Archive for December, 2009
The ROOF (Retaining Occupancy on Foreclosure) Agreement, a program designed to reduce vacant homes in Detroit, Michigan, was introduced to several large servicers and lenders in November.
ROOF was created by the Detroit Office of Foreclosure Prevention and Response (DOOFPR) and Potestivo & Associates, a legal service provider to the default servicing industry. ROOF allows the previous owners of a property to stay in the home for up to three months after foreclosure.
The ultimate goal of program is to reduce foreclosures in a city plagued by blight and unoccupied foreclosures. If the program succeeds, values of Detroit homes will stabilize.
The occupant must pay all utilities, heat, water and electricity, and a monthly fee will be instituted on a “sliding scale” based on how much the owner can pay. At the end of the three-month term, if the property has not sold, options to renew would be available.
Steve Bancroft, the executive director at the Detroit Office of Foreclosure Prevention and Response told HousingWire in an exclusive interview for an upcoming issue that two lenders are currently participating in the initial stages of the program. He could not disclose which ones, but he did say that they were two of the top lenders in the market.
“Right now we’re going to be trying it as a pilot,” Bancroft said. “We’re going to try it for a little while, not sure how long, and see how it works.”
Bancroft recently spoke at Safeguard’s Nationa Property Preservation Conference in Washington DC. There, he revealed that brokers selling vacant real estate owned (REO) property could expect to get an average of $8,000 in Detroit for the home. Occupied, the amount jumped to $80,000 for a foreclosed property.
Write to Jon Prior.
With hotel property values and occupancy rates on the decline, commercial mortgage-backed securities (CMBS) backed by hotel loans have a 60-day delinquency rate of 6.81%, according to recently released research by Fitch Ratings.
The delinquency rate of hotel loans is the highest among all major commercial real estate (CRE) types and is nearly double the overall CMBS delinquency rate of 3.86%, Fitch said. While the overall CMBS rate is projected to peak at 12% by 2012, hotel CMBS delinquency rates are expected to exceed that, Fitch added. In October alone, 26 hotel loans worth $1.1bn became newly delinquent.
Cash flows are expected to decline 35% from peak levels and cash flow volatility is a big issue for the sector. Hotel reserve funds are taking a hit because even when there are occupants in the hotels, its generally at lower than normal rates, contributing to increased delinquencies and defaults.
Lowered property values, particularly at resort and luxury facilities, is further hurting CMBS performance. Fitch estimates property values will decline as much as 50% from peak levels and the volume of loans transferred to a special servicer increased 300% since the beginning of 2009.
Liquidity issues for lodging-based real estate investment trusts (REITs) are also affecting the increase in hotel CMBS delinquencies. REITs are finding it difficult to secure funds to refinance maturing debt. Fitch analysts said new CMBS deals for luxury and resort hotels will remain virtually non-existent and other hotel-backed CMBS will be limited in volume.
Consumer demand for timeshares is also low, and the sector’s experienced noticeable deterioration in delinquency and default performance. Virtually all defaults to date have been repurchased by the transactions’ respective seller/servicers, Fitch added.
The research comes as CMBS and commercial mortgage information provider Trepp indicated hotel delinquencies led the lodging sector up to 14% delinquent in November.
Write to Austin Kilgore.
Residential real estate conditions improved somewhat although house prices remained flat or fell slightly across various districts since the last publication of the Federal Reserve's Beige Book.
The Beige Book is an economic indicator published eight times a year by the US central banking regulator. It incorporates reports from all 12 Federal Reserve districts.
House prices "firmed" in the Dallas and San Francisco districts and stabilized in the Chicago and Kansas City districts in the Fed's latest report.
A majority of districts indicated lower-priced segments outperformed the high end of the housing market. The New York, Philadelphia, Richmond, Atlanta, Minneapolis and Kansas City districts noted relative weakness at the high end and relative strength at the low end of the market. The Fed attributed this strength to the first-time homebuyer tax credit.
Loan demand weakened overall in the New York, Philadelphia, Cleveland, St. Louis, Kansas City and Dallas districts, with demand for mortgage loans showing "particular weakness" in New York. The Richmond and St. Louis districts, on the other hand, indicated mortgage loans represent the "strongest" demand segment.
Chicago reported an uptick in commercial real estate lending in the current Beige Book, mainly due to refinancing.
Write to Diana Golobay.
US Department of Housing and Urban Development (HUD) secretary Shaun Donovan told lawmakers the Federal Housing Administration's (FHA) single-family insurance program is "not the next subprime" despite reports that draw attention to the swelling volume of FHA loans and steep default-related losses at the program.
The capital reserve ratio at the FHA, which ensures approved lenders against default-related losses, recently plunged below the congressionally-mandated 2% minimum. HUD aims to strengthen the capital position at FHA by enforcing standards and cutting down on lenders that violate FHA's standards, most recently this week with the withdrawal of Lend America's FHA approval.
