The government-controlled company also said it may begin conducting reviews of loan files, processes and procedures used by the servicers, in another sign it is growing impatient with the firms that collect and distribute homeowners’ payments.

Mortgage servicers have come under intense scrutiny as they have struggled with record delinquencies and foreclosures. Their efforts to ease payments on loans to avert default have fallen short in many cases, playing some role in disappointing results of a federal program to refinance or modify mortgages.

“A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of a servicer’s performance,” Fannie Mae said in an announcement to servicers.

“In some cases, a compensatory fee will relate to the action a servicer took, or failed to take, in handling a specific mortgage loan,” it said.

Fees will be applied in various instances, including failure to provide access to records and delays on completing foreclosures and selling foreclosed properties.

More aggressive action by mortgage servicers could help ease burdens on Fannie Mae, whose losses on loans it guarantees or owns forced it into regulator’s hands in September 2008. It has required some $86 billion in taxpayer funds since then.

Fannie Mae, which uses hundreds of servicers, did not specify any that might have prompted the announcement but has identified rising stress at the firms. A spokeswoman declined to comment beyond the announcement.

“The growth in the number of delinquent loans on their books of business may negatively affect the ability of these counterparties to continue to meet their obligations to us in the future,” Fannie Mae said in its quarterly filing with the Securities and Exchange Commission last month.

By Al Yoon

The government-controlled company also said it may begin conducting reviews of loan files, processes and procedures used by the servicers, in another sign it is growing impatient with the firms that collect and distribute homeowners’ payments.

Mortgage servicers have come under intense scrutiny as they have struggled with record delinquencies and foreclosures. Their efforts to ease payments on loans to avert default have fallen short in many cases, playing some role in disappointing results of a federal program to refinance or modify mortgages.

“A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of a servicer’s performance,” Fannie Mae said in an announcement to servicers.

“In some cases, a compensatory fee will relate to the action a servicer took, or failed to take, in handling a specific mortgage loan,” it said.

Fees will be applied in various instances, including failure to provide access to records and delays on completing foreclosures and selling foreclosed properties.

More aggressive action by mortgage servicers could help ease burdens on Fannie Mae, whose losses on loans it guarantees or owns forced it into regulator’s hands in September 2008. It has required some $86 billion in taxpayer funds since then.

Fannie Mae, which uses hundreds of servicers, did not specify any that might have prompted the announcement but has identified rising stress at the firms. A spokeswoman declined to comment beyond the announcement.

“The growth in the number of delinquent loans on their books of business may negatively affect the ability of these counterparties to continue to meet their obligations to us in the future,” Fannie Mae said in its quarterly filing with the Securities and Exchange Commission last month.

By Al Yoon

Congressional action would be required to trigger any significant “government-sponsored refi wave” in the market for bonds owned or guaranteed by mortgage financiers Fannie Mae and Freddie Mac, JPMorgan analysts led by Matthew Jozoff wrote in an Aug. 27 note to clients.

“We continue to believe that such a large-scale event is highly unlikely,” Jozoff wrote. “Fannie and Freddie could not unilaterally cut mortgage rates on existing private mortgages around the country, nor could the Treasury.”

Government-backed mortgage bonds rallied compared with U.S. Treasuries last week by the most since July 23, according to Barclays Capital index data. Too many mortgage refinancings would hurt bondholders by reducing the average interest rate backing securities they purchased. While applications to refinance existing mortgages are at the highest in more than a year, Jozoff said he doesn’t expect another major increase.

Mortgage bond buyers are being “well compensated for the prepayment uncertainty,” Jozoff wrote.

Only congressional action could force large-scale loan modifications on Fannie Mae and Freddie Mac-backed bonds, he said.

“While we thought all along that the odds of the ‘nuclear’ refi option were low, we point out that the mechanics of implementing such a program are not quite as simple as a stroke of the pen,” he wrote.

By Tim Catts

The Mortgage Bankers Association said Wednesday the gain was fueled by a 5.7 percent increase in refinancing applications. The number of loans taken out to purchase homes edged up by less than 1 percent. The numbers are adjusted for seasonal factors.

Refinancing is at its highest level since May 2009 and makes up 82.4 percent of all new loan activity, its highest share since January 2009.

