Origination

Franklin Credit Management Corp., the Jersey City third-party mortgage servicer, has expanded its operations to include Face-to-Face Home Solutions, a door knocking division that tries to reach delinquent borrowers. Gordon Jardin, Franklin Credit's chief executive, said the unit was started from scratch earlier this year as part of a broader repositioning of the company, which now offers underwriting, due diligence and asset valuations. Franklin had been a subprime lender that $54 billion-asset Huntington Bancshares Inc., in Columbus, Ohio, inherited from its 2007 purchase of Sky Financial Group. The company currently services 32,000 loans, most of them second mortgages, worth more than $2 billion. "We are definitely actively involved in trying to find ways to maximize the returns to Huntington on that portfolio," Jardin said in an interview. Franklin's strategy had been "to maximize cash flow," Jardin said, while Huntington's strategy now is to work out the loans. "I think most companies are trying to determine what their strategy should be," he said. "It's too early to determine how well the performance of loans will be if we modify them," under the Obama Administration's Home Affordable Modification Program. Franklin "has had the beginnings of some success" is reaching delinquent borrowers though it is too early to tell if the contact rate is better than the industry average. Roughly 50% of delinquent borrowers have no contact with their servicer before a home goes into foreclosure. "That's frustrating, because you do have a legal contract, you have an agreement with the borrower and why they can't make a payment often is unclear," Jardin said.

The yield on the benchmark 10-year Treasury was rising as the weekend approached with the rate reaching 3.83%, and stoking fears that the refi boom may get clipped. The yield on the 10-year had reached 3.70% during the recent rate spike but then subsequently had been trading in a range below that point. Contributing to the yield's move to a higher range were employment statistics that remained largely negative but included a job loss figure that was not as bad as expected. This adds to evidence that the economic downturn may be slowly decelerating over the next six to nine months as part of a "troughing" process, Credit Suisse chief economist Neal Soss said in a call to investors Friday morning. When it comes to how this affects housing "the most important thing will be mortgage rates" and how rates affect affordability, said Dan Oppenheim, U.S. homebuilders and building products equity analyst at Credit Suisse. However, he said that the increase in rates to date has not hurt affordability.

Rising interest rates have already impacted mortgage refinancings and could undermine the housing recovery, according to a senior economist at Wells Fargo & Co. "Just as we are hitting bottom in the housing market, there is a lot of uncertainty about how strong the recovery will be," said Scott Anderson, senior economist at Wells Fargo. The May jobs report shows that job losses slowed to 345,000 a month, compared to 700,000 during the winter. "It's a good sign and it bolsters the argument the housing market should bottom in terms of sales and perhaps in starts" possibly in June or July, he said. However, the Federal Reserve is struggling to keep mortgage rates low, he said. Refinancing activity has dropped off. "Home purchase activity could wallow at moribund levels," Mr. Anderson said.

Angelo Mozilo, the founder and former chairman/CEO of Countrywide Financial Corp. — and an icon in the industry for many years — was slapped with a massive civil fraud complaint by the Securities and Exchange Commission on Thursday afternoon, accused of deliberately misleading investors in the company's stock and engaging in insider trading. David Siegal, Mr. Mozilo's attorney released a statement calling the SEC charges "baseless," adding that the lender's risks "were well disclosed to and understood by the marketplace." The SEC also sued former CFC executives David Sambol and Eric Sieracki, accusing them and Mr. Mozilo of "falsely assuring investors" that Countrywide was funding "primarily" prime quality loans and had avoided the excesses of its competitors. The two men could not be reached for comment. Last summer Bank of America bought CFC for a few dollars a share compared to a one-time high of $40. The agency released a memo that Mr. Mozilo wrote in April 2006 where he refers to Countrywide's subprime business as "the poison of ours." According to figures compiled by National Mortgage News Countrywide was the nation's largest subprime lender and servicer during its final years of operation, but had not made a serious run at A- to D lending until the early 2000s. The agency accuses him of selling $140 million of stock from November 2006 until August 2007 while "he was aware of material, non-public information concerning Countrywide's increasing credit risk." In past interviews with NMN Mr. Mozilo maintained that his stock sales were legal and followed the rule of law. In March 2007 he told this newspaper that he was selling the stock in question, noting, "I have almost all my personal net worth tied up in the company." He defended the sales, saying "I have created $25 billion in value for the shareholders. It's been one of the best performing stocks on the New York Stock Exchange. I gave them 98% of the value and took 2%. And they [the shareholders] didn't have to do the work. I did it for them."

In charging former Countrywide CEO Angelo Mozilo with fraud, the Securities and Exchange Commission is zeroing in on the lender's payment option ARM business, a controversial product that Mr. Mozilo initially embraced and then later cursed. According to figures collected by National Mortgage News Countrywide Financial Corp. was the nation's largest POA lender in 2006, a year in which Mr. Mozilo wrote several memos cited by the SEC in its complaint. (CFC was also the largest POA funder in 2007, originating a record $86 billion in these notes which eventually can become negatively amortizing.) In one memo Mr. Mozilo laments that CFC has "no way, with reasonable certainty, to assess the real risk of holding" POAs on its balance sheet. He adds that by putting so many loans on CFC's books "we are flying blind on how these loans will perform in a stressed environment." One loan broker who funded POAs for CFC told this newspaper that the loans were hugely profitable for the company because of all the points it charged on them. When CFC was eventually sold to Bank of America last year it had $80 billion in loans on its balance sheet -- including POAs and second liens. The SEC accuses Mr. Mozilo of knowing how risky these products were but without sharing his opinions with investors. "Concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk," said SEC director of enforcement Robert Khuzami. During CFC's last year of operations, the lender began sending out warning letters to borrowers who were choosing the 'neg am' option on POAs, telling them of the risks.

