Subprime Mortgages

November was a challenging month for private mortgage insurance companies, which saw the amount of primary new insurance written fall to $5.8 billion from $7.7 billion in October. November is the fourth consecutive month in which the issuance of new insurance hit a new low for the members of the Mortgage Insurance Cos. of America. PMI applications also tumbled from 55,085 in September to 39,098 in November, MICA said. Meanwhile, defaults edged up to 82,978 and the cure/default ratio edged down to 53%. Outstanding PMI in force totaled $799.5 billion, down by less than 1% from November 2007. MICA's numbers do not include any information from Radian or Triad. (Radian has rejoined MICA and will be reporting in the future.)

Mortgage Bankers Association data on mortgage applications from the week ended Dec. 26 show the number of apps to be "little changed" from week to week. "The Market Composite Index, a measure of mortgage loan application volume, was 1245.7, essentially unchanged, on a seasonally adjusted basis from 1245.4 one week earlier," the MBA said. The trade group noted that its adjustments included one that accounts for the fact that the week was shortened by the Christmas holiday. On an unadjusted basis, the index fell 40% from the previous week and 155% from a year earlier. However, the four-week moving average for the seasonally adjusted Market Index was up 10.3%, and while this same seasonally adjusted average for the Purchase Index was down 3.2%, it was up 15.7% for the refinance index. On a week-to-week basis, purchases inched up by 1.4% and refinance volume inched down by 0.4%, with refinances representing 82.9% of the applications in the market, down slightly from 83.2% the previous week. The seasonally adjusted Conventional Purchase Index edged up by 1.1% from the previous week and the Government Purchase Index increased by 2.2% during the same period. Adjustable-rate mortgage activity remained unchanged from the previous week at 0.8% of total applications.

The National Association of Mortgage Brokers is opposing implementation of reforms that would prohibit brokers from picking or working with appraisers in mortgage transaction. The appraisal code of conduct that Fannie Mae and Freddie Mac, along with their regulator, have agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo tries to ensure that loan officers and brokers don't influence or interfere with the property valuation process. The code is slated to go into effect May 1 and applies to loans purchased by Fannie and Freddie. "This agreement will create a severe disadvantage to small business mortgage brokers, and prevent them from engaging competitively in the mortgage marketplace," said NAMB president Marc Savitt.

Home price declines are showing signs of easing but it's too early to declare a bottom, according to preliminary figures compiled by First American CoreLogic. The company released an early preview of its November findings, showing that prices declined at a rate of 9.6% in November, compared to 10.4% and 11.2% in October and September, respectively. "The consistent deceleration over the past two months with November indicating the same trend in price declines is encouraging because it could portend the trough in price declines," said Mark Fleming, chief economist for First American CoreLogic. But the economist cites continued job layoffs and a huge inventory of unsold homes as major negatives weighing on the housing market. Roughly $2 trillion in home equity has been wiped out over the past year. California cities continue to lead the pack in terms of price declines, according to the company. Salinas has suffered the most among California cities with values falling by almost 30%.

A new report shows that banks and thrifts are more successful at modifying mortgages they own than the loans they service for other investors and Fannie Mae and Freddie Mac. Only 51% of bank-owned modified loans had missed a payment after six months, compared to 61% for private investors, according to a third quarter mortgage metrics report issued by the Office of the Comptroller of the Currency and Office of Thrift Supervision. The joint report noted that 58% of Freddie modified loans were 30-day past due after six months and 57% of Fannie loans were delinquent. "The lower re-default rate for loans held by servicers may suggest that there is greater flexibility to modify loans in more sustainable ways when loans are held on the servicer's books than when loans have been sold to third parties," the report says. OCC and OTS collected the data from nine national banks and five thrifts with the largest servicing portfolios.

Hope Now servicers are planning to step up their loss mitigation efforts in 2009 and modify two million loans -- double the number of modifications this year, according to the private sector alliance. The alliance said servicers completed 107,800 repayment plans and 99,800 loan modifications in November to help homeowners avoid foreclosure. Hope Now projects the tally for modifications for all of 2008 will be 950,000. "We expect to double that to two million for 2009," said Steve Bartlett, president and chief executive of the Financial Services Roundtable. Mortgage Bankers Association chief operating officer John Courson stressed Hope Now will be more aggressive and employ new strategies to help troubled homeowners. "Stay tuned," he told reporters. The two trade group executives said they would welcome federal funding for foreclosure prevention efforts. And they support a FDIC plan would provide federal loan guarantees for modified loans.

Mortgage lenders funded just $20.58 billion in second liens during the third quarter, an 82% decline from the same period last year, according to exclusive survey figures compiled by National Mortgage News. A year ago the industry funded $116 billion in seconds. The figures include both open-end HELOCs and closed-end seconds. In the second quarter, home equity originations totaled $42 billion. Over the past 18 months second-lien funders of all stripes have severely curtailed the size of loans they are willing to fund and exited certain markets where home prices have fallen the most. Also, many lenders no longer use seconds in 80-10-10 and 80/20 structures. The top five funders experienced declines ranging from 61% to 81% in 3Q. Bank of America ranked first among second liens lenders in the third quarter, originating $5.8 billion compared to $21.1 billion in the same period last year, a 72% decline, according to figures compiled by NMN and the Alternative Products Quarterly Data Report. Chase ranked second with $2.6 billion (down 77%), followed by Wells Fargo & Co. ($2.5 billion/down 61%).

Fitch Ratings, New York, has downgraded to RPS4 the primary servicer, master servicer and special servicer ratings for Residential Capital LLC, Minneapolis. The rating downgrades are due to ResCap's deteriorating financial condition, specifically the continued pressure on ResCap's liquidity position and financial flexibility and the potential impact on the company's servicing operations. A company's financial condition is an important component of Fitch's servicer rating analysis, the rating agency explained. As of June 30, 2008, ResCap serviced 3.1 million loans for $437 billion. The servicing portfolio was comprised of 14.3% non-agency prime first and second liens, 9.7% subprime first and second liens, 8.1% Alt-A, 2.4% HLTV, and 9.5% HELOC products, with the balance consisting of conventional conforming, FHA, VA, and manufactured housing loans. ResCap's master servicing portfolio was comprised of over 592,000 loans for $119.3 billion.

The Market Composite Index, an overall measure of mortgage applications, decreased 7.1% on a seasonally adjusted basis from 857.7 to 796.8 during the week ended Dec. 5, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index decreased 17.4% to 298.1 on a seasonally adjusted basis, while the Refinance Index decreased 0.9% to 3767.3. The application indexes both shot up during the week ended Nov. 28 as interest rates plummeted. Refinancings continued to boom, representing 73.7% of total applications, up from 69.1% the previous week, while adjustable-rate mortgages accounted for 1.1%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased 2 basis points from 5.47% to 5.45%, and points (including the origination fee) increased from 1.16 to 1.23 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Mortgage bankers will foreclose on 8.1 million homes over the next four years, representing 16% of all outstanding residential loans in the U.S., according to a new report issued by Credit Suisse. Back in April CS forecast 6.5 million foreclosures, or 13% of outstanding mortgages. The Wall Street firm says it favors a plan by Treasury to create a 4.5% mortgage using mortgage-backed security issuance but believes the agency "should target an even lower rate in foreclosure hot zones where entire neighborhoods are at risk." CS analyst/managing director Rod Dubitsky estimates that within two years 72% of consumers with a subprime loan - and 83% of payment-option ARM borrowers - will be in a negative equity position if home prices fall 15%. Mr. Dubitsky spoke at the annual housing forum sponsored by the Office of Thrift Supervision on Monday afternoon.