Secondary Market

The government has shifted its resources from civil to criminal mortgage-related cases in recent months. As a result, an industry index that tracks mortgage litigation lawsuits has dropped by more than half. Active cases totaled 75 in the second quarter, according to the report released this week. Activity tumbled 52 percent from the first quarter and was 40 percent lower than a year ago, as the U.S. Department of Justice executed its nationwide crackdown on mortgage fraud, dubbed Operation Stolen Dreams.

Earlier this year, the California Housing Loan Insurance Fund (CaHLIF) ceased writing new mortgage insurance policies. The insurance fund is administered by the California Housing Finance Agency. Effective immediately, Fannie Mae says it is suspending CaHLIF as an approved mortgage insurer.

The debate over what's next for the government-backed mortgage giants Fannie Mae and Freddie Mac has begun. Last month, the Treasury invited a wide range of industry stakeholders to a summit in Washington to provide some guidance on the administration's proposal for GSE reform. The general consensus there was that the GSEs play too big a role in the housing market to make an abrupt exodus. A large group of House Republicans, though, don't share that view.

UCM Partners, a private, minority-owned fixed income investment boutique, recently announced the one-year anniversary of its Opportunistic Mortgage Strategy Fund. The fund currently has approximately $60 million in assets under management, and UCM Partners reports that it exceeded its absolute return target of 12-15 percent by more than double in its first year.

Special servicers of commercial real estate loans are feverishly pursing workouts and liquidations. Their efforts have helped to moderate increases in past dues, but delinquency rates, nonetheless, continue to rise. Two industry reports released last week served to drive this point home. Fitch Ratings says the delinquency rate on loans held in its rated commercial mortgage-backed securities (CMBS) hit 8.48 percent in August. Moody's reported a similar increase to 8.10 percent.

The total value of distressed commercial real estate (CRE) in the United States right now is $186.9 billion, including properties in default, foreclosure, and lender REO, according to data from the research firm Real Capital Analytics. The Transwestern company Delta Associates says this tally represents an increase of 12 percent, or $20.1 billion, since June and means CRE distress has risen back to the level it was in March of this year. But the company says a plateau in the $165-$200 billion range will be the norm for a while.

The law firm of Gibbs & Bruns LLP says its institutional investor clients have issued binding instructions to Bank of New York, serving as trustee, to open an investigation of ineligible mortgages behind more than $26 billion of residential mortgage backed securities (RMBS) issued by subprime lender Countrywide. The firm's clients hold more than 25 percent of the voting rights of the RMBS in question, and can demand the repurchase of mortgages that did not conform to required representations and warranties.

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.

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.""

The delinquency rate for real estate loans held in commercial mortgage-backed securities (CMBS) accelerated in August after two successive months in which delinquency increases had moderated, according to Trepp LLC. Overall, the percentage of loans 30 or more days delinquent, in foreclosure, or REO, jumped 21 basis points last month, putting the overall delinquency rate at 8.92 percent. The analysts at Trepp say the August numbers ""may give ammunition to those who argue that the commercial real estate crisis is far from over.""