Servicing

A study by First American CoreLogic predicts that 1.1 million of the 8.37 million adjustable-rate mortgage loans originated between 2004 and 2006 will end up in foreclosure over a six- to seven-year period.That would be a cumulative 13% foreclosure rate on the $2.2 trillion portfolio. First American CoreLogic predicts that the defaulted loans will account for $326 billion of debt, and that even after the foreclosure and sale of the property, lenders and investors will lose $112 billion. Christopher Cagan, director of research and analytics at First American CoreLogic, said the impact of reset-based foreclosures will be greatest among subprime home loans and loans with low initial "teaser rates."

Wall Street wants to get its arms around rising subprime loan defaults as fast as possible so it can move forward with the least disruption to the markets, according to a loss mitigation firm hired to get a fix on polls of nonperforming mortgages.Jeffrey Taylor said clients that have hired his Orlando, Fla.-based firm, Digital Risk, "realize that they are a big part of the problem because they created the products" that have gotten many borrowers into financial difficulty. "They also realize that if they force lenders out of business [by requiring them to re-purchase delinquent loans], they have nothing," he added. "The message they want to convey to the investors who bought the bonds that are now being downgraded is that 'we know we erred, so here's the methodology we're going to use to project how new loans are going to perform during the next cycle'." Mr. Taylor would not reveal the name of Digital Risk's clients. But he said his firm has been hired to assess what went wrong with $30 billion worth of mortgage-backed securities. "Everything has happened so fast [our clients] don't have the infrastructure to wrap their hands around the problem," he said. "We're in a triage mode right now -- everybody is in a great panic."

Servicers should not start foreclosure proceedings until a borrower has missed three monthly payments of principal and interest, according to a Federal Trade Commission attorney.That is a "key provision" in the Fairbanks settlement agreement, FTC attorney Allison Brown told a National Community Reinvestment Coalition conference. The 2003 settlement spelled out best practices that the FTC expects all servicers to follow. And the consumer protection agency said it does not want to find servicers charging delinquent borrowers a lot of fees and using those unpaid fees as justification for initiating a foreclosure. The FTC is also concerned that some forbearance agreements are unworkable, because the borrowers are expected to make double payments when they resume making their monthly payments. "That is an area we are looking at," Ms. Brown said, as well as "how we can encourage better forbearance practices."

Credit-Based Asset Servicing and Securitization LLC will pay 28% less for Fieldstone Investment Corp., Columbia, Md., under an amended purchase agreement disclosed March 16.According to a statement released by the two firms, C-BASS will pay $4 a share for the struggling nonprime lender, compared with an original purchase price of $5.53. The price is being reduced to reflect "the cost to provide Fieldstone with needed additional liquidity," the two firms said. "This additional liquidity will be provided through the sale to C-BASS, at Fieldstone's option, of securities and mortgage loans owned by Fieldstone." Announced last month, the original cost of the deal was $260 million. C-BASS is a specialty servicer controlled by mortgage insurance giants MGIC and Radian. Fieldstone is a mortgage banking real estate investment trust. It lost $37.2 million through the first nine months of last year.

Delta Financial Corp., Woodbury, N.Y., has announced the securitization of $950 million of mortgage loans through its subsidiary Renaissance Mortgage Acceptance Corp.The co-lead managers of Renaissance Home Equity Loan Trust 2007-1 were Citigroup and Banc of America Securities LLC, Delta said. The company can be found on the Web at http://www.deltafinancial.com.

Touting record new-business volume of $3 billion in 2006, the Federal Agricultural Mortgage Corp., Washington, has reported net income of $29.8 million ($2.68 per share) for the year, down from $47.0 million ($4.09 per share) in 2005.For the fourth quarter, Farmer Mac's net income totaled $7.6 million ($0.70 per share), compared with a net loss of $11.9 million ($1.04 per share) in the fourth quarter of 2005. "Farmer Mac's record business volume for 2006 was attributable principally to its marketing strategies focused on large, high-asset-quality program transactions, backed by increasing numbers of mortgage loans on farmers, ranchers, and rural homeowners," said Henry D. Edelman, Farmer Mac's president and chief executive officer. "These transactions achieve greater protection for Farmer Mac against adverse credit performance, with commensurately lower compensation for the assumption of credit risk and administrative costs, resulting in projected risk-adjusted marginal returns on equity approximately equal to those of other Farmer Mac transactions." The government-sponsored enterprise can be found online at http://www.farmermac.com.

Dozens of credit unions around the country are struggling to untangle their finances from a San Francisco mortgage banker that filed for bankruptcy last month.The Chapter 7 filing by LoriMac Inc. has caused the U.S. Bankruptcy Court to freeze millions of dollars in credit union funds, leaving thousands of credit union borrowers who had their mortgages serviced by LoriMac in the dark, according to a report in The Credit Union Journal, a sister publication to MortgageWire. Steinbeck Credit Union president Mike McHale said, "I see this as the start" of the potential for credit union exposure in the melting mortgage market. Based in Salinas, Calif., Steinbeck had more than $500,000 in mortgages serviced through LoriMac. Roughly $6,000 of its funds was frozen by the courts. It is one of 30-plus credit unions -- most of them small -- listed as creditors for the failed mortgage lender. Most, if not all, of LoriMac's business appears to have been with CUs. Its biggest CU customer was Transit Employees FCU, Washington, which had $17.2 million of its loans serviced by the company.

The rating on University Finance Pass-Through Certificates series 2006 has been downgraded from Baa1 to Baa3 by Moody's Investors Service due to the rating agency's recent downgrade of the debt rating of the University of Quebec at Montreal.The certificates were issued in connection with the construction and permanent financing of a university complex to be constructed on behalf of UQAM across from its main campus. Moody's attributed the downgrade to capital cost overruns, which contributed to a high debt burden, and concerns regarding the effectiveness of governance practices.

When the National Home Equity Mortgage Association merged into the larger Mortgage Bankers Association late last year, the MBA registered a net gain of 77 new members -- but almost half those companies have never paid dues to their new trade master.The MBA said the 37 firms in question likely failed. "They just didn't make it," said Paul Green, the MBA's senior vice president of corporate relations. Mr. Green noted that NHEMA also had its billing cycle last summer -- while the merger was under way. The deal closed in November. NHEMA had 192 members, but 115 were already members of MBA. According to figures compiled by National Mortgage News, at least 30 nonprime-related shops or wholesale platforms have shut down since last year. (See the March 19 issue of NMN for details.)

In a regulatory filing with the Securities and Exchange Commission, Cleveland-based National City Corp. says one of the two mortgage insurance companies covering its home equity loan portfolio has refused to make claims payments.Published reports identified the MI firm as Radian Group. In the SEC filing, NCC said one of the two providers has been paying claims on the lender-paid MI policies promptly, while the other "has been rejecting a reasonable number of claims filed for reasons that National City believes are inappropriate under the insurance contract." National City said that depending upon how the dispute on the MI coverage for the $2.2 billion second-lien portfolio is resolved, it may have to increase loss reserves by an amount in the range of $50 million. In the same filing, National City said the hedging of its mortgage servicing portfolio resulted in a $45 million pretax loss during the first two months of this year.