Archive for November, 2009
Web-based underwriting and pricing software developer PriceMyLoan announced its product is integrated in Ellie Mae’s Encompass360 loan origination software (LOS).
The new functionality will allow Encompass360 users to access automated underwriting and loan pricing decisions created in the PriceMyLoan engine directly through the Encompass360 platform.
“PriceMyLoan and Ellie Mae are leading technology providers in the mortgage industry,” said Gigi Campbell, national sales director for PriceMyLoan. “Our integration creates tremendous value for mortgage bankers by providing a seamless process for originating, qualifying and pricing loans within a single platform.”
Once a loan file has been created in Encompass360, the file’s data can be transmitted directly to PriceMyLoan’s engine, where it is evaluated and loan eligibility and pricing results are automatically generated.
“Our customers have come to rely on us to provide comprehensive access to the solution providers that enhance their business processes,” said Ellie Mae senior vice president Richard Roof. “As a market leader, Ellie Mae is committed to fostering productive partner relationships, and providing our customers with seamless, integrated access to high quality solutions like PriceMyLoan.”
Write to Austin Kilgore.
The American Securitization Forum (ASF) and the Securities Industry and Financial Markets Association (SIFMA) issued a joint letter to the Securities and Exchange Commission (SEC) addressing a proposal to expand the scope of certain reporting requirements regarding securitization.
The Financial Industry Regulatory Authority (FINRA) proposed a rule change to define mortgage-backed securities (MBS) and other securities as Trade Reporting and Compliance Engine (TRACE)-eligible securities. The proposal would require firms to report transactions in such securities to TRACE.
ASF and SIFMA indicated a "generally supportive" reception of the proposed rule change, but said FINRA could implement a few changes to reduce compliance burdens on the reporting broker-dealers.
The joint letter (available to download here) urged FINRA to update the TRACE Issue Master file with information for all available outstanding asset-backed securities (ABS) before reporting is implemented for securitized products. FINRA could lessen the compliance burden on dealers trying to report supplementary data where the reference data from other sources like the agencies and vendors is incomplete.
The letter asked FINRA to do this by having commercially available data feed into the TRACE system on an automatic basis. If FINRA acts as the only source gathering and verifying information available from commercial sources, manual errors can be reduced and efficiency will be improved from the current process with multiple reporting sources.
ASF and SIFMA also urged FINRA to reconsider the process that generates the symbol used in reporting trades. The FINRA symbol could be revitalized to provide more information regarding the referenced security's asset class and issuance year. They asked FINRA to consider an earlier cutoff time than 5 p.m. EST for reporting trade information to TRACE.
Write to Diana Golobay.
Hartford, Conn.-based Cornerstone Real Estate Advisers is expanding with the merger of Springfield, Mass.-based Babson Capital’s Real Estate Finance Group (REFG) and acquisition of London-based Protego Real Estate Investors.
Cornerstone and Babson Capital are subsidiaries of mutual life insurance company MassMutual. Under the new arrangement, REFG will leave the Babson umbrella, integrate with Cornerstone and the Cornerstone Real Estate Advisors will become a subsidiary of Babson Capital Management. The transaction will be completed in Q110.
"It’s very seamless from our standpoint. It’s a sister company, we’ve worked with these people for many years,” Cornerstone CEO David Reilly told HousingWire. “They’re on the debt side, we’re on the equity side. Combined operations will be extremely powerful relative to our ability to offer different products across the entire spectrum of real estate — debt, equity and securities — to our clients."
REFG specializes in commercial mortgage lending and related products. REFG head Robert Little will continue to lead the debt business as chief investment officer of finance and as a senior member of Cornerstone’s management team.
“One of the keys to this whole transaction is that it brings a powerful new platform for all of our clients. The existing clients of the three companies will have access a much broader range of products,” Little told HousingWire. “It’s business as usual, but in a much more integrated and powerful platform.”
