Servicing

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.

The Issuer Default Ratings of Emigrant Bancorp Inc. and its subsidiaries have been downgraded by Fitch Ratings, which cited concerns about Emigrant's capital position and expected losses. The long-term IDR of the parent company was downgraded from BBB to BB-plus, and its short-term IDR was downgraded from F2 to B. The comparable downgrades to its subsidiaries were from BBB to BBB-minus and from F2 to F3, respectively. "While Fitch expects capital to meet the definition of 'well capitalized', both tangible and regulatory capital ratios remain under considerable pressure due to expected recognition of losses in its investment portfolio," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Andrew Davidson & Co., New York, has announced a new service, Breakpoint Analysis, that it describes as a flexible means of assessing the credit risk of mortgage bonds. Using a distance-to-default measure, Breakpoint Analysis "provides what is in essence a dynamic and timely alternative to a credit rating of the asset as an up-to-date measure of credit risk," AD&Co said. The company said a Breakpoint Ratio is the ratio of the collateral losses required to cause the first dollar of a bond's principal writedown to the projected loss in the base-case economic scenario. The ratio adjusts dynamically to changes in home prices, interest rates, home price forecasts, delinquencies, and deal structure, providing a measure that reflects the current distance to default of each bond. "Credit rating agencies provide a valuable service in addressing structural and legal issues in securitization and establishing initial ratings which reflect a broad range of possible economic environments," Andrew Davidson said. "Breakpoint Analysis adds to this by providing an up-to-date, numerical assessment of changes in credit risk due to changing collateral performance and market conditions. This numerical measure can be used to better understand the evolution of credit risk in a portfolio."

Freddie Mac is getting a "positive" response from a pilot program that is aimed at getting hard-to-reach borrowers who are headed toward foreclosure to consider a loan modification offer. "In this new initiative, servicers solicit seriously delinquent borrowers with a pre-approved modification plan," Freddie chief executive David Moffett recently told a congressional panel. "Notwithstanding the continued difficultly of contacting many borrowers, early results are positive." Freddie is offering to reduce the interest rate on their mortgage by two percentage points and extend the term to 40 years. The mortgage giant launched the "mass modification" pilot program in April.

Deutsche Bank -- once a key player in subprime financing -- believes that as soon the Treasury Department begins purchasing troubled mortgage assets, liquidity will return to the market. In a new research report, chief economist Joseph LaVorgna predicts that even if the Treasury buys a "small amount" of assets, "liquidity will return." He says he believes that, in time, it could lead to a dramatic improvement in pricing. He cautions, however, that Treasury's Troubled Asset Recovery Program could run into problems if financial institutions are valuing their illiquid assets "meaningfully above the government's eventual purchase price." Deutsche Bank says if that's the case, sellers (banks, thrifts, and investment banks, among others) might not participate, defeating the purpose of the program, or they would face significant markdowns as they revalue their assets at the new price, which could raise solvency concerns.

Just after 9:30 Wednesday night, the full Senate passed a $700 billion rescue plan to revive the credit and mortgage markets. The final tally was a lopsided vote of 74 to 25. The passage came two days after Republicans -- fearing a voter backlash at the polls -- torpedoed the House version of the bill. However, senators stuffed their version of the bailout legislation with tax breaks and other sweeteners. House members were slated to return to work Thursday redrafting the bill that was defeated on Monday. It appears that mortgage "cramdown" language will not be included, but some liberal members of Congress are still holding out hope that it may be.