“The registry won’t work unless major investors adopt it,” said Daniel McLaughlin, executive vice president and product division manager with MERS, speaking here at the Mortgage Bankers Association’s National Secondary Market Conference & Expo. “Industry investors will require the eNote registry.”

MERS eRegistry provides several quality controls, including reduction of mistakes, reduction in shipping errors and features quality controls that are built into the platform.

“Without a central registry to identify the sole controller and sole authoritative copy of the eNote you can’t have liquidity with best execution business. Every entity that creates an eNote has to register that eNote somewhere on a registry and those registries will be proprietary,” McLaughlin said. “What the MERS eNote Registry does is supplants the need for independent proprietary registries and relationships and allows the lender to originate a standard, uniform eNote, which has language in it that say ‘this eNote to be transferable, to be saleable must be registered on a single registry,’ and it names the MERS eRegistry as that registry,” he said.

Obstacles for using of the registry include title companies, warehouse lenders and end investors. Title companies have been resistant to the registry because of training issues, noted Paul Lueken, president of 1st Advantage Mortgage LLC, Lombard, Ill. Additionally, he said, there are legal issues.

“[While] you may have some legal issues come out of this, there is that thought out there about the validity of theses notes,” Lueken said. “They are 100 percent legal, and probably more secure than a paper document.”

A concern for the warehouse lender could be the float period. “I see some of the larger warehouse lending gravitating towards this. If I’m a warehouse lender I would see the float, they make money the longer it sits on the line, well, if a loan disperses on Wednesday, you can call the investor on Wednesday and say it’s [the loan] is here please buy it,” Lueken said. “I don’t know how it will change the industry. I’m hearing that they may be embracing this soon.”

MERS was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Its mission is to register every mortgage loan in the United States on the MERS System. MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded. MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies.
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“HELOCs were not able to be securitized using a [real estate mortgage investment conduit] structure as each additional draw was considered a new loan prior to the passing of the American Jobs Creation Act of 2004, which went into effect January 1,” said Andrea Murad, director at Fitch Ratings. “The Jobs Act addresses the revolving nature of a HELOC that allows borrowers to draw on their lines, after the loan has been securitized. HELOCs offer borrowers a cheaper means for home purchases, home improvement, to finance cars or tuition, or to pay off credit card debt.”

With more competition in the mortgage market and rising interest rates, lenders are looking for new opportunities to make HELOCs an attractive product, Murad wrote in Fitch’s Mortgage Principles and Interest. As home prices continue to appreciate, HELOCs can be an economical way for borrowers to access excess equity in their real estate without changing their first lien commitments. The result has been an increase in HELOC originations, with securitization volume also rising to $36.4 billion in 2004 from $6.0 billion in 2003.

HELOCs have been one of the most innovative RMBS asset classes in 2005 thus far, Murad said. Fitch has already rated two senior-subordinate HELOC transactions this year from Lehman ABS and Greenpoint Mortgage Funding, with more anticipated throughout 2005.

HELOCs generally are revolving consumer loans that have five- to 10-year draw periods, followed by either a balloon payment or a 10–20 year amortization term. During the draw period, borrowers generally make interest-only payments. The interest rate is indexed predominantly to the prime rate plus a margin ranging from minus 0.75 percent to more than 6.00 percent, depending on the borrower’s credit profile. Murad said as HELOC interest payments generally are tax deductible up to 100 percent loan-to-value ratio, they offer borrowers a cheaper means for home purchases, home improvement, to finance cars or tuition or to pay off credit card debt.

Prior to the passing of the Jobs Act, HELOCs could not be securitized using a REMIC structure, as each additional draw was considered a new loan. The Jobs Act addressed the revolving nature of a HELOC that allows borrowers to draw on their lines through changes in REMIC legislation.

Murad said Fitch expects the rising rate environment and an appreciating housing market, albeit at slower rates, to fuel an increase in HELOC originations as borrowers tap into their growing equity without refinancing their first lien obligations, locked in at historically low rates for most.

