Courtesy Flickr Creative Commons user Chairman of the Joint Chiefs of Staff

Investcorp Real Estate Credit Fund has sold a $100 million first mortgage loan backed by the longterm Washington, D.C. headquarters of the U.S. Coast Guard. Investcorp Real Estate Credit Fund is the U.S.-based real estate arm of alternative investment manaer Investcorp.

The mortgage, which is due in 2014, was sold to the Talos Capital Limited for an undisclosed price. “Active portfolio management means that we are always looking for opportunities to meet our investment objectives,” Investcorp real estate co-head Jon Dracos said in a prepared statement. “We saw an opportunity to sell this mortgage at a strong profit given investors’ renewed interest in commercial real estate loans and the dearth of quality assets changing hands these days.”

Investcorp acquired the mortgage just 15 months ago in early 2009. Dracos said the company was fortunate to buy during the market downturn when forced selling by financial institutions depressed prices. However, the sale price for the deal was not revealed.

The Department of Homeland Security, within which the Coast Guard resides, says it may consolidate offices onto a new campus.

Investcorp has offices in New York, London and Bahrain. It has six lines of business: private equity, hedge funds, real estate, technology investment, Gulf growth capital and MENA mezzanine. It was founded in 1982.

Prudential Mortgage Capital Co. has long wanted to add Freddie Mac Program Plus capabilities to its quiver. A new strategic partnership with Johnson Capital makes that possible.

Prudential Johnson Apartment Capital Express will utilize Johnson Capital’s Program Plus affiliation to originate loans of $5 million and up in Arizona, California, Maryland, Washington, D.C., and Virginia. Johnson Capital also offers Freddie Mac Targeted Affordable Housing and Department of Housing and Urban Development programs, while Prudential contributes its Fannie Mae Delegated Underwriting & Servicing affiliation, Federal Housing Administration program, general account and other institutional investor business.

“We’ve wanted to get into that space for quite some time. We finally found the right partnership,” said David Twardock, president of Prudential Mortgage Capital, who noted that Johnson Capital was one of the first Pru Express lenders, dating back to the 1980s, resulting in a lot of trust and history between the two organizations.

The venture occurs within months of the 10-year anniversary of Prudential’s purchase of WMF Group Ltd., which launched it in the Fannie Mae DUS business, Twardock noted, and comes at a time when the multi-family sector is nearing bottom, the firm believes, with promise of a turnaround.

The venture will be headed by Dave Durning, who oversees agency business for Prudential, and Guy Johnson, who leads his namesake firm, and will utilize personnel from both firms. In fact, it is likely to lead to more hires, Twardock said, since the combination of the principal-oriented business and the intermediary opens doors for those with a background on one side that are interested in expanding into the other. Rather than work specifically for the venture, however, new individuals would work for one firm or the other.

Prudential Mortage Capital had $62.5 billion in assets under management and administration as of year-end 2009, with a similar-size loan servicing portfolio. In addition to investment banking services, Johnson Capital provides special servicing.

As of late February, the Obama Administration had not revealed any inclinations toward the direction it might take with revision of the government-sponsored entities. But a number of possibilities have been proposed by professors, pundits and others, providing plenty of fodder for consideration.

The greatest risks to the multi-family portion stem from a varying extent of understanding among policymakers regarding the historical success of the program and how it relates to the current situation.

David Cardwell, vice president of capital markets and technology for the National Multi Housing Council, harbors some doubts that Congress will authorize Fannie Mae and Freddie Mac to continue covering moderate-income as well as low-income housing. Narrowing the scope of coverage, Cardwell argued, would shut out too many would-be renters, thereby raising the cost of capital and therefore housing.  Cardwell is also worried that the slow economic recovery and continued high unemployment will result in further residential delinquencies, defaults and foreclosures this year, potentially overshadowing longer-term strong performance and influencing Congressional impressions of the GSEs’ success. 

On the other hand, Henry Liu, partner in the real estate practice at Morgan, Lewis & Bockius L.L.P., believes that Fannie and Freddie’s long and mostly positive track record will convince Congress to keep the multi-family portion of their businesses intact, but with the possibility that they may be separated or even split off from the single-family businesses. “They’re really the only competitive apartment lender in the market right now,” he observed. “You take out that market and there’s not much left that’s really viable for a lot of developers.”

Ed Padilla, CEO of NorthMarq Capital L.L.C., also believes the policymakers should focus on Fannie and Freddie’s strong history: “There (was) absolutely nothing wrong for a decade.”

For more on GSE reform, search for “Bumpy Rides,” the Legal & Regulatory story from the March 2010 issue of CPE.

Courtesy Flickr Creative Commons user NNECAPA

Delinquencies on mortgage loans for properties ranging from one to four units have fallen, according to a statement from the Mortgage Bankers Association.

The MBA’s National Delinquency Survey found that the rate fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter 2009. The survey also found that the delinquency rate had fallen 17 basis points from the third quarter of last year.

