Archive for February, 2011
The servicing industry needs to update its technology to deal with the high level of homes in foreclosure or seriously delinquent, according to a panel at the Mortgage Bankers Association's national servicing conference in Grapevine, Texas .
Diane Pendley, managing director at Fitch Ratings, said the servicing programs for loans sold to government-sponsored enterprises Fannie Mae and Freddie Mac vary greatly from private servicing platforms. That adds to the problems currently facing servicers when trying to complete a modification, she said.
John Harris, assistant vice president for foreclosure bankruptcy with MetLife Home Loans, said another difference is the trial period borrowers with loans backed by GSEs go through as opposed to the no trial period for other loans. He wondered why some people — roughly 10% to 20% — complete the three-month trial and then do not remit the proper paperwork to complete the modification.
Peter Muriungi, senior vice president, special portfolio management strategies, at GMAC ResCap, said there is borrower confusion and backend infrastructure problems at servicers that hinder many modifications.
Joe Dombrowski, executive consultant at Fiserv, said the servicing industry was caught somewhat flat-footed in regard to using technology properly to meet the needs formed by the housing crisis.
"The real challenge is not only building a database but importing the data from borrowers," applying the new rules to that data and striping it out for the end-user, Dombrowski said.
He said there's some consternation in finding funding for this type of technology and then dealing with the rapidly changing regulatory and compliance environment.
"There's been a real sea-change the in the last 18 months, and technology is just now catching up," he said. "But I expect to see a lot of interesting changes in the next six to 10 months."
Wise said servicers do struggle a bit with imputing all the changes in borrower data after a loan modification is complete, as some of the process is automated but much is still entered manually, and this varies from shop to shop.
REALIZING LOSSES
When and how to properly account for realized losses created by principal forgiveness also appears to be causing some confusion for servicers and investors alike.
Carla Wise, executive vice president for residential loan servicing at Aurora Loan Services, said some industry participants advise recording the losses immediately while others believe the loss can be carried and treated as a forbearance.
"But this proves tricky for the bondholders," Wise said. Investors at the top of the waterfall don't want to see the loss recorded immediately while those at the bottom probably do, she said.
"You have to read your securities documents to see how to identify and report the loss," Wise said. But many pooling-and-servicing agreements don't include as much, so servicers many need to attorneys to figure it out or the company needs to decide how it plans to treat these cases.
"Or you could be sued by any of the layers of bondholders," Wise said. "This is something our industry has been wrestling with on the non-GSE side of the business for some time."
Ali Haralson, chief operating officer of Specialized Loan Servicing, said she sees many significant structural differences in the PSAs her firm processes, which has created a huge challenge.
Haralson said Specialized Loan Servicing uses its own application to analyze the various data points and reach the best decision for the borrower, lender and investor. She also said the speed in which a servicer can reach a delinquent borrower and complete a modification greatly improves the ability to return the mortgage to a performing loan.
Write to Jason Philyaw.
Tags: Fannie Mae, Fitch Ratings, freddie mac, MBA, MetLife, mortgage modifications
Posted in Servicing/Default, Top Stories | 2 Comments »
The Treasury Department has begun implementing new enhancements to the Home Affordable Modification Program that will address borrower concerns and may give it a chance to succeed, the program's architect Laurie Maggiano said Thursday.
Maggiano is the director of policy at the homeowner preservation office inside the Treasury. But in 1999, she was recruited by the Department of Housing and Urban Development to design and implement the current Federal Housing Administration's loss-mitigation program, which was considered a failure through its first two years. In its third and fourth year, modifications through the program passed foreclosures, and it was eventually called a success.
Maggiano said that as HAMP enters its third year in March, servicers are being pushed to excel in the program just as before. Maggiano made her comments at the Mortgage Bankers Association's servicing conference in Grapevine, Texas.
"You won't see any major new programs coming out," Maggiano said to applause. "We may tweak around the edges, but our primary objective in 2011 is excellence in the program we have. You have changed your systems at great agony. But we are ready to execute and execute really, really well. Borrowers have been jacked around the last few years. We need to improve that."
There have been roughly 579,000 permanent modifications completed through HAMP since it launched in March 2009. But because of procedural backlogs and early promises of reaching between 3 million and 4 million homeowners, the program has been deemed a failure.
