Servicing

Irwin Financial Corporation, Columbus, OH, has entered into "standby" purchase agreements with five investors to purchase up to $31 million of common shares after shareholders have been given the first opportunity to invest in the offering. The deal is part of a previously announced $50 million rights offering to shareholders. "We continue to make progress executing our strategic restructuring plan to reduce our exposure to the national mortgage lending industry and return to our traditional focus on delivering banking services to small businesses and local communities where we have branches," said Will Miller, chairman and CEO of Irwin Financial. He said the offering will help Irwin continue to maintain required capital levels while completing the initiative.

The Treasury Department Tuesday morning said it would use $250 billion of taxpayer money earmarked for the new "Troubled Asset Relief Program" to invest in dozens of the nation's depositories, including some of the largest: Bank of America (which now owns Countrywide Home Loans), Citigroup, J.P.Morgan Chase, Merrill Lynch, and Wells Fargo. All are key players in the residential mortgage market - both as servicers and lenders. BoA, Wells, and Chase rank one, two, and three, respectively in terms of home mortgage servicing rights, controlling 52.13% of the market, according to National Mortgage News and the Quarterly Data Report. Specifically, Treasury is buying preferred stock in these banks but is also requiring that all continue to "strengthen their efforts to help struggling homeowners" who might go into foreclosure. Treasury hopes by investing in such pillars of the banking community it will send a message to investors worldwide that it stands behind these lenders. The agency hopes its actions will loosen up credit conditions in the commercial paper market. "Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury and raise additional capital so they can make more loans to businesses and consumers across the nation," Treasury secretary Henry Paulson said. Participating banks and thrifts will have to agree to limit executive compensation and boost their loan modification efforts. In conjunction with Treasury's plan, FDIC is starting a temporary program to guarantee newly issued promissory notes, commercial paper and other unsecured bank senior debt with maturities not to exceed three years.

Spanish bank Banco Santander SA is in advanced talks to buy Sovereign Bancorp of Philadelphia, a top 40 ranked residential servicer. Santander already owns 25% of Sovereign, which had $18.9 billion in residential servicing rights on its books at mid-year, according to the Quarterly Data Report. The Pennsylvania-based lender is also a larger player in the multifamily and HELOC markets. On Monday Santander released a statement confirming that it was talking to the thrift, which could turn out to be America's largest depending on what the new owners of Washington Mutual, Countrywide, and Wachovia FSB do with their thrift charters. Santander's bid is valued at $3.81 a share. On Monday Sovereign's shares were trading at $3.74, giving the company a market capitalization of $2.45 billion. Its 52-week high is $17.35.

The Federal Deposit Insurance Corp. has simplified its rules on insuring mortgage servicer accounts so that mortgage-backed securities investors and homeowners are better protected in the event of a bank or thrift failure. Effective October 10, mortgage servicing accounts of principal and interest(P&I) are insured for up to $250,000 per mortgagor/homeowner at all depositories, according to an interim rule adopted on Friday by the FDIC's board of directors. Previously, insurance coverage was determined by the lenders/investors interest in the P&I accounts, which could lead to unexpected losses for MBS investors. FDIC staff noted that mortgage securitizations have become too complex, difficult and time consuming when it comes to deciphering investors' interests. The agency also noted that servicing accounts are an important source of liquidity for institutions and need better protection to prevent withdrawals. In response to the board's action, Fannie Mae said it is rescinding a recently adopted policy that required certain servicers to place P&I payments in trust accounts for safekeeping.

Freddie Mac is ordering its seller/servicers to suspend all foreclosure sales on properties with Freddie Mac-owned mortgages in federally declared disaster areas caused by Hurricane Ike, primarily Texas and Louisiana. "Freddie Mac is taking this step because the extensive damage Hurricane Ike caused has made it difficult for our servicers to get the information they need to make case-by-case decisions about forbearance or other workout options," said Ingrid Beckles, vice president of servicing and asset management at Freddie Mac. The suspension will extend from October 8 to December 31, 2008 and include mortgages that were in default prior to Hurricane Ike. Servicers will be required after the suspension ends to consider individual circumstances in determining whether additional foreclosure relief should be extended or whether to proceed with foreclosure.