However, low mortgage rates have done little to boost home sales, which have been hurt by high unemployment, slow job growth and strict credit standards. Purchase activity is 41.5 percent below its level at the end of April, when two federal tax credits for homebuyers expired.

Rates have fallen since spring as investors sought the safety of Treasury bonds, lowering their yield. Mortgage rates tend to track those yields.

The average rate for a 30–year fixed loan fell to 4.55 percent from 4.6 percent a week earlier. Rates on the 15–year fixed–rate mortgage, a popular choice for refinancing, decreased to 3.91 percent from 3.99 percent.

The Mortgage Bankers Association’s survey covers more than 50 percent of all applications nationwide.

By Associated Press

The report said 3,249,196 properties in the Lone Star State are in a situation where the mortgage value is higher than the home’s actual value. The report attributes most of the declines in equity to foreclosures.

CoreLogic said another 6 percent of Texas mortgage holders are nearing a point where they also will be classified as upside down.

“Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time,” said Mark Fleming, chief economist with CoreLogic.

Nationally, 11 million, or 23 percent, of all residential properties reported negative equity at the end of the second quarter, down from 11.2 million and 24 percent during the first three months of the year. Nevada, which had 68 percent of all of its mortgaged properties underwater, had the worst fairing market, followed by Arizona (50 percent), Florida (46 percent), Michigan (38 percent) and California (33 percent).

By Bizjournals

In the first inning of what looks to be an intricate political game, the Obama administration and its financial industry allies suggested that the economy needs the federal government full force in the mortgage market.

The case was pithily made by bond honcho Bill Gross, who oversees more than $1 trillion of investments as head of giant bond shop PIMCO and was a speaker at the Treasury Department’s conference on the future of Fannie Mae and Freddie Mac.

“Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending,” he wrote in a recap of his talk.

It’s an argument that is at once practical and yet nightmarish. Heroin dealer has his customers hooked. They can’t do without him. Therefore they will have to make sure he stays in business and continues ministering to their needs.

Government-created and -backed mortgage monsters own almost $5 trillion of debt. Mr. Gross asks: “how could private market advocates reasonably assume that pension, insurance, bank, and PIMCO-type monies would willingly add nearly $5 trillion of non-guaranteed, in many cases junk-rated mortgages to their portfolio?” Since they would not, “We are in a bind, folks.”

As a necessary solution, he proposes to fold Fannie, Freddie and other housing agencies into one giant federal office that will guarantee a majority of current and future mortgages. The idea is to move the $5 trillion to the federal budget and get taxpayers to fully support mortgage lending.

Privately originating and securitizing mortgages will carry a high cost, Mr. Gross says—private lenders will charge high interest rates and at those rates few people can afford homes.

We’re assured that taxpayers will be protected. Tight regulation will transform the heroin dealer into an upright, conscientious bureaucrat. Funny. Taxpayers are expected to guarantee loans at cheap rates and take high risks that no private lender will countenance. Yet somehow taxpayers are going to be alright. Regulation will suddenly become effective. Yet it failed for decades.

Encouraged by politicians – notably Barney Frank the financial reform showman – Fannie and Freddie pumped air into the real estate bubble. The collapse of the bubble caused the recession. The government spends our money to fuel the boom-bust cycle, then spends our money to reduce the pain of the bust. It’s the heroin dealer offering his hard-up customers credit to tide them over.

The only real solution is to say no to the addiction. You have to start modestly and slowly, but at least in the right direction.

Yes, the private market can’t absorb the gigantic $5 trillion debt. Not at once. The key is to sell the accumulated mortgages slowly, in small increments. This will take years— after all, it took decades for the government to create the mess. The objection that shutting down Fannie and Freddie will worsen the current property slump does not make sense. Setting up the process will take a long time. The real estate cycle will turn by then.

Mr. Gross is arguing his trade book, his protests to the contrary notwithstanding. PIMCO is a huge buyer of agency securities. Yes, privately issued securities have higher yields, but they’re not as plentiful. Having lots of paper available is advantageous for a buyer. He’s no doubt right that the market would be smaller if the government starts to withdraw. Without a subsidy, some people will not buy.

They’ll rent instead. That way, they won’t risk defaulting on mortgage payments. No easy doped-up credit to feed housing booms means less chance of busts. Is that a problem? It is to the federal subsidy pushers.

