Origination

On Tuesday, the House Financial Services Committee will hold a hearing on covered bonds backed by high-quality mortgages and consumer loans, a European market some U.S. legislators believe could become more influential in the United States and help fill in the gap left by the still-moribund mortgage-backed securities market. Rep. Scott Garrett, R-N.J., is hoping the hearing will lead to legislative action in the spring and help provide liquidity for the U.S. mortgage market. European banks have issued $180 billion in covered bonds backed by high-quality mortgages and consumer loans this year while U.S. mortgage securitization, outside of the government sponsored or guaranteed market, has been virtually nonexistent. "Because of the problems in the secondary mortgage market," covered bonds offer a way to provide needed liquidity for the U.S. mortgage market, said Mr. Garrett. A covered bond market would enable banks and thrifts to tap a low-cost, long-term financing while keeping the mortgage loans on their balance sheets. Covered bond investors know they have "dual" recourse and they can go after the bank or seize the underlying assets if the bonds go into default. In Europe, covered bonds have "performed well," despite the financial crisis, Rep. Garrett told reporters. (The bonds did suffer during the crisis but not to the extent securitizations did.) In 2008, the Treasury Department and the Federal Deposit Insurance Corp. issued policy statements on covered bonds and a couple large U.S. issuers experimented with them prior to the crisis. However, legislation is needed to assure investors they will be made whole if an issuing bank fails, according to Tim Skeet, head of covered bonds for Bank of America. "A legal framework is a necessary prerequisite to the establishment of a vibrant U.S. covered bond market," Mr. Skeet said at Rep. Garrett's press conference.

Wells Fargo & Co. and Bank of America lead the list of unsecured creditors to Fairfield Residential LLC, one of the nation's largest apartment owners and developers which filed for bankruptcy on Sunday. According to the filing, which came in Delaware, Wells is owed almost $130 million, BoA $84 million. Other leading unsecured creditors include Capmark Finance ($79 million), Compass Bank ($64 million) and Regions Bank ($52 million). Freddie Mac, which buys multifamily loans in the secondary market, is owed $45 million. Capmark, a top-ranked commercial mortgage lender and servicer, itself is in bankruptcy. San Diego-based Fairfield listed assets of between $100 million and $500 million and liabilities north of $1 billion. The company, like many commercial real estate owners, has experienced problems refinancing its loans. None of the creditors had commented at press time.

The commercial origination and servicing business of bankrupt Capmark Financial Group Inc., has been acquired by Berkadia Commercial Mortgage LLC, a joint venture of Berkshire Hathaway Inc. and Leucadia National Corp.The sale includes a commercial servicing portfolio of more than $240 billion. Michael I. Lipson, head of global services and loan originations, and a member Capmark's executive team since 1996, has been named president of Berkadia and will continue to lead the business. Berkadia's board of directors will include two representatives each from Berkshire Hathaway and Leucadia National. Berkadia is in the process of hiring more than 1,000 of Capmark's approximately 1,500 current employees. Berkshire is headed by billionaire investor Warren Buffett. Capmark is based in Horsham, Pa. Three years ago Capmark (then known as GMAC Commercial Mortgage) was sold to an investor group led by Goldman Sachs & Co.

The House of Representatives on Friday passed a massive regulatory reform bill that, among other things, creates a new consumer protection agency with authority to set mortgage lending standards for all residential originators. The House passed the "Wall Street Reform and Consumer Protection Act" (H.R. 4173) by a 223-202 vote. The accepted language creates the Consumer Financial Protection Agency, a Washington regulatory body that would set industry-wide rules for mortgage lending and take over enforcement responsibilities from the federal banking agencies. An industry-backed amendment to gut the CFPA and turn it into a consumer protection council representing 12 regulatory agencies failed by a close vote of 223-208. The American Bankers Association said it opposes several sections of the 1,200 page bill, including the CFPA. "The breadth of authority granted to the director of the proposed new consumer financial regulator is unprecedented," said ABA president Ed Yingling. "This new regulator would not be responsible for considering institutional safety and soundness along with consumer protection." (ABA believes it's essential that safety and soundness and consumer protection oversight be performed by the same regulatory body.) The Mortgage Bankers Association also has issues with CFPA. But MBA and other industry groups were glad to see a bankruptcy cramdown amendment defeated by a 241-188 vote. "We are gratified that the House saw fit to vote down the bankruptcy cramdown amendment," said MBA chairman Robert Story. Earlier this year, the House passed a bill that would allow bankruptcy judges to cram down or reduce the principal amount of a homeowner's mortgage. The Senate rejected the cramdown bill.

