Archive for December, 2009
A push for covered bonds in the US does not seek to replace securitization, industry veterans said in a teleconference ahead of the House Financial Service Committee's scheduled hearing on covered bonds Tuesday.
Heading up the call was Rep. Scott Garrett (R-NJ), who recently introduced covered bond legislation that outlines statutory framework to facilitate the broad domestic use of covered bonds — debt instruments covered by a pool of loans that remains on the issuer's balance sheet.
Pioneered as Europe's Pfandbrief in the 1700s, covered bonds offer investors dual recourse in both the assets used as collateral and the underlying institution. This dual recourse system where the issuer maintains all the risk, along with the high underwriting standards of the loans in the covered bond pool, give investors confidence and can provide for liquidity in the US mortgage market, Garrett said.
"The concept of risk retention is a good thing to strive for," he said. "Because of the current problems with the US secondary mortgage market and the lack of liquidity for the securitization process, we really must continue to look for new and innovative ways to provide increased funding for credit markets over here."
Garrett's legislation is the latest effort in the US to facilitate covered bonds after a move in mid-2008 failed to get a US covered bond market off the ground only months before the current economic crisis escalated.
Although there are currently only several dollar-denominated issuances in the US — one by Bank of America (BAC: 7.29 -0.14%) and another by Washington Mutual — Garrett said an increase in investor demand over the last few months brought about seven new European issuances totaling around €20bn (US$29.3bn).
European covered bonds so far in 2009 generated €120bn of new issue volume, according to Tim Skeet, a managing director and head of covered bonds at Bank of America Merrill Lynch.
"The lessons from Europe have clearly shown that where the legislators, the regulators and the market could work together, tremendous results can be achieved in terms of mobilizing private money to fund mortgage and public sector funding markets," Skeet said in the call.
He also said investor interest may be ripe for a covered bond market in the US, particularly as government-sponsored enterprise (GSE) funding declines. Garrett's legislation to establish a legal framework and spell out eligible asset classes would provide a "necessary prerequisite" for a vibrant covered bonds market in the US, according to Skeet.
"In the US today, there's a window of opportunity to establish a version of this asset class, but tailored to fit US market requirements," he said. "We have a shot at creating an additional source of funds to provide liquidity to the consumer finance and mortgage markets."
Skeet added that a push by the industry to introduce covered bonds into the US "is not a plan to replace the securitization market, nor other established sources of funds."
Bert Ely, a principal at financial institutions and monetary policy consulting firm Ely & Co., also said covered bonds would provide an additional funding source for residential mortgage loans. A US covered bonds market has great potential to gain investor interest, he said, as the high credit quality and investment potential of covered bonds opens the market for another class of high-quality, highly-rated debt.
Write to Diana Golobay.
Mortgage technology provider ISGN Solutions completed its acquisition of the loan fulfillment solutions (LFS) business of information management and electronic commerce provider Fiserv (FISV: 63.05 -0.33%).
The acquisition will add broker price opinions, closing and settlement services, valuation services, flood and title certification, home retention and loan modification and vendor management solutions to ISGN’s portfolio of products and services for residential mortgage lenders, ISGN said.
“With the combined strength of the two entities and a comprehensive suite of end-to-end products and services, customers can now focus on loan profitability and creating business impact, while working with a trusted partner,” said ISGN group president Niraj Patel.
According to Fiserv SEC filings, the LFS unit revenue was $152m in 2008 and $53m in the first six months of 2009. The combined value of the LFS and Fiserv’s Investment Support Services (ISS) unit, which Fiserv sold in a separate deal, was valued at $866m at the end of Q309.
When HousingWire originally reported on the deal in September, ISGN and Fiserv said it would close in 30 days. An ISGN spokesperson said there was no specific reason why it took longer than expected for the deal to close, and that a number of small logistical issues caused the delay.
With the acquisition, ISGN employs more than 1,700 in 15 domestic and three international offices. ISGN said it is now one of the three largest mortgage technology and service providers in the industry, providing services to 11 of the largest 20 US originators and 12 of the largest 20 servicers. ISGN had 600 clients before adding an additional 400 to its portfolio with the acquisition.
Most of the LFS unit’s management team will remain in place, including Lee Howlett, who served as president of the unit at Fiserv.
“We are excited about the opportunity to be a part of a reputed industry leader,” Howlett said. “Our services complement each other and our customers will benefit from this amalgamation of products and services.”
ISGN Solutions is a subsidiary of ISGN Corp., which is owned by CFCL Technologies. It is funded by growth equity firm NEA Partners and KK Birla Group.
Privately held multifamily real estate developer Fairfield Residential filed for Chapter 11 bankruptcy, the San Diego-based company said in an announcement on its Web site.
