Archive for November, 2009
A panel meeting today at the Safeguard Properties National Property Preservation Conference in Washington DC shifted gears to address the "unexpected" jump in unemployment rates.
Unemployment in the United States now stands at 10.2%, somewhat beyond the forecast of economists.
The US Conference of Mayors, a nonpartisan organization that represents cities with populations greater than 30,000, is sending out an industry warning that they expect employment rates to continue to climb in 2010, reaching levels as high as 15% in some municipalities. Servicers in these areas should prepare to face a much heavier distressed asset portfolio as borrowers struggle to cope with lose of income, says Dave Gatton, a director at the firm.
Gatton added that local government received very little amounts of bailout money and will likely not have an infrastructure to support these servicers.
Servicers, investors and regulators will convene later this month in Austin, Texas at a HousingWire-sponsored, invitation-only event — Distressed Servicing 2009 — to discuss industry challenges posed by the growing presence of distressed properties.
Write to Jacob Gaffney.
Financial fallout at mortgage giant Fannie Mae (FNM: 0.00 N/A) continues to develop following the $19.8bn quarterly net loss, with the agency's conservator confirming Fannie may sell as much as $2.6bn of low-income housing tax credits to investors and is requesting another $15bn in support from the US Treasury Department.
The Federal Housing Finance Agency (FHFA) is supporting without objection an effort by Fannie to sell a portion of its Low-Income Housing Tax Credits (LIHTC) to investors. FHFA acts as conservator of both Fannie and brother government-sponsored enterprise (GSE) Freddie Mac (FRE: 0.00 N/A).
FHFA issued a public statement Thursday supporting the transfer of LIHTC investments. More than a year earlier, FHFA in September 2008 issued a statement affirming the importance of the GSEs' LIHTC portfolio. At the time, FHFA indicated a liquidation of the portfolio by either GSE was not intended at the time of conservatorship.
"Since then, in the interest of providing support to the LIHTC market and conserving the assets of the corporations, FHFA has authorized each company to seek utilizations of their LIHTC portfolios provided they met those goals – to be supportive of the market’s valuation of such assets and to recognize value for the conservatorships," said FHFA acting director Edward DeMarco in Thursday's statement.
DeMarco added: "To that end, FHFA has informed Fannie Mae that a possible transfer of a portion of its LIHTC investments to unrelated third-party investors is consistent with FHFA’s ongoing efforts to conserve Enterprise assets and with the Enterprise’s multifamily housing mission."
Fannie indicated in its earnings statement it would transfer "approximately one-half" of the LIHTC investments to unrelated third-party investors. As of September 30, the carrying value of Fannie's LIHTC investments totaled $5.2bn, indicating the amount that would be transferred to investors would come to around $2.6bn.
"Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time," Fannie said in the quarterly earnings statement. "At a specified future date, the percentage of tax benefits the investors would receive would automatically be reduced and the percentage of tax benefits we would receive would be increased by the same amount. In addition, we could have the obligation to reacquire all or a portion of the transferred interests."
FHFA, acting as Fannie's conservator, requested Treasury's approval of the transfer under the senior preferred stock purchase agreement, but had not received approval as of November 5. FHFA also submitted a request to Treasury for another $15bn — to cover Fannie's net worth deficit as of September 30 — through the senior preferred stock purchase agreement.
Write to Diana Golobay.
In January 2010, the global IT services giant IBM (IBM: 190.46 -0.27%) plans to launch a new loan modification software package that will give borrowers more on-hands control of their mortgage modifications.
On display at the Loan Modification Conference this week in Dallas, Texas, the interface provides borrower outreach, loan modification fulfillment and post-modification surveillance for mortgage servicers.
Mark Young, a vice president at IBM, told HousingWire that one major servicer is lined up for the launch in January, and a trial period is currently underway.
“Borrowers can enter their information on the system and, essentially, modify their own loan,” Young said.
