Archive for December, 2009
French investment bank Société Générale's subsidiary The TCW Group, a global asset-management firm with $110bn of assets under management, is acquiring Los Angeles-based Metropolitan West Asset Management.
The deal is expected to close during Q110, although financial details were not released as of the publication of this story. TCW concurrently announced the dismissal of an investment head along with the acquisition.
"We do not anticipate any change in investment strategy, discipline or style for any of TCW"s high-grade fixed income funds and accounts," said Marc Stern, vice chairman and CEO of TCW, in a statement.
"We continue to see strong demand for our equity strategies, as well as our world-class alternative products including mezzanine, distressed debt, real estate and energy and infrastructure investments," Stern added. "We look forward to all of these groups working together to bring the best of the firm's resources to bear for our clients."
MetWest partner and CEO, David Lippman, becomes group managing director and head of TCW's high-grade fixed-income business and a member of The TCW Group board of directors, effective with the close of the deal.
Tad Rivelle, current chief investment officer (CIO) overseeing MetWest's $30bn of fixed-income assets, becomes CIO of TCW's high-grade fixed-income group with the move.
TCW also dismissed Jeffrey Gundlach, TCW CIO and lead portfolio manager of high-grade fixed-income funds. The firm said it "deeply regrets the need to take this action," according to the statement.
Write to Diana Golobay.
The prepayment rate among Fannie Mae (FNM: 0.00 N/A) 30-year notes slipped 6% "unexpectedly" after the government-sponsored entity (GSE) suspended buyouts related to the Home Affordable Modification Program (HAMP), according to monthly commentary by Barclays Capital.
The buyout delay in this month's reporting period for Fannie indicates a spike in buyouts — and the prepayment speed — next month as mortgages are modified and withdrawn from mortgage-backed security (MBS) pools, according to researchers.
"Specifically, on November 24, [Fannie] told its servicers to suspend buying out loans that have made all trial payments but have not submitted all required documentation," researchers said. "This servicing change abruptly reduced the number of loans that were bought out in November, leading to a sharp decline in the speeds of [Fannie] higher coupons and credit impaired pools."
Prepayment speeds at brother GSE Freddie Mac (FRE: 0.00 N/A), on the other hand, picked up across coupons and particularly in lower coupons. BarCap researchers found the difference between the GSEs' two speeds traces back to the higher credit quality of Freddie pools, which react to lower mortgage rates more so than Fannie pools. Researchers also noted that Freddie buyouts never picked up in the first place, so a suspension of buyouts had less of an effect on prepay speeds.
"The latest report also provided an excellent benchmark with regard to how much buyouts have been driving speeds," BarCap said. "For the month, driving rates were lower and refinancing activity should have gone up (which was borne out by the faster [Freddie] speeds). So the only reason for a drop in [Fannie] speeds was fewer buyouts."
Fewer borrowers are refinancing than in recent years, despite record-low mortgage interest rates. Researchers attributed this trend in part to the migration of the mortgage universe into lower coupons. Tightened underwriting standards and "credit burnout" also contribute to the dwindling refinance response.
BarCap researchers said mortgage rates would have to fall 35bps below April lows (4.98%) before the industry sees any pickup in refinancing activity. Any risk of higher prepayment speeds in the short-term would therefore be the result of delinquency buyouts, rather than refinance, the researchers said.
Write to Diana Golobay.
A look at the stories on HousingWire’s weekend desk…with more coverage to come on bigger issues:
Regulators shut down six banks Friday, bringing to total number of failed institutions to 130 this year. The total estimated cost to the Federal Deposit Insurance Corp.’s (FDIC) deposit insurance fund is $2.384bn.
The Office of Thrift Supervision (OTS) closed Cleveland, Ohio-based AmTrust Bank. The FDIC, as receiver, entered into a purchase and assumption agreement with Westbury, New York-based New York Community Bank, which reopened the 66 AmTrust branches as New York Community Bank locations. New York Community Bank did not pay a premium to assume all $8bn of AmTrust’s deposits, and purchased $9bn of the failed bank’s $12bn in assets. The failure is estimated to cost the FDIC fund $2bn.
The Illinois Department of Financial and Professional Regulation closed Aurora-based Benchmark Bank and the FDIC entered into a purchase and assumption agreement with Chicago-based MB Financial Bank, National Association, which did not pay a premium to assume all of the failed bank’s $181.0m in deposits and $170.0m in assets. Benchmark had five branches that reopened as MB Financial Bank locations. The cost to the FDIC fund will be $64m.