“Unlike in prior years, when HELOCs were held primarily in portfolio or securitized in owner trust structures with bond insurance, the passing of the Jobs Act has the potential to generate substantial increases in the senior-subordinate securitization volume for 2005,” Murad said.
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InvestorExpress enables electronic delivery of loans to investors. It automatically extracts committed loan data from the seller’s system, translates the loan data into the investor’s format of choice and securely delivers data for the investor to upload. 

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DocuLex, Winter Haven, Fla., announced release of DocuLex Goby Capture 2.4, incorporating optical mark recognition (OMR), OCR and two-dimensional bar coding for document profile capture and content indexing. Goby Capture allows “walk-up and scan” convenience with content indexing, archiving and document sharing/distribution capability. The program is ideal for use with DocuLex WebSearch, MS-explore or other document management system.

Goby Capture Profiler opens at the user’s desktop and is free to distribute among other desktops.

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Advectis Inc., Atlanta, announced the addition of BlitzDocs Web Services Developer’s Guide. The guide provides lenders, investors, quality control (QC) firms, due diligence providers, loan origination software (LOS) vendors and other third-party providers with an interface to the BlitzDocs platform. 

The Web services guide facilitates integration of mortgage loan data and associated documents by providing application-to-BlitzDocs communication.  Documents, such as the credit report, can be inserted automatically into the BlitzDocs e-folder, reducing steps in the process.

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C&S Marketing, Sacramento, Calif., unveiled an upgrade of its collateral risk scoring tool, HistoryPro. The upgrade enables customers to accelerate their loan processing workflow through a simplified report interface, resulting in faster query response times.

The HistoryPro proprietary risk assessment engine evaluates numerous elements to determine its industry pioneering F-score, including the relationship between foreclosures and price appreciation, the subject property sales price relative to the current appraisal or origination estimate, the origination value relative to the market, prior foreclosure(s) on the subject property and geographic conditions surrounding the subject property.  

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Del Mar Database, San Diego, released its Hosted Solution Suite, providing application service provider (ASP) access to its entire product line. The Hosted Solutions are designed for lenders requiring centralized data access for remote users, having limited IT resources, preferring lower upfront costs and seeking extremely rapid implementation.
 
The Hosted Solutions provide clients the option to lower upfront costs by eliminating the initial license fee, requiring only implementation and training costs to start service. It reduces demand on in-house IT resources and can work in a remote environment, reducing IT support needed for remote offices. Other mortgage banking applications, such as point-of-sale and document preparation solutions, can also be hosted by Del Mar Database.

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MRG Document Technologies, Dallas, announced that Glen Allen, Va.-based Saxon Capital Inc. selected MRG to provide customized loan closing documents. Saxon expects to complete its direct system-to-system interface with MRG in June, according to company officials. Saxon is a residential mortgage lender and servicer that manages a portfolio of mortgage assets.  The company currently originates and purchases loans in 49 states.  

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Associated Software Consultants Inc., Middleburgh Heights, Ohio, announced that Superior Mortgage Corp., Tuckerton, N.J., a residential mortgage lending company, purchased PowerSeller, ASC’s secondary marketing and risk management software. 

PowerSeller enables secondary marketing teams to manage risk using fallout analysis, trade management features and best execution and delivery pooling capabilities. 

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Portellus Inc., Irvine, Calif., announced that a key component of its Web-based loan origination system (LOS) is now available as a separate, stand-alone module. The Secondary Marketing Module enables lenders to manage loan pooling, commitments, trades and investor rejections by organizing them using a central repository that can filter for loans with common characteristics.

Key features include pipeline information displays, daily summaries, a planning calendar and loan searches. Once a pool of loans is committed, they can be exported to an Excel spreadsheet for investor review.

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The First American Corp., Santa Ana, Calif., announced availability of a new type of credit score specifically designed to address mortgage lender and investor needs to assess the credit risk of loan applicants with little or no traditional credit history. First American’s Anthem Score is designed to increase loan approval rates in under-served communities and narrow the gap between minority and non-minority homeownership rates. 