The package can perform mail-, phone- and Web-based outreach campaigns to targeted borrowers based on the servicer’s specific criteria. It also determines borrower eligibility for the Home Affordable Modification Program (HAMP), through which the US Treasury Department allocates capped incentives to servicers for the modification of loans on the verge of foreclosure.
The system generates required documentation for trial and final modifications, and it performs verification of income, occupancy and other HAMP factors. It also performs call campaigns to borrowers during the three-month trial period to assess the borrower’s situation and stress the importance of continuing to make payments.
“I can’t say who the servicer is right now for the January release, and it’s too early to give a success rate,” Young said.
IBM jumped into the mortgage industry in October with the acquisition of Wilshire Credit Corp. from Bank of America (BAC: 7.29 -0.14%). Wilshire currently participates in HAMP, with a potential allocated cap of $203m.
Write to Jon Prior.
The delinquency rate for commercial loans in California slipped 3bps from 0.26% to 0.23% in Q309, according to a survey conducted by the California Mortgage Bankers Association (CMBA).
The survey spans 16 mortgage banking firms and more than $55bn of commercial and multi-family loans. Of the 6,453 loans surveyed, 19 had fallen into delinquency.
The largest of the 19 delinquent loans is a retail property in Chula Vista, halfway between San Diego and Tijuana. That $33.1m loan rolled into foreclosure.
More than $26bn in multi-family loans, or 0.07% of the total multi-family serviced amount, dropped into delinquency – a decrease from 0.13% in Q209. The delinquency rate increased for office buildings, reaching 0.48% from 0.23% in the previous quarter.
The decrease in the California’s rates comes after reports of rising delinquencies in commercial mortgage-backed securities (CMBS) from both Barclay’s Capital and Realpoint.
Write to Jon Prior.
The Federal Reserve Bank of New York bought $16bn of mortgage-backed securities (MBS) from housing finance agencies Freddie Mac (FRE: 0.00 N/A), Fannie Mae (FNM: 0.00 N/A) and Ginnie Mae in the week ending November 4.
The Fed bought $3.27bn from Freddie, $12.55bn from Fannie and $175m from Ginnie. For the first week in months, were no MBS sales listed in the week ending November 4.
The weekly data brings the Fed's total purchases to $993.13bn, according to weekly analysis by Barclays Capital. Of the net purchases, Fannie issued 59% of MBS while Freddie issued 33% and Ginnie issued the remaining 8% of MBS the Fed has bought so far.
It marks a noticeable slowing of the weekly purchases ahead of the program's anticipated conclusion at the end of Q110.
Write to Diana Golobay.
Ocwen Financial (OCN: 13.96 +1.53%) reported a $42m net loss, or $0.51 a share, in Q309, compared to a $15m net income in Q308.
A $50.6m one-time tax expense from the spin-off of its technology and business outsourcing line, Ocwen Solutions, cut into the $23.5m in pretax income for Q309.
Income for Ocwen Financial’s servicing operations dropped 39.1% from Q308 to $17.7m. Lower unpaid principal balances (UPB) and a decrease in revenues associated with loan modifications under the Home Affordable Modification Program (HAMP) drove the losses.
Ocwen is set to receive up to $655.9m in potential incentive payments through HAMP, a program in which the US Treasury allocates capped incentives to servicers for the modification of distressed loans. The incentive amounts include portions to be distributed from the servicer to the participating borrowers and lenders/investors.
Ocwen offered 10,537 loan modifications under HAMP in Q309, an increase of 109%. As of September 2009, 4,731 HAMP trial modifications were active in Ocwen’s portfolio. A smaller amount of trial modifications offered in Q209 reduced the number of completed modifications in Q309, according to the earnings report. As of October, Ocwen touted 13.9% of its HAMP modifications had rolled from the three-month trial stage into permanency.
Ocwen added $4.4bn in UPB of loans serviced under a special servicing agreement in August 2009. Ocwen also entered into a subservicing agreement in October 2009, adding $9.7bn in UPB of loans.
