Archive for December, 2009
The House of Representatives on Friday passed HR 4173, The Wall Street Reform and Consumer Protection Act of 2009, in a 223-202 vote that fell largely along party lines.
While 27 House Democrats voted against the bill — which aims to reform financial regulation, protect both consumers and investors, regulate the $600bn over-the-counter derivatives market — not a single House Republican voted in favor of it.
"House passage of this bill moves us an important step closer to meeting the President's objectives for reform," said Treasury Department secretary Tim Geithner in a statement. "Comprehensive reform must establish clear rules of the road with strong enforcement for our nation's financial institutions and markets; end loopholes that allowed big Wall Street firms to escape supervision; make it clear that no firm is 'too big to fail;' and provide strong consumer and investor protections for American families."
The passage of the bill comes after long consideration of multiple amendments to the original draft of the bill. One such amendment, which would allow the "cram-down" or alteration of mortgage terms within bankruptcy proceedings, was not passed.
“The American Bankers Association appreciates the decision by the House of Representatives today not to approve an amendment to [HR 4173], that would give bankruptcy judges broad authority to unilaterally modify the terms of mortgages," said ABA CEO and president Edward Yingling in an e-mailed statement.
Yingling added: “Both the House and Senate have now voted this year against allowing judges to reduce ('cram down') the amount owed on a mortgage, change interest rates, or stretch out the terms of a loan in a Chapter 13 bankruptcy proceeding. It is important to defeat measures of this nature as they would bring unnecessary risk and uncertainty to the mortgage market and would make home loans more expensive and less available for consumers.”
According to the House Financial Services Committee, the bill as passed establishes an orderly process for shutting down systemic firms, gives shareholders a "say on pay" to reign in executive spending, and strengthens the Securities Exchange Commission's power to regulate securities markets and protect investors. It also outlaws predatory mortgage lending practices and requires the registration of hedge funds.
According to the Commercial Mortgage Securities Association (CMSA), the bill includes language that would structure the "retention" or "skin in the game" requirement to account for the differences of commercial mortgage-backed securities. The language bears the potential to allow third-party investors or B-piece buyers to satisfy the bill's retention requirements, according to the CMSA.
HR 4173 also includes a measure that requires the Federal Reserve and other financial regulators to study the combined impact of Financial Accounting Standards (FAS) 166 and 167 on credit availability, and to report to Congress with specific recommendations prior to any rule-making on the retention.
“A risk retention provision that gives market and financial regulators flexibility in overseeing diverse asset types and structures is essential to support an overall recovery in commercial real estate,” said Patrick Sargent, CMSA president.
Write to Diana Golobay.
Retail and wholesale mortgage lender NetMore America is now licensed to originate mortgages in Maryland, bringing the total number of states the company operates in to 26.
NetMore America began its Maryland originations through its wholesale lending program, which only approves brokers after extensive background checks, the company said. The company plans on expanding in the state with retail outlets in the future.
The Walla Walla, Washington-based company currently originates half of its loans through Federal Housing Administration (FHA) programs and half are sold to the mortgage agencies Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A).
For its fiscal year ending Sept. 30, the company originated $1bn in residential mortgages, and the company set a production goal of $1.3bn to $1.5bn in loans for the 2010 fiscal year.
“NetMore is building a nationwide lending platform in a responsible and strategic manner by focusing on states with high potential for quality business,” said NetMore America president and CEO Mark Freedle.
“Today we believe those markets are based on the East Coast in the Mid-Atlantic region, which includes areas such as Maryland, Virginia and Washington DC, as well as in states such as Florida, Pennsylvania and New Jersey,” he added.
Write to Austin Kilgore.
Neel Kashkari, the man who helped create and run the $700bn Troubled Asset Relief Program (TARP) will join Pacific Investment Management Co. (PIMCO) as managing director and head of new investment initiatives, beginning on Monday.
Former US Treasury Department interim assistant secretary for financial stability, Kashkari led the Office of Financial Stability under the Bush and Obama administrations, a post he held until May 2009. Previously he was a vice president at Goldman Sachs (GS: 111.77 +2.96%), leading the firm’s information technology security investment banking practice. When Henry Paulson left his post as Goldman chairman to take over as Treasury secretary, Kashkari joined him and served as a senior advisor to Paulson.
A Washington Post article published Sunday chronicles Kashkari’s life in his secluded California retreat since leaving Washington DC and before accepting the PIMCO post.
Kashkari previously was an aerospace engineer at TRW Corp., where he developed technology for NASA science missions, including the James Webb Space Telescope. He holds an undergraduate and masters engineering degrees from the University of Illinois and a MBA from the University of Pennsylvania.
Write to Austin Kilgore.
The House of Representatives resumed on Friday consideration of HR 4173, the Wall Street Reform and Consumer Protection Act of 2009.