The first lender to implement Anthem Score is MassHousing, a Massachusetts public authority that provides affordable mortgage loans to low- and moderate-income homebuyers who are under-served by conventional lenders.

Generated from the credit information contained in an Anthem Report, First American’s nontraditional credit report, Anthem Score helps mortgage lenders address credit challenges these potential homebuyers face, while managing risk to the lender and the secondary market/investment community. 

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Quandis Inc., Laguna Hills, Calif., announced launch of www.HarshipAssist.com, a Web-based default-prevention application. The information is used by lenders to arrive at an alternative course of action to that of foreclosure.   

The program drives distressed borrowers to visit the Web site, create an account and provide detailed financial information that is captured and securely transported to the lender via an XML transport or PDF for internal review. Lenders can then evaluate and recommend a risk mitigation package to avoid foreclosure. 

Quandis expects to launch the site next month with three select lenders. 

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Kintera Inc., Kissimmee, Fla., and Renaissance Charitable Foundation, the largest independent trust administrator in the U.S., announced a strategic alliance. The alliance between will promote the availability of private labeled donor advised fund (DAF) programs within the financial services communities.
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The SEC rules affect all sponsors, issuers, servicers, trustees in public CMBS transactions and significant collateral contributors and subservicers. The rule is based on principles-based disclosure, and many of the provisions are described in relation to a standard of materiality for investors.

Commercial servicers need to prepare disclosure materials and standards during the next year to achieve compliance with the SEC, according to panelists Kathy Marquardt, chair of MBA’s CMBS Servicer Advisory Group and senior vice president at GMAC Commercial Holding Corp.; and Jennifer Williams, attorney advisor in the SEC office of rulemaking. They said there are “significant benefits” for developing industry standards around determinations for investor materiality. Parties to public transaction will need to meet substantial disclosure requirements as to their background, experience, performance and roles in the transaction.

According to Marquardt and Williams, servicers will need to:

• Identify master, special and other affiliated servicers, as well as unaffiliated servicers involved in greater than 10 percent of the pool assets, and

• Disclose information for unaffiliated servicers with greater than 20 percent of pool assets.

Information must include the experience, procedures, collection practices, billing practices, computer systems and backup, servicing defaults and outsourcing of data for unaffiliated servicers with more than 20 percent of pool assets. Dislcosure must include material non-compliance in other transactions, material changes in policies and procedures and financial condition of these unaffiliated servicers.

The annual servicer compliance statement, Form 10-K, provides an on-going report related to a specific transaction with 10 percent threshold in pool assets. It must contain any material non-compliance, incorporate Sarbanes-Oxley Section 302 certification and include submission of applicable compliance certificates.

In the on-going report, the servicing criteria at the platform level needs independent account attestation for five percent of the pool assets threshold.

MBA organized a call with the SEC and MBA members on March 1. The call focused on principles-based disclosure, a need for judgment by affected parties and the development of industry guidelines. The call clarified the transition period on the rule, provided a broad definition for a servicer and discussed the applicability of static pool data.
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“Short-term rate increases affecting variable-rate debt would only modestly reduce debt-service coverage ratios for rated REITs, which are unlikely to have ratings implications except for those companies whose debt-service coverage ratios are already at the low end of their respective rating category,” said Tara Innes, managing director with Fitch Ratings. “Mall REITs, however, are particularly vulnerable to rising rates as they have higher leverage and significant exposure to variable-rate debt.”

Fitch expects the effect of rising rates to be uneven, disproportionately affecting companies depending upon their variable-rate debt exposure and their laddered debt maturities, which is good news for those REITs who took advantage of the low interest rate environment by reducing a significant amount of their variable-rate debt exposure before rates began their ascent.

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The credit performance of U.S. commercial mortgage loans improved markedly in 2004, according to a report from Standard & Poor's Ratings Services, New York.

