Loan modifications with principal reduction have significantly increased in the past year, with servicers seeing improved performance compared with other types of mods. The mods remain concentrated on securitized non-agency mortgages as well as portfolio loans, but performance varies considerably. After falling to a 2.7 percent share in the fourth quarter of 2010, principal reduction mods have accounted for a growing share of bank and thrift mod activity, according to the Office of the Comptroller of the Currency. Principal reduction was used in 7.8 percent of the mods completed by nine major bank and thrift servicers in the third quarter of 2011. ...

In 2011, high-touch subprime servicer Carrington Mortgage Services significantly decreased its delinquency processing timelines and had its servicer rating confirmed at the end of the year. The servicer also made adjustments after facing criticism from non-agency mortgage-backed security investors who claimed that Carrington’s practices improperly favored investments made by the hedge fund that also owns the servicer. Carrington serviced $11.73 billion in subprime mortgages as of the end of the third quarter of 2011, according to estimates by Inside Nonconforming Markets. The servicer received a mid-range rating for subprime and special servicing from Fitch Ratings, with the rating service recently confirming that Carrington “demonstrates proficiency in overall servicing ability.” ...

The mortgage securitization and servicing industries say proposed changes to the servicing compensation model for Fannie Mae and Freddie Mac securities would have a negative effect on liquidity in the to-be-announced market, hurt investors in agency MBS and increase the cost of mortgage credit for borrowers. The Federal Housing Finance Agency released a discussion paper last fall that outlined two potential new approaches to servicing compensation: a fee-for-service approach favored by the two government-sponsored enterprises, and a reserve account approach developed by lender...

The Federal Housing Finance Agency’s announcement last week that Fannie Mae and Freddie Mac will increase their guarantee fees on new single-family MBS is likely just the first step in a progression of fee hikes over the next two years, MBS analysts predict. The across-the-board 10 basis point increase in guarantee fees for single-family MBS will take effect April 1, according to announcements by the two government-sponsored enterprises this week. The fee hike implements provisions in the Temporary Payroll Tax Cut Continuation Act of 2011, H.R. 3765, passed by Congress and signed by...

The securitization market produced $1.182 trillion of new residential MBS in 2011, a sharp 16.6 percent decline from the year before, according to a new Inside MBS & ABS analysis. Despite a strong finish in the fourth quarter, when MBS production rose 33.8 percent from the previous three-month period, mortgage securitization activity fell for the second year in a row and reached the lowest annual output in over a decade. The non-mortgage ABS market was relatively stronger. Total issuance for the year came to $126.8 billion, a 15.7 percent increase over 2010. Most of the...(Includes one data chart)

The MGIC Investment Corp. has announced a $200 million capital contribution to its principal mortgage insurance provider, Mortgage Guaranty Insurance Corp., to enable it to continue writing new business and meet statutory capital requirements. The cash infusion was made as Fannie Mae’s approval of the MGIC Indemnity Corp. (MIC) as an eligible mortgage insurer expired on Dec. 31. A regulatory waiver of capital requirements issued by the Wisconsin Office of the Commissioner of Insurance (OCI) two years ago also lapsed on the same date. The MIC and the regulatory waivers are part of a strategy to...

Bank of America reached a landmark $335 million agreement with the Department of Justice to settle allegations that Countrywide systematically discriminated against African-American and Hispanic borrowers during the housing boom, manipulating them into taking subprime loans when they were qualified for prime financing. It’s the largest settlement ever for a residential fair lending claim. The case also marks the first time the Justice Department has alleged and obtained relief for borrowers who were steered into mortgages on the basis of their race or national origin, a practice that placed...

There’s a very good chance the final disposition of securities fraud charges leveled by the Securities and Exchange Commission against six former Fannie Mae and Freddie Mac top executives could be determined at trial rather than by a pre-trial settlement, thanks in part to a recent adverse SEC court decision, according to one legal expert. On Dec. 16, the SEC filed suit in the U.S. District Court for the Southern District of New York, alleging that former Fannie and Freddie executives made material misstatements to the public, investors and the media about the two government-sponsored...

Fannie Mae, Freddie Mac and their federal regulator do not appear to have made much headway in convincing the mortgage industry to support a switch to a fee-for-service approach to servicing government-sponsored enterprise single-family mortgages. The vast majority of comments filed with the Federal Housing Finance Agency in response to its white paper on servicing compensation were from small and mid-sized lenders. The FHFA outlined two possible approaches, including its plan to pay servicers a flat fee of as little as $10 a month to service performing loans, with additional payments for...

President Obama this week moved to break a GOP blockade in the Senate by making a recess appointment of Richard Cordray to become director of the Consumer Financial Protection Bureau, a political maneuver that defies 20 years of precedent and may set the stage for a legal challenge. The Obama administration claimed that it is fully within its Constitutional authority to place the new director into his position, dismissing as a gimmick the pro-forma sessions Republicans used to block the nomination. A number of consumer groups came out in support of the appointment. The president’s allies in Congress were...