By Chidem Kurdas

But the Securities and Exchange Commission’s securities fraud action against Angelo Mozilo, former chief executive of Countrywide Financial, promises to feature the aggressive mortgage practices of what was then the nation’s largest mortgage lender.

Mr. Mozilo and two co-defendants, Countrywide’s former president and chief financial officer, have asked the United States District Court in Los Angeles to dismiss the case, and the judge will hear arguments on Monday to decide whether the S.E.C. has gathered enough evidence to show that investors were misled about the company. Should the court grant the motion, it will be a major setback for the commission in its efforts to police Wall Street’s disclosure practices.

Bank of America acquired Countrywide in July 2008 as the company teetered on the brink of collapse when the market for mortgage-backed securities dried up. If lax underwriting standards that led to highly risky mortgages to borrowers with questionable finances constituted securities fraud, then this might well be an open-and-shut case.

That’s not what the law prohibits, however, and the S.E.C. will have show that Mr. Mozilo misled investors in the company by promoting the strength of its mortgage underwriting standards while they were aware that increasingly lax lending was pushing Countrywide toward financial disaster.

The S.E.C. argues in a brief filed with the court that there was a “disclosure sleight of hand” when Countrywide presented itself to investors as making high-quality loans when in fact it was increasingly allowing exceptions to underwriting procedures, leading to a significant deterioration in the quality of its mortgages. Of course, Mr. Mozilo was not dealing with individual borrowers, with one significant exception, but the S.E.C. claims that he and the other defendants pushed Countrywide into making riskier mortgages while assuring investors that it followed high standards.

As the Associated Press reported , the S.E.C. points to special treatment of borrowers personally favored by Mr. Mozilo, known as the “Friends of Angelo” program. This included loans to members of congress and their staff, which has also become the focus of investigations on Capitol Hill.

The total amount of the friends of Angelo loans was minuscule for a company that issued more than $400 billion in mortgages annually in its last three years of existence. It was not the size of the loans that matters, however, but Mr. Mozilo’s personal involvement that the S.E.C. will use as evidence of his willingness to cut corners and ignore Countrywide’s underwriting procedures. Proving his “bad character” will be as much a part of the case as showing how the company made increasingly risky mortgages.

The S.E.C. also accused Mr. Mozilo of insider trading for selling blocks of Countrywide stock in late 2006 and early 2007 that netted him gross profits of more than $140 million while not revealing the deterioration in the company’s mortgage operation. Like the friends of Angelo program, the insider trading allegation tries to paint Mr. Mozilo as being both greedy and duplicitous, willing to sell out the company while promoting its virtues. With those dollar figures thrown around in court, it will not be easy for Mr. Mozilo to overcome the bias against very wealthy defendants whose timing appears to be propitious.

The defendants attack the S.E.C.’s disclosure case in their brief by pointing out that Countrywide sold virtually all the mortgages it originated, so investors would not have cared about changes in the company’s underwriting procedures so long as it continued to make loans. The problems Countrywide faced were a result of the freezing of the mortgage market in 2007, which cut off funding for the company’s mortgage operation, and were attributable to outside economic forces that had nothing to do with its underwriting standards.

The defendants argue that Countrywide made extensive disclosure about its mortgage process and operating model, so that all the S.E.C. can show is that the statements to investors were at worst mere puffery – a bit inflated, but not fraudulent.

Determining whether a misstatement made by a public company constitutes securities fraud depends on whether a reasonable investor would consider the information “material.” The Supreme Court explained in TSC v. Northway that information is material if it “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”

What the court has never explained is: Who is this hypothetical “reasonable investor?” The views of the S.E.C. and Mr. Mozilo and his co-defendants reflect the basic divide in the investing world between short-term and long-term investors, and the materiality standard says nothing about whose viewpoint should be applied.

The S.E.C. focuses on how Countrywide’s underwriting procedures deteriorated over time as it responded to market pressures by offering increasingly risky loans, like the “pay option ARMs” that involved numerous instances of misrepresentations by borrowers. As the loans became more problematic, Countrywide was moving closer to a meltdown if there were problems in the financial markets.

