STATE OF THE MORTGAGE MARKETS IN 2008: What Mortgage/Capital Market Participants Can Expect Next and What One Might Need to Do if Litigation Occurs - PowerPoint PPT Presentation

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STATE OF THE MORTGAGE MARKETS IN 2008: What Mortgage/Capital Market Participants Can Expect Next and What One Might Need to Do if Litigation Occurs

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Title: STATE OF THE MORTGAGE MARKETS IN 2008: What Mortgage/Capital Market Participants Can Expect Next and What One Might Need to Do if Litigation Occurs


1
STATE OF THE MORTGAGE MARKETS IN 2008What
Mortgage/Capital Market Participants Can Expect
Next and What One Might Need to Do if Litigation
Occurs
Wednesday, February 20, 2008
2
Secondary Market Implications, Likely Litigation
and Other Controversies for Loan Modifications
under the ASF/ Treasury Plan
  • Daniel G. Murray

3
Part I American Securitization Forum ASF
  • Industry-developed, recommended framework for
    securitized subprime servicers to fulfill
    existing obligations and maximize recoveries on
    loans for the benefit of investors.
  • ASF estimates 1.2 million subprime adjustable
    rate mortgages (ARMs) are expected to be eligible
    for fast track refinancing or loan modification
    under the ASF Framework.
  • Targets ARMs approaching first reset between
    January 1, 2008 and July 31, 2010.
  • Servicers are encouraged to apply the ASF
    Framework, but are not obligated to.

4
Part I American Securitization Forum ASF
  • Non-Binding Individual loan servicers, pursuant
    to their obligations under existing contracts,
    decide which borrowers will receive assistance.
  • In implementing this statement, each servicer
    will not take any action that is prohibited by
    the pooling and servicing agreement or other
    applicable securitization governing document.

5
Part I American Securitization Forum ASF
  • Examples of Standard Servicing Agreement
    Modification Provisions
  • Type 1 Servicer may waive, modify or vary any
    term of any Mortgage Loan or consent to the
    postponement of strict compliance with any such
    term or in any manner grant indulgence to any
    Mortgagor if in the Servicers good faith
    determination such waiver, modification,
    postponement or indulgence is not materially
    adverse to the interest of the Certificateholders,
    including, but not limited to, a modification
    that would extend the term of any Mortgage Loan
    with an original term to maturity of less than
    360 months to 360 months, or a modification that
    would convert the adjustable Loan Rate to a fixed
    Loan Rate.

6
Part I American Securitization Forum ASF
  • Type 2 The Servicer may not (a) permit
    modification or modify any loan to change the
    Mortgage Rate, reduce or increase the principal
    balance or change the final maturity date of the
    loans (unless mortgagor is in default or default
    is reasonably foreseeable) or (b) permit
    modification or modify, waive or amend any term
    of the loans that would both (i) effect an
    exchange or re-issuance of such loan under
    Section 1001 of the Code (or Treasury regulations
    promulgated thereunder) and (ii) cause any Trust
    REMIC to fail to qualify as a REMIC under the
    Code or the imposition of any tax on prohibited
    transactions or contributions after the startup
    date under the REMIC provisions.

7
Part II Summary of Recent Loan Modifications
  • No hard data has been released on the number of
    subprime borrowers that have actually received
    help from the rate-freeze programs under HOPE NOW
    and the newly created Project Lifeline.
  • In the second half of 2007, the industry assisted
    an estimated 869,000 prime and subprime loans
    and, coincident with the formation of HOPE NOW,
    the loan modification rate in the fourth quarter
    doubled over the rate in the third quarter.

8
Part II Summary of Recent Loan Modifications
  • Only 150,000 of the 545,000 subprime loan
    work-outs were true loan modifications.
    Repayment plans, accounted for 72 of the
    work-outs.
  • Despite claims that HOPE NOW has helped roughly
    545,000 subprime borrowers during the second half
    of 2007, 33 more people actually lost their
    homes than in the first six months of the year.

9
Part III Increased Loan Limits Under the 2008
Economic Stimulus Plan Act
  • GSE Loan Limit Increases
  • Temporary Increase in GSE Conforming Loan Limits
  • Before Increase- Fannie Mae and Freddie Mac were
    only able to purchase loans under 417,000.
  • For areas where 125 of the median house price is
    less than or equal to the GSE limit, the GSE
    limit is set at, and can go no lower than, the
    GSE limit of 417,000.
  • For high cost areas where the calculation of 125
    of the median house price exceeds the GSE limit
    the new GSE limits are calculated based on 125
    of the area median house price up to 175 of the
    GSE limit or 729,750.

10
Part III Increased Loan Limits Under the 2008
Economic Stimulus Plan Act
  • Intended Effect on Secondary Market Temporary
    Increase in GSE Conforming Loan Limits
  • Loans with balances above the prior limit
    currently have few buyers, even when financial
    institutions are willing to make these loans,
    there is currently a limited secondary market for
    them and it is difficult for them to be sold to
    fund new loans.
  • Allowing the GSEs to buy these loans infuses
    liquidity into the mortgage market.

11
Part IV Project Lifeline
  • Aimed at homeowners who face the risk of
    foreclosure but have not addressed the problem.
  • Borrowers who are more than 90 days behind in
    their mortgage payments and face imminent loss of
    their homes.
  • Applies to all types of mortgages, not just
    subprime loans.
  • Homeowners that have filed for bankruptcy, have a
    foreclosure date within 30 days, or have a
    mortgage covering vacant property or a vacation
    home are ineligible for Project Lifeline
    assistance.
  • Initiative between major companies including
    Bank of America, J.P. Morgan Chase, Citigroup,
    Coutrywide, Washington Mutual and Wells Fargo and
    the United States government.

12
Part IV Project Lifeline
  • Works in conjunction with the HOPE NOW program,
    and the toll free help-line for mortgage and
    foreclosure counseling.
  • Project Lifeline facilitates mortgage companies
    informing homeowners to call their loan servicer
    and provide financial information in exchange for
    a 30-day halt in foreclosure proceedings and an
    opportunity to negotiate friendlier mortgage
    terms.

13
Part V Short Sales and Loan Repurchase Disputes
  • Servicers have been using short sales (selling
    mortgage property for less than outstanding
    principal balance of mortgage loan in lieu of
    foreclosure or other remedy such as deed-in-lieu
    of foreclosure.)
  • Short Sales are a loss mitigation strategy that
    provides an alternative to the costly foreclosure
    process.
  • In our experience, there has been a recent surge
    in the number of requests and disputes of loan
    repurchase obligations for loans purchased in the
    secondary market.

14
Legislative Developments and Regulatory
Enforcement
  • Travis P. Nelson

15
Legislative Developments
  • Mortgage Reform and Anti-Predatory Lending Act
    (H.R. 3915) Frank
  • Homeownership Preservation and Protection Act (S.
    2452) Dodd
  • Other Pending Federal Legislation
  • Bankruptcy Code Bills Specter and Durbin
  • Significant State Legislation

16
Regulatory Enforcement
  • Federal Bank Regulatory Agencies
  • Securities and Exchange Commission
  • Justice Department/FBI
  • State Regulators

17
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