Nearly every one of our key sources in the servicing market has warned privately on the coming impact of so-called “unattached seconds” — those second liens that weren’t made with the same lender that holds the first mortgage. A vast number of HELs and HELOCs are out there wholly separated from whomever holds the first, and during the housing boom, borrowers moved to monetize home equity at record levels. Which means whatever LTV is reported in most static mortgage pools is pretty much useless, especially in recent vintages and within Alt-A mortgage pools, as well as subprime. It also means those holding large number of unattached seconds may be in for a world of hurt when they have to adjust portfolio values (ahem, Bank of America, we’re looking at you). With that as background, First American CoreLogic on Monday rolled out the first automated solution we’ve seen on the market designed to adjust portfolio LTV for price declines and the effect of hidden second liens; the company told HW the new platform “was developed to automate discovery of accurate portfolio values” for investors. Called TrueLTV, the platform uncovers all secondary liens in a portfolio, then probes beneath the surface to identify lien repayment position, as well as any scheduled loan ARM resets, pre-foreclosure or foreclosure activities on the property. Loans with open liens or other performance challenges are then evaluated by AVM or Default AVM and loan-level findings consolidated to provide a brief summary of overall portfolio value—with drill-down access to each of the underlying details. “Mortgage pool and portfolio data, as commonly reported, effectively hides the impact of a loan’s subsequent liens on its actual value—dramatically lowering the dependability of trading and modeling analytics,” the company said on its Web site. “In the runup to the current mortgage crisis, the growing influence of HELOCs and other secondary liens on collateral LTV and CLTV ratios significantly undermined the value of many portfolios.” This is significant for those wondering when existing private-party MBS securities might begin to move, as well as for those trading in distressed whole loans; our sources have told us repeatedly the the single biggest risk for investors is the impact of a hidden second lien, which can destroy an otherwise valid assessment of what a loan (or security) may be worth. For more information, visit http://www.loanperformance.com.
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