Refinance Free Credit

Assured Guaranty, one of the few guarantors to steer clear of the current ratings mess, said Tuesday that it lost $260.1 million, ($3.77) per share, during the fourth quarter as the guarantor absorbed roughly $308 million in credit default swap write-offs on an after-tax basis. The fourth quarter loss compared to $42.4 million, or $.58 per share, in income one year earlier.

Assured did not underwrite meaningful volumes of ABS CDOs in recent years, which is providing to be the firm’s saving grace during otherwise stressful conditions for many of its competitors.

The firm also exited the mortgage guaranty business in early 2005, and has not written new contracts since the first quarter of that year. It’s mortgage book of business has been run-off since that time.

While CDO and related mortgage-backed exposure didn’t hurt Assured, the company did feel some pain from direct HELOC exposure during the fourth quarter. The company provisioned $20.1 million in the fourth quarter related to U.S. HELOC exposure, it said, after $1.8 billion of HELOC securities it insured were downgraded by various rating agencies.

For more information, visit http://www.assuredguaranty.com.

The First American Corporation saw various ratings dropped late Monday by Fitch Ratings, with the agency citing “further analysis” of the title insurance giant’s warning that it would lose up to $50 million when it reports on fourth quarter results.

The soon-to-be-split title and information services company had been put of negative ratings watch when it first announced plans for reorganization that would see the company spin off its title operations and re-focus on on information services.

Fitch dropped First American’s Issuer Default Rating to ‘BBB+’ from ‘A-,’ while cutting the rating on senior debt to ‘BBB’ from ‘BBB+’ — both leave the company with investment-grade ratings. The company’s insurance segment saw is financial strength rating dropped to ‘A’ from a previous rating of ‘A+’.

From the press statement:

… post spin off, First American Financial, will not have access to unregulated cash flows to service its debt.

First American had one of the highest standalone IFS ratings for title insurance companies within Fitch’s rating universe and thus Fitch had expectations that the company’s financials and metrics would be representative of an industry leader. Fitch believes that today’s rating action incorporates the underperformance of expectations and better aligns the company with peers.

The agency said it was “cautious” in its outlook for the firm’s performance over the next year.

For more information, visit http://www.fitchratings.com.

If you’ve been looking for some good news amidst the wreckage that has become much of the mortgage industry these days, perhaps the fact that a few less trees died last year marketing refinance or home equity lending offers will do the trick.

Last year saw a sharp decline in mortgage and home equity direct mail offers, with lenders sending approximately 2.6 billion direct mail pieces during the year — off nearly a third from the 3.7 billion send during 2006.

“People have tightened up spending, home sales are down, and there’s not a lot of faith in the market,” says Farah Huq, market research manager at Mintel Comperemedia, who sponsored the study. “With fear of recession and many Americans struggling just to make ends meet, it makes sense that lenders have backed off direct mail advertising for the time being.”

Mortgage-specific mailings dropped during 2007 as lenders sent just 1.7 million offers, a notable decline from the 2.6 million sent in 2006. Direct mail campaigns for adjustable-rate mortgages declined more sharply, falling 72 percent last year, while fixed-rate direct mail campaign actually increase by 14 percent, according to the study.

Home equity lending also felt the blow of the housing downtrun as well last year; lenders cut back offers for home equity lines and loans by 21 percent in 2007, with total mailings falling below 1 million pieces.

Mintel noted that eight of the top 10 mortgage and home equity marketers from 2006 reduced their total offers sent in 2007. Of those that cut back, half reduced direct mail campaigns by more than 60 percent from 2006.

Ever the optimist, ForeclosureS.com president Alexis McGee said Tuesday that right now is the time to buy real estate.

“Who doesn’t like to buy quality product at 30, 40, 50 percent and more off retail prices?” McGee said. “Don’t be scared off by the gloom and doom talk swirling around housing markets, either. It’s a S-A-L-E.”

McGee’s Web site, ForeclosureS.com, is one of many firms competing in the crowded space for foreclosure listings that are sold to potential buyers and investors looking to profit from the extended downturn in housing.

She suggested last June that the foreclosure crisis was overblown, saying “…don’t be fooled by the numbers. The overall economy is sound, and markets will turn around.”

Her positive message hasn’t changed much since then, even if foreclosures did manage to get significantly worse in the back half of last year, and even if many leading economists believe the U.S. is headed towards a recession.

“The news isn’t all bad,” she said. “Interest rates continue at record lows. Not all housing markets are depressed. The most recent LoanPerformance HPI that tracks home price trends, showed 31 states with gains over the past 12 months.”

