Archive for August, 2011
A securitization trade group is pushing back against Dodd-Frank's 5% risk-retention rule for residential mortgage-backed securities saying its not strong enough to buoy the confidence of investors.
The American Securitization Forum said Tuesday it desires a rule that would force companies securitizing loans to retain in effect 100% of the risk by exposing them to tighter compliance with representation and warranties agreements.
Risk-retention rules aim to force financial firms to keep some skin in the game by retaining some stake in mortgages securitized for investors.
While Dodd-Frank proposed the 5% risk-retention rule to create more security for investors, the ASF has a differing view: one that would force stricter compliance with the rules of contract while pulling in a third-party to investigate disputes.
The trade group suggests firms involved in the securitization of MBS would instill more confidence in investors by implementing stronger representation and warranties buy-back agreements and third-party oversight of disclosures about assets underlying securitized loans. This is unlike the risk retention proposal under Dodd-Frank where issuers hold at least 5% of each class of ABS issued in a securitization transaction. This 'skin in the game' provision is meant to offer a hedge against risky structuring as the issuer feels the first losses in the event of default.
"The risk-retention rules proposed by regulators are not sufficiently tailored to different asset classes and will likely cause a host of negative unintended consequences," said Tom Deutsch, executive director of the ASF. "Instead, we believe that skin in the game for RMBS would be better implemented through appropriate representations and warranties that issuers provide with respect to securitized loans coupled with an effective repurchase framework like the one spelled out in our new model."
ASF is proposing a three-step process for its compliance construct. The group said if a party believes a rep and warranty agreement has been breached, the proposed model would employ an independent third party to review the loan files for compliance with the agreement.
The third-party would make a recommendation as to whether the financial institution should have to repurchase the assets from investors.
The final step would be a binding arbitration process if the parties disagree with the third-party's conclusion.
The idea is to govern the securitization process by ensuring parties take the reps and guarantees agreements seriously and with full knowledge they are on the hook for 100% of the securitized loans.
"The ASF believes the strong third-party mechanism set forth in our model re-purchase principles will ensure that representations and warranties in future RMBS transactions are subject to a clearly defined enforcement mechanism, with the beneficial effect of causing asset originators to exercise appropriate caution in underwriting and transferring assets to securitization vehicles," said Deutsch.
Write to: Kerri Panchuk.
Tags: American Securitization Forum, ASF, Dodd-Frank, residential mortgage-backed securities, RMBS
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
The CoreLogic (CLGX: 14.55 +0.55%) board of directors formed a committee and retained a financial adviser to consider a wide range of options for the future of the mortgage services firm, including a potential sale of the company.
The data analytics and REO services provider spun off of First American Financial Corp. (FAF: 15.0672 +0.65%) in June 2010. The company said Monday it hired Greenhill & Co. to pursue possible actions going forward. CoreLogic stock jumped as high as $10 per share in after hours trading Monday after the announcement.
CoreLogic was not specific. Cost savings initiatives, an evaluation of capital structure, possible repurchases of debt and common stock or combining businesses were all possibilities along with a sale.
The company has been making moves recently. It recently purchased RP Data Limited and began aggressive cost-cutting maneuvers, but the company hinted challenges remain, which prompted the Greenhill hire.
"While the company continues to make significant progress on these initiatives, in light of the challenging economic environment and current market conditions, the board has determined to look more closely at a range of alternatives with the assistance of a financial adviser," CoreLogic said.
CoreLogic said there was no assurance any action would be taken.
It reported net income of $31.5 million in the second quarter, up from $24 million one year ago.
CoreLogic CEO Anand Nallathambi said in the earnings report that although the data and analytics business generated a steady profit, continued struggles in the housing market knocked down earnings on its origination and real estate services departments.
"These effects, and lack of typical seasonality, negatively impacted our quarterly results on a year-over-year basis, and make us increasingly cautious in our outlook for the remainder of the year," Nallathambi said at the time.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: CoreLogic, data, first american, Greenhill, Greenhill & Co., mortgage, REO, sale, services
Posted in Servicing/Default, Top Stories | 3 Comments »
A new plan by Ginnie Mae will allow issuers to repurchase mortgages from its guaranteed securities if the loan completes a three-month trial modification. And according to Barclays Capital analyst Derek Chen, the initiative will alter the economics of buyouts for Ginnie Mae mortgage servicers.
