Servicing

Fannie Mae has tightened its underwriting guidelines to prevent homeowners who are preparing to default on their mortgage from purchasing a more affordable home with Fannie-guaranteed financing. To prevent these "buy-and-bail" schemes, Fannie is requiring the borrowers who are proposing to rent their home to show they have 30% equity in the property, a copy of the lease agreement, and a receipt for the security deposit. Usually buy-and-bail transactions involve borrowers with upside-down mortgages. If they don't have 30% equity, the borrowers must show that they have the resources to service both mortgages and reserves to cover six months of mortgage payments (including insurance and taxes) for both properties. These requirements go into effect Aug. 1. The June 25 seller guide announcement also requires lenders that sell loans seasoned six to 12 months to provide warranties that the original value of the property has not declined. Fannie also updated it policies on how long it takes borrowers involved in bankruptcies and foreclosures to quality for a new mortgage. Fannie Mae can be found online at http://www.fanniemae.com.

The level of foreclosure activity continues to rise and is not likely to peak in the near term, according to chief economist Mark Zandi of Moody's Economy.com. Mr. Zandi, speaking at a Demos news conference in Washington June 25, estimated that some 9 million homeowners are in a negative equity position, meaning they owe more on their mortgage than their home is worth. And in May, some 2.75 million home loans were in default, more than three times the level of defaults in 2005, the recent low point, Mr. Zandi said. "The problem is not going away," Mr. Zandi said. "It is likely to intensify for the remainder of this year and into next." The company can be found online at http://www.economy.com

Meanwhile, Countrywide Financial Corp.'s litigation problems are growing as California and Washington state officials filed separate complaints against the giant mortgage lender for its lending practices. California Attorney General Edmund G. "Jerry" Brown Jr. has sued Countrywide and its chairman Angelo Mozilo and president David Sambol for allegedly using deceptive practices to "push" borrower into complex, risky, and expensive loans they did not understand and could not afford so the company could sell as many loans as possible to Wall Street securitizers at the highest premiums. "The lawsuit seeks relief for California who were ripped off by Countrywide's deceptive scheme," Mr. Brown said. The Washington Department of Financial Institutions has charged Countrywide with allegedly engaging in discriminatory lending and fined the Calabasas, Calif.-based lender $1 million. In addition, the state is seeking to revoke Countrywide's lending license. As previously reported, the Illinois attorney general has sued Countrywide and Mr. Mozilo for allegedly engaging in unfair and deceptive lending practices. Countrywide had no comment on the California complaint, but said, "We continue to be duly authorized to conduct business in Washington and are actively serving homebuyers and existing customers there."

Single-family existing-home sales rose 1.6% in May as buyers took advantage of declining prices in distressed markets and snatched up foreclosed properties, according to the National Association of Realtors. The Realtors reported that sales of previously owned homes rose from a seasonally adjusted annual rate 4.34 million in April to 4.41 million in May. NAR senior economist Paul Bishop said one-third of resales in May involved short sales or sales of bank-owned real estate. He noted that sales have picked up in troubled markets like Battle Creek, Mich.; Sarasota, Fla.; Las Vegas; and Orange County, Riverside, and Sacramento, Calif. The median home price in the West has declined 16% since May 2007. However, sales have softened in stable markets -- such as Portland, Ore.; Seattle; Raleigh, N.C.; and Salt Lake City -- that continue to enjoy solid job growth. Meanwhile, the median price of a single-family home was $296,700 in May, down 6.8% from that of a year ago. The inventory of single-family homes fell slightly in May to a 10.4 month-supply. The NAR can be found online at http://www.realtor.org.

Freddie Mac purchased nearly $35 billion in guaranteed mortgage-backed securities in May, and the size of its mortgage investment portfolio jumped to a record level of $770.4 billion. The government-sponsored enterprise purchased $20.2 billion of Freddie-guaranteed MBS in May and $14.7 billion of MBS guaranteed by Fannie Mae and Ginnie Mae in providing liquidity for the mortgage market and taking advantage of attractive investment opportunities. Freddie's portfolio jumped from $737.5 billion in April to $770.4 billion in May through the purchase of $46.1 billion in MBS and mortgage loans. The Office of Federal Housing Enterprise Oversight capped the growth of Freddie's portfolio in the summer of 2006 when the portfolio held $711.0 billion in mortgage investments, but OFHEO removed the cap on March 1. Freddie Mac can be found online at http://www.freddiemac.com.

