Servicing

Homeowners threatened with foreclosure can face serious tax problems if they do not understand the consequences of foreclosure, according to Andrew Housser, co-founder and co-chief executive officer of Bills.com, San Mateo, Calif.Mr. Housser said a former homeowner may be required to pay tax on "cancellation of debt income," which is accrued when a lender agrees to waive part or all of the so-called deficiency balance. The deficiency balance is the amount remaining due after the proceeds of a foreclosure sale are subtracted from the mortgage balance plus the fees associated with the foreclosure and sale. "If you think you may face a CODI tax liability, start talking to a tax professional now," Mr. Housser advised. The company, an online personal finance portal, can be found on the Web at http://www.bills.com.

A RealtyTrac analysis has found that foreclosures rose in 77 of the top 100 metropolitan areas in the third quarter, with California, Ohio, and Florida accounting for two-thirds of the cities with the highest foreclosure rates nationally.The highest foreclosure rates were found in Stockton, Calif.; Detroit; and Riverside-San Bernardino, Calif. Stockton recorded one foreclosure filing for every 31 households in the third quarter, the nation's highest rate among metro areas. Detroit, whose third-quarter foreclosure filing rate was one for every 33 households, saw twice as many foreclosure filings in the third quarter as in the second quarter. In Riverside-San Bernardino, the rate was one filing for every 43 households. Other cities among the top 10 for foreclosure filings were Fort Lauderdale, Fla.; Las Vegas; Sacramento, Calif.; Cleveland; Miami; Bakersfield, Calif.; and Oakland, Calif. Seven California metro areas were among the 25 cities with the highest foreclosure rates.

Fannie Mae's servicers are reworking loans for delinquent borrowers at the rate of 750 a week as part of its effort to bring stability to the housing sector, Fannie president and chief executive Daniel Mudd told real estate professionals gathered in Las Vegas Nov. 13 for their annual convention.The workouts are part of the government-sponsored enterprise's expanded effort to promote sustainable homeownership. Under its HomeStay initiative, Mr. Mudd told the National Association of Realtors meeting, Fannie Mae has also backed new, safer fixed-rate loans for 45,000 subprime borrowers who aren't yet late on their payments, but could be if they waited until their adjustable-rate mortgages reset. But in the face of what he called "the most serious disruption in the mortgage markets in decades," the Fannie CEO said the GSE could do more if it were able to buy more mortgages and its loan limits were raised in more high-cost areas. Mr. Mudd predicted that housing prices will continue to fall throughout 2008 -- and that it "may be years" before price appreciation returns to the "customary" 5% a year. But despite the dire forecast, and fear that another wave of foreclosures is coming next spring, Mr. Mudd said he had no doubt that the housing sector is on solid footing. "I completely believe we are going to get through this," he told the conference. "Beyond the correction, the future of housing looks good."

Fannie Mae and Freddie Mac should be focused on rescuing subprime borrowers as opposed to developing a new line of products to serve the jumbo market, according to the regulator of the two government-sponsored enterprises.The chairman of the Federal Reserve Board recently suggested to Congress that the two GSEs could play a role in securitizing jumbo mortgages. But James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told MortgageWire that the GSEs have no expertise in the jumbo market. "Our view is that at the moment, Fannie and Freddie have their hands full in the conforming loan market -- and in particular the lower-credit-quality portion of the conforming loan market," Mr. Lockhart said in the interview. "That is where they should be concentrating their firepower." The OFHEO director said Fannie and Freddie are doing a reasonably good job in refinancing subprime borrowers that are current on their payments. However, they need to make more of an effort to help borrowers that need loan modifications or partial writedowns. "We will be discussing this with the Fed," he said.

Bank of America -- the nation's second-largest commercial bank -- says it will take a $3 billion writedown to reflect a decline in the value of mortgage securities on its books.Shortly after BoA revealed the charge, Bear Stearns & Co. said it would take a $1.2 billion writedown tied to the declining value of subprime and assets related to collateralized debt obligations. Both announcements came as executives from the two companies gave further details about their third-quarter performance. To date, banks, thrifts and Wall Street firms have taken close to $40 billion in writedowns tied to CDOs and subprime-related investments. Over the past seven years, Bear has been a major buyer and securitizer of subprime loans. BoA's role in funding the B&C market is less clear, though it was an investor in certain CDOs that contained subprime tranches.

Fitch Ratings has downgraded $37.2 billion worth of collateralized debt obligations in 84 structured finance CDOs.The rating agency said the actions followed a review of 55 U.S. and European structured finance CDOs executed on a synthetic basis, and 29 U.S. and Asian structured finance CDOs executed on a cash/hybrid basis. The downgrades were based on continued credit deterioration in the underlying collateral and changes to the default forecasting assumptions of the rating agency's default model, Fitch said. "The updated assumptions reflect increased probabilities of default with respect to recent vintage subprime residential mortgage-backed securities and [structured finance] CDOs," the rating agency said.

The residential servicer ratings of National City Mortgage have been downgraded from RPS1-minus to RPS2-plus by Fitch Ratings.The affected ratings were NatCity Mortgage's residential primary servicer ratings for prime product and for alternative-A product. Fitch said the actions were taken due to the weakening of the financial strength of NatCity Mortgage's parent, Cleveland-based National City Corp., whose rating was recently downgraded from AA-minus to A-plus. The rating outlook for the parent company is negative. Fitch said the downgrade of NatCity was based on "its weakened core financial performance." Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. Fitch can be found on the Web at http://www.fitchratings.com.

The Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of mortgage servicing rights on two servicing portfolios.The first is a $44 million national portfolio of Fannie Mae loans with an 8.56% weighted average note rate and a $45,095 average balance. The portfolio has a 13.80% delinquency rate. The bid deadline is Nov. 16. A second portfolio of $14 million in Fannie Mae of loans from Ohio is also being offered. That portfolio has a 6.403% weighted average note rate, a $78,431 average loan balance, and a 1.68% delinquency rate. Bids are due Nov. 15.

Investor aversion to subprime credits has pushed the issuance of subprime mortgage-backed securities down to $3.8 billion in October -- the lowest level since July 2001, according to a report by Friedman Billings Ramsey.The FBR Investment Management Inc. report shows that the issuance of private-label subprime MBS has fallen by 91% since October 2006, when Wall Street sold $41.9 billion of such securities. Private-label alternative-A MBS issuance fell from $7.9 billion in September to $6.3 billion in October. In October 2006, Wall Street sold $25.8 billion in alt-A MBS. The Structured Finance Insights report also shows that private-label MBS issuance (including prime, alt-A, and subprime) totaled only $19.5 billion in October, down 50% from that of the previous month and 81% from that of a year earlier. FBR can be found on the Web at http://www.fbr.com.

Over 44 million homeowners could see the value of their properties decline by an average of $5,000 due to a nearby subprime foreclosure, according to a new study by the Center of Responsible Lending."The total decline in house values and tax base from nearby foreclosures will be $223 billion," the CRL issue paper says. The Durham, N.C.-based advocacy group warns that minority communities with large concentrations of subprime borrowers could experience more severe declines in property values. The CRL report is based on an academic study that found one foreclosure in a neighborhood could reduce surrounding property values by 0.9%. It is also based on CRL projections that 19.4% of subprime loans originated in 2005 and 2006 will end up in foreclosure and that 1.1 million borrowers will lose their homes. "By any measure, the epidemic of home losses is severe, and will not only harm families who lose their homes, but also nearby homeowners who suffer drops in their property values," the CRL paper concludes. The group supports legislation that would allow bankruptcy judges to restructure mortgages. It can be found online at http://www.responsiblelending.org.