Servicing

Otéra Capital, a Montreal-based commercial real estate financing subsidiary of the Caisse de dépôt et placement du Québec, is purchasing the ownership interest held by Todd Schuster in the Needham, Mass.-based commercial real estate finance company CW Financial Services. Otéra will now control 81% of the firm. Mr. Schuster, who had been chief executive of CWFS, has resigned. Charles Spetka, president of CWFS units CWCapital Investments and CWCapital Asset Management, is replacing him. Michael Berman will assume the role of CEO of CWCapital, the company's Fannie Mae DUS, Freddie Mac and FHA lending entity. Mr. Berman has served as president of CWCapital since 1991 and will report to Mr. Spetka in this new role. In a statement, Mr. Schuster said since CDP invested in CWFS in 2002, annual loan production has grown from $600 million to a peak of nearly $3 billion and the servicing portfolio has grown from $3 billion to $10 billion. In addition, the company has launched an investment management business that currently has $11 billion of assets under management as well as a special servicing company that is the named servicer on $174 billion of underlying collateral.

Reflecting continuing loan performance woes, Standard & Poor's has downgraded to "D" thousands of often already speculative-grade ratings on U.S. residential mortgage-backed securities, especially in the alternative-A credit sector. S&P also put thousands of U.S. RMBS ratings on watch. In the alt-A sector, S&P downgraded 1,078 alt-A ratings from 650 deals. In the subprime credit sector, it downgraded 737 ratings on 516 transactions. It also downgraded 117 ratings from 94 prime deals. In addition, downgrades also hit 89 ratings on 68 closed-end second-lien deals. Seventy-three ratings from 48 scratch-and-dent RMBS deals have slid to "D." S&P also downgraded 11 classes from a miscellaneous set of seven RMBS deals in which four of the downgraded classes are backed by re-REMIC transactions, three are backed by seasoned loan collateral, two are backed by home equity line of credit collateral, one is backed by prime-conforming collateral and one is backed by first-lien high loan-to-value collateral.

Citigroup, New York, said it authorized the use of $25.7 billion of Troubled Asset Relief Program Funds for its residential mortgage activities in the fourth quarter 2008 but only an undisclosed portion of the money was spent during that period. That is by far the biggest chunk of the $36.5 billion of TARP money authorized for use during that period. The company said it made $75 billion in new loans of all types during the fourth quarter. The report also covered Citi's activities with troubled residential mortgage borrowers. The company said it has worked with approximately 440,000 homeowners whose mortgages totaled $43 billion since the start of the housing crisis in an effort to prevent foreclosure. In 2008, Citi said it kept approximately four out of five distressed borrowers whose loans it serviced in their homes. Citi said it is adopting the streamlined model for post-delinquency modification programs developed by the Federal Deposit Insurance Corp. In addition, through the Citi Homeowner Assistance Program, it is reaching out to those who may be experiencing some form of economic distress although they are current on their mortgage payments.

Jim Miller, a former managing director at J.P. Morgan Chase, has joined First American Information and Outsourcing Solutions as managing director of operations for the company's outsourcing and technology business lines. In his new role, Mr. Miller will be responsible for the unit's seven businesses, which include national default outsourcing, national claims outsourcing, loss mitigation services, loan production solutions, real estate owned servicing, default technologies and global offshore services. Mr. Miller has nearly 25 years of experience in prime, nonprime, and home equity servicing. He managed J.P. Morgan Chase's default servicing operations for the past three years.

Even though the U.S. housing market is still flat on its back, there were signs of improvement in December, according to the National Association of Realtors' pending home sales index. But NAR president Brian McMillan, a broker with Coldwell Banker, is warning that a rebound in the market is not necessarily afoot. "Housing activity remains weak compared with potential demand and the market is fragile given the economic drop," he said. NAR's pending home sales index (PHSI) rose to 87.7 in December, the best reading since September. The biggest improvements in the PHSI came in the Midwest and South with declines in Northeast and West. NAR's index, as the name indicates, is based on pending sales of existing homes where a contract for sale has been signed. The higher the index, the healthier the housing market is. Falling interest rates and declining home prices have been credited with the improvement.

