Origination

An analysis of loan servicing data by the Office of the Comptroller of the Currency has found that loss mitigation actions exceeded new foreclosure starts by a nearly two-to-one margin among subprime borrowers in March. Starting in February, the nation's nine largest OCC-regulated mortgage servicers began submitting some historical and monthly servicing metrics to the agency. Those lenders account for 23 million loans, or about 40% of all outstanding mortgages, the OCC said. The agency said overall credit quality remained "relatively satisfactory and relatively stable" over the six-month period ended in March. While the percentage of loans in the foreclosure process crept upward to 1.23% during that period, the number of new foreclosures peaked in January and fell in March, the OCC said. The OCC can be found on the Web at http://www.occ.treas.gov.

Although the government's mortgage program for military veterans continues to be hampered by a $417,000 loan limit, it is still going like gangbusters, according to the head of the Department of Veterans Affairs' loan guaranty service. In May alone, the volume of loans backed by the VA was up more than 50% over that of a year earlier, Judith Caden told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. Ms. Caden also said that California, a state where practically no VA-guaranteed mortgages were written in fiscal year 2007, is now among the agency's 10 most active states. But despite the resurgence in activity, the agency is unable to help veterans who are looking to the VA as a way out of their subprime loans. Because of what Ms. Caden called "a glitch" in the law, VA borrowers who want to refinance must have a 10% equity stake in their properties and cannot borrow more than $144,000. Calling both requirements impractical at a time when many subprime borrowers in high-cost areas are "upside down" in their current loans, Ms. Caden said her agency favors their elimination. "We'd like to see the limit raised and the percentage go away," she said.

The new head of the Department of Housing and Urban Development says the short seven months he will have on the job is enough time to "make a profound, powerful difference" in what has become the "American nightmare." In his first public appearance since being sworn in, HUD Secretary Steve Preston told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington that "where there's urgency and commitment, there is terrific opportunity." What lawmakers, the administration, and the mortgage business do now to address the rising tide of defaults and foreclosures "can set the market on a firm foundation for future growth," said the former head of the Small Business Administration, who had been on the job at HUD for only four days. Calling on Congress to modernize the Federal Housing Administration and improve oversight of the housing government-sponsored enterprises, he said the "situation demands action now." And noting that the default situation will get worse before it gets better, Secretary Preston asked the industry to "continue to be aggressive" in reaching out to troubled borrowers.

Five classes of subprime mortgage pass-through certificates from two GSAMP Trust transactions have been downgraded by Fitch Ratings. The downgrades were as follows: GSAMP Trust 2002-HE2, classes A-1 and A-2, from AAA to AA; and GSAMP Trust 2002-NC1, class M-1, from AA to A, class M-2, from A to BB, and class B-1, from BBB to C/DR6. Fitch also affirmed the ratings on seven classes from three GSAMP subprime transactions.

Commercial and multifamily mortgage delinquencies rose in the first quarter for most major investor groups but remained near record lows, according to the Mortgage Bankers Association. The MBA reported delinquency rates for the five largest investor groups: commercial banks and thrifts, commercial mortgage-backed securities, life insurance companies, Fannie Mae, and Freddie Mac. The 30-plus-day delinquency rate on loans held in CMBS rose 0.08 percentage points to 0.48%, while the 60-plus-day delinquency rate on loans held in life company portfolios remained flat at 0.01%, the MBA said. The 60-plus-day delinquency rates on multifamily loans held or insured by Fannie Mae or Freddie Mac rose to 0.09% for Fannie and to 0.04% for Freddie. The 90-plus-day delinquency rate on loans held by banks and thrifts insured by the Federal Deposit Insurance Corp. rose 0.21 percentage points to 1.01%, the association reported.

Reverse Mortgage Solutions, Spring, Texas, has rolled out RM Compass, a loan origination system that it called the first front-end product built from the ground up specifically for the reverse mortgage origination process. RM Compass, an Internet-based Application Service Provider software system, is designed for both established reverse mortgage originators and new players, the company added. "This is one of those magical times in our industry that comes along only rarely when a new growth sector, customer demographics, and necessary technology combine to create an unparalleled opportunity for the right companies," said Robert D. Yeary, chairman and chief executive of RMS. This is especially important, he declared, "when you consider that the difference between originating a forward and reverse mortgage is like night and day, because of the former's counseling requirements, an extended 'gestation' period, more disclosures, complex calculations, and more." RMS chief information officer Kevin Gherardi added, "With RM Compass, originations can be fully integrated with a provider's servicing components in a real-time solution that exceeds what previously has been available."

Atlanta-based Equifax and Minneapolis-based Fair Isaac have ended their war over FICO 08 and VantageScore. When FICO 08 was introduced earlier this year, Equifax said it was not ready to support the product because Fair Isaac was suing it over VantageScore. But the two companies in a joint statement said they are now forming a partnership to develop and sell advanced analytics and scoring solutions for businesses and consumers. The statement goes on to say they are working together to accelerate the testing and roll-out of the FICO 08 model for Equifax customers. Finally, Fair Isaac said it will dismiss Equifax as a defendant in the lawsuit against VantageScore LLC and the national credit reporting companies. Richard F. Smith, chairman and chief executive of Equifax, said in the statement, "This new agreement further solidifies our working relationship and allows both companies to provide better solutions to their customers."

Eastern Real Estate LLC and Highfields Capital Management, both of Boston, have announced the formation of a $1 billion joint venture that will acquire high-yield commercial real estate debt and other assets to respond to the dislocation in U.S. CRE capital markets. The companies said the joint venture has been formed by Eastern's principals, Dan Doherty and Brian Kelly, together with Highfields' co-founders, Jonathon S. Jacobson and Richard L. Grubman. Eastern will serve as the joint venture's sponsor and invest its own capital, along with the nearly $1 billion being provided by Highfields. In addition to buying CRE debt, the venture will provide preferred equity and buy high-quality assets, the companies reported. "The joint venture is actively acquiring positions from financial institutions, which are seeking to increase their liquidity and provide alternatives for their capital-constrained clients," they said.

The Securities and Exchange Commission wants the credit rating agencies to publicly disclose the information they use in rating mortgage-backed securities (including information about the underlying mortgages) to provide more transparency for investors and other rating agencies. "That would permit broad market scrutiny, as well as competitive analysis by other rating agencies that are not paid by the issuer," SEC Chairman Christopher Cox said. The proposal approved by the commissioners for public comment would prohibit credit rating agencies from assisting MBS issuers in structuring their deals to get a certain rating. However, it would be acceptable to tell the issuer how much overcollateralization is needed to achieve a triple-A rating, an SEC staffer said. The rating agencies would also have to maintain a history of their rating actions, including default statistics for the initial rating and defaults that occur after a rating is withdrawn. The wide-ranging proposal addresses conflicts of interest, disclosures, internal practices, and business practices of the rating agencies and is designed to prevent another "subprime mess," Mr. Cox said.

Eight classes of subprime mortgage pass-through certificates from two issuers were downgraded by Fitch Ratings on June 9. The affected securities were as follows: seven classes from two Option One deals, and one class from a Long Beach deal. Fitch also affirmed the ratings on over 60 classes from 29 subprime transactions.