Servicing

Consumer advocates are urging Congress to amend the bankruptcy code so that homeowners can restructure high-cost loans and avoid foreclosure.The current code protects mortgage lenders, according to the National Association of Consumer Bankruptcy Attorneys, and does not allow the bankruptcy judges to reduce the interest rate or principal amount so that homeowners can successfully emerge from bankruptcy with affordable payments. As a result, more homeowners with subprime loans are forced to walk away from the homes, according to NACBA president Henry Sommer. "Help is urgently needed for hundreds of thousands of American families at risk of losing their home due to abusive home loans," he said. An NACBA survey shows that bankruptcy attorneys are finding that more of their clients have problems involving subprime loans. Half of the respondents said 50% of their clients with homes have mortgage-related problems, while 20% of the attorneys said 75% of their clients with homes have mortgage-related problems. The Consumer Federation of America and the Center for Responsible Lending joined the NACBA in calling for bankruptcy reforms.

With the possibility of accelerating foreclosures this year and next, Congress might consider creating a rescue fund that would allow the Federal Housing Administration to purchase and cure defaulted mortgages, according to a congressional report."While this policy option would include upfront costs," lenders would likely sell those loans at a discount "given the prospect of mass delinquency and foreclosure," the Joint Economic Committee report says. The report notes that former FHA commissioner William Apgar authored the proposal to fund and revamp the FHA to oversee a rescue fund. John Robbins, chairman of the Mortgage Bankers Association, said such a proposal could have a "detrimental effect" on the FHA mortgage insurance fund. The MBA chairman also said the magnitude of the foreclosure problem is being overblown, but that industry is working on solutions to refinance delinquent borrowers. The quickest and most cost-effective way to provide help for troubled homeowners, the JEC report says, is to step up funding for community-based foreclosure prevention programs.

Freddie Mac has announced the pricing of $500 million of fixed-rate noncumulative perpetual preferred stock at $25 per share, with a dividend rate of 5.66%.Freddie Mac will have the option to redeem all or part of the 20 million shares of preferred stock (CUSIP: 313400665) on or after March 31, 2012, at $25 per share plus accrued dividends, the government-sponsored enterprise said. The stock is being offered via a syndicate of dealers headed by Banc of America Securities LLC and Morgan Stanley. Freddie Mac can be found online at http://www.freddiemac.com.

The Homeownership Preservation Foundation, Minneapolis, has received $200,000 in support from Ocwen Loan Servicing LLC, West Palm Beach, Fla.The foundation said the funding will be used in its effort to prevent foreclosures in the United States through its national consumer hotline, 888-995-HOPE (4673), and its website. "The foundation is making a real difference in helping thousands of people stay in their homes, many of those Ocwen customers," said Bill Rinehart, vice president and chief risk officer for Ocwen Loan Servicing. Colleen Hernandez, president and executive director of the foundation, said calls to its hotline are up 30% in the first quarter and "we are receiving more than 300 calls a day from homeowners in trouble." The foundation can be found online at http://www.995hope.org.

The Neighborhood Assistance Corporation of America is planning to conduct protests and mock foreclosures at the homes of Wall Street and mortgage company executives -- demanding loan modifications for subprime borrowers who are facing foreclosure.Subprime adjustable-rate mortgages were "structured to fail," and "we are going to go into their neighborhoods" if they don't stop the foreclosures, NACA chief Bruce Marks said at a Washington news conference. The Boston-based community advocacy group wants the investment banking firms and subprime lenders to restructure the loans so that troubled borrowers get a fixed-rate mortgage at the initial qualifying rate (e.g., a 2/28 ARM with an initial interest rate of 6% would be restructured as a 6% fixed-rate mortgage). NACA plans to start the protest campaign on April 21 by inviting subprime borrowers to its offices in 33 cities to educate them about subprime "scams" that were used to exploit them with loans they could not afford, Mr. Marks said. The group is also pledging $1 billion to refinance victims of predatory lending into affordable mortgages through a commitment by Bank of America and Citigroup. NACA has run a mortgage lending operation for subprime homebuyers since the mid-1990s that offers no-downpayment fixed-rate mortgages at 1 percentage point below the market rate. Now it is refinancing mortgages to prevent foreclosures.

