Servicing

Although delinquencies for residential properties continued to climb in the second quarter of 2009, the rate of new foreclosures started was essentially unchanged from last quarter's record high, according to the Mortgage Bankers Association's national delinquency survey. The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a rate of 9.24% of all loans outstanding at the end of the second quarter of 2009, up 12 basis points from the first quarter of this year and up 283 basis points from the second quarter one year ago. According to the MBA, the percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter. The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985. The percentage of loans in the foreclosure process at the end of the second quarter was 4.3%, up 45 basis points from the first quarter of 2009 and 155 basis points from one year ago. The combined percentage of loans in foreclosure and at least one payment past due was 13.16% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey. The percentage of loans where foreclosure actions were started during the second quarter was 1.36%, down one basis point from last quarter and up 28 basis points from one year ago. "There was a major drop in foreclosures on subprime ARM loans," said MBA's chief economist Jay Brinkmann. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase." California, Florida, Arizona and Nevada continue to have a disproportionately high share of foreclosure starts, although the share has fallen slightly from last quarter. Those states had 44% of all new foreclosures in the U.S. during the second quarter 2009, down from 46% in the first quarter 2009.

Delinquency levels of residential mortgage- and asset-backed securities transactions in Russia and the Commonwealth of Independent States appear to be trending upward, according to a new Moody's Investors Service report. Delinquency levels have increased over the past two quarters and only one RMBS transaction rated by Moody's has closed in the two markets this year. "The Russian economy is in its worst recession since the 1998 crisis," said Nitesh Shah, a Moody's economist and co-author of the report. "Ruble depreciation has led to higher U.S. dollar mortgage obligations for many obligors, which — combined with falling house prices and the elevated risk of unemployment — does not bode well for obligors or the RMBS transactions in the sector that are exposed to U.S. dollar-denominated mortgages." Maria Divid, a Moody's senior associate and co-author of the report, said delinquencies increased in all RMBS transactions over the first half of the year.

John MacFarland has joined the independent real estate firm of Resource Title as senior vice president, National Commercial Division, to develop and grow certain lines of business at the company. Mr. MacFarland will spearhead the division's growth into the commercial real estate owned and default market segments, and take part in developing and servicing more traditional commercial and investment transactions as well. The company, based in Independence, Ohio, has been servicing the commercial market nationwide for twenty-five years, recently opening a second office in Chicago to serve its commercial customers. Resource Title also offers nontraditional services in the relocation, default and REO fields. Mr. MacFarland's arrival will enhance an already considerable national commercial presence, said Andrew Rennell, executive vice president.

Government-sponsored enterprise regulator James Lockhart is joining Wilbur Ross' firm, which specializes in managing funds that invest in distressed companies such as American Home Mortgage Services and BankUnited. Mr. Ross cited Mr. Lockhart's "unique insights into the U.S. mortgage markets" in the hire, saying this would help the company expand investment opportunities for its institutional and individual clients. Federal Housing Finance Agency director Lockhart — who recently stated his decision to step down — will become the vice chairman of WL Ross & Co. LLC in September. Mr. Lockhart will officially step down as the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks on Friday (Aug. 21) and Edward DeMarco will assume the duties of acting FHFA director on Monday.

Integrated Asset Services, LLC, a Denver-based provider of default management and residential collateral valuation, has launched a new company called Statebridge, which will provide custom, high-touch investor-focused servicing. The risk-based servicing, developed by a team that helped create the market for independent surveillance of mortgage securities, introduces a new adaptive approach designed to optimize investor success through tailored, high-touch servicing that aims to maximize return on performing and nonperforming loans. With the Statebridge launch, the IAS suite of mortgage servicing products — which already includes REO management and disposition, collateral valuation, conditioned valuation, and mortgage due diligence — is aimed at bridging the entire loan lifecycle. In association with IAS's valuation and REO capabilities, Statebridge aims to be the only servicing company providing a "one-stop shop" for mortgage servicing that is intensely focused on the needs of investors, according to Dave McCarthy, president and CEO of Integrated Asset Services. The company was designed to provide custom special servicing of both distressed and nondistressed mortgages. In addition to servicing advice on existing mortgages, Statebridge is equipped to offer collateral analysis, fiduciary review, pool level analysis, and pricing advocacy for new investments in mortgages.