On Feb. 1, the Treasury implemented a new escalation program to give borrowers denied a modification or trapped somewhere in the evaluation process to raise concerns directly with Treasury employees. Each participating servicer is required to implement escalation teams that report to the Treasury how many complaints they received and when they replied to them.
Many borrowers complain of endless hours spent faxing documentation back and forth between the servicer and being denied modifications without an explanation. The Treasury set up two call centers, one in Dallas at the Fannie Mae HAMP Solution Center, where trained personnel can help borrowers find that explanation.
The Dodd-Frank Act requires that servicers who deny a modification through HAMP because of a negative net-present value result must provide every input into that test. A negative NPV test means the investor in the mortgage would receive less cashflow with a modification than without it.
If a borrower finds any mistakes in the inputs given to them after denial, they can call this center that opened in February.
"If a borrower can prove income was wrong, a ZIP was wrong, they have ability to appeal for reevaluation," Maggiano said. "Call center employees can short circuit these appeals if they see it would be negative anyway."
The Treasury is also putting together an NPV portal for servicers and borrowers to use on its website. It should be up in mid-May. However, reevaluation is not free. If a borrower raises concerns over the appraisal, he or she must pay the servicer $200 to get a new appraisal, Maggiano said.
Together with more than $7 billion in unemployment assistance coming this year through the Hardest Hit Fund, Maggiano was confident that the program will turn around.
Still, the program has come under fire from not only industry analysts but its watchdogs, the Congressional Oversight Panel and a recent report from the Special Inspector General for the Troubled Asset Relief Program. Neil Barofsky, who recently stepped down from his position at SIGTARP said the program's failures have been "devastating" and needed to be retooled. Republican lawmakers even went so far as to submit a bill that would defund HAMP.
Maggiano and many from Treasury have pointed out that many private modifications, which outnumber HAMP mods nearly four to one, are seeing improvements in redefault rates on those loans because they were modeled after HAMP. In 2008, 60% of private modifications fell into 60-day delinquency six months later. But in 2010, that percentage dropped to 21%.
"You think just maybe that big government standing behind servicers telling them to use this model led to more borrowers having more sustainable and more affordable mortgage agreements," Maggiano said.
Still, both Maggiano and Larry Gilmore, the CEO of Hope LoanPort, the technology provider for housing counselors working directly with the Treasury, said HAMP has experienced difficulties and will not reach everyone.
"This program was greatly challenged by documentation problems," Maggiano said. "And we're delighted that Hope LoanPort is as successful as it is."
Gladys Moure, vice president of internal audits at the Florida-based servicer Bayview Loan Servicing, said the Treasury has good intentions with its changes, but that it has been a struggle implementing the program as it is.
"By the time we brought everything up to speed, we've gone through our eligible portfolio," Moure said. "But these changes will be for the long haul. We have, and always will, do modifications."
Write to Jon Prior.
Follow him on Twitter: @JonAPrior
Tags: FHA, foreclosure, HAMP, HUD, modification, NPV, Treasury Department
Posted in Servicing/Default, Slider, Top Stories | 18 Comments »
The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars.
Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said.
Posted in Around the Web | 1 Comment »
The Department of Housing and Urban Development plans to release new guidance this year on personal property evictions.
William Collins, mortgagee compliance manager for HUD, spoke at the Mortgage Bankers Association's servicing conference Thursday in Grapevine, Texas. He said HUD recognizes how sensitive an issue personal property eviction can be and that servicers need some sort of defense when dealing with this issue.
Personal property involves things that a homeowner may have left behind in the home after vacating it, anything from clothes to furniture and other personal belongings. Servicers have said they need more guidance on what they should do with such property.
"We understand it is a problem, and that's why we're changing our guidelines," he said.
The anticipated guidance will estimate a dollar amount that should be spent on storage services for 30 and 60 days. Past that limit, servicers are allowed to convey property.
HUD updated property preservation guidance in a mortgagee letter last year, requiring servicers to remove interior debris of a property and leave it in broom-swept condition. The pending guidance is a followup to last year's mortgagee letter.
"We're getting more personal property complaints than ever before," commented Alan Jaffa, chief executive officer of preservation company Safeguard Properties. "The issue becomes what is personal property and what is debris?"
