Servicing

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.

PHH Corp., Mt. Laurel, N.J., has agreed to be acquired by GE Capital Solutions, the business-to-business leasing, financing, and asset management unit of General Electric Co., in an all-cash transaction valued at approximately $1.8 billion.In connection with the transaction, GE has entered into an agreement to sell the mortgage operations of PHH, a prime mortgage originator and servicer, to an affiliate of The Blackstone Group, a global private investment and advisory firm. Under the terms of the merger agreement, PHH stockholders would receive $31.50 per share in cash at closing, representing a premium of 13.3% over the March 14 PHH stock closing price of $27.81 on the New York Stock Exchange. "We are attracted to [PHH's] platform and business model and look forward to working with the PHH Mortgage team to accelerate and enhance their strategic objectives and growth potential," said Chinh Chu, senior managing director at Blackstone. According to the Quarterly Data Report, PHH ranks 11th among mortgage servicers, with $160 billion in servicing.

Saying that the recent sell-off of Countrywide's stock is "overdone," analysts at Friedman, Billings, Ramsey and Co. recently changed their recommendation on the company to "outperform."The FBR analysts said in a report that they are confident Countrywide "will remain among the premier mortgage originators in the country." They also noted that subprime loans make up only about 10% of Countrywide's servicing portfolio. The company recently disclosed a 19% delinquency rate on subprime loans. FBR gives Countrywide's stock a price target of $45 per share.

Freddie Mac has announced that it will release its quarterly and full-year results for the year ended Dec. 31 before the market opening of the New York Stock Exchange on March 23.The government-sponsored enterprise said it will hold a conference call at 8:30 a.m. EDT on that date to discuss the results. Freddie Mac said in a conference call in early January that it expected to post a loss for the third and fourth quarters of 2006. The company estimated that net income would total $2.5 billion for the first nine months of 2006, up from $1.4 billion for the first nine months of 2005, but that it would report a loss of about $550 million for the third quarter. The GSE can be found online at http://www.freddiemac.com.

Congress may have to act quickly to protect subprime borrowers who are in danger of losing their homes over the next 18 months, according to Senate Banking Committee Chairman Christopher J. Dodd, D-Conn."We may need to get some forbearance or something like that to give them a chance to work through their problems," Sen. Dodd told reporters after speaking to the National League of Cities. "Clearly we are looking at what we can do to help out." Before deciding whether predatory lending legislation is needed, the committee chairman told reporters he wants to see how the subprime securities market behaves and what actions federal and state regulators take to correct underwriting standards on subprime loans. If the regulators finally do a "good job" and the market is "working well," that may be enough, Sen. Dodd said.

Mortgage Bankers Association chairman John Robbins has told an industry conference that predatory lending is the biggest and most challenging issue he has faced, but he also accused certain consumer groups of hyping potential foreclosure numbers.At the Regional Conference of Mortgage Bankers Associations in Atlantic City, N.J., Mr. Robbins specifically addressed the Center for Responsible Lending's claim of 2 million foreclosures from subprime loans. He said the largest loss in the modern history of foreclosures was in 2000, but that current foreclosures are less than half that number. Furthermore, 50% of loans using loss mitigation techniques do not enter the foreclosure process. Approximately 86% of subprime borrowers are current on their mortgages, he said. Mr. Robbins also attacked Freddie Mac's plan to require 2/28 and 3/27 loans that it purchases to be underwritten to the fully indexed rate. He said this would create a disparity in the marketplace, and would hit those who need credit the most, especially the borrowers of $1.1 trillion in adjustable-rate mortgages that are set to reset this year. Some of these borrowers will not be able to get out of the products, he said.

Residential Capital Corp., which houses the GMAC-related mortgage units, posted a $651 million operating loss in the fourth quarter due to higher delinquencies and loss severities on subprime loans.For the full year, ResCap earned $182 million, an 81% decline from its profit level in 2005. However, General Motors Acceptance Corp., which includes ResCap, earned $2.1 billion last year, a modest 9% decline from that of 2005. (Approximately $791 million of the $2.1 billion represents a one-time tax benefit.) In a statement, GMAC chief executive Eric Feldstein said, "The sharp downturn in the U.S. mortgage market in the fourth quarter posed enormous challenges for the industry as a whole -- origination volume was down, margins narrowed, delinquencies rose, and pressure on home prices intensified." According to the Quarterly Data Report, GMAC ranks 10th among subprime funders. GMAC-RFC is a major warehouse lender to subprime firms. In November, hedge fund Cerberus Capital bought 51% of GMAC.