Fitch recorded a decline in commercial real estate loan collateralized debt obligation delinquencies in July but said the figure was misleading and indicated that there may be significant downgrades to all Fitch rated CREL CDOs in the coming months. Fitch said it expects to see high default rates in the sector "as these loans mature into the trough of the current commercial real estate cycle." As a result, the rating agency is finalizing its review methodology for the sector and believes this will result in several downgrades. In July, delinquencies had dropped to 7.6% from 8.2% in June, according to Fitch's CREL CDO Delinquency Index, but the decrease reflected an average of 2.7% of the CDO par balance being lost in distressed asset sales and discounted payoffs. "Had the loans, which were resolved at a loss over the past three months ... remained in the transactions, the CREL DI would have exceeded 9%," Fitch said.

The recent reversal of some positive technical conditions in the CMBS market supports the need for clarification of the Public-Private Investment Program supporting the sector as well the extension of the TALF program, according to a New Oak Capital report. "While I think that the extension of TALF for CMBS into 2010 is a positive, we'll need some more clarity around PPIP in order for the market to get back on track," said Craig Lieberman, managing director and co-head of commercial real estate at NewOak Capital, a New York advisory, asset management, and capital markets firm. He said that contributing to negative technicals seen recently in the market was "news of big CMBS borrowers like Maguire and Moinian handing over the keys on several properties," as well as an earlier announced delay of the PPIP program, followed by a large collateralized debt obligation liquidation.

The Federal Reserve Board has extended the TALF program into next year to see if the special financing facility can finally provide a boost for the commercial mortgage-backed securities market. The Fed noted that the CMBS market is "still impaired" as it extended the Term Asset-Backed Securities Loan Facility for legacy CMBS until March 31 and new CMBS until June 30. The TALF program was due to expire at yearend. But several members of Congress and commercial real estate groups have been urging the Fed to extend the program because of the limited availability of financing for maturing CRE loans. In addition, the TALF program for CMBS has gotten off to a slow start and it has only financed the purchase of $670 million in legacy CMBS so far. The Fed is expected to approve the first new CMBS deals using TALF financing on Thursday (Aug. 20).

Farmington Hills, Mich.-based XSite Validation has launched a tool designed to evaluate overall "toxicity" in commercial loan pools. The tool can see into each and every commercial property loan in a portfolio, ranks all performing, non-performing and REO properties from "First to Worst," allows for quick reassessment of the concentration of types of properties within loan portfolios, and provides the "best use" evaluation of every loan portfolio property by presenting the top five potential uses of each property. For every property in a financial institution's portfolio, XSite uses its patent-pending XRI Scoring System, which assesses the "market viability of a property for its current or proposed commercial use, in conjunction with the financial institution's own loan grade/risk factors, to create a unique "Composite XRI Score." XSite's Composite XRI Score gives banks a single measurable that joins the financial viability and the market viability of the commercial property into one "go / no-go" decision-making factor.

MountainView Risk Advisors, LLC, Denver and AVM, L.P., have formed a strategic alliance to provide mortgage servicing rights risk advisory services. The alliance will provide hedge advisory and analytic services to assist financial institutions in stabilizing the returns associated with the MSR assets. The MountainView-AVM combination creates a comprehensive and integrated MSR hedging, analytics, research, sales and trading team. Clients of the alliance will be able to outsource virtually every aspect of designing and executing turnkey MSR risk management programs including identification of asset risks, infrastructure and program design, hedge strategy development and idea generation, derivatives trading and reporting, and attribution analysis. MountainView is continuing to expand its MSR services with this strategic alliance, following the hiring of industry veteran Greg Harris to lead MVRA earlier in 2009.