Originations

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.

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.

GMAC Financial Services has tightened standards on a servicing-related program geared toward small- to medium-sized correspondent lenders, according to trade group officials and executives familiar with the effort. Moreover, a top executive who managed the program left the company in recent weeks, National Mortgage News has learned. The effort, known as '3-D,' is a way for GMAC's mortgage division, Residential Capital Corp., to gather servicing rights and grow its portfolio. With 3-D, according to executives familiar with it, the loans are sold to Fannie Mae with ResCap obtaining the underlying servicing rights. "There's certain tax advantages to it," said one servicing broker close to the situation. A trade group official said ResCap eliminated "the bottom tier" firms participating in 3-D "and only wants to deal with high net worth companies." A ResCap spokeswoman stressed that GMAC "has not discontinued" what she called its "rapid delivery program to Fannie Mae, though we may elect to change certain features of the program." She declined to comment further.

With limited loan options and similar pricing among competitors, service is how an originator stands out.

Triad Guaranty Inc. - which is in the process of liquidating - reported a fourth-quarter loss of $79.1 million, a 35% improvement from the same period a year earlier. The Winston-Salem, N.C., mortgage insurer had a net loss of $595.6 million for the full year, compared to a net loss of $631.1 million for 2008. The MI's book of business is in "run-off" status. Ken Jones, president and chief executive, said, "First-time defaults, while down moderately from earlier 2009 quarters, continued at a high volume. We have seen very little permanent impact to date from the existing loan modification programs and, consequently, the cure rates on existing defaults remain at historic lows and have shown little sign of improvement." Its total insurance-in-force declined to $50.5 billion at Dec. 31, 2009, a 7.5% drop from Sept. 30, 2009 and a 19.3% decline from Dec. 31, 2008.

New-home building in California rebounded in January from a year earlier, but industry officials cautioned against calling it a recovery because the numbers for January 2009 were extremely low. "It's great to see some positive activity, but given the fact that we're comparing this month to one of the lowest months on record doesn't exactly bring a housing recovery to mind," said Liz Snow, president of the California Building Industry Association. According to the Construction Industry Research Board, permits were pulled for 2,979 units in January, an increase of 48% from the same month a year ago but down 18% from December. Permits for single-family homes totaled 1,908, up 50% from January 2009 but down 28% from the previous month, while multifamily permits totaled 1,071, up 45% from a year ago and up 11% from December. Ben Bartolotto, research director for CIRB, said the monthly decline from December to January is typical because January is usually one of the weakest months for housing starts. He also noted any enthusiasm for the year-over-year increases seen in January should be tempered with the fact that the numbers for January 2009 were extremely low. CIRB is forecasting a modest recovery for 2010, with permits being pulled for 52,000 total units, up slightly from the record-low 36,289 permits pulled in 2009.

The dollar volume of primary new mortgage insurance written in January was lower than any month in 2009, according to the Mortgage Insurance Cos. of America. Only $4.16 billion of new insurance was written in January. The worst month in 2009 was the $4.76 billion written in October. For the fourth consecutive month the number of new applications received has declined. There were only 19,438 applications for the month, down from 26,284 in December (the lowest in 2009) and 75,614 in January 2009 (the best month in this category last year). The amount of primary insurance-in-force among the private MIs continued to slide. In January 2009 it was $949.3 billion. By December it fell to $863.4 billion and at the end of January 2010, it was $851 billion. The cure/default ratio for January 2010 was 62%, with 61,195 cures and 98,685 defaults. This is the highest number of defaults since January 2009's 106,482.

Even though existing-home sales fell 7.2% in January to a seasonally adjusted annual rate of 5.05 million units, the inventory of available homes is continuing to shrink, a sign that housing values might be stabilizing, according to the National Association of Realtors. In January inventory fell 0.5% to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace. In December the number was better (a 7.2-month supply) but NAR says "raw unsold inventory" is 9.6% below a year ago, and is at the lowest level since March 2006. "Activity should be picking up strongly in late spring as buyers take advantage of the tax credit, which is critical to absorb distressed properties reaching the market and to continually chip away at inventory," said NAR. The January existing home sale figure compares to a downwardly revised pace of 5.44 million in December. The results, the weakest since June, were worse than many housing economists had forecast. Mr. Yun admitted that the sales numbers are "not good." The trade group hopes that sales will spike this spring as consumers move to take advantage of the $8,000 first-time homebuyer tax credit which is set to expire in late April. The median sales price was $164,700, unchanged from a year earlier and down 3.4% from December.