However, the non-seasonally adjusted delinquency rate went in the opposite direction, inching up 50 basis points from 9.94 percent in the third quarter of last year to 10.44 percent in the current quarter.

MBA chief economist Jay Brinkmann said that the news portends better economic times.

“We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007, continued with the meltdown of the California and Florida housing markets due to overbuilding and the weak loan underwriting that supported that overbuilding, and culminated with a recession that saw 8.5 million people lose their jobs,” Brinkmann said in the statement.

He added that a sizable drop in the 30-day delinquency rate is a “concrete sign that the end may be in sight”, since these delinquencies are historically a leading indicator of more serious delinquencies and eventual foreclosures. Thirty-day delinquencies fell by 16 basis points to 3.63 percent in the fourth quarter 2009 from 3.79 percent the previous quarter. Brinkmann said that only three times in the history of the MBA survey has the non-seasonally adjusted 30-day delinquency rate dropped between the third and fourth quarter.

“And never by this magnitude,” he added. “If the normal seasonal patterns hold for the first quarter, we should see an even steeper drop in the end of March data.”

According to the Mortgage Bankers Association’s forecast for 2010, the good news is that the recession is over; the bad news is that the country will continue to reel from the ramifications next year.

Plenty is in store for 2010. The report concludes that the nation will continue to experience economic growth through the end of 2009, and will begin a slowdown in the first half of next year. The climb in unemployment will persist, hitting 10.2 percent before it begins to moderate in the second half of the year. Additionally, fixed mortgage rates will average approximately 5 percent in the fourth quarter of this year, and rise to 5.6 percent one year later. As per the report, 2010 will bring $1.5 trillion in mortgage originations and, with the increase in mortgage rates, refinance originations will drop to $745 billion in 2010 from $1.245 trillion in 2009.

Recovery is on tap, but various factors prevent experts from pinpointing just when it will be felt. “One of the big questions regarding growth will be the behavior of consumers,” Jay Brinkmann, MBA’s chief economist and senior vice president for research and economics, said in a prepared statement. “Timing of the economic recovery is very much tied to the growth in consumer spending.”

Interest rates are the X-factor. “While the lack of inflation, high unemployment and excess capacity in the economy should hold interest rates down, there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve’s purchase of mortgage-backed securities,” Brinkmann noted. “No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries. The size of any resulting rate move will largely determine the size of the refinance market.”

Like moths to a flame, investors these days are forming around what some believe could be the biggest distressed debt sales market since the days of the U.S. savings and loan crisis, according to a recent Ernst & Young survey.

That’s what Oklahoma City-based loan sale advisor First Financial Network Inc. hopes will happen. The firm plans to sell $150 million in loan participations on behalf of the Federal Deposit Insurance Corporation (FDIC). The sale will include loan participations from four failed banks currently in FDIC Receivership.

First Financial Network will market and manage all facets of the sale to bid on Nov. 3. The performing and non-performing loan participations will be sold on an individual basis. The loans are secured primarily by commercial real estate.

Unlike the 1990s when the formation of the Resolution Trust Corporation (RTC) forced the sale of bad assets and quickly set market-clearing price levels, there are very few deals happening today other than one-off distressed sales, the government’s PPIP initiative has largely fallen on deaf ears, sellers are weighing their options, and a broad spectrum of buyers are simply waiting for the dam to burst and unleash a highly anticipated wave of deals, an Ernst & Young executive stated in the report.

About 47 percent of the respondents to the Ernst & Young survey believe that a significant increase in commercial mortgage defaults will begin before the end of the fourth quarter of this year but slightly more than 30 percent believe the market is already witnessing significant default activity. About one-fifth are looking to 2010 before major default pressure comes to bear on the market and distressed sales begin in earnest, according to the report.

A small majority – 53 percent – of respondents to the survey purchased distressed or nonperforming loans in the last 18 months with 47 percent inactive, according to the survey. Commercial whole loans are overwhelmingly the primary investment of choice for respondents with more than 45 percent eyeing the asset category, Ernst & Young reported. Residential and land loans were the next most popular categories, each selected by 18 percent of the respondents as being a preferable investment, followed by residential acquisition and development (A&D) and construction loans at 11 percent. Commercial and residential mortgage-backed securities (CMBS/RMBS) and loans backed by hotel assets each attracted less than 10 percent of respondents.

One reason why the current distressed market has the potential to play out differently than the RTC model is that Ernst & Young LLP expects a highly competitive market to exist from the outset of this era of distress. About 35 percent of those investors polled claim to have return requirements above 20 percent and an equal number actually are shooting for returns in the 10 to 15 percent range, according to the survey results.

For the Nov. 3 sale, First Financial Network will initiate a marketing campaign aimed at obtaining maximum value on the portfolio. The company will utilize its online Loan Trading Platform to provide financial institutions with immediate access to due diligence information and the opportunity to place bids.