Servicing

Stewart Information Services Corp., Houston, has announced the formation of Stewart Default Services to offer foreclosure services in California, Nevada, and Arizona. SDS will offer residential, commercial, and homeowners' association foreclosure services to banks, mortgage and loan servicing companies, credit unions, government agencies, and private investors in the three states, Stewart said. It will also extend the services to other parts of the country via its "comprehensive attorney network," the parent company said. Stewart said SDS will leverage the resources and knowledge of another Stewart subsidiary, Stewart Title Guaranty Co., by offering services that include loss mitigation, foreclosure processing, title and escrow services, online access to title products, bankruptcy/eviction referral and monitoring, vacant property insurance, and post-sale conveyance. The parent company can be found online at http://www.stewart.com.

A study by Clayton Holdings, an analytics and due diligence firm, has found that 70% of subprime adjustable-rate mortgages that are in default went into delinquency before borrowers faced rate resets on their monthly payments. The analysis of loans tracked by Clayton suggests that, despite all the attention to rate resets, deeper "systemic market failures" are primarily responsible for the poor performance, the company said. Clayton's June early performance snapshot of residential mortgage-backed securities also found that loans originated in 2006 remain the poorest-performing recent vintage. Regionally, the South and West now have the highest rate of delinquent subprime ARMs rolling into foreclosure, Clayton said. The company, based in Shelton, Conn., can be found online at http://www.clayton.com.

Banks and thrifts holding fairly conservative one- to four-family mortgages would see their risk-based capital requirement jump from a 35% to a 100% risk weighting if the borrower missed three monthly payments under an RBC proposal federal banking regulators call the Basel II "standardized approach." Riskier residential mortgages with higher loan-to-value ratios or stand-alone home equity loans that become 90 days or more past due could end up with a 150% risk weighting, according to Federal Deposit Insurance Corp. officials. The FDIC board has approved the issuance of the proposed standardized approach for a 90-day comment period. The Federal Reserve Board was slated to meet June 26 to consider the notice of proposed rulemaking. The regulators have decided to scrap a Basel Ia RBC rule and move toward the standardized approach that could be adopted by most FDIC-insured institutions. The 11 largest U.S. banking organizations are required to implement the more advanced Basel II approach. The standardized approach incorporates the more risk-sensitive risk weightings for mortgage loans in Basel Ia and adds a surcharge for operational risk based on 15% of net interest income. It also imposes a capital surcharge on nontraditional mortgages to address risks associated with negative amortization. Restructured single-family loans would generally fall into a 100% risk weighting.

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.