Freddie Mac said it will stop buying and securitizing interest-only mortgages - a $40 billion a year market - on Sept, 1. Interest-only and alt-A products have been Freddie's downfall: the two loan types accounted for 44% of the mortgage giant's credit losses in 2009. Freddie exited the alt-A market a few years back but the product still accounts for 8% of its portfolio holdings. The GSE currently has $129.9 billion in interest-only mortgages, which comprises 7% of its single-family mortgage portfolio. These loans have an average loan-to-value ratio of 106% and 17.6% are 90 days or more past due. This loan product features interest-only payments for a set period of time before the loan becomes fully amortizing and the borrower has to start making principal and interest payment. Because the initial payments are so low, it is very difficult to modify these loans once the homeowner defaults. Freddie has modified only 0.2% of its interest-only portfolio. Despite these problems, Freddie purchased $800 million in interest-only mortgages in 2009.

Freddie Mac reported that 4% of its single-family mortgages are 90 days or more past due, up from 2% in January of 2008. The serious delinquency rate edged up 16 basis points in January to 4.03%, according to the GSE's monthly activity report. The secondary market agency's report also provides investors with an update on the delinquent mortgages the GSE is buying out of its existing mortgage backed securities. On Feb. 10, Freddie said it will purchase all loans that are 120 days or more past due out of its MBS. The update on MBS coupons affected shows that $71.5 billion in loans were eligible for purchase as of Jan. 31. Freddie will disclose its initial purchases in a March 4 report. Meanwhile, Freddie purchased $22.6 billion in refinanced loans in January, down from $27.3 billion in the previous month. MBS issuance totaled $36.6 billion, down from $44 billion in December. For all of 2009, Freddie issued $475.4 billion in MBS, compared to $357.9 billion in 2008.

Two-thirds of the households that sold their homes in California last year did so because they couldn't make their mortgage payments, as changes in family and employment status took hold, according to the state's brokerage community. California is the largest mortgage market in the nation. Tighter loan underwriting standards and a decline in equity also continued to impact the market in 2009, leaving owners with little equity and making it difficult, if not impossible, to refinance, the California Association of Realtors said in its latest survey of home sellers in the Golden State. "Many homeowners chose to sell last year because their adjustable-rate mortgage reset at the same time home prices were experiencing an unprecedented decline," said CAR president Steve Goddard. Financial difficulties also impacted the ability of sales to close on time, with 63% of all deals falling out of escrow prior to closing. Nearly seven out of 10 of sellers cited "buyer could not get an acceptable mortgage" and more than six of 10 said "buyer backed out" as the primary reasons the sale fell through. Other reasons included "buyer's remorse," 26%; "lender withdrew and did not fund," 24%; and "home prices continued to decline," 18%. Once a deal made it to the closing tables, half the sellers reported that escrow did not close on time. The median difference between the selling and listing price was $32,315, but the list-to-sold-price ratio was significantly larger for first-time sellers ($30,000 below list price) than those who had previously sold a home ($8,000 below list).

GMAC Financial Services has forced out six managers in the servicing division of Residential Capital Corp. as part of a belt-tightening effort at the company. A GMAC official confirmed the layoffs to National Mortgage News but would not provide any further details. (For the full story including who was let go see the Monday paper edition of NMN.) Meanwhile, GMAC is quietly shopping around more than $2 billion in troubled loans to investment banking companies and hedge funds, according to officials familiar with the talks. "There's no offering circular yet," said one New York hedge fund executive "but there are plenty of conversations." A GMAC spokesman declined to comment about the troubled loan talks. The cutbacks at ResCap came a few days before GMAC CEO Michael Carpenter told a Congressional panel that the company is planning an initial public offering in the next two years. Elected officials pressed Mr. Carpenter on his plans for ResCap and once again he repeated that GMAC, which is 56% owned by the government, is exploring its strategic options. He noted that ResCap has been successfully walled off from the rest of the organization. "I look at ResCap as a problem to be solved, not an opportunity," he said. A spokeswoman added that GMAC wants to minimize risk at the company but wants to "support our role as the fifth largest servicer serving three million homeowners."

Fitch Ratings has downgraded the individual rating of Sterling Bancshares Inc., Houston, from B/C down to C over concerns regarding its commercial real estate exposure and its potential impact on future financial performance. The bank's loan portfolio includes a high percentage of CRE loans, 62%, at Dec. 31, 2009, which Fitch said is "notably higher than peer averages." Sterling's loan exposure outside Texas (11% of total loans) also increases the company's risk profile, and could lead to higher credit costs. Fitch said it considers CRE an area of future concern for U.S. banks. The company's rating outlook has been revised to "negative" from "stable." The rating agency added, "In considering future rating actions, Fitch will focus on Sterling's ability to manage its CRE exposures, enhance its management reporting structure, and address issues cited in the informal agreement." Sterling disclosed in its 2009 10-K filing that it is operating under an informal agreement and will be submitting an updated capital plan, among other things, to the regulators. Fitch is also concerned that J. Downey Bridgewater, the chairman and chief executive, has also taken on the duties of chief risk officer at Sterling.