Servicing

The Federal Deposit Insurance Corp., in an effort to liquidate residential and construction loans from failed banks, has priced two note offerings totaling $1.8 billion to "robust market demand," according to a source familiar with the transaction. Existence of the deals was revealed earlier in the week but the transactions had not yet closed. This is the first in a series of three deals - all private placements - totaling roughly $4 billion. The notes carry a 100% FDIC guarantee. Barclays Capital was the sole book runner on the $1.8 billion offering. It was divided into a $1.33 billion floating-rate transaction and a $480 million fixed-rate deal. Asset Securitization Report, a sister publication to National Mortgage News, said the floating-rate portion priced at 55 basis points over one-month LIBOR, which is 10 points tighter than the initial price guidance of 65 basis points over one-month LIBOR. Meanwhile, the fixed-rate portion priced at 85 basis points over i-swaps, or 5 to 10 points tighter than the initial price guidance of 90 to 95 basis points over i-swaps. The fixed-rate portion priced at a slight discount at 99.61019 with a coupon of 3.25% and a yield of 3.367%. One source said the FDIC went the private route because it saved time. If these deals were not privately placed it "could take too long to get the public disclosure together, and on a greater level, to get Securities and Exchange Commission approval. But then again, does the FDIC need SEC approval to do a public offering?" asked the source.

Restructuring Fannie Mae and Freddie Mac-and the political compromises that must occur to make it happen-could render the passage of such legislation next to impossible, according to a new report from Keefe, Bruyette & Woods. Commenting on remarks made late last week by Rep. Barney Frank that investors in Fannie/Freddie securities should not assume that their holdings are guaranteed by the Treasury Department, KBW noted that the chairman of the House Financial Services Committee "had a busy day." Treasury quickly issued a statement, reiterating its financial commitment to the two. But in its report, KBW predicts that Democrats will lose more seats in the fall election, forcing Rep. Frank to compromise on GSE legislation next year. Several weeks ago the committee chairman said he wants to start from scratch on revamping the nation's housing finance system. KBW analyst Bruce Gardner notes that the undertaking is "monumental when one considers that such an effort would affect Fannie and Freddie, the capital markets, the banking system, mortgage bankers, mortgage insurers, Realtors, homebuilders and others."

Mortgage servicing employees who help troubled borrowers with loan modifications should be exempt from the licensing and registration requirements of the SAFE Act, according to a comment letter by three industry groups. The trade groups note that the Department of Housing and Urban Development is considering bringing certain servicing personnel under the Safe and Fair Enforcement for Mortgage Licensing Act (SAFE), which is intended to ensure uniform licensing and registration of loan officers and mortgage brokers. The American Financial Services Association, American Bankers Association, and Mortgage Bankers Association argue that there is no basis to impose SAFE requirements on mortgage servicing employees. Such an "undue expansion" of SAFE, the trade groups warn, could hamper the process of serving troubled borrowers.

Stephen Staid has joined Saxon Mortgage Services Inc., Irving, Texas, as executive vice president of customer relationship management. The Morgan Stanley-owned Saxon is repositioning itself into the residential subservicing space, specializing in distressed asset servicing. In this role, Mr. Staid will be responsible for financial transaction management, early stage delinquency, modification fulfillment, command center, call monitoring and customer service. He also will serve as a member of the Saxon executive committee, reporting directly to chief executive Anthony Meola. Mr. Staid has more than 15 years of mortgage servicing management experience. He specializes in customer service operations and has a deep knowledge of servicing technology.

LoanMarket.net, an online seller of nonperforming loans, is seeing an increase in its commercial business. The Irvine-based auction company said over the past two months it has closed between $30 million and $50 million of commercial mortgage deals. Jeff Freud, a principal in the company, noted that LMN is continuing to hire and now employs 13 full-timers. The company began holding live online auctions about a year ago. He added that buyer demand has picked up this year, adding that most of the winning bids are placed by private equity firms and hedge funds.