The company said it reached an agreement with its major creditors for the “framework of a consensual plan of reorganization.” A new operating company was formed that will allow Fairfield to continue to operate its property and asset management, construction services and general partner functions. The new operating company has the ability to raise capital.
“Through our productive discussions over the past year, we have reached agreements with our lender groups that will allow us to continue to provide property management services, complete our construction projects and preserve value for our creditors,” president and CEO Christopher Hashioka said.
The filing includes Fairfield and 14 subsidiaries the company controls. Assets not transferred to the operating company will be transferred to a liquidation trust that will “serve to maximize creditor recoveries,” the company said.
“Ultimately, we believe our plan will enable us to emerge from this process and maximize value for all of our stakeholders by creating a stronger go-forward operating platform and continuing to be an active player in the multifamily sector,” Hashioka added.
Fairfield develops and manages mixed-use, transit-oriented, luxury and university student multifamily real estate properties. The bankruptcy was filed in the US Bankruptcy Court for the District of Delaware.
Write to Austin Kilgore.
The US Treasury Department is looking to shed its remaining investment in JP Morgan Chase (JPM: 37.21 -0.75%) as another financial firm announced plans to exit a key liquidity program.
Citigroup (C: 30.87 +1.61%) on Monday revealed plans to repay $20bn of government funds through the Troubled Asset Relief Program (TARP).
Citi's plans to repay $20bn the government holds in TARP trust preferred securities as well as terminate the loss-sharing agreement with the Treasury is the latest of a round of TARP repayments.
"We are pleased to be able to repay the US government's trust preferred securities and to terminate the loss-sharing agreement," said Citi CEO Vikram Pandit in a statement. "We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."
The news of Citi's exit from TARP comes just days after the Treasury announced Friday it priced a secondary public offering of 88.4m warrants to purchase JP Morgan common stock at $10.75 per warrant. The closing is expected on or about Wednesday of this week.
The Treasury said in a statement it expects $936m of net proceeds in excess of the return already enjoyed by the US taxpayer in the form of dividend payments on related preferred stock.
The Treasury recently revealed that TARP — which will be extended to October 2010 — will end up costing $200bn less than previously expected.
Write to Diana Golobay.
The Federal Housing Administration (FHA) late Friday reached a settlement agreement with Baltimore-based Equitable Trust Mortgage (ETM), ending the temporary termination of ETM's FHA approval.
FHA on December 7 suspended ETM’s Department of Housing and Urban Development (HUD)/FHA approval after finding 37 cases where ETM allegedly overcharged for broker and loan origination fees beyond HUD limits.
FHA said in an e-mailed statement early last week that ETM charged both a broker fee and an additional 1% of the mortgage amount in origination fees, exceeding the 1% limit set by HUD. FHA claims ETM charged these unauthorized fees to a “substantially greater” portion of minority borrowers — 68% — than non-minorities.
“The settlement agreement is a victory for both HUD and the borrowers who were affected by ETM’s actions,” said FHA commissioner David Stevens in an e-mailed statement Friday. “The settlement agreement imposes a significant penalty on ETM for violating HUD requirements, but also provides the wronged borrowers relief in these tough economic times.”
ETM settled without admitting fault or liability and paid HUD a $277,500 civil money penalty, FHA said. ETM will also refund the overcharged broker fees to the 37 customers in amounts ranging from $500 to $9,135. The total amount repaid to borrowers will be $147,589.81, FHA said. Altogether, ETM will pay $425,089.81 in fines and refunds.
ETM will make outreach efforts to the overcharged borrowers, but will donate refunds to a HUD-approved Housing Counseling Agency in cases where borrowers cannot be reached, FHA said.
Write to Diana Golobay.
A look at the stories on HousingWire’s weekend desk…with more coverage to come on bigger issues:
Sources in Dubai tell HousingWire that the central bank in Abu Dhabi is authorizing a $10bn bailout package for the ailing Emirate. The $4bn or so of Islamic law or Shariah-compliant sukuk bonds due for payment today, issued by real estate firm Nakheel, will be met under the program.
Dubai's financial troubles recently came to a head, even if expected, causing ripples in global real estate-linked investments. However, trading in the United Arab Emirates lifted on the news Sunday (markets in regional economies are typically closed on Friday and Saturday), according to the Wall Street Journal.
Regulators closed three banks Friday, bringing the total number of failed institutions to 133 this year. The total estimated cost to the Federal Deposit Insurance Corp. (FDIC) deposit insurance fund is $252.1m.
