Servicing

The White House is reviewing several foreclosure prevention programs but is not ready to endorse a new loan modification program that the Treasury Department and the FDIC are working on. "We're doing an analysis right now on several different ideas" to help more homeowners, said the President's press secretary Dana Perino. During a press briefing she said the White House is willing to consider the FDIC proposal, which involves guarantees to increase loan modifications. She said the Administration wants any program to strike a balance in terms of effectiveness, fairness and protecting the taxpayer. After her remarks, Senate Banking Committee chairman Christopher Dodd, D-Conn., sent a letter to President Bush urging him endorse the FDIC proposal and direct Treasury to create the new program. The program is needed to "address the exploding foreclosure crisis" and the country cannot afford "further delay," Sen. Dodd says in the letter, which was signed by eight other committee Democrats.

Roughly 48% of Nevada homes that are mortgaged have negative equity -- making the state, by far, the hardest hit when it comes to the nation's housing crisis, according to a new report issued by First American CoreLogic. After Nevada, Michigan ranked second in negative equity (39% of homes with mortgages), followed by Florida and Arizona (29% each), and California with 27%. FACL based its findings on a database of 42 million properties where there's a first and/or second lien. Nationwide, 18% of homes have negative equity, the company found. During the housing boom, Arizona, California, and Nevada where among the fastest growing in terms of price appreciation. Michigan and Ohio (where 22% of mortgaged homes have negative equity) have been hard hit by the decline in the U.S. auto industry.

Foreclosure filings were made on 14,477 properties in New York during the third quarter, according to the state's banking supervisory agency. Using data from RealtyTrac, the New York State Banking Department said foreclosure filings rose 19% from the third quarter of 2007. But that increase was much below the 71% national increase in filings. New York's third quarter foreclosure activity also was down 10% from the second quarter, despite a 3% quarter-over-quarter increase nationally. Richard Nieman, superintendent of banks for New York, said a recently enacted subprime lending law, which took effect at the beginning of September, has contributed to the drop in foreclosure activity. "I am interested to see fourth quarter numbers to review the full impact the bill will have when in effect for a longer period," he said.

Deutsche Bank, Frankfurt, Germany, saw 1.2 billion euros ($1.5 billion) of partially mortgage-related writedowns in the third quarter but was able to record a net profit under recent European Union-endorsed accounting changes. The writedowns reflected exposure to residential mortgage-backed securities, commercial real estate and monoline insurers, among other things. The accounting changes allowed reclassification of certain assets "for which no active market existed in the third quarter and which management intends to hold for the foreseeable future," Deutsche Bank said. As a result of these changes, the company earned net income of 414 million euros ($532 million), down from 1.4 billion euros ($1.8 billion) during the same period last year. "If these reclassifications had not been made, the income statement for the quarter would have included negative fair value movements relating to the reclassified assets" of 845 million euros ($1.1 billion), the company said.

Data show senior citizen borrowers are finding themselves particularly hard hit by recent market woes, according to one Internet-based reverse mortgage provider. "Seniors across the nation have been hit with a hard one-two punch. First the stock market, and now the realization of falling home values," said Eric Bachman, founder and CEO of Golden Gateway Financial, Oakland, Calif., noting that reverse mortgages may help rectify the problem. He said third quarter usage data from the company's reverse mortgage calculator show "a troubling picture." According to GGF, senior citizens self-reported a 4.5% decline in third quarter home values as compared to the first quarter of 2008. The average national existing mortgage debt of senior citizens in the third quarter of 2008 was $146,217. In California, the average mortgage debt in the third quarter was at $219,321 or 50% greater than the national average. The average mortgage debt reported by seniors in September was $211,411 or 74% of the month's reported home sale price of $283,000 across the state, DataQuick findings show. The company also quoted findings from a recent AARP study that shows over 684,000 of those aged 50 and over were either delinquent or in foreclosure.

