Thursday, August 14, 2014

Sub-prime mortgage market rising again only worse, this time on loans on verge of foreclosure. US gov. HUD agency is major player. Many loans already in foreclosure, most haven't had a payment in 2 yrs.-NY Times Dealbook

8/13/14, "Delinquent-Mortgage Bonds Attracting Investors," NY Times Dealbook, Matthew Goldstein

"Rises in housing prices have been profitable to private equity firms and institutional investors that bought foreclosed homes to flip them or to rent them out. Now the recovery in housing is fueling a niche market for newly minted bonds that are backed by the most troubled mortgages of them all: those on homes on the verge of foreclosure.

And it is not just vulture hedge funds swooping in to try to profit from the last remnants of the housing crisis. The investors making money off these obscure bonds — none are rated by a major credit rating agency — include American mutual funds. And one of the biggest sellers of severely delinquent mortgages to investors is a United States government housing agency [HUD]....

So far this year, there have been 28 deals backed by $7 billion worth of nonperforming loans sold to investors, according to Intex Solutions, a structured finance cash-flow modeling firm. Last year, Intex said, there were 72 deals backed by $11.6 billion worth of nonperforming loans.

Regulatory records show that over the last two years mutual funds either offered or advised by firms like JPMorgan Chase, SEI Investments, Weitz Investments and Edward Jones have been buying unrated bonds with names like Bayview Opportunity Master Fund IIa Trust NPL, Kondaur Mortgage Asset Trust and Stanwich Mortgage Loan Trust NPL....

The catalyst for the emergence of this unusual market was a decision by the Housing and Urban Development Department to begin selling some of the most severely delinquent mortgages guaranteed by the Federal Housing Administration to avoid losses to United States taxpayers. Since 2010, HUD has sold 101,290 soured home loans with a combined unpaid balance of $17.6 billion in more than a dozen auctions, and more distressed sales are planned.

Recently, Freddie Mac, the giant mortgage finance firm that operates under government control, also got into the act when it sold $659 million worth of troubled mortgages. Banks are also sellers of nonperforming mortgages.
Institutional investors are especially drawn to the Housing and Urban Development auctions because these nonperforming loans, which are spread across the United States, can be purchased for between 60 cents and 70 cents on the dollar of the unpaid principal. The list of investment firms buying HUD loans includes firms affiliated of the Blackstone Group, Oaktree Capital Management, Lone Star Funds, Angelo Gordon & Company, the Kondaur Capital Corporation and Pretium Partners.

The most recent auction in June attracted bids from 27 institutional investors, about double the number of bidders for a similar auction of soured mortgages a year ago. The HUD loan sales have gained favor with some institutional investors that were buying foreclosed homes because there are now fewer good-quality properties to be had after a rush of distressed home buying.
The government housing agency has set up its loan sale program to encourage the private buyers to rework the mortgages and make them more affordable so the borrowers can start making payments again. But given that most of the borrowers have not made a single mortgage payment in two years, the agency has assumed that most of the loans will end up in foreclosure. In many cases, foreclosure proceedings were already well underway even before the mortgages were sold at auction.

The housing agency contends that even if a small percentage of the loans are reworked in a way that avoids a foreclosure or permits a borrower to gracefully exit a mortgage without being burdened with additional debt payments, it’s a good outcome.

Biniam Gebre, a general deputy assistant secretary at HUD, said, “While the primary objective of the note sale program is to minimize losses to F.H.A.’s insurance fund, and ultimately to taxpayers,” it was also providing “an opportunity for borrowers with no alternatives” to avoid foreclosure.

The agency, he added, has no problem with the private buyers finding ways “to securitize and bring private capital into the mortgage market” as long as it doesn’t detract from the program’s goals.

Before the end of the summer, the buyers of these HUD loans are supposed to file the first of several periodic reports outlining their ability to either rework the mortgages or foreclose on the properties. Representatives for several investment firms declined to discuss their performance figures before the reports are submitted to HUD.

Some firms that have sold bonds backed by nonperforming loans said they were also working on putting together securitizations of once-distressed loans that had been reworked or made to be “reperforming” in the parlance of Wall Street. Reperforming loans are ones in which the overall debt owed by the borrower has been reduced or the monthly payment cut to a level the homeowner can afford. Some of these reworked loans have been included in a number of the nonperforming loan deals as well.

But a review of some of the early pools of delinquent loans bought by the investment firms from HUD suggests that the percentage of reworked loans is likely to be small.

An analysis of 633 soured mortgages purchased by Kondaur Capital from HUD in June 2013 found that just over 20 percent were already in the foreclosure process at time of the sale. The analysis of local property records by RealtyTrac, a firm that monitors housing sales and foreclosures, also found that since the sale about 33 percent of the homes in that pool were subsequently sold, most likely either in a foreclosure, a short-sale or a deed in lieu of foreclosure — a transaction where a borrower essentially forfeits the rights to a property.

HUD’s bidding rules bar buyers from bringing a foreclosure action for at least six months after the auction process is completed. An official with Kondaur Capital, a firm based in Orange, Calif., declined to comment.
Still, rating agencies, which are largely reluctant to get involved in reviewing nonperforming loan deals, are gearing up to review bonds that are backed by reperforming mortgages. The thinking is that as the economy and housing markets continue to improve, the ability of delinquent homeowners to start making payments on a more affordable mortgage will rise.

In anticipation of a new wave of securitizations, Fitch Ratings just this week published a proposal for its criteria for rating mortgage securities backed by reperforming loans. It has asked players in the market to provide feedback on its proposal by mid-September.

The absence of a rating hasn’t been an obstacle to these deals so far,” said Michele Patterson, a senior director with Kroll Bond Rating Agency, which like Fitch has begun reviewing how it might rate reperforming mortgage deals. She said some “some issuers may be looking for a rating to diversify their investor base.”"


Commenter to NY Times article:


"David Chaney Los Angeles 6 hours ago

In San Francisco, the D.A. did a study of foreclosures. 91% of them had some illegal aspect to them - the promissory note was not owned by the foreclosing party, illegal fees had been used to trigger a foreclosure, (i.e. applying payments to illegal fees such as "inspection fees" or force placed insurance in the banks' -ahem- in-house insurance shysters - instead of the mortgage balance, as required by law, resulting in "default." (I got hit with monthly "inspection fees" when two of my banks decided to voluntarily stop accepting my court approved payments.)

The list goes on and on. Now, to add insult to injury, after how many billions in fines and agreements to "help" homeowners with such sweetheart (or to-vomit - deals, depending on your perspective such as modifying a loan for $1.00 less payment - and then getting to write off the total $800,000 due on the mortgage) as "helping" the homeowner.

HUD hopes these hedgies will do workouts? Yeah, just like "shaming" worked. Dear God if I read this one more time in Dealbook "investors chasing yield" - which simply means gamblers being greedy, unscrupulous, stupid, breaking or skirting the law - I may go mad. I devoutly hope when the music on these yield chasers stops (sounds so much like ambulance chasers) they are absolutely and completely ruined the same way so many families in this country have been ruined by banksters/hedgies/private equity with absolutely no accountability from Obama, Holder, Geithner, DOJ, SEC..."

Added: "You don't have to get on a plane to go to a third world country anymore," as Howie Carr says.


PS. Please excuse odd spacing between paragraphs. It's one of the ways my longtime google hackers express their dislike of free speech.


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