While the private-label origination market for mortgage-backed securities has largely failed to revive, resecuritized deals are getting done, an active whole-loan market exists, and the GSE market is relatively favorable, according to panelists at the Securities Industry and Financial Markets Association's due diligence conference. These types of transactions are "the bulk of what [the secondary and securitized markets] will be seeing for the foreseeable future," said Susan Barnes, a managing director at Standard & Poor's. The government-sponsored enterprise market in particular is "moving," and while it is not as large as in years like 2004 and 2005, "the trend is good," said Rick Sorkin, vice president of structured transactions at Fannie Mae. SIFMA can be found on the Web at http://www.sifma.org.

Andrew Davidson & Co., a New York-based provider of risk analytics for mortgage- and asset-backed securities, has announced the integration of its LoanDynamics credit model for U.S. MBS into the Intex desktop system. AD&Co said the integration combines a behavioral credit model with loan-level data with a cash flow and analytical engine through a single flexible interface to allow "quicker, more robust analysis and rich analytical detail." The LoanDynamics Model is already integrated into portfolio analysis systems from Polypaths LLC and FactSet Research Systems and is fully compatible with Intex Subroutines and Intex Wrapper for use through proprietary internal risk management, pricing, or valuation systems, the company said. The model was developed to help investors and issuers better understand the credit and prepayment characteristics of credit-sensitive mortgage loans and securities. The companies can be found online at http://www.ad-co.com and http://www.intex.com.

Freddie Mac has announced the renewal of an alliance agreement with the Credit Union National Association. The alliance provides participating credit unions with a comprehensive set of technological services, mortgage products, and correspondent lending, such as Freddie Mac's borrower outreach initiatives, according to the government-sponsored enterprise. "With the current economic climate, this renewed alliance ensures that credit unions will continue to have options to succeed in the mortgage lending market, including affordable lending solutions to meet the needs of low- to moderate-income borrowers," said Wes Millar, senior vice president of CUNA Strategic Services. The alliance provides expanding execution and mortgage product options; customized learning opportunities, such as assistance and training on low-downpayment mortgages; and technological advantages such as Freddie Mac's Loan Prospector automated underwriting service and a business-to-consumer website for online mortgage lending. Freddie can be found online at http://www.freddiemac.com.

Fasthold Capital Inc., Orange, Calif., has announced the raising of more than $300 million in committed capital to acquire distressed mortgage assets as a principal investor. Fasthold Capital offers mortgage loan acquisition services that provide capital to companies with distressed assets; advisory services for the liquidation of the assets; and asset servicing systems to help homeowners get through the current real estate crisis. "In a time where some people are using the current real estate crisis to take advantage of customers, we have been successful in building a business based on our commitment to dealing fairly and honestly with our customers and successfully completing transactions," said John Duden, managing partner at Fasthold Capital. The company can be found online at http://www.fastholdcapital.com.

U.S. home prices fell nationally by a record 15% in April from the level recorded a year earlier, according to the S&P/Case-Shiller home price index. All 20 of the metropolitan areas tracked by the Case-Shiller index are now showing home price declines on an annualized basis. In 12 of the 20 metropolitan areas, prices have declined for eight consecutive months. Las Vegas and Miami continued to have the most severe home price deterioration over the previous 12 months. In a report with few bright spots, Case-Shiller found that the rate of annual price declines moderated in markets such as Chicago, Cleveland, and Denver in April. "If there is anywhere to look for possible improvement, it would be that the pace of monthly declines has slowed down for most of the markets," said David Blitzer, chairman of the index committee at Standard & Poor's. Separately, the Office of Federal Housing Enterprise Oversight reported that home values fell 0.8% from March to April, based on OFHEO's repeat home sales price index. OFHEO estimates a smaller 12-month decline than the Case-Shiller index, calculating that home values declined by 4.6% from April 2007 to April 2008. S&P can be found on the Web at http://www.standardandpoors.com.