Archive for April, 2010
First the facts: A new lawsuit brought by Legal Services NYC – Bronx will attempt to place responsibility for deplorable conditions at buildings owned by private equity investor Milbank Real Estate to the Trustee, Wells Fargo. At a press conference in front of one of 10 buildings owned by the troubled investor and part of a huge commercial mortgage backed security, Council Speaker Christine Quinn, Borough President Ruben Diaz, Jr., and Councilman Fernando Cabrera joined tenants, organizers and lawyers to announce the filing of the lawsuit.
As opposed to trying to impersonate a journalist (I'm the deputy director of University Neighborhood Housing Program, a nonprofit), I’d like to give some background to the situation and explain why the lawsuit, if successful, could be extremely significant nationwide.
Anthony Meola is currently the CEO of Saxon Mortgage Services, a subsidiary of Morgan Stanley (MS: 18.56 +2.26%). He joined Morgan Stanley in June of 2007 as its chief operating officer of the US residential lending operations where he is responsible for all aspects of Morgan Stanley’s business strategy and operational execution in the mortgage space for the US. Meola has more than 22 years of experience at the senior management level in the mortgage industry.
For this episode of In This Corner, Meola says its important for servicers to be quick to adapt in a volatile market and sheds some light on Saxon's push into the subservicing space.
Defaults are still rising. When will the market begin to see this number flattening out and even decreasing? Will it run parallel to unemployment?
LPS Mortgage Monitor data shows a large backlog in delinquent loans and foreclosures at record highs. These inventories will have to work through the system and will have a negative impact on the markets. The new Home Affordable Foreclosure Alternatives (HAFA) program, developed to promote short sales, may have a negative impact in some areas, due to lower than market sales taking place.
Unemployment rates have not seen any major changes that would have a positive impact on the markets. From a total of 384 metropolitan statistical areas (MSAs), 377 are currently characterized as declining markets. Combine MSA default data with declining markets data and we believe inventory will remain high in these MSAs for at least 18 months.
Re-defaults. How much of a concern will these be in the future? The market is still trying to get its modification programs moving at full-speed, but is this effort to modify as many homes as possible as quickly as possible a haunting repeat of the origination frenzy that started the crisis to begin with?
The difference between extension of new credit through a loan origination, and consumer assistance through a loan modification, is significant. The relief offered a consumer from a trial loan modification is relatively immediate. Moreover, the consumer’s payment is determined through well-defined criteria, as well as a standardized net present value (NPV) model. Additionally, through a trial period plan, the consumer’s ability to sustain affordable payments under the modification is clear—early on in the process. All parties are well-served for the period of time payments are made, and alternative solutions can be quickly explored if the loan modification fails.
With your recent move with Ocwen, can you describe Saxon's push into the subservicing space? What is your timeline?
We’ve built a world-class servicing capability, and we’ve demonstrated that we can achieve superior asset performance for our clients and investors. In 2010, we took that knowledge and expertise in execution to the market and, as a result, have been able to attract subservicing arrangements at desirable returns. Our pricing is such that we take an active participation in the savings we create by using preferred loss mitigation strategies, so that when our clients win, we win. This unique approach has led Saxon to more rapid growth.
One way we create capacity for the market is by partnering with other subservicers who do not specialize in distressed or high-risk assets. We subservice to them assets with a lower risk profile, from our portfolio, which allows us the capacity to serve the market.
Saxon is one of the top HAMP performers, and yet even with its participation in a program heavily criticized for the difficulty it causes servicers, how is Saxon growing its business? What adjustments must you as a servicer make?
HAMP is one of many loss mitigation tools that servicers must master in order to maximize portfolio performance for their investors. The complexity and ever-changing dimensions of the program are no different than many servicing requirements—investor strategies that, in today’s world, need to be dynamic. The servicing world has become interactive and requires flexibility and nimbleness—an ability to react and stay current with borrowers’ changing situations.
