Servicing

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.

Keefe, Bruyette & Woods, New York, has made some changes to the KBW Mortgage Finance Index. Effective Aug. 19, it is deleting homebuilder and mortgage company Centex Corp., Dallas, because it is being acquired by another publicly traded homebuilder, Pulte Homes. Bloomfield Hills, Mich.-based Pulte will see an increase in its shares in the composition of the index as a result of the deal. MGIC Investment Corp., Milwaukee, Wis., will be added to the index as a replacement for Centex. The last change, and the only one not related to the Pulte-Centex deal, is that Ocwen Financial Corp., West Palm Beach, Fla., is having an increase in its shares included in the index as a result of its equity offering.

Mortgage loan delinquency, borrowers 60 or more days past due, increased for the tenth straight quarter, hitting an all-time national average high of 5.81% for the second quarter of 2009, according to the latest data from TransUnion.com. This statistic is up 11.3% from the first quarter's 5.22% average. Fourth quarter 2008 to first quarter 2009 saw an increase of almost 16%, indicating a continuing deceleration in delinquencies for the second quarter. Year-over-year, delinquencies are up approximately 65%. Delinquency rates in the second quarter of 2009 were highest in Nevada (13.8%) and Florida (12.3%), while the lowest mortgage delinquency rates were found in North Dakota (1.5%), South Dakota (2.1%) and Alaska (2.4%). The three areas showing the greatest percentage growth in delinquency from the previous quarter were Wyoming (+27.8%), Utah (+22.2%) and Hawaii (+21.7%). However, there were some bright spots: North Dakota and Ohio both showed a decline in mortgage delinquency rates, down 0.66% and 0.22% from the 1Q. The average national mortgage debt per borrower dropped (0.86%) to $193,811 from the previous quarter's $195,500. On a year-over-year basis, the second quarter 2009 average represents a 0.59% increase over the second quarter of 2008 average debt per consumer of $192,681. The area with the highest debt per borrower was the District of Columbia at $360,891, followed by California at $359,442 and Hawaii at $314,495. The lowest was in West Virginia at $97,979. Quarter to quarter, Alaska showed the greatest percentage increase in mortgage debt (+4.5%), followed by North Dakota (+2.2%) and Alabama (+1.5%). Areas showing the largest drop in average mortgage debt were Ohio (-4.4%), Idaho (-3.7%) and Connecticut (-3.0%).

Taylor, Bean & Whitaker said it is no longer able to offer online payments capabilities nor can it do automated payment deductions for those consumers whose loans it still services. Customers are asked to send a check by mail to the company to the attention of its cashiering department in Ocala, Fla. Since Aug. 4, a statement from TBW said, it has not taken any automated debit payments. For those who have already received notification that the loan was transferred to a new servicer, the statement said customers are to follow the instructions in the transfer notice. The statement also said TBW would "continue functioning in a reduced capacity until all loans have been transitioned to new servicers."

BB&T Corp., Winston-Salem, N.C., did not acquire any assets and liabilities relating to Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., in its acquisition of the banking operations of failed Colonial Bank, Montgomery, Ala. A statement from the company also declared assets and liabilities that the Federal Deposit Insurance Corp. determines are related to fraudulent or criminal activities are excluded from the purchase as well, leaving the future of Colonial's warehouse lines in doubt. Further BB&T said FDIC indemnifies it "for any liabilities not expressly assumed in the transaction, including those related to fraudulent, criminal or inappropriate activities of Colonial." Colonial's Orlando mortgage warehouse business offices and TBW were raided by federal agents recently working under the auspices of the Special Investigator General for the Troubled Asset Relief Program. Colonial later said it was the target of a U.S. Department of Justice criminal investigation relating to its mortgage warehouse lending business. Calls to FDIC and BB&T about Colonial's warehouse lines to about 70 lenders were not returned by deadline.

The first of four participants in a foreclosure fraud scheme that targeted mortgage lenders and homeowners has been sentenced to nearly five years in prison. U.S. District judge Deborah K. Chasanow has sentenced Earnest Lewis of Takoma Park, Md., to 54 months in prison, followed by three years of supervised release. The defendant also agreed to forfeit $2.2 million gained from the scheme. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Earnest Lewis' brother, Michael Lewis, aired TV ads claiming he could save financially vulnerable individuals' homes from foreclosure. The Lewis brothers and mortgage loan officer Winston Thomas fraudulently promised to help homeowners keep their homes by temporarily using the "good credit" of Earnest Lewis to refinance their homes after they signed their homes over to Earnest Lewis for roughly one year. In the meantime, they could remain in their homes by paying "rent." The victims' bank accounts were directly debited by an account belonging to co-conspirator Cheryl Brooke's company, In the House Technologies. Michael K. Lewis, Brooke and Thomas have all pleaded guilty and are scheduled for sentencing in September.