The OTS also closed Reston, Virginia-based Greater Atlantic Bank. McLean, Virginia-based Sonabank assumed all the failed bank’s $179m in deposits and “essentially all” the bank’s $203m in assets at no premium. Greater Atlantic Bank had five branches, which reopened as Sonabank locations. The estimated cost to the FDIC fund is $35m.
Three Georgia banks failed on Friday. The Georgia Department of Banking and Finance closed Atlanta-based Buckhead Community Bank. Macon, Ga.-based State Bank and Trust assumed all the failed bank’s $874m in deposits and “essentially all” of its $838m in assets at no premium. Buckhead’s six branches each operated under a different name — Sandy Springs Community Bank, Midtown Community Bank, Alpharetta Community Bank, Cobb Community Bank, Forsyth Community Bank, and Hall Community Bank — which will all open as State Bank and Trust branches. The failure will cost the FDIC fund approximately $241.4m.
The Office of the Comptroller of the Currency (OCC) closed First Security National Bank. State Bank and Trust assumed all of the bank’s $123m in deposits and $118m of its $128m in assets at no premium. The bank had four branches, which reopened as State Bank and Trust locations. The failure will cost the FDIC fund $30.1m.
The Georgia Department of Banking and Finance closed Reidsville, Georgia-based Tattnall Bank. Albany, Georgia-based HeritageBank of the South assumed all the failed bank’s $47.3m in deposits and $48.5m of $49.6m of its assets and reopened the bank’s two branches as HeritageBank of the South locations. The failure will cost the FDIC fund $13.9m.
After a relatively calm week in commercial mortgage-backed securitization (CMBS) activity last week, reports of improved unemployment and other economic data ignited a rally in the sector Friday, Barclays Capital analysts wrote in its weekly securitization report.
Employment reports are one source of guidance for office space demand, and should employment trends continue to improve, Barclays wrote, demand for office space should rebound in 2010.
“In light of better economic data and recent underperformance versus other fixed income sectors, we move to an overweight position on the CMBS basis with a preference for recent vintage last cash flow bonds originally rated AAA,” Aaron Bryson and Tee Yong Chew wrote. “Recent economic data and improved capital market conditions cause us to lower the probability of our stress case scenario, where recent vintage dupers take meaningful losses.”
Barclays said the new face of the asset-backed securitization market, a sector with considerably more conservative terms it dubs “CMBS 2.0,” continues to grow. Deals last week included a $500m CMBS offering from Inland Western Realty, a non-publicly traded real estate investment trust (REIT) that specializes in the retail sector.
The Treasury Department will wait to sell its 7.7bn shares of Citigroup (C: 30.87 +1.61%) stock until federal regulators and the financial institution finalize a plan for the bank to repay all of its $45bn debt to the government, according to multiple media reports.
Treasury officials are said to want to hold on to the shares until it’s determined whether Citigroup will need to raise additional capital to pay off its Troubled Asset Relief Program (TARP) debt. Selling the shares before that could weaken investor demand. For three months, Citigroup has worked to convince the Treasury to sell its stake in the firm.
Bank of America (BAC: 7.29 -0.14%), JP Morgan Chase (JPM: 37.21 -0.75%), Goldman Sachs (GS: 111.77 +2.96%) and Morgan Stanley (MS: 18.56 +2.26%) have either repaid their TARP funds or are in plans to repay and exit the program.
In other debt repayment news, Sultan bin Saeed al-Mansouri, economy minister of the United Arab Emirates (UAE), critical of media reports on the financial stability of Dubai World, said it was only “a matter of time” until the Dubai-owned investment firm repays its $60bn in debt.
“Dubai World's debts do not affect the economic performance of Dubai or the UAE and it is a matter of time before the company restructures its debts and honors its commitments as per a scheduled plan,” he told the British newspaper The Guardian.
Dubai World began the process of restructuring $26bn of its debt, and after taking a plunge when Dubai’s troubles were first announced, financial markets are recovering.
Henry Miller Jr., the Dallas businessman responsible for making his father’s small insurance and real estate business into one of the country’s largest independent brokerage and property management firms, passed away Sunday after a brief illness. He was 95.
It was under Miller Jr.’s leadership that Henry S. Miller Co. was divided into three divisions — office, retail and investment properties — providing specialized service to its clients. The company was responsible for developing a number of shopping centers throughout the Dallas area. Under Miller Jr.’s leadership, the firm led the revitalization of the nation’s first shopping center, Highland Park Village, in Highland Park, a suburban city of Dallas.
NFL great Roger Staubach worked for Miller Jr. at the firm during off seasons when he played for the Dallas Cowboys. Staubach, who now runs his own commercial real estate firm, credits Miller Jr. for developing his business acumen.
“I was very fortunate to have a great mentor on the playing field, [former Cowboys coach] Tom Landry,” Staubach told The Dallas Morning News. “And Mr. Miller was my mentor in business.”
