Loss Mitigation

Freddie Mac released a new seller/servicer guide this week with revised rules regarding mortgage refinance and underwriting requirements. For loans with settlement dates on or after May 1, 2011, Freddie Mac will require verification of funds for all refinance mortgages. The GSE is also eliminating streamlined refinances for mortgages it owns and has updated refinance requirements for mortgages secured by properties subject to Property Assessed Clean Energy (PACE) obligations.

The Federal Housing Finance Agency (FHFA) on Tuesday said it has directed Fannie Mae and Freddie Mac to work in coordination with FHFA and HUD to consider alternatives for future mortgage servicing structures and fees for single-family mortgage loans. The current compensation plan is typically based on a minimum servicing fee that is a part of the mortgage rate, which FHFA says decreases flexibility for the servicing of non-performing loans.

Banks already facing many legal issues have yet another group on their hands that is closely examining servicing practices and demanding greater transparency. The Association of Mortgage Investors has released a white paper featuring remedies to restore and stabilize the U.S. mortgage and housing markets. The group of investors accuse servicers of making the mortgage process confusing. Their paper says they look forward to continued reviews and the involvement of state attorneys general.

The Department of Veteran Affairs (VA) has instructed mortgage servicers to advance $1,500 to borrowers completing short sales or deeds-in-lieu (DIL) of foreclosure on VA loans in order to assist with relocation costs. The federal agency says it has a longstanding policy of encouraging servicers to work with veteran borrowers to help them retain their homes or, when that is not feasible, to mitigate losses by pursuing alternatives to foreclosure.

Free online software for the creation of personalized mortgage modification applications under the federal Home Affordable Modification Program (HAMP) and other lender programs is now available from FreeMortgageFix.com. The company says paperwork is undeniably the No. 1 reason for the delays with the HAMP loan modification program and unnecessary denials, and it believes its online program is the answer.

According to a report released Thursday by the Woodstock Institute, vacant homes in the city of Chicago are piling up and costing the city millions of dollars while bringing crime and blight to neighborhoods. According to the report, there were more than 18,000 properties on the city of Chicago's vacant buildings index as of September 2010. Vacant and abandoned properties can rapidly spiral into disrepair, affecting the values of neighboring properties and attracting criminal activity.

A recent report examining the role of private mortgage insurance reveals the instrument serves a vital role in helping to establish stability within the housing market. The study, conducted by Promontory Financial Group, provides a review of how private mortgage insurance policies protect mortgage lenders and investors against the risk of defaulted mortgages by taking on a part of that risk, and how they make private capital more readily available to a broader range of potential borrowers.

As the backlog of foreclosures continues to drive down housing prices, losses on private-label residential mortgage backed securities (RMBS) will increase in 2011, according to Moody's. The forecast for more red ink seeping from home loans sold to investors comes despite the fact that the agency believes the rate at which loans become delinquent will decline during the year. Moody's expects flaws in foreclosure practices that have recently come to light to delay foreclosures by three to six months, further extending the window of losses for investors.

Reports have surfaced that the FDIC is contemplating stricter requirements that would force banks to disclose what potential ramifications a loan modification on a first lien they service would have on an underlying lien. Industry analysts have speculated that servicers may be reluctant to modify a primary loan because the bank that services the loan also holds the second lien. Such an arrangement could be considered a conflict of interest and prompts some to wonder if investors would be swayed if they knew of the arrangement beforehand.

Lenders across the country are facing demands from mortgage investors to buy back faulty loans. Analysts praised Bank of America's settlement with the GSEs earlier the month for setting a precedent that other banks could follow to reconcile with investors, but some community lenders are already ahead of the game. StellarOne Corporation in Virginia says it has reached an agreement with one of its primary mortgage investors to resolve repurchase and indemnification claims to the tune of $1.45 million.