Servicing

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.

National Quick Sale, a division of software innovator Infusion Technologies, has rolled out its Web-based platform designed to automate the process of real estate short sales, and shorten the transaction time from the several weeks currently required to a matter of days. National Quick Sale has been in a pilot with one of the nation's government sponsored enterprises and several of their mortgage servicers since earlier this year. A number of mortgage servicers are working with National Quick Sale to provide their loss mitigation departments with technology-based assistance for short sales, and have been impressed with the solution's capabilities. National Quick Sale's platform enables all parties to react quickly, improving the chances of completion before the potential buyer loses interest and the property is sold in foreclosure.

Attendees of the Mortgage Bankers Association's annual conference in San Francisco found anti-eviction and foreclosure advocates picketing their national conclave, with one protester getting inside to disrupt the meeting. The Bay Area chapter of ANSWER (Act Now to Stop War and End Racism) protested the MBA's opening activities on Sunday and the Monday appearances of the new government-appointed heads of Fannie Mae and Freddie Mac. "The banks are responsible for creating the housing crisis that is forcing millions of people out of houses and apartments across the country," the group said in flyers it handed out to attendees. "Despite receiving hundreds of billions of dollars in taxpayers' money to rescue them after their sub-prime and other high risk schemes collapsed, the bankers are opposed to reforms that would allow people to renegotiate their mortgages and stay in their homes." The advocacy group, whose position was endorsed by others including Green Party presidential candidate Cynthia McKinney and Congressional candidates Natalie Hrizi and Cindy Sheehan, said, "The banks and politicians-including Bush, Pelosi, McCain and Obama- blocked adding a point to the bailout bill that could have prevented millions of evictions."

Clayton Holdings, which is cooperating with an investigation into mortgage underwriting fraud on Wall Street, named Paul T. Bossidy its new chief executive officer on Tuesday. A spokeswoman said he replaces Frank Fillips who retired from the Connecticut-based Clayton this summer. Mr. Bossidy, 48, has worked for various divisions of General Electric, including GE Vendor Financial Services. Clayton is owned by Greenfield Partners, a hedge fund. Earlier this year New York attorney general Andrew Cuomo granted Clayton immunity from prosecution in exchange for providing information on the due diligence work it conducted for Wall Street firms that securitized subprime mortgages over the past five years. One key issue AG Cuomo is looking at is underwriting "exceptions" granted by projects managers working for Clayton on Wall Street accounts. Over the past three years subprime firms funded $1.7 trillion in A- to D and other non-conforming loan types -- much of it securitized through Wall Street firms such as Bear Stearns, Credit Suisse, Deutsche Bank, Lehman Brothers, and Merrill Lynch.

MountanView Servicing Group, Denver, has completed the transition to CompassPoint mortgage servicing rights valuation technology. MountainView provides MSR valuations for over 100 servicers. Compass's MSR valuation analytics were developed with significant input from Mountain View, the two companies said. The Compass MSR valuation analytics include both static and option adjusted spread valuations.

An attorney at Pillsbury Law predicts that the "opaque credit default swap market" is poised to spur a spike in litigation as CDS buyers seek to recoup losses and sellers seek to reduce or avoid payment obligations. Ed Flanders, head of Pillsbury Law's financial services litigation team, said CDS counterparties are scrambling to assess their exposure. "Once-profitable hedge funds are marshaling their cash assets to meet substantial CDS payment obligations," he said. Pillsbury and the Atlantic Legal Forum are hosting a conference on the future of CDS in New York on Nov. 6.

Merrill Lynch, which has agreed to be acquired by Bank of America, took another set of partially mortgage-related multibillion-dollar writedowns in the third quarter that contributed to a net loss of $5.2 billion. The writedowns included $5.7 billion resulting from a previously announced sale of super-senior asset-backed security collateralized debt obligations. Another $3.8 billion was lost principally from severe market dislocations in September, including real estate-related asset writedowns and losses related to certain government-sponsored entities and major U.S. broker-dealers, as well as the default of a U.S. broker-dealer. In addition, $2.6 billion in net losses resulted primarily from completed and planned asset sales across residential and commercial mortgage exposures.

As part of a larger financial markets rescue package by the Swiss government, the Swiss National Bank and UBS have come to an agreement designed to "materially de-risk and reduce" UBS's balance sheet by transferring up to $60 billion of the latter's partially mortgage-related problem assets into a newly created fund. UBS said problem assets transferred into the fund include U.S. securities that were valued at about $31 billion as of Sept. 30 in the following categories: subprime, alt-A, prime, commercial real estate and mortgage-backed securities, student loan auction rate certificates and other securities backed by student loans, as well as a reference-linked note program. At completion of the transaction, UBS's net exposure in these risk categories will be reduced to nearly zero (compared to $44.2 billion on June 30), with residual long positions held by UBS in these asset classes hedged through existing short positions, including credit protection embedded in the RLN programs, UBS said.

Lender Processing Services, Jacksonville, will offer servicers using its systems access to servicing technology from Reverse Mortgage Solutions.Dan Scheuble, co-chief operating officer at LPS, said the partnership extends LPS's reach into the growing business for reverse mortgage loans. The primary market for reverse mortgage loans, or home equity conversion mortgages, is homeowners over the age of 65 who have paid off their mortgages. Currently, there are approximately 34 million seniors in the nation. LPS estimates that 12.5 million seniors currently own their homes mortgage-free, representing $4 trillion in equity.