A separation transaction is the acquisition of Protego, a privately-held, UK-based real estate investment firm with $2.5bn of assets managed and serviced and offices in London, Rotterdam, and Stockholm. The firm focuses on office, retail, and industrial property investment opportunities. That deal is expected to close on January 1.
“Protego has grown rapidly since its creation five years ago as demand for real estate investment expertise has grown among institutional and wealth management clients,” Protego CEO Iain Reid said in a statement. “Protego as a subsidiary of Cornerstone will be able to bring a wider and more integrated array of investment opportunities to our global clients as well as expand the Cornerstone platform to include the European marketplace.”
The combined company will have a full service, global real estate investment organization with capabilities in public and private debt and equity, Cornerstone said, and will be one of the world’s largest real estate investment advisory firms in terms of assets. The firm will have offices in the North America, Europe and Asia with a combined staff of about 250 people and $30bn in managed and serviced assets.
Write to Austin Kilgore.
The national delinquency rate on one-to-four-unit residential properties climbed to 9.64% of all loans at the end of Q309, according to a survey from the Mortgage Bankers Association (MBA). Including the rate of foreclosures, the US serious delinquency rate is at a record 14.4%.
The rate of delinquency jumped 40bp from Q209 and increased 265bp from one year ago, according to the survey. It broke last quarter’s record and stands as the highest delinquency rate since the MBA began compiling data in 1972. The delinquency rate includes loans that are at least one payment past due but not loans in the foreclosure process.
Those volume of loans that have entered the foreclosure pipeline accounted for 4.47% of all loans through Q309, an increase from 17bp from the previous quarter. Combined, all loans either in delinquency or in foreclosure reached 14.4%, the highest ever recorded in MBA’s survey.
“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP,” said Jay Brinkmann, MBA’s chief economist.
Brinkmann added that prime fixed-rate loans continue to hold the largest share of foreclosures started and are the biggest driver in the increase in foreclosures. In Q309, 33% of foreclosures started were prime fixed-rate loans.
“The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure,” Brinkmann said.
For the first time, prime adjustable-rate loans deteriorated at a rate exceeding the subprime fixed-rate loans, which had a decrease in foreclosures, Brinkmann said.
Florida, California, Arizona and Nevada accounted for 43% of all foreclosures started in Q309. As of the end of September, 25% of the mortgages in Florida were at least one payment past due or in foreclosure.
“The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve. First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace,” Brinkmann said.
Brinkmann added that the number of loans 90-plus days delinquent or in foreclosure reached over 4m, compared to 3.9m new and previously unoccupied homes currently for sale.
“The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country,” Brinkmann said.
Write to Jon Prior.
Several 30- and 15-year fixed mortgage interest rates indices fell to record lows in two national surveys.
Freddie Mac’s (FRE: 0.00 N/A) weekly survey of average interest rates put the 30-year fixed-rate mortgage (FRM) at 4.83% with an average 0.7 point for the week ending Nov. 12, down from the average rate of 4.91% the previous week. That’s a mere 5bps shy of Freddie Mac’s record low of 30-year FRM rates, reached twice in April this year. Last year, the rate was 6.04%.
Freddie Mac put the 15-year FRM at 4.32% with an average 0.6 point, down from last week’s 4.4% and the lowest rate for the product since Freddie Mac began its 15-year FRM survey in 1991. A year ago, the average rate for the loan was 5.73%.
Bankrate.com’s survey of large US banks and thrifts put the 30-year FRM at 5.06%, the lowest in the survey’s 24-year history and down 13bps from the previous week. The previous low on the Bankrate survey was 5.13% in April. Bankrate.com put the average rate for a 15-year FRM at 4.48%, down 13bps from the previous week.
“Low fixed rates throughout the third quarter prompted an estimated $1.1trn in refinancing activity, saving homeowners about $10bn in aggregate monthly payments over the first 12 months of their new loan,” said Freddie Mac vice president and chief economist Frank Nothaft. “Moreover, for the fourth consecutive quarter, more than 95% of prime borrowers who originally had an ARM selected a conventional fixed-rate mortgage in the third quarter of this year.”
