Refinance Free Credit

HOPE NOW, the well-known alliance of mortgage servicers, counselors, and investors pulled together by Treasury officials last year, said Friday morning that mortgage servicers provided loan workouts to approximately 183,000 homeowners in April 2008, up 23,000 from the total recorded in March — the highest monthly amount since the program was begun in July 2007. Since July 2007, nearly 1.6 million troubled homeowners have been extended loan modifications and repayment plans, the group said in a press statement.

“These numbers clearly demonstrate that HOPE NOW is succeeding at helping homeowners avoid foreclosure and stay in their homes,” said HOPE NOW executive director Faith Schwartz.

Estimates from the group show that approximately 106,000 of the prime and subprime loan workouts conducted by mortgage servicers in April were repayment plans, while approximately 77,000 were loan modifications. The current pace set in April would translate into just over 548,000 loan workouts in the second quarter; that total would be well above the 502,520 recorded during Q1.

Like most housing news these days, however, the good news comes with requisite ominous; HOPE NOW also reported 80,926 foreclosures in April, a total that would translate into 242,778 if extrapolated through the second quarter. That total would be an 18 percent jump in foreclosures during the quarter — meaning that while more borrowers are getting help, more borrowers are troubled in total as well.

To normalize comparisons, it’s worthwhile to look at total workouts against foreclosure activity.

In 2007’s third quarter that ratio stood at 2.95, meaning that for every 3 borrowers helped, one lost their home. By Q4, that ratio had risen to 3.13 — good news. In the first quarter of this year, the workout:foreclosure ratio fell to 2.44 despite an increase in workouts, suggesting servicers were having trouble keeping up with an influx of troubled borrowers.

April’s ratio? 2.26 borrowers in workout per foreclosure, the worst reading yet.

Last week’s Investor’s Business Daily painted a pretty rough picture of everyone’s favorite industry whipping post Countrywide Financial Corp., after getting wind of a servicing policy that requires some delinquent borrowers to pay 30 percent of arrearages before the lender will begin discussing loan modification options — fees that the reporter, Kathleen Doler, called “a steep entrance fee.”

From the story, an indictment:

They said Countrywide is requiring homeowners to pay 30% of the amount they are in arrears on payments, plus 30% of accrued late fees and 30% of attorney fees already incurred in the foreclosure process.

The payment doesn’t guarantee a loan modification, they said. It is only the price some consumers must pay to begin discussions with Countrywide, based in Calabasas, Calif.

The policy seems to go against Countrywide’s advertising and public statements about its efforts to help troubled borrowers stay in their homes. It comes amid a major drive by Congress and the Bush administration to steady the housing market and help homeowners avoid foreclosure.

It’s not a blanket policy, as Doler notes, but some borrowers are seeing this policy while others are not. And, of course, Doler finds a few consumer advocates more than willing to demonize the policy, and Countrywide as well. Not hard to do these days.

For its part, Countrywide told IBD that the policy was intended to be a good-faith demonstration, and suggested that the 30 percent policy is only applicable to borrowers staring down a scheduled foreclosure auction (emphasis added):

“It is Countrywide’s fiduciary duty to our investors to ensure that borrowers seeking workouts have the wherewithal to stay in their home,” the statement said. “For those who have not contacted the company and are seriously delinquent, the company views a 30% payment as good faith towards a modification and a demonstration of the borrower’s ability to resume and make payments in the future.”

Which is another way of saying that this policy likely doesn’t even enter into the equation with a one month delinquent borrower. Probably not even a 3 month delinquency. (It probably would behoove Countrywide’s press folks to learn the value of actually communicating with the press, but that’s a story for another day.)

Allow us to paraphrase what we think the nicely-worded press statement really says: look, if we’ve tried and wasted our resources trying to contact a borrower anywhere from the past 8 to 12 months and they don’t bother to return any of our calls, read any of their mail, or answer the door when we send a countless loss mit specialists out there, you’ll have to forgive us for calling bullshit when they decide to call asking for a loan mod the day before the foreclosure sale.

That’s what we’d suspect the policy really is, although we can’t be sure, since Countrywide has decided to play coy with the press on this.

I’m sure, given Countrywide’s recent track history in the servicing arena, that some borrowers have been assigned the 30 percent fee erroneously; I’m also pretty sure that many borrowers can’t negotiate Countrywide’s maze of a loss mitigation department fast enough to formally request a loan modification before their account gets flagged for the 30 percent requirement. And that’s a real problem — problem enough even to suggest that the up-front loan mod fee should be rescinded.