The Office of the Comptroller of the Currency (OCC) closed Miami-based Republic Federal Bank, National Association. The FDIC, as receiver, entered into a purchase and assumption agreement with Boca Raton, Fla.-based 1st United Bank, which will pay a 1.2% premium to assume all of the failed bank’s $352.7m in deposits and reopened the four Republic Federal Bank branches as 1st United Bank locations. 1st United Bank will assume $267.1m of $433m of the failed bank’s assets. The cost to the FDIC fund is projected to be $122.6m.
The Office of the State Bank Commissioner of Kansas closed Overland Park, Kan.-based SolutionsBank. The FDIC entered into a purchase and assumption agreement with Fayetteville, Ark.-based Arvest Bank. The six SolutionsBank locations reopened as Arvest Bank branches. Arvest did not pay a premium to assume the $421.3m deposits and “essentially all” of the failed bank’s $511.1m in assets. The cost to the FDIC insurance fund is projected to be $122.1m.
The OCC also closed Mesa, Ariz.-based Valley Capital Bank, National Association. The FDIC entered into a purchase and assumption agreement with Clayton, Mo.-based Enterprise Bank & Trust. The one Valley Capital Bank branch reopened as an Enterprise Bank & Trust branch. Enterprise Bank paid the FDIC a 2% premium for the right to assume $41.3m in deposits of Valley Capital Bank. It also assumed “essentially all” of the failed bank’s assets. The cost to the FDIC fund is projected to be $7.4m.
The commercial mortgage-backed securitization (CMBS) rally that started a week ago Friday continued through last week, according to the Barclays Capital “CMBS Strategy Weekly” report.
Barclays analysts noted improvement in recent vintage last cash flow dupers and second-pay bonds. “Many recent vintage A2s are now in premium dollar price territory, and offer some degree of extension upside potential in sharp contrast to earlier in the year,” the analysts wrote, adding a new CMBS offering last week experienced strong demand.
The report also said net commercial real estate (CRE) mortgage debt contracted at an accelerated pace in Q309. The sector contracted $28bn in the quarter, more than doubled the $12bn contraction in Q209.
“It is the largest quarterly contraction over the history of the data series, dating back to the 1950s,” the report said. “By percentage terms, it is only the eighth-largest decline, surpassed by several quarters during the deleveraging episode in the early 1990s.”
The Federal Housing Administration (FHA) reached a settlement agreement with Baltimore-based Equitable Trust Mortgage Corp. (ETM).
FHA suspended ETM’s Department of Housing and Urban Development (HUD)/FHA approval because it claimed the lender improperly overcharged 37 borrowers for broker and loan origination fees beyond HUD limits. ETM settled without admitting fault or liability and paid HUD a $277,500 civil money penalty. FHA terminated the suspension. ETM will also refund the overcharged fees to the 37 customers in amounts ranging from $500 to $9,135. The total amount repaid to borrowers will be $147,589.81, FHA said.
“The settlement agreement is a victory for both HUD and the borrowers who were affected by ETM's actions,” said FHA commissioner David Stevens in a statement. “The settlement agreement imposes a significant penalty on ETM for violating HUD requirements, but also provides the wronged borrowers relief in these tough economic times.”
The Community Mortgage Banking Project (CMBP) said financial reform legislation passed by the House of Representatives Friday creates an uneven playing field between state and federally chartered institutions and could threaten the availability of billions of dollars for home loans.
The group said the Wall Street Reform and Consumer Protection Act creates a system where federally chartered lender can ignore state regulations.
“One of the basic tenets of any major reform should be to ensure that all lenders play by the same set of rules,” CMBP managing director Glen Corso said in a statement. “Charter-based preemption puts consumers in the unfortunate position of having to figure out what license their financial institutions holds to know what protections they are being afforded.”
The group also criticized risk retention policies in the legislation that it said could have unintended benefits of forcing small institutions out of business because they won’t be able to compete with larger institutions.
“Risk retention provisions are a reasonable approach for exotic mortgages that carry higher risks of default,” Corso said. “That is not the case, however, for ‘plain vanilla’ ordinary mortgage such as the ones offered by community-based mortgage banking companies. Congress needs to provide clear direction to regulators to exempt low risk mortgages from the retention requirements to assure consumers a wide variety of lender choices when they look for a mortgage.”
The CMBP is a recently formed trade group for small community-based lenders.
The Nevada Supreme Court swore in nearly 75 new mediators to the Nevada Foreclosure Mediation Program, according to an Associated Press report.
The mediators are part of a group of 170 attorneys, hearing officers and senior judges help homeowners and lenders create feasible workout plans in foreclosure cases.
Chief Justice James Hardesty swore in 68 mediators in a videoconference Friday from Supreme Court courtrooms in Carson City and Las Vegas, and the remaining seven will be sworn in individually.
