Archive for December, 2009
The mortgage servicing industry completed 271,563 total loan workouts in October, according to Hope Now, the private sector alliance of mortgage servicers, investors, insurers and non-profit counselors.
Workouts included 198,373 repayment plans and 73,190 modifications. At the same time, the industry completed 94,450 foreclosure sales and initiated another 222,107 foreclosure starts.
Total 316,557 foreclosure sales and starts outnumbered modifications more than 4 to 1 and repayment plans about 1.6 to 1. Hope Now attributes some of the slow-down in modifications to the Home Affordable Modification Program (HAMP) sponsored by the US Treasury Department.
Under HAMP, the Treasury allocates capped incentives to servicers for the modification of loans on the verge of foreclosure. Hope Now's reported modifications have slowed as servicers began implementing HAMP, which requires a three month trial period to ensure borrower affordability of modified payments before a HAMP modification is considered permanent.
Servicers are pursuing HAMP modifications before repayment plans — slowing down reported repayment plans — and have to wait through HAMP trials before reporting permanent modifications — slowing reported modifications. Despite the slow reporting of permanent HAMP modifications, the Treasury has said more than 650,000 trial modifications are underway, putting HAMP on track to reach a target 3m to 4m homeowners in three years.
“Our number one priority is to convert HAMP modifications, but also do our best to help borrowers with all solutions available," said executive director Faith Schwartz in a statement. "This sometimes means a graceful exit via short sale or deed in lieu if a borrower has no other options.”
Short sales might become more prevalent among servicers, now that Treasury will offer incentives through the Home Affordable Forelclosure Alternatives (HAFA) program. HAFA will complement HAMP by providing financial incentives to servicers, borrowers and investors that go forward with short sales or deeds-in-lieu of foreclosure, according to a Treasury announcement late Monday.
Currently, Hope Now only reports HAMP activity when trial mods become permanent, creating the appearance of a slow start to HAMP. It remains unclear how many trial mods have become permanent, although the Treasury said HAMP is on track to boast 375,000 permanent modifications by year-end.
Hope Now expects to change its reporting of industry workouts soon to account for activities outside of HAMP. More comprehensive reporting of industry efforts would likely begin in Q110.
Write to Diana Golobay.
The Office of the Commissioner of Insurance (OCI) in Wisconsin waived until Dec. 31, 2011 a requirement that Mortgage Guaranty Insurance Corp. (MGIC) — subsidiary of MGIC Investment Corp. (MTG: 4.14 +6.98%) — maintain a certain minimum regulatory capital to write new mortgage guaranty policies.
It's part of MGIC's plan to continue to write new business partly through wholly-owned subsidiary MGIC Indemnity Corp. (MIC), which was recently capitalized by MGIC with $200m.
Insurance regulators are exercising more discretion in permitting mortgage insurers to continue with new business despite capital shortfalls below required levels.
The Wisconsin OCI also approved a change to MIC's business plan that involves MIC writing new business only in jurisdictions where MGIC does not meet minimum capital requirements or does not obtain a waiver of those requirements from the appropriate regulatory authority.
These actions by the OCI will help MGIC continue to write new insurance on a nationwide basis through MIC, according to a statement by MGIC chairman and CEO Curt Culver.
Mortgage giant Fannie Mae (FNM: 0.00 N/A) previously approved MIC as an eligible insurer through Dec. 31, 2011. MGIC said it is still working with Freddie Mac (FRE: 0.00 N/A) to obtain approval of MIC as an eligible insurer.
Write to Diana Golobay.
[Update 1: includes background on Germany's establishment of Pfandbrief.]
A meeting this week among German government officials and bankers resolved to get commercial banks lending again. One option involves reviving securitization into a more active market through guarantees on portfolio assets, according to one of HousingWire's sources.
The discussion this week centered on fears of a credit crisis in Germany next year, when equity constraints among small and medium enterprises (SME) may be aggravated by a scarcity of loans. The SME sector is interested in investing, but loans are scarce as bankers hold on to capital, the source said on condition of anonymity, since plans are not yet final.
Regulators recognize securitization done under certain well-defined circumstances can be helpful to the overall financial system and broader economy. What remains unclear is the reason for the favoritism for securitization in the country that introduced Pfandbrief in the late 1700s. Germany historically shows a preference for covered bonds over structured finance counterpart securitization.