But that’s a very different argument than simply suggesting that the policy is inherently wrong to begin with, and that Countrywide’s policies “change with the wind” — an allegation made by one Glenn Neely of American Mortgage Resolution Advocates LLC in the story. (I tried to find the company on the Web, but apparently they have no Web site.)

Loan modifications are costly, and can be time consuming — if you’ve ever worked in servicing for a meaningful period of time, you learn pretty quickly that the borrowers who go AWOL until right before the foreclosure sale, or right before an eviction, aren’t usually the ones interested in keeping their home and negotiating in good faith. It may not be pretty to say, but it’s absolutely true, and it happens all the time.

Beyond that, by deciding to hide from the servicer for months on end, fees and arrearages have been piling up — totals that must be paid by the servicer and/or borrower regardless of whether the loan is restructured or not. Which means qualifying for a viable loan modification is that much harder to do, even if the borrower isn’t playing games; after all, isn’t the entire point here for servicers to invest their limited resources in preventing avoidable foreclosures?

If so, I’d argue that such a policy — unpopular as it may seem — could be helping Countrywide do just that; and borrowers making good-faith and early efforts to work with their servicer on a solution should be thanking their lucky stars that it exists.

Note: the author is long on CFC.

The ever-widening net of the U.S. housing crunch was cast a little bit wider Thursday evening by Boston Fed president Eric Rosengren, who said that continued weakness in housing likely would strain many of the nation’s smaller banks. Community banks have so far weathered the credit storm better than their larger counterparts, thanks in part to an aversion to both subprime and securitized mortgage lending.

But that strength may yet turn into an unexpected weakness, Rosengren said in remarks yesterday at the an economic conference in New England.

“Should the unemployment rate rise and housing prices continue to fall,” he said, “financial stresses caused by the housing correction could well spread beyond the large banks involved in complex securitizations, and the smaller banks with sizeable portfolios of construction loans, to a larger set of financial institutions.”

Some smaller banks with sizeable exposure to residential construction lending, considered a component of commercial real estate lending, have already begun to experience troubles; the Boston Fed president’s remarks suggest that even those without such exposure may soon feel the pangs of housing’s crunch.

Such an outcome may be more devastating for small banks than their larger counterparts, he suggessted.

“Problems could expand beyond securitized assets to have an impact on the nonsecuritized assets held by smaller banking institutions,” Rosengren said. “It is possible that these institutions may not be able to tap additional capital quite as easily as larger institutions, and if so they may be forced to constrain other lending to address any losses.”

While Rosengren didn’t suggest that smaller banks were facing an increased risk of failure due to housing’s continued fallout, he did say that “the duration of today’s situation may be longer than some are anticipating.”

A widely-read story late last week by MarketWatch’s Alistair Barr noted that many on Wall Street — and those at the Federal Deposit Insurance Corp. — now expect to see a rash of bank failures in late 2008 and into 2009, although some question still exists as to whether the size and scope of the expected coming banking mess will rival that seen in the 1980s savings & loan debacle.

That same story caused quite an industry stir by suggesting that Pasadena, Calif.-based IndyMac Bancorp (IMB: 1.83, +3.39%) was one such bank in “dire straits” and potentially facing bankruptcy, allegations that led to a detailed and clearly flustered response from press representatives at the former Alt-A powerhouse.

“Safety and soundness remains our highest priority at Indymac Bank during these challenging times, and we remain in a solid overall financial position,” IndyMac communications director Grove Nichols said on the company’s corporate blog.

Earlier in the week, FDIC chairman Sheila Bair sounded the alarm on an increasingly shaky outlook for many banks nationwide.

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

One large unidentified lender changed how it reports defaulted mortgages during April, pushing the number of primary insurance defaults to a record high for the month and underscoring the somewhat fragile nature of reporting on borrower defaults.

According to the Mortgage Insurance Companies of America on Friday, “a major lender’s change to its methodology for recording delinquencies” led to a dramatic increase in reported defaults, to 73,880 in April versus 58,131 in March. The jump essentially makes it impossible to know whether defaults actually did increase or decrease relative to April’s statistics; MICA did not release statistics summarizing the impact of the reporting change on overall reported defaults.

MICA press representative Jeff Lubar told Housing Wire Friday that the change involved a lender adopting MICA’s own reporting standards, rather than the lender’s switch from the so-called OTS to MBA reporting methodology. The OTS and MBA delinquency reporting methods are among the most common standards used for reporting delinquencies, and can lead to vastly different reporting numbers; most prime lenders/servicers use the OTS method, while the MBA method has been standard for some time among subprime lenders/servicers.

