Servicing

Federal Housing Administration lender and Ginnie Mae issuer Lend America, Melville, N.Y., said it is finalizing a "structured transaction" designed to help "a major global financial institution" refinance a roughly $1 billion pool of sub-performing loans into mortgages with more affordable terms. Lend America declined to name the client. The effort is being done through the government's new "Hope for Homeowners" program. The company said the move is part of a new effort to help first-lien holders, including Wall Street banks and hedge funds, "maximize principal recapture and help homeowners avoid foreclosure" by tapping the new government program. Lend America said it has 300 FHA mortgage specialists in a central location who receive a mandatory 10 hours of H4H classroom training and certification. It said these specialists are able to "contact delinquent borrowers, assess affordability and work under appropriate guidelines to refinance a mortgage within as little as 10 days." Under the H4H program, lenders can refinance struggling borrowers -- who obtained mortgages prior to January 2008 -- into more affordable loan programs.

To counter rising mortgage rates, the National Association of Realtors is urging the Treasury Department to "aggressively" increase its purchase of Fannie Mae and Freddie Mac mortgage-backed securities. "We believe that more active MBS purchases will reduce spreads and therefore mortgage interest rates and help bring more homebuyers into the market," NAR says in a letter to Treasury secretary Henry Paulson. Treasury purchased $5.1 billion in agency MBS in September and has pledged to purchase more in an effort to increase market liquidity. Fannie and Freddie also are expected to increase purchases of their MBS. But so far, market watchers say the impact has been minimal. The trade group says that "investment is flooding away from agency MBS to bank credit products" now that the Federal Deposit Insurance Corp. has guaranteed unsecured bank debt. This "unintended" consequence, NAR says, has pushed mortgage rates up to 6.5%. "For this reason, we urge Treasury and Federal Housing Finance Agency to more aggressively participate in the MBS market by increasing purchases of agency MBS." The FHFA regulates Fannie and Freddie.

Mortgage Industry Advisory Corp. is auctioning off a $536 million portfolio of performing alt-A whole loans on behalf of what it calls an "east coast money center bank." The New York-based advisory firm declined to name the seller. "It may come as a surprise to some people but the portfolio is totally performing," said Dan Thomas, managing director of assets sales for MIAC. The servicing rights are included along with the whole loans. According to the offering circular, the portfolio has an average loan-to-value ratio of almost 78%. The average FICO score is 707 and the coupon is just over 7%. The average loan size is $376,075. Over the past year the alt-A market has suffered higher delinquencies but not in the range of subprime lates, which are north of 30%, according to figures compiled by the Quarterly Data Report. Alt-A loans are "nonprime" in nature but have higher FICO scores than A- to D loans. In years past some lenders considered 'stated-income' loans to be in the category of alt-A. The bid deadline is Friday, October 24.

Astoria Financial Corp. of New York took a $57.9 million charge in the third quarter on its investment in Freddie Mac preferred stock. When the government placed Fannie Mae and Freddie Mac into a conservatorship on September 7 their preferred shares became nearly worthless with many depositories taking huge writedowns on their stakes. Astoria, a multifamily and residential lender, is just the latest of many banks and thrifts to report such losses. In the third quarter it reported $127 million in nonperforming single-family loans and $34 million in multifamily/commercial. Both nonperforming figures are up compared to the year ago quarter. In 3Q 2008 Astoria, a thrift, lost $16.5 million compared to a profit of $35.3 million a year ago.

Citigroup, which has suffered billions in losses from it's A- to D securitization business, still has $27.9 billion in subprime CDO exposure on its books, though almost $10 billion of that is hedged. According to the company's third quarter earnings statement, the bulk of its exposure is in what it calls "older vintage, high grade" asset-backed security CDO (collateralized debt obligations). A CDO is a security made up of other securities, in Citigroup's case, subprime MBS or ABS. But Citigroup - which recently slashed its wholesale mortgage network by 90% - also has other residential-related problems. In the third quarter it took a $1.2 billion writedown on alt-A mortgages (net of hedges) and suffered a $192 million loss on a hedge tied to its mortgage servicing portfolio. CitiMortgage, at June 30, ranked fourth among all residential servicers with an $816 billion portfolio, according to the Quarterly Data Report. In the third quarter Citigroup lost $2.8 billion overall. It entered the subprime business earlier in the decade when it bought Associates First Capital Corp. of Texas.

Wells Fargo charged-off $307 million more of second lien mortgage debt in the third quarter than in the second, and the company says home equity losses will remain "elevated" until housing markets stabilize. The company also saw first mortgage charge-offs increase by $43 million in the third quarter. All told, Wells charged-off $780 million in first and second mortgages in the third quarter. The company also saw a 21% decline in home loan origination volume from the prior year period. However, Wells said that lower loan origination income was partially offset by higher servicing fee income on its $1.56 trillion loan administration portfolio. Overall, the company's net income fell 24%, with $646 million of writedowns related to investments in Fannie Mae, Freddie Mac and Lehman Brothers also trimming Wells Fargo's third quarter results.

JPMorgan Chase & Co. booked $663 million in charge-offs on its home equity loan portfolio in the third quarter, a stunning increase of 342% from the year ago quarter. Until earlier this year, JPM's mortgage division heavily marketed its HELOC product, particularly through loan brokers and correspondents. JPM also was one of many lenders that played in the "80-10-10" market where HELOCs were originated along with firsts so customers could avoid paying private mortgage insurance. With home prices suffering, those loans have since gone out of favor. (HELOC delinquencies are on the rise throughout the lending and servicing industry.) JPM's mortgage unit also suffered $273 million in subprime charge-offs compared to $40 million a year ago. The bank holds $94.8 billion in HELOCs, up 3% from the year ago. It funded $2.6 billion in HELOCs during the quarter, a 77% decline from 3Q 2007. Overall, JPM, as a company, earned $527 million compared to $3.4 billion a year ago. It is one of nine banks that the Treasury has slated to partially "nationalize" by purchasing preferred shares in the firm.

The Federal Deposit Insurance Corp. is continuing to keep a "cone of silence" on the bidding for IndyMac's assets but, according to one investment banker familiar with the process, a second round of bids is now under way. The investment banker, requesting his name not be used, said, "there's a decent amount of interest." It is still unclear whether the thrift - now a ward of the FDIC - will be sold mostly in one piece or as an ongoing franchise or broken up. Investors have been offered the option of making one bid for the entire company or just making an offer on certain portfolios or the servicing platform. The thrift services about $190 billion in mostly home loans, ranking ninth nationwide, according to the Quarterly Data Report. The FDIC took control of IndyMac in July.

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.