Of course, the LoanPerformance data also shows a strong decelerating trend in most states, even if the 12-month trend remains above water. The most recent S&P/Case-Shiller indices, for example, found that 13 of the nation’s 20 largest metropolitan areas posted record lows in growth rate during November of last year. Every MSA tracked in the Case-Shiller has posted negative returns for the past three months, as well.

Most buyers are still waiting on the sidelines, as a result — something McGee suggested will end up being a mistake for those trying to time the bottom of the market.

“What’s the bottom line? The bottom of the market is coming,” McGee contended. “But don’t wait too long. Today’s sale is for a limited time only!”

For more information, visit http://www.foreclosures.com.

As the housing crisis rolls on unabetted, Comptroller of the Currency John C. Dugan on Tuesday called for an amendment to the Community Reinvestment Act regulation to provide CRA consideration for community development investments in middle-income communities that are distressed as a result of mortgage foreclosures and related economic factors affecting the area.

“With this change, we would give favorable CRA consideration for –- and encourage –- loans, services, and investments in more communities suffering from the consequences of foreclosures,” Dugan said in a speech to the National Association of Affordable Housing Lenders.

The Comptroller cited Maple Heights, a middle-income suburb of Cleveland that is plagued by high foreclosure rates, as a community that would be helped by his proposed CRA amendment. The mayor of Maple Heights has said middle-income residents are moving out because they no longer feel safe.

Maple Heights “is an excellent example of where we ought to be encouraging new loans, services, and investments through CRA,” Dugan said.

More public welfare investments
The Comptroller also urged Congress to restore the original scope of the public welfare investment authority of national banks, a step he said would also help communities like Maple Heights.

In the 2006 amendments to the federal law that authorizes national banks to make “public welfare” investments, the aggregate amount of investments permissible for national banks was increased, but the types of investments that can be made was decreased to include only those investments that “primarily benefit low- and moderate-income areas and people.”

“While that limitation sounds sensible at first blush, the reality is quite different because the new standard precludes previously permissible investments that clearly promote the public welfare,” Dugan said.

For example, under the new standard, national banks are now effectively prohibited from making direct equity investments to help foreclosure-plagued urban and suburban middle-income areas –- even if the effect of such investments would be to help low- and moderate-income neighborhoods as well.

In Maple Heights, although median income is declining, it was classified as overwhelmingly middle-income at the time of the last census. This prevents most areas of the city from receiving national bank public welfare investments under the new standard, Dugan said.

CRA for Wall Street?
The Comptroller also raised a question about whether the Community Reinvestment Act should be broadened to cover not just banks, but also non-banks that provide so many of the same financial services as banks, and which played a significant role in the subprime crisis.

“Over half of subprime mortgages of the last several years – and the ones with the most questionable underwriting standards – were originated through mortgage brokers for securitization by non-banks, including major investment banks,” Dugan said.

“Yet these non-banks, having played such a large role in the subprime mortgages that have caused such problems in communities nationwide, are not covered by CRA and therefore have no CRA incentive to address these problems. To me, that is a world stood on its head.”

Dugan said that non-banks, with all their financial resources, could bring billions of additional community reinvestment dollars to local communities. Non-banks could build on and enhance the substantial contributions already being made by banks for CRA purposes. Covering non-banks would also add a degree of transparency to the mortgage origination operations of these lenders, through the CRA public evaluations and public comment process.

The Comptroller said in his speech that the Community Reinvestment Act, now in its 31st year, has improved conditions in many underserved and economically depressed communities throughout the country.

“Banks, often in conjunction with community partners, have made loans and investments that have dramatically transformed distressed communities and helped build the personal assets of lower-income households,” he added. “CRA lending and investment by banks has worked.”

The full text of Dugan’s remarks is available here.

For more information, visit http://www.occ.gov.

In a press conference today, Treasury Secretary Henry Paulson and U.S. Department of Housing and Urban Development announced “Project Lifeline,” a coordinated loss mitigation effort that targets all seriously delinquent borrowers. The project initially involves six of the nation’s largest servicers, including Countrywide and Bank of America, and comes on the heels of a “subprime rate freeze” program that many have said is having limited success stemming the growing tide of foreclosures.

The nuts-and-bolts: this new campaign targets serious delinquencies — those 90 or more days in arrears — and reaches across the credit spectrum to include all borrowers, not just subprime. Participating servicers will be sending a letter out to those unlucky enough to be in the target group, which kicks off a five-step plan:

1. Call your mortgage servicer
2. Tell the servicer you received a letter, you want to stay in your home and you are willing to seek counseling, if necessary
3. Provide updated financial information so the servicer can explore a suitable solution
4. If appropriate, any pending foreclosure will be ‘paused’ for up to 30 days during the review process until a formal decision is made and a plan is created
5. If a workout plan is established and the homeowner follows the plan for three consecutive months, their loan will be formally modified as they have demonstrated their ability to meet the requirements

Most HW readers that work in loan servicing are probably already shaking your heads — wait a minute, isn’t this pretty much what we already do? Well, yes. The plan is essentially a PR stunt, albeit one that has a very good purpose behind it.

