Platform Press - Distress Real Estate Private Equity

Oliver Wright Esq. — Wed, 21 Mar 2012 05:56:30 +0000

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Anatomy of a Securitization – Part II

Oliver Wright Esq. — Wed, 04 Jan 2012 07:51:47 +0000

Like it’s homely siblings, Fannie Mae and Freddie Mac, Ginnie Mae is central to our housing economy. It facilitates affordable housing a reality for millions of low-and moderate-income American households across America by channeling global capital into U.S. housing markets. The Ginnie Mae guaranty allows mortgage lenders to obtain a better price for their mortgage loans in the secondary market, with whose fresh cash the lenders then use to make new mortgage loans to more homeowners. Ginnie Mae does not buy or sell loans or issue mortgage backed securities (MBS), thus its balance sheet doesn’t hedge or lever derivatives or carry long term debt.

Full Faith and Credit

Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), and to a lesser extent the Department of Agriculture’s Rural Housing Service (RHS) and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH). Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government.

What Are Mortgage-Backed Securities?

Mortgage-backed securities (MBS) are pools of mortgages used as collateral for the issuance of securities in the secondary market. MBS are commonly referred to as “pass-through” certificates because the principal and interest of the underlying loans is “passed through” to investors. The interest rate of the security is lower than the interest rate of the underlying loan to allow for payment of servicing and guaranty fees. Regardless of whether the mortgage payment is made, investors in Ginnie Mae MBS will receive full and timely payment of principal as well as interest. Ginnie Mae MBS are created when eligible mortgage loans (those insured or guaranteed by FHA, the VA, RHS or PIH) are pooled by approved issuers and securitized. Ginnie Mae MBS investors receive a pro rata share of the resulting cash flows (net of servicing and guaranty fees).

Ginnie Mae I:

MBS requires all mortgages in a pool to be the same type (e.g. single-family). Each mortgage must be, and must remain, insured or guaranteed by FHA, VA, RHS or PIH. In addition, the mortgage interest rates must all be the same and the mortgages must be issued by the same issuer. The minimum pool size is $1 million; payments on Ginnie Mae I MBS have a stated 14-day delay (payment is made on the 15th day of each month). Ginnie Mae II MBS allows multiple-issuer pools to be assembled, which in turn allows for larger and more geographically dispersed pools as well as the securitization of smaller portfolios.

Ginnie Mae II:

A wider range of coupons is permitted in a Ginnie Mae II MBS pool, and issuers are permitted to take greater servicing fees — ranging from 25 to 75 basis points. The minimum pool size is $250,000 for multi-lender pools and $1 million for single-lender pools. Ginnie Mae II MBS have an additional five-day payment delay because issuer payments are consolidated by a central paying agent (payment is made on the 20th day of each month).

REMICS

Real Estate Mortgage Investment Conduits (REMICs) direct principal and interest payments from underlying mortgage-backed securities to classes with different principal balances, interest rates, average lives, prepayment characteristics and final maturities. Unlike traditional pass-throughs, the principal and interest payments in REMICs are not passed through to investors pro rata; instead, they are divided into varying payment streams to create classes with different expected maturities, different levels of seniority or subordination or other differing characteristics. The assets underlying REMIC securities can be either other MBS or whole mortgage loans. REMICs allow issuers to create securities with short, intermediate and long-term maturities — flexibility that allows issuers to expand the MBS market to fit the needs of a variety of investors.

Ginnie Mae Platinum Securities

Ginnie Mae Platinum Securities provide investors with greater operating efficiency, allowing holders of multiple MBS to combine them into a single platinum certificate. Ginnie Mae Platinum Securities can be used in structured finance transactions, repurchased transactions as well as general trading.

Illinois Realtors Admit Overstating Chicago Median Housing Prices

Oliver Wright Esq. — Tue, 06 Sep 2011 19:32:55 +0000

Last week, the Illinois Association of Realtors admitted that it has overstated the median prices for homes sold in Chicago since early 2008. The group said the mistake occurred in data processing and was not intentional. It acknowledged that data exaggerated the median sales price for May, but said it may have made a similar error in monthly reports for the last three years. It also said its monthly numbers for total home sales in Chicago may be inaccurate. The association said that for May, the median price for condominiums sold in Chicago was $299,000, a 10 percent increase from May 2010.

After correcting for data input error,” the group said, the result should be $249,900. The new figure would be a year-over-year decrease of 7.8 percent.

In February, the National Association of Realtors admitted it was overstating the number of home sales nationwide. Tough luck to those homeowners who bought on this bad info.