Nearly 3,300 homeowners are seeking third-party review to try to keep their homes. So far, approximately 500 cases have been heard and another 1,000 are scheduled.
Write to Austin Kilgore.
Re-securitized real estate mortgage investment conduits, or re-REMICs, have exploded in activity this year, according to monthly mortgage industry insight from Amherst Securities Group.
Residential mortgage-backed securities (RMBS) originally rated triple-A have been downgraded to below investment-grade levels, leaving investors with insufficient cash flows. Re-REMICs allow for maximized cash flows on downgraded bonds by re-tranching the original security into a new, properly enhanced triple-A security and a junior bond, according to Amherst.
After a long year of busy re-REMIC activity, Amherst sees $43bn of re-REMICs through month-end in November, more than five times the volume in 2008.
But ratings on re-REMICs have been "patchwork," with not all agencies willing to rate the securities, Amherst said. Most re-REMICs, in addition, go ahead with only one rating, making for "inconsistent" triple-A re-REMIC tranches. In other words, Amherst said, "not all triple-A ratings are created equal."
"Just to be clear, creating re-REMICs is a sound, viable practice," Amherst said. "However, some of the rating splits that have been awarded produce [triple-A] re-REMIC tranches that could take losses under moderate stresses, or potentially be downgraded at some point."
Amherst, as a result, advised investors to conduct their own due diligence rather than rely on ratings alone.
Write to Diana Golobay.
Eventual losses at mortgage giant Fannie Mae (FNM: 0.00 N/A) could exceed $200bn, posing a risk of receivership after year-end when limitations on the Treasury Department's authority to support the agencies return, according to research Friday by Barclays Capital (BarCap).
Once the added authority expires, the Treasury will no longer be able to increase the size of the $200bn preferred backstops supporting Fannie and brother agency Freddie Mac (FRE: 0.00 N/A) without consulting Congress.
BarCap researchers recommended the Treasury increase the size of the preferred stock purchase agreements now to avoid the risk of losses breaching the $200bn limit. Otherwise, BarCap said, receivership might be triggered.
"Nationalization is not an immediate option, as putting FNM/FRE on the government’s balance sheet would increase public debt outstanding by $2trn, further straining perceptions of fiscal responsibility," researchers said. "Mid-term elections next year also make it likely that any drastic steps that threaten the fragile housing recovery will be stymied."
Write to Diana Golobay.
A subsidiary of Dallas-based real estate brokerage Henry S. Miller filed for bankruptcy over a $9m debt the firm said is a result of mortgage fraud, according to multiple media reports.
Three creditors are owed approximately $9m after the Henry S. Miller Co. brokered a deal for a fraudulent buyer who cannot be located, The Dallas Morning News reported.
The firm reallocated its commercial real estate assets to another entity, Henry S. Miller Cos. According to the report, the entity filing for bankruptcy does not have any operations or employees.
The filing is currently an involuntary Chapter 7 case, but the brokerage is seeking to have the case converted to a Chapter 11 case, which would provide greater protection for the firm. The case is in Judge Stacey Jernigan’s US Bankruptcy Court for the Northern District of Texas, located in downtown Dallas.
On Sunday, Henry Miller Jr., son of the firm’s namesake and the businessman responsible for growing the firm into one of the nation’s largest, passed away at 95 after a brief illness.
Write to Austin Kilgore.
An Office of Thrift Supervision (OTS) memo (download here) advises home equity line of credit (HELOC) lenders they are not subject to new billing and payment grace period regulations imposed on credit card lenders.
The recently enacted Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009 amends Truth in Lending Act (TILA) provisions that require credit card companies to provide 21 days between when a bill is sent and when the payment is due. Also, if a credit card company offers a grace period for borrowers, it must now be a 21-day grace period.
OTS said while HELOC lenders are considered open end creditors like credit card companies, they are excluded from the billing and grace period provisions outlined in the Credit CARD Act.
However, an OTS rule prohibits a HELOC lender from assessing a late fee if a borrower’s payment is received within 15 days after it’s due. Many lenders require HELOC payments on the 15th of the month, but defer charging a late fee until the 30th of the month.
The memo also advises lenders of higher priced mortgages that include a balloon payment at the end of the loan that they don’t have to evaluate a borrower’s ability to repay the balloon payment, if the loan term is seven years or longer.
While Regulation Z requires lenders to evaluate a borrower’s ability to repay the monthly payment by following certain procedures, including income verification, they do not have to consider the borrower’s ability to repay the balloon payment, if the loan term is seven years or longer.
For shorter-term loans, lenders are required to consider a borrower’s ability to repay the balloon payment and OTS encouraged lenders to practice prudent underwriting standards.
Write to Austin Kilgore.