Saxon remains one of the nation’s best servicers because of our ability to meet the needs of the investor and borrower. We balance the actions we take in a way that maximizes the outcome for both. The use of workflow tools, predictive modeling, and being proactive in the service we provide, are just some of the keys to our success.
In addition to servicing loans for others in subservicing agreements and PSAs, we service assets we own. As investors, we have a unique perspective into what our investors require, and that keeps us keenly aware of the adjustments and changes we must make.
The recent move by the Treasury to write down principal in HAMP has been long sought by troubled borrowers and non-profit companies. How are investors taking this news?
The recent announcement of principal write down remains subject to further Treasury guidance prior to a servicer’s ability to implement the program. Guidance must include a new HAMP waterfall and possibly a revised NPV model. Additionally, the program as announced, will remain voluntary. However, if the NPV is positive after a principal write down, including all incentives, investors will likely consider the alternative.
A federal panel said Wednesday that it had issued a subpoena to the credit-rating agency Moody’s Investors Service after the firm failed to promptly respond to its request for documents and e-mail messages.
The subpoena suggested an intensified activity by the bipartisan panel, known as the Financial Crisis Inquiry Commission, which was created to examine the causes of the financial crisis.
It was the first such subpoena issued by the panel, which was created by Congress last year and is required to complete its findings by Dec. 15. The panel has been criticized for getting off to a slow start and being unfocused in its inquiry, given the wide scope of its mandate.
US home buyers remain worried about the economy. But with average home prices down about 30% nationally from 2006, mortgage rates low and federal tax credits still in play, more than 80% of buyers see this as a good time to purchase, a Century 21 Real Estate poll found.
The First-Time Home Buyers and Sellers survey by the Realogy Corp. unit polled consumers who bought or sold their first home within the past year or planned to do so within the next year.
"Today's market presents a generational opportunity for home buyers and current home owners looking to leverage their market position," Rick Davidson, president and CEO of Parsippany, New Jersey-based Century 21, said in a statement.
Bank of Communications Co., China’s fourth-largest publicly traded lender, said it made fewer mortgage loans in February and March as the government seeks to rein in lending and curb property speculation.
“We have had an obvious drop in volume over the last two months,” Dicky Yip, an executive vice-president at BoCom, as the bank is also known, said in an interview in Shanghai yesterday. He declined to give loan-volume figures.
China’s bank regulator has told the nation’s larger banks to conduct quarterly stress tests on property loans and ensure risks are strictly controlled. Chinese banks extended a less- than-estimated 510.7bn yuan ($74.8bn) of new loans in March after the central bank told lenders to set aside larger reserves and pace credit growth.
US house prices dropped another 0.2% on a seasonally adjusted basis from January to February, following a 0.6% drop the month before, according to the Federal Housing Finance Agency (FHFA) house price index (HPI).
While there have been scattered upward ticks since the 13.3% fall from the April 2007 peak, the curve on the double-dip might be taking shape as shown in the graph below.
For the 12 months ending in February, US prices dropped 3.4%
But the FHFA measurements aren’t translating to Trulia.com listings. Research from the company showed the rate of house listings where the seller reduced the price at least once declined 26% in April.
“As the federal stimulus comes to an end this month, coupled with expected increases in interest rates and foreclosures, the next few months will be very telling for whether the U.S. housing market can be self-sustaining over the longer-term,” said Trulia co-founder and CEO Pete Flint.
It should be noted that although Trulia currently lists roughly 3.5m homes, Fannie and Freddie provide more than $6.3trn in funding for the US mortgage markets.
The FHFA calculates its monthly index using purchase prices of houses backed by mortgages sold or guaranteed by the government-sponsored enterprises (GSEs) Fannie Mae (FNM: 0.00 N/A) or Freddie Mac (FRE: 0.00 N/A).
For the nine regions monitored by the FHFA, the most significant seasonally adjusted price drop from January to February was a 1.7% drop in the South Atlantic Division, which includes states along the Atlantic coast from Delaware down to Florida. The Middle Atlantic Division, which includes New York, New Jersey and Pennsylvania, had the largest increase at 1.9%.
Write to Jon Prior.