With perhaps one exception, the MBS market Friday did not have much of a reaction to an acceleration in Freddie Mac's prepayment speeds which reflected buyouts of a large number of delinquent loans. By staging the massive buyout of loans delinquent by 120-days-plus in a single month, Freddie Mac saw a "colossal" spike in its speeds, according to a Barclays Capital report. But there were "no surprises" there, the report indicated. "The only surprise for the market was some of the lower coupons came in faster than expected," said Walter Schmidt, senior vice president, manager, structured product strategies at FTN Financial Capital Markets. He said Friday morning that as a result swaps between Freddie Mac Gold securities and Fannie Mae securities "have underperformed a little, not by huge amounts."

Hudson City Bancorp, a top ranked residential lender in the New York metro area, wants to convert its thrift subsidiary to a national bank charter. However, company CEO Ronald Hermance Jr. is vowing that the institution will not change its current business model of "originating and purchasing first mortgage loans on residential properties." He said the strategy will continue if it becomes a national bank. He said the thrift may become a national bank because its regulator, the Office of Thrift Supervision, may be eliminated by legislation being promoted by the Obama Administration. "At a time when trust and confidence in the banking industry is being challenged like never before, we believe it is important to stay ahead of any legal and regulatory changes implemented with regard to federal financial oversight," he said. In 2009, Hudson City originated $6 billion and purchased $3 billion in residential mortgage loans.

The Federal Deposit Insurance Corp. is planning to extend its "safe harbor" policy past March 31 while its board continues to work on new securitization standards. The safe harbor provides comfort to investors that FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. FDIC chairman Sheila Bair said the current safe harbor will be extended while the agency works with industry and other regulators on securitization standards. One of the standards involves risk retention where banks are required to retain 5% of the credit risk when they securitize mortgages and other assets. "These reforms would prevent the conflicts of interest we've seen in the past and give investors confidence that they can understand and manage the risks associated with asset-backed securities," Ms. Bair told a joint meeting of minority real estate groups. The comment period on permanently extending the safe harbor and establishing new securitization standards ended Feb. 22. Industry groups, including the American Securitization Forum, are urging FDIC to extend the current safe harbor until the end of this year. ASF noted that Congress is currently working on financial regulatory reform that includes risk retention requirements. "We are concerned about the potential impact of multiple layers of securitization legislation and regulation without coordination among legislators and regulators," ASF says in its comment letter.

GMAC Financial Services has auctioned off $250 million of problem mortgage assets, using Citigroup as its broker on the deal. A spokeswoman for GMAC said the bid process "went very" well but at press time no other details were available on the process including information about bidders and what they offered. The spokeswoman said, "Our plan is to continue to sell assets through the year in our normal course of business and as we have done historically." She added, "We are not interested in pursuing transactions that don't have the right economic value." GMAC and its mortgage division, Residential Capital Corp., are saddled with billions of dollars of troubled non-prime loans and securities. One investor involved in the bid process said he passed on making an offer on the pool "because they wanted us to bid based on 2008 appraisals that they did." He said he was not allowed to take a hard look at current values on the underlying assets. "We will not bid on assets without the ability to determine the underlying value." This investor, requesting anonymity, said many large sellers are operating in a fashion similar to GMAC.

House Financial Services Committee chairman Barney Frank, D-Mass., is calling on the CEOs of four major banks to work with the Treasury Department and banking regulators to deal with second mortgages that have become an obstacle to modifying troubled first liens. The four banks - Bank of America, Citigroup, JPMorgan Chase and Wells Fargo - hold $452 billion of seconds on their books. In a letter to the CEOs, Rep. Frank says many investors are willing to accept losses on principal writedowns of underwater first mortgages to prevent foreclosures. However, second-lien holders have become a "principal obstacle" to many modifications. "The problem of second lien-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," the March 4 letter says. Rep. Frank told a joint conference of minority real estate professionals that banks are reluctant to take writedowns because of accounting and regulatory capital issues. "The second liens in many cases are not worth anything," Rep. Frank said, adding that banks have not acknowledged it under the accounting rules. "At the point at which they acknowledge it, the bank's capital could be negatively affected," the chairman said. Rep. Frank said officials at Treasury, FDIC and HUD are trying to figure out how to deal with the accounting issues. They also are exploring incentives - such as giving second-lien holders a stake in the future appreciation of a property.