Zacks Equity Research, Chicago, has declared Affordable Residential Communities Inc., Englewood, Colo., its "Bear of the Day" -- a stock expected to underperform the markets over the next three to six months -- for April 10.Zacks said ARC "is valued well above better-positioned peers," though its results improved "slightly" in the fourth quarter as a result of cost-cutting and the sale of underperforming assets. The company's portfolio occupancy "continues to drop, as it appears that ARC's cost-cutting efforts have negatively affected resident retention," the research firm said. Zacks added, however, that fallout from the turmoil in the subprime market "could help ARC and the entire manufactured housing industry in the next year." Zacks can be found online at http://www.zacks.com.

Prepayments on 30-year fixed-rate mortgages in agency mortgage-backed securities climbed 16% in March, in part because of a three-day increase in the business calendar and a seasonal rise in housing turnover activity, according to the Bear Stearns Prepayment Commentary.Fannie Mae 30-year collateral recorded a constant prepayment rate of 11.8 CPR overall for the month, up 1.7 CPR from their speed in February, compared with 10.7 CPR for 30-year Freddie Mac collateral, up 1.4 CPR from that of the previous month. "The cooling housing market is starting to take its toll on discount speeds," said Bear Stearns analysts Dale Westhoff and V.S. Srinivasan. "Adjusted for seasoning, relative coupon and seasonal factors, speeds on discount coupons have slowed 15%-20% from a year ago." Meanwhile, overall speeds for 30-year Ginnie Mae collateral increased by just 6%, although premium Ginnie Mae coupons continued to prepay faster than conventionals "mostly because of servicer buy-out activity, which adds about 5-6 CPR," the Bear Stearns analysts said. Bear Stearns can be found online at http://www.bearstearns.com.

American Home Mortgage, a real estate investment trust based in Melville, N.Y., saw its stock price continue to fall on Tuesday, sliding another 6%.At deadline time its shares were trading at $20.53, compared with a 52-week high of $36.96. On Friday afternoon the publicly traded mortgage REIT forecast lower earnings for the first quarter and full year, citing rising delinquencies on its alternative-A loans, among other things. "While nonperforming loans increased during the quarter, the company did experience a decline in early-stage delinquencies, with loans in early-stage delinquencies lower at the end of the first quarter than at year-end 2006," AHM said in a statement. On Monday, the lender's shares fell 15% to $21.92. The stock market was closed on Friday.

Fannie Mae is becoming more involved in higher-risk loan products, but it needs additional staffing and better information systems to deal with the risks, according to the Office of Federal Housing Enterprises 2006 annual report."Systems permit adequate service to clients for traditional loan products, but their deficiencies impact the enterprise's ability to quickly introduce new products or enhancements," OFHEO says. At the same time, Fannie has new initiatives to become more involved in interest-only, subprime, alternative-A, and negative amortization loans, which are "currently about 20% of the book of business," the regulator said. OFHEO reported that Fannie's issuance of single-family mortgage-backed securities declined by 4.9% to $476.1 billion in 2006, but its purchases of single-family private-label securities increased by 16.5% to $48.1 billion. Freddie Mac's issuance of single-family MBS fell 9.4% to $359.1 billion in 2006, and its purchases of single-family private-label securities fell by 37.1% to $106.3 billion.

Fannie Mae and Freddie Mac are making progress in correcting their systems, controls, and financial reporting, but "they still have much to do," according to the Office of Federal Housing Enterprise Oversight's 2006 report on its examinations of the two government-sponsored enterprises."A key indicator of successful remediation will be the timely filing of annual and quarterly financial statements by each company with a clean audit based on a controls-based audit," OFHEO Director James Lockhart said. OFHEO urges the boards of directors at Fannie Mae and Freddie Mac to continue monitoring management's efforts to remedy internal control weaknesses. The agency says Freddie appears further along in fixing its internal controls. And OFHEO indicates that successful remediation "should permit a return to controls-based auditing and ensure a sustainable control environment for financial reporting." OFHEO can be found online at http://www.ofheo.gov.