Archive for September, 2010
The Treasury Department will require Bank of America, Wells Fargo and JPMorgan Chase to make changes on how they will solicit and determine eligibility for borrowers in the Home Affordable Modification Program.
The Treasury conducts monthly Second Look reviews of all servicers participating in the program. If the review shows a higher than average percentage of modification decisions the Treasury disagrees with or that percentage does not decline over a period of time, it will require that servicer to make solicitation and eligibility changes.
A look at this chart (below), found buried in the August HAMP report, shows the Treasury disagrees with a higher than average number of decisions from JPMorgan Chase and Wells Fargo.
Bank of America is missing from the chart because, according to the Treasury, "other compliance activities were conducted in this time period that included the same processes evaluated during Second Look reviews."
But according to the Treasury, all three were asked to reevaluate loans not offered HAMP mods, submit further documentation, clarify the loan status, and make changes to the process. This includes training, policy clarification, or another action the Treasury mandates.
The three servicers (CitiMortgage was left out) have completed 189,621 permanent HAMP modifications since the program launched in March 2009. That's more than 40% of all 468,058 completed under the program.
Bank of America has offered 410,054 trials and completed 79,859 permanent mods. JPMorgan Chase offered 264,353 trials and completed 60,932 permanent mods. Wells Fargo has offered 255,986 trials and completed 48,830.
Together, the Treasury estimates these three servicers hold more than 724,000 mortgages that could be eligible for HAMP, more than 54% of the entire program.
Tom Goyda, a spokesman for Wells, told HousingWire that the Treasury reviewed 100 loans from each of its five servicing businesses for the above index, but it did not weigh them properly.
One of those divisions, for instance, serviced 84% of its loans but was weighed equally among the others, including one, which reported to the Treasury current loans that were already modified under HAMP and couldn't be solicited for further modification under the program.
A spokesman for JPMorgan Chase told HousingWire the changes were already made but could not disclose details.
Bank of America was not immediately available for comment.
Write to Jon Prior.
Analysts at the Federal Reserve Bank of San Francisco aren't worried about a double dip recession, although they report the chances of one occurring at 50%. They are concerned that even in an economic environment following four consecutive quarters of increasing GDP, things still may not be stable enough to improve other elements in the economy.
Analysts compared the current recovery to others from the past in an Economic Letter released today. The main difference they see between today's recovery and other recoveries is the pace at which conditions are getting better.
"While discussions in the media often focus on the likelihood of a 'double dip,' it is important to recognize that, even if the economy avoids another recession, future real GDP growth may not be strong enough to prevent the unemployment rate from rising," the letter stated. "Conventional wisdom holds that severe recessions are typically followed by rapid recoveries. But more than a year after the end of the most severe recession since 1947, the recovery is proceeding at a tepid pace."
The San Francisco Fed analyzed business cycles over the past four decades as reported in the Chicago Fed National Activity Index (see below).
The index is based on four broad data categories: consumption and housing; employment, unemployment, and hours worked; sales, orders, and inventories; and production and income. As depicted in the chart, the CFNAI recorded extreme negative readings during the recent recession, then bounced back sharply during the second half of 2009. However, in recent months the index shows a stalled rebound.
The index recorded three consecutive negative readings for June, July, and August.
Compared to other recessions (grey areas), the incline has been vastly less steep, barely reaching above zero into positive growth territory.
The San Francisco Fed uses the CFNAI as well as the Philadelphia Fed's ADS Business Conditions Index to predict future GDP growth, which if is at all below potential could send unemployment skyrocketing. For the second half of 2010, the CFNAI model predicts an average growth rate of 1.0%, while the ADS model predicts an average growth rate of 1.9%. The four-quarter-ahead CFNAI model predicts average growth rates through the first half of 2011 of 1.6% and the four-quarter-ahead ADS model predicts 2.2%.
The Congressional Budget Office estimates the U.S. economy's potential annual growth rate over the next five years is 2.1%.
"Comparing these forecasts with the CBO’s potential growth estimate, a standard macroeconomic model would predict rising or sideways movement in the unemployment rate over the next year," the letter said. "All else equal, a higher estimate for potential growth would imply a more pronounced rise in the unemployment rate for a given below-potential growth forecast."
Write to Christine Ricciardi.
The recent foreclosure issues at GMAC Mortgage, now Ally Financial, is opening the company to legal challenges as four state attorneys general offices are now pursuing foreclosure abatements.
Early last week, GMAC put a hold on REO sales in 23 states where foreclosure affidavits were found to be signed without a notary or knowledge of document details due to processing high volumes of defaults — a practice called "robo-signing."
Not only has Moody's Investors Service put the GMAC servicer rating up for review, but now four attorneys general offices are investigating the company.
The California and Connecticut AG offices demanded all foreclosures in the state be frozen until the company can prove compliance with state law. The Iowa AG Tom Miller and Texas AG Greg Abbott opened a civil investigation into foreclosure practices at GMAC. The Illinois AG Lisa Madigan demanded a meeting GMAC to address the issue.
Other state AG offices, where foreclosure levels are high such as Nevada, Ohio, Michigan, and Arizona all told HousingWire that they are aware of the issues but cannot confirm or deny any investigation.
"My office will investigate whether other banks engaged in such practices because these failings involve much more than mere technicalities, as GMAC/Ally has claimed," said the Connecticut AG Richard Blumenthal. "As a consumer advocate and attorney, I am dismayed and shocked that the bank blatantly skirted legal requirements and procedural safeguards to increase the volume and pace of foreclosures."
A report out today by Moody's said it is too early to estimate the legal exposure of these developments. GMAC has said that an internal review revealed nothing factually wrong with the documents other than how they were signed.
"Settlement costs could be minimal, however, if the factual elements of the foreclosures, including the validity of borrower liens, default status, and amount owed, are indisputable. Ally’s capital base provides a good level of cushion to absorb such costs and reserves, if needed," according to the Moody's report.
Ally must maintain a total risk-based capital ratio of 15% and while it still has a cushion to absorb upcoming losses and operational pauses, its reputation is again at stake (Click on box below).
Moody's on Friday just confirmed the GMAC master servicing rating in relation to an issue with how the company was servicing Residential Capital Group loans, only to have ratings go right back on review.
Bill Fricke, vice president and senior credit officer at Moody's told HousingWire the firm will re-evaluate GMAC over the next three months. If the downgrade is made, private and agency investors will know that the loans they've invested in are not being serviced correctly, Fricke said.
"It's about the servicer's reputation," Fricke said. "Servicing is obviously on everyone's radar screen these days. It says something directly to GMAC’s performance as a servicer. Especially, given all the attention servicers are getting these days."
Write to Jon Prior.
Ocwen Financial Corp. said it lost a $12.7 million jury verdict tied to its former bank subsidiary.
Cartel Asset Management brought the case against the West Palm Beach-based mortgage servicing company and Ocwen Loan Services, the successor to its former savings institution, Ocwen Federal Bank. The vendor accused them of misappropriation of trade secrets and violating its contract.
I've always disliked the REIT (real estate investment trust) structure in the belief that it forces a company to operate in a highly unnatural way. Mandatory cash distributions forces most REITs to constantly access capital markets. They seem to be in a constant search for cash. In any case, REITs frequently end up over-leveraged, at least to my liking.
