Servicing

The $700 billon emergency bailout bill Congress is trying to pass this week includes several fixes for a special Federal Housing Administration refinancing program to make it more attractive for lenders to help troubled homeowners and easier to pay off second lienholders who may be blocking a restructuring. Under the Hope for Homeowners program, lenders refinancing borrowers are expected to write down the mortgage to a 90% loan-to-value ratio based on a recent appraisal. The bailout bill gives the program oversight board the discretion to raise the maximum LTV to a higher percentage, possibly to 95%. "This is definitely a positive step that will make the program more attractive to lenders," said mortgage banking consultant Brian Chappelle. The bill also allows the oversight board to use the proceeds from Hope bonds to pay off second lienholders who are blocking a restructuring of the first mortgage. Currently, the lender can only offer second lienholders a share of future appreciation in the property. The Department of Housing and Urban Development is expected to issue guidelines for the Hope program Oct. 1, as required by the housing bill Congress passed their summer.

The Treasury Department must disclose within two days the price it pays for any mortgage asset, according to the pending $700 billion bailout bill. The Emergency Economic Stabilization Act mandates that the Treasury must provide to the public (in an electronic form) the dollar amount of the assets sold, the price, and a description of the collateral being purchased. The Treasury also wants any firm that gives the government warrants to guarantee that its holdings will not be diluted by stock splits.

After consistently climbing by large percentages, the number of foreclosure deeds filed in Massachusetts fell 2% in August from the level recorded a year earlier, according to The Warren Group, publisher of Banker & Tradesman. There were 998 foreclosure deeds recorded in August, down from 1,018 in August 2007, the company reported. However, year-to-date foreclosure activity has surged in Massachusetts. A total of 8,804 foreclosure deeds (the final step in the foreclosure process) were filed in the first eight months of the year, up 79% from 4,920 in the same period of 2007. Foreclosure petitions (the first step in the process) have risen in the past two months after a temporary lull that started in May due to state legislation requiring lenders to give homeowners 90 days to cure mortgage defaults. A total of 943 foreclosure petitions were filed in August, an 87.8% jump from 502 in July but 69.7% lower than the 3,112 filed in August 2007. The company can be found online at http://www.thewarrengroup.com.

Boston Private Financial Holdings Inc., Boston, has announced its intention to sell substantially all the land and construction loans at its Southern California private banking affiliate, First Private Bank & Trust. The portfolio consists of 72 loans with a book value of approximately $250 million as of June 30, the company said. "While the final sale price has not yet been determined, First Private is expected to take an after-tax loss of between $70 million and $85 million for the quarter ending Sept. 30, 2008, which reflects the current estimate of the price for these assets," Boston Private Financial said.

Freddie Mac sold off $32.5 billion in mortgage assets in August before it was placed into conservatorship by regulators and reduced the size of its mortgage portfolio, according to a monthly summary of its business activity. Overall, the secondary-market agency, which is supposed to provide liquidity to the mortgage market, reduced its portfolio by $37.3 billion in August to $760.9 billion. Freddie also reported that it guaranteed $22.0 billion in mortgage-backed securities in August, down from $35.4 billion a year earlier. Ginnie Mae guaranteed the issuance of $28.8 billion in MBS in August. The summary also shows that the serious delinquency rate on Freddie's single-family mortgages rose 10 basis points in August to 1.11%. The percentage of Freddie loans that were 90 days or more past due stood at 0.46% in August 2007.