Ginnie offers a federal guarantee on the timely payment of interest and principal to investors in mortgage-backed securities collateralized by Federal Housing Administration and Veterans Affairs loans.
In a note to clients of the investment bank, Chen said that "because FHA only reimburses the principal portion but not the interest part of the advances in cases where the loan eventually goes into foreclosure, the new rule should reduce the total costs associated with modifications for servicers."
Chen added that the impact for all other related parties, namely investors, will be insignificant.
Under the new arrangement, Ginnie allows loans to be bought out at the end of the trial period, rather than the previous requirement loans must accumulate three full missed payments before being eligible for buyout.
Chen dismissed the argument that mortgage servicers are now incentivized to pursuer modifications more strenuously, which could potentially lead to high Ginnie pool prepayments.
"Under the new rule, servicers have to commit themselves to the modification three to four months in advance — at the start of the trial period," Chen said. "This significantly increases the probability that the modified loans will be sold below par, which implies a reduced incentive for loan modifications."
Chen expects the FHA will closely monitor the redefault rate of modified loans and cross-compare among servicers, thereby reducing the likelihood servicers use modifications as a blanket loss-mitigation tool.
"In other words, loans that do not need a modification are more likely to be cured with a repayment plan or partial claim, which do not require being repurchased out of the pool," he concludes.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: Barclays, foreclosure, Ginnie Mae, loss mitigation, MBS, mortgage, mortgage servicing, mortgage-backed securites, mortgages, redefault
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
The California Public Employees' Retirement System dropped Fitch Ratings from a massive negligent misrepresentation lawsuit this week.
CalPERS originally filed the case against the top ratings agencies, accusing them of misrepresenting ratings on three structured investment vehicles that held billions of dollars of assets, mainly subprime mortgage loans.
The huge pension system dropped Fitch after the parties reached an agreement.
"Under the terms of the settlement, Fitch will make no payment to CalPERS," a spokesman for Fitch Ratings said.
The remaining defendants include Moody's Corp.(MCO: 37.77 -0.76%), parent company of Moody's Investors Service and McGraw Hill Cos. (MHP: 46.83 -0.04%), parent of Standard & Poor's.
When the funds collapsed three years ago, CalPERS claimed the SIVs defaulted on payment obligations to the state pension fund, resulting in upward of $1 billion in investment losses.
"The credit ratings on the three SIVs ultimately proved to be wildly inaccurate and unreasonably high," the plaintiffs alleged in the original complaint. "The rating agencies' methods used to rate the SIVs and their underlying assets were seriously flawed in conception and incompetently applied."
The settlement between Fitch and CalPERS does not impact the other defendants, CalPERS said.
"Dismissal of the two Fitch defendants in the CalPERS complaint will streamline the litigation against two other credit rating agencies – Moody's and Standard & Poor's," CalPERS said in a statement. "The dismissal will not impact the case. CalPERS can still fully recover its damages if it prevails against Moody's or S&P, which will not be able to avoid liability through the Fitch dismissals."
Structured investment vehicles were operating financial institutions that issued short-term debt, financed by long-term securities. When the market for short-term debt dried up during the credit crisis, SIVs also evaporated, leaving investors in the lurch.
Write to: Kerri Panchuk.
Tags: California Public Employees' Retirement System, CalPERS, Fitch Inc., Fitch Ratings, moody's Corp., Moody's Investors, Moody's Investors Service, Standard & Poor's, The McGraw Hill Companies
Posted in Secondary Market/Investors, Slider, Top Stories | No Comments »
MGIC's (MTG: 3.77 -2.58%) stock value bounced more than 20% Monday after the mortgage insurer's top executives loaded up on 40,000 shares late last week.
MGIC's Executive Vice President and Chief Financial Officer Jon Michael Lauer acquired 20,000 shares of stock on Aug. 26 at $2.34 per share for a total of 603,821 shares, securities filings say.
Patrick Sinks, the firm's president and COO, acquired 20,000 shares for $2.28 per share last week, resulting in ownership of 648,484 shares.
