Origination

I recently read a couple of articles that started me thinking about how we can best serve our senior clients and increase our business at the same time. The first was regarding how our children are not really encouraged to think creatively and how important this will be in the future. The second was at norwichbulletin.com on July 20 and focused on an out of the box way to use reverse mortgage proceeds. Both articles got me thinking.

Arbor Realty Trust Inc., Uniondale, N.Y., has completed a restructuring of its financing facilities, totaling $374 million, with Wachovia Bank NA (now part of Wells Fargo). It also agreed to amend its management agreement with Arbor Commercial Mortgage LLC. The $374 million of restructured indebtedness with Wachovia was comprised of two term loan facilities with an aggregate outstanding balance of $332 million and a working capital facility with an outstanding balance of $42 million. This debt restructuring resulted in the consolidation of the three facilities into one term debt facility with an outstanding balance of $317 million and one working capital facility with an outstanding balance of $57 million. The maturity dates of the facilities were extended for three years. The term loan facility requires a $48 million reduction over the three-year term, with approximately $8 million in reductions due every six months beginning in December 2009. Arbor was able to eliminate most margin call provisions. However, the term loan had a rate increase to Libor plus 350 basis points compared with Libor plus approximately 200 BPs; the working capital facility saw a 300 BP increase in rate to Libor plus 800 BPs. Arbor also gave Wachovia 1.0 million warrants at an average strike price of $4.00; half are exercisable immediately at a price of $3.50, 250,000 warrants are exercisable after July 23, 2010 at a price of $4.00 and 250,000 warrants are exercisable after July 23, 2011 at a price of $5.00. The deal also required Arbor's CEO and chairman, Ivan Kaufman to remain an officer or director for the term of the facilities.

The Real Estate Roundtable has named Daniel M. Neidich, co-CEO of New York-based Dune Capital Management LP, as its new chairman. He succeeds Hilton Hotels president and CEO Christopher J. Nassetta. Mr. Neidich said the most significant issue facing him as he takes over the leadership of the group is the ongoing liquidity and refinancing crisis that is forcing real estate owners into bankruptcy and pushing up delinquency rates on commercial mortgages. The remaining executive board members are: secretary, Robert S. Taubman, chairman, president and CEO of Taubman Centers Inc.; and treasurer, Jeffrey Schwartz, chairman of Global Logistic Properties. The Roundtable's current policy agenda includes a "Five Point Plan" for restoring liquidity to the credit market. While some of those steps have already been enacted, the group said additional policy action is needed to facilitate loan workouts and restructurings through temporary changes in the tax rules governing real estate mortgage investment conduits. Also needed is an overhaul of policies governing foreign investment in U.S. real estate. "The debt markets, including the CMBS market, are still generally dysfunctional, transaction volume remains at virtually zero, and commercial property values remain under downward pressure," said Mr. Neidich.

Both sides claimed victory after a U.S. District Court judge dismissed some of the charges made by FICO, Minneapolis, in a lawsuit against VantageScore Solutions LLC, Stamford, Conn., and two of the three credit repositories. Barrett Burns, president and chief executive of VantageScore said in an interview the suit was an expensive distraction to his company and he is glad it is substantially over. FICO CEO Mark Greene said his company was fighting for "fairness and consumer protection. At a time when consumers most need clarity regarding their creditworthiness, it's imperative that they understand whether or not the credit scores they purchase are industry-standard FICO scores or merely look-alike 'educational' scores not actually used by lenders to make lending decisions." Mr. Burns said VantageScore is gaining acceptance and market share. He added the dismissal of the false advertising claim was the biggest one that impacted the defendants. Judge Ann Montgomery also dismissed antitrust allegations. The two defendant credit repositories issued statements. "We are particularly gratified that the court found that VantageScore represented the 'very essence of competition,'" said Kerry Williams, Experian Group President of Credit Services and Decision Analytics. Meanwhile, Jeff Hellinga, president of TransUnion's U.S. Information Services division, said, "The court's decision dispels a perception that there can be only one scoring model that holds relevance for lenders and consumers. The outcome is a victory for the kind of choice, clarity and consistency that the marketplace demands and deserves." Equifax had previously entered into a settlement with FICO. FICO said it would appeal the dismissed charges after a trial over the remaining complaint. Mr. Burns said if FICO does go forward with the suit, VantageScore would see it in court.