Republican congressmen are balking at supporting President Bush's $700 billion plan to exorcise bad mortgage debt from the financial system, which could jeopardize efforts to pass the emergency legislation before the election. House Financial Services Committee Chairman Barney Frank, D-Mass., has warned that Democrats are not going to pass the president's plan without Republican votes. Democratic leaders thought they had an agreement with Republican leaders on the parameters of the $700 billion bailout bill following a closed-door meeting on Thursday. But it became clear at a subsequent White House meeting that House Republicans were not on board. A group of conservative Republicans are pushing an alternative under which the government would insure mortgage-backed securities so the banks could sell them to investors. Democrats have called it "unworkable." At the urging of President Bush, key congressional leaders resumed negotiations on Friday. The president's proposal to purchase troubled mortgage assets from banks remains the centerpiece of the talks. House Financial Services Committee chairman Barney Frank, D-Mass., said he is willing to attach the Republican MBS insurance proposal to the bill to get bi-partisan support. Negotiations will continue over the weekend and Rep. Frank said he is confident they can reach an agreement on Sunday.

Key to JPMorgan Chase & Co.'s ability to take over Washington Mutual is a dramatic, $30 billion proposed writedown of WaMu's home loan portfolio, far in excess of the remaining loss rate WaMu had earlier projected on the portfolio. In addition, JPMorgan expects to write down other assets in WaMu's overall portfolio by about $1 billion. JPMorgan Chase has already unveiled plans to raise $10 billion in capital related to the acquisition of WaMu's $307 billion in assets. JPMorgan Chase priced an offering of approximately 247 million common shares at $40.50 per share Friday morning, with an option to sell up to an additional 37 million shares. WaMu's assets included $176 billion of residential mortgage loans. As of June 30, when the mortgage portfolio was slightly larger, payment-option adjustable-rate mortgages accounted for $52.9 billion of that total. Subprime mortgages accounted for $16 billion. WaMu's home loan portfolio also included $60.4 billion of home equity products.

The Office of Thrift Supervision seized control of Washington Mutual Thursday night and then handed the thrift over to the Federal Deposit Insurance Corp., which immediately sold the ailing servicing giant to JPMorgan Chase & Co. for $1.9 billion. The two parties -- which had been talking on and off about a deal over the past year -- agreed to terms after news reports began to surface that five mutual funds had formed a consortium to make a bid for WaMu. A handful of other bidders were looking at WaMu, a fact acknowledged by OTS Director John Reich, who noted that the pending $700 billion bailout of the industry affected the deal. "I think it was a significant distraction, and it probably played a role in the interest of some parties to decide not to make a bid," Mr. Reich said. The OTS said it closed WaMu Thursday because of a run on its "jumbo" deposits, particularly in California. WaMu had loan concentrations in California and Florida, which have the nation's highest foreclosure rates. "WaMu was a victim of one of the worst downturns in the housing market," said the OTS chief. The S&L is the nation's fifth-largest residential servicer, with $600 billion in housing receivables. It is also the nation's largest S&L, with $307 billion in assets.

The residential servicer ratings of Irwin Home Equity Corp., San Ramon, Calif., have been downgraded by Fitch Ratings and placed on Rating Watch Evolving. Irwin's primary servicer ratings for high loan-to-value and home equity line-of-credit products were downgraded from RPS2-minus to RPS3-plus. Fitch also assigned Irwin an RPS3-plus primary specialty servicer rating for second-lien product. The rating actions were based on "the continued financial pressures faced by IHE's parent, Irwin Financial Corp., reflecting the difficult operating environment which has severely affected IFC's earnings, asset quality, and financial flexibility," Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Moody's Investors Service has downgraded the servicer quality rating of GMAC ResCap as a master servicer from SQ2 to SQ2-minus. The rating remains on review for possible further downgrade. Moody's said the downgrade reflects increasingly difficult market conditions that are putting stress on the servicing operations. While the master servicing operations have remained profitable, Residential Capital LLC (which houses the GMAC ResCap master servicing operations) and GMAC "continue to be under significant financial pressure," the rating agency said. On Sept 2, GMAC and ResCap announced plans to significantly downsize the ResCap operations. The ratings of both companies remain under negative outlook. As GMAC ResCap continues to reduce staff and outsource master servicing functions to cut costs, Moody's said it is "uncertain about GMAC ResCap's willingness and ability to continue investing in the platform." The rating agency can be found online at http://www.moodys.com.