Wells Fargo & Co. will wind up as the owner of Wachovia Corp. after all, a purchase that will help the San Francisco-based bank battle Bank of America for control of the residential lending and servicing arenas. Late Thursday Citigroup ended its pursuit of the ailing Wachovia but said it will follow through on a $60 billion damage claim against Wells for striking a deal after it had already agreed to buy the company. (The Federal Deposit Insurance Corp. had sanctioned Citi's purchase in late September -- but that was before Wells made a higher bid.) With Wachovia under its belt, Wells will control 17.65% of the $9.6 trillion housing receivables market compared to Bank of America's 21.06%. In lending, Wells/Wachovia will have an origination share of 17.73% to BoA's 19.99%. (The market share figures are based on June 30 data and take into account BoA's July 1 purchase of Countrywide Home Loans.) The deal also gives Wells a major retail deposit base in the mid-Atlantic where the housing market has held up well compared to states like California, Florida, and Nevada. Wells' takeover price for the Charlotte-based bank is valued at just under $6 a share.

The Department of Housing and Urban Development wants to extend the 'FHA Secure' program past its December 31 sunset date and is seeking approval from the White House budget office. "We are in discussions right now with the White House," Federal Housing Administration commissioner Brian Montgomery told MortgageWire. He noted the FHA Secure program has certain nuances and flexibilities that complement the newly launched 'Hope for Homeownership' program, which Congress created to help more distressed borrowers refinance into FHA loans. FHA Secure was launched in September 2007. To date the program has helped 375,000 borrowers with subprime, payment option ARMs and even conventional mortgages refinance into safer and less expensivee FHA products. In July, HUD expanded the program to help delinquent borrowers refinance into FHA loans. The National Association of Realtors and Mortgage Bankers Association support an extension of the FHA Secure program.

Large cities in California and Florida - including Los Angeles and Miami - continue to face a "high" risk of near term declining home prices, according to a recent report issued by the PMI Group. Of the 16 'metropolitan statistical areas' the company grades as "high" risk, eight are in California, five in Florida, and one each in Arizona, Nevada and Rhode Island. Factors feeding expected home price declines include foreclosures, unemployment and how much equity a borrower has in his/her home. In California, the only bright spot PMI found is that the inventory of homes for sale is beginning to decline. In June there was a 7-month average supply of unsold homes compared to 14.1 months in November 2007.

House Financial Services Committee chairman Barney Frank, D-Mass., is demanding that other major servicers follow Bank of America's model and adopt plans for "immediate mass modifications" to stem the flood of foreclosures. Rep. Frank also put 10 major banks and servicing companies on notice that they are expected to report to his committee by Oct. 17 on their plans to adopt a systematic approach to loan modifications. "Hope Now and other industry initiatives have had too little impact to meet the large and growing need for widespread relief," Rep. Frank says in a letter to the companies and industry trade groups. The committee chairman stresses the BoA/Countrywide settlement agreement to modify nearly 400,000 subprime and payment-option mortgages should serve as a template for the rest of the industry. "It is essential that every mortgage servicer firmly commit to implement plans for immediate mass modifications based on, or stronger than, the measures BoA/Countrywide has undertaken," Rep. Frank says in the Oct. 8 letter.

Asset managers interested in working for the Treasury Department will have to submit a proposal to handle either whole loans or mortgage-backed securities by 5 p.m. EST Oct. 8. In outlining its selection process, Treasury officials stress that they will be racing to sign up asset managers. "Given the urgent need to implement the Troubled Assets Relief Program quickly, the selection process for asset managers may involve extremely short deadlines for submitting information and for traveling to Washington, D.C. for meetings and interviews," a Treasury memo says. Meanwhile, securities asset managers will be expected to purchase and manage MBS backed by prime, alternative-A, subprime, and commercial real estate mortgages. In addition, they will be expected to manage "MBS collateralized debt obligations, and possibly other types of securities acquired to promote market stability." Whole loan managers will also handle a range of products, including residential first mortgages, home equity loans, second-lien loans, and CRE mortgages.