Servicing

Loan modifications by banks and thrifts rose substantially in the second quarter, but delinquency and default rates also increased, according to data compiled by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Combining their data for the first time, the OCC and the OTS said new loan modifications by banks and thrifts increased by 56% from the first to the second quarter of this year. Repayment plans on home loans serviced by banks and thrifts also increased, but by just 8%. All told, banks and thrifts servicing nearly 35 million home loans engaged in some form of loss mitigation on 208,250 mortgage loans in the first quarter and 252,508 loans in the second quarter. Of the total, 92.6% of the loans were performing, down from 93.4% in the first quarter. The share of loans in foreclosure rose from 1.4% in the first quarter to 1.6% in the second.

Late next month the Federal Deposit Insurance Corp. will accept bids for $360 million in performing commercial real estate loans owned by IndyMac Bank, Pasadena, Calif. The portfolio is being marketed for the agency by First Financial Network Inc., Oklahoma City. As reported by MortgageWire on Sept. 8, bids are due on most of IndyMac's other assets, including its residential servicing franchise. Buyers can buy the whole company or pieces of it. The commercial real estate loan portfolio is being marketed separately, with bids due Oct. 21. FDIC and FFN officials did not respond to telephone calls about the auctions by MW's deadline. The commercial portfolio is being stratified into pools based on collateral and geographic location. The loans are backed by properties in California, Texas, Ohio, Washington, Arizona, and Georgia, according to a statement released by FFN.

Four Democratic senators are calling on Fannie Mae's and Freddie Mac's new chief executives to declare a moratorium of at least 90 days on all foreclosure proceedings and urging them to establish aggressive loan modification programs now that the two mortgage giants have been placed in conservatorship. "This action would provide immediate relief for many homeowners and, as importantly, give each GSE a further opportunity to turn these non-performing loans into performing assets to minimize losses," the senators say in a letter to Fannie CEO Herb Allison and Freddie CEO David Moffett. Sens. Charles E. Schumer (N.Y), Robert Menendez (N.J), Sherrod Brown (Ohio), and Robert P. Casey Jr. (Pa.) also addressed the letter to Federal Housing Finance Agency Director James Lockhart, the government-sponsored enterprise regulator who is overseeing the conservatorships. The four Senate Banking Committee members argued that Fannie's policy of allowing modifications only after a loan is 120 days delinquent is counterproductive. "Though [Fannie's] introduction of the HomeSaver program has brought some relief, a true loan modification remains far more preferable to an additional loan to a delinquent borrower," the Sept. 11 letter says.

Foreclosure filings increased 12% in August and were 27% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 303,879 properties in August. "In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we've seen in any month since we began issuing our report in January 2005," said James J. Saccacio, RealtyTrac's chief executive officer. "However, the annual increase of 27% was actually substantially lower than in previous months this year, when it was hovering around 50% to 65%." The company reported that Nevada, California, and Arizona recorded the highest foreclosure rates in August. RealtyTrac can be found online at http://www.realtytrac.com.

JPMorgan Chase is in advanced talks to buy Washington Mutual, one of the nation's largest residential lenders and servicers, according to a report in American Banker. No other details were available at deadline time. According to figures compiled by National Mortgage News and the Quarterly Data Report, if JPM buys WaMu and all its mortgage assets, it would challenge Wells Fargo for the No. 2 spot among residential servicers. A combined Chase/WaMu servicing platform would have $1.429 trillion in housing receivables, compared with $1.496 trillion for Wells. Bank of America and its Countrywide franchise serviced $2.025 trillion in home mortgages at midyear, according to NMN/QDR. Over the past few years WaMu has been mentioned as a takeover target, with JPM, Citigroup, and a handful of foreign banks mentioned as possible suitors. Hammered by delinquent loans (including subprime), WaMu has been hemorrhaging money. Its stock recently fell to just $1.75. Late Thursday the nation's largest thrift released a preview of its third-quarter results, saying its credit loss provision would be about $4.5 billion, with residential mortgage losses accounting for $3.4 billion of the total. In the second quarter, WaMu's loss provision totaled $5.9 billion. WaMu said net chargeoffs may increase by about 20% in the third quarter, down from a 60% increase tallied in the second quarter.

Four classes of notes issued by Orion 2006-1 Ltd./LLC, a collateralized debt obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades in the hybrid cash and synthetic structured finance CDO were as follows: class A, from BB-minus to CC; class B, from B to CC; class C, from CCC to CC; and class D, from CCC-minus to CC. All four classes were removed from Rating Watch Negative. Fitch said the downgrades stemmed from "significant collateral deterioration" in the portfolio, especially from U.S. subprime RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

Fitch Ratings has announced that it will introduce Rating Outlooks for U.S. structured finance transactions to provide more forward-looking information to the market. Rating Outlooks, which are already used with many other Fitch ratings, indicate the likely direction of any rating change over a one- to two-year period. They may be Positive, Negative, Stable, or Evolving. "Fitch will assign Rating Outlooks to each rated tranche to offer investors a forward-looking opinion about the medium-term prospects of a tranche's performance," said John Bonfiglio, a group managing director who is the head of U.S. structured finance for Fitch. "Rating Outlooks may be influenced by factors that are quantitative, including performance relative to expectations, and more qualitative in nature, including prospective economic and sector developments affecting collateral." The rating agency can be found online at http://www.fitchratings.com.

Markit, New York, has announced plans to launch a tradable synthetic index of U.S. subprime asset-backed securities referencing 20 qualifying residential mortgage deals issued in the first half of 2005. "The addition of a new index, following a majority vote of licensed dealers, will provide institutional investors with a greater ability to gain or hedge exposure to an earlier vintage of U.S. residential mortgage-backed securities," the company said. Markit said it would make the new index, ABX.HE 05-2, available on Oct. 2.

Lend America, a direct-to-consumer FHA lender based in Melville, N.Y., has announced the launch of a "premier exit strategy" to help Wall Street firms and hedge funds quickly monetize their residential mortgage portfolios. Lend America offers investors both the opportunity to refinance performing mortgage portfolios within 10 days and work with nonperforming portfolios to maximize cash flow and deliver a profitable exit strategy. "Lend America is already working with leading Wall Street firms and hedge funds who are trading and or holding adjustable-rate or other performing paper," said Michael Ashley, chief business strategist of Lend America. The company said it has over 300 trained loan specialists in Federal Housing Administration lending, as well as the ability to place loans directly into Ginnie Mae mortgage-backed securities.

Fannie Mae has announced that it has received the consent of its conservator, the Federal Housing Finance Agency, and the Treasury Department to pay the previously declared but unpaid dividends on all its outstanding preferred stock on Sept. 30, as scheduled. The dividends were declared before the government-sponsored enterprise was placed in conservatorship. The record date is Sept. 15. "Treasury's consent is limited solely to the payment of this previously declared but unpaid preferred stock dividend," Fannie said. Future common and preferred stock dividends will be eliminated, as announced on Sept. 7.