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.25% with an average 0.6 point this week, Freddie Mac said, down from 4.35% in the previous week. Freddie also reported the one-year Treasury-indexed ARM rate at 4.35% with an average 0.6 point, down from last week’s rate of 4.47%.
Bankrate.com put the five-year ARM at 4.58%, unchanged from the previous week.
Write to Austin Kilgore.
Economists testifying before the Congressional Oversight Panel, Thursday, agreed on the necessity of the Troubled Asset Relief Program (TARP) 13 months after its launch but debated the health of banks that received funds from the US Treasury Department.
COP, which reviews and reports on actions taken by the Treasury, heard the views from five economists on TARP’s effectiveness. The US Congress passed the Emergency Economic Stabilization Act of 2008 in October of last year, allowing the Treasury to spend $700bn to purchase distressed assets and inject capital into struggling banks.
More than a year later, Mark Zandi, the chief economist and cofounder of Moody’s Economy.com, said that banks were “overcapitalized.”
“That’s laughable,” responded Charles Calomiris, a professor of financial institutions at the Columbia Business School.
Zandi testified that the most effective aspect of the TARP program has been the use of funds to provide capital to the banking system. The Treasury committed $205bn through the Capital Purchase Program (CPP) to recapitalize the banking system and another $115bn to support AIG, Bank of America and Citigroup, Zandi said.
“The most successful part of the TARP program has been the CPP,” according to Zandi’s testimony. “Without capital injection from the federal government, the financial system would have likely collapsed.”
Zandi said that the while the financial system is not functioning normally, it is stable.
“The stress test conducted earlier in the year was substantive,” Zandi said. “Once housing prices stop falling and unemployment numbers go down, lending will go up.”
Calomiris disagreed. He also works as a consultant to banks, and he said that some of the major banks are in trouble.
“In my conversations with banks, it’s widely believed that some of the banks are insolvent,” Calomiris said.
He did not want to go on the record to say which banks will fail, but he did say that one bank is insolvent. Regulators, he said, are playing political games with capital requirements and are creating an “overkill” environment.
Dean Baker, the co-director at the Center for Economic and Policy Research, also disagreed with Zandi, citing that the adverse scenarios used in the stress test of the banks were only for 2010 and that tougher times wait ahead.
According to Baker’s testimony, the current downturn will likely lead to a loss of nearly 40% of GDP, equaling $6trn in total, and while the economy benefited from a collapse prevention, TARP could have been carried out in more beneficial ways.
“In terms of broader economic goals, the TARP was approved with promises to ensure that homeowners would be allowed to stay in their homes and also that executive compensation in the bailed out banks would be restrained. It has failed miserably in both areas,” according to Baker’s testimony.
Simon Johnson, the professor of global economics and management at the MIT Sloan School of Management, said that while banks maneuver government funds at their own discretion, the Treasury “is basically running a hedge fund.”
Alex Pollock, a resident fellow at the American Enterprise Institute, suggested that TARP be run like a business with quarterly reports and focusing on acquiring assets.
“However, with the $50 billion “Home Affordable Modification Program” (HAMP), TARP is not acquiring an asset at all, but simply spending the taxpayers’ money to subsidize mortgage loan modifications, including subsidies to mortgage servicing companies. There is no asset acquired,” according to Pollock’s testimony.
Of the five panelists, only Zandi held confidence that the banks were "overcapitalized."
“Capital scarcity persists,” Calomiris said.
Write to Jon Prior.
French investment bank Société Générale recommended selling the dollar as the first part of a stream of advice to its clients on preparing for a "global economic collapse." A declining dollar might provide a means to reducing global imbalances, the firm said in a report written by seven individuals to investors.
US government debt is approaching 100% of gross domestic product (GDP) by the end of fiscal year 2010, with further increases in public expenditure expected into 2011, SocGen said. With this explosion of public debt, the current economic crisis in the us is drawing similarities with Japan in the '90s. A return to recession at this point would mirror Japan's "lost decade."
