Servicing

The Department of Housing and Urban Development is starting a pilot program in Detroit to purchase Federal Housing Administration single-family loans from lenders after all loss-mitigation options have been exhausted and foreclosure is the next step. "Under this program, we will create means for lenders or investors to sell their nonperforming mortgages before foreclosure to HUD and a joint-venture partner who will be responsible for servicing the loan and helping families stay in their homes," HUD Secretary Steve Preston said. HUD expects to purchase the FHA loans at a "significant discount" so the joint-venture partner can modify the loans and make it more affordable for the homeowners.

Foreclosure filings declined 3% in June but were still 51% 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 252,363 properties in June. "June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings," said James J. Saccacio, RealtyTrac's chief executive officer. "Foreclosure activity slipped 3% lower from the previous month, but the year-over-year increase of more than 50% indicates we have not yet reached the top of this foreclosure cycle." Bank repossessions continued to increase much faster than default notices or auction notices in June, he said. The company reported that Nevada, California, and Arizona again recorded the highest foreclosure rates in June. RealtyTrac can be found online at http://www.realtytrac.com.

Five classes of mortgage-related securities from Bear Stearns Asset Backed Securities Trust 2005-2 have been downgraded by Standard & Poor's Ratings Services. The downgrades were as follows: class M-3, from A-minus to BB-plus; class M-4, from BBB-plus to BB; class M-5, from BBB to B; class M-6, from BBB-minus to CCC; and class M-7, from B to D. S&P also affirmed the ratings on four classes in the transaction. The downgrades were attributed to pool performance that has caused the decline of actual and projected credit support, as delinquencies escalated over the past six months. The collateral backing the certificates originally consisted of a pool of scratch-and-dent mortgage loans secured by first and second liens, S&P said.

Advantus Capital Management, St. Paul, Minn., has announced the launch of a high-yield mortgage investment strategy and the hiring of Dean Di Bias as the portfolio manager to oversee it. Mr. Di Bias was most recently with GMAC-RFC in Bloomington, Minn., where he was managing director and senior vice president of credit portfolio management. "The timing to enter this market is excellent because spreads have widened substantially on residential and commercial mortgage securities rated AAA to BB-minus," said Chris Sebald, executive vice president and chief investment officer at Advantus. "Yield spreads on many mortgage securities are very wide, creating substantial value." Advantus said the securitization markets have been so damaged by fallout from the housing downturn that the company believes premiums to invest in the sector "will remain attractive for some time to come." Advantus can be found online at http://www.advantuscapital.com.

Covered bonds could provide a new source of mortgage funding, Treasury Secretary Henry Paulson says, and he is encouraging the Federal Deposit Insurance Corp.'s efforts to develop a covered-bond market in this country. "As Treasury seeks to encourage new sources of mortgage funding in the United States, improve underwriting standards, and strengthen financial institutions' balance sheets, covered bonds have the potential to serve these purposes and reduce the cost for first-time homebuyers, and existing homeowners to refinance," Secretary Paulson told an FDIC mortgage forum. The FDIC has solicited comments on covered bonds, and the agency is expected to approve a final policy statement at a July 15 board of directors meeting. The Treasury secretary stressed in his remarks that improving the availability of mortgage credit is crucial for a recovery in the housing market. The "single most powerful step" Congress can take is passing a bill that strengthens the regulation of Fannie Mae and Freddie Mac, Mr. Paulson said. He reported that the Hope Now workout initiative is a success in terms of stopping preventable foreclosures. But he said he doubts whether pending legislation that would give the Federal Housing Administration more authority to refinance underwater mortgages would have a "good result" or prevent foreclosures that are "inevitable."

Four classes from three U.S. prime jumbo residential mortgage-backed securities deals issued from 2004 to 2006 have been downgraded by Standard & Poor's Ratings Services. The downgrades were as follows: Structured Asset Mortgage Investments II Trust, class B-4, from B to CCC, and class B-5, from CCC to D; and Structured Adjustable Rate Mortgage Loan Trust series 2005-21, class B9-I, from CC to D, and series 2006-7, class B5-II, from CC to D. The three classes that were assigned a default rating suffered principal writedowns and are not expected to receive their full principal balance, S&P said. The other downgrade reflects "negative projected credit support due to high delinquencies and adverse collateral performance," the rating agency said.

Five classes of mortgage loan pass-through certificates from HarborView Mortgage Loan Trust 2006-12 have been downgraded by Standard & Poor's Ratings Services. The downgrades were as follows: class B-3, from AA-minus to BBB; class B-4, from A-plus to B; class B-5, from A-minus to CCC; class B-6, from BBB to CC; and class B-7, from CC to BBB-minus. S&P also affirmed the ratings on 10 classes from the transaction. The downgrades "reflect a steady increase in the dollar amount of loans in the transaction's delinquency pipeline over the past six months, combined with deterioration in credit support due to realized losses," the rating agency said. The collateral consists primarily of adjustable-rate first-lien mortgage loans. S&P can be found on the Web at http://www.standardandpoors.com.

The IAS360 House Price Index declined 3.2% on a national level in May and was 20.1% below the level recorded a year earlier, according to Integrated Asset Services LLC, Denver. The index tracks monthly changes in the median sales price of detached single-family residences in "neighborhoods" in 360 counties across the United States, the company said. All four U.S. regions designated by the index posted declines in May, "further eroding an already volatile housing market," IAS reported. "The South continues to face the greatest struggle, with a decline of 7.7% for the month and a 19.6% reduction in regional house prices since May 2007." The declines in the other regions were 2.2% in the Midwest, 1.5% in the Northeast, and 1.1% in the West. The company, a provider of default management and residential collateral valuation services, can be found online at http://www.iasreo.com.

National banks need to deal fairly with all struggling homeowners when it comes to deciding who will qualify for loan workouts and who will slip into foreclosure, according to the comptroller of the currency. "It's important that borrowers aren't being foreclosed on more quickly or denied access to modification programs, because of their race," Comptroller John Dugan said. In the past, fair-lending exams used to be focused mainly on discriminatory lending practices. But now with so many mortgages going into default, banks need to make sure that "similarly situated borrowers who default or become delinquent are treated similarly," Mr. Dugan told an OCC compliance conference. The comptroller also noted that some banks made subprime mortgages that qualified for Community Reinvestment Act. And he called on those banks to continue to make "good loans that will fulfill their CRA obligation."

The Federal Housing Administration is moving ahead with the implementation of risk-based pricing for mortgage insurance premiums on July 14, and HUD officials are urging Congress not to block the move. The RBP conversion was announced by the agency back in April. Steven Preston, the recently confirmed secretary of the Department of Housing and Urban Development, said the FHA is moving ahead with the expansion of the FHA Secure program on July 14. The new lending criteria will allow borrowers who have missed two or three payments in the previous 12 months to refinance into FHA-insured loans. The expanded FHA Secure also requires that premiums be priced according to the borrower's individual credit profile. The FHA currently charges a standard premium for all borrowers. HUD officials are concerned that Congress may impose a moratorium on risk-based pricing as part of an FHA modernization bill pending in the Senate. "That would be a very big mistake," Secretary Preston told reporters. "FHA would have to increase premiums across the board for all its borrowers or seek taxpayer funds in October to cover potential losses."