When you get down to it, this entire “project” is really about that very first step — getting the borrower and the servicer in contact with one another. HW recently covered a Freddie Mac report that found more than half of borrowers are unaware of the workout options offered by their servicer.

So it should be considered a great thing if this sort of government-sanctioned publicity effort gets more troubled borrowers to actually pick up the phone.

I’d expect, however, that the third step will be somewhat of a hurdle. Always is.

Many troubled borrowers simply balk at handing over their financials, often because fraud was involved in the original loan; and providing things like paychecks, financial statements, tax returns has a nasty way of making that fraud more apparent. I think many are still underestimating just how prevalent fraud really was during the housing run-up.

The potentially new wrinkle here is the broad 30-day moratorium on foreclosure sales — note, however, that I said sale and not process.

I’d expect servicers will continue with the filing process for most foreclosures, but work to postpone the sale date if and when a borrower is flagged as a candidate for a loan modification. This is certainly a good thing to see codified, but many servicers already did this sort of thing in the past on a one-off basis whenever they thought a modification was pending. This plan just codifies it, and provides hopefully a whole boatload more of such one-off cases to consider.

(Speaking of which, I didn’t see any announcement from the big six in terms of staffing for this, did you? Wasn’t the entire reason for the “subprime rate freeze” program a lack of available resources needed to process loan modifications?)

Of course, any time a loss mitigation program gets announced, the first question any HW reader should be asking is “will it matter?” Every little bit helps, and I’m sure this will have some impact. But the truth of the matter is that there is really only so much impact that can ultimately be had; we face an affordability and housing leverage problem, and there is only so much that can be done to mitigate such a situation.

HW has reported numerous times that Congressional and regulatory leaders want to see foreclosures reduced or else, and that we’re as a nation looking at one million more foreclosures than would be considered normal — and something must be done to prevent it. So the industry, the Treasury, HUD and others roll out another plan.

And there will probably be another plan after this one, at some point, not to mention some really horrible legislation from Congress to boot.

But something tells me that deep down, even Hammerin’ Hank and the senior execs at every major bank know what needs to happen, election year posturing on Capitol Hill or not. All referenced “avoidable foreclosures” repeatedly in their statements to the media today; not “foreclosures,” but only those that are avoidable.

It’s sort of like fighting gravity. The question is how to let gravity in the housing market run its course without also dragging down the larger U.S. economy with it, and and knocking other countries off of their financial axes at the same time — a much more complex problem to solve than in years past, thanks to the myriad of “financial innovations” that managed to embed mortgages so deeply and directly into global financial markets.

I’d suspect that’s precisely the sort of tug-of-war that’s keeping Paulson from getting much sleep these days. It’s also precisely the reason so many economists are predicting a housing-led recession, one of those rare instances of the tail wagging the proverbial dog.

If you’re a homeowner considering refinancing your home mortgage loan, one of your primary concerns for the new loan is the mortgage rate you receive. Many homeowners don’t understand how the interest rates they are quoted are determined or what they can do to improve that rate. Here ...

IndyMac has eliminated its dividend as a way to preserve liquidity after suffering its first annual loss in 23 years.  The company is eliminating the dividend in an attempt to ride out the mortgage market downturn.

The company has also initiated substantial layoffs to reduce their staff by 25%.

More on IndyMac’s elimination of their dividend to preserve liquidity from Market Watch:

 IndyMac Bancorp on Tuesday reported its first annual loss in its 23-year history, leading the company to suspend its dividend on common shares as it attempts to ride out the mortgage crunch.

The holding company for IndyMac Bank, one of the nation’s largest thrifts and mortgage originators, said it swung to a fourth-quarter net loss of $509.1 million, or $6.43 a share.

Faced with ongoing liquidity problems, IndyMac has decided to suspend its quarterly dividend on common shares “indefinitely.”

“Consistent with nearly every other large financial institution in the mortgage lending and securitization business, as a result of the rapidly deteriorating housing and mortgage markets, we took major write-downs and established significant credit reserves and recognized a significant loss in the fourth quarter,” said Chief Executive Michael Perry in a statement.