"Our central economic scenario assumes a slow recovery for the global economy, but with government debt at all-time highs, in this report we spend some time taking a hard look at the downside risks," wrote the report's authors, led by product manager Daniel Fermon. "Using debt as the key variable we also draw up two alternative economic scenarios (bull and bear) and consider the implications for strategic asset recommendations."
The bearish scenario and predicted collapse will not necessarily happen, but it represents a worst-case scenario. SocGen urged its clients to "hope for the best [and] be prepared for the worst."
The firm remains positive on fixed income and prefers defensive corporates like telecommunication and utilities that have the lowest risk of transitioning into high-yield and should continue to perform in a more risk-averse environment.
SocGen also recommended selling European equities, since markets have priced an economic recovery by the end of fiscal year 2010. Under a bearish scenario, however, that optimism might fade when fiscal stimulus dries up.
The firm urged clients to cherry-pick commodities, given the asset class's diverse nature. Agricultural commodities look positioned to fare the best, but forecasting is difficult considering the high exposure to weather conditions. The firm said mining commodities can be used to hedge against a softening dollar.
Write to Diana Golobay.
A state judge in California ruled in DocMagic’s favor on a motion filed by Ellie Mae to dismiss a portion of the state lawsuit currently pending between the two mortgage software companies.
The judge’s ruling applies to one of two lawsuits DocMagic filed against Ellie Mae in August. DocMagic claims Ellie Mae misused proprietary information to develop software to compete with DocMagic.
Ellie Mae filed a "demurrer pleading," which contests the legal sufficiency of DocMagic’s claim of unfair competition brought under California’s Business and Professions Code Section 17200. Ellie Mae argued the legislation was preempted by California’s version of the Uniform Trade Secrets Act (CUTSA).
In its ruling, the court said DocMagic’s claims were sufficient to constitute a cause of action against Ellie Mae, independent of the CUTSA, DocMagic said in a release.
The state lawsuit will continue, as well as a corresponding federal case.
“While misappropriating others’ proprietary information is not uncommon in the technology industry, it’s not the first time Ellie Mae has been accused of such conduct, or the first time they have attempted to circumvent having to answer for their alleged conduct by legal maneuvering,” DocMagic CEO Dominic Iannitti said in a release. “We are very pleased that Ellie Mae’s attempts to block DocMagic from continued discovery and presenting all the evidence under California’s unfair competition laws was over ruled by the judge, and we look forward to having our day in court.”
Ellie Mae representatives did not immediately respond to HousingWire’s request for comment.
Write to Austin Kilgore.
A recent Federal Deposit Insurance Corp. (FDIC) policy statement on "prudent" commercial real estate (CRE) loan workouts gives financial institutions the go-ahead to restructure loans to creditworthy borrowers.
"Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower's financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification," FDIC said in the policy statement.
These restructuring efforts include applying the concept of "good bank/bad bank" workouts to individual loans, essentially creating a good asset/bad asset scenario, according to a review of the policy by Manhattan-based asset management, advisory, and capital markets firm NewOak Capital.
NewOak managing director Andrew Akers sees the potential for institutions to use "creative retranching" to achieve this restructuring of distressed commercial loans.
"When it comes to 'partitioning' technology (or tranching) in the credit marks, earlier cash flows are less risky than later, or back-end, cash flows," Akers said.
Using a commercial mortgage securing a shopping mall as an example, he explained the loan performance worsens as mall tenants leave, vacancy rises and meeting mortgage payments becomes difficult for the borrower. At some point, he said, the bank might need to put the loan on non-payment status.
"Under the [FDIC's] adopted guidelines, rather than putting the entire loan on delinquent status, the bank could partition the loan into a performing part and a non-performing part," Akers said. "Such a retranching could conserve a bank's capital by properly reflecting an institution's risk."