Reduction in Loan Limits; Foreclosure Moratoriums Back; Repurchase Requests Down

Oliver Wright Esq. — Mon, 06 Jun 2011 02:12:16 +0000

Anyone lending in “higher loan amount areas” should read the latest from HUD on the probable/possible changes that will take place on October 1. “Barring Congressional action, Federal Housing Administration (FHA) loan limits will revert back to loan limits determined under the Housing and Economic Recovery Act (HERA) for loans insured by FHA on or after October 1, 2011. As a result, FHA loan limits would likely decline in 669 of the 3,334 counties or county equivalents that are eligible for FHA insurance.” HUD Addresses Upcoming Reduction in Loan Limits; Foreclosure Moratoriums Back; Repurchase Requests Down

FDIC: Whole Loan vs. Structured Sales

Oliver Wright Esq. — Tue, 31 May 2011 13:04:21 +0000

By Oliver Wright Esq.

The FDIC sold $1.2 billion of commercial mortgages during the second quarter in 171 transactions, recovering $650 million, or nearly 55 percent of the loans‘ principal balance. It has sold those loans to a total of 147 investors in 417 transactions.

During the latest quarter, according to FDIC data compiled by Commercial Real Estate Direct, the agency recovered $507.6 million, or 61.3 percent of principal balance for performing loans. It recovered $91.8 million from the $213.4 million of loans that it had classified as non-performers. And mixed-quality or sub-performing loans sold for a total of $50.5 million, or 34.5 percent of balance. A total of 66 investors bought loans through the agency’s whole-loan sales program.

As should be expected, a handful of investors have been dominant buyers. During the second quarter, Beal Bank, which was a very active buyer of distressed loans during the RTC era, was by far the most-active investor, paying $206.16 million, or 61.14 percent of balance for 774 loans in 49 transactions. The bulk of its acquisitions involved loans from the failed Franklin Bank, a Houston institution that was seized last November. Colony Capital, meanwhile, was second-most active among investors during the second quarter. It acquired 212 loans, with a principal balance of $178.96 million, through 23 transactions. All were from Bank of Clark County of Vancouver, Wash., and Haven Trust Bank of Duluth, Ga. The agency’s whole-loan sales program, overseen by its Dallas regional office, relies on auctions conducted through DebtX of Boston and First Financial Network of Oklahoma City.

And it recently tapped three additional whole-loan sales advisers, Eastdil Secured, Garnet Capital Advisors and Mission Capital Advisors, but the thinking is that the agency is looking to sell all commercial mortgages it takes from failed banks through structured offerings, where it would keep a stake, while offering financing. Whole-loan sales are all-cash deals, with no profit-sharing involved. The move to structured offerings, which would involve portfolios of roughly $1 billion apiece, has received largely negative reviews from countless investors and advisers, who feel the offerings would alienate most of them.[quote1] The bulk of the investors who have acquired whole loans from the agency have invested less than $10 million each. Many of those would essentially be excluded from the structured offerings, not only because they would require substantially greater equity commitments, but because the portfolios could involve hundreds of loans each – a servicing requirement that most investors couldn’t meet. Meanwhile, some large investors that would otherwise be able to pony up say $100 million or more for a large portfolio, are said to also have panned the agency’s plans.

For starters, they’re leery of getting involved in a partnership with the government, which likely would involve onerous reporting requirements and possibly entail restrictions on profits and compensation. In addition, many of those large investors have put together substantial kitties of capital. The structured offerings might, ironically, hamper their ability to put much of that capital to work. That’s because of the equity sharing component.[quote2] Investors who might have, say, $300 million of capital to put to work might only need to pony up about $100 million for a $1 billion portfolio if they opt for FDIC’s generous financing. Their equity requirement would be substantially greater if they opted not to take the financing. Either way, the deals might leave investors putting out less capital than they anticipated, while, because of the volume of assets acquired, leave them with no excess servicing capacity for other investments.

And the buzz is that the FDIC would restrict the ability of its partners to quickly re-sell assets acquired through the structured offerings. So far, the agency has launched only one structured offering, a $1.4 billion portfolio of residential mortgages from Franklin Bank. The offering was handled by RBS Greenwich Capital Markets back on Aug. 31. Others are said to be in the works for in the Fall.

Mortgage Backed Securitization: Part I

Oliver Wright Esq. — Tue, 31 May 2011 07:49:13 +0000

posted by OLIVER WRIGHT ESQ.

What is Mortgage Backed Securitization?

