Servicing

Freddie Mac is increasing its loan fees on interest-only mortgages starting Jan. 2 and tightening its rules on appraisals and streamlined refinancings involving "piggyback" loans. In a Freddie Mac Update, the secondary-market agency told lenders that it is planning several changes in loan pricing and credit requirements. Starting Jan. 2, Freddie will "no longer allow the new mortgages to pay off subordinated financing" in a streamlined refinancing of a piggyback loan. In purchasing loans on a flow basis, Freddie will require updated appraisals for loans delivered more than 120 days after origination. Seasoned mortgages sold more than 365 days after origination will no longer be purchased on a flow basis. Freddie will purchase those seasoned loans in bulk sales.

The Treasury secretary will be able to use loan guarantees and credit enhancements to facilitate loan modifications under the newly passed Emergency Economic Stability Act, which gives the Treasury broad authority to purchase $700 billion of troubled mortgage assets. Such guarantees may give the Treasury a carrot to get institutions to modify their loans without directly acquiring the loans. "It has the ability to create incentives to leverage the private sector with minimal initial cash outlays," said FDIC Chairman Sheila Bair. "I am particularly pleased the bill includes provisions for loan guarantees and credit enhancements on whole loans." The Treasury is expected to conduct its first auction to purchase troubled assets in about four weeks, and it is planning to hire 5-10 asset managers to service and modify the assets, sources say. In addition to private asset managers, the Treasury also can contract with Federal Deposit Insurance Corp. to manage residential mortgages and mortgage-backed securities.

The House of Representatives, by a vote of 263-171 early Friday afternoon, approved a $700 billion rescue package of the credit and mortgage markets paving the way for the bill to be sent to President Bush. The president signed the bill almost immediately and thanked members of Congress for passing the legislation so quickly. "By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country." Mr. Bush warned, however, that it will take time to implement an effective troubled-asset purchase program and it will take some time before it has an impact on the economy. Treasury Secretary Henry Paulson said he will move rapidly, but carefully, in implementing the new tools provided in the rescue bill. "In the coming days, we will work with the Federal Reserve and the FDIC to develop strategies to deploy these tools in an expedited and methodical way to maximize effectiveness in strengthening the financial system," the secretary said. Rep. Judy Biggert, R-Ill., said during the debate Friday that market volatility, changes to the bill, regulatory commitments, and Republican attempts to limit its price tag helped persuade her to come on board after voting no on Monday. "I reluctantly support the bill and look forward to revisiting the issue as Congress monitors the program to ensure that we minimize risks and that taxpayers see a return on this investment," she said.

UBS said Friday that it will "substantially downsize real estate and securitization" as part of a "repositioning" of its investment bank. "UBS has already taken a number of actions to reduce its balance sheet, implement a new market-based funding model, and reduce risk and headcount," the company said. "Today's announcement will lead to further reductions, with the aim of bringing the cost base to a more sustainable level." In total, UBS said its investment bank "will reduce net headcount by an additional 2,000, bringing staffing levels to approximately 17,000 by year-end, a reduction of around 6,000 since the peak in third-quarter 2007." It added that the reductions "will be predominantly targeted to businesses being exited or downsized in order to protect and sustain our core client franchises." The company had said Thursday that it has been making progress reducing its problematic mortgage-related exposures and has estimated that it will produce a small profit in the third quarter.

The delinquency rate on closed-end home equity loans rose 22 basis points in the second quarter at commercial banks, according to the American Bankers Association. In the second quarter, 2.56% of home equity loans were at least 30 days past due, up from 2.34% in the first quarter. However, the overdue rate on home equity lines of credit actually fell 2 bps to 1.08% in the second quarter, according to the ABA's Consumer Credit Delinquency Bulletin. ABA chief economist James Chessen said the rise in delinquencies on home equity loans reflected continued weakness in the housing sector and helped push up the ABA's composite consumer loan delinquency rate by 6 bps to 2.68% for the second quarter.

Commercial banks, investment funds, and even a reported consortium of hedge funds, are interested in making a bid on IndyMac Bancorp of Pasadena, Calif., which is operating under a federal conservatorship. The Federal Deposit Insurance Corp., IndyMac's conservator, continues to give little guidance on the sale process. Investment bankers that have clients who want to bid said they understand the offering deadline has been moved several times because of negotiations concerning the $700 billion bailout bill. One adviser said the agency's preference continues to be a sale of the whole institution, but potential buyers are being given the option of making a "whole bank" bid or offers on certain business segments or loan pools. "The FDIC is getting more interest now," said the adviser, requesting that his name not be used. "Investors are hungrier."