Government-owned bank KfW Bankengruppe, which serves as an advisor to the German government, has been in discussions over what measures might be taken by the private sector to get banks lending, the source said.
KfW may play a role in guaranteeing, for a fee, certain portions of a bank's portfolio for securitization. HousingWire's source indicated the lender, free to use the capital to make more loans, would keep some accountability for the performance of the pieces guaranteed by KfW.
"It's not a question. It's common understanding the originator of the portfolio would remain with the first loss piece," the source said.
No plans are yet final, but the discussions indicate the government and business sector's response to the consensus that the German public is fed up with seeing the state support banks. The source said banking firms know they need to gain back investor trust and continue lending outside of state aid.
"The public at some point says, 'Let the banks do their job and lend.' So the banking industry is thinking of how to revive securitization" to facilitate higher lending levels, the source said.
Germany's discussion mirrors a migration in the US and leading industrial nations toward less government funding in distressed financial markets and fewer taxpayer-funded bailouts.
Write to Diana Golobay.
As the Federal Housing Administration (FHA) considers raising the minimum credit score requirement for new borrowers to reduce risks to the single-family insurance fund, Fannie Mae (FNM: 0.00 N/A) has increased the minimum borrower credit score from 580 to 620.
Brian Faith, a spokesperson at Fannie, confirmed the minimum hike to HousingWire, adding that the adjustment reflects a careful analysis of borrowers' ability to repay their mortgage obligations over the life of the loan.
“Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period,” Faith said in a statement.
Fannie also reduced the allowable debt-to-income (DTI) ratio to 45% when executing loss mitigation efforts under the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure.
Faith said that high DTI ratio loans also have higher levels of serious delinquency.
“It’s not enough to help borrowers buy a home – we must also ensure that they can stay in the home over the long term,” Faith said.
Write to Jon Prior.
Congress is taking action to help homeowners affected by defective drywall manufactured in China.
The drywall was used to build hundreds of homes during the housing boom and is now known to cause serious structural defects, according to the results of a government task force investigation.
Both houses of Congress approved Concurrent Resolution 197 this week “encouraging banks and mortgage servicers to work with families affected by contaminated drywall and to consider adjustments to payment schedules on their home mortgages that take into account the financial burdens of responding to the presence of such drywall.” The resolution encourages temporary forbearance on mortgage payments to help families afford the costs of additional residency during periods of repair.
The resolution cites that the noxious gases released from the drywall is forcing borrowers out of their homes and into temporary housing at great personal expense and calls on banks and mortgage servicers to help borrowers affected by the drywall.
A second piece of legislation, House Resolution 3854, passed the House of Representatives and was referred to the Senate Committee on Small Business and Entrepreneurship this week. It amends the Small Business Act and the Small Business Investment Act of 1958 that, among other things, would authorize the small business administration to originate loans to homeowners of properties built with Chinese drywall to pay for its repair or replacement.
These are the latest legislative actions taken by Congress to address the Chinese drywall situation. A Consumer Product Safety Commission-led task force, with contributions from the departments of Treasury and Housing and Urban Development (HUD), determined the drywall is the cause of damage to household air conditioning coils, electrical plumbing components and other materials, as well as health problems in residents of these homes.
As HousingWire previously reported, some banks have extended forbearances to affected borrowers, and while some homeowners are looking to their builder for remediation, a Fitch Ratings report warns there may be little recourse against the manufacturers of the drywall.
Write to Austin Kilgore.
The House Financial Services Committee on Wednesday passed HR 3996, which aims to put an end to financial firms considered too big to fail and prevent future taxpayer-funded bailouts by requiring institutions to pay into a "dissolution fund."
The news came as Bank of America (BAC: 7.29 -0.14%), embodying a growing sense of accountability among the US and other leading nations, revealed plans to repay government bailout funds.
HR 3396, the Improving Financial Stability and Enhancing Prudential Regulation, passed the key House panel by a 31 to 27 vote, according to an e-mailed statement from the Committee. It's the ninth bill approved by the panel this year that overhauls financial regulation.
The bill will create an inter-agency oversight council to identify systemically risky firms and subject them to increased scrutiny and regulation. HR 3396 will set up an "orderly process" to dismantle large, interconnected and failing financial firms in a way that minimizes the impact on the financial system and avoids another taxpayer-funded bailout, the Committee said in the statement Wednesday.
