Secondary Market

Citigroup's fourth-quarter results fell far short of analysts' expectations, despite a 40 percent drop in credit losses from the previous year. The company reported net income of $1.2 billion, or 38 cents per share, for the fourth quarter of 2011. Analysts were looking for 50 cents per share. Company officials told investors that legacy mortgage issues are the single largest source of risk facing the U.S. banking industry. Citi saw loan buybacks go up 80 percent in 2011 as it stockpiled reserves for mortgage litigation costs.

The ratings agency Standard & Poor's says investors can cut their losses by basing servicer selection on key performance metrics of default management. The company has come up with a new method to assess residential mortgage servicer performance that looks at how the speed of the servicers' foreclosure processes and the success of their loan modification programs affect investors' losses on nonperforming loans, and S&P says it's found ""significant differences"" among 10 of the largest servicers.

JPMorgan Chase kicked off the earnings reporting season for major U.S. lenders on Friday with its announcement that the company earned a record profit of $19 billion for the 2011 fiscal year. The numbers still failed to meet analysts' expectations, and details of the earnings data show the company continues to struggle with legacy issues stemming from the housing downturn. The company doled out more than $3 billion in 2011 to cover legal proceedings related to its mortgage business.

The performance of private-label residential mortgage-backed securities (RMBS) continues to face many challenges in 2012, with the biggest risk posed by strategic defaults, according to Moody's. The ratings agency says the performance of loan pools backing outstanding RMBS has begun to stabilize, with delinquency levels flat or even dropping as a result of modifications and re-default rates declining. It's the threat of strategic default, particularly in the prime jumbo sector, that has Moody's analysts worried.

Fannie Mae issued new guidelines to its servicers Wednesday, introducing an unemployment forbearance program which provides servicers the flexibility to assist borrowers who have a financial hardship due to job loss, including those facing imminent default. Servicers may offer up to six months of forbearance without obtaining Fannie Mae's prior approval. Another six months can be added with the GSE's okay. Fannie Mae's new directive mirrors the unemployed forbearance guidelines issued by Freddie Mac last week.

With a common goal of economic recovery, Congress and the Federal Reserve diverge on the best means to that end. Should the housing sector finance the government's economic policies, or should the government help boost the housing sector? Federal Reserve Chairman Ben Bernanke submitted a white paper to Congress last week as a framework for policymakers to help the housing market, but that move has drawn the ire of at least one senator.

Marking the fifth consecutive month of decline, home prices fell 0.8 percent in October, matching levels last seen in 2002, according to Lender Processing Services' (LPS) Home Price Index released Wednesday. As of October, the national home price average was $200,000. The year-to-date decline in October was 2.7 percent. The LPS index noted that price declines were consistent across the country. In fact, prices fell in October in 403 out of the 409 metro areas LPS tracks.

Michael Williams has decided to step down from his position as CEO and president of Fannie Mae, the GSE announced today. Williams was appointed to the top post at Fannie Mae in 2009, after the company was placed in federal conservatorship. He will continue as CEO and as a director until Fannie Mae's board names a successor, the GSE said in a statement. Edward DeMarco, head of the Federal Housing Finance Agency, praised Williams for his leadership through a turbulent time for the market and said his agency will work closely with Fannie Mae in the search for a new CEO.

In the third quarter of 2011, mortgage lawsuits reached their highest level since the Mortgage Litigation Index began tracking them in 2007; however, lawsuits involving servicers declined over the quarter. The index, tracked by MortgageDaily.com and prepared along with Patton Boggs LLP, observed 218 cases over the third quarter, up from 190 the previous quarter and 151 in the same quarter last year. Litigation against servicers dropped from 65 cases in the second quarter to 51 cases in the third.

Standing before the Association of American Law Schools in Washington D.C., Federal Reserve Governor Sarah Bloom Raskin discussed the importance of enforcement and monetary penalties in the mortgage servicing industry. Her message stated simply that ""laws and regulations must be enforced."" A lack of enforcement leads to the entrenchment of bad practices and an increase in the costs of correction, Raskin said, calling many of the mortgage servicing industry's practices ""shoddy.""