Servicing

Over 25% of mortgage delinquencies and foreclosures involve seniors, according to a study by AARP, and older homeowners with subprime mortgages are 17 times more likely to end up in foreclosure than their peers with prime mortgages. "The public perception is that older Americans are financially secure in their homes," said Susan Reinhard, director of AARP's Public Policy Institution. "But the reality is that while many are in fact secure, hundreds of thousands are not and face unsettling uncertainty over their futures as homeowners." The AARP study found that 28% of delinquencies and foreclosures that occurred during the second half of 2007 involved people 50 years and older. "Over 684,000 older Americans were either delinquent or in foreclosure at the end of 2007," the study says. "Of these, nearly 50,000 were in foreclosure or had already lost their homes." The study also picked up disparities between minorities and whites. Foreclosure rates for senior African-American and Hispanic homeowners were 0.51%, compared with 0.19% for senior Caucasians. African-Americans seniors hold over 6.8% of first mortgages in this age group, but represent 14.4% of the foreclosures among seniors.

The Securities Investor Protection Corp., which maintains a special fund to help investors at failed brokerage firms, has announced that it will file a proceeding placing Lehman Brothers Inc. in liquidation. After "extensive discussions and consultation" with representatives of the firm and its parent company, as well as representatives of the Securities and Exchange Commission, the Federal Reserve, and other federal agencies, SIPC said it has decided the action is "appropriate for the protection of customers" and to facilitate the transfer of customer accounts and an orderly unwinding of the brokerage firm's business. A hearing on the sale of the business to Barclays Capital Inc. was scheduled for Sept. 19.

Efforts by House and Senate banking committee leaders to reach a deal on a flood insurance reform bill have reached an impasse, and they may settle for a simple seven-month extension of the National Flood Insurance Program. "I am disappointed that a permanent solution is not before us, but we can and should extend the program while we work on that final bill," said House Financial Services Committee Chairman Barney Frank, D-Mass. Rep. Frank has introduced a bill that provides for a seven-month extension. The current authority to run the NFIP expires Sept. 30. The House and the Senate have passed separate flood insurance reform bills. The House bill provides new coverage for wind damage, which has complicated negotiations.

Fannie Mae is increasing its net-worth requirements for approved seller/servicers to ensure that its business partners are capable of fulfilling their obligations, the company has announced. The secondary-market agency is also establishing new minimum capital requirements for banks, thrifts, and other customers. "Fannie Mae is imposing additional requirements to protect itself against the material and adverse impact of rapid declines in a lender's net worth," Fannie says in its announcement 08-23. Effective Dec. 31, the minimum net worth requirement is $1.6 million for approved seller/servicers add $2.5 million for new lenders seeking Fannie Mae approval, plus 0.25% of the outstanding principal balance of the lender's portfolio of loans serviced for Fannie. All approved lenders must meet the minimum $2.5 million net worth starting Dec. 31, 2009. "Approved seller/servicers will have until June 30, 2009, to comply with the increased lender's adjusted-net-worth requirement," Fannie says.

The idea of creating a Resolution Trust Corp.-like entity to invest in ailing mortgage-related assets has been floating around the Treasury Department since January. One adviser familiar with the plan said former Treasury Undersecretary Robert Steel (who recently became the head of Wachovia Corp.) was instrumental in developing the idea. National Mortgage News reported on the existence of the plan in a Web column in January. However, back then the Treasury Department was not openly acknowledging that it even had a plan, much less one shaped after the RTC. The adviser, requesting anonymity, said the Treasury was hoping it would never have to use it. The RTC was created by Congress in 1989 to manage and sell billions of dollars in real estate, loans, and other assets belonging to failed thrifts. Eventually the agency was merged into the Federal Deposit Insurance Corp. Like Treasury Secretary Henry Paulson, Mr. Steel is an alumnus of Goldman Sachs. Mr. Steel became under secretary for domestic finance in October 2006. He retired as vice chairman of Goldman in 2004. He started with the firm in 1976.