Title insurers are being harshly scrutinized in the wake of the housing boom — no question about it. The Wall Street Journal reports on a price-fixing case recently filed in federal court in Brooklyn:

In the latest legal challenge, an antitrust suit … accuses the four firms that dominate title insurance nationwide of illegally fixing prices in New York state. Although insurance firms have limited immunity from antitrust claims because state regulators approve their rates, the suit accuses title firms of concealing improper costs underlying their rate requests …

The New York suit, which seeks to represent all home buyers in the state, says consumers were forced to pay hundreds of millions of dollars in extra closing costs.

The four firms named in the suit are Fidelity National Title, First American, LandAmerica Financial and Stewart Title Insurance. The Journal reports on the allegations, which claim that while New York regulators review title insurance rates, the rates provided for review hide referral fees and other kickbacks that prop up the cost of title insurance:

“They’re gaming the regulatory system,” said Gordon Schnell, a lawyer representing the four named plaintiffs. “Especially in New York, where the firms set their rates collectively, that’s a violation of the antitrust laws.” The suit cites a 2006 state hearing in which regulators conceded they can’t adequately review agents’ commissions, which make up 85% of rates.

Industry representatives have said all four firms will fight the allegations vigorously in court, according to the Journal.

Allegations of illegal kickbacks are nothing new to the title industry — First American paid $10 million last January, and Stewart $1 million in August, to settle charges of kickbacks with the California Department of Insurance. Fidelity National’s default management outsourcing businesses were recently the subject of a class-action lawsuit alleging forced and illegal kickbacks involving its network of foreclosure attorneys.

But the New York suit represents a new tack on an old issue, with borrowers directly bringing an antitrust suit against the large title insurers.

It’s worth noting that the law firm representing the plaintiffs here is Constantine Cannon LLP — the same law firm that won a $3 billion antitrust settlement on behalf of Wal-Mart against Visa and MasterCard in 2003. Their involvement likely signals an ability and willingness to go toe-to-toe with some pretty deep pockets.

IndyMac Bancorp, Inc. said Tuesday morning that it lost $509.1 million, or ($6.43) per share, during the recently-completed fourth quarter. The Q4 loss compares to net earnings of $72.2 million in the year-ago period. The quarterly loss drove the Pasadena, Calif.-based thrift to its first-ever full-year loss of $614.8 million, or ($8.28) per share.

Not surprisingly, single-family loan production at the former Alt-A powerhouse continued to fall, dropping to $12.1 billion in Q4 — off $4.7 billion from Q3, and $13.9 million below origination volume one year earlier.

The thrift absorbed a total of $863 million in write-downs and loss provisions during the quarter, CEO Michael Perry said.

Loan loss reserves ballooned to $2.4 billion, net of just $179 million in fourth quarter charge-off activity — underscoring just how much the lender believes it will lose in the future on the loans in its portfolio. Perry said he expected charge-offs to “increase substantially in 2008 over 2007,” but said that the lender is expecting only an additional $372 million will be needed in 2008 loss provisions to cover credit costs. IndyMac set aside $1.45 billion in such provision charges during 2007.

It’s worth nothing that despite a multi-billion dollar loss reserve, comparative reserves have been shrinking in size relative to the non-performing loans in IndyMac’s portfolio. At the end of 2007, the allowance for loan losses represented 30.44 percent of non-performing loans; that ratio stood at 47.64 percent at the end of Q3, and 57.51 percent one year earlier.

While Perry touted the company’s “solid overall financial position,” the bank suspended its quarterly common cash dividend amid growing losses, a move expected to preserve $400 million in capital.

More borrowers missing payments
Loan servicing was profitable, as IndyMac reported net earnings of $39.3 million in its servicing division during the fourth quarter.

The bank said the number of borrowers 30+ days in arrears continued to grow during the fourth quarter, reaching 7.31 percent of unpaid principal balance. One quarter earlier, 6.77 percent of the portfolio volume was delinquent, compared to 5.02 percent one year earlier.

Digging into non-performing loans — otherwise known as severe delinquencies — what’s stunning is the dramatic increase in prime-borrower NPLs. The investor presentation shows that NPLs among prime loans held for investment have jumped to 9.2 percent of unpaid principal balance; that’s up from 4.2 percent just one quarter earlier.

Increasing borrower difficulty notwithstanding, Perry said IndyMac’s future in 2008 looked good.

“Our goal is to return Indymac to profitability in Q2-08 and grow our profit each quarter thereafter, and I believe that we have a realistic shot of achieving this goal,” Perry said. “Even if we are wrong in our forecast for 2008, and the mortgage and housing markets worsen beyond what we are already forecasting … which could happen given our experience in 2007 … we have the capital to absorb nearly triple our presently forecasted 2008 credit costs.”

The bank also released its shareholder letter, available here.

Commentary on the letter is available over at the Calculated Risk blog.

For more information, visit http://www.indymac.com.