Refinance Free Credit

Defaults on mortgages backed by the nation’s mortgage largest mortgage insurers reached a new high-water mark during January, according to data released Friday by the Mortgage Insurance Companies of America. Insured defaults reached 68,950 during the month, an increase of 31 percent from year-ago levels.

Cure rates have been extremely problematic for primary mortgage insurers as the housing slump has progressed, as a growing number of troubled borrowers are finding their options in loss mitigiation limited — or without a viable option at all.

MICA reported that January’s cure rate fell to 51.4 percent, the lowest monthly cure rate on record. The organization’s data is available back into the mid 1990s, although monthly data is only avaliable beginning December 1999.

Earlier research by Housing Wire found that cure rates below 60 percent are rarely, if ever, recorded. January marks the second straight month of a sub-60 percent cure rate; the industry’s monthly cure rate has now been below 60 percent for three of the past four months — the first time that’s happened since the industry trade group began reporting monthly data on borrower defaults.

Prior to 2007, the mortgage insurance industry had never recorded a cure rate below 79 percent. Last year, insurers reported an annual cure rate of just 66 percent.

Insurers have been pulling back from underwriting new policies, as a result. The PMI Group, Inc. said earlier in February that it would require borrowers to put at least 3 percent equity into any mortgage where PMI was providing primary mortgage insurance on the loan. Thirty-two percent of the company’s 2007 new business represented loans with an LTV over 97 percent, it said.

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

Senate GOP members blocked a proposal on Thursday by Democratic leaders to introduce a second economic relief bill focused on housing reform. The proposal, led by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Majority Leader Harry Reid (D-Nev.), would seek to allow bankruptcy judges to modify the principal amount of a borrower’s mortgage during bankruptcy and would appropriate Federal funds to be used to buy bad mortgage debt.

Democratic Senators had sought to invoke cloture in an attempt to secure speedy passage of proposed bill, called the Foreclosure Prevention Act, through Congress; the cloture rule requires 60 votes to essentially end debate and bring a measure to the Senate floor for a vote.

CNN reported late Thursday that the Democrats fell 12 votes shy of the needed 60, an outcome that Sen. Reid painted as a win for Capitol Hill’s newest enemy:

“The people on Wall Street are high-fiving. They just won again,” Senate Majority Leader Harry Reid, D-Nevada, said after the vote.

“The big banks just won again. The mortgage bankers won again. Oh, there are a few losers out there, like millions of consumers — millions of people who are going into foreclosure or are about to go into foreclosure. They lost.”

Republican Senators, however, said that Democrats were attempting to “create an issue” via the cloture motion. Senator Mitch McConnell (R-Ken.) is quoted by CNN as saying that he wants to give the bill consideration.

“Now that the box has been checked on the other side, maybe we can get serious now about trying to do something that will actually make a difference,” he said.

Democrats have ratcheted up the volume in their criticism of the Bush administration’s handling of the housing crisis in recent weeks, with Sen. Richard Durbin of Illinois most recently going so far as to compare the President to Herbert Hoover.

“Senate Republicans joined with the Administration and the very people who brought us this mess, the mortgage bankers,” Durbin said. “Their do-nothing leadership will cause this crisis to spiral farther out of control. It’s that kind of bold, innovative attitude which led Herbert Hoover to do nothing in the Great Depression.”

“We’re not going to give up. Senate Democrats will return to this issue and I guarantee that the mortgage bankers will be in for a fight.”

The MBA has voiced strong opposition to the proposal, and in particular to the proposed cram-down legislation, saying it will raise mortgage rates for all borrowers; President Bush has threatened to veto the legislation as it currently stands.

Treasury Secretary Henry Paulson has also voiced his opposition to the bill, calling it a bailout for lenders, investors and speculators. Administration officials have hardened their stance in recent weeks, saying that private-party solutions put into place — including the HOPE NOW Alliance and an ASF-led rate-freeze program for subprime borrowers — need sufficient time to have an effect.

Question: how much is left to downgrade in the subprime RMBS space? Answer: more than you might think.

