Servicing

Minority borrowers, regardless of income level, are more likely to receive high-cost home mortgage loans than other consumers, according to a new report by the National Community Reinvestment Coalition. The report says minorities pay more for mortgages even as their incomes levels rise, and that loan price disparities (with white counterparts) were more common for middle- to upper-income African-American and Hispanic borrowers than for low- and moderate-income minority borrowers. For example, middle- and upper-income African-Americans were at least twice as likely to receive high-cost loans in 2006 as whites with similar income in 155 (71.4%) of the metropolitan areas analyzed, the NCRC said. In comparison, low- and moderate-income black borrowers were at least twice as likely to receive high-cost loans as whites with similar income in 87 (47.3%) of the metro areas, according to the report. "The data reminds us that the current housing crisis was overwhelmingly the result of the explosion of bad loan products in financially vulnerable communities," said John Taylor, president and chief executive of the NCRC. "It is not surprising that foreclosures have been concentrated among African-Americans and Latinos, because predatory and problematic loans are more prevalent in those communities." The organization can be found online at http://www.ncrc.org.

Ambac Financial Group has agreed to pay a counterparty $850 million to cover losses on mortgage-related collateralized debt obligations. The New York-based bond insurer would not identify the counterparty or provide details about the transaction. The CDO was collateralized by subprime and other types of residential mortgages. "The loans weren't all necessarily subprime," an Ambac spokeswoman told MortgageWire. Ambac was originally on the hook for $1.4 billion in losses on the investment, which has been described as a "CDO-squared." In March Ambac had booked $1 billion in mark-to-market losses on the deal and can now recapture $150 million. "It's a good deal for us," said the spokeswoman. Ambac is slated to release earnings on Aug. 6. The bond insurer and its competitors are potentially on the hook for billions of dollars in losses on subprime-related bonds that they insured. The transaction that Ambac settled, known as "AA Bespoke," was one of its "largest CDO exposures," the company said. Ambac can be found on the Web at http://www.ambac.com.

Treasury Secretary Henry Paulson says he expects foreclosures and inventories of unsold homes to remain elevated into next year but that the worst of the housing correction could be over in the coming months. "I believe we can move through the bulk of the correction in months rather than years," he told financial services executive and lobbyists July 31 at the Exchequer Club in Washington. But to turn the corner, the Treasury secretary says the availability of affordable mortgage financing must be increased. He noted that the housing bill signed by the president strengthens supervision of Fannie Mae and Freddie Mac and grants their regulator new powers to set minimum capital requirements and address the risks posed by their $700 billion mortgage investment portfolios. "We have long sought this result, and our work is far from done," Mr. Paulson said. "All parties must get to work immediately to begin to address the systemic risk issues posed by the GSEs."

MountainView Capital Holdings LLC, Denver, has announced the initial closing of the MountainView Mortgage Opportunities Fund LP, which is slated to invest primarily in alternative-A and subprime first-lien residential mortgage loans in the secondary market. The company said the fund had raised approximately $80 million, primarily from qualified institutional investors, as of the initial closing. The loans acquired by the fund will be serviced "with a view toward mitigating risk of default and maximizing the value of the loans," MountainView Capital said.

Freddie Mac has announced that it is doubling the amount of money it pays mortgage servicers for each workout that keeps a delinquent borrower with a Freddie Mac-owned mortgage out of foreclosure. Freddie also said it will reimburse servicers for the cost of door-to-door outreach programs, give servicers more time to negotiate workouts in Washington, D.C., and 20 states with fast foreclosure processes, and make administrative changes to streamline the workout process. The government-sponsored enterprise said compensation for repayment plans will rise from $250 to $500 on Aug. 1, while loan modification compensation will increase from $400 to $800. For short sales or preforeclosure sales, where Freddie agrees to accept less than the full amount owed on a borrower's loan, compensation will go from $1,100 to $2,200. Freddie Mac also said that, through March 31, 2009, it will reimburse the cost of leaving a door hanger up to $15 per mortgage, and up to $50 per mortgage for a door knocking that results in contact between the borrower and the servicer. Freddie will also reimburse servicers up to $200 for additional fees paid to vendors for door knocking that results in successful alternatives to foreclosure.

Five classes of notes issued by Vertical ABS CDO 2006-1 Ltd./Corp., a collateralized debt obligation consisting largely of subprime mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class A-S1VF, from BBB-plus to CCC; class A-1, from BBB to CC; class A-2, from BB-plus to CC; class A-3, from B-plus to C; and class B, from CCC to C. The downgrades were attributed to collateral deterioration involving subprime residential MBS, alternative-A RMBS, and structured finance CDOs with underlying exposure to subprime RMBS. Vertical 2006-1 is a hybrid cash flow and synthetic structured finance CDO.

Fannie Mae bought $63.8 billion worth of mortgages in June, a 7% decline from the previous month's level but flat compared with that of the same month a year ago. The government-sponsored enterprise, which will have a new, tougher regulator in a few months, saw its on-balance-sheet portfolio increase to $749.6 billion, a 4% gain compared with that of June 30, 2007. The annualized compounded rate of growth on the portfolio was 22.8%. Fannie had a total book of business (portfolio plus guarantees) of $3.039 trillion at month's end. The delinquency rate on its portfolio was 1.30%, compared with 0.62% 12 months earlier.

The Federal Reserve has authorized the Federal Reserve Bank of New York to extend through Jan. 30 its term securities lending facility, including the TSLF 2 that allows primary dealers to collateralize draws with certain mortgage-related securities. Collateral for the TSLF 2 includes mortgage-backed securities issued or guaranteed by federal agencies, federal agency debt securities, triple-A rated private-label residential MBS, commercial MBS, and asset-backed securities. The move is one of a series of steps the Fed has taken to provide a wider range of liquidity facilities. Some related actions have also been taken by the European Central Bank and the Swiss National Bank.

The Securities and Exchange Commission has extended its emergency order designed "to enhance protections against naked short selling in the securities of Fannie Mae, Freddie Mac and primary dealers at commercial and investment banks" until Aug. 12. The SEC said it would not extend the order beyond that date. "The order is designed to protect legitimate short-selling in these securities, but helps prevent illegitimate, naked short-selling and potential 'distort and short' manipulation," said SEC Chairman Christopher Cox. "In addition to continuing the existing order against naked short-selling, the commission will continue to explore other remedies for the broader marketplace to further protect investors from 'distort and short' artists." Under the emergency order "anyone effecting a short sale" in the securities specified must "arrange beforehand to borrow the securities and deliver them at settlement."

Hope Now servicers completed nearly 522,000 loan workouts in the second quarter, up 8% from the level recorded in the first quarter, as loan modifications jumped 30%. Loan modifications for subprime loans jumped from 122,100 in the first quarter to 164,200 in the second quarter, while loan-mods for prime mortgages rose from 48,100 to 55,100 over the same period. Meanwhile, 301,900 troubled borrowers ended up in repayment plans. Workouts involving loan modifications and repayment plans are "far greater than the actual foreclosures taking place in the market," Hope Now executive director Faith Schwartz told reporters. Servicers closely monitor loans that start the foreclosure process, and "we work aggressively to avoid those foreclosures," she said. Hope Now data show that sales of foreclosed properties have jumped dramatically since the fourth quarter and totaled nearly 245,700 in the second quarter. Sales of foreclosed properties resulting from subprime defaults totaled 138,000 in the second quarter, up 34% since the fourth quarter. Sales of foreclosed prime loan properties totaled 107,700, up 45% from the fourth-quarter level.