Special Servicers Benefit from HARP; Future Uncertain

Special Servicers Benefit from HARP; Future Uncertain

Three special servicers—NationstarOcwen, and Walter Investment Corp.—released their fourth-quarter and year-end earnings reports with revenue increases and increasingly active originations sectors.

Nationstar reported net loss of $51 million in the fourth quarter and an income of $217 million for the full year in 2013, up 6 percent from the previous year’s net income. Nationstar is the sixth-largest servicer and the 12th-largest mortgage loan originator, according to the company’s earnings report.

Over the year, Nationstar increased its unpaid principal balance by 90 percent with $250 billion in unpaid principal balance added to its portfolio. At the same time, Nationstar upped its loan origination activity by 200 percent. Nationstar originated about 62,000 refinance loans through the federal Home Affordable Refinance Program (HARP).

“Although origination margins came under pressure in the fourth quarter, our current originations are profitable and we are confident this business will continue to be profitable in 2014 with its more focused footprint,” said David Hisey, CFO at Nationstar.

Ocwen reported $105 million in income in the fourth quarter and $294 million for the year. Ocwen also reported $556 million in revenue in the fourth quarter, up 135 percent from the previous quarter, and $2 billion in revenue for the year, up 141 percent from the previous year.

Ocwen completed nearly 30,000 loan modifications, about 54 percent of which included principal reduction in the fourth quarter. Ocwen’s servicing portfolio has a 14.5 percent delinquency rate as of year-end, down slightly from 14.6 percent in the third quarter. Prepayments are on the decline at Ocwen, falling to about 13 percent in the fourth quarter, and the company expects the trend to continue.

Having set a goal to purchase “at least the prior quarter’s earnings in the three months following its earnings announcements,” Ocwen repurchased 1.13 million shares of its common stock for about $60 million in the fourth quarter.

“Our solid financial performance enabled us to initiate a stock repurchase program in the fourth quarter while maintaining the strongest capital ratios among our peers,” said Bill Erbey, chairman of Ocwen.

Erbey went on to address its recently-halted deal with Wells Fargo to purchase servicing rights from the large bank: “We are working cooperatively with the New York Department of Financial Services to address its concerns that led to an indefinite hold on our transaction with Wells Fargo.”

Compared to a net loss in income last year, Walter Investment Management Corp., reported a net income of $253.5 million for 2013. The company’s fourth-quarter income totaled $9.8 million.

Walter’s total revenue for the fourth quarter was $402.8 million. Servicing contributed $162.9 million in the fourth quarter; originations contributed $135.8 million; and reverse mortgages brought in $39.1 million over the quarter. The company originated more than 63,000 HARP loans in 2013.

“During 2013 Walter Investment executed against its strategic plan, profitably growing its Servicing business, launching its Originations platform to opportunistically harvest the HARP opportunity and extending its core competencies to the reverse mortgage market,” said Mark J. O’Brien, Walter Investment’s Chairman and CEO. “We more than doubled the serviced book of business to over $200 billion of UPB.”

Walter Investment was also the top issuer of home equity conversion mortgages last year, according to the company’s earnings release.

While the three special servicers were active contributors to HARP in the fourth quarter, this sector is expected to decline in the near-term.

“HARP refinances continue to be the major driver of earnings in our lending business,” said Ron Faris, president and CEO of Ocwen. “However, we expect this volume will begin to decline over the next few months as the number of HARP-eligible loans decreases.”

While special servicers continue to profit by working through delinquencies resulting from the financial crisis and temporary government programs such as HARP, there is some uncertainty as to their future.

At least one group of analysts suggests special servicers might “become the next generation of non-prime originators,” according to a report earlier this year from Moody’s.


New Report Says 2013 GSE Revenue ‘Will Not be Repeated’

New Report Says 2013 GSE Revenue ‘Will Not be Repeated’

Strong fourth-quarter 2013 earnings by Freddie Mac capped a year of unprecedented financial gains for the government-sponsored enterprises (GSEs), but reflect several one-time items, according to a release issued by Fitch Ratings.

Fitch comments, “While results of the type posted in 2013 will not be repeated, Fitch Ratings expects increased guarantee fees (g-fees) and improving mortgage credit quality to support continued profitability for the GSEs this year.”

The dividends paid by both Fannie and Freddie total $15.4 billion more than total Treasury draws, with no mechanism currently in place to reduce the amount of senior preferred stock outstanding.

The release notes the substantial 2013 revenue brought in by the two companies was not likely to be repeated, due to “significant nonrecurring items related to deferred tax allowance (DTA) valuation reversals, private label RMBS lawsuit settlements, increased representation and warranty settlements, and sizeable decreases in loan loss reserves, which were mainly driven by improvements in the housing market and better asset quality.”

Fitch believes that net income will shrink in 2014, as mandated reductions in GSE on-balance sheet assets will push spread income downwards.

The Treasury is expected to draw more frequently, according to Fitch Ratings, due to the GSE’s capital reserve buffers being reduced.