Donovan indicated in prepared testimony delivered to the House Financial Services Committee (available to download here) other changes may be coming to FHA. He said HUD may increase lender accountability as well as raise insurance premiums, minimum FICO requirements and minimum required downpayments to ensure new FHA borrowers keep more "skin in the game."
"[W]hile FHA must remain a key source of safe mortgage financing at a critical moment in our country’s history, we recognize the risks that we face and the challenges of this temporary role that we play in today’s market," Donovan said in his testimony. "And the bottom line is this: the loans FHA insures must be safe and self-sustaining for the taxpayer over the long-term."
The FHA's actuarial review for fiscal year 2009 projected more than 71% of losses to come over the next five years will come from loans already on FHA's existing books. One area of steep loss, seller-funded downpayment assistance, continues to affect FHA's capital position despite the ban on this practice.
This type of financial assistance allegedly went hand-in-hand with high rates of defaults where borrowers put little personal cash — or none at all — on the closing table. Outside of continued losses from existing seller-funded loans, the FHA's capital reserve ratio would remain above the required 2% minimum, Donovan told the House panel.
Donovan also asked for greater authority for HUD to monitor FHA lenders and enforce lender accountability for fraudulent practices that affect the insurance fund.
Write to Diana Golobay.
The Economic and Financial Affairs Council of the European Union is to begin scaling back its government-backed state aid to strongly capitalized financial institutions. Weaker banks will have a little longer to get their balance sheet act together, the council announced today.
In a seeming about-face, the council, which has executive abilities, declares that member states (the countries that comprise Europe) should continue to offer strong support throughout the unwinding in order to insure "risk-bearing capacity," according to press information made available on the topic. The council is also clear that the multitude of recommendations for this action are not set in stone. In some cases countries, such as France, Germany and Spain should work to have deficits below 3% GDP by 2013. Italy and Belgium are expected to work to reach this point a year earlier, Ireland and the UK a year or more after.
As signs of the recovery continue unabated, the council admits that knock-on recessions may be in the works and notes that the changes may require reversals should the economy tank again.
The EU will conduct this work with an aim to revise its rescue policies in the future which will include the exploration of a corresponding EU framework for asset transfers along with the necessary safeguards. "This work should in particular explore mechanisms to disincentivize ring fencing practices, including exchange of information, enhanced coordination practices and legal provisions," reports the guidance from Brussels.
Financial institutions in the future will also be on the hook for suppling funding for upcoming bailouts, should it become necessary, especially those with activity in Derivatives. To this end, the council is encouraging the creation of a European-based trade repository. As the EU begins to unwind its role in support, the council will facilitate incentives to return to a competitive market; centralize and regularly publicize information on the progress of the wind-down; demand six-monthly assessments of the stability of the financial system from individual institutions.
"The timing of exit should take into account a broad range of elements, including macro-economic and financial sector stability, the functioning of credit channels, a systemic risk assessment and the pace of natural phasing out by banks," states one release titled: Council conclusions on exit
strategies for the financial sector.
Write to Jacob Gaffney.
Wisconsin-based Associated Bank is now using several office automation platforms provided by lending solutions vendor Mortgage Cadence.
Parent company, Associated Banc-Corp (ASBC: 12.65 +1.69%) holds total assets of $23bn, with 300 banking offices across Wisconsin, Minnesota, and Illinois. For its part, Associated Bank purchases conforming, government and jumbo first mortgage loans from correspondent lenders. The company has a strong retail lending channel that is supported in this implementation, including construction to perm loans and operate as a full-service mortgage conduit servicing all major secondary market investors as well as their own on-balance sheet products.
Scott Fecteau, director of mortgage and consumer finance at Associated Bank stated: "This provides us with an enormous competitive advantage considering the state of the industry and the constant changes in regulations, especially when dealing with FHA loans."
The bank is now working with three new platforms from Mortgage Cadence: Orchestrator, Harmony and Finale. When implemented on a respective timescale, the three "solutions" coordinate loan performance through origination, servicing and secondary marketing.
"The agility that Mortgage Cadence Orchestrator grants us is unprecedented, and it allows us to get products to market faster," adds Fecteau. "Couple that with Mortgage Cadence Finale’s ability to dynamically create initial disclosures and closing packages and deliver them securely to the borrower and settlement agent, and we are fully realizing the benefits of these solutions."
"This will allow us to drastically cut down our process times while taking a huge leap toward back office automation," he said.
Chuck Kimball, EVP of consulting services at Mortgage Cadence added that Associated Bank aggregators will additionally use Harmony as a leverage tool in its correspondent Web portal as well as, as the name suggests, an integration tool from the origination to trading desk.
