Archive for September, 2009
Fitch Ratings revised its watch on Capmark Finance's commercial mortgage-backed securities (CMBS) servicer rating to "evolving" from "negative" on Wednesday.
The news follows an announcement last week that the company will sell its North American servicing and mortgage bankings businesses to Berkadia III, a joint entity owned by billionaire investor Warren Buffet’s Berkshire Hathaway (BRK-A: 99199.8984 +0.81%) and Leucadia National Corporation (LUK: 25.02 +0.81%).
Capmark is in negotiations over the planned sale but expects to retain servicing management and staff through the transition. Fitch's evolving watch indicates the firm may downgrade, affirm or upgrade Capmark's CMBS servicer ratings depending upon whether the transaction completes.
Company officials said in an earnings statement the sale arrives as part of an attempt to restructure businesses and avoid a potential Chapter 11 bankruptcy filing.
On Tuesday, Fitch downgraded Capmark Financial Group's issuer default rating to single-C from single-B minus following the Q209 financials.
Write to Diana Golobay.
Financing for the commercial real estate (CRE) market is looking at a near collapse in the next two years as short-term debt structures come due in the coming months.
Efforts within the industry to fix the financial issues in the market aren't working and the industry will likely require a much larger involvement from the United States government in order to stay afloat, according to Ross Prindle, managing director of the Real Estate Services practice at independent financial advisory and investment banking firm, Duff & Phelps.
"Unfortunately the industry is unable to come up with a one-size fits all solution to refinancing commercial mortgage debt," he says. "Efforts to help CRE, such as [the Term Asset-Backed Securities Loan Facility], only include top-rate investment grade tranches."
"While these efforts are helping, a clearinghouse of lower tranches of [commercial mortgage-backed security] debt is necessary so the market doesn't get overloaded," he adds.
Duff & Phelps serves an advisory role to the Troubled Asset Relief Program (TARP) Congressional Oversight Panel on valuation issues and was recently hired to perform valuation work related to the repayment of TARP funds by banks.
In commercial real estate, as with residential, a lack of credit is also weighing the market down, according to the Fed's most recent Beige book. However, Prindle states that the different types of roles commercial properties fulfill, such as with industrial, retail or in health care, make crafting a one-size fits all solution difficult.
The woes of otherwise strong commercial business models highlight the coming troubles in the industry. For example, instances where the liquidity issues that led the Extended Stay hotel chain to file for bankruptcy, the expected bankruptcy of servicer Capmark and the near collapse of lender CIT, are not the result of any malfeasance on the part of individual operating structures but an indication of the coming collapse of the commercial real estate market.
Additionally, the securitization of these properties (CMBS) means that investors "all over the world" stand to lose big without a government-led rescue plan dedicated to CRE. And, also in contrast to residential real estate, foreclosure is not an acceptable end result.
"In the end, banks don't want to own CRE assets," Prindle adds. "As my firm helps to connect borrowers to lenders via negotiations, in order to restructure debt, the market will need a much greater capital cushion to support this."
Write to Jacob Gaffney.
A controversial piece of bankruptcy legislation may see a revival soon, according to discussion begun this week with House Financial Services Committee chairman Barney Frank, D-Mass., indicating mortgage cramdowns through bankruptcy is an increasingly relevant idea.
At a House subcommittee hearing Wednesday, Frank gave vocal support to cramdown legislation, which would allow bankruptcy judges to alter mortgages on primary residences, potentially lowering — or "cramming down" — a portion of the balance.
Frank remains "disappointed by the pace of foreclosure mitigation efforts" across major servicers, according to a spokesperson with his office. If the pace of these efforts does not increase, he may soon push the campaign for bankruptcy reform in the broad financial regulatory reform bill moving through the House.
At the hearing over the progress of the Making Home Affordable (MHA) Program's modification and refinance initiative, Frank disputed the notion a bankruptcy cramdown law would make people eager to enter bankruptcy as an alternative to foreclosure. He said "bankruptcy is no picnic" and again pointed toward the sluggish performance of servicers within the MHA modification program six months into its operation.
"The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of modifying mortgages," Frank said. "And if they do not improve their performance, then they improve the chances of that legislation."
Opponents of the legislation, including Rep. Spencer Bachus, R-Ala., say cramdowns would not solve the key issues prolonging the foreclosure crisis, like high unemployment that prevent homeowners from affording mortgage payments.
"Bankruptcy cram-down [legislation], which was rejected by the Senate earlier this year, would severely undermine recent measures taken to unfreeze credit by private markets and I think would prolong our housing recovery by adding uncertainty to the market and increasing mortgage costs to the vast majority of Americans," Bachus said in opening remarks at the hearing Wednesday. "[It] would precipitate some of the very things the Administration is attempting to prevent with this legislation."
But Frank said waiting for jobs to return is a "wholly inadequate" approach to reducing the flow of foreclosures. Bankruptcy reform, which would include cramdown legislation, bears little relevance to the availability of credit.
