Servicing

The delinquency rate on loans backing U.S commercial mortgage-backed securities jumped 60 basis points in April to 7.02%, according to Moody's Investors Service. This increase was the second highest in the history of Moody's Delinquency Tracker, surpassed only by the tracker's 69 bp jump the previous month. The tracker follows the history of all U.S. conduit/fusion deals issued in 1998 or later that still have an outstanding balance.

U.S. subprime prices outside of the notorious 2007 vintage continued to show notable signs of a significant rebound in the latest month, according to a Fitch credit default swap index. Overall, the Fitch Subprime Total Market Price index showed a 7% month-to-month increase to 8.71% as of May 1. The 2007 vintage is still down 9% on the year, but since Jan. 1 the 2005 and 2006 vintages have gained by 36% and 22%, respectively.

A recent Fitch Ratings study of securitized non-agency mortgages in California shows high delinquency rates triggered by the level of negative equity can produce "dramatic differences" in local loan performance. The study found that California's 60-plus day delinquency rates for prime loans are at 12%, compared to 10% nationally; for option ARM loans it was 47% compared to 46% nationally, and for subprime loans it was 50% compared to 47% nationally. While mortgage performance in the state "is not substantially different" from the rest of the country, regions with the largest home price increases have also seen "the most precipitous declines," Fitch said. The disparity between various regions within the state's 382 metropolitan statistical areas tracked by Fitch is so great that California is home to both the best performing region in the country (San Francisco-San Mateo-Redwood City in San Francisco) and some of the country's worst performing markets. For example, in Riverdale 90% of the mortgages are now "under water" and 60% of borrowers owe over 150% of the value of their home. Also, in Riverside the prime 60-plus day delinquency rate is 23% or five times higher than the 4% rate in San Francisco. The pattern is consistent among all loan types, including nonprime, option ARM and Alt-A loans, according to Fitch.

Standard & Poor's has revised its criteria for certain federal government-enhanced housing bonds. This could affect the ratings of bond issues that are secured by mortgages that are insured or guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae or FHA if the bonds are reliant on investment earnings for full and timely payment. Specifically, it could affect "the ratings on issues that rely on market rate investment earnings to meet debt service payments for the term of the bonds...unless cash flows have been previously analyzed based on a zero rate of earnings," S&P said. S&P has placed a total of 632 issues on CreditWatch with negative implications as a result.

Ginnie Mae guaranteed more than $32.6 billion in mortgage-backed securities in April. Ginnie Mae II single-family pools totaled more than $18.9 billion and Ginnie Mae I single-family pools were $12.6 billion. Ginnie Mae's multifamily MBS issuance was over $1 billion, marking the second time during fiscal year 2010 that multifamily issuance crossed the $1 billion threshold. March numbers for 90-plus day delinquencies released with the April issuance figures showed late payments of this type dropped to 1.85% from 2.02% in February.

Nonbank lender Universal Mortgage of Wisconsin is closing down after failing to find a private equity investor willing to pump capital into the $4 billion servicer. In an interview with National Mortgage News, company president Ron Huiras confirmed that a "sale did not go through," adding that, "We'll be winding down the operation." He said the nonbank was hurt by loan buyback requests from secondary market investors. "Buybacks were part of the problem, absolutely," he said. He declined to elaborate further. Investment banking sources said at one time Phoenix Capital of Denver was shopping around the company and/or its servicing portfolio. At press time Phoenix had not returned a telephone call about the matter. Mr. Huiras has had a long career in mortgage banking, including a stint as a top executive at Fleet Mortgage. The company is hoping to place some of its workforce at other shops, said one source. "It's a shame," said this source. "They were a good shop. Some of these buybacks were on loans that were two and three years old. And some of these loans weren't even delinquent."

Farmer Mac posted core earnings of $5.4 million in the first quarter, a slight improvement from the same period last year. However, GAAP earnings fell to $1.8 million for the first quarter versus $33.5 million in the year ago time frame. Then again, last year the firm recorded $33.3 million of gains as a result of increases in the fair value of derivatives and trading assets. Farmer Mac had 90-day delinquencies of $70.4 million at March 31, down from $86.2 million a year ago but a $49.5 million gain from yearend. The firm blamed the cyclical nature of payments by producers for the increase in the quarter. It said there are certain segments in the agricultural sector - particularly dairy - that are showing stress and these industries will continue to experience challenges in 2010.

Mission Capital Advisors is marketing 36 nonperforming CMBS loans with an aggregate outstanding balance of roughly $300 million backed by over 4.6 million square feet of income property real estate located throughout the U.S. The CMBS special servicer loan sale offers prospective bidders a chance to buy any number of the 36 nonperforming loans secured by office, retail, industrial, medical office and mixed-use. Around $170 million of the loans (59%) are secured by office properties totaling 2.1 million square feet, 26% are secured by retail properties totaling one million square feet. Additionally, about $39 million of the loans (13%) are secured by industrial properties totaling 1.5 million square feet. The respective loans are being sold out of separate CMBS trusts and investors will be required to offer individual, loan-level bid pricing for each asset. Investors may bid for individual loans, any combination of loans or for the entire portfolio. "The sale is diverse both geographically and collaterally," said Will Sledge, managing director at Mission Capital Advisors. "Furthermore, it allows prospective bidders the flexibility to deploy capital based on specific investment strategies." On the seller's behalf, Mission Capital is soliciting indicative bids on May 26 from prospective bidders. Investors must finalize loan sale agreements before June 23, the final bid date.

The inventory of existing apartments and townhouses on the market in the tri-county South Florida region has dropped 23% to below 40,000, according to CondoVultures, a Bal Harbour-based consulting firm. The current inventory of condo and townhouse units in Miami-Dade, Broward and Palm Beach Counties is now at the lowest level in the last 18 months. In May 2009, some 52,000 such units were on the market in South Florida. "The inventory is depleting for a variety of reasons, ranging from more investors and second-home buyers purchasing units at prices they think are deeply discounted to primary users taking advantage of the government incentives related to real estate," says Peter Zalewski, a principal in the firm. The inventory does not reflect new units that developers are privately marketing. But the wild card in the mix, says Zalewski, is whether a flood of owners will rush to put their units on the market once they think the market is stabilizing.

Although Freddie Mac is beginning to see some relief from residential delinquencies, its multifamily portfolio continues to worsen. According to a new SEC filing, the GSE now holds or guarantees $622 million of nonperforming apartment loans, almost double the amount of a year ago. At the end of March, its multifamily loss reserve was $842 million, compared to $275 million in 1Q09. Even though late payments on these loans have increased, Freddie's 60- and 90-day delinquencies on multifamily were 0.24%, and 0.18%, respectively, far below the industry wide single family delinquency rate of 11%.