HUD does not plan on releasing guidance in response to this question. Both Jaffa and Collins agreed it is ultimately up to the servicer to determine the difference. Marc Hinkle, vice president of loan servicing at PHH Mortgage and moderator of the panel, said his firm uses common sense to identify debris from personal property.
"If it's a working grandfather clock, it's probably not debris," he said.
HUD said Thursday it plans to release guidance soon concerning other property preservation issues including the Protecting Tenants at Foreclosure Act. Currently, HUD will not take over properties that are occupied, which leaves the servicer to act as a landlord when a rental property is in foreclosure. The organization is considering changing that standard for tenant-occupied properties with leases exceeding 12 months, but it has not formally decided.
A Federal Housing Administration representative, who was not formally speaking on the panel, said that properties with leases less than 12 months long will receive a pending acquisition letter under the new guidance. This pending acquisition letter will include cautionary language so that tenants understand they will not be evicted immediately. The FHA will also be ramping up its cash-for-keys efforts, she said. Under such a program, the occupant receives a cash payment in exchange for surrendering the keys and vacating.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: Department of Housing anf Urban Development, Federal Housing Administration, HUD, Mortgage Bankers Association Servicing conference, personal property eviction, PHH Mortgage, Protecting Tenants at Foreclosure Act, Safeguard Properties
Posted in Servicing/Default, Top Stories | 1 Comment »
Mortgage servicer Ocwen Financial Corp. (OCN: 13.81 +0.44%) saw its fourth-quarter profit rise 5.3% as the company reported a drop in loan delinquency rates and a $237-million decline in expenses paid on servicing advances for the period.
Even still, Ocwen's acquisition of HomEq Servicing in September reduced its fourth-quarter profit, with Ocwen incurring $17.5 million in closing and transitional expenses.
Despite those costs, Ocwen posted a profit of $9.9 million, or 9 cents per share, on revenue of $113.2 million for the fourth quarter. That's improved from 2009 when Ocwen's 4Q earnings hovered at $9.4 million, or 9 cents per share, on revenue of $72.7 million.
On the servicing side of its business, revenue rose 57% in 4Q, the firm said.
Meanwhile, the total unpaid principal balance on loans serviced by Ocwen jumped to $73.9 billion in December, up from $50 billion last year.
News of Ocwen' 4Q profit arrived as it announced plans to sell mortgage servicing rights that it had acquired just last year through its purchase of servicing firm HomEq Servicing. Those MSRs will be offloaded to a newly formed corporation — Home Loan Servicing Solutions, which was incorporated by Ocwen's chairman of the board, William Erbey, in early December.
Home Loan Servicing Solutions announced plans this week to raise money for the transaction through a $316 million public offering.
Going forward, the West Palm Beach, Fla.-based company does not expect additional material expenses from its HomeEq line of business after this year, according to its earnings report.
On a positive note, Ocwen said it was able to reduce the servicing advances it paid out by 10% in 4Q. It also modified 19,999 loan modifications — 20% of which were adjusted through the government's Home Affordable Modification Program.
Ocwen also improved its debt situation by making a $135 million voluntary prepayment on a senior secured term loan.
For the entire 2010 fiscal year, Ocwen posted a profit of $38 million, or 38 cents per share, compared to a profit of $300,000 in 2009. Meanwhile, the company's annual revenue fell to $360.3 million in 2010, down from $380.7 million a year earlier.
Write to Kerri Panchuk.
Tags: loan delinquencies, mortgage servicing, Ocwen
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
Mortgage Bankers Association Chief Economist Jay Brinkmann detailed the underlying speed bumps for housing recovery Thursday, and warned regulators that new rules in lending and servicing may only add to the problem.
Brinkmann gave a presentation at the MBA Servicing conference in Grapevine, Texas, starting out with optimistic views on employment, which has been on the rise since just before 2010 and should continue in the year ahead. In January, the unemployment rate fell to 9%.
"These aren't the big improvements you would like to see, but we are no longer heading in the wrong direction," Brinkmann said.
Other than unemployment, the overhang of 8 million homes either on the market for sale or trapped somewhere in the foreclosure process is keeping housing from making bigger strides to recovery.
But Brinkmann also pointed to the tightened credit availability that arose since Fannie Mae and Freddie Mac began making massive mortgage repurchase demands. Since then, he said, lenders have been increasing the amount of appraisals and fraud checks required. And, he said, there are more outright refusals to write a mortgage.