Those transactions occurred on Aug. 25 and 26. On Monday, the stock was trading at nearly $3 per share, up from Friday's close of $2.46 per share.
The executives' buy stirred rumors that the transactions were designed to increase MGIC's stock value.
However, Rob Haines, mortgage insurer analyst for CreditSights, said "It's too early to tell if there is ultimate value at MGIC. It is a positive signal though."
Mortgage insurers struggled in August after Standard & Poor's downgraded the U.S. debt rating. The stocks also were hit hard by a stream of negative economic data.
Write to: Kerri Panchuk.
Tags: CreditSights, MGIC, mortgage, mortgage insurers, mortgages
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
CompuGain Corp. purchased the mortgage division of Overture Technologies Monday, as the information technology provider enhances services for mortgage finance clients.
Financial terms weren't disclosed.
The acquired firm will be known as Overture Financial Solutions while functioning as a wholly-owned subsidiary of CompuGain Corp.
Overture Technologies builds tools for loan officers and lenders to use when assessing the viability of lending initiatives. The company's loan decisioning system analyzes loan pool risk, eligibility and pricing of new and seasoned assets.
"Overture's staff expertise and mortgage product offerings are among the best in the mortgage industry," said Debasish Hota, president and CEO of CompuGain. "By adding them to our solutions, CompuGain now has the ability to deliver fully integrated, best-in-class services to our mortgage finance clients."
Earlier this month, business process outsourcing giant Accenture (ACN: 56.50 -0.74%) acquired residential and commercial mortgage processing services firm Zenta.
Write to: Kerri Panchuk.
Tags: CompuGain Corp., mortgage division, Overture Financial Solutions, Overture Technologies
Posted in Servicing/Default, Top Stories | No Comments »
The Federal Reserve is holding three public hearings to address too-big-to-fail concerns stemming from Capital One's (COF: 45.80 +0.42%) plan to acquire ING Direct USA for $9 billion, creating the nation's fifth largest bank by deposits.
By assets, the merged entity would become the seventh largest financial institution.
The Fed said Monday it will accept open comments on the proposed merger through Oct. 12. The board plans to weigh several factors to ensure the new banking entity formed by the transaction functions without disrupting the financial markets.
"These factors are whether the acquisition can be expected to produce benefits to the public, such as greater convenience, increased competition, and gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, unsound banking practices, and risk to the stability of the U.S. banking or financial system," the Fed said in a statement.
Capital One, which maintains a small home loan footprint, is defending the plan, which would have the firm assume 20% of ING Direct USA's portfolio of Alt-A mortgages.
"We will remain a traditional bank with only 1.5% of deposits nationwide and none of the complexity that the Dodd-Frank reform bill addressed in ending too big to fail," said Patrick Mendoza, a spokesman for Capital One. "In each of our prior bank acquisitions, we have substantially increased our investments that serve lower income communities, providing $2.2 billion over and above those predecessor banks in their footprints. The record includes scores of letters of support from community groups attesting to this fact."
The first Fed hearing on the merger will be held Sept. 20, in Washington D.C., followed by hearings in Chicago and San Francisco on Sept. 27 and Oct. 5, respectively.
Write to: Kerri Panchuk.
Tags: Capital One, Dodd-Frank Act, Federal Reserve, ING Direct USA
Posted in Origination/Lending, Top Stories | 1 Comment »
The combined delinquency rate on mortgages held by major banks dropped to 6.68% in the second quarter, the lowest level since the third quarter of 2009, according to Federal Deposit Insurance Corp. data.
The FDIC insures deposits at 7,513 national banks. In the second quarter, bank failures slowed, the "Problem List" of troubled banks shrunk, net income rose and the FDIC's Deposit Insurance Fund turned positive for the first time in two years.
Work on bank mortgage books continued as well. The dollar amount of loans between 30 days and 90 days delinquent dropped for seventh consecutive quarter to $70 billion, the lowest level since the fall of 2007.
It was a 10% reduction from the previous quarter. One year ago, banks reported nearly $100 billion in these early-stage delinquencies.
The banks reported $102 billion in principal balance more than 90-days delinquent, according to the FDIC, down 2.6% from the previous quarter and down 3.5% from one year ago.
