Servicing

Irwin Financial Corp., Columbus, Ind., has announced an agreement to sell its residual interests in approximately $1 billion of home equity loans to Roosevelt Management Co., New York, noting that home equity lending has been "a principal driver" of recent losses. Irwin chairman and chief executive Will Miller also announced a pact with Roosevelt, which specializes in investing in and servicing seasoned residential mortgage loans and securities, to deliver "substantially all of the remaining loans in our home equity business into a securitization structure that will cap our remaining exposure at less than $100 million." The company said the transactions, and several others, were aimed at achieving a strategic restructuring of Irwin Financial and Irwin Union Bank that will enable them to refocus on core banking services to small businesses and branch-based customers. The company can be found online at http://www.irwinfinancial.com.

Nearly 740,000 foreclosure filings were reported nationwide in the second quarter, up almost 14% from the level recorded in the previous quarter and 121% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The nation's quarterly foreclosure rate was one filing for every 171 households, the company said in its Q2 2008 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "Although much of the fallout from foreclosures is being driven by rampant activity in a few states, such as Nevada, California, Florida, Ohio, Arizona, and Michigan, most areas of the country are seeing at least some increase in foreclosure activity," said James J. Saccacio, chief executive officer of RealtyTrac. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity in the second quarter." The company can be found online at http://www.realtytrac.com.

Some members of Congress are pushing for additional legislation to strengthen regulation of mortgage servicing practices and mandate additional forbearance relief for troubled borrowers. At a House Financial Services Committee hearing Friday, several Democratic lawmakers -- including Reps. Barney Frank, D-Mass.; Maxine Waters, D-Calif.; and Melvin Watt, D-N.C. -- expressed skepticism about the ability of current voluntary homeowner relief programs to stem the growing tide of foreclosures. Consumer advocate Julie Gordon of the Center for Responsible Lending said her group supports several bills that may require servicers to reduce the principal of outstanding mortgage balances in some circumstances. The group also supports legislation that would create a foreclosure "timeout" and mandate court-supervised loan modifications in some circumstances. "Despite the loss mitigation encouragement by Hope Now, the federal banking agencies, and state agencies, voluntary efforts by lenders, servicers, and investors have failed to stem the tide of foreclosures," Ms. Gordon said.

Noting that the FHA foreclosure stabilization provisions of a bill passed by Congress Thursday do not become effective until October, the chairman of the House Financial Services Committee is urging mortgage servicers to hold off on foreclosure in applicable cases "so borrowers can take advantage of the program." Rep. Barney Frank, D-Mass., noted that an earlier version of the bill would have made the Federal Housing Administration refinancing program for troubled borrowers available immediately. However, the housing bill that eventually passed both the House and the Senate does not make the FHA foreclosure prevention program effective until Oct. 1.

The Federal Housing Administration section of a massive housing bill is causing heartburn for lenders because they will have to abandon a newly implemented risk-based pricing structure. The Department of Housing and Urban Development mandated implementation of the RBP structure by July 14, but the housing bill imposes a 12-month moratorium on risk-based pricing starting Oct. 1. "Lenders are angry at HUD and Congress," said Brian Chappelle, a mortgage banking consultant in Washington. It cost millions of dollars to implement risk-based pricing, and "now it will cost millions of dollars to straighten it out," he said. HUD also has to convert back to charging a standard upfront mortgage insurance premium for all borrowers. "Now, FHA will be required to increase prices on all customers," HUD Secretary Steven Preston said. And it will require HUD to eliminate the newly expanded FHA Secure program that relies on RBP, he added. Before July 14, the standard upfront premium was 1.5%. Some expect the FHA to raise the premium to 2%, but HUD could raise it up to 3% under a provision of the housing bill.

First American Loan Production Solutions, Dallas, has announced the expansion of its borrower identification data and workout options to create a complete loan modification system designed to help servicers prevent foreclosures. The new offering combines credit scoring, valuation services, risk modeling, scoring, document preparation, and document recording to identify borrowers who are most at risk of foreclosure, the company said. Borrower refinance and workout options are then presented, and documents needed to complete the loan modification process may be created. "First American is bringing a single, complete loan modification cycle solution to servicers that will enable them to meet their bulging workloads by working out as many loans as possible," said Randy Gilster, president of First American LPS. The system enables servicers to actively monitor their portfolio and pinpoint loans at risk of foreclosure so pre-emptive loss mitigation steps can be taken. First American can be found online at http://www.firstam.com.

Downey Financial Corp., one of the largest thrifts in California, lost $219 million in the second quarter and said it is looking at "strategic opportunities," a code phrase that means the company is for sale. At the end of June, Downey had loan loss reserves of $734 million. It bolstered its reserve for credit losses by $259 million in the second quarter alone and charged off $70 million in loans. It also warned that mortgages held on its balance sheet are going bad faster than in previous down cycles. "In particular, collateral values have been trending downward in the greater Sacramento, Stockton, Modesto, and Contra Costa areas of Northern California, the Inland Empire, and San Diego county," it said in its second-quarter earnings statement. At deadline time, Downey's stock was trading at just over $2, a plunge of 23%. Its 52-week high is $63.

National City Corp., Cleveland, lost $1.8 billion ($2.45 per share) in the second quarter, driven by a $1.6 billion loss provision related to broker-originated home equity, subprime mortgage, and construction loans to individuals. Chairman and chief executive Peter Raskind said National City Bank has made priorities of strengthening its balance sheet and mitigating losses in the "liquidating portfolio" of mortgage loans from discontinued channels now that a $7 billion capital raise has been completed. "We are confident that we have more than sufficient capital to ride out turbulent credit markets," he said. The company can be found on the Web at http://www.nationalcity.com.

The House has passed a landmark housing bill that includes a financial backstop for Fannie Mae and Freddie Mac by a 272-152 vote, and the measure now goes to the Senate, where a few Republican stalwarts might delay final passage for a few days. The bill increases Fannie's and Freddie's line of credit at the U.S. Treasury and authorizes the Treasury secretary for the first time to purchase stock in the two government-sponsored enterprises, if necessary. The bill also strengthens regulation of Fannie and Freddie, and passage of the bill should make it easier for the mortgage giants to raise additional capital, according to James Lockhart, director of the Office of Federal Housing Enterprise Oversight. Freddie has pledged to raise $5.5 billion in additional capital. "We are hopeful passage will help them do that quicker," Mr. Lockhart told Bloomberg TV. Once the bill is signed by President Bush, Mr. Lockhart will become the chief regulator for Fannie, Freddie, and the Federal Home Loan Banks. The massive housing bill also updates the Federal Housing Administration mortgage insurance programs and creates an FHA refinancing program to help 400,000 homeowners avoid foreclosure. The foreclosure rescue program will begin Oct. 1. Tax provisions in the bill provide a $7,500 tax credit for first-time homebuyers.

Moody's Investors Service has put on review for possible downgrade some triple-A ratings of Financial Security Assurance, New York, and Assured Guaranty Ltd., Bermuda, citing risks that include residential mortgage exposure. Robert P. Cochran, chairman and chief executive officer of Financial Security Assurance Holdings Ltd. and FSA, said: "We take note of the concerns Moody's has expressed, and we will work closely with them to re-establish our Aaa-stable claims-paying ratings." Dominic Frederico, president and CEO of Assured Guaranty Ltd., said: "Moody's decision to re-evaluate industry ratings during a time of unusually high market volatility and lack of liquidity in many credit markets could have been accomplished in a different manner without affecting municipal and other policyholders."