The Department of Housing and Urban Development is shooting for a Nov. 1 increase in the loan limit for Home Equity Conversion Mortgages to $417,000. The new single, nationwide maximum isn't as great as some had hoped, but it will still be higher than the current $200,160 floor or the $362,790 maximum in high-cost markets. Lending interests tried to persuade the FHA to go along with the new national $625,000 ceiling on Fannie Mae-Freddie Mac loans, which took effect Oct. 1. But at this week's Mortgage Bankers Association's reverse mortgage lending conference in Atlanta, FHA Commissioner Brian Montgomery revealed that the lower figure prevailed. "We tried to convince HUD that [reverse mortgages] should be tied to the higher limit," said Daryl Hicks, vice president of communications at the National Reverse Mortgage Lenders Association, "but the lower ceiling is still going to be very helpful." Mr. Montgomery also said that HECM origination fees would be capped at $6,000. While HUD is aiming for Nov. 1, the exact effective date will not be finalized until Mr. Montgomery issues a mortgagee letter on the new loan limit.

Fannie Mae is rolling back a 25-basis-point hike in its "adverse market" delivery fee that went into effect Oct. 1, and it is telling its lenders to waive the additional charge for borrowers who have not yet closed on their loan. Freddie Mac also said it is rescinding a previously announced 25-bp hike in its "market condition" delivery fee that was due to take effect Nov. 7. Over the past year, the two secondary-market agencies have increased their fees and underwriting standards as they struggled to deal with rising delinquencies and losses. The agencies told lenders in August that they were going to double those delivery fees before the companies were placed into conservatorships by their regulator. Since then, Fannie and Freddie have been under orders to review their loans fees and underwriting standards to increase the availability of affordable mortgage credit. Fannie is evaluating underwriting guidelines, pricing, and cost in light of changing market conditions, according to chief executive Herb Allison. "As we move forward, we will seek to balance our responsibility to provide the most market support possible with our obligation to protect the company and its many stakeholders, including taxpayers," Mr. Allison said. Fannie can be found online at http://www.fanniemae.com.

The Federal Deposit Insurance Corp. -- which five days ago thought it had sold the ailing Wachovia Corp. to Citigroup -- has a conundrum on its hands: back Citi's original bid (which had federal aid) or allow the Charlotte, N.C.-based banking giant to be bought by Wells Fargo, which isn't asking for any type of government assistance. As of MortgageWire's deadline, the situation -- to say the least -- was fluid. Citigroup was threatening legal action while demanding that its original purchase go through as planned. The FDIC issued a statement saying it stood behind the original purchase agreement (which it helped engineer) but also said it will review "all proposals" with an eye toward coming up with a resolution "that best serves" the public interest." (The Citi deal values Wachovia at $1 a share, while the Wells bid amounts to about $7.) The trouble started Friday morning when Wells Fargo unexpectedly announced that it was buying Wachovia with no federal assistance whatsoever. The deal, if it goes through, will help Wells battle Bank of America for control of the residential lending and servicing sectors. With Wachovia under its belt, Wells would control 17.65% of the $9.6 trillion housing receivables market, compared with Bank of America's 21.06%. In lending, Wells/Wachovia would have an origination share of 17.73% vs. 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.) Even though the FDIC put no money into the original Citi-Wachovia purchase deal, it was on the hook for potential losses on Wachovia's payment-option ARM portfolio. Wells is buying Wachovia outright in a stock deal valued at $15 billion.

Asset flippers beware -- the Treasury Department doesn't want you to profit unjustly by selling your mortgage bonds to Uncle Sam. According to details of the financial rescue bill, investors that want to sell assets to the Treasury cannot do so at a price higher than the one they bought them at. In other words, if an investor buys discounted mortgage-backed securities from a seller, he cannot turn around and unload the bonds to Treasury at a higher price. However, the legislation leaves a loophole: if a seller of bad assets took control of mortgage bonds through a merger/acquisition or bought them out of a conservatorship, they are exempt from the Treasury's "unjust enrichment" clause. The bill also allows Treasury to aid ailing depositories of less than $1 billion in assets if their capital positions were damaged by their investments in preferred stock issued by Fannie Mae and Freddie Mac. The legislation stipulates that the executive in charge of the Troubled Asset Relief Program must be an assistant secretary of the Treasury appointed by the president.