According to the study, "Defaults and Losses of Standard & Poor's Rated U.S. Commercial Mortgage Loans: Year-End 2004," among the 29,827 loans originated between 1993 and 2002 that were pooled for Standard & Poor's-rated CMBS issued in the U.S., there were only 306 additional defaults in 2004. This increase was 24 percent fewer than the 404 defaults in 2003.

"The 1995-1997 vintages continued to be the worst performers with cumulative default rates of 8.92 percent to 9.56 percent, an increase of between 81 and 128 basis points from year-end 2003," said Joseph Hu, research head of Standard & Poor's Global Real Estate Finance group and co-author of the study. "Holding seasoning constant, however, the 2000 vintage, now in its fifth year, continued to have the worse cumulative default rate at 6.12 percent. In contrast, the 2002 vintage with a third-year cumulative default rate of 0.96 percent outperformed its older vintage counterparts during their third-year seasoning."

The study also suggests that the credit performance of loans originated in 2003-2004 would be more resilient and perform more strongly than those of the 1993-2002 cohort. The evidence of cumulative default rates of the 1993-2002 vintages coupled with their overall loss severity in resolving defaulted loans provides valuable information to address one critical market issue on the adequacy of credit support levels of existing and new CMBS transactions.

"Credit support levels for new transactions have declined markedly because empirical default/loss studies have shown that past support levels were excessive," Hu said. "Going forward, as long as the loan underwriting standards remain stringent and disciplined, the significantly lowered support levels are expected to adequately protect investment-grade investors."

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SLS Investments, Beverly Hills, Calif., announced its formation. Bryan Shaffer, president and managing principal, said the company will pursue commercial properties with a value from $5 million to $150 million, focusing primarily on retail, medical and multifamily properties.

“We will be focusing on urban markets in the Western United States as well as Washington D.C., Chicago, Kansas City, New York, Tokyo and London,” Shaffer said.
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The Princeton office originated a nine-year loan for $35.147 million at 5.19 percent. The property, built in 1955, is 480-units in New Rochelle, N.Y., 16 miles north of Midtown Manhattan. The 10-building, mid-rise elevator apartment complex include amenities such as a laundry facility in each building (10 total), two playgrounds and one basketball court.

The Princeton office also originated $15.006 million for two sister properties, known as the Villages of Crowfield in Ladson, S.C. The loans for the Graduate’s Pointe Apartments and the University Park Apartments through Fannie Mae’s Convertible ARM loan product, which provides an option to convert to fixed without penalty. 

The seven-year term/30-year amortization loan carries a rate of 4.03 percent and 4.18 percent, respectively. Built between 1985 and 1986, both properties have duplexes and townhouses featuring two- and three-bedroom homes. Common amenities include two pools, two playgrounds, two tennis courts, and two fitness centers.

ARCS' Calabasas Hills office closed $2.849 million in supplemental financing for five Los Angeles area properties with a combined total of 261 units. The properties include: Canby Court, Hillside View, Joro Properties, La Vista Terrace and Park Merridy Apartments. The loans will be repaid over terms ranging from 71 months to 92 months at rates of 5.735 percent to 5.97 percent with amortizations over a 30-year period.

The ARCS’ San Francisco office originated a $5.25 million loan for the Oak Valley Apartments , a 109-unit property in Tulare, Calif. The 10-year term includes a 30-year amortization at an interest rate of 5.43 percent. Built in 1987, Oak Valley is a garden-style apartment complex featuring one and two story buildings. In addition, amenities include a single-story clubhouse, an exercise facility, lounge areas with restrooms, and a swimming pool. 

And, in Waxahachie, Texas, the ARCS’ Dallas office originated a $7.2 million loan for the 140-unit Indian Creek Apartments, with a nine-year term and 30-year amortization at a rate of 5.292 percent.
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Recognizing the need for training opportunities specifically related to regulatory compliance topics, CampusMBA created the Regulatory Compliance Training Series. This suite of self-study Web-based courses address current regulatory compliance topics that MBA members requested. Each course includes practice questions, definitions and links to important information to supplement the course materials and further facilitate the learning experience.