Distilled down to the basics, a company (financial or non-financial Sponsor) securitizes mortgage assets when it: (1) pools a discrete group of cash flow producing assets with similar characteristics (usually financial institution originated, self-liquidating loans with similar terms, structures and/or credit characteristics) from its balance sheet; (2) places those assets under the legal control of a separate entity (a special purpose vehicle (SPV) or special purpose entity (SPE) called the Trustee), which insulates ABS investors from the corporate credit risk of the Sponsor that originated or acquired the financial assets; and (3) creates a tradable, interest-bearing and principal-amortizing bond by (4) selling the combined similar assets to capital markets investors who rely upon the repayment of their principal and interest from the cash flow generated by the underlying pool of assets and the salvage or market value of the assets. With these investors now essentially financing the assets, the Sponsor that securitized the assets off of its balance sheet can take the cash consideration and invest it in new assets (e.g., underwrite new mortgages). Note that the Sponsor may retain some contingent or indirect guarantee or recourse to the assets in the event of default. The transfer of the assets from the Sponsor and the rights and responsibilities of the parties to the securitization (i.e., Sponsor, Trustee and Servicer) are set out in a Pooling and Servicing Agreement. In evaluating ABS, investors focus on the characteristics and quality of the asset pool and servicing (thus, there tends to be no business or management to describe, as there is with other offerings).[pullquote]At the end of 2007 (the last major trading year there were more than $7.0 trillion of both agency and non-agency mortgage-backed securities and nearly $2.5 trillion of asset-backed securities outstanding.[/pullquote]

Why Securitize?
Unloading assets from financial institution balance sheets in exchange for cash frees them up to lend more money (versus if they held the assets until maturity). If the originator made money on upfront fees or financing points (percentage of the principal) and sold the asset at par, above par, or below par value but higher than the aforementioned fees, then it will have earned income above and beyond the principal returned via the securitization without any further credit risk exposure to the specific asset. And by securitizing assets into structures containing different tranches (with e.g., different risk profiles, interest rates and/or repayment schedules, the risk to finance those assets can be spread across a pool of investors and therefore a larger amount of investment capital can be raised.

Who Sponsors Securitizations?
Banks, mortgage companies, finance companies, investment banks. It allows financial institutions or finance companies the ability to avoid the necessity of having to issue on-balance sheet debt or obtain a line of credit in order to originate new receivables.

Who Purchases Asset-Backed Securities?
Institutional investors such as pension funds, insurance companies, mutual funds, hedge funds, money managers and other financial institutions. ABS are not typically marketed to individual retail investors.

How Large Is the ABS Market?
Very. At the end of 2007 (the last major trading year) there were more than $7.0 trillion of both agency and non-agency mortgage-backed securities and nearly $2.5 trillion of asset-backed securities outstanding.

Investors Fueling Foreclosure Market

Oliver Wright Esq. — Tue, 31 May 2011 01:50:01 +0000

posted by Oliver Wright Esq.

Though housing starts are slow just when they should be heating up seasonally, the foreclosure market is performing better than the market for all other homes, according to today’s DS Newws story on the RPX Housing Market Report.

[pullquote]Investors believe they can purchase these properties at a significant discount to their future value…. Sellers in the rest of the market have not lowered their prices to levels where investors feel confident they can make an adequate return on their investment…[/pullquote]

Widespread negative equity is stifling demand since it discourages move-up buyers to sell their current homes, who are wary of making a down payment of 20 or 25 percent when home prices are still in danger of falling for next 1-2 years.