Still, the early and late stage delinquencies added up to more than $172 billion in mortgages sit in nonaccrual status. The banks also reported another $12 billion the carrying value of REO, or previously foreclosed, property.
Banks held $25 billion in nonaccrual mortgages before the crisis at the end of 2006.
"Recent events have reminded us that the U.S. economy and U.S. banks still face serious challenges ahead," Acting Chairman Gruenberg concluded. "The FDIC will remain alert to these challenges going forward."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: 2009, banks, crisis, delinquency, delinquency rate, FDIC, foreclosure, mortgage, rate, second quarter
Posted in Servicing/Default, Slider, Top Stories | 3 Comments »
Bank of America (BAC: 7.21 -1.23%) made another multibillion-dollar sale on Monday.
BofA sold roughly 13.1 billion common shares of China Construction Bank in a private transaction with a group of unnamed investors. The sale netted BofA $3.3 billion after taxes and is expected to close in the third quarter. The Charlotte, N.C.-based banking giant still owns 5% of CCB.
Bruce Thompson, chief financial officer at BofA, said the sale generated $3.5 billion in Tier 1 common capital and reduced the bank's risk-weighted assets by $7.3 billion under the Basel I rules.
"This month alone, through noncore asset sales and other actions, we expect to generate approximately $5.8 billion in additional Tier 1 common capital and reduce risk-weighted assets by approximately $16.1 billion under Basel I," Thompson said.
Since the start of the year, BofA stock lost half of its value on fears of undercapitalization. Last week, Warren Buffett injected $5 billion into the bank with a massive stock purchase. With the sale of CCB shares Monday, BofA stock climbed higher than $8.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bank of America, capital, China Construction Bank Corp., correspondent lending, crisis, finance, Lending, stock, Warren Buffet
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
Americans continue dipping into savings to pay down debt and purchase durable goods, such as electronics, appliances and furniture.
TransUnion said its credit risk index fell again in the second quarter, marking the sixth consecutive quarterly decline. The index, which uses 1998 consumer credit levels as a benchmark, fell 1.9% to 121.22 during the three months ended June 30 from 123.56 a year earlier.
The credit reporting agency said the consistent drops in the index reflect lower consumer delinquency rates and debt levels. The second-quarter decline puts the index at a level last seen in the third quarter of 2008 and 6.5% lower than the peak of 129.67 during the fourth quarter of 2009.
"This responsible use of credit has given some lenders confidence to ease lending standards and invest more in the acquisition of new credit customers," according to Chet Wiermanski, chief scientist at TransUnion.
He said banks increased lending across revolving and installment loans the past few quarters, but consumers aren't using the credit. Wiermanski expects more of the same through 2011 with modest improvement in the TransUnion index to levels last seen just prior to the credit and mortgage crisis.
Earlier Monday, the Commerce Department's Bureau of Economic Analysis said personal spending rose 0.8% to $88.4 billion in July while personal income edged up 0.3%.
This prompted Capital Economics to boost its estimate for third-quarter GDP growth to about 2.5% from a prior projection of 1.5%.
Paul Dales, senior U.S. economist at the Toronto-based firm, said higher spending on durable goods led to a 0.5% increase in real spending, which is the highest gain since December 2009.
He said modest gains in real consumption this month and next will result in annualized spending growth of 2.5% in the third quarter, which in itself would add 1.5 percentage points to GDP growth, according to Dales.
But Americans are "funding their spending partly by running down savings."
"This trend cannot continue indefinitely," Dales said. "Moreover, these data precede the plunge in equity prices seen at the start of August, the recent surge in recession fears and any short-term hit to spending from Hurricane Irene."
Still, he said if upcoming data on manufacturing and employment are weak once again as expected, "talk of another recession would seem strange when the economy may be growing at an annualized rate of 2.5%."
Write to Jason Philyaw.
Follow him on Twitter: @jrphilyaw
Tags: Bureau of Economic Analysis, Capital Economics, commerce department, consumers, consumption, durable goods, GDP, pay down debt, savings, spending, transunion
Posted in Origination/Lending, Top Stories | No Comments »