Another NewOak managing director, Malay Bansal, explains this loan-level retranching process as a bank splitting a commercial mortgage into an A- and B-note piece.
"You can take an existing loans that maybe got into trouble when the loan is worth $30m and the property's only worth $25m," Bansal tells HousingWire. "It may return to $30m at some point. There may be some value there in creating a $20m senior and $10m junior."
The larger, senior piece would be covered by the property's current value and therefore seen in relatively high performance. The smaller, junior piece is worth less than $10m and only gains value when and if the property value increases with time.
Bansal adds: "You've taken a loan that's underwater, close to default and problematic and split it into two — one good and one not so good."
This scenario applies more to loans held by the bank rather than those that are securitized. In situations where the loan is securitized, he says, the restructuring becomes a bit more complicated, with the junior bondholders taking the loss.
"Ordinarily if you restructure a loan, banks may worry regulators may view it negatively," Bansal says. "The FDIC, [Office of Thrift Supervision] and other agencies came out together and said if you do something that's prudent, we won't penalize you. It gives banks a little more comfort to work out loans as long as the borrower is a good borrower and they're doing it prudently."
Write to Diana Golobay.
A review of Sen. Christopher Dodd’s (D-CT) “Restoring American Financial Stability Act of 2009” — legislation that mandates sweeping changes to the financial regulatory landscape in the US — raises many questions, according to a review by international law firm DLA Piper.
Of greatest importance in the new legislation, DLA Piper said, was the proposal to strip power from the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC), eliminate the independent existence of the Office of the Comptroller of the Currency and the Office of Thrift Supervision, and in their place, create a new agency, the Financial Institutions Regulatory Administration (FIRA).
Not surprising, the affected agencies are fighting the proposal. It has also been viewed with a skeptical eye by Rep. Barney Frank (D-MA), chair of the House Financial Services Committee and others leadership in the House, whose support would be crucial to the legislation passing in both houses of Congress, DLA Piper said. The firm also wrote industry players large and small are also opposed to the move.
Another proposal, the creation of the Agency for Financial Stability (AFS), further weakens the power of the Fed in favor of a new agency. The AFS would be responsible for managing systemic risk and its leadership would be comprised of Secretary of the Treasury, the chairs of the newly established FIRA and of the Consumer Financial Protection Agency (CFPA), and the chairs of the Securities and Exchange Commission (SEC), the FDIC and the Commodity Futures Trading Commission.
“The potential consequences of such regulation by this new agency could be very broad-reaching and severe: not only will there be new prudential standards applicable to such firms, including contingent capital requirements — that is, contingent capital instruments that convert into equity if certain risk standards are not met by the firm in question — but new disclosure and reporting obligations would be mandated for these institutions,” the firm wrote.
The firm added, “Additional constraints on acquisition activity and affiliate lending arrangements would also be imposed, and the firms in question may face the requirement of disposing of designated assets or business lines should they be deemed too large in their operations and posing too great a resultant risk to the overall financial sector.”
Another proposal, the creation of a new insurance regulator, calls into question whether states should be stripped of their ability to independently regulate the insurance industry. A second issue the proposal raises is the impact insurance regulator would have on healthcare, particularly if Congress and the Obama Administration passes sweeping healthcare regulations.
“As a practical and political matter, federal supervision of the “business of insurance,” once established, will not likely stop with casualty and life insurance alone,” the review said.
The bill also calls for a number of securities-related regulation, including requiring asset-backed securitization originators to retain 10% of the total credit risk of assets securitized as a means to encourage prudent lending.
The review notes that Dodd has acknowledged the bill will undergo extensive revisions before it pass.
“[N]o one is more aware than Sen. Dodd that his proposed legislation will need to be revised in the course of the legislative process,” the report said. “In the remaining 13 months of this Congress, the scope and concepts set forth in this proposal will evolve to reflect numerous efforts at compromise and conciliation with a plethora of competing House and Senate voices. Yet the senator has chosen to start the bargaining process from the broadest possible position.”
Write to Austin Kilgore.