The bill aims to hold financial industry and shareholders responsible for the cost of firms' failures.
Any costs related to the dismantling of a failing firm will be repaid first out of the assets of the failed firm at the shareholders' and creditors' expense. Any remaining costs would come out of a "dissolution fund" pre-funded by institutions with more than $50bn of assets and hedge funds with more than $10bn of assets, according to a summary of the bill (available to download here).
The bill would grant the Federal Reserve authority to regulate systemically risky firms, enhance Government Accountability Office's authority to examine the Board of Governors of the Federal Reserve as well as the Federal Reserve banks. The bill also folds the Office of Thrift Supervision and Office of the Comptroller of the Currency into one.
The bill would impose a 5% credit risk retention on lenders for loans that are transferred, sold or securitized.
The Committee's move to end taxpayer-funded bailouts comes as Bank of America plans to repay the full $45bn of taxpayer funds received through the Troubled Asset Relief Program (TARP).
"We appreciate the critical role that the US government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," said CEO and president Kenneth Lewis in a statement Wednesday.
BofA's move to repay government funds mirrors a migration toward less government funding in distressed financial markets.
Following the collaboration of leading industrial nations at the G20 meeting in Pittsburgh, the Economic and Financial Affairs Council of the European Union (EU) will begin scaling back its government-backed state aid to strongly capitalized financial institutions.
The G20 meeting was largely seen as a time when major industrial nations hammered out a global consensus on the future of dealing with economic crises. Leading nations appear to be pushing accountancy toward a universal standard.
Write to Diana Golobay.
For every loan approved, three more loans are deteriorating, according to Lender Processing Services’ (LPS: 16.78 +1.39%) November monitor report.
LPS provides mortgage performance data and analytics. Its November report provides a summary of mortgage industry performance based on data collected through October.
Of the mortgages that were current through December 2008, 2m or 4.02% fell into delinquency or foreclosure by October 2009. Deterioration was most prominent in the Northeast and Northwest, and 31 states have non-current loan rates, or delinquency and foreclosures combined, in the range of 10% in Missouri to 22.7% in Florida, according to the report.
After the Mortgage Bankers Association reported a record high of 14.4% in serious delinquencies last week, LPS reports that total delinquencies climbed another 0.85% through October to 9.4% and were 32% higher than last year.
More optimistically, the roll rate of loans falling further behind remain below the November 2008 peak. Loss mitigation efforts have kept the rate of loans falling into foreclosure down as well. The total US foreclosure inventory rate reached 3.1%, according to LPS.
With the US Treasury Department putting more pressure on servicers to convert modification trials under the Home Affordable Modification Program (HAMP) into permanency, that rate might remain low.
Write to Jon Prior.
Austin, Texas-based financial services provider Amherst Securities Group will expand its offerings with a move into the commercial mortgage-backed securities (CMBS) market.
To that end, 20-year veteran Darrell Wheeler joins the firm as senior managing director and head of CMBS strategy. Wheeler will work out of the firm’s New York City office, effective in early 2010. Amherst, which currently specializes in broker-dealer residential MBS transactions, said its goal is to build a comparable operation in the CMBS sector.
“We are very pleased to welcome an executive of Darrell’s caliber to Amherst,” said Sean Dobson, Amherst chairman and CEO. “He brings unparalleled knowledge of the commercial mortgage-backed securities industry and a stellar track record for providing the most sought-after advice on Wall Street.”
Wheeler most recently served as managing director at Citigroup’s (C: 30.87 +1.61%) global corporate and investment bank and global head of securitized strategy and analysis, overseeing the asset-backed securitization (ABS) research group and served as the company’s lead CMBS strategist. Wheeler’s research team was ranked first in the Institutional Investor's Fixed Income Research survey six consecutive years.
“Just as our clients have relied on Amherst for insight into the turbulent RMBS market, we believe that there is a similar need for access to loan level data, credit analysis and cash flow analytics on commercial securities,” said Amherst president Joseph Walsh. “Darrell is the ideal person to provide that guidance and we expect him to play a critical role in the build-out of our CMBS team.”
Write to Austin Kilgore.
The average interest rate for 30-year and 15-year fixed-rate mortgages (FRM) reached a new record low, according to Freddie Mac (FRE: 0.00 N/A).
Freddie Mac’s weekly survey of mortgage rates put the 30-year FRM at 4.71% with an average 0.7 point, down from last week, when the rate of 4.78% tied the previous all-time record low.