Mortgage companies cut 4,500 full-time employees from their payrolls in April after a first quarter surge in originations, particularly refinancings, began to lose some steam. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 266,100 positions in April from 270,600 in March. Compared to the same month a year ago employment was down 15%. However, the number for active mortgage brokers rose by 1,200 in April to 74,600. Banks and thrifts reported a 70% jump in originations from the fourth to the first quarter. Fannie Mae and Freddie Mac reported a surge in refinancings in March followed by a pullback in April. Fannie's purchases of refinancings dropped from $77 billion in March to $45.5 billion in April and Freddie's fell from $52 billion to $43.3 billion in April. Mortgage Bankers Association vice president for research Michael Fratantoni said company announcements about hiring have involved "relatively small numbers" compared to the 47% drop in total industry employment since the peak in 2006. "The pace of decline [in industry employment] is slowing but we are still seeing some declines," Mr. Fratantoni said.

Renowned mortgage industry sales trainer Todd Duncan has joined Prospect Mortgage, Sherman Oaks, Calif., as its chief performance officer. In a call with the company's staff, chief executive Ron Bergum said to be the best in class in the industry, the key is to have the "foundational pillars" in place and one of those was sales training and performance. Besides the loan officers, Mr. Duncan will work with Prospect's operational support team and corporate management. During the call, Mr. Duncan said "our team is going to be the best trained group in the industry, bar none," and that Prospect is going to raise the standards of the mortgage industry and that not only the company's staff will benefit but its customers will benefit as well. Mr. Bergum added that Prospect is going to "take the market by storm and we're not asking." Among the acquisitions made by Prospect in the last couple of years are Metrocities Mortgage, the retail mortgage banking branches of IndyMac Bank, Opteum Mortgage and F&T Mortgage. Mr. Duncan will continue to work as a sales consultant for companies outside of the mortgage industry, and also continue his efforts as a business writer and motivational speaker.

One of the few remaining assets in the estate of American Home Mortgage Investment Corp., a Chicago-based thrift, will be sold to The Bancorp Inc., Wilmington, Del. The thrift, American Home Bank, was acquired by Melville, N.Y.-based AHM subsidiary American Home Mortgage Holdings Inc., in October 2006 and was formerly known as Flower Bank FSB. The United States Bankruptcy Court for the District of Delaware approved the deal on May 15; while American Home Mortgage Investment and American Home Mortgage Holdings have filed for bankruptcy protection, American Home Bank has not. The Bancorp gives the purchase price as between $7 million and $11 million. Back in October 2006, American Home needed to make a $50 million recapitalization of Flower after the deal was completed. The Bancorp is the parent company of an online commercial bank. The deal provides the company with an Office of Thrift Supervision charter, which will give it a platform for national operations and support the continued growth of its prepaid card issuing and private client business lines. It will also support expansion of national deposit gathering strategies. The Bancorp expects that following payment of a potential dividend by American Home Bank to its parent, the tangible book value of American Home Bank at closing will not exceed $11 million. The deal still needs the approval of the OTS and the Federal Reserve Board.

GMAC Financial Services said it has priced $4.5 billion of debt guaranteed by the Federal Deposit Insurance Corp. through the agency's Temporary Liquidity Guarantee Program. GMAC, the parent of Residential Capital Corp., the nation's fifth largest mortgage servicer, said the offering will further improve its liquidity position. The securities offering included $3.5 billion of senior fixed-rate notes and $1 billion of senior floating rate notes. The debt comes due in December 2012. In May 2009, GMAC received regulatory approval to participate in the TLGP for up to $7.4 billion. Earlier this year the company received a $5 billion infusion through the Treasury Department's TARP program.

Increasing numbers of corporate credit unions — which service as wholesale banks to retail CUs — are reporting large losses due to their holdings of mortgage-backed securities. According to a report in The Credit Union Journal, corporate credit unions provide liquidity and investment services to the nation's 7,800 regular credit unions. The combination of MBS losses and exposure to their own wholesale bank, U.S. Central FCU, which failed in March because of its MBS holdings, has sent regulatory capital at most of the corporates below regulatory minimums. But because of a regulatory forbearance offered by the CU regulator, the National Credit Union Administration, all of the corporates are now allowed to use their capital levels of last November. Florida-based Southeast Corporate FCU recently reported that charges related to its shares in U.S. Central and its mortgage-backed securities created a $79 million loss for the month of April. And SunCorp FCU, in Colorado, said it restated its 2008 financials to show a $135 million loss for the year. CUJ is a sister publication to National Mortgage News.