Origination

Signs of hope for new commercial mortgage-backed securities issuance are emerging in some quarters but in others opinions about the market's prospects are somewhat mixed. Broker Summit Capital said Thursday that it "will begin analyzing the feasibility of financing transactions in order to place an approximate $380 million pool of non-recourse capital." President John Stueber said, "We believe this is the first capital of its kind to come out" and the move "signals the new beginning of CMBS in regards to the hotel real estate sector." Mr. Stueber said, "There's approximately $380 million available for hotel and commercial real estate assets. There's room for roughly 17 or 18 deals and that's it. Once that capital is used, the entity will securitize this capital pool and make a decision on whether this was a successful run or not. If it is, I expect that they will inject more capital into this type of financing again." A day earlier, Malay Bansal, head of portfolio management for commercial real estate and CMBS at NewOak Capital, summed up the outlook for the CMBS market as follows: "With Legacy TALF coming to an end after March, DDR dropping its planned CMBS deal, and few new deals on the horizon, the CMBS market may be headed for slower days. DDR was the first to do a new issue CMBS deal last year using TALF. The planned second $300 million deal was cancelled after it was able to raise $300 million by selling equity. Yet the fact that DDR preferred to raise funds elsewhere, instead of a CMBS deal, does not mean that CMBS [are] not needed or that others will not want to take CMBS loans. If DDR had not been able to refinance maturing loans by doing its first CMBS deal in November, it would not have found the equity markets that hospitable."

Industry groups are urging Senate Banking Committee members to consider a proposal that would exempt mortgages with strong underwriting standards from the risk retention requirements of a financial regulatory reform bill. The backers of a "qualified mortgage" exemption are concerned the current language in the bill treats securitizations of risky and non-risky mortgages the same, which will increase costs for creditworthy borrowers using low-risk mortgages. An early version of the Senate bill required securitizers to retain 10% of the credit risk when they sell loans into the secondary market. A new study commissioned by mortgage insurer Genworth Financial shows that nonprime mortgages originated between 2002 and 2008 performed 2.9-times worse than traditionally underwritten mortgages that had full documentation and safe product designs. "This study demonstrates why Congress should not impose an arbitrary risk retention requirement on all loans sold in the secondary market," said Glen Corso, managing director of the Community Mortgage Banking Project. Committee members are still trying to reach a bi-partisan agreement on a reform bill. CMBP, the Mortgage Bankers Association, and the Financial Services Roundtable Housing Policy Council are hoping the committee will totally exempt qualified mortgages from the risk retention requirements.

For the last few weeks, it seems that here in Baltimore where we've had a lollapalooza of a winter, everyone's in a funk. Yes it's been tough to get outside and the snow is finally almost gone. I've taken this time to look at a few projects I've been considering and also trying to figure out how to make the best of this time of the year. By the way, spring is only a couple of weeks away.

The IRA Advisory Service, an analytics firm, says GMAC Financial Services could be forced into bankruptcy protection, despite receiving more than $15 billion in federal assistance. In a report to clients, the Torrance, Calif.-based advisor called GMAC (whose holdings include the troubled Residential Capital Corp.) a "bank holding company searching for a business model." A spokeswoman for GMAC said it has no intention of filing for bankruptcy. "The company has taken a series of steps recently to strengthen its capital position," she said. But IRA told its clients it has concerns about GMAC's source of funding: "GMAC has essentially substituted FDIC-insured deposits for commercial paper, and has done so with terms and conditions that allow investors to walk out the door at any time and without penalties."

Fannie Mae plans to purchase up to 200,000 delinquent loans out of its mortgage-backed securities in March, but is holding off on giving guidance on whether it can maintain that run-rate over the coming months. It's expected that premium coupons will be bought out first with lower coupons acquired over subsequent months. The release of Fannie's promised second wave of information on its plan for massive buyouts has brought clarity to a market that has been somewhat volatile due to lingering uncertainties about the process. New information released by Fannie sheds more light on the pace and priority of the buyouts - as well as on Fannie's 120-day-plus delinquency rates. A Barclays report released Tuesday says the information about timing is more important in its view but still lacks specifics. Fannie said it plans to repurchase 150,000 to 200,000 delinquent loans in March, giving researchers information that helps them price MBS. As far as the new information about Fannie's 120-day-plus delinquencies, this generally puts Fannie "on par in terms of disclosures with Freddie Mac," according to Barclays.