"We are talking about a bankruptcy bill that would be limited to mortgages already granted," Frank said. "The notion that this would somehow stop the flow of credit is hard to maintain. It would have nothing to do with credit going forward."
Second mortgages remain an issue to modifications, as second lien holders are reluctant to agree to modification, and Frank said he hopes to address the problems legally next year.
"There are people who say it would be good to modify…or reduce the principal, but no one's got the authority to do it," he said. "No one can decide how to arbitrate between first and second mortgages."
Write to Diana Golobay.
The Home Ownership Accelerator mortgage is back.
The loan product combines a first-lien line of credit and a full-service checking account. Borrowers make deposits into the loan, reducing the balance on which interest in calculated. The borrower can access their money to buy things with checks, an ATM/debit card or online bill pay.
San Ramon, Calif.-based wholesale lender CMG Mortgage said borrowers can save thousands in interest over the life of the loan and is bringing the loan back after its popularity grew in Australia and the UK.
CMG Mortgage, a subsidiary of CMG Financial Services, had previously suspended the program because non-agency mortgage investors pulled out of the market.
The product will first be offered in California, Washington, Arizona, Colorado, and Minnesota, with other states being added in the future.
Write to Austin Kilgore.
Servicers offered more than 570,000 mortgage modifications and started 360,000 trial modifications for borrowers under the Home Affordable Modification Program (HAMP) since its launch in March 2009, according to an updated servicer performance report by the US Treasury Department.
HAMP provides incentive caps to servicers for modifying delinquent loans and adjusts those caps based on performance. The Treasury began releasing progress reports after the Obama Administration set a goal of reaching 3m to 4m homeowners over the next three years.
Yesterday, a House committee held a hearing to determine if the program would reach that goal. Treasury and Housing and Urban Development (HUD) officials testified the program was on track.
The updated performance report from the Treasury indicates
Saxon Mortgage Services leads all servicers by starting trial modifications for 39% of its 73,694 eligible 60+ day delinquent loans, an increase from 25% when HousingWire reported on HAMP progress at the beginning of August.
JP Morgan Chase (JPM: 37.21 -0.75%) started 106,288 trial modifications, the most on a gross volume basis, which is 25% of its eligible portfolio. The number of initiated modifications increased from 79,304 last month.
Bank of America (BAC: 7.29 -0.14%) holds 835,680 eligible loans, more than any other servicer, but has started trial modifications on 7%, an increase from 4% a month ago.
Other notable performances include: CitiMortgage starting 23% of its 191,128 eligible loans; Wells Fargo (WFC: 29.60 +1.89%) starting 11% of its 292,515 eligible loans; Litton Loan Servicing starting 3% of its 103,871 eligible loans; and Wachovia Mortgage starting 2% of its 74,231 eligible loans.
According to the latest Troubled Asset Relief Program transaction report, 50 servicers participate in HAMP for a total of $22.1bn in total cap adjustments.
Write to Jon Prior.
The Department of Housing and Urban Development (HUD) is soliciting applications to help fund housing developments for people who are over 62 years old or disabled, and for assisted living facilities.
HUD will provide up to $511m in the form of interest-free capital advances and rent subsidies to non-profit groups to produce affordable rental housing with support services for very low-income adults 62 years old or older, as well as for disabled individuals.
The support services allow people with disabilities to live independently, but in an environment that provides access to social services.
"These capital advances will help thousands of our very low-income elderly and persons with disabilities to find good housing they can afford," HUD secretary Shaun Donovan said. "Senior citizens and persons living with a disability should never have to worry about being able to find a decent place to live."
HUD defines very low income as having a household income 50% below the area median, adjusted for family size.
The money will be spent to construct, acquire or rehabilitate multifamily housing for these purposes, as well as provide rent subsidies so that the tenants are only required to pay rent equal to 30% of their income.
An additional $20m is available in a second program to convert multifamily apartment complexes into assisted living facilities for low-income assisted living facilities for low-income adults 62 years or older.
Assisted living facilities provide housing with services to help residents with daily activities as well as home management activities.
Write to Austin Kilgore.
Mortgage interest rates dipped slightly this week, according to two rate surveys.
Freddie Mac’s (FRE: 0.00 N/A) weekly survey reported the average rate for a 30-year fixed-rate mortgage (FRM) was 5.07% with an average 0.7 point for the week ending Sept. 10, down 1bp from the previous week’s average of 5.08%. Last year, Freddie Mac reported the average rate was 5.93%.
A separate survey of major US banks and thrifts, conducted by Bankrate.com, reported the average interest rate for a 30-year FRM also dropped 1bp, to 5.4% with an average 0.34 point. One year ago, Bankrate.com reported the average rate was 6.15%.
Freddie Mac reported the average rate for a 15-year FRM was 4.50% with an average 0.7 point, down 4bps from a week ago when it was 4.54%.
Bankrate.com said the average interest rate for a 15-year FRM was 4.75%, an increase of 1bp from last week.
