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