In what’s becoming a week-end ritual during the credit crunch, Fitch Ratings on Friday issued a spate of new subprime RMBS downgrades. The downgraded securities are sure to force some readjustments to someone’s balance sheet, given all of the previously-rated AAA securities that are now taking a fall.

The ignonimous list of new downgrades:

• $650.1 million from Equifirst Loan Trust 2007-1; included a ‘AAA’ downgrade;
• $21.2 million from two C-BASS 2007 deals;
• $171.4 million from 4 GMAC-RFC 2006 1st lien deals;
• $838.2 million from New Century 2006-1; multi-notch downgrade to one ‘AAA’ class;
• $169 million from GSAMP Trust 2007-H1; South Star and Decision One-originated loans, ‘AAA’ class downgraded;
• $900.9 million from 3 2007 GMAC-RFC deals; all three saw a ‘AAA’ class downgraded, originators include New Century and Ownit;
• $609.1 million from 2 ABSC 2007 deals; one deal is Ameriquest, other is RFC, both saw ‘AAA’ classes downgraded;
• $2.6 billion from 8 Carrington 2006 deals; includes numerous ‘AAA’ downgrades, mostly originated by New Century;
• $1.7 billion from 3 2007 Credit Suisse deals; ‘AAA’ downgrades involved;
• $894.2 million from 3 Carrington 2007 deals; ‘AAA’ downgrades involved;
• $881.2 million from 4 C-BASS 2007 deals; ‘AAA’ downgrades galore;

Grand total: $9.435 billion downgraded, and hundreds upon hundreds of individual bond classes.

Two deals did manage, however, to escape wholly unscathed; and that, under the circumstances, is news in and of itself. Fitch said it affirmed all classes of two HSBC subprime deals from 2007 (HSBC Home Equity Loan Trust 2007-1 and HSBC Home Equity Loan Trust 2007-2, for HW’s investor-led audience), removing the deals from negative watch.

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

We’re back with another edition. Same t-shirt, full-color. Work with me as I learn video editing! Today’s update - Fannie, Freddie and AIG losses and a potential major shift in underwriting guidelines as the GSE’s that would make broker-ordered and in-house appraisals unacceptable as documentation for conforming loan home values.

We’re back with another edition. Same t-shirt, full-color. Work with me as I learn video editing! Today’s update - Fannie, Freddie and AIG losses and a potential major shift in underwriting guidelines as the GSE’s that would make broker-ordered and in-house appraisals unacceptable as documentation for conforming loan home values.

The parent of Fremont Investment & Loan said in a filing with the Securities and Exchange Commission late Thursday that it may sell itself as the former subprime giant finds itself caught up in the latest round of the mortgage industry’s credit crunch.

Fremont said it would likely record write-downs and loss reserve charges that would “further erode” capital beyond the $448.6 million in total equity capital it reported to the Federal Deposit Insurance Corporation on January 20.

The FDIC has recently been gearing up for an expected spate of bank failures, and the disclosure of problems anew at Fremont led investors to a wild selling spree Friday, with the stock dropping below $1 per share on liquidity concerns. Standard & Poor’s also said Friday that it would remove Fremont from its SmallCap index amid the massive sell-off in the Brea-based bank’s stock.

Moody’s Investors Service didn’t wait to downgrade the troubled S&L, saying that it believed Fremont faced “poor liquidity” and “no sustainable franchise and it faces severe asset quality and capital problems.”

Earlier this week, Housing Wire reported that Fremont was the subject of a preliminary injuction in Massachusetts that restricts its ability to foreclose on properties it services within the state. The former subprime high-flyer exited the business in March after receiving a cease-and-desist order from the FDIC, and said it September that a slated purchase of its real estate and subprime business had fallen through.

For previous coverage of Fremont at Housing Wire, click here.

Disclosure: The author held no positions in FMT when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

It’s the credit crunch that somehow manages to keep on crunching: on Friday, Standard & Poor’s warned that it may downgrade as many as 1,887 classes from 404 Alt-A backed RMBS issued in 2006 and 2007. The warning comes as many Alt-A mortgages, including no-doc, low-doc and negative amortization loans, are quickly showing signs of deterioration amid a burgeoning U.S. housing crisis.