“The lender in question was using 90-days and then conformed to our method,” Lubar said. MICA considers 60 day delinquencies as defaults, he said.

The group did not comment on the identity of the lender/servicer, or why a lender changing their reporting would impact how insurers report on delinquencies to the trade group. Ostensibly, an insurer would know how many loans are 60 versus 90 days delinquent from any number of lenders whose loans it has insured, HW’s sources said — unless a lender was completely miscoding its loans altogether, which would be a much more sinister outcome than MICA suggested publicly in its press statement.

Cures fall, again - or do they?
Cures were similarly affected by the reporting change, MICA said, although it is similarly unclear how a change in reporting defaults would impact reporting of cures.

“Either a loan is modified, reperforming, in a repayment plan, or it isn’t,” said one source, who asked not to be named. “It’s not clear how that would flow through to recorded defaults, unless a lender completely changed how it accounts for its servicing pipeline.”

The trade group reported that 39,584 loans were cured during the month — a steep 21.7 percent drop from March’s 50,585 cures in March. The total number of cures for April was up slightly from 34,347 in cures recorded one year earlier, although the industry’s reported $855.7 billion of primary insurance in force in April was well above the $696.5 billion in force during April of last year, as well.

“While the change in reporting methodology by a major lender has resulted in an increase in reported delinquencies, it is important to note that this is a one-time adjustment,” said Suzanne Hutchinson, executive vice president of MICA. “Overall, the market is returning to fundamentals.

“The year-over-year increase of 11.7 percent in new insurance written reflects that return to quality in the marketplace.”

Mortgage insurers have seen volume return to their business despite tightening underwriting standards, as lenders and investors have shunned second lien originations — primarily of the so-called “piggyback” variety — that had previously siphoned off much of the MI’s core business pipeline.

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

Market Watch has the inevitable story of inflation now completely wiping out any gains that consumer’s have seen in income.  Inevitable, why?  Because the interest rate cuts and massive influx of capital in to the system have set inflation loose.  Gas prices are increasing geometrically, food prices are up, and there was even a heart-rending story of school lunch prices going up 25% in the bay area.

More on inflation from Market Watch:

Inflation erased all the gains in disposable personal income in April, while consumer spending was flat after adjusting for higher prices, the Commerce Department estimated Friday. Personal incomes, consumer spending and consumer prices all increased 0.2% in April, the government said in a report that suggests the economy weakened further in the second quarter of the year even as the first tax-rebate checks began arriving. Employee compensation dropped 0.1% in nominal terms, the first decline in a year.

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(Update 1: Adds confirmation from Lone Star)

As JPMorgan Chase & Co. (JPM: 43.12, -1.03%) formally brings Bear Stearns Cos. into the fold on Friday, one key aspect of the former Wall Street giant won’t be crossing over — Bear Stearns Residential Mortgage Corporation, commonly known as Bear Res.

An internal memo obtained Friday morning by Housing Wire, dated May 30, said that an affiliate of $13.3 billion private equity firm Lone Star Funds, LSF5 Mortgage Operations, LLC, had acquired the Bear Stearns’ wholesale and correspondent lending operation. Lone Star already has a mortgage footprint, having purchased subprime lender Accredited Home Lenders, Inc. in October of last year, in a deal worth an estimated $296 million.

Lone Star spokesman Ed Trissel confirmed the contents of the memo Friday morning, saying that Lone Star had “acquired certain operating assets and rights to certain operating assets of Bear Stearns Residential Mortgage Corporation.”

The memo said that “the majority of the former employees of Bear Res will be offered employment by LSF5 Mortgage Operations, LLC, or … affiliated entities such as Accredited Home Lenders.” Employees may be leased to Accredited, as well.

The memo notes that LSF5 is in the process of applying for the permits “needed to operate as an independent origination and servicing business for its own account,” and that all Bear Res applications will be originated and funded through Accredited until the permit process is complete.

It’s unclear if the Lone Star purchase also includes Lewisville, Texas-based EMC Mortgage Corp., the captive servicing arm associated with Bear Stearns.

The move by Lone Star certainly will raise eyebrows among those in the industry — not only because it appears to be setting up Bear Res separately from Accredited’s own operation, but also because it appears to be building a separate captive servicing platform as well.

