Servicing

Performance deterioration seen in commercial mortgage-backed securities and multifamily transactions in Europe, the Middle East and Africa during the first quarter is expected to continue, Moody's Investors Service said in a report Wednesday, citing upcoming refinancing risks. "While the refinancing exposure of EMEA CMBS in 2009 and 2010 is still remote, one has to look further ahead," said Deniz Yegenaga, a Moody's associate analyst and co-author of the report. "Given the most recent commercial property market performance and the anticipation of further property value declines, also loans that mature after 2010 will be highly levered on their refinancing date and will most likely experience difficulties to repay. In addition, the significantly declining property values increase the loss upon default of commercial real estate loans." During the first quarter, the number of loans "subject to an event of default" came close to doubling, Moody's said. The rating agency downgraded 13 classes of notes in nine transactions and placed 23 classes of notes in six transactions on review for possible downgrade during the period. It also upgraded three classes of notes in two transactions during the quarter.

Spring is in the air in the Houston metro area, where the number of single-family house sales in May was the most of any month so far this year, according to the local Realtors group. While single-family sales for May were still 21.2% below that of the same month last year, the average price climbed to $213,474, the highest it's been since August. Another promising sign, says the Houston Association of Realtors: foreclosure sales continued to shrink in May. Repossessions accounted for just 20% of all sales in the month, compared to 34% in January, 28% in February, 24.5% in March and 23.6% in April. Overall, 5,539 properties of all types, totaling $1.1 billion, changed hands in the metro area in May. "The more I speak with real estate associations around the country, the more I appreciate the strength with which the Houston market has weathered the economic downturn," said HAR Chair Vicki Fullerton, a RE/MAX broker in The Woodlands. "Our current housing climate has been performing at about 2004 levels while other regions of the U.S. are suffering what Houston endured back in the 1980s." However, month-end pending sales — those listings expected to close within the next 30 days — totaled just 3,637, which was 24.7% lower than last year, suggesting a decline in sales when the June numbers are tallied.

The Federal Reserve's purchases of mortgage-backed securities are affecting the supply-demand balance of MBS collateral in the repurchase markets, according to a Barclays Capital report. This has narrowed the one-month term repo MBS spread to Treasury collateral to 2 basis points from 14 bps in March when the Fed began its purchases, according to a June 15 report by Joseph Abate, a U.S. fixed income strategist at Barclays Capital. "At the same time, usage of the Federal Reserve's [Term Securities Lending Facility] for schedule one collateral (essentially MBS) has evaporated, with no bids at any of the collateral swap auctions for several weeks," said Mr. Abate, in his Weekly Collateral Update report.

The White House late Tuesday unveiled its plan to overhaul the nation's financial regulatory system, a blueprint that would create a new government body — the Consumer Financial Protection Agency — with sweeping oversight and enforcement powers over all aspects of the origination process, including several bedrock laws that govern how lenders interface with consumers. "This a sweeping change to how things are done now," said Howard Glaser of the Glaser Group. He noted that the CFPA would be empowered to enforce the Real Estate Settlement Procedures Act, the Home Ownership and Equity Protection Act, the Home Mortgage Disclosure Act, and even certain aspects of the Community Reinvestment Act. The plan states that, "Consumers should have clear disclosure regarding the consequences of their financial decisions." The plan notes that the White House wants to require lenders to offer 30-year fixed-rate "vanilla" loans to consumers with streamlined pricing. Mr. Glaser said the creation of the CFPA might level the playing field for independent non-bank lenders who are getting "short shrift" from the Federal Reserve. He encouraged the mortgage industry to embrace the plan "to bring certainty and clarity back" to the home lending market.

Non-bank mortgage lenders and depositories would be assessed millions of dollars in fees to fund the creation and maintenance of the Consumer Financial Protection Agency, a new government body that would have massive enforcement powers over all players in residential finance, according to a White House draft proposal. Funding of the new agency also would come from transaction fees, the White House says. The Obama Administration notes that mortgage lenders not owned by banks fall into a regulatory "no man's land" where no government body "exercises leadership and state [attorneys general] are left to fill in the gap." The administration feels the Federal Trade Commission lacks the jurisdiction over the banking sector and has limited tools to "promote compliance of nonbank institutions." The White House believes the core of the CFPA can be "assembled reasonably quickly from discrete operations of other agencies." (For the full plan see Editor's Choice below or visit: http://www.nationalmortgagenews.com/documents/reg_reform_paper.pdf.

A California law prohibiting home foreclosures for 90 days went into effect this week, but some residential servicers can earn an exemption if they can prove they are modifying loans. According to a report in The Orange County Register, several companies have already filed for an exemption. The state has 30 days to grant an exemption but during this time the servicer does not have to comply with the moratorium. Only mortgages originated between 2003 and 2007 are eligible. According to the California Foreclosure Prevention Bill, the law does not require a servicer to provide a modification to a borrower who is not willing or able to pay under the modification. According to the Register, it's unclear what "able to pay" means. California represents about 20% of all residential debt outstanding in the U.S.

The Federal Reserve Bank of New York has chosen commercial real estate information and technology provider Trepp LLC as collateral monitor for commercial mortgage-backed securities as part of the Term Asset-Backed Securities Lending Facility. TALF's monthly subscription window for new issue CMBS was set to open for the first time Tuesday afternoon. At press time midday Tuesday Trepp senior vice president Andy Liebman and Tom Sink said to their knowledge there was nothing pending for it, but they were already at work on aspects of the program that are being finalized, and said next month they anticipate the program will be underway for both new issue and legacy CMBS. Trepp said in its role as monitor it would assist the New York Fed in providing valuation, modeling, analytics and reporting as well as advise on matters involving newly issued and "legacy" CMBS in the program. The New York-based company said it would not establish policies or make decisions for the New York Fed, including decisions on whether to reject a CMBS as collateral for a TALF loan or exclude loans from mortgage pools. Trepp said it would use the analytics and forecasting services of its subcontractor and sister company, the Boston-based Property and Portfolio Research, in conjunction with its work as a TALF CMBS collateral monitor.

Overdues on securities backed by multifamily and retail commercial loans climbed 29 basis points in May to 2.07%, according to Fitch Ratings Agency — the highest percentage of delinquencies since the company created a tracking index back in 2001. Fitch cited "large loan defaults coupled with declining performance on multifamily and retail properties" as a reason for the increase. Even though the late payment rate might appear alarming to some, it is much smaller than the residential delinquency rate, which is in the double-digits. Also, outstanding commercial mortgage debt is much smaller, in terms of dollars, than residential debt. Fitch noted "Defaults on larger loans continue to drive delinquency increases because later vintage transactions have larger loans, many underwritten with now unrealized pro forma income, as well as now-depleted debt service reserves and high leverage."

Southern California-based REOTrans has launched the RT Certified Agent Program, an online training regimen that educates agents in the REO-sales process. REOTrans has been providing basic training on the use of the workstation free of charge at various industry meetings, but the sessions were constantly overbooked, so the company decided to create an online series of courses. The company offers three levels of certification.

The National Credit Union Administration has approved 'shared appreciation' loan modifications in which a credit union can share in the appreciation of any property for which it refinances a loan. The ruling — which came in a recently issued legal opinion — comes as millions of CU borrowers are at risk of foreclosure and are seeking to refinance their mortgages. Under a proposal emanating out of the Michigan Credit Union League, a member would agree to share any future increase in the home's appreciation with the credit union, in exchange for a reduction of the principal balance of the troubled borrower's outstanding loan. Shared appreciation would be based on a predetermined calculation and occur upon the sale of the property at a future date.