Loss Mitigation

The Federal Reserve has issued new rules intended to protect consumers from deceptive mortgage lending, including explicit restrictions on how mortgage brokers and loan officers can be compensated. Specifically, the impending payment requirements, which go into effect next April, prohibit loan originators from double-charging for origination fees and from steering borrowers into less-than-optimal loan products in return for higher compensation. Moody's says these changes will translate into a lower probability of default on mortgage loans.

Mariner Real Estate Management has announced the purchase of a portfolio of approximately 1,100 residential and commercial loans from 20 failed banks. The real estate investment and management firm conducted the $760 million transaction with the FDIC. Mariner paid about $52 million for a 40 percent managing member interest in the limited liability company created by the FDIC to hold all the loans and REO assets.

Rock-bottom interest rates and less-than-encouraging economic data have kept mortgage-backed securities (MBS) investors worried about what the government could do next to prop up the ailing housing market, with the latest concern stemming from a recent announcement by Freddie Mac, according to Barclays Capital. The GSE has issued a new servicing guide detailing an ""easy refinance"" option with loan-to-value ratios up to 95 percent and $2,000 cash back to the borrower. Barclays says the program ""is everything but new.""

Ocwen Financial Services closed its purchase of HomEq Servicing last week. The $1.3 billion deal with HomEq parent Barclays Bank was initially announced in May. The transaction aligns two of the foremost names in the business of servicing distressed mortgages. As part of an organizational restructuring, Ocwen says it will close down two HomEq offices in California and North Carolina, and lay off more than 1,000 HomEq staff members.

A faction of House Democrats have called on Treasury Secretary Timothy Geithner and Fannie Mae's regulator to suspend the GSE's recently announced policy to sue homeowners who strategically default on their mortgage. The group of lawmakers, led by Rep. John Conyers, Jr. of Michigan, called the policy ""opaque, overbroad, and punitive."" They decried Fannie for using taxpayer dollars to penalize underwater homeowners, and maintained that the policy runs counter to the national need to stem a devastating tide of foreclosures.

After falling for five straight months, the Federal Housing Administration's (FHA) delinquency rate held steady in July at 8.3 percent. At the beginning of 2010, the rate stood at 9.4 percent. HUD also issued guidelines for FHA's new insurance premium structure, which takes effect next month. The annual premium will increase from 0.55 percent to between 0.85 percent and 0.90 percent of the loan amount. At the same time, though, the upfront premium has been reduced by 100 basis points from the current 2.25 percent.

The uptick in bank failures is further deteriorating the nation's liquidity crisis, according to Andy Bogdanoff, chairman of Remington Capital, an international commercial real estate investment banking company. This surge in bank closings may ignite more bankruptcies for commercial real estate owners in need of financing, he warns, particularly since some $1.2 trillion in commercial mortgage debt is scheduled to mature over the next few years and most U.S. banks are unable or unwilling to extend new credit.

The nation's largest mortgage company is about to start cracking down on servicers for letting delinquent loans languish too long without action. Fannie Mae has issued a notice alerting servicers that it is monitoring all delinquent loans to ensure foreclosures are handled within an acceptable time frame, and may assess penalties for poor servicer performance. By the tone of Fannie's announcement, the GSE wants these nonperformers off its books as quickly as possible.

The industry has completed 1.13 million permanent loan modifications for at-risk homeowners so far in 2010, according to data released Wednesday by HOPE NOW. The organization also reports that since January of this year, mortgage delinquencies of 60 days or more past due have dropped 20 percent, but the data supports the assumption that the decline is simply the byproduct of an increase in foreclosures. July's foreclosure starts outpaced loan mods during the month by nearly 90 percent.

As an alternative to its registry of foreclosed properties and property preservation contacts for vacant properties, the city of Los Angeles is adopting the MERS System, an electronic loan registry that acts as a nominee in county land records on behalf of lenders and servicers. MERS members can use the system to track both residential and commercial properties. Users tout the benefits of the technology as saving code enforcement officials and municipalities both time and money to ensure vacant properties are maintained.