"Mortgage lenders are very concerned about ensuring that their employees have the most up to date compliance information in an effort to interact with customers in a correct and appropriate way. The Regulatory Compliance Training Series addresses this need by offering companies a one stop shop with the most recent information on compliance issues," said Dan Thoms, vice president of MBA education and business development. "This is a dynamic suite of courses that will be updated and revised as new legislation and amendments are enacted."

Many companies want to train their staff on federal regulatory compliance issues as well as their own stricter compliance guidelines, policies and procedures. In recognition of this need, CampusMBA will add a third customized lesson to the course. The corporate customization option is available, for an incremental consulting fee, to corporate customers participating in the e-Ticket, Branded Corporate University and/or Content Licensing programs.

With CampusMBA's sophisticated reporting procedures, companies can retain a log of student course completions to verify that all enrolled employees are trained on the appropriate compliance procedures.

Current topics covered by the Regulatory Compliance Training series include the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, privacy and the USA PATRIOT Act. In addition to the courses currently available for registration, additional courses are in development and will be available in early summer.

To individually enroll or learn more about any of these courses, call (800) 348-8653 or visit Web-Based Courses at www.campusmba.org. If your organization has more than 100 employees and is interested in corporate training solutions, contact Ken McInerney at (202) 997-5792.
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Peter Brereton, associate director of OFHEO, told participants here at the Mortgage Bankers Association’s National Secondary Market Convention and Expo that the new regulatory structure should strengthen the supervision of the GSEs and ensure their safety and soundness.

“Our ultimate goals should be to establish a new agency on a plain with other safety and soundness regulators and has the capacity to address these unique issues, in these unique times,” Brereton said.
 
Brereton outlined those principles of the new regulator as follows:

• It must be independent;
• It must be permanently funded outside the appropriations process;
• It should have power equal to other safety and soundness regulators;
• It should have full discretion in setting capital standards;
• Its overall mandate must be enhanced; and
• The legislation should build on progress already made.

Two bills in Congress are up for vote later this month. S.190, “Federal Enterprise Regulatory Reform Act of 2005,” would create an independent regulator to oversee the safety and soundness of the GSEs and give the new regulator the authority to close down a failing GSE and protect against a taxpayer bailout; greater discretion in raising capital standards to protect against GSE insolvency; approval power over new programs and activities proposed by a GSE; and end presidential appointments to the board of directors of Fannie Mae and Freddie Mac, and would require all Federal Home Loan Bank directors to be elected. That bill is sponsored by Sens. Chuck Hagel, R-Neb., John Sununu, R-N.H., and Elizabeth Dole, R-N.C.

In the House, H.R. 1461, the “Federal Housing Finance Reform Act of 2005," introduced by Reps. Richard Baker, R-La., and Michael Oxley, R-Ohio, is similar to S. 190, and includes MBA-backed language requiring the new regulator to clarify the boundary (the “bright line”) between the primary and secondary mortgage markets.

Joe Cwiklinski, staff director with the Senate Banking Subcommittee on Securities and Investment and legislative assistant to Hagel, said S. 190 tries to address the principles supported by OFHEO.

“When the GSE bill was introduced the bill in January we tried to address those six principles,” Cwiklinski said. “The core principals address receivership, capital standards, the ability to give the regulator the ability, discretion and flexibility to manage portfolios.”

Cwiklinski said he was optimistic about passage of a GSE reform bill. “I think we’re really close in terms of Congress getting the GSE bill this year,” he said. "There are a few issues that need to be worked out.”

One of those issues to be resolved is the size of the GSEs’ portfolios, said Adam Healy, legislative assistant to Sen. Tim Johnson, D-S.D.

“There is a division in the administration,” Healy said. “Some have proposed $100 to 200 billion cap on portfolios. Others want more flexibility for regulators more in line with what the other financial regulators have.”
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