Ocwen’s CEO William Erbey said Ocwen does not recognize revenue on delinquent loans until they become current, either through modifications or sold as real-estate owned (REO) property. That revenue is deferred instead of lost, but all expenses are recognized, he said.
“Therefore, there is a significant opportunity for further increases in revenue and reductions in the level of assets dedicated to the business by reducing the inventory of delinquent loans,” Erbey said.
Erbey added that in October, and for the first time since HAMP launched in March 2009, delinquencies as a percentage of the portfolio declined.
Write to Jon Prior.
In its first two months of operation, PennyMac Mortgage Investment Trust (PMT: 17.75 +0.06%), a newly formed mortgage real estate investment trust (REIT), invested nearly $70m in private-label — or non-agency — mortgage-related securities.
The REIT's initial investments produced $816,000 of total revenues, offset by management fees and other expenses that brought results for the period ending September 30 to a net loss of $730,000 or $0.04 per share.
“In PMT’s first two months of operations, our manager reviewed residential whole loan and securities portfolios with cumulative unpaid principal balances of over $6.9bn and bid on several of those portfolios at levels consistent with our yield requirements," said chairman and CEO Stanford Kurland. "While some market participants have been willing to accept lower yields and bid more aggressively, we still believe that it is in the best interest of our shareholders over the long term to remain patient in order to maximize the returns from our long-term investment opportunities."
The REIT is pursuing high-yield investment opportunities primarily in residential mortgage loans and mortgage-related assets that should provide attractive, long-term, risk-adjusted returns. As of September 30, the company invested $69.5m of proceeds from its equity offerings in residential mortgage-backed securities (RMBS) with an aggregate unpaid principal balance of $72.9m.
The company acquired these RMBS pending the anticipated reinvestment of the proceeds in suitable pools of mortgage loans or longer-lived, higher-yield MBS. The securities PennyMac acquired are backed by non-agency Alt-A, subprime and prime jumbo loans. The securities are currently cash-flowing, senior priority securities with a weighted average remaining life of about 1.5 years and a weighted average yield of 7.13%.
More than 53% — or $36.4m — of the REIT's initial investments acquired non-agency Alt-A RMBS, while nearly 25% — or $16.9m — of its investments acquired non-agency subprime RMBS. The remaining 22% — or $14.7m — was invested in non-agency prime jumbo RMBS.
"Currently, our manager is reviewing over $1.9bn in unpaid principal balances of residential whole loan and securities portfolios, and we expect that the volume of troubled residential mortgage loans available for sale will continue to grow," Kurland said. "Additionally, our manager continues to build a conduit operation that could potentially allow us to capitalize on current market opportunities to provide small mortgage lenders an outlet for their newly originated mortgage loans.”
Write to Diana Golobay.
American Home Mortgage Servicing Inc. (AHMSI) is filing a "pre-emptive" lawsuit contesting allegations made by the Ohio attorney general this week.
AHMSI said it received a letter from the Ohio attorney general’s office, claiming its mortgage servicing — including customer service, loss mitigation and loan modification business practices — may be in violation of Ohio’s Consumer Sales Practices Act.
“Although we respect the attorney general’s commitment to serve the people of Ohio, we are convinced that these allegations are entirely without merit, and intend to defend ourselves vigorously against them,” said AHMSI executive vice president and chief legal officer Jordan Dorchuck. “Rather than wait to be named as a defendant in a suit that AHMSI considers to be rash and without merit, we elected to petition an Ohio state court for a declaration that AHMSI’s servicing practices are fully compliant with Ohio law.”
Based in Coppell, Texas, a suburb of Dallas, AHMSI was founded in April 2008 and employs 3,000 individuals. It has a servicing portfolio of more than 500,000 residential mortgages, including about 17,000 in Ohio, the company said. It did not originate any of the loans it currently services.