Write to Austin Kilgore.
Short sales may be partially responsible for the falling of first-lien severities in most non-agency sectors, according to securitization research Friday by Barclays Capital (BarCap).
Mark-to-market loan-to-value shifts and the rising share of short sales in recent liquidations can mostly explain the severity declines.
But the trend is unlikely to keep up, as BarCap researchers project loss severities will increase in the first half of 2010 due to worse house price appreciation, rising short sale severity and larger advancing costs on liquidations. Severities should level off by the second half of the year.
Severities fell over the past five months alongside an uptick in house prices and implementation of government modification programs. House price appreciation alone cannot account for the whole 4-5% drop in magnitude seen across multiple sectors.
Lower mark-to-market loan-to-value trends account for half the drop in severity among first liens, BarCap said. Lower severities among a higher count of short sales has also helped along the trend.
"One way to explain the unexplained component of the recent severity decline is to attribute it to a compression in the distressed discount that is being demanded by new homebuyers," BarCap said. "Anecdotally, there have been reports of large-scale investor buying of distressed properties over the past few months. Investors are less likely to have psychological inhibitions about buying foreclosed homes and could bid up prices."
Write to Diana Golobay.
Monolines and mortgage insurers are attempting to narrow mortgage-related losses by put-backs to originators and claims rescissions and denials, according to insurance industry commentary this week by Moody's Investors Service.
Monolines insure mortgage-related bonds, while mortgage insurers back lenders against default-related losses. The extent to which these companies are exercising put-backs and rescissions indicates loss mitigation efforts are high as the industry continues to work through distressed loans.
Mortgage insurance rescission rates jumped to 20-25% in recent quarters, relative to historical 7% averages. Moody's said mortgage insurers rescinded about $6bn of claims since January 2008 and could rescind another $2bn to $4bn of claims during the next few years.
Moody's also found monolines established more than $4bn of credits for put-backs to mortgage originators as of Q309, largely relating to '04-'07 vintage second-lien residential mortgage-backed securitizations (RMBS).
Depending on how successful these strategies are, Moody's notes monolines and mortgage insurers could encounter "meaningfully lower" losses than expected claims from "unprecedented" defaulted mortgages. But the implications for insurance policyholders vary.
"For mortgage originators and other impacted mortgage insurance beneficiaries, put-backs and rescissions could represent significant contingent exposures to mortgage-related losses, with potential negative implications for their creditors," Moody's said. "However, most originators routinely set aside provisions for such exposures, although the amounts are not publicly disclosed. Additionally, we expect that protracted negotiations over the amounts could mitigate the potential impact, as we would expect many to opt for settlements rather than litigation."
Write to Diana Golobay.
Cole Taylor Bank, subsidiary of Taylor Capital Group (TAYC: 12.43 +3.24%) launched a new residential mortgage origination unit.
Former executive vice president of ABN AMRO Mortgage Group Willie Newman — a 24-year industry veteran — will head up the business.
The mortgage origination unit will operate offices in several states, maintaining established relationships with mortgage brokers. It will also operate through remote retail origination sites and Cole Taylor's retail banking branches.
Mortgages will be sold after origination, rather than held in portfolio.
"We expect that the addition of this new line of business will be an important new source of fee income for our organization and will provide additional earnings diversification," said Taylor Capital chairman Bruce Taylor.
Newman will report to Taylor Capital chief financial and operating officer Randy Conte, who indicated in a statement the unit should begin originating "high quality" first lien mortgages in Q110.
Write to Diana Golobay.
More than $200bn of outstanding pay-option adjustable-rate mortgages (ARMs) originated and securitized from '04-'07, according to market commentary by Moody's Investors Service this week.
This sector shows "dismal" performance, with more than 40% of borrowers 60 or more days past due on payments. And many of these loans have yet to experience a recast event, when initial minimum monthly payments jump as much as 60%, according to sources interviewed by HousingWire for an upcoming issue.
"Even though borrowers with Option ARM loans have the option to make monthly payments typically lower than the accruing interest on the loan, many borrowers are choosing a different option–not making any payment at all."
Moody's said the performance is comparable to subprime, despite the trend of more acute negative equity among Option ARMs than subprime.
Negative equity is a key driver of weak performance — as well as a more predictive measure of default than unemployment — particularly among Option ARMs. Modifications would have to be applied aggressively to have any lasting effect and keep borrowers paying on their mortgages, Moody's said.
High defaults might be mitigated only by as extreme a method as principal forgiveness. Moody's recommended a term extension to 40 years, significant interest rate cuts and some principal forbearance to keep borrowers' cash flowing.
