Archive for October, 2009
Fitch Ratings downgraded the Insurer Financial Strength (IFS) rating of Assured Guaranty Corp. from double-A to double-A minus, and dropped the IFS rating of Financial Security Assurance from double-A plus to double-A.
The Assured Guaranty rating cut comes as yet another blow to the bond insurer after several months of ratings actions that slashed the monoline from triple-A to double-A. The downgrades have a significant impact on Assured Guaranty's business, since under the terms of monoline operations an insurer can not insure anything with a superior rating.
Fitch’s downgrades reflect a heightened expectation of credit losses. Most of the claims activity from Assured Guranty and Financial Security Assurance stemmed from exposures to second-lien mortgages, according to a release.
But in 2009, Fitch’s expectations fell for certain first-lien residential mortgage-backed securities (RMBS), and because of this, Fitch increased the expected loss estimates related to first-lien RMBS exposures, the rating agency said.
“We are pleased that Assured Guaranty Corp. and FSA remain in the double-A rating category, a designation indicative of significant financial strength,” said Assured Guaranty’s president and CEO Dominic Frederico in a statement. “We believe the one-notch rating downgrades primarily incorporate Fitch's stress loss estimates based on an extremely pessimistic view of the future performance of residential mortgage exposures and point out that Fitch noted our ability to mitigate potential future losses and improve rating agency capital.”
Loss estimates are outpacing growth in paying resources, putting more pressure on Fitch’s revised performance expectations. The companies are focusing on mitigating losses on RMBS exposures, but Fitch reports that these efforts are focused on second-lien exposures where claims are already occurring. Fitch expects the companies to pursue loss mitigation rights on first-lien exposures as claims begin to emerge.
Fitch also downgraded the debt ratings of Assured Guaranty US Holdings and Financial Security Assurance Holdings to single-A negative, and assigned a Negative Rating Outlook.
Frederico said that the removal of the ratings from Rating Watch Negative to the longer-term designation gives more time for more clarity on the direction of the economy and the outlook of the RMBS portfolio versus estimates.
"Despite the ratings uncertainty over the past few months, demand for our guaranty products has remained strong in the municipal market,” Frederico said. “Currently, we are subject to the sometimes conflicting and not readily transparent requirements of three disparate rating entities.”
Write to Jon Prior.
Mortgage fraud risk migrated westward over the last year, as the states with the highest levels of foreclosure activity corresponded with higher fraud risk alerts, according to independent rating agency DBRS' analysis of a recent Interthinx's Fraud Risk Report.
Interthinx’s Mortgage Fraud Index calculates fraud risk based on the frequency of mortgage fraud activity detected in applications processed by Interthinx’s FraudGUARD system.
The Q209 Fraud Index dropped 4% from Q109 but jumped 7% from the year before, according to the report.
Nevada holds the highest level of mortgage fraud risk, followed by California, which has eight of the 10 riskiest metropolitan statistical areas (MSAs), according to the report. Mississippi, Alabama and West Virginia are the three states showing the lowest levels of risk, according to the report.
“There has been a significant geographic redistribution of the states with the highest mortgage fraud risk over the last year,” according to the report.
Of the five states with the highest risk in 2008, only Ohio, which had the second highest Fraud Index last year, remains in the top five for 2009. The report shows that fraud risk is shifting from the rust-belt states, like Michigan, Illinois and New Jersey, and toward the west.
The average increase in the Fraud Index for the four high-risk western states, Nevada, California, Arizona and Colorado, is 43%, while rust-belt states saw a drop of only 8%, suggesting that the redistribution of risk is caused by an increase in fraud in the west, not necessarily a decrease in the rust-belt, according to the report.
The types of fraud shifted in Q209 toward schemes that exploit distressed borrowers. Fraud in property valuation rose 56% from the same period in 2008, which reflects a shift to schemes involving short sales, real estate owned (REO) inventories and refinancing, according to the report.
“The Interthinx mortgage fraud report noted a shift to fraud schemes involving property valuations which will likely cause losses to rise in residential mortgage-backed securities (RMBS) due to the increased use of short sales as a loss mitigation tool and the large inventories of real estate owned (REO) properties currently being held by servicers," according to DBRS' analysts in a statement Tuesday.
"For example," the analysts added, "if the values that are used to determine a fair price for a short sale or REO property are artificially deflated due to fraud, the investor holding the security will incur a higher loss because the value received for the property will be much less than the home is actually worth.”
Occupancy fraud, which correlates to schemes in speculative investments, decreased 25% from 2008 as consumers faced reduced economic circumstances and a depressed market for residential investment and rental properties, according to the report.