Home sales increased 20.1% in June in California compared with the same period a year ago, while the median price of an existing home was $274,740, a decline of 26.4% from May 2009, according to the California Association of Realtors. Closed escrow sales of existing, single-family detached homes totaled 514,110 in June. The June 2009 median price rose 4.2% compared with May's $263,600 median price. CAR's Unsold Inventory Index for homes in June 2009 was 4.1 months, compared with 7.6 months in June 2008. "The statewide median price for existing condos increased for the third consecutive month in June, while sales climbed 27% compared with last year," said CAR president James Liptak. "Both of these trends are indicative of increased interest in condos on the part of first-time and other buyers." The median number of days it took to sell a single-family home was 44.3 days in June 2009, compared with 49 days a year ago.

House prices have reversed their steep decline and it appears home prices are finally stabilizing at mid-2003 levels, according to the May Standard & Poor's/Case-Shiller 20-city house price index. The May HPI shows that prices have fallen 17.1% from a year ago, which is slower than the 18.1% annual decline in April. "The pace of descent in home price value appears to be slowing," said David Blitzer, chairman of S&P's index committee. While the index has reached a "clear inflection point," he said, prices are still down 17% on a year over year basis and "so we likely do have a way to go before we see sustained home price appreciation."

Colonial BancGroup Inc., Montgomery, Ala., has consented to a cease-and-desist order from the Federal Reserve System and the Alabama State Banking Department. The order, Colonial said, is similar to one issued to its Colonial Bank subsidiary by the Federal Deposit Insurance Corp. and the state regulator. Under the agreement, the holding company has 30 days to submit to the Fed and state regulators a capital plan, 60 days to submit a liquidity management plan and 30 days to eliminate from its books by collection or charge-off all assets or portions of assets identified as "loss." Colonial, one of the leading warehouse credit providers, is in the midst of a pending transaction that would recapitalize the company with a consortium of investors including Ocala, Fla.-based mortgage lender Taylor Bean & Whitaker. TBW had no comment on the order.

New-home sales jumped 11% in June from the previous month and homebuilders expect to see a slow improvement in sales during the rest of this year. "Significant evidence has accumulated that we have hit the bottom," said Bernard Markstein, senior economist at the National Association of Home Builders. But NAHB has not called a bottom yet, because of concerns sales may drop off toward yearend with the expiration of the first-time homebuyer tax credit. NAHB is seeking an extension of the tax credit. The U.S. Census Bureau saw sales of new single-family homes rise to a 384,000 seasonally adjusted annual rate in June, up from a 346,000 rate in May. NAHB economists expect sales will run at a 390,000 rate during the second half of this year, up from a 347,000 rate in the first half.

WSFS Financial Corp., Wilmington, Del., has given up on its joint venture in the reverse mortgage field after a little over one year, citing the unlikelihood of profitability. In April 2008, the company acquired a majority interest in 1st Reverse Financial Services LLC, Westmont, Ill. While results at the unit did improve during the second quarter when compared with the first quarter this year, it was still a money-losing operation. For the most recent period 1st Reverse had a pretax loss of $152,000, while in the first quarter it lost $586,000. Another positive sign was a $98,000 increase in fee income during the period to $654,000. However, according to WSFS president and chief executive Mark Turner, 1st Reverse has not reached breakeven levels "and in the current economic climate, prospects for achieving required returns are weak. As a result, WSFS has made the decision to conduct an orderly wind-down of this start-up initiative." WSFS will take a pretax charge of $1.6 million related to the closure. Mr. Turner added that WSFS will still do reverse mortgages in its Delaware retail banking branches, pointing out it is the top reverse originator in that state. For the quarter, WSFS lost $2.3 million, which besides the 1st Reverse charge, includes a $12 million increase in its loan loss provision and a $1.3 writedown of assets acquired through foreclosure. It also had a $622,000 positive mark-to-market adjustment on a reverse mortgage securitization. A request for comment from 1st Reverse's management had received no response at press time.

The homeownership rate appears to have stabilized at 67.4% after falling for three consecutive quarters and the number of vacant homes for sale has dropped by 14% since the start of this year, according to a government report. The Census Bureau reported that the number of vacant homes on the market fell to 1.92 million in the second quarter, down from 2.23 million at yearend 2008. The homebuilders have been waiting for this inventory to drop back to its historical norm of 1.25 million to 1.5 million, because the overhang puts downward pressure on new home prices. The Census Bureau also reported that the U.S. homeownership rate edged up to 67.4% in the second quarter from 67.3% in the first quarter. In the second quarter of 2008, the homeownership rate was 68.1%. Meanwhile, the homeownership rate for blacks was 46.5% in the second quarter, down from 47.8% a year ago, while the homeownership rate for Hispanics was 48.1%, down from 49.6% a year ago.