Servicing

JMP Securities has initiated coverage of PennyMac Mortgage Investment Trust, calling the residential-related vulture fund a "market outperform." Six firms are now following Calabasas, Calif.-based PennyMac, which is managed by former Countrywide Financial Corp. president Stanford Kurland. (Kurland departed Countrywide two years before the lender's problems began in earnest.) A publicly traded REIT, PennyMac has been actively bidding on nonperforming loan portfolios and is working on a lending conduit. Its affiliates include a servicing operation as well.

Although one of the first steps the conference committee took last week was to preserve the existence of the thrift charter in the final regulatory reform bill, the charter's days are likely numbered anyway. The merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency will eliminate some of the key benefits of choosing the charter, and leave a single agency trying to enforce two different sets of rules, observers said. Ultimately, many said they expect the thrift charter to fade away. "It's a little complicated with two different charters in one agency," said James Barth, a finance professor at Auburn University and a senior fellow at the Milken Institute. "It seems it's not a real complete merger. I would think down the road one would want to eliminate that distinction." The future of the charter is just one of the difficulties stemming from the pending OTS-OCC merger, observers said, including how best to integrate the agencies' personnel, cultures and different supervisory approaches. "It's not a question of the OTS," said Dough Faucette, a partner at Locke Lord Bissell & Liddell LLP. "That's a foregone conclusion; that's gone. The real question is then what will the attitudes and culture of the new agency be like?" Although the bill has yet to pass—conferees were slated to address some of the remaining issues surrounding the merger during their session today—implementation of the agencies' combination has already begun.

The 50th bulk condo deal to close in the last two years in the troubled South Florida market didn't take place in Miami-Dade County, but to the north in Palm Beach County, a sign that the inventory in the Greater Miami area is being depleted rapidly, says veteran observer Peter Zalewski of Condo Vultures, a Bal Harbour-based consulting firm. Of the 50 deals in which at least 10 new apartments changed hands in a single transaction, 41 have been in Miami-Dade, heretofore the centerpiece of the beleaguered tri-county South Florida market, which also includes Broward County. "As the attractive bulk situations disappear in Greater Miami, private equity groups and institutional investors are being forced to revise their strategies in terms of quality, location and price," Zalewski commented. "Today, a bulk buyer is much more willing to consider a scenario in Fort Lauderdale, West Palm Beach, Orlando, or even Tampa, compared to a year ago when the focus was strictly on Greater Miami." Since July 2008, bulk buyers have acquired the deeds or notes for more than 4,800 units in South Florida for about $1.5 billion, or about $308,500 per apartment. In the latest transaction, a New York-based group paid $117.3 million for 146 apartments in the struggling 2700 North Ocean project in Riviera Beach. That's roughly $803,500 per apartment—for a distressed sale!

Many proposed refinancings and purchase loans have been scuttled because the appraiser could not find enough comparable sales of similar homes. Part of the problem is that lenders have narrowed their definition of an acceptable comp in the past year as part of an overall stiffening of standards. Many appraisers have failed to find the requisite two comps within the prior three months, or even three comps within six months, because there have been so few sales in a given area. This could create a self-fulfilling cycle, where fewer sales lead to fewer comps, which in turn lead to still fewer sales. At the same time, as distressed sales make up a greater portion of the real estate market, lenders also fear those sales will become the only comps, resulting in lower home values and hence smaller loans.

Mortgage Guaranty Insurance Corp.'s inventory of delinquent mortgage loans fell by just over 4,000 during May, according to a statement issued by the nation's largest MI firm. At the beginning of the month there were 235,891 with primary mortgage insurance that were delinquent. New default notices were issued on an additional 15,523 loans. There were 15,385 cures during May, plus another 3,553 loans on which claims were paid (including loans charged to a deductible or captive reinsurance). Another 958 loans had the claims either denied or MGIC sought rescission. This brought the delinquent inventory down to 231,508 as of May 31. In May, MGIC had $800 million of primary new insurance written.