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

(Update 1: Adds confirmation from Lone Star)

As JPMorgan Chase & Co. (JPM: 43.12, -1.03%) formally brings Bear Stearns Cos. into the fold on Friday, one key aspect of the former Wall Street giant won’t be crossing over — Bear Stearns Residential Mortgage Corporation, commonly known as Bear Res.

An internal memo obtained Friday morning by Housing Wire, dated May 30, said that an affiliate of $13.3 billion private equity firm Lone Star Funds, LSF5 Mortgage Operations, LLC, had acquired the Bear Stearns’ wholesale and correspondent lending operation. Lone Star already has a mortgage footprint, having purchased subprime lender Accredited Home Lenders, Inc. in October of last year, in a deal worth an estimated $296 million.

Lone Star spokesman Ed Trissel confirmed the contents of the memo Friday morning, saying that Lone Star had “acquired certain operating assets and rights to certain operating assets of Bear Stearns Residential Mortgage Corporation.”

The memo said that “the majority of the former employees of Bear Res will be offered employment by LSF5 Mortgage Operations, LLC, or … affiliated entities such as Accredited Home Lenders.” Employees may be leased to Accredited, as well.

The memo notes that LSF5 is in the process of applying for the permits “needed to operate as an independent origination and servicing business for its own account,” and that all Bear Res applications will be originated and funded through Accredited until the permit process is complete.

It’s unclear if the Lone Star purchase also includes Lewisville, Texas-based EMC Mortgage Corp., the captive servicing arm associated with Bear Stearns.

The move by Lone Star certainly will raise eyebrows among those in the industry — not only because it appears to be setting up Bear Res separately from Accredited’s own operation, but also because it appears to be building a separate captive servicing platform as well.

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

It may or may not be on the ropes, depending on who you believe, but former Alt-A powerhouse Impac Mortgage Holdings Inc. (IMH: 1.09, -3.54%) certainly scored some points for ingenuity this past week. The lender, which reported a disastrous $2 billion quarterly loss last week, said late this week that it is asking its preferred shareholders to give up their dividends.

In a bold move, the Company announced that it is considering making an offer to the holders of its Series B and Series C preferred stock to exchange those shares for common stock of the company. Impac said in a filing with the Securities and Exchange Commission after market close Wednesday that if the exchange is completed on favorable terms it may have the effect of increasing common stockholders’ equity.

Impac shares bounced on the news, but any upswing appears to have been short-lived: after rising to as high as $1.23 earlier this week, shares were trading at $1.12 on Friday morning.

Agency action
Agency mortgage REITs dominated the news in this shortened trading week. A bullish note from JMP Securities appearing in Barron’s over the weekend suggested that the agency mREITs still have room to run, as they have now been able to digest a full quarter of lowered funding rates and been able to fully deploy the capital they raised in the first quarter.

Speaking of capital raises, MFA Mortgage Investments Inc. (MFA: 7.24, +0.42%) might not have been able to bring affiliate MFResidential public last week (no update is available on when the IPO is expected to launch), but it did bring a 40 million share offering of its own to the table this week.

The company is expected to net about $278 million from the offering to pay down its repo lines and grow the portfolio; the offering prompted Keefe, Bruyette & Woods analyst Bose George to boost his rating and price target on the stock. George predicted the move will add 2.5 cents to quarterly earnings, and boosted the stock’s price target to $8 per share. Shares were at $7.27 in early trading Friday on the New York Stock Exchange.

As cheery as things look over at MFA, Hatteras Financial Corp. (HTS: 26.70, +1.21%) might have had the Best Week Ever of its short-lived history thus far as a publicly-traded firm. Kind words from Sy Jacobs, who is the founder and managing member of the Jacobs Asset Management hedge funds, lifted shares to a 52-week high on Wednesday. In an interview with Barron’s over the weekend, Jacobs said his fund is long Hatteras, based on an expected yield of 19 percent and potential to run to $30/share. Shares were at $26.60 on the New York Stock Exchange early Friday morning.

Reverse, reverse
New York Mortgage Trust completed a one-for-two reverse split this week, the company’s second such reverse split in less than a year. NYMT is actively seeking a listing on a national exchange — most likely the American Stock Exchange, sources suggest. The stock price must be above $3/share for an initial listing, which is what likely drove the most recent reverse split.

Shares last traded at $5.10 Thursday, according to available data, so it may be full steam ahead for the former high flyer.

Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past two years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday.

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

It may or may not be on the ropes, depending on who you believe, but former Alt-A powerhouse Impac Mortgage Holdings Inc. (IMH: 1.09, -3.54%) certainly scored some points for ingenuity this past week. The lender, which reported a disastrous $2 billion quarterly loss last week, said late this week that it is asking its preferred shareholders to give up their dividends.