The rating agency said that the affected classes represent an original par amount of approximately $13.96 billion, and that the majority of impacted securities are backed by 2/28 and 3/27 hybrid ARMs, or are negative amortization loans (that’s option ARMs, to regular HW readers).

Thirty-three of the 1,887 affected classes likely to be downgraded are currently rated AAA by the rating agency, and represent nearly 30 percent of the overall affected dollar volume (in terms of original par). The AAA-rated tranches of RMBS deals are usually the largest in terms of dollar value.

Click here to read a summary of all affected deals.

S&P said that it will also reviewing CDO transactions with exposure to the affected Alt-A RMBS classes, and would likely issue downgrades to these CDO transactions as well should any of the negative watches enacted today result in a downgrade.

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

(H/T, Calculated Risk)

Wells Fargo & Co., the second largest mortgage lender in the U.S., said earlier this week that it was making changes to its lending guidelines in more than 200 housing markets spanning 24 states and Washington D.C. that it identified as either “soft,” “distressed,” or “severely distressed.” Reuters obtained confirmation from Wells Fargo regarding the authenticity of the document circulated among brokers February 25.

Blogger and mortgage broker Morgan Brown, who runs the Web site Blown Mortgage, was among the first to post a copy of a letter sent to brokers earlier this week detailing key housing markets identified by Wells Fargo as in trouble. Nearly every major county in California, according to Brown, is categorized by the lenders as “severely distressed” — meaning any loan program in affected counties will require an additional five percent LTV contribution from borrowers for conforming product, while the maximum LTV for any non-conforming loan product (including Alt-A) will be set at 75 percent.

Wells Fargo’s list includes 33 markets in Florida, 20 in California, 15 each in Michigan and Virginia, 13 each in Maryland and Ohio. Many other states, including Arizona, Colorado, Connecticut, Louisiana, Massachusetts, Minnesota, New York, Nevada, New Jersey, Washington and Wisconsin had markets on the list as well, according to the Business Journal of Milwaukee.

The new loan program changes will go into effect nationwide today.

The changes at Wells Fargo are likely to exacerbate existing mortgage problems among borrowers, especially as more lenders and insurers pull back on lending activity in soft and distressed housing markets. Two large mortgage insurers, PMI and MGIC, both announced sweeping changes to their eligibility requirements for mortgage insurance earlier this month, with PMI requiring at least 3 percent down before any loan would be eligible for policy underwriting.

Fannie Mae announced a similar policy last December, set to go into effect March 1, that restricts maximum LTV and CLTV levels to five percentage points below existing program levels. Sources have suggested that Wells Fargo’s move for conforming loan products merely reflects the new Fannie policies set to go into effect, although its unclear if Fannie Mae considers the same 200+ counties to be declining housing markets.

Some sources have suggested to Housing Wire that other major lenders, including Countrywide Financial Corp., will likely institute a similar policy.

Disclosure: The writer held no positions in publicly-trade companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Business news station CNBC reported late Thursday that Merrill Lynch will shutter its subprime mortgage origination arm First Franklin amid continuing woes in the U.S. mortgage and housing markets. The channel reported that the move will cost some 400 to 500 employees their jobs.

While CNBC reported that Merrill would keep First Franklin’s servicing business intact, Housing Wire learned Friday from a source close to the process that it’s more likely that the troubled subprime lender’s existing servicing portfolio would be moved to the Wall Street bank’s Beaverton, Oregon-based Wilshire Credit Services servicing platform.

Merrill Lynch is not commenting to the press on the report.

The firm puchased First Franklin at the end of 2006 from National City Corp. in a deal worth $1.3 billion, right before the subprime mortgage market cratered. Recently, media reprots have surfaced suggesting that Merrill executives were considering turning the subprime lending platform into a conforming lending specialist — a move industry executives had said would be tough to accomplish.

It now appears that, at least for Merrill, its decision to close First Franklin is an admission that the company’s bid to expand its subprime presence was ill-timed. The firm recorded $18 billion in write-downs during the recently-completed fourth quarter, as bad bets on mortgage-related securities and derivatives led to the ouster of former CEO Stan O’Neal.

Disclosure: The writer held no positions in MER when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.