Servicing

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.

Fannie Mae's loss mitigation policies are a "major roadblock" to restructuring mortgages, according to Neighborhood Assistance Corp. of America chief executive Bruce Marks who is urging Fannie's regulator to intervene. "We hope that you can make an immediate reversal of these policies," the NACA CEO says in a letter to Federal Housing Finance Agency director James Lockhart. According to NACA, Fannie won't reduce the interest rates below current market rates and will not reduce the principal amount to make the payments affordable. Fannie said it is starting to lower the interest rates temporarily to get borrowers back on track and extending the loan terms to make payments more affordable. Director Lockhart noted that Fannie is offering delinquent borrowers HomeSaver Advances and it is considering other innovative loan modification actions. The NACA CEO claims the HomeSaver program is "deceptive" because the arrearage is placed in an unsecured loan while nothing is done to restructure the mortgage. "It is deceptive to have the loan appear current when the payments continue to be unaffordable," Mr. Marks said.

First Financial Network, Inc., Oklahoma City, Okla., is marketing a $500 million loan portfolio on behalf of the Federal Deposit Insurance Corp. It includes loans from the recently failed First National Bank of Nevada, Reno, Nev. and First Heritage Bank, NA, Newport Beach, Calif. There are approximately 585 performing and non-performing commercial real estate, commercial and industrial, gaming, Small Business Administration 504, residential and consumer loans to bid on Dec. 16. The majority of the collateralized properties are located in Arizona (44%), Nevada (35%) and California (15%). The portfolio will be stratified into pools based on performance, collateral type and geographic location. Investor due diligence materials will be available online at http://www.firstfinancialnet.com/ beginning Nov. 3. Bliss Morris, president and CEO of First Financial Network, said, "First Financial Network anticipates continued strong secondary market interest for this diverse portfolio comprised predominantly of CRE and C&I loans. We continue to see high demand for both performing and non-performing loans in all asset classes as evidenced by the successful closing of several major transactions conducted by First Financial Network in the third quarter."

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.)