Employment and income fraud index dropped 33% as lenders use more income verification from the Internal Revenue Service and a reduced need for consumers to misrepresent income as housing affordability improves, according to the report.
Interthinx projects that regions experiencing high fraud risk in 2009 will experience higher foreclosure rates in the future even if the economic conditions improve. The Fraud Index is poised to rise through 2011, reflecting a “coming wave” of adjustable-rate mortgage (ARM) interest rate resets peaking at the start of 2012, according to the report.
Write to Jon Prior.
Financial Industry Computer Systems (FICS) released the latest version of its online mortgage loan origination software, LPOnline.
The Dallas-based mortgage technology company specializes in developing private-label residential mortgage origination and servicing and commercial servicing technology. The update includes a loan officer module that allows originators to assist borrowers with completing loan applications and determining the best loan options to fulfill their needs.
The software creates “loan plans” to present only the products a borrower is eligible for, filtered based on the borrowers’ loan amount and credit scores. It also has a function that lets originators order credit reports that can be viewed online.
“With today’s tighter underwriting standards, the most profitable lenders are the ones who can quickly and accurately evaluate borrowers and present them with loan plans that fit their financial situation,” said FICS president Susan Graham.
“With LPOnline, the loan application, credit report findings and initial disclosures are simultaneously downloaded into back-office and document management systems to eliminate extra work and maintain data consistency throughout the origination process,” she added.
Write to Austin Kilgore.
First Arizona Savings Federal Savings Bank is creating a residential mortgage origination platform, focused on opportunities in the Western US, with plans to expand nationally.
Jeff Walton, the former CEO of Bear Stearns Residential Mortgage and Greg Russell, formerly a managing director of Hudson Advisors, the asset management operation for Lone Star Funds will head National Residential Mortgage, headquartered in Phoenix.
Walton’s former executive team from Bear Stearns joins him at the new group, as well as Steve Atwood, a former executive at National City Mortgage, who will direct production activities for National Residential Mortgage. Russell will serve in an advisory role to the new platform.
“In launching a new platform, it is imperative to have an experienced Executive Team that has been together for many years with a proven track record of building and running successful mortgage operations,” said Michael Nelson, First Arizona Savings president and CEO.
Write to Austin Kilgore.
Heart Financial Services created a dedicated short sale division to help the Northbrook, Ill.-based specialty servicer’s clients manage the overflow of distressed borrower requests for short sales.
Heart specializes in loss mitigation efforts during late-stage collections and early stage foreclosures. The new short sale division will use a number of technology products used to calculate whether a borrower is eligible for a short sale, field consumer inquiries and guide consumers through the creation of a complete financial and hardship package.
“We originally resisted requests from clients to engage in short sale work because I believed the short sale process was broken and our company could not significantly address the underlying challenges," said Heart president and CEO Gerald Alt.
“We’ve come to appreciate the need of the industry and consumers to have a prompt decision, whether short sales are approved or not. By leveraging our experience in handling well over 1,000,000 borrower contacts in traditional loss mitigation, we can free up vital mortgage servicing and investor resources that can be better spent on approving these sales,” he added.
Write to Austin Kilgore.
Lend America, a Melville, NY-based Federal Housing Administration (FHA) lender, launched a correspondent residential mortgage lending platform this week.
Lend America Mini Ginnie Correspondent will purchase closed loans from select FHA direct endorsed lenders through a bulk acquisition program that uses an online pricing simulator that will speed up transaction times and provide a new option for small and mid-size mortgage bankers, the company said.
“There was a time when loan aggregators and their correspondent lenders were engaged in a healthy interdependent relationship,” said Michael Ashley, Lend America chief business strategist. "However, now the big aggregators are slowly but surely pushing out those very same companies. Relationships are terminated suddenly and without any real basis"
Ashley added: "We feel this is unprofessional and is impacting many mortgage bankers businesses. We have built Lend America Mini Ginnie Correspondent to be an important solution for small to mid-sized FHA direct endorsed lenders who need a quality correspondent lending partner that they can count on before and after funding.”
The minimum bulk pool size for the correspondent channel is $1m and Lend America said it anticipates it will acquire its first pool of loans by October 15. Cenlar Federal Savings Bank will act as sub-servicer for the loans.
Earlier this month, Lend America returned to the wholesale lending space, operating in conjunction with its retail lending operation.
In another initiative to provide funding for small and midsize lenders, Freddie Mac (FRE: 0.00 N/A) announced a new program last week to promote warehouse lending for small and midsize mortgage lenders by offering guarantees to purchase some types of loans, even if a lender fails.