“The buffers dropped from $3.0 billion in 2013 to $2.4 billion in 2014 for each of the GSEs and will eventually be reduced to zero by 2018,” Fitch said.

The remaining availability under the Treasury agreement for Fannie Mae is $117.6 billion. Freddie Mac’s availability is slightly higher at $140.5 billion.

The release noted that the settlement of legal claims could remain a potential source of earnings in 2014, although lower than earnings from settlements in 2013.

January Construction Spending Up .1% from December

January Construction Spending Up .1% from December

Construction spending saw an unexpected—albeit slight—uptick in January, according to monthly data released by the Census Bureau.

The government’s latest report shows spending on all construction projects was up 0.1 percent from December, coming to an estimated seasonally adjusted annual rate of $943.1 billion. That figure is 9.3 percent ahead of January 2013’s estimate of $863.1 billion.

Economists polled by Reuters had expected a 0.5 percent decline in spending to follow December’s originally reported 0.1 percent improvement.

Private construction spending led the way, gaining 0.5 percent month-over-month to an annual adjusted rate of $670.8 billion. Spending on private homebuilding projects was at a rate of $359.9 billion, 1.1 percent above December’s revised estimate.

Breaking down the numbers, spending on new single-family construction was at a rate of $186.0 billion, up 2.3 percent month-over-month, while multifamily spending came to $36.3 billion, up just 1.0 percent.

On the public side, spending was down 0.8 percent to an adjusted rate of $272.3 billion, with residential projects contributing about $4.5 billion (down 13.4 percent compared to December).


CFPB Reform Bill Passes in the House

CFPB Reform Bill Passes in the House

Some changes may be on the horizon for the Consumer Financial Protection Bureau (CFPB). The U.S. House of Representatives passed H.R. 3193, The Consumer Financial Freedom and Washington Accountability Act, which would bring more “accountability and transparency” to the CFPB, according to Representative Sean Duffy (R-Wisc), the bill’s sponsor.

The bill passed the House, 232-182.

H.R.3193 is a collection of bills that aims to bring more oversight to the CFPB.

Included in the bill are provisions to replace the CFPB director with a five-member commission, appointed by the president and confirmed by the Senate. The bill would also align the CFPB’s governance with other, similarly-charged government agencies that protect consumers and investors.

Rep. Duffy said in a press release, “This is the right thing to do. Let’s empower Congress and the American people. Let’s reform the CFPB and actually make it work.”

Additionally, the bill would separate the CFPB into a stand-alone agency, rather than a bureau within the Federal Reserve System.

The bill, “Prohibits the CFPB from using a consumer’s private, personal financial information without the consumer’s knowledge and consent. The CFPB is currently engaged in a massive, multi-million dollar data collection effort of consumers’ financial information,” according to a press release issued from Rep. Duffy’s office.

The bill now heads to the Senate for consideration.

Virginia Bank Closed, Fourth Collapse of 2014

Virginia Bank Closed, Fourth Collapse of 2014

The Federal Deposit Insurance Corporation (FDIC) announced Friday in a press release the closing of Millennium Bank, National Association of Sterling, Virginia. The bank was closed by the Office of the Comptroller of the Currency, which appointed the FDIC as the bank’s receiver.

To protect depositors, the FDIC entered into a purchase and assumption agreement with WashingtonFirst Bank of Reston, Virginia. WashingtonFirst will assume all of the deposits of the recently closed Millennium Bank.

The two branches of Millennium Bank, N.A. will reopen as branches of WashingtonFirst Bank during normal business hours.

According to the release, “As of December 31, 2013, Millennium Bank, N.A. had approximately $130.3 million in total assets and $121.7 million in total deposits.”

WashingtonFirst Bank will pay the FDIC a premium of one percent to assume the closed bank’s deposits, and “agreed to purchase essentially all of the failed bank’s assets,” according to the FDIC press release.

The release commented, “The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.7 million. Compared to other alternatives, WashingtonFirst Bank’s acquisition was the least costly resolution for the FDIC’s DIF.”

Millennium Bank, N.A. is the fourth FDIC-insured institution this year, after Syringa Bank was shuttered earlier in the year. The bank’s closing was the first in Virginia this year, and the latest closed in the state since Bank of the Commonwealth, Norfolk, was closed on September 23, 2011.

Depositors of Millennium Bank can continue to access their money through checks, or local ATMs. Checks drawn will continue to be processed, and loan customers should make payments as usual.

Foreclosure Inventory Drops by One-Third, Still Elevated

Foreclosure Inventory Drops by One-Third, Still Elevated

Foreclosure inventory in January was down by one-third over the year, although completed foreclosures ticked up over the month, according to CoreLogic’s National Foreclosure Report released Thursday.

Demonstrating an 11.8 percent increase over the month, completed foreclosures totaled 48,000 in January. However, despite the monthly increase, foreclosures were down 19 percent over the year. January’s total remains elevated compared to a historical norm of 21,000 foreclosures per month by CoreLogic’s standard.