This is very much the long view of the company’s prospects, and the S.E.C. essentially argues that the greater risks in Countrywide’s mortgage operation should have been highlighted to investors who would own shares for a long time. In effect, the company should have disclosed that the light at the end of the tunnel may well have been a fast-approaching freight train.

The defendants’ approach to materiality focuses much more on the immediate risks to Countrywide from its mortgage program, which involved selling all of its loans as quickly as possible to finance new lending. Any changes in its underwriting standards would be irrelevant to investors so long as the company could sell it loans in the secondary market, which was the case until the liquidity crisis hit the mortgage market in 2007.

This is a narrower view of Countrywide’s operation that focuses on whether it can meet its immediate funding needs, so consideration of underwriting standards would be largely irrelevant. To the extent investors were concerned about the potential implications of its business, the information was provided for them to make their own assessment.

The materiality standard does not address which viewpoint should apply, and so this is likely to be an issue that the jury will have to decide. If there is a dispute about a factual issue, then the court will deny the motion and let the case proceed to trial. I think that standard makes it much less likely the judge will grant summary judgment in favor of the defendants and dismiss the S.E.C.’s case because it is so difficult to determine what a reasonable investor would consider important short of a full-scale trial.

The trial is scheduled to begin on Oct. 19, assuming the case is not dismissed. Look for the S.E.C. to try to make Mr. Mozilo the face of the mortgage crisis that led to the financial meltdown in 2008 to show that he misled investors in his company. Whether that proves securities fraud remains to be seen.

By Peter J. Henning

But while the bill failed to reform the two government-sponsored enterprises, Congress told the Obama administration to develop a reform strategy by early next year. That work has now begun.

Any such plan should incorporate at least two features. First, while government subsidies will probably remain a necessity on some level, the reformed market should offer the widest possible scope for the private sector. Currently, the federal government is guaranteeing more than 90 percent of mortgages. The risk to the taxpayer must be scaled back.

Second, any government subsidies for housing should be transparent, easily identified and easily evaluated regarding need and suitability.

At a recent Washington conference involving the major players in housing, there wasn’t much consensus about how to proceed. Treasury Secretary Tim Geithner, however, said some kind of continued government guarantee would be necessary for some mortgages.

Currently, private participation in the market is extremely low, mostly because companies can’t compete with Fannie and Freddie, which borrow at costs a smidgen above the Treasury and offer low rates. The private sector can’t do that.

One idea is for Fannie and Freddie to slowly withdraw from the market by dropping the value of a “conforming loan,” currently up to $417,000, over a period of years. That would allow the private sector to move in as the housing economy revives. Backers of this idea point out that above $417,000, the market operates efficiently; rates are only slightly above those for smaller homes.

Others say the government should convert its guarantee into insurance and charge premiums. The Treasury could back, say, up to 80 percent of a mortgage, with private insurers providing the remainder. That would force issuers to be more aware of the risks involved.

As for Fannie and Freddie’s massive portfolio of toxic loans, these could be shifted to a variant of the “bad bank” idea considered in the early months of the financial meltdown.

Fannie and Freddie were odd hybrids — government-sponsored entities that were outwardly private, shareholder-owned companies, run by executives with lavish salaries.

During the years of plenty, shareholders profited. But the government tried to extend homeownership to buyers who simply could not afford it. When the collapse came, we all got stuck with the bill.

Despite the lack of consensus about how to fix it, there’s no disagreement that the existing model — combining private profit and public risk — has been a spectacular failure.

By kansascity

While millions say they need help avoiding foreclosure and many struggling households applied, data released Friday showed the dropout rate from the Making Home Affordable Program was very high: 96,000 trial modifications were canceled by lenders in July. The number of canceled trials now exceeds 616,000.

Those numbers are leading some housing experts to call the program, which modestly rewards lenders for modifying mortgages, a failure. But administration officials say that many households were helped even if their modifications were only temporary.

“They were able to benefit from reduced mortgage payments each month at no cost to the taxpayers,” Herbert M. Allison, an assistant Treasury secretary, said during a briefing.

The high number of cancellations was attributed to the rush to set up the program, which encouraged lenders to enroll borrowers first and ask questions later.

When the paperwork was eventually reviewed, many modification seekers did not qualify for permanent status, either because their debt load was not heavy enough, they did not live in the house, their documents were incomplete or they simply failed to make the trial payments.