Advanced Financial Services, a mortgage banker based in Newport, R.I., has changed its name to Embrace Home Loans. Kurt Noyce, president of Embrace Home Loans, said, "We now find ourselves with many opportunities for future growth, but our name hasn't kept pace with that growth. We have not been available in all markets and we're easily confused with many other financial services companies. So we decided to make a change with a name that defines not only what we do, but also what we care about." The company was founded in 1983 and is a direct lender for Fannie Mae and Freddie Mac, approved by FHA and VA, and an issuer for Ginnie Mae.

Colony Capital LLC, Los Angeles, has acquired a commercial real estate-secured nonperforming loan portfolio from BAG Bakaktiengesellschaft, Hamm, Germany, with a face value of $90 million. "The transaction marks the first NPL acquisition in Europe for Colony during this new distressed cycle," the Los Angeles-based company said. Morgan Lewis was the legal and tax advisor for Colony on the transaction. Dilip Awtani, a managing director who heads Colony's distressed efforts in Europe, said he sees value in underlying real estate in Germany and other European countries that he believes Colony will be able to benefit from. The company seeks to realize this value by helping banks monetize illiquid assets and positioning itself to benefit from an eventual recovery.

Central Pacific Bank, Honolulu, will close its four California commercial real estate loan offices and wind down its West Coast operations by 2012. "We have not made a loan in California in more than 18 months and have been diligent in reducing our loan portfolio there," said Ronald K. Migita, chairman, president and chief executive. "By the end of the third quarter, we've reduced our total loans and leases by $622.6 million, or 15.3% from a year ago, many of which were in California. Our mainland team continues to reduce our exposure in California as we shift gears to fully concentrate on the Hawaii market." He added Central Pacific has accelerated its efforts to reduce credit risk by pursuing loan sales, including potential bulk sales, in addition to loan restructuring and pay downs. As of Sept. 30, 2009, the bank's mainland construction and commercial real estate loans totaled $865.8 million. The offices are in Newport Beach, Pasadena, Rossville and San Diego. In the third quarter, its parent company Central Pacific Financial Corp. lost nearly $72 million.

The Federal Deposit Insurance Corp. is expected to rule on two matters Tuesday stemming from new accounting standards for off-balance-sheet assets. The agency is ready to complete an interagency rule bringing capital levels in line with a decision by the Financial Accounting Standards Board in June that required certain off-balance-sheet holdings, including securitizations, to be brought onto the balance sheet. As a result of the FASB change, the FDIC will also consider a proposal to restrict its safe harbor for securitized assets that are tied to failed institutions. Since securitizations have previously been separate from a bank's balance sheet, the FDIC has ordinarily not seized these assets when resolving failed institutions. But the FASB rule left investors and banks worried that the FDIC might change its policy. Last month, the FDIC said it would maintain the safe harbor until April but -- considering how securitizations contributed to the financial crisis -- propose conditions for use of the safe harbor in the longer term.

Countdown to Buy, Bethel, Conn., which operates an online real estate auction website, has lined up new investor commitments of more than $1.1 million, according to a source familiar with the matter. The official announcement on the capital raise is expected to come next week. Founded in 2008, Countdown hopes to expand from a regional online seller of real estate to a national player.

NetMore America Inc., Walla Walla, Wash., has expanded its mortgage banking operations to the East Coast, obtaining a license to originate in Maryland. The company said it has begun to purchase loans through its wholesale channel in the state, one of the healthier markets in the U.S. It will later, through its Professional Branch System, establish a retail presence there as well. "NetMore is building a nationwide lending platform in a responsible and strategic manner by focusing on states with high potential for quality business," said company president Mark Freedle. He identified those states as being in the Mid-Atlantic region: Maryland, Pennsylvania, New Jersey, Virginia, and Washington D.C. The company is now licensed in 26 states but previously had concentrated its business in the western part of the nation. In its fiscal year 2009, ending Sept. 30, NetMore originated more than $1 billion in loans. It is projecting originations of up to $1.5 billion for 2010. Its current product mix is 50% agency loans and 50% FHA.