Interest rates on adjustable-rate mortgages (ARMs) also decreased this week. Freddie Mac said the average rate for a five-year Treasury-indexed hybrid ARM was 4.51% with an average 0.5 point, down from 4.59% last week. The one-year ARM rate was 4.64% with an average 0.6 point, down from 4.62% last week.
Bankrate.com said the rate for a five-year ARM was 4.89%, down 5bps from last week.
Low rates have encouraged mortgage applications to increase, Freddie Mac vice president and chief economist Frank Nothaft said. Prospective borrower interest, particularly among first-time homebuyers seeking to take advantage of the federal tax credit, brought the Federal Reserve to indicate in its latest Beige Book that economic activity may be stabilizing.
Write to Austin Kilgore.
North Carolina Gov. Beverly Perdue signed a bill Wednesday granting consumers new protections from foreclosures and debt collection practices.
Senate Bill 974, or the Consumer Economic Protection Act of 2009, gives court clerks presiding over a foreclosure hearing the ability to postpone foreclosure for up to 60 days, allowing homeowners and lenders more time to negotiate.
“When a home is foreclosed — it’s bad for our families, it’s bad for our communities, it’s bad for our businesses and it’s bad for North Carolina,” said Gov. Perdue in a statement. “This bill makes it easier for homeowners to work out a deal with their lenders and avoid foreclosure.”
The Act also gives homeowners more opportunity to appeal foreclosure orders by standardizing the amount of bond requirement at 1% of the balance due on the loan. Before the Act was signed, some homeowners were asked to put up a bond worth the entire value of the loan balance before appeal.
The Act also protects North Carolina consumers from debt buyers that file lawsuits for collection. According to the statement, some of those debts had already been settled or paid, but now debt buyers must prove they have the right to enforce the debt and must verify the owed amount.
The legislation comes after North Carolina saw one in every 956 housing units receive a foreclosure filing — either default notices, scheduled auctions or bank repossessions — in August, according to the latest data from RealtyTrac.
Nearly 40,000 North Carolina homes foreclosed in 2009, according to court records. The Center for Responsible Lending reported more than 2.2m homes in the state saw their property values drop.
Write to Jon Prior.
[Update 1: Adds response from Wells Fargo]
A Fort Wayne, Ind. borrower filed a lawsuit in US District Court against Wells Fargo (WFC: 29.60 +1.89%) this week claiming the bank illegally suspended her home equity line of credit (HELOC).
Unlike a previous class action suit in Illinois that claims JP Morgan Chase (JPM: 37.21 -0.75%) denied HELOC borrowers access to funds because the value of their properties declined, the plaintiff in the Wells Fargo suit claims her HELOC was suspended because of a derogatory item on her credit report.
Marika Hamilton, a Fort Wayne, Ind. small business owner and single mother of two, said Wells Fargo suspended her $103,600 HELOC because of a $25 late payment charge she said she disputed. Hamilton says the late fee was resolved and should have been removed from her credit report.
Hamilton’s lawyer said in a statement that Wells Fargo put the disputed late payment on her credit report.
“Wells Fargo caused a late charge to be put on Ms. Hamilton’s credit report that never should have been there to begin with. It then used that item to justify suspending her entire credit line,” Hamilton’s lawyer, Jay Edelson said. “Adding insult to injury, the bank then threatened her and her business if she dared to stand up for herself.”
The suit claims Wells Fargo representatives told Hamilton the harder she pressed for reinstatement of her HELOC, the more difficult and painful Wells Fargo would make the process, including threatening to examine all her accounts, including her business accounts.
The suit also claims Hamilton asked a Wells Fargo representative where she should put her money if her HELOC was not safe, and the representative responded she “should carry cash.”
The suit claims Wells Fargo violated the federal Truth in Lending Act (TILA), and committed breaches of contract and implied covenants. Edelson is seeking class action status for the suit to include all US Wells Fargo borrowers whose HELOCs were suspended based on derogatory credit.
In a prepared statement, Wells Fargo said, “We are aware of the complaint and are in the process of reviewing the lawsuit. As this is a pending lawsuit, we cannot provide any additional comment.”
Write to Austin Kilgore.
The California State Senate passed a bill Wednesday preventing lenders from requiring the use of a specific title or escrow service provider for a buyer of real estate-owned (REO) property.
AB 957, or the Buyer’s Choice Act, passed the senate, 33-4, after lawmakers adopted an urgency clause on Sept. 1. The legislation awaits Gov. Arnold Schwarzenegger’s signature and will take immediate effect upon being signed.
After its introduction in February, the senate passed the bill on May 13, 77-0. Amendments were attached, and the bill went back to the senate for its enrollment in September.
Current federal law prohibits a seller of property to be purchased with federally assisted mortgage loans from dictating to the buyer to purchase insurance from any particular company. The Buyer’s Choice Act expands that policy to single-family REO property until Jan. 1, 2015.
The Act does not prohibit a buyer from accepting a title insurer or escrow agent recommended by the seller if written notice of the right to make an independent selection is provided. Sellers caught violating the Buyer’s Choice Act are liable to the buyer for three times the amount of all charges made for the title or escrow service.
Write to Jon Prior.
