Servicing

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%.

Fannie Mae said in its first-quarter securities filing that it made servicers buy back or reimburse it for losses on $1.8 billion of loans, 64% more than a year earlier. It was the first time the government-sponsored enterprise disclosed the volume of its repurchase demands. Previously Fannie only acknowledged that the number of such demands had been on the rise since 2008 as delinquencies worsened. Freddie Mac also has been sending more loans back to lenders: $1.3 billion in the first quarter, up 65% from a year earlier, according to its first-quarter filing last week. In February Fannie announced a "loan-quality initiative" designed to reduce loan repurchase requests. If lenders do a better job on the front end of making sure the loans they deliver meet the GSE's guidelines, Fannie has said, it would not have to make lenders buy back so many defective mortgages after the fact. The initiative will begin next month. Among other changes, lenders will have to pull a second credit report just before a loan closes to check if the borrower has taken on additional debts since submitting the mortgage application.

Returning to his Realtor roots, Federal Housing Administration commissioner David Stevens called on the nation's largest trade group of real estate professionals to storm Capitol Hill in support of legislation to reform the government's housing insurance agency. "The FHA is at risk," Stevens told NAR's midyear legislative meeting in Washington. The FHA chief, who came to the agency from Long & Foster Realtors, one of the largest independent real estate companies in the nation, said the government cannot continue to prop up the housing market "unless we do something to shore up" FHA's capital reserves. Currently, H.R. 5072, which would allow the FHA to more closely mirror how private sector mortgage insurers price their products and hold lenders accountable for the loans they originate, has been cleared by the House Financial Services Committee but has not yet been scheduled for floor action. Commissioner Stevens called it a "critical bill" because otherwise FHA cannot continue to be the cornerstone to the housing market it has been for the past 30 years. If the legislative changes Stevens wants are enacted, the estimated value to the FHA insurance fund would be some $330 million a month. He said the fixes would help the agency replenish its capital reserves even faster than if this authority was provided through the annual Congressional approval process.

The Federal Deposit Insurance Corp. on Tuesday revamped its securitization proposal, mandating that depositories hold a 5% risk retention piece, but exempting loans sold to the GSEs and into bonds guaranteed by the Government National Mortgage Association. The initial proposal issued in November required banks to season single-family loans for 12 months before securitization. As a result of industry comments, FDIC dropped the seasoning requirement and is now proposing that banks issuing residential MBS maintain a 5% reserve fund for one year to cover early defaults and breaches of representations and warranties. The new proposal, which will be published for a 45-day comment period, requires bank issuers to retain 5% of each MBS tranche. The FDIC proposal is designed to update the agency's policies on the treatment of commercial and residential MBS when the issuing bank fails. It is also designed to address problems that arose in the subprime market, placing additional requirements on residential MBS issuers, including disclosures by the servicing bank if they own the second liens on the loans being serviced. "We want the securitization to come back the right way, not the wrong way," said FDIC chairman Sheila Bair. Agency officials noted that their measure is similar to a Securities and Exchange Commission proposal that also imposes 5% risk retention on bank and nonbank MBS issuers. Chairman Bair said the SEC proposal, when finalized, will become the "base" for banks. The FDIC board of directors approved the securitization proposal for public comment by a 3-2 vote. Comptroller of the Currency John Dugan and the Office of Thrift Supervision acting director John Bowman voted against the proposal.

Redwood Trust Inc., which recently came to market with a jumbo MBS deal, is already working on a follow-up bond offering, according to industry officials familiar with the matter. The publicly traded REIT had no comment on its plans. One investor noted that "they already have the loans in place." And a source close to the firm noted that the Mill Valley, Calif., company "is interested in creating more credit pieces or subs to own or invest in." Last month Redwood securitized $238 million of jumbo prime residential mortgage loans through its Sequoia securitization program. It was the first non-government sponsored residential jumbo bond issued in almost two years. Many of the loans collateralizing the security came from CitiMortgage. (Citi's parent firm was one of the bond's underwriters.) Meanwhile, Redwood on Monday launched a flow purchase program where it will acquire prime residential mortgage loans from "banking companies and other selected originators." It noted that the effort "is currently operating with a small number of mortgage loan originators that have national platforms."

Commercial mortgage lender and servicer Red Capital Group, Columbus, Ohio, has been sold by PNC Bank NA to an investor group led by Orix USA Corp., Dallas, a subsidiary of Japan's Orix Corp. Among the members of the investment group is Stonehenge Partners, Columbus. Terms of the transaction were not disclosed. Red provides financing for multifamily, senior living and health care projects through various FHA and Fannie Mae programs. Under the new ownership it will continue to operate under the Red name. Jim Thompson, CEO of Orix USA said, "We are fortunate to be able to add Red's experience in multifamily, senior and health care finance to Orix Capital Markets' commercial real estate capabilities. FHA and Fannie Mae will continue to be important components of the nation's housing finance programs; the Red acquisition enables Orix to deploy its capital into those important markets." William Roberts, Red's founder and chief executive from 1995 to 2007, has resumed that post. Red currently services $12.5 million in commercial mortgage loans. It also has a registered broker-dealer unit that provides underwriting and syndication of multifamily housing bonds and the related tax credits.