COLLATERAL DEFICIENCIES IN SEASONED RMBS POOLS

Oliver Wright Esq. — Sun, 29 May 2011 20:08:41 +0000

Many of the securitizations done this year were collateralized by legacy mortgages. Due to the seasoned nature of these loans, there were often various deficiencies, prior to securitization, with respect to the completeness of key mortgage documents, some of which may impede a lender’s ability to foreclose on a property. In an environment where foreclosure is being rigorously scrutinized, how to properly deal with collateral deficiencies becomes a crucial part of our analysis. In securitizations that DBRS has been asked to rate, we typically see collateral deficiencies related to missing assignments (or intervening assignments), endorsements, mortgages or deeds of trusts, notes and title policies. In some cases, documents may be available, but lack essential terms that can also be considered critical deficiencies. In most cases, however, where an original document is recorded, we have little concern regarding enforceability, as the foreclosing attorney can obtain a certified copy of the original recorded document from the applicable county recorder’s office.
Generally, DBRS views the lack of assignments as a greater concern than that of the others. An assignment (and an intervening assignment) is a document that shows the transfer or sale of a mortgage from the original creditor to a third party (and so on). A missing assignment may impair the creditor’s standing to foreclosure on the property as it fails to demonstrate an unbroken chain of title and therefore to the creditor may have difficulty proving that it lawfully owns the note and the mortgage. The security instrument, be it a mortgage or a deed of trust, is the official document that describes the lien of the lender on the property, and the rights and duties the borrower and the lender have vis-à-vis one another. The security instrument should always be recorded in order to ensure the lender’s lien is perfected and will have priority from subsequent liens on the property. The court in a foreclosure proceeding can take judicial notice of the security instrument, or if the court does not, the creditor can obtain a certified copy of the original document from the county recorder’s office, which should suffice as proof of the contents of the original mortgage or deed. The note and the endorsement are generally not needed to foreclose a property in deed of trust states. The note is the promise to pay from the borrower to the original creditor; the endorsement is the “signing over” of the note to subsequent assignees. In deed of trust states, the exercise of a power of sale under a deed of trust is generally exercisable without the note. However, courts in judicial foreclosure states may require the execution and delivery of the note, and the creditor may have to include a copy of the note with the complaint. Case law in various states has both allowed and denied the ability of a mortgagee by assignment to pursue a foreclosure in the absence of proof that either the mortgagee or its assignor ever had possession of a missing promissory note. Finally, states generally do not require a title policy to foreclose. However, a foreclosing attorney or other agent will run down title to make certain that every person entitled to notice receives it. Also, the title policy becomes relevant in case the current holder (assignee) of record of the insured mortgage wants to file a claim against the title insurance company with respect to a title defect covered by the policy. If the original policy cannot be located, the closing lawyer or settlement agent might have a copy in their files (or the title insurance agent that issued the original policy should have a record of the policy).
Notwithstanding the above, it is DBRS policy to request all (or substantially all) deficiencies to be remedied before securitization settlement. Exceptions may be made on a case-by-case basis with respect to minor deficiencies due to technical difficulties. For example, if the original mortgage note has been transferred to an attorney in preparation for foreclosure, and therefore cannot be sent to the custodian at closing, a bailee letter must be provided to DBRS to evidence such transfer. On certain exceptions, DBRS may ask a cash reserve fund to be established specifically for collateral exceptions, especially for weaker representations and warranties counterparties, in order to facilitate a timely resolution.

As Commercial Distress Real Estate Deals Scrape the Bottom, Trophy Assets in Major Markets Hang Tough

Oliver Wright Esq. — Thu, 26 May 2011 12:27:30 +0000

Though distressed deals pushed commercial real estate prices to new cycle lows and Moody’s agency property price index continues to scrape the bottom as high distressed transaction volume precludes recovery of overall market prices, trophy assets in major markets are hanging tough. According to commercial mortgage backed securities trading data released by Moody’s, this is consistent with liquidity in the commercial real estate sector first returning to prime assets in capital-attracting cities, said Moody’s director of CRE research, Tad Phillip.

Calculating a mortgage – Is it really important before taking out a mortgage loan.

Oliver Wright Esq. — Thu, 19 May 2011 10:28:40 +0000

Calculating a mortgage – Is it really important before taking out a mortgage loan

by Robert Steven

If you’re in the market for purchasing a new home, you must also be looking forward to taking out a home loan to finance your purchase. Before taking out a mortgage loan, it is imperative for the borrower to calculate a mortgage amount and check whether or not the loan amount is within his financial affordability. Nothing can be a worse financial decision than taking out a mortgage loan beyond your affordability as this may bar you from making timely repayments on your mortgage. Defaulting on your mortgage loan can have a serious impact on your house as it may be foreclosed by the company to recuperate the loss. Thus, it is mandatory to calculate the monthly mortgage payments before taking out a loan. Here are some reasons why you must determine the loan amount before taking the loan.

You will get a clear picture of the price range
Before we go to purchase any object we have a budget and we always try to stay within it. Similarly, if you calculate a mortgage amount, you will be able to know the price range within which you will get the loan. With the agreed up on down payment and the interest rate, it is always possible to see how your monthly payments change. Before taking out the loan amount, if you get an idea, it will be easier for you to negotiate with your lender.

You get to know how much loan you can afford
Calculating your affordability is very necessary for you before taking out a mortgage loan. As mentioned earlier, taking out a mortgage loan beyond your affordability is a wrong decision as you may struggle to pay off the monthly mortgage payments in the long run. By feeding in your monthly income and your net worth, you can easily calculate the loan affordability. By securing a loan within your means, you can easily make the monthly payments and satisfy your mortgage lenders.

You may know how small changes affect your payments
Taking out a mortgage loan totally depends on your present financial affordability and you may want to change your monthly payments according to your changing financial needs. All this can be tracked with the help of a mortgage calculator as you may be able to know how the small changes affect your monthly mortgage payment. You can change the loan term, make slight changes in the deposit amount or interest rate and see how it impacts your monthly payments.

Therefore, various things need to be considered before taking out a mortgage loan and this it is important for you to calculate a mortgage loan amount with the help of a mortgage calculator. You can get an online mortgage calculator from a reputable site and use it in determining all your important calculations.