Servicing

Recovery in the economy as a whole appears likely to continue in the second half of this year but parts of the U.S. housing market may remain bogged by roughly 4 million foreclosed or seriously delinquent properties concentrated in certain states, Barclays researchers said as part of a global outlook press briefing in New York. About 1.9 million out homes in the United States are in foreclosure and roughly another 1.9 million are owned by borrowers 90 or more days delinquent on their mortgages, said Ajay Rajadhyaksha, head of U.S. fixed income and securitized products strategy at Barclays. Because these home are concentrated in certain states, this leads to what he calls a housing market in "two parts," in which home prices in some areas such as Texas and Washington state might stabilize in the second half. But in states like California, Florida, Nevada and Michigan prices are likely to continue to be weighed down by foreclosures and subperforming mortgage concerns. In Michigan, about 82 out of every 100 existing home sales have been distressed, Mr. Rajadhyaksha said.

Forty-one defendants, including LaSalle Title Co., are facing federal charges relating to various mortgage fraud schemes in five separate cases in Chicago. In some of the schemes, the defendants face charges that they allegedly falsely inflated the values of dilapidated homes in urban areas. In other schemes, defendants are charged with deals involving million-dollar condominiums in a Chicago high-rise and homes in affluent suburbs. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, 37 individuals and four businesses, including LaSalle, which closed on allegedly fraudulent loans, are facing charges relating to five mortgage fraud cases involving more than $48 million in fraudulently obtained mortgages in the Chicago area, including two in the suburbs of Wheaton and Glenview. The various lending companies suffered millions of dollars in losses after the loans went into default and the properties were foreclosed upon. No one from LaSalle could be reached for comment.

The economy may be recovering, but even in a recovery residential estate's performance is likely to continue to vary by market and commercial real estate's health is likely to lag that of the broader market, two influential portfolio managers said at a New York Society of Security Analysts meeting in New York. "You've really got to make a decision on a market-by-market basis," said Philip J. Orlando, senior vice president, senior portfolio manager and chief equity market strategist at Federated Investors Inc., when asked at the 4th annual Wall Street Forum how residential RE might perform in a recovery. Commenting on the outlook for CRE, TIAA-CREF's managing director and head of global real estate portfolio management Philip J. McAndrews said its recovery is generally unlikely to occur on a broad basis until after the broader economic recovery becomes more established and credit availability improves. "It's going to take awhile for us to get through this," he said.

Recently foreclosed homes, most of them likely being sold by lenders, are taking up a decreasing portion of Orange County real estate transactions, according to a report in The Orange County Register. The newspaper, citing figures compiled by DataQuick, said that in May homes that had been foreclosed upon in the previous 12 months made up 34.2% of homes sold, excluding newly built home sales. That's the lowest percentage since August. Foreclosures' share of the home resale market peaked in January at 46%. Lenders repossessed more than 1,400 Orange County homes last August — the highest number of any month on record. Orange County — once the home of many subprime lenders — has been one of the hardest hit areas in terms of home prices declines in the state.

The Mortgage Bankers Association has slashed its forecast of mortgage production by more than $700 billion, wiping out most of a projected increase made to that forecast in late March. The trade group is now estimating 2009 single-family originations of $2.03 trillion — $737 billion of it "purchase-money" with the balance being refinancings. All but $84 billion of the cut is due to a lower number of rate/term refinancings and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program. The March forecast of $2.78 trillion was driven by expected refis as a result of the Treasury's actions to push bond rates lower. MBA chief economist Jay Brinkmann said the group's warning that the March projection could have been too optimistic came true, as investors have shied away from Treasuries. "Given the high issuance volume of Treasuries in June, the Fed is likely approaching its self-imposed ceiling of $300 billion and may be reluctant to increase its current commitment to purchase long-term Treasuries," he said. MBA is forecasting increasing rates through the end of this year and through 2010.

The 105% loan-to-value ratio limit on Fannie Mae and Freddie Mac's program to refinance underwater borrowers could be raised to increase participation, according to the GSEs' regulator. The Federal Housing Finance Agency is "looking at going significantly higher than 105%," FHFA director James Lockhart said. The 105% ceiling has kept too many borrowers on the sidelines, he told a National Association of Real Estate Editors conference. The GSEs have refinanced 80,000 homeowners under the special program that the Obama administration has promoted to help borrowers who can't qualify for a standard refinancing. The administration unveiled the refinancing program in February and estimated it will refinance at least 4 million homeowners who have loans that are owned or guaranteed by the government sponsored enterprises. The 105% LTV limit theoretically allows Fannie and Freddie to securitize the newly refinanced loans and sell them to the Federal Reserve and other investors. However, raising the LTV might force the GSEs to hold the loans on their books.

Canadian investment in U.S. real estate has more than doubled in one year to 23.5% from 11%, according to real estate investor Westward Fund, Scottsdale, Ariz. The fund said exchange rates between the Canadian dollar and the U.S. dollar in addition to falling property values in the United States have been catalysts for the increase. Arizona in particular, where values have fallen in many instances, has drawn foreign investors, said E. Patrick LaVoie, manager for the fund. The fund said investors from the United Kingdom, China, Indian and Germany also have shown strong interest in U.S. real estate.

DRI Management Systems in Newport Beach, Calif., a provider of default management solutions, is partnering with Unison Global Partners, LLC in Pleasanton, Calif., a provider of REO disposal services, to offer loan servicers of all sizes a method to manage, track and dispose of distressed assets. UGP uses DRI's flagship software product, The Default Solution, as its automation base to facilitate the flow of information from servicers into its property disposition services with the aim of eliminating human error and accelerating the process. A property is listed with UGP's broker partner, REObroker.com, which has 60 days to sell the home using its automated system and its access to over 80 million potential buyers around the world. If that does not occur, stage two involves an online auction to a global audience of investors and end-buyers lasting 14 days. Stage three is a live auction, conducted according to a marketing plan designed around the particular property. UGP says the first two steps are successful in 90% of the cases.

Mission Capital Advisors LLC, New York, is marketing a portfolio of commercial mortgage loans for an unnamed commercial bank with an outstanding balance of $158 million. These are performing, sub- and non-performing assets secured by a variety of collateral types, including office, hospitality, industrial warehouse, self storage, multifamily, condominium and commercial development land, throughout multiple states. Mission Capital is initially soliciting indicative bids (on July 8) from prospective bidders for the purchase of individual loans, any combination of loans, or the entire portfolio. Overall, the package contains 12 loans secured by collateral in New York, California, Florida, and Mississippi.

For the first time since July 2007, there was an increase in the median sales price for Southern California home sales, according to MDA DataQuick, San Diego. The median sales price for May was $249,000, up 0.8% from $247,000 in April but down 32.7% from $370,000 a year ago. Furthermore, for the 11th consecutive month, there was an increase in home sales in the region as a total of 20,775 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties in May. That was up 1.3% from 20,514 in April and up 22.8% from 16,917 a year ago. May's sales were the highest for that month since May 2006, when 30,303 homes sold. Foreclosure resales - homes sold in May that had been foreclosed on in the prior 12 months - accounted for 50.2% of resales. That was down from 53.5% in April and from a peak of 56.7% in February. "We appear to be in the early stages of the market gradually tilting back toward a more normal balance of sales across the home price spectrum. As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we'll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose," said John Walsh, MDA DataQuick president. "Let's not forget we're into the traditional homebuying season right now, meaning more people are purchasing for all of the normal reasons, such as a new job or to get settled before school starts. Many are concerned with finding the right home in the right area, not just the most deeply discounted home."