Fitch Ratings believes that the growing volume of loan modifications will mitigate payment reset defaults on LIBOR-indexed subprime, adjustable-rate mortgages. Fitch estimates that at the recent mid-October peak, subprime borrower payments could have increased by 30% to 50%, particularly for loans with deep initial teaser rates. Fitch managing director Roelof Slump said, "While LIBOR has been trending lower from its recent highs, it continues to be of concern, as it directly impacts borrower affordability, and ultimately collateral and bond performance." Fitch estimates that $418 billion of subprime ARMs are outstanding. Fitch said that approximately 1.8 million loans, accounting for $347 billion in outstanding principal balance, are on average half a year away from either their initial payment reset or their next payment reset. The six-month London interbank offered rate was the most widely used index for adjusting payment levels on subprime ARM loans, according to Fitch. Fitch noted that loan modifications have increased, citing Hope Now's calculation that mortgage servicers provided modifications on 212,000 borrowers in September, an increase of 23% from the August total.

General Motors Acceptance Corp. -- which controls the nation's seventh largest residential servicer -- has received approval from the Federal Reserve to participate in its new "Commercial Paper Funding Facility" program. In a recent SEC filing it was disclosed that GMAC forgave $101.5 million of "indebtedness" to the servicing unit, Residential Capital Corp. According to a report on Bloomberg, GMAC also is considering becoming a bank holding company. GMAC is the parent of ResCap, which has a bank affiliate, GMAC Bank. The FDIC-insured depository is based in Midvale, Utah, and at year-end had $18.2 billion in real estate loans on its books. What's left of GMAC's warehouse lending business is being done out of the bank, according to one source familiar with the operation. At press time a GMAC spokeswoman had not returned a telephone call about its bank holding company plans.

General Motors Acceptance Corp. -- which controls almost $400 billion in residential servicing rights -- made it official on Thursday, declaring that it's in talks with regulators to become a bank holding company. In a statement GMAC said that as a bank holding company it would have "expanded opportunities for funding and for access to capital." A spokeswoman for the company declined to elaborate. The BHC move comes at a precarious time for the company: its residential lending/servicing arm, Residential Capital Corp., continues to lose money, has slashed its work force (including its broker/wholesale channel), and one of its owners, General Motors, has been in merger talks with Chrysler. GMAC is 51% owned by hedge fund giant Cerberus, and 49% by the automaker. Rumors about GMAC filing to become a BHC have been floating around all week. ResCap already owns a depository, GMAC Bank of Utah. As a BHC, GMAC, in theory, would have been able to apply for capital assistance under the new Troubled Asset Relief Program.

Fannie Mae purchased $44.1 billion in mortgages during September, a 9% increase from the previous month, according to new figures released by the company. The rise in acquisitions occurred during a month in which the Congressionally-chartered mortgage giant was taken over by its regulator, the Federal Housing Finance Agency. Even though September's purchase volume was an improvement from August, acquisitions were down 33% compared to September 2007, reflecting residential originations in the primary market. The company reported that 1.57% of its loans were in delinquency, compared to 1.45% the prior month. A year ago, late payments on Fannie Mae loans were less than half at 0.71%. At month's end Fannie had $761.4 billion of loans and securities in portfolio, a slight rise from August. But compared to September 2007, its holdings are up 5%.

Treasury and FDIC officials are making progress on developing a loan modification program that relies on government guarantees to help up to 3 million struggling homeowners -- but a final agreement has not yet been reached. Washington sources indicate that a program being pushed by Federal Deposit Insurance Corp. chairman Sheila Bair might provide $500 billion to $600 billion in loan guarantees that would allow banks, hedge funds and other mortgage holders to restructure residential loans and lower a homeowners' monthly payments. The program could include some guarantees on second liens which might prevent HELOC investors from blocking loan modifications. The talks between Treasury and FDIC are ongoing. "While we've had productive conservations with Treasury and the Administration about options for the use of credit enhancements and loan guarantees, it would be premature to speculate about any final framework or parameters of a potential program," said an FDIC spokesman.