After Bankrate.com’s weekly survey of large US banks and thrifts reached an all-time record low of 5% last week, it rose slightly to 5.01% with an average 0.39 point this week.
Freddie Mac put the 15-year FRM at 4.27% with an average 0.6 point, a new record low, and down from last week when the rate of 4.29% was the previously record low. Bankrate.com put the 15-year FRM at 4.46%, down 1bp from last week and a record low in that survey.
Freddie put the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) at 4.19% with an average 0.6 point, up from last week’s average 4.18%. The one-year Treasury-indexed ARM averaged 4.25% with an average 0.6 point, down from last week’s rate of 4.35%. Bankrate.com put the five-year ARM at 4.52%, also a new record for the survey.
Write to Austin Kilgore.
Chris Saitta, CEO of Equator, formerly REOTrans, has over 25 years of leadership experience in technology and software development. Under his guidance, Equator has affected multiple paradigm shifts in process efficiency and transparency and specializes in the default and real estate owned (REO) industry.
For this episode of In This Corner, Chris talks about how technology fits into the REO space.
HW: Can you tell us about your unique technology platform for managing REOs?
Chris: Equator provides a comprehensive platform that automates and connects the default servicing industry. The platform consists of a highly configurable virtual Workstation and a vibrant e-commerce marketplace. The workstation automates everyone’s day-to-day process while the marketplace enables everyone to work together. The workstation accepts our pre-configured process automation modules. There are modules to automate REO, short sale, deed-in-lieu, negotiated settlement, short refinance, valuation, etc. To your question about REO, currently seven of the top REO volume servicers use our platform and REO module. It’s unique in being the only system that automates everyone’s process while enabling them to work together electronically in a safe and transparent environment. There are roughly 10,000 asset managers, 16,000 vendors and 650,000 real estate agents on the platform handling over 150,000 transactions daily.
HW: It seems that by changing your name recently from REOTrans to Equator you wish to move outside the REO space and into other distressed asset areas, such as short sales. Can you tell us about your strategy and the reasons for doing this? For instance, you host an exchange with close to 800,000 participants, how are you managing to keep your brand and reputation intact?
Chris: When Equator first started our business was focused entirely on REO; there was a very significant gap between what was available and what was demanded. As we began to develop and implement our REO solution we saw tremendous potential and began to develop solutions to move upstream into default. The name change to Equator is in response to this move. At the end of the day we’re not simply a technology company – Equator is a solutions company. It is a direct result of this approach that our brand and reputation are so strong. It is essential to continue to drive innovative and comprehensive solutions which will further enhance the Equator brand.
HW: In the directory of homes, you note a list price. How difficult is it to create an accurate value with these distressed assets?
Chris: Equator is dedicated to providing the best technology solution for our clients. Included in the software are tools designed to assist in the marketing process of these assets. Valuation can sometimes be difficult due to the current instability in the market. The property valuation module enables data to be anonymously culled from our system for real-time competitive comparisons and historical trending. With over 700,000 properties in the database it is the most comprehensive tool currently on the market. The net present value calculator is a new tool included in the loss mitigation module. It utilizes all available information to determine values for a property along various stages of the default process, thus ensuring the servicer can maximize revenue for a given asset.
HW: In the future, or even the present for that matter, can technology be of more help with the servicing of these assets? If so, in what ways? For one, you guys pushed web-based tech over software installation, allowing members to log-on from wherever.
Chris: Technology will play an increasingly important role for servicing these assets. As lenders demand shorter throughput times, servicers will become increasingly reliant upon technology to provide greater efficiencies. Cloud computing is an essential component of increasing efficiency because it allows for companies to better utilize their resources. The platform allows agents, lenders and servicers to work wherever and whenever they have Internet access.
HW: That sounds really useful for those out in the field. But do you see a trend of more and more micro-agents working from home or do you see clients consolidating operations aggressively? If the latter, then how do you sell web-tech over signature software?
Chris: While technology will never replace human interaction in a business, we can minimize the disruption that being apart inherently causes. The most important thing about this technology is that the software itself is only part of the overall solution. Basing our software in a web environment gives it a competitive advantage; it maintains all the features of traditional software without the limitation of having to work from specific machines and locations. Additionally, it allows for all users to work together in a seamless digital environment to further promote collaboration that is impossible using traditional systems.