Home values fell almost 12% nationally in 2008, with much of the decrease coming in the fourth quarter, according to Zillow.com. That means homeowners lost $3.3 trillion in equity value for the year, with $1.4 trillion of the decline in housing values coming during the fourth quarter alone. Home values have now fallen for eight consecutive quarters, Zillow said. Since the housing market's peak in 2006, homeowners have lost $6.1 trillion in equity value, according to the Zillow index. Foreclosure sales made up more than one of every five transactions last year, Zillow said. Another 11% of sales in 2008 involved short sales. Zillow estimates that 18% of homeowners with a mortgage at the end of last year were "underwater," meaning they owed more than the home was worth.

Mortgage banker Residential Capital Corp. -- whose parent recently completed a huge debt swap with bond holders -- continued to bleed red ink in the fourth quarter, posting another huge loss as both its loan fundings and servicing rights suffered. ResCap, which late last year closed its wholesale channel, funded $8.5 billion in home mortgages in the fourth quarter, a 59% decline from the fourth quarter of 2007. Its servicing portfolio fell to $393.8 billion at year-end 2008 from $453.3 a year earlier. Moreover, its non-accrual rate spiked to 23.93% at December 31, compared to 12.13% twelve months earlier. ResCap, a subsidiary of GMAC Financial Services, lost $981 million in the fourth quarter and $5.6 billion for the year. The loss comes despite the fact that it posted a $754 million gain on a debt swap with bondholders. GMAC, on the other hand, earned $7.46 billion in the fourth quarter thanks to proceeds from its debt swap, which extinguished billions of dollars in liabilities. GMAC said that overall the debt swap improved its results by a stunning $11.4 billion. GMAC, partly owned by General Motors and hedge fund giant Cerberus Capital, recently received $5 billion in government TARP money.

Firms that securitize mortgages and other assets will have to take a 10% first loss position on any new issuances under draft legislation being discussed in Congress. House Financial Services Committee chairman Barney Frank, D-Mass., said requiring a first loss hit for securitizers would stop Wall Street firms from providing liquidity on mortgages that borrowers cannot repay. Rep. Frank, a key player in any MBS related legislation, noted that assignee liability on MBS failed to stop bad underwriting practices during the subprime boom. The committee chairman is working with the Senate Banking Committee and Treasury Department in drafting proposals that the Obama Administration will present at an international summit on systemic risk in April.

Otéra Capital, a Montreal-based commercial real estate financing subsidiary of the Caisse de dépôt et placement du Québec, is purchasing the ownership interest held by Todd Schuster in the Needham, Mass.-based commercial real estate finance company CW Financial Services. Otéra will now control 81% of the firm. Mr. Schuster, who had been chief executive of CWFS, has resigned. He is being replaced by Charles Spetka, president of CWCapital Investments and CWCapital Asset Management, which are units of CWFS. Michael Berman will assume the role of CEO of CWCapital, the company's Fannie Mae DUS, Freddie Mac and FHA lending entity. Mr. Berman has served as president of CWCapital since 1991 and will report to Mr. Spetka in this new role. In a statement, Mr. Schuster said since CDP invested in CWFS in 2002, "annual loan production has grown from $600 million to a peak of nearly $3 billion, the loan servicing portfolio has grown from $3 billion to $10 billion, and we launched both an investment management business which currently has $11 billion of assets under management, and a special servicing company that is named servicer on $174 billion of underlying collateral."

MountainView Capital Holdings, Denver, has formed a new unit to provide mortgage servicing rights hedge advisory services. MountainView has hired industry veteran Gregory Harris as president of MountainView Risk Advisors to lead the risk management and hedge advisory company. Mr. Harris has over 19 years of experience in hedging the risks associated with MSR, most recently as manager of the MSR hedge program on the $500 billion plus portfolio at Washington Mutual. MountainView said its 19-year history in the brokerage and third party evaluation servicers for the MSR industry make the company well qualified to add hedge advisory services.