The Treasury Department is readying a legislative proposal to purchase illiquid mortgage assets from financial institutions -- and will significantly boost its MBS purchase program to provide immediate support to the mortgage market. Late Thursday, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben S. Bernanke met with congressional leaders to discuss creation of a Resolution Trust Corp.-like entity to purchase problem mortgage assets. Legislation to make it happen could come early next week. Treasury and Federal Reserve officials and senior members of Congress have concluded that a more systematic approach to the nation's financial crisis is needed. At a news conference Friday morning, Secretary Paulson said he will propose a legislative package and work with members of Congress over the weekend to "flesh out the details." He did not provide specifics about the package, except to say the program will require hundreds of billions of dollars to remove the illiquid mortgage assets that are "weighing down our financial institutions and threatening our economy." Pressure to create an RTC-type entity to deal with the financial crisis has been building for several weeks. Meanwhile, Fannie Mac and Freddie Mac have been directed to increase purchases of their mortgage-backed securities. Treasury is doubling its MBS purchases this month from $5 billion to $10 billion. The agency unveiled its MBS program Sept. 7 when it placed the two government-sponsored enterprises into conservatorships.

The third-quarter Core Mortgage Risk Index, which forecasts the relative risk of residential loan delinquencies, stands 12% higher than it did a year ago, according to First American CoreLogic, Santa Ana, Calif. The risk index has risen for 11 of the late 12 quarters, the company said. "The CMRI is currently 55% above the base period of the first quarter of 2002, a period near the end of the last U.S. economic recession," said Mark Fleming, the company's chief economist. "Although significantly higher now than during this base period, the CMRI is likely to continue rising nationally over the next 18 months." Mr. Fleming said declining home prices are the "primary factor" in the most recent rise in mortgage risk. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.facorelogic.com.

Standard & Poor's Ratings Services has revised the CreditWatch status of most of its ratings on the AIG group of companies from negative to developing in the wake of the federal rescue of the insurance company. The affected ratings include its A-minus long-term counterparty credit ratings on American International Group and International Lease Finance Corp. and its A-plus counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. S&P also said it has raised the short-term counterparty ratings on AIG, its guaranteed subsidiaries, and ILFC from A-2 to A-1 and downgraded various subsidiaries' preferred shares from BBB to B. S&P credit analyst Rodney A. Clark said the actions of the Federal Reserve Bank of New York, which extended an $85 billion borrowing facility to AIG, will provide the company with "substantial relief from its near-term liquidity constraints." S&P can be found online at http://www.standardandpoors.com.

Fitch Ratings has revised its Rating Watch on American International Group Inc. and its subsidiaries from Negative to Evolving following the federal rescue of the ailing insurance giant. Fitch said it views the move as favorable overall because it "alleviates significant near-term liquidity concerns and provides a source of funding for potential future collateral requirements that are primarily derived from AIG's AIG Financial Products Corp. subsidiary." Fitch said it also believes the arrangement "provides a platform of stability for AIG's primary operating subsidiaries and significantly curtails substantive pressure on AIG to sell assets quickly to fund potential cash calls." The downside is the "effective subordination of essentially all" AIG's senior debt and hybrid instruments, Fitch said. The rating agency said AIG's "most pressing challenges" are likely to evolve from meeting immediate liquidity needs to managing higher financial leverage.

R&G Financial Corp., San Juan, Puerto Rico, has announced an agreement to settle litigation with Freddie Mac under which its subsidiaries R&G Mortgage Corp. and R-G Premier Bank of Puerto Rico will remain approved Freddie seller/servicers. The settlement, subject to approval by the U.S. District Court for the District of Puerto Rico, may be rescinded by Freddie Mac if a sale of mortgage servicing rights is not consummated within a certain period. Under the sale agreement, Banco Popular of Puerto Rico, a subsidiary of Popular Inc., San Juan, would purchase approximately $5.1 billion of third-party mortgage servicing rights from R-G Mortgage Corp. The companies can be found on the Web at http://www.rgonline.com and http://www.popularinc.com.