Servicing

GMAC Financial Services on Wednesday shocked the market, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." At press time no further details were available. Public relations officials could not be reached for comment. In total, 5,000 mortgage jobs (60% of the workforce) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and CEO Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th largest servicer with $449 billion in receivables.

Lenders and servicers choosing to participate in a special Federal Housing Administration refinancing program will have to worry about "second guessing" by FHA, which has a reputation for seeking indemnification for losses when loans go into default, according to mortgage banking attorney Laurence Platt. "Presumably, lenders that closely follow the new underwriting requirements developed by the [Hope for Homeowners Oversight] Board will be insulated from attack by FHA," the K&L Gates partner says in a Mortgage Banking Alert to clients. However, the Hope program loans are expected to have high default rates because lenders will be refinancing subprime borrowers that have defaulted or are expected to default. "It will be interesting to see how 'squishy' the new underwriting guidelines are, because the risk of second-guessing is greater when the standards are more ambiguous," the Sept. 2 alert says. Meanwhile, the House Financial Services Committee is holding a hearing Sept. 17 to see if FHA and the oversight board will be ready to launch the Hope program by Oct. 1. Committee chairman Barney Frank, D-Mass., also wants to know if servicers are holding off on foreclosures for borrowers who might be refinanced through the Hope program.

Foreclosure deeds in Massachusetts jumped 34% in July from a year ago, but declined slightly from June, according to a new report by The Warren Group. A total of 1,097 foreclosure deeds were filed in July, up from 819 in July 2007. July's foreclosures deeds were 3% lower than June when 1,131 deeds were recorded. Foreclosure activity has doubled so far this year, with 7,804 deeds filed through July 2008 compared to 3,902 during the same period in 2007. The number of deeds from January through July has already exceeded the total number recorded for all of 2007, when there were 7,653 deeds. "The bad news is that we have more foreclosures so far this year than all of last year. But on a more positive note, foreclosure activity appears to have moderated," said Timothy Warren Jr., CEO of The Warren Group. "The number of foreclosure deeds has dropped 22% from a peak in May of this year, when 1,405 deeds were recorded." Petitions to foreclose rose 43.4% to 502 in July from 350 in June. But petitions fell 79.8% from July 2007, when lenders filed 2,485 foreclosure petitions. The sharp drop-off is connected to a law that took effect in May that requires lenders intending to foreclose to give borrowers 90 days to pay off loan defaults, the company said.

Pay-option adjustable-rate mortgages will default at dramatically higher rates in 2009 and beyond as large volumes of loans reset to the full payment after the payment option period expires, according to Fitch Ratings. Most option-ARM loans gave borrowers the choice to make a minimum monthly payment for a period of time, typically five years, before the loan terms recast to require full monthly payments to ensure full amortization over the loan term. Of the approximately $200 billion of option-ARM loans outstanding, Fitch estimates that $29 billion are scheduled to recast by the end of 2009 and an additional $67 billion will recast in 2010. The "potential average" monthly payment increase, according to Fitch, will add $1,053 to the monthly bill of those homeowners, on top of a current monthly average payment of $1,672. Fitch says the large payment increases will cause defaults to "more than double" after the loan terms recast.

Three classes of notes issued by Enhanced Mortgage Backed Securities Fund I Ltd., a collateralized debt obligation consisting partly of mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A, from AAA to BBB; class B-1, from A to BB; and class B-2, from BBB to B. Because the majority of the CDO's underlying collateral matures after the maturity date of the transaction, EMBS I will liquidate a significant amount of collateral at the November 2009 maturity date, Fitch reported in explanation of the downgrades. "Lower asset prices and poor liquidity could adversely affect the likelihood of repayment of rated notes," the rating agency said. The CDO is backed by MBS, collateralized mortgage obligations, asset-backed securities, U.S. government obligations, corporate securities, cash, and cash equivalents.

Thirty-six classes of notes issued by seven collateralized debt obligations with exposure to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All but one of the downgraded classes were removed from Rating Watch Negative. The affected securities are as follows: eight classes from Independence VII CDO Ltd., a cash flow structured finance CDO; seven classes from Whateley CDO I Ltd., a cash flow CDO; six classes from Duke Funding VIII Ltd., a cash flow structured finance CDO; six classes from Straits Global ABS CDO I Ltd., a cash flow structured finance CDO; five classes from Capmark VI Ltd. and Capmark VI Delaware Corp., a hybrid CDO; three classes from South Coast Funding I Ltd., a cash flow structured finance CDO; and one class from ABSpoke 2005-X Ltd., a partially funded static synthetic structured finance CDO. The downgrades were attributed to collateral and credit deterioration in the portfolios, especially in subprime RMBS, alternative-A RMBS, or structured finance CDOs.

Three series of bonds issued by the WM Covered Bond Program have been downgraded from AAA to AA by Fitch Ratings. Series 1, 2, and 3 were downgraded as a result of the current BBB/F2 rating of Washington Mutual Bank and "the risk posed to the continuity of payments on the covered bonds in the event of a default by [WaMu Bank]," the rating agency said. Under the program, covered bonds are ultimately secured over an $11.7 billion portfolio of U.S. residential mortgage loans held by the bank, Fitch explained. Noting the recent issuance of criteria for U.S. covered bonds by the Federal Deposit Insurance Corp., the rating agency said WaMu Bank's mortgage loans "do not meet the new criteria." As a result, a 90-day stay period is required in case the bank becomes insolvent, "which could delay access to the pledged collateral if a sale were required to repay the covered bonds before the end of their maturity extension period," Fitch said. Fitch can be found on the Web at http://www.fitchratings.com.

Mack-Cali Realty, a real estate investment trust based in Edison, N.J., has been designated the "Bear of the Day" for Aug. 29 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. Zacks said it is maintaining its Sell recommendation on the office REIT "due to macroeconomic factors" and that suburban office landlords are expected to "have a tough time over the next 12 months." Office occupancies in the company's core markets have risen rapidly, making it difficult to hold occupancy and increase rents, the research firm said. Zacks can be found online at http://www.zacks.com, and Mack-Cali can be found at http://www.mack-cali.com.

Fannie Mae says it will not purchase "subprime loans" as defined by a recently passed New York lending law that goes into effect Sept. 1. "Fannie Mae will not purchase or securitize any mortgage loan that meets the definition of a subprime loan under New York law, regardless of whether any provision of the law is pre-empted by federal law with respect to a particular mortgage or for a particular originator," according to Fannie announcement 08-21. The New York legislature created a new category of subprime loans that falls between prime and higher-cost loans. "The [subprime] threshold is so low that FHA loans and lower-grade Fannie Mae and Freddie Mac loans get dangerously close to crossing the threshold, and in some cases cross the threshold," said Don Romano, president of Shelter Rock Mortgage Corp. in Lake Success, N.Y. On Aug. 12, Freddie Mae said it would not purchase New York subprime loans. Fannie can be found online at http://www.fanniemae.com.

The upward swing in delinquency and foreclosure rates that began in mid-2007 is still climbing and "still getting worse," according to Sam Khater, a senior economist at LoanPerformance CoreLogic. For alternative-A and subprime loans, "it is literally like a 45-degree angle going up," he told MortgageWire. LoanPerformance data show that 28% of subprime loans are 60 days or more past due or in foreclosure as of June 30, up from 15% in June 2007. Meanwhile, the percentage of alt-A loans 60 days or more past due hit 13.6% in June, up from 3.8% a year ago. "They are not going to plateau anytime soon irrespective of the loan modifications or repayment plans," Mr. Khater said.