The performance of Portuguese residential mortgage-backed securities was mixed in April, according to a report from Moody's Investors Service. Outstanding defaults, a category that ranges from loans 360-plus days overdue to those written off, increased to 1.7% in April from 1.4% in January and 1.1% in April 2009. But an index that tracks delinquencies of 60-plus days dropped to 1.5% during the month compared to 2.2% in April 2009. Yuezhen Wang, a Moody's senior associate, said the weighted-average cumulative loss trend rose to 0.8% of original balance during April, up 0.3% over the previous 12 months, with the highest losses seen in the 2004 vintage.

Securitization market participants appear to be unified on eight issues related to risk retention proposals and split on two, according to a draft report by a group that represents both the "buy" and "sell" side of trades. The group is split on a portion of the legislative proposal which makes it possible in the commercial mortgage market to have a third-party purchaser retain the first-loss position if that purchaser specifically negotiates for such a position and performs due diligence on the pool. According to the American Securitization Forum's June 11 draft report on its membership's response to financial regulatory reform proposals by the House and Senate, certain of the group's members "believe this alternative form of retention should be available for other asset classes." However, it said, other members "believe retention of risk by a third-party purchaser is not retention at all, because it allows the issuer to sell the risk which does not align incentives or result in prudent securitization practices." The group also remains split on whether "qualified" securitized mortgages underwritten to "prime" credit standards should get an exemption. Some members believe allowing a "qualified" mortgage exemption would ensure "incentives are aligned between originators and investors." Others said they are concerned that "while a 'qualified mortgage' would require some minimum in quality, it would not require an issuer to have ongoing 'skin in the game' with respect to the securitization." While the membership is split on the aforementioned two issues, it is unified in pushing for proposals that allow for "adequate representations and warranties and enforcement mechanisms" to be used as an alternative for risk retention.

Freddie Mac is trying to prevent Bank of America from investigating its business relationship with the failed Taylor Bean & Whitaker, noting that the cost of the probe could cost the GSE $10 million or more. According to a report by Dow Jones, Freddie is urging the Federal Bankruptcy Court in Jacksonville, Fla., not to allow Bank of America to carry out the investigation. TBW, a nondepository mortgage banker, was a larger seller/servicer to Freddie. The GSE seized control of some of TBW's servicing rights when the lender failed last year. B of A is owed money by TBW. "The breadth of the discovery sought by B of A is so vast that Freddie Mac estimates that it will cost at a minimum $10 million to provide the discovery sought," the GSE says in a recent court filing. "B of A seeks to unfairly shift the cost of compiling and providing such records to Freddie Mac by means of a broad 'fishing expedition.'" Bank of America is seeking access to Freddie Mac's books and to question its officials about the mortgage finance company's "extensive business relationship" with Ocala, Fla.-based TBW.

The Federal Deposit Insurance Corp. has once again pushed back the auction deadline on the $23 billion AmTrust servicing portfolio, National Mortgage News has learned. At press time, the agency had not returned a telephone call about the matter. Milestone Merchant Partners, Miami, is the agency's advisor on the sale, but an official at the firm said he could not comment at this time. Investment bankers that have reviewed the receivables attribute the delay, in part, to the portfolio's large size. The delinquency rate on the underlying loans is relatively low. Also, investment banking sources say the FDIC is in the middle of wrapping up a $1 billion sale of (mostly) delinquent AmTrust whole loans. The sale of AmTrust's servicing rights has been delayed twice already. The latest bid deadline was mid-June. Originally, the agency had hoped to wrap up bidding at the end of May. The Cleveland-based thrift failed late last year.

The Government National Mortgage Association late this week unveiled a new MBS program for Title 1 manufactured housing loans but to play servicers need a minimum net worth of $10 million. Also, mortgage bankers that issue MH MBS must re-apply if they want to participate in the new program. Only "eligible" MH loans will be considered which means the applicant must also own the underlying real estate. Ginnie has set a 30 basis point guarantee fee. The minimum pool balance is $1 million. Two years ago MH units accounted for 12% of the new housing market, but that number has fallen significantly since then. At press time GNMA did not have an updated number.