"There is little hope that most of these [delinquent] borrowers will start making payments again if no principal is forgiven," Moody's said. "Forbearance does not eliminate the obligation to repay the loan principal, it only delays it. And many delinquent borrowers are potentially so far underwater that it would take close to a decade for them to attain any positive equity in their home."
The delinquency rate of Option ARMs is expected to rise as a wave of these loans recasts after the initial payment period, according to recent market commentary by Standard & Poor's.
"Option ARMs are the most vulnerable to quick payment increases because of the low payment options they offer borrowers," S&P said. "Upon full recast, option ARM borrowers may experience sudden payment increases to varying degrees depending on the payment options they chose to exercise prior to the recast."
Write to Diana Golobay.
[Update 1: adds previous principal forgiveness request by ACORN.]
Institutions that acquire failed banks taken over by the Federal Deposit Insurance Corp. (FDIC) may soon be required to cut principal off mortgages instead of simply forbearing a portion until a later day or lowering interest rates, according to comments and FDIC official made to Bloomberg this week.
The principal forgiveness might apply to as much as $45bn of mortgages from failed banks. Regulators so far in 2009 shut down 124 banks, costing the FDIC's insurance fund billions of dollars and putting billions more in assets up for acquisition.
Institutions that participate in loss-sharing agreements with the FDIC on asset acquisitions may be forced to share a greater portion of losses related to the principal cuts.
“We’re looking now at whether we should provide some further loss-sharing for principal write-downs,” FDIC chairman Sheila Bair told Bloomberg. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”
Bair added: “We’ll obviously lose by providing loss-share for principal write-downs.”
The lower foreclosure rate achieved through principal forgiveness might actually help the FDIC gain back some of the funds it would have to spend on the loss-sharing agreement.
Plans are not yet final, but the FDIC made a similar move in September when it urged loss-sharing institutions to temporarily forbear on a portion of mortgages, lowering payments for unemployed borrowers.
Bair's comments follow a move by the Association of Community Organizations for Reform Now (ACORN) in August to urge servicers to explore foreclosure alternatives including principal forgiveness as opposed to forbearance.
Write to Diana Golobay.
Storage rental real estate investment trust (REIT) Public Storage (PSA: 137.52 +0.64%) has found success financing its growth with perpetual preferred stock, company executives told group during a panel discussion at the UBS Global Real Estate Conference, held in London this week.
The stock mechanism never matures, is fixed rate and insulates the company from bankruptcy risks. If the company were to default on the perpetual preferred stock, there are incentives, including stockholders earning seats on the company’s board of directors that would delay a bankruptcy, the executives said. The REIT has 3.5bn outstanding shares of the perpetual preferred stock with a fixed 6.8% coupon. Dividends are only paid out when its required to maintain REIT status, and those payments are tax deductible for the company.
While Public Storage is a market leader in the US, the executives said, its 130m square feet of rental space represents less than 5% of the total rental storage market in the country. In addition to its US operations, Public Storage operates 10m square feet of space in seven western European countries under the Shurgard brand.
Other financing has come from commercial mortgage-backed securitization (CMBS) offerings. The company recently raised $400m with a CMBS offering collaterialized by 28 properties worth $775m. Goldman Sachs (GS: 111.77 +2.96%) originated the deal, which was securitized two weeks ago, the executives said.
Executives described the underwriting process as arduous, including US government review for Term Asset-Backed Securities Loan Facility (TALF) eligibility. Most investors balked, however, at using the government-backed funds, as only a “small minority” of buyers participated in the program, the executives said.
The executives said they were pleased with the market’s response to the offering, a sign that well-underwritten CMBS is a structure that can work well and is very attractive to investors.
Write to Austin Kilgore.
RealEstateExpress.com pledged full scholarships for online real estate broker licensing courses to a limited number of unemployed individuals.
"Before the end of this year, RealEstateExpress plans to take 100 people from the roles of the unemployed and re-engage them as productive members of the work force," said chief technical officer David Goldstein.
The scholarships will be awarded on a first come, first-served basis, so long as applicants can verify termination of previous employment, according to a spokesperson at the company.
The scholarship recipients also must be located in a state where RealEstateExpress is authorized to administer its courses: Alabama, California, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Michigan, Missouri, Nevada, New York, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Washington.
Financial blog ChristianPF.com discovered the promotion.
"It seems that most established real estate professionals love their jobs and Real Estate Brokers are also one of the highest paying jobs without a college degree you can find out there," the blog said in a statement.
ChristianPF offers financial planning advice, including faith-based financial principles, to get people's finances in order. Popular posts include "$8,000 housing tax credit explained," "What is an IRA?" and "How to make money blogging."
Write to Diana Golobay.
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