since taking control of the thrift in July. It is in the process of taking bids on the lender/servicer. (For full details see the Monday edition of National Mortgage News.)

GSE regulator James Lockhart is not impressed with Fannie Mae and Freddie Mac's loss mitigation efforts -- but he anticipates that will change now that both are in conservatorships under his watchful eye. "Now that they are in conservatorship, their activities will increase significantly," the Federal Housing Finance Agency director told the Senate Banking Committee. An FHFA report shows the loan modifications by the government sponsored enterprises dropped by 20% from the first quarter to the second quarter while foreclosures rose 20%. In the second quarter, the GSEs modified 4,126 loans a month, compared to 5,204 loans a month during the first quarter. On average, the two completed 12,729 foreclosures a month during the second quarter, up from 10,511 a month during the first quarter.

If residential lenders and housing professionals didn't have enough bad economic news to worry about, they may soon have a fresh set of anxieties: rising delinquencies in the vacation or "second home" market. Obtaining hard numbers on just how many outstanding mortgages are backed by second/vacation homes is not easy -- but one figure is clear: of the $2.8 trillion in Fannie Mae loan guarantees 5% cover the sector, or $140 billion. According to Freddie Mac spokesperson Sharon McHale, 9% of her GSE's portfolio includes second homes, including "investment properties" where the owner is trying to make his mortgage payment by renting out a home or condo. No one is saying that property values in the second home business are in a freefall, at least not yet, but according to recent interviews with Realtors who sell beach properties the outlook borders on grim. Diana Silvester, a Realtor who sells properties in Cape Cod, Mass., told National Mortgage News that home values in this popular New England vacation area are down 20% in two years. (For the full story see the upcoming issue of Origination News.)

Wachovia posted a $24 billion net loss for the third quarter with much of the decline consisting of one-time, partially mortgage-related items, but executives from Wells Fargo say their plans to acquire Wachovia are still a go. The net loss included $18.8 billion of goodwill impairment, a $4.8 billion credit reserve and $2.5 billion of "market disruption losses." The company's total third-quarter credit loss was $6.6 billion, including charge-offs in addition to the reserve build, and $3.4 billion of the credit loss total related to pay-option ARMs. Wachovia now anticipates that its cumulative loss rate on its $119 billion option-ARM portfolio will be 22%, or $26 billion, reflecting a more severe outlook for the depth and length of the housing downturn. Wells Fargo CEO John Stumpf said in a statement that Wachovia's results "were very much in line with our expectations." And Wells Fargo's CFO, Howard Atkins, said, "We believe it was prudent for Wachovia to put these losses behind them."

Fitch Ratings estimates that home values have dropped 22% nationally and will fall another 10% before the market stabilizes. Fitch anticipates that home values will fall roughly 30% "peak to trough" when the housing correction is over. The rating agency said it expects that most of the remaining price decline will be absorbed during the next few quarters, with prices exhibiting more stability in 2010. Huxley Somerville, managing director of Fitch's residential MBS group, said, "Should economic conditions become much worse than expected, home prices would decline more than Fitch's projection and price stabilization would be delayed."

A trio of Ohio-based banks have reported third quarter losses, with exposure to residential lending adding to credit woes at National City Corp., Fifth Third Bancorp, and KeyCorp. KeyCorp has reduced its residential construction loan exposure by $1.3 billion from a year earlier, CEO Henry Meyer said in the company's earnings release. He also noted that Key does not have a subprime mortgage portfolio. KeyCorp lost $36 million in the third quarter, in large measure because the firm increased its loan loss reserve by $133 million, raising the reserve to 2% of total loans. National City Corporation's loss narrowed to $729 million for the third quarter from $1.8 billion in the second. National City said that charge-offs on its $21 billion "exit portfolio," consisting mostly of broker-originated home equity loans, nonprime mortgages, and construction loans, continue to drive credit loss activity. The company noted that this portfolio is running off at a rate of $500 per month and that National City has no option-ARM portfolio. Fifth Third Bancorp said a $51 million impairment to its investment in the preferred stock of Fannie Mae and Freddie Mac contributed to the company's $56 million third quarter loss. On the positive side, Fifth Third benefited from a $22 million gain to hedges used for its mortgage servicing rights asset that do not qualify for hedge accounting treatment.