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Federal banking regulators said last week in a new report that nearly one-third of outstanding mortgages were approved with less than full documentation. Around one-fifth had credit scores below 660, and more than 90 percent were serviced by a third party. The findings came from the Comptroller of the Currency and Office of Thrift Supervision, which jointly surveyed the 14 largest mortgage servicers.

Banks surveyed were Bank of America, Citibank, First Horizon, HSBC, JPMorgan Chase, National City, U.S. Bank, Wachovia and Wells Fargo. Thrifts surveyed were Countrywide, IndyMac, Merrill Lynch, Wachovia FSB and Washington Mutual. All of these thrifts have either failed or been acquired since last summer.

The respondents serviced 34,877,891 mortgages for $6.1 trillion as of Sept. 30, 2008. Their combined portfolios accounted for around 90 percent of first mortgages serviced by banks and thrifts and more than 60 percent of all U.S. mortgages.

The servicers owned less than 10 percent of the loans they serviced, based on the number of loans outstanding. Those loans were owned by third parties through residential mortgage-backed securitizations and loan sales. The share of loans serviced for Fannie Mae and Freddie Mac was 62 percent.

Around nine percent of the loans serviced by the surveyed institutions were subprime. Borrowers with credit scores below 620 were considered subprime.

Alt-A loans amounted to 10 percent, the report said. Alt-A included borrowers with scores between 620 and 659. Low- and no-documentation loans made up 30 percent of loans serviced by the institutions.

Jumbo mortgages amounted to seven percent.

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Several mortgage restructuring programs are beginning to emerge in the wake of the new Obama Administration housing initiative.  Fannie Mae says it is working closely with the Neighborhood Assistance Corporation of America to establish a pilot mortgage restructuring program for distressed borrowers, according to the now-nationalized bundler of residential mortgages. The program involves restructuring mortgages to achieve an affordable payment. Neighborhood Assistance says it is a non-profit, community advocacy and homeownership organization.

About 478,000 Wachovia, including those with pick-a-pay loans, will be eligible for a streamlined modification program launched this week by Wells Fargo Home Mortgage, Wachovia’s acquirer. Eligible borrowers primarily include those who are delinquent or are likely to become delinquent. The possible modifications include extended terms, interest-rate reductions and temporary interest abatements.

Fifth Third Bancorp., which reported a $2.1 billion fourth-quarter loss, said in its earnings report that it had modified $218 million in loans during the period. Restructured loans stood at $574 million on Dec. 31.

Fitch Ratings recently released a report indicating proposed bankruptcy cramdown legislation would probably not trigger immediate downgrades to residential mortgage-backed securities if it were passed. But Fitch noted the devil is in the details and it will issue a more conclusive statement once the final terms are hashed out.

Nearly one-third of Fitch-rated prime and Alt-A RMBS — where bankruptcy losses are not allocated as typical credit losses and cramdown risks are amplified — are more likely to face senior bond downgrades. Those deals, which have balances totaling $223 billion, are subject to carve-out provisions. Risk is more limited on over two-thirds of prime and Alt-A securitizations.

Several mortgage-related trade groups — including the American Bankers Association, the Consumer Mortgage Coalition and the Mortgage Bankers Association — sent a joint letter last week to U.S. House Representatives John Conyers and Lamar Smith opposing bankruptcy cramdown legislation. They cited H.R. 200 and H.R. 225, which would benefit mortgage fraud participants.

“The housing market is already contracting and enactment of cramdown legislation would make things even worse by injecting more risk into the mortgage market, making it harder and more costly for people to buy and sell homes,” the letter said. “Permitting cram down in bankruptcy would encourage many people to file for bankruptcy first and would undermine other efforts to work-out or modify troubled loans.

Meanwhile, the so-called MFI-Mod Squad was launched last week to expose illegal loan-modification firms and their operators, a statement last week said. Delinquent borrowers can find comments about scam companies on MFI’s Web site, while they can also obtain help investigating unscrupulous loan modification companies.

An alliance was announced this week between MFI parent MFI-Miami and the modification firm Loan Solutions. MFI-Miami will perform forensic loan audits to exploit mistakes by mortgage lenders so Loan Solutions can leverage the compliance errors to obtain better modification terms on behalf of borrowers.

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Sept. 9, 2008 — The best loan servicer from 2007 retained its crown in 2008, though overall customer satisfaction is going down.  Branch Banking and Trust (BB&T) ranked highest in J.D. Power and Associates’ 2008 Primary Mortgage Servicer Study announced today. The Winston-Salem, N.C.-based company, which also topped the 2007 list, scored 839 out of a possible 1,000 score.

The report also found that online account management is becoming increasingly important to borrowers.

BB&T scored well in the four areas analyzed by J.D. Power: billing; payments; contact with the lender; and annual account administration. The firm also achieved high levels of commitment from its borrowers.

The study was based on responses from 10,241 borrowers during July.

SunTrust Mortgage scored 825, making it the second ranked servicer, rising from No. 5 in 2007 and was the only other top-five servicer from last year to be ranked among the five best servicers for 2008.

Wells Fargo was third with a score of 813, followed by JP Morgan Chase at 812 and number five, Bank of America, which scored 811.

Spots six through 10 were respectively held by Regions Mortgage, Wachovia, CitiMortgage, U.S. Bank, and PHH Mortgage.

A total of 27 mortgage servicers were ranked.

Overall satisfaction with U.S. servicers fell from 2007, with the overall index dropping to 784 this year from 798 last year. In 2006 the index was 812. J.D. Power attributed the decline to increased billing errors, less hands-on service and a growing number of delinquent borrowers.

Payments made through a Web site or through automatic deductions are used by 56 percent of borrowers. Just 36 percent still utilize mail to send payments.

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