The bill would enforce greater transparency of financial institutions and, at times, higher capital requirements. The 1,200-plus-page legislation also calls for credit risk retention by creditors and addresses a dissolution authority of large, interconnected financial companies whose default poses risk of serious, adverse effects on financial stability.
House lawmakers were busy Thursday night and Friday morning, approving a number of amendments to the bill.
One amendment would require mortgage servicers or lenders participating the Making Home Affordable Program to report monthly to the Treasury Department. The amendment, passed late Thursday, forces servicers to supply information regarding the number of modification requests received, the number of modification requests being processed, the number of approved requests and the number of requests that were denied.
The House also passed an amendment establishing rules regarding equitable governance of clearing houses and swap exchange facilities.
House lawmakers were expected to conclude discussions Friday and vote on the legislation.
Write to Diana Golobay.
Legislation that passed the House of Representatives would adversely affect managers of real estate, private equity, venture capital and hedge funds, according to an analysis of the bill by Joseph Hugg and Jonathan Ciner, tax lawyers at global law firm DLA Piper.
The Tax Extenders Act of 2009, HR 4213, includes a provision that would tax income or gains attributable to an “investment services partnership interest” as ordinary income rather than as capital gain, what the law calls “carried interest.” Capital gains taxes are generally less than ordinary income taxes in the US, as a measure to encourage investment.
An “investment services partnership interest,” the lawyers wrote, is a partnership interest, including a limited liability corporation (LLC) interest, the holder of which is expected at acquisition to provide a number of asset advising, management or financing services.
In the context of the bill, assets include real estate held for rental or investment, securities, partnership interests, commodities and certain options and derivative contracts, the lawyers said.
The bill specifically lists real estate held for rental or investment, “thus apparently exempting an operating real estate business,” the lawyers said. In addition, the legislation does not affect income or gains to a service partner’s capital that is invested in the partnership.
Other exempt investments include stock investments. A manager of a private equity fund could purchase stock in the company and would not be subject to the proposed legislation. The lawyers note, that if the manager would be subject to general income tax if the stock is worth more than the manager pays. But it is not clear in this situation whether the manager could borrow from the fund to make the investment, or have its note guaranteed by the fund, without triggering the ordinary income rules.
Write to Austin Kilgore.
The delinquency rate among US commercial mortgage-backed securities (CMBS) jumped in November, according to separate surveys by Moody's Investors Service and Fitch Ratings.
Moody's saw a 46bps increase over last month's delinquency rate — the largest monthly increase of the current downturn — bringing CMBS conduit and fusion loans to 4.47% delinquent.
The balance of delinquent CMBS loans, which stood at $6.7bn in December 2008, rose by more than $23bn in the last 12 months, Moody's found.
"The delinquency rate has now increased 29-fold over its low point of 0.22% reached in July 2007," said Moody's managing director Nick Levidy. "Most of this increase has occurred in 2009, as delinquencies started the year at 0.95%."
Meanwhile, Fitch saw late pays climb 43bps to 4.29% of US CMBS, led by hotel and multifamily defaults. As of November, 9.16% of the Fitch-rated universe of US CMBS was in special servicing.
"Transfers to special servicing of larger loans are occurring before borrowers default on payments," said Fitch managing director and US CMBS group head, Susan Merrick. "Newly delinquent large loans are rarely a surprise."
Write to Diana Golobay.
After a speech on revitalizing neighborhoods in Maryland Wednesday, Elizabeth Duke, a governor of the board of the Federal Reserve System presented framework for a “better-functioning” mortgage market while speaking at the Federal Reserve Bank of Chicago.
Data collected under the Home Mortgage Disclosure Act for 2008 showed a fractured market for housing finance, Duke said, with frozen private lending and new loans dependent on government support. Only 75% of the mortgage companies active in 2006 remained in 2008 as warehouse lines of credit – which the companies depended upon to fund their loans – shrank “significantly,” Duke said.
“Some would argue that most of the really risky behavior is now out of the market,” Duke said. “But, unfortunately, the backlash has restricted a lot of perfectly responsible lending as well. Banks are reluctant to put any but the lowest possible risk loans in their portfolios.”
Duke said that a new system must provide adequate consumer protection after widespread abuses so consumers can feel confident in negotiating a mortgage.
“Second, there must be transparency at all levels. Retail products should be as transparent as possible, so that consumers find it easy to understand the terms and risks of their mortgages,” Duke said.
She added that lenders and servicers should provide as much information as possible to investors to attract capital back to the market.
“Third, the new system should encourage simplicity. Retail mortgage contracts ought to be as simple as possible. Too often, the complexity of mortgages has served to confuse borrowers and make it more difficult to make informed decisions,” Duke said.
While the complexities of financial innovations are an inevitable byproduct, simpler instruments would likely grow in demand in the future, she said.