According to a release from Ohio attorney general Richard Cordray, a suit was filed against AHMSI on Thursday, alleging violations of the Ohio Consumer Sales Practices Act, including incompetent and inadequate customer service, failure to respond to requests for assistance, failure to offer timely or affordable loss mitigation options to borrowers and unfair and deceptive loan modification terms.
“For far too long there has been little to no accountability for those who take advantage of the dire circumstances of home foreclosure,” said Cordray. “The acts of some mortgage servicers have gone beyond the point of being negligent — they have become predatory financial practices and in Ohio, they won’t be tolerated.”
Write to Austin Kilgore.
Fannie Mae (FNM: 0.00 N/A) posted a net loss of $19.8bn, or $3.47 per share, in Q309, compared with a net loss of $15.2bn in Q209, according to a Securities and Exchange Commission (SEC) filing.
The results were impacted primarily by $22bn in credit-related expenses, which substantially offset revenue of $5.9bn, Fannie said. The Q309 loss included $883m in dividends paid on senior preferred stock.
Fannie’s year-to-date losses totaled $58.1bn, including $1.3bn in senior preferred stock dividends, for the first nine months of the year. Losses were primarily driven by credit-related expenses of $61.6bn, including a $41.4bn build up of loss reserves, other-than-temporary impairment of $7.3bn and fair value losses of $2.2bn. For the first nine months of 2008, net losses were $33.5bn.
Fannie said as of the end of Q309, it had 487,000 trial modifications in progress through the Making Home Affordable Modification Plan (HAMP) and it has met the Treasury Department’s goal of 500,000 modifications in process by November 1.
Total loan workouts for Q309 totaled 49,000, including 28,000 loan modifications, compared with 41,000 workouts, including 17,000 modifications, during Q209.
“Even though the volume of trial modifications that we have initiated on Fannie Mae loans under the Home Affordable Modification Program has been substantial, a low percentage of our trial modifications had converted into completed loan modifications as of September 30, 2009,” Fannie Mae said. “One reason is that activity under the program has been increasing over time, so that many loans have not had enough time to complete the trial modification period prior to September 30, 2009.”
Also on Thursday, Fannie announced a new program that will allow new deed-in-lieu program that allows the borrower to sign a lease to rent their home from Fannie Mae in exchange for the voluntary transfer of the property back to the lender.
Write to Austin Kilgore.
Restructuring plans on a mortgage, whether in the form a forbearance, modification or short sale, have a relatively insignificant effect on the consumer’s credit score, said Sarah Davies, vice president of VantageScore, at the Loan Modifications Conference now underway in Dallas, Texas.
VantageScore measures the generic consumer’s credit score and his or her likelihood of slipping into 90-plus day delinquencies on a scale of 501 to 990. Three of the top 10 loan originators and eight of the top 25 financial institutions in the industry use VantageScore’s services.
If a servicer reduces a consumer’s original loan amount from 10-to-30%, the consumer’s credit score is only increased by three to 18 points, depending upon the consumer’s initial standing. Borrowers in the top-tier of credit scores, averaging an 862, receive only a three-point increase. Lower tier borrowers, in the 625 range, can receive an 18-point jump.
The credit score increases because the total amount of debt owed is reduced, and the borrower becomes more reliable – and risk deflates, Davies said.
However, foreclosure and bankruptcy can more severely affect the consumer’s credit score. If a borrower, who maintains good credit, is foreclosed, his or her credit score can decrease by as much as 140 points. Bankruptcy for someone in good credit standing results in a reduction of 365 points from the consumer’s credit and a mark on the file for seven to sometimes 10 years, Davies said.
“Delinquency on a mortgage account has a far greater negative impact to credit scores than loan modifications,” Davies said.
Loan modifications cause a small change in the score unless the lender establishes a new loan as part of the restructure. Credit scores take the biggest hits from short sales, foreclosures and bankruptcy, but if a consumer can bring delinquent accounts to a current status, his or her score can recover in as little as nine months, Davies said.
“When you can, let’s avoid bankruptcy,” Davies said.
Write to Jon Prior.
