The delinquency rate on subprime mortgages at the end of 2011 hit levels not seen since 2008, but analysts warn that subprime performance could worsen as borrowers are unable to refinance and negative equity increases. The seasonally adjusted delinquency rate for subprime mortgages fell to 20.8 percent at the end of 2011, according to the Mortgage Bankers Association. The rate has declined in each of the past seven quarters from a peak of 27.2 percent in the first quarter of 2010. However, a number of factors suggest that delinquency rates on non-agency mortgages will increase ...

The $25.0 billion servicing settlement is just the latest step toward standardized servicing regulation, according to industry analysts. Many non-agency servicers have taken major steps to prepare for an overhaul of servicing regulation, though increased costs are a concern. “It appears that non-agency MBS servicers have already made significant operational changes in an effort to address process deficiencies identified in this settlement and by regulators,” Fitch Ratings said. As with federal consent orders several servicers agreed to last year ...

Citigroup, Inc. this week agreed to settle a civil fraud lawsuit with the Manhattan U.S. Attorney’s Office and the Department of Housing and Urban Development alleging reckless mortgage lending practices. The $158.3 million settlement was reached on Feb. 15, hours after Preet Bharara, the U.S. Attorney for the Southern District of New York, filed a civil fraud lawsuit against CitiMortgage, a subsidiary of Citibank. The suit sought treble damages and civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the False Claims Act, a federal Civil War-era statute Congress passed to ...

Excluding streamlined FHA refinancing from the “Compare Ratio” loan review process to facilitate refinancing of underwater non-agency mortgages, as proposed by the Obama administration, would make sense. At the margin, however, the proposal would increase Ginnie Mae prepayment speeds on higher-coupon borrowers, analysts cautioned. The proposal is part of a broader administration plan for housing recovery, which calls on Congress to provide non-agency borrowers with access to low-cost refinancing through FHA, and fully streamlined refinancing for borrowers with Fannie Mae or Freddie Mac loans. Underwater borrowers who opt for streamlined refinancing in either agency or non-agency programs would have ... [one data chart]

Total delinquency rates and foreclosure start rates decreased for all loan types on a quarter-over-quarter basis, except FHA loans, according to the Mortgage Bankers Association’s National Delinquency Survey for the fourth quarter of 2011. All delinquency and foreclosure measures for FHA loans were up over the previous quarter because the agency’s book of business experienced rapid growth, and purchase loans originated in 2008 and 2009 are now only entering the peaks of a normal delinquency, the MBA explained. On a seasonally adjusted basis, the delinquency rate for FHA loans increased 27 basis points to 12.36 percent and the foreclosure inventory rate rose by ... [one data chart]

While the multistate servicing settlement reached by 49 states, federal officials and the nation’s five largest servicers gets the state and federal attorneys off the banks’ backs in regards to servicing and foreclosure, the banks are still wide open to servicing lawsuits from individuals, criminal charges and litigation over their securitization activities. “This is only one part of a long resolution process,” said Richard Andreano, practice leader of Ballard Spahr’s mortgage banking group. Despite complaints from a wide swath of consumer protection groups that the $25 billion in penalties to be...

The Federal Housing Finance Agency’s own data prove that reducing the principal owed on underwater Fannie Mae and Freddie Mac loans would actually save taxpayers money, contrary to the agency’s position that writedowns are against taxpayer interests, according to House Democrats. In a letter last week to FHFA Acting Director Edward DeMarco, Reps. Elijah Cummings, D-MD, and John Tierney, D-MA, labeled the agency’s report justifying its policy against principal reduction as “seriously deficient and misleading.” “We understand that the FHFA is not part of the Obama administration, and that you do not take...

Industry insiders are cautiously expressing optimism about widespread reports that the Federal Housing Finance Agency is having second thoughts about implementing its proposed overhaul of mortgage servicing compensation in the face of massive lender pushback.Numerous published reports have fueled the industry’s expectation that the FHFA is working to tactfully back away from proposed alternatives for a government-sponsored enterprise compensation model intended to benefit servicers, consumers and investors.The Finance Agency’s September discussion paper set out two alternatives for changing the current 25 basis-point minimum fee compensation method for mortgage loan servicers. One alternative would reduce the minimum-servicing fee to as low as 12.5 bps payment with a 5 bps reserve fund, and the second alternative would institute a fee-for-service method whereby the loan servicer would be compensated with a flat fee per month for each performing loan they service.

The five large mortgage servicers that agreed to a $25 billion settlement with 49 state attorneys general this week have already established more than enough reserves to cover their costs, analysts say. Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial agreed to pay $20.0 billion in financial relief to homeowners and $5.0 billion to federal and state governments, of which $1.5 billion will be used to compensate some borrowers who have gone through foreclosure. Both the Federal Reserve Board and the Office of the Comptroller of the Currency levied separate monetary penalties...

A number of small to mid-size mortgage firms appear to be taking a second look at holding onto their newly created mortgage servicing rights. There are a handful of forces at work driving this dynamic for smaller companies. First, some big servicers such as Bank of America are dumping their MSRs, in some cases because of the increasingly unattractive legal environment, while others are trying to align their portfolios for the upcoming Basel III capital framework or reacting to hedging strain in a low interest-rate environment. Additionally, the economics are developing in such a way as to encourage smaller...