Loan modifications with principal reduction have significantly increased in the past year, with servicers seeing improved performance compared with other types of mods. The mods remain concentrated on securitized non-agency mortgages as well as portfolio loans, but performance varies considerably. After falling to a 2.7 percent share in the fourth quarter of 2010, principal reduction mods have accounted for a growing share of bank and thrift mod activity, according to the Office of the Comptroller of the Currency. Principal reduction was used in 7.8 percent of the mods completed by nine major bank and thrift servicers in the third quarter of 2011. ...

Wells Fargo this week agreed to a $940,056 settlement with Maryland’s attorney general regarding option ARMs. According to the AG, Wachovia and Golden West – the lenders that offered the loans, which Wells purchased – did not fully explain the loans’ negative amortization option to borrowers. Wells agreed to modify Maryland borrowers with the loans via the Home Affordable Modification Program if possible or via the servicer’s proprietary mod program. ... [Includes three briefs]

Reform of the government-sponsored enterprises is seen as an essential step toward the widespread resumption of non-agency securitization. However, industry analysts suggest that significant action on GSE reform will not begin until after the November 2012 elections. “We are still nowhere close to any legislation that has a realistic possibility of even being enacted,” said Lawrence White, a professor of economics at New York University, at a seminar this week hosted by the American Securitization Forum. “The can will continue to get kicked down the road until after November 2012.” ...

Servicing and delinquency issues in recent years have prompted three of the four major bank portfolio lenders to decrease their focus on portfolio originations. Meanwhile, Wells Fargo has indicated that it is willing to continue to increase its first-lien portfolio holdings, seeing attractive returns relative to other investing options. Bank of America and JPMorgan Chase decreased their first-lien mortgage portfolio holdings in the third quarter of 2011 compared with the previous quarter, according to the Inside Mortgage Finance Bank Mortgage Database. The banks ranked first and third, respectively ... [Includes one data chart]

Federal regulators have offered few clues on what is next for proposed qualified residential mortgage regulations, and the uncertainty in the marketplace has been cited as an impediment to the resumption of non-agency securitization. “The agencies are carefully evaluating all of the comments received and are now actively engaged in considering the many issues raised as we determine how best to proceed with the risk-retention rulemaking,” Acting Comptroller of the Currency John Walsh said last week. The extended comment period on the proposed rule closed in August ...

United Wholesale Mortgage last week announced its “The Big and Easy” wholesale jumbo program, claiming it can close loans in two weeks. “Gone are the days when an originator has to tell a borrower how difficult it is to close a jumbo loan,” said Jaime Hunt, an account executive at UWM. The loans are available for amounts up to $2.5 million for principal residences as well as second homes, for purchase or refinance. UWM is looking for borrowers with credit scores of at least 720 and loan-to-value ratios of no more than 80 percent ...

Fannie Mae recently started to transfer “higher-risk” mortgages to special servicers in an effort to improve performance, typically on non-prime loans. In its earnings filing for the third quarter of 2011, Fannie said it is “transferring servicing on loan populations that include loans with higher-risk characteristics to special servicers with whom we have worked to develop high-touch protocols.” The protocols include ... [Includes one data chart]

Saxon Mortgage prevailed in a closely watched case decided by the Arizona State Supreme Court in November. The 5-0 ruling determined that the recording of an assignment is not necessary to enforce a foreclosure under Arizona law. The decision in Vasquez v. Saxon Mortgage could have a wide-ranging impact, according to legal analysts. Jean Braucher, a professor of law at the University of Arizona, said the court essentially approved of servicers’ “sloppy procedures,” ...

Settlements regarding non-agency mortgage-backed securities are starting to increase as industry analysts suggest that the agreements limit the future liability faced by issuers. Bank of America and the Royal Bank of Scotland recently reached separate non-agency MBS settlements. At the end of October, BofA quietly settled with investors – including the Public Employees’ Retirement System of Mississippi – in 18 non-agency securities issued by Merrill Lynch. The settlement price was not disclosed but was reportedly $315.0 million. ...

Springleaf Finance continues to consider an initial public offering for its real estate investment trust as a way to refinance a portion of its business to pay off debts. The Springleaf REIT filed for an IPO in May and while investor demand has not been overwhelming, the company maintains that it is still considering going public. “The REIT will be primarily engaged in the business of sourcing, screening and acquiring performing whole loans secured by mortgages on residential real estate,” Springleaf Finance said ...