Write to Austin Kilgore.
House prices declined 0.2% from July to August, the second month of declines after a fourth-month-long rally that brought a 2.8% increase earlier this year, reported Integrated Asset Services (IAS).
The last time national home prices were at the August 2009 level was in February 2005, and prices in August this year were 8% lower than the prices in August 2008, the default management and residential collateral valuation service provider said.
Price increases of 0.7% each in the Midwest and Northeast were tempered by declines in the South and West of 0.1% and 1.2%, respectively.
Prices in two counties, San Joaquin County, Calif. and Lee County, Fla., which were already down 50% from their peak, declined another 7% each in August. New York City and San Diego both posted month-over-month increases of 1.3% each.
“Ordinarily, there’s nothing ominous about a slowdown at the end of summer,” said Dave McCarthy, IAS president and CEO. “But these are hardly ordinary times. We know there’s a sizable inventory of bank-owned homes out there that will be listed at some point, and that could ignite a new wave of stress in the housing market.”
McCarthy said a “shadow inventory” of foreclosed homes that aren’t listed and are unsold has the potential to hurt housing recovery.
“When the shadow supply hits the market, home prices will be pressured, particularly in markets with large numbers of foreclosures,” he said.
The IAS index includes Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A)-backed transactions, and Veterans Administration (VA) and Federal Housing Administration (FHA)-insured transactions in 360 counties, nine census divisions, four regions, and the nation average.
Write to Austin Kilgore.
The United States Department of the Treasury is launching, with an official announcement expected next week, a new program to help ailing borrowers escape foreclosure.
The Chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on the Home Affordable Foreclosure Alternatives (HAFA) while speaking at the MBA's 96th Annual Convention going on in San Diego. The official launch is expected in the next week or so.
HAFA already holds the support of Fannie, according to a VP at the agency, Eric Schuppenhauer, who believes the new program allows borrowers in imminent default to "make a graceful exit" from their home. HAFA will keep the stigma associated with foreclosure away from the borrowers, he added, and help keep communities intact.
Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
Borrowers will need to be Home Affordable Modification Program (HAMP)-eligible and Maggiano released some stats for the crowd's consumption. 2,484,783 homeowners have requested information on HAMP. 757,955 HAMP plans were offered. 487,081 trials are underway.
Other additional incentives to the short sale industry are nearly developed. The IRS will soon offer a 4506EZ form that will enable servicers to pre-fill out the information so that it only requires a borrower's signature. It also will include softer language so as to not put potential participants off.
Write to Jacob Gaffney.
Mortgage Outreach Services (MOS) Group, an Irvine, Calif.-based mortgage lender and servicer loss mitigation provider, announced the release of “E-Z Mod,” a loan modification workflow management and tracking system.
MOS Group has worked more than 100,000 borrower cases under the Making Home Affordability Modification Program (HAMP). The new software increases loan-level transparency of modification documents and streamlines file tracking and communication for MOS Group employees and clients. The company said its new product reduces document retrieval time and increases effective submission rates from borrowers in the three-month trial plan phase of the modification.
“One of the biggest challenges we have seen within the HAMP program has been getting borrowers to return the required documents accurately and in a timely manner, and E-Z Mod was created to address that very issue,” said Greg Hebner, president of MOS Group.
“By leveraging this unique technology, MOS Group can help servicers streamline their processes and support the Treasury Department’s goals of assisting as many American borrowers as possible. With E-Z Mod, we can help our clients substantially increase their modification completion percentage while reducing the costs resulting from repeated, excessive and now unnecessary borrower contact on the same loan file,” he added.
Write to Austin Kilgore.
Lender Processing Services (LPS: 16.78 +1.39%) released an update to its Web-based consumer software for electronic signatures of Making Home Affordable Modification Program (HAMP) workouts.
ClosingStream 2.0 complies with Fannie Mae’s (FNM: 0.00 N/A) recently released business requirements for HAMP electronic signature software, LPS said.
The software’s functions also include electronic deliver and signing of borrower qualification documents, trial plan and modification agreements.
“While ClosingStream 2.0 provides servicers with important efficiency gains in the HAMP modification process, borrowers realize significant benefits as well. They can conveniently upload qualification documentation, e-sign program documents and receive executed documents electronically,” said Ron Frazier, president of LPS' LSI division. “This ease-of-use feature reflects the win-win nature of ClosingStream 2.0 for both servicers and borrowers.”
LPS is a Jacksonville, Fla.-based integrated mortgage technology and services firm.
Write to Austin Kilgore.