Fannie Mae and the Federal Housing Administration have been requiring lower loan-to-value ratios and higher credit scores as well, Brinkmann said.
Then, he switched gears, adding that new rules coming out of the Dodd-Frank Act, specifically the qualified residential mortgage, or QRM rule, will only make it harder for lending to pick up and for more consumers to eat through that inventory overhang.
Regulators are busy writing the QRM standard. According to Dodd-Frank, the originator will have to take the first 5% of losses on any loan written outside these minimum requirements such as downpayment, FICO score and LTV ratio, if it goes into default.
"You're going to see more risk-based pricing, fewer borrowers who will get market interest rates and a return of the specter in pricing differences, specifically for race and locale," Brinkmann said.
As for the new national mortgage servicing standard in the works, Brinkmann complained that new customer responsibilities regarding delinquent borrowers will only add costs to servicers and eventually the borrowers themselves.
"When did it shift from being loan servicers to social servicing agencies?" Brinkmann said. "There's certainly a limit to what we can do to fix all of their life problems."
In a revealing sign that the industry may be reluctant to take up standards considered too tough, Brinkmann's comments were met with applause.
Write to Jon Prior.
Follow him on Twitter: @JonAPrior
Tags: Brinkmann, Dodd-Frank, Fannie, FHA, Freddie, Jay Brinkmann, MBA, mortgage, regulators, Servicing/Default
Posted in Servicing/Default, Top Stories | 2 Comments »
Ocwen Financial Corp. (OCN: 13.81 +0.44%) is pursuing a deal in which the mortgage servicer will sell mortgage servicing rights to a newly formed corporation called Home Loan Servicing Solutions.
The move is expected to free up capital, allowing Ocwen to continue in the role of subservicer, according to Securities and Exchange Commission filings.
The securities involved in the sale include MSRs purchased from Barclays Bank (BCS: 13.98 +0.36%) back in September when Ocwen acquired the HomEq Servicing business.
While a transaction amount was not disclosed, Home Loan Servicing Solutions will fund the acquisition using proceeds from an initial public offering of $316.2 million, according to securities filings. The company is expected to trade on the NASDAQ.
Home Loan Servicing Solutions describes itself in SEC filings as an entity formed to acquire mortgage-servicing assets — mainly primary and subprime loans. Its founder is William Erbey, chairman of Ocwen's board of directors. Erbey has pledged to purchase $10 million of the newly formed company's shares.
Ocwen touts the transaction as one that will free up capital, while detaching Ocwen from the liabilities and expenses associated with ownership of the portfolio.
"Although Ocwen's servicing fee and float income will decline under this subservicing agreement, we expect that the impact on net income will be partly offset by increased subservicing fee revenue and by reduced expenses for MSR amortization and interest on advance financing," Ocwen said in an SEC filing. "We also expect the decline in our match-funded advances and MSRs to be partly offset by the reduction in match-funded liabilities with the difference accruing in cash."
Ocwen said it will use the cash generated to pay down debt and to repurchase stock — or possibly other mortgage servicing rights. Overall, the firm said the funding required to run Ocwen's business "as-is" is greater than the income loss it will experience through the sale.
Ocwen reported a $38 million, or 36 cent per share, profit for the 2010 fiscal year on Thursday. That is up from a profit of $300,000 a year earlier when investors received nothing back on a per-share value. For the fourth quarter, Ocwen posted a profit of $9.9 million, compared to $9.4 million a year earlier.
The company's stock price lifted 1.96% early Thursday morning, with shares trading at $10.91 per share, up from $10.70 at close on Wednesday.
Write to Kerri Panchuk.
Tags: Barclays, Home Loan Servicing Solutions, mortgage servicing, mortgage-backed securities, mortgages, Ocwen, Ocwen Financial Corp., SEC
Posted in Servicing/Default, Top Stories | 6 Comments »
The average interest rate for a 30-year, fixed-rate mortgage increased 24 basis points, hitting 4.85% in January, according to the Federal Housing Finance Agency.
The agency bases its average rates on purchase mortgages of $417,000 or less that closed during the Jan. 25-31 period.
On Thursday, Freddie Mac also reported that the average interest rate for a 30-year, fixed-rate mortgage fell from 5% to 4.95% for the week ending Feb. 24, according to Freddie's Primary Mortgage Market Survey.