PHH Mortgage, a retail-heavy lender, plans to increase its presence in the broker/wholesale channel, according to Jerome Selitto, president of its parent company. In an interview with American Banker, Mr. Selitto said the broker market is an "opportunity that was too large for us to ignore." He noted that, "Looking at price competitiveness and the types of products that were in the channel, we did not feel historically that was our sweet spot," he said. "But that has changed now. A lot of players are out of the market completely. It's not as price competitive as it once was, and the mix of products is different." According to figures compiled by National Mortgage News and the Quarterly Data Report, just 4% of PHH Mortgage's production is sourced through loan brokers. Roughly 79% of its fourth quarter fundings were retail related with the balance coming through correspondent originators. Industry-wide, wholesale lending through brokers accounts for just 13% of originations, according to NMN/QDR, down from a peak of about 30% three years ago. While some firms have exited the channel outright or severely cut their presence in it, others are entering the sector because they only have to compensate the broker if the mortgage actually closes, making it a more cost effective way of originating loans.

The Mortgage Bankers Association says the new good faith estimate disclosures should be given enough time to affect market behavior before the Federal Reserve Board moves ahead with a rule restricting certain forms of lender compensation. The Department of Housing and Urban Development's redesigned GFE went into effect Jan. 1, providing mortgage applicants with new disclosures on lender and originations fees. "We need to give it a chance to work," said MBA regulatory counsel Ken Markison. "The right move is for the Federal Reserve, at this time, to let nature takes its course," he said, speaking at a broker conference. Fed officials are currently reviewing 4,000 comment letters on its Truth in Lending Act proposal to curb abusive yield spread premiums and prevent loan officers and brokers from steering borrowers into more expensive loans. If the Fed decides to move ahead with its TILA rule, prime mortgages should be exempt from the new restrictions on commission-based compensation, Mr. Markison said. In addition, "We don't think the FHA and VA markets need or require" these new TILA regulations, he said.

DebtX, a full-service loan sale advisor based in Boston, is selling $105.5 million in primarily non-performing loans for a regional bank in the western United States. The portfolio is comprised of 71 loans and 33 relationships. The collateral includes commercial and residential properties located primarily in California, Washington, Oregon and Arizona. The three largest loans in the pool have a combined principal balance of $47.6 million. Bids are due by 2 p.m. Eastern Daylight time on Monday, March 22, 2010. Due diligence materials are now available at www.debtx.com. "Over the past six months, the number of bids per offering at DebtX has increased an average of 25% due to heightened demand for performing and non-performing loans," said DebtX CEO Kingsley Greenland. "A growing number of equity buyers are seeking to re-enter the commercial real estate market by purchasing loans because many distressed properties are in default or are unable to service their debt."

Industry lobbyists are having a hard time getting senators or their staffs to focus on the issue of MBS risk retention, which could dramatically reduce the securitization of mortgages and other assets - and increase the cost of credit. Senate Banking Committee members are intensely engaged in drafting a regulatory reform bill and fighting over ways to protect consumers, regulate derivatives and deal with the issue of institutions that are "too big to fail." At the same time, there is a consensus on the committee that securitizers - especially those creating MBS - should retain 5% to 10% of the risk when they issue mortgage-backed securities. The holding of this risk is called "skin in the game" and lawmakers see it as a way to prevent another subprime meltdown. But accounting rule changes and a capital regulation recently finalized by the banking regulators have turned this politically attractive concept of imposing risk retention into a roadblock to securitization. "It will not work," said Anne Canfield, executive director of the Consumer Mortgage Coalition. "You will not have any securitizations any more." Under the new capital rule, any bank retaining credit risk (and therefore potentially sharing losses) must hold capital against the entire MBS, not just 5% of the MBS. The risk retention requirement and the additional capital charge "eliminate any benefit of securitizing assets," Ms. Canfield said.

PHH Corp., Mt. Laurel, N.J., the nation's largest private label funder and servicer, earned $90 million in the fourth quarter, triple its profit in the same period a year earlier. Its loan production and servicing segments had gross profits of $65 million and $86 million, respectively. However, PHH noted that it had to reduce the asset value of its mortgage servicing rights by $57 million during the period "due to prepayments and recurring cash flows and $10 million of credit-related charges, which was comprised of foreclosure-related charges of $11 million partially offset by a reduction of reinsurance-related charges of $1 million." The writedown was not all that surprising given the nature of interest rates these days, but some larger bank-owned servicers actually marked up the value of their MSRs in 4Q. New CEO Jerry Selitto noted that the company's servicing segment "continued to be affected by provisions for credit-related reserves due to foreclosure activity. We are monitoring our potential exposure carefully," he said.