Many of these troubled borrowers went on to get other forms of assistance or even became current on their loan, Mr. Allison said.

The program, which now screens borrowers for eligibility before enrolling them, has been running out of steam for several months.

About 422,000 mortgage modifications overseen by the government were considered permanent as of July, up from 389,000 in June. But the pool of candidates is shrinking rapidly. Only 17,000 trial modifications were started in July, down sharply from the 150,000 enrolled in September when the program was new.

Critics say the program will provide little long-term relief.

“These borrowers are still up to their eyeballs in debt after the modification,” and many will default again, Calculated Risk, a popular financial blog, wrote after reviewing the new data.

Along with the modification numbers, the administration on Friday released its monthly housing scorecard. It is an attempt to knit together disparate data to show two things: that policy makers deserve credit for pulling housing back from the brink, and that the market is not as feeble as some reports suggest.

“There is some hope we are starting to move to a more positive environment,” Raphael Bostic, assistant secretary at the Department of Housing and Urban Development, said during a briefing. But he acknowledged that “rough patches” remained.

For many in the industry, those patches look miserable indeed.

Michael Feder, the chief executive of the real estate data firm Radar Logic, expects prices to “get whacked” this autumn.

“My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.”

By DAVID STREITFELD

This month Fannie Mae, the government-sponsored entity that helps set lending standards for most mortgages, started a Web site, KnowYourOptions.com, that has elements setting it apart from most of those aiming to prevent foreclosure. Everything on the site is available in Spanish or English, for example, which helps to reach the large number of Hispanic borrowers who mortgage executives and analysts said were the targets of subprime lenders in 2005 and 2006.

In some areas of the site, a guide offers videotaped explanations of what users might accomplish in that section. For instance, in a section titled “Take Action,” the spokeswoman advises among other things that “you can’t get help until you contact your mortgage company,” while explaining how to get started.

To encourage borrowers to take that step, the site includes video testimonials from people who have experienced similar issues. A section on forbearance, for instance, features a video from an owner who qualified for such help, and one from a housing counselor about the process.

Some analysts said the new site went further than previous efforts to help those at risk of foreclosure. “Frankly, I like it,” said Brad Strothkamp, an analyst for Forrester Research. “There’s a clear need for this type of information, especially from a source that is not looking to sell a service or a product.”

In each section of the site, borrowers are offered numbers of mortgage companies and loan counselors, along with calculators to determine if they qualify for help. Borrowers can send those calculations via e-mail to themselves and others, an important feature, said Jeffery Hayward, senior vice president of the National Servicing Organization of Fannie Mae. “That way, if you call the counselor,” he said, “you can both have that information, so you can have a much more meaningful conversation.”

Not everything on the site is geared toward avoiding foreclosure. Some sections on “graceful exits,” like short sales or deeds-in-lieu of foreclosure, guide those whose financial situations are so dire that they cannot reasonably hope to stay in their homes.

Many borrowers have complained about their mortgage companies’ failure to respond to inquiries until foreclosure is the only option. Mr. Hayward said the Web site’s features could help borrowers avoid that situation.

“If you have as much information as you can get off this site,” he said, “you have more confidence to keep calling because you know what you’re talking about.”

Another new online option for borrowers is Hope LoanPort, which allows struggling owners and housing counselors to submit financial documents to mortgage companies and track the status of their efforts to avoid foreclosure.

Brad Dwin, a spokesman for Hope Now, the consortium of mortgage companies that created Hope LoanPort, said each of the nation’s major mortgage companies had agreed to join. At inception late last year, six mortgage firms and six housing counseling agencies had joined.

Now, 12 mortgage companies and 250 counseling agencies are accessible to borrowers in 48 states. Wells Fargo, the latest of the major lenders to join, is likely to start participating in next two months, Mr. Dwin said.

After Bank of America began using the system in June, Mr. Dwin said, Hope LoanPort experienced a sharp increase in borrowers being served.

Mr. Dwin said the new Fannie Mae initiative, KnowYourOptions, could speed the process of helping borrowers. “It’s all part of the larger effort to find ways to reach out to homeowners and give them more tools to get their applications submitted, without missing paperwork,” he said.

By BOB TEDESCHI