Having declined for 27 consecutive months, the foreclosure inventory stands at 794,000, a 33 percent drop from 1.2 million last January, according to CoreLogic. About 2 percent of all mortgaged homes were part of the foreclosure inventory in January, according to CoreLogic’s data, while Black Knight Financial Services reported the rate at 2.37 percent in its foreclosure inventory report released the same day as CoreLogic’s.

“We expect to see continued progress in the months ahead, but the judicial foreclosure states will continue to lag the rest of the country in working down their backlogs of foreclosed properties,” said Anand Nallathambi, president and CEO of CoreLogic.

In non-judicial states, there are 954 mortgages per foreclosure, while in judicial states, the ratio stands at 896 mortgages per foreclosure, according to CoreLogic chief economist Mark Fleming, who points out, “Although this is a big improvement relative to the height of the foreclosure crisis, a healthier ratio would be one in every 2000.”

However, in January, non-judicial states dominated the top five list of states with the highest numbers of completed foreclosures over the year. Florida was the only judicial state in the top five, ranking No. 1 with 116,121 foreclosures. The remaining four states included Michigan (52,000), Texas (39,000), California (38,000), and Georgia (35,000). As in December, these states accounted for almost half the nation’s foreclosures over the 12 months ending in January.

States where the fewest foreclosures were completed over the 12-month period include the District of Columbia (60), North Dakota (427), Hawaii (526), West Virginia (543), and Wyoming (732). Foreclosure inventories were highest in Florida (6.4 percent), New Jersey (6.3 percent), New York (4.8 percent), Connecticut (3.4 percent), and Maine (3.4 percent).

While Florida topped both lists, the state’s foreclosure numbers are improving with inventory down 0.3 percentage points from December to January and completed foreclosures declining from 119,000 to 116,121. However, the state also claims the highest serious delinquency rate in the nation with 10.9 percent of loans at least 90 days past due.

Foreclosure inventories were lowest in Wyoming (0.4 percent), Alaska (0.5 percent), North Dakota (0.6 percent), Colorado (0.5 percent) and Nebraska (0.6 percent).

Of the nation’s largest core-based statistical areas(CBSA), Atlanta-Sandy Springs-Roswell, Georgia topped the list for completed foreclosures over the 12 months ending in January. The CBSA reported 20,502 foreclosures over the year.

Tampa-St. Petersburg-Clearwater, Florida ranked second with 16,950 foreclosures, followed by Chicago-Naperville-Arlington Heights, Illinois (14,718); Orlando-Kissimmee-Sanford, Florida (11,750); and Phoenix-Mesa-Scottsdale, Arizona (11,283).

At the bottom of the list, two CBSAs reported fewer than 1,000 foreclosures over the year in January–Nassau County-Suffolk County, New York (737) and Newark, New Jersey-Pennsylvania (860).

Freddie Mac Reports Continued Quarterly Gains

Freddie Mac Reports Continued Quarterly Gains

Freddie Mac released on Thursday its quarterly earnings report for the end of 2013, revealing yet another strong quarter—the ninth straight.

Net income at the enterprise totaled $8.6 billion in Q4, bringing total 2013 profits up to $48.7 billion. According to the company, full-year earnings were spurred by the ongoing housing recovery, legal settlements totaling $7.7 billion, and a tax benefit of $23.3 billion—meaning these levels of earnings won’t be sustainable over the long term.

For all of 2013, Freddie Mac reported providing liquidity for 1.6 million refinances; 515,000 home purchases; and 388,000 multifamily rental units. The company also reported nearly 168,000 total foreclosure avoidance actions, about half of which were loan modifications.

Freddie’s dividend payment to Treasury will come to $10.4 billion, bringing its total government payments up to $81.8 billion, well above the $71.3 billion the company received in its crisis-era bailout. Per the GSEs’ respective agreements with Treasury, each enterprise will continue to make payments despite having made taxpayers whole.

The latest earnings report comes one week after Fannie Mae revealed full-year earnings of $84 billion, including $6.5 billion in Q4. Like Freddie, Fannie benefited largely from one-time factors and “does not expect to repeat its 2013 financial results.”

The fourth-quarter reports create more questions regarding the government’s plan to reform housing finance and reduce its own role in the market. While policymakers have pushed on a few plans to wind down the GSEs and restore private liquidity, neither the House nor the Senate have moved the ball forward meaningfully on reform.

And with time running by on the 113th Congress, that chance may slip until next year, say former senators George Mitchell and Mel Martinez, who, as co-chairs for the Bipartisan Policy Center’s Housing Commission, were among the first last year to propose eliminating Fannie and Freddie in favor of the  backstop of a “limited government guarantee.”

“While there are significant differences among the various reform approaches, these differences are not insurmountable,” the two write in a blog post for The Hill. “With the legislative clock ticking away, it would be unfortunate if all the momentum that has been generated for reform were squandered through inattention, lack of focus or broader politics.”