Kimball's colleague, Michael Detwiler, CEO of Mortgage Cadence, said that in searching for an office ELS upgrade, Associated was very clear in its wants: "They were looking for a technology partner that better positioned them for the next generation of mortgage lending, and we believe that they are going to help define what that generation looks like."
Write to Jacob Gaffney.
Clayton Holdings will update its systems to accommodate the American Securitization Forum’s (ASF) Loan Identification Number Code (LINC) by Q110.
Shelton, Conn.-based Clayton Holdings is a risk analysis, loss mitigation, operational solutions and staffing services firm for the securitization and mortgage industries. CEO Paul Bossidy and said the decision to support the new coding system is a step to promote transparency and reinvigorate the non-agency securitization market.
“It will give investors an important new tool to track and analyze underlying collateral, much the way CUSIP [Committee on Uniform Securities Identification Procedures] numbers are used with bonds,” Bossidy said.
The code is a 16-character alphanumeric identifier assigned to individual loans in an asset-backed security (ABS) designed to give investors more information about the mortgages that comprise an ABS. The code identifies underlying loan type, origination date and country of origin. Standard & Poor’s (S&P) Fixed Income Risk Management Services (FIRMS) created LINC on behalf of ASF.
The code starts with a two-letter code for the loan type — Residential Mortgage (RM), Auto Loan (AU), Credit Card (CR) or Student Loan (ST). Following that is a six digit code for the originate date in MMYYYY format. A two-letter International Organization for Standardization (ISO) country codes follows next. Next, a five-character alphanumeric code — which has 40m variations — to uniquely identify the loan. The last character is an algorithmic check-digit, used to confirm that all other digits in the code are correct.
Write to Austin Kilgore.
Mortgage applications increased in two weekly surveys.
The Mortgage Bankers Association (MBA) index of gross mortgage applications increased 2.1% on a seasonally adjusted basis from the previous week.
Mortgage Maxx’s index of applications that’s adjusted to calculate the number of individuals who apply for mortgages increased 3.9%.
Both indices were adjusted for the shortened holiday week.
MBA’s refinance index increased 1.7% from the previous week and the purchase index increased 4.1%. Refinance mortgages took a 72.1% share of total applications, up from 71.7% in the week prior. Adjustable-rate mortgages (ARMs) accounted for 4.8% of total applications, down from 5.3% in the previous week.
Mortgage Maxx said the recent results are seasonally strong, but projected next week will be the strongest week for the balance of 2009.
Write to Austin Kilgore.
The overall delinquency rate among commercial mortgage-backed securities (CMBS) rose 85 bps to 5.65% in November, from 4.8% a month earlier, according to a monthly report by CMBS and commercial mortgage information provider Trepp.
The share of delinquent lodging loans — including hotels — jumped from 8.67% in October to 14.09% in November.
The jump was largely due to the Extended Stay Hotel delinquency, which contributed more than half of the month's overall increase. Without the Extended Stay delinquency, the lodging delinquency rate would have increased 64 bps.
Industrial loans inched up to 3.33% delinquent from 3.18%, while office loans ticked up to 3.14% from 3.08%. Multifamily loans rose to 8.78% delinquent from 7.66% a month earlier and retail loans reached 4.78% delinquent from 4.53%.
CMBS spreads reversed course, with 10-year triple-A spreads widening by 80 bps to swaps on average.
Write to Diana Golobay.
A former Toys “R” Us accountant working at the toy store chain’s suburban London corporate office embezzled £3.7m (US $6.2m), financing a binge of five-star hotels, luxurious meals, fast cars and even faster women, according to a British broadsheet.
Interestingly, before he got caught, he paid off the mortgage of one of his escorts, but for whatever reason, he failed to do the same for the loan on his own home, where his wife and two children live, according to a story in the Times.
Co-workers told the paper Paul Hopes, 58, was a quiet, unassuming accountant, who in his 23-year career at Toys “R” Us, worked his way up to the role of managing purchasing accounts. But his three-year-long secret life was exposed to the public after he pled guilty to 18 charges of theft, admitting to siphoning funds ranging from £101,000 to £350,000 between January 2007 and November last year.
“Look, in all the time I’ve worked in the same building … getting arrested is the one memorable thing I can remember him doing,” a former colleague told the paper.
Hopes met most of the women in hotel bars and an investigator told the paper he developed an infatuation with more than one of the escorts. He spent thousands of pounds on a Bentley for one woman, and paid off the mortgage of a second. While the toy company is attempting to recover some of the lost funds, it is believed at least £2.7m won’t ever be recovered.
Hopes’ escort isn’t the only homeowner getting out of their mortgage payments early these days. A Suffolk County Supreme Court justice voided the adjustable-rate mortgage (ARM) of a New York couple in a case with failed IndyMac Bank and a woman in Pennsylvania hopes a judge will void her mortgage with the lending subsidiary of homebuilder Toll Brothers, according to a class action suit filed Tuesday.
Write to Austin Kilgore.
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