The average contract mortgage rate for the purchase of previously occupied homes — used as an index in some adjustable-rate mortgages — hovered at 4.71% last month, up 0.13% from December, according to the FHFA.
The latest report is a reflection of loan rates closed during the Jan. 25-31 period.
Because interest rates are generally determined by activity in the market 30 to 45 days before a loan is closed, the new rates depict market conditions in mid- to late-December, the FHFA said.
When studying all loans — fixed-and adjustable-rate — the average contract rate hit 4.70% last month, up 18 basis points from 4.52% in December.
The average term for loans originated in January fell to 27.3 years, and the average loan-to-price ratio hit 73.4%, down 2.2% from December.
The overall average loan amount also fell between December and January from $209,500 to $202,400.
Freddie's Primary Mortgage Market Survey for the past week showed a drop in long-term rates overall. Not only did the 30-year fixed-rate mortgage fall to 4.95%, the 15-year fixed-rate mortgage dropped from 4.27% to 4.22% in the most recent week, and the 5-year Treasury-indexed hybrid adjustable-rate mortgage fell from 3.87% to 3.8%.
The 1-year Treasury-indexed ARM rose slightly from 3.39% last week to 3.40% in the latest market study.
Write to Kerri Panchuk.
Tags: adjustable-rate mortgages, Federal Housing Finance Agency, FHFA, interest rates, mortgage rates
Posted in Origination/Lending, Top Stories | 1 Comment »
The Federal Reserve finalized a rule that will raise the threshold requirements for when a first-lien jumbo mortgage is required to establish an escrow account to hold property taxes and insurance.
The provision, first proposed three years ago, is one of the reforms outlined in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Fed said escrow accounts will be required when borrowers take out first-lien jumbo loans that have an APR that is 2.5 percentage points or more above the average prime offer rate.
The previous threshold was 1.5 percentage points.
The central bank also proposed a rule that would expand the period in which loan holders are required to maintain escrow accounts on first-lien jumbo mortgages. It would extend the required escrow period from one to five years and make it even longer when a loan is delinquent or in default. An exemption would be allotted to creditors in rural or underserved areas.
New disclosure requirements also were proposed. Now disclosures will have to be made three days before consummating a mortgage to explain how the escrow account will work and any possible effects that could result from not having an account.
The Fed is now accepting comments on that proposed rule. The commentary period will run for 60 days after the rule's publication in the Federal Register.
Write to Kerri Panchuk.
Tags: Dodd-Frank Wall Street Reform and Consumer Protection Act, Federal Reserve Board
Posted in Origination/Lending, Top Stories | 1 Comment »
Ratings on unenhanced and unsubsidized multifamily affordable housing projects stabilized in 2010 thanks to the absence of bond insurance policies that previously had a negative impact on ratings, Standard & Poor's said Thursday.
Additional signs of a thaw in the multifamily affordable housing segment showed up last year, with S&P issuing ratings on $118 million in new multifamily affordable housing debt, up from $80 million in 2009.
S&P said this "shows a sign of increased interest and investor appetite for these securities."
This change occurred after several years of downgrades attributed to falling net income at properties, higher expenses, lower revenues, high vacancy rates and high concessions offered to keep multifamily residents in place.
The report said in 2010, properties also began to see an increase in overall net operating income as expenses started to decline.
"In our view, ratings began to stabilize due to the absence of the various bond insurance policies tied to the bonds, which formerly presented a negative scenario overall as the credit quality relied solely on that of the bond insurers," said Standard & Poor's credit analyst Mikiyon Alexander.
S&P expects "continued downward pressure" on project-based Section 8 ratings since fewer rental increases were granted to the properties. Two years ago, S&P downgraded 41% of the ratings in that segment, compared to 33% last year.
"We believe the decline in rental increases is due to financial shortfalls despite the overall funding and support for the program," S&P wrote in its report. "While a number of U.S. project-based Section 8 properties have begun to age, and in many cases will require major rehabilitation, the program may have the political support needed to enhance the aging housing stock."
S&P said this segment's success depends on congressional appropriations. The president has proposed a $9.43 billion budget, up almost 1%, for the next fiscal year.
Write to Kerri Panchuk.
Tags: affordable housing, credit ratings, section 8, Standard & Poor's
Posted in Servicing/Default, Top Stories | 1 Comment »