“Finally, the new system should feature clear roles and properly aligned incentives for all players. Too often in the recent turmoil, we saw examples of misaligned interests and competing objectives,” Duke said.
On the origination side, Duke said that incentives for counseling, whether before a purchase or during foreclosure would, would continue to provide better outcomes for consumers. For the secondary market, a mechanism for moving investment funds into housing finance, either through covered bonds, loan securitizations “or some other mode,” would be critical in meeting the demands of a normal market. Going forward, servicer contracts must provide guidance and incentive structures for “transparency and certainty” in the use of loss mitigation tools such as modification.
“It would be hard to overestimate the damage that has been done to the housing market in recent years, and especially to the millions of families that are suffering the devastating consequences of foreclosure,” Duke said. “It would be equally difficult to overestimate the damage that would be done in the future if we must live with a chronically impaired mortgage market.”
Write to Jon Prior.
A new Hope Now Alliance Web site lets Department of Housing and Urban Development (HUD)-approved housing counseling agencies in certain markets submit Making Home Affordable Modification Program (HAMP) applications on behalf of certain distressed borrowers.
A number of loan servicers are participating in the pilot program, Hope LoanPort, including American Home Mortgage Servicing, JP Morgan Chase, GMAC Financial Services, SunTrust, PNC Mortgage and Saxon Mortgage.
Servicers in nine markets will also start the program. NeighborWorks America is serving as a counseling intermediary, with affiliated agencies: Neighborhood Housing Services (NHS) of Chicago, NHS of Greater Cleveland, NHS of New York City and Cabrillo Economic Development Corporation in Ventura, Calif. HomeFree USA is also serving as an intermediary with their affiliates located in Kansas City, West Palm Beach, Washington, DC, and Atlanta. The counselors will offer the service at no cost to borrowers and can track the modification effort after the application is submitted.
The Hope Now Alliance is a consortium of housing counselors and loan servicers that works to help distressed borrowers.
Lenders said one of the challenges facing borrowers and servicers in modifying loans is the number of documents required in the application. Hope Now said the counselors will help keep track of the documentation needs to finalize the workout plans.
“This new web portal will help homeowners get a faster answer, via their housing counselor, on whether or not they qualify for a HAMP loan,” said Hope Now executive director Faith Schwartz.
“The ability to help at-risk borrowers navigate more quickly through the HAMP modification process is a win-win for borrowers and the servicers committed to this program. The Hope LoanPort will demonstrate that using available, secured technology and standardized application forms will make a difference in the amount of time it takes for a consumer to get the answers they are seeking and reduce costs to servicers,” Schwartz added.
The Web site is based of technology in the RxOffice software, owned by Columbia, Md.-based IndiSoft. Hope Now expects to launch the program nationwide in 2010.
“Housing counselors have consistently articulated the need for a single point of entry and systematic process for communicating with servicers,” said NeighborWorks America CEO Ken Wade. “We are delighted that Hope Now has developed Hope LoanPort, which will improve the efficiency and effectiveness of counseling and enable more distressed homeowners to receive the assistance they need.”
Write to Austin Kilgore.
The Federal Reserve Bank of New York bought another $16bn of agency mortgage-backed securities (MBS) in the week ending December 9.
The Fed's gross weekly purchases totaled $27.25bn — $6.6bn from Freddie Mac (FRE: 0.00 N/A), $19.15bn from Fannie Mae (FNM: 0.00 N/A) and $1.5bn from Ginnie Mae, according to details published by the New York Federal Reserve.
The gross purchases did not account for $11.25bn of MBS sold in the same week — $1.75bn of Freddie and $9.5bn of Fannie MBS.
The NY Fed said it will in coming weeks test an exit strategy from its portfolio of more than $1trn of agency MBS.
The tests, which come in advance of any decision by the Federal Open Market Committee to begin the exit process, will employ triparty reverse repurchase agreements. These are typically overnight sell and buyback deals with set interest rates, the term triparty references the presence of a third party arbitrator.
Write to Diana Golobay.
Warren, Mich.-based mortgage field service solutions provider Five Brothers updated its loss mitigation software to enable mortgage modifications under the Federal Deposit Insurance Corp. (FDIC) and the Making Home Affordable Modification Program (HAMP).
The MOTZ software can automate and streamline the modification process, including automatically calculating net present values if the mortgage is modified or if the home goes into foreclosure, Five Brothers CEO Joe Bada said, and the update allows for modifications that comply with the federal modification programs.
“We saw a gaping hole in the loss mitigation service landscape and we filled it,” Bada said. “Our MOTZ software will not only significantly improve efficiencies in the default management process, it has the potential to revolutionize the industry as a whole.”
In addition to its software products, Five Brothers’ programs include property preservation, inspections, real estate owned (REO) management, hazard claims processing, and document scanning with automated workflow services.
Write to Austin Kilgore.