In a bold move, the Company announced that it is considering making an offer to the holders of its Series B and Series C preferred stock to exchange those shares for common stock of the company. Impac said in a filing with the Securities and Exchange Commission after market close Wednesday that if the exchange is completed on favorable terms it may have the effect of increasing common stockholders’ equity.

Impac shares bounced on the news, but any upswing appears to have been short-lived: after rising to as high as $1.23 earlier this week, shares were trading at $1.12 on Friday morning.

Agency action
Agency mortgage REITs dominated the news in this shortened trading week. A bullish note from JMP Securities appearing in Barron’s over the weekend suggested that the agency mREITs still have room to run, as they have now been able to digest a full quarter of lowered funding rates and been able to fully deploy the capital they raised in the first quarter.

Speaking of capital raises, MFA Mortgage Investments Inc. (MFA: 7.24, +0.42%) might not have been able to bring affiliate MFResidential public last week (no update is available on when the IPO is expected to launch), but it did bring a 40 million share offering of its own to the table this week.

The company is expected to net about $278 million from the offering to pay down its repo lines and grow the portfolio; the offering prompted Keefe, Bruyette & Woods analyst Bose George to boost his rating and price target on the stock. George predicted the move will add 2.5 cents to quarterly earnings, and boosted the stock’s price target to $8 per share. Shares were at $7.27 in early trading Friday on the New York Stock Exchange.

As cheery as things look over at MFA, Hatteras Financial Corp. (HTS: 26.70, +1.21%) might have had the Best Week Ever of its short-lived history thus far as a publicly-traded firm. Kind words from Sy Jacobs, who is the founder and managing member of the Jacobs Asset Management hedge funds, lifted shares to a 52-week high on Wednesday. In an interview with Barron’s over the weekend, Jacobs said his fund is long Hatteras, based on an expected yield of 19 percent and potential to run to $30/share. Shares were at $26.60 on the New York Stock Exchange early Friday morning.

Reverse, reverse
New York Mortgage Trust completed a one-for-two reverse split this week, the company’s second such reverse split in less than a year. NYMT is actively seeking a listing on a national exchange — most likely the American Stock Exchange, sources suggest. The stock price must be above $3/share for an initial listing, which is what likely drove the most recent reverse split.

Shares last traded at $5.10 Thursday, according to available data, so it may be full steam ahead for the former high flyer.

Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past two years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday.

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

National home prices posted a record drop in the first quarter, according to mortgage finance giant Freddie Mac (FRE: 25.55, -0.70%), which said late Thursday that its index of conventional mortgage purchases — the Conventional Mortgage Home Price Index, or CMHPI — registered an annualized 10.4 percent drop in the first quarter of 2008. On a rolling four-quarter basis, conforming home sales prices fell an average of 4.4 percent — the largest annual fall in values over the 39-year history of the GSE’s data series.

The GSE doesn’t include appraisals in CMHPI calculations, but it said that adding in appraisals served to mute the decline in prices; home values fell 2.4 percent nationally during the first quarter on an annualized basis when looking at both appraisals and purchases — still the steepest such quarterly decline recorded since 1971. And over the year ending with the first quarter, home values depreciated 0.8 percent on average when including both purchase and refinance transactions — the first such annual drop in index history.

“Particularly striking has been the depth and breadth of home-value decline across the U.S.,” said Frank Nothaft, Freddie Mac vice president and chief economist. “In the CMHPI Purchase-Only Series we saw all nine regions of the country experience price declines at the same time, though to different degrees.”

Price weakness widespread, California leading the way
Forty-six states registered price declines in the first quarter, Freddie said, and 29 states had declines measured from the same time a year ago, according to the CMHPI purchase-only data.

Montana, North Dakota, South Carolina and Wyoming were among the few states that psoted modest price gains during the first quarter — in general, states in which the local economy has remained more vibrant tended to have better home-value performance relative to other states.

Based on annualized quarterly growth rates in the CMHPI Purchase-only series, the West South Central states — Arkansas, Louisiana, Oklahoma, and Texas — showed the smallest decline in home sales prices over the first quarter, at a –1.9 percent rate. Three regions showed double digit declines, including the South Atlantic region, which includes Florida, at –10.1 percent; and the New England region, which includes Massachusetts, at –11.0 percent.

The nation’s worst performing region in the first quarter was the Pacific, which includes California, at an average price drop of –24.8 percent, Freddie Mac said.

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

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