Secondary Market

The nation's two largest mortgage companies have published forecasts lowering their projections for home sales and mortgage production, industry-wide. The economists at Fannie Mae are tempering public expectations for the housing market with a candid warning: the headwinds in housing have picked up. Freddie Mac's economic team slimmed down its projected numbers, but said the market has gained enough momentum to carry through the occasional setbacks.

The volume of commercial real estate assets with outstanding distress grew by $6.3 billion in June, but it was the smallest monthly increase since late 2008, according to the research firm Real Capital Analytics. While the slow-down in the growth rate can be attributed in part to the lack of large portfolios to fall into trouble during the month, the analysts at Real Capital say they are also seeing a marked increase in workout activity by lenders.

Christopher Kuehl was recently named SVP of mortgage investments at Bethesda, Maryland-based American Capital Agency Management, LLC, the external manager of American Capital Agency Corp. (AGNC), a REIT that invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. government agency. Kuehl joined American Capital from Freddie Mac, where he most recently served as VP, head of agency and nonagency mortgage investments.

Stabilization for commercial real estate has become increasingly dependent on the re-pricing and deleveraging of property positions, according to an industry report released by two research firms this week. They say the commercial real estate recovery is now less contingent on access to capital, given that liquidity has returned to many markets. In fact, it is in some cases scarily reminiscent of the pre-credit crisis environment, with equity sitting on the sidelines in abundance. And lenders, they say, have the ability to re-price assets at a level that will clear the market.

Mortgage borrowers with balances over $1 million are faring just as poorly, but not worse, than borrowers with lower balances, according to Moody's Investors Service. Based on the agency's data of securitized private-label mortgages, as of June 2010, mortgages originated from 2005 to 2008 are 60 or more days delinquent at the same rate, 28 percent, for both the average borrower and borrowers with million-dollar-plus mortgages. Moody's says the data also contradicts conventional wisdom that strategic defaults are more prevalent among rich borrowers.

The number of modifications on commercial real estate loans held in securities trusts has accelerated dramatically in 2010, according to Trepp LLC. So far in 2010, loan modifications have already surpassed the total number of mods done in 2008 and 2009 combined, Trepp reports. At this pace, 2010 modifications are set to triple those completed last year, and with servicers stepping up resolutions of troubled commercial loans, increases in delinquency numbers are beginning to moderate.

The FDIC has closed on a sale of securities as part of a securitization backed by approximately $471.3 million of performing single-family mortgages from 16 failed banks. This pilot program marks the first time the FDIC has sold assets in a securitization during the current financial crisis a method which could allow the federal agency to clear billions of dollars in seized loans from its books, while maximizing the value of these assets for the failed banks' creditors.

The two corporate names linked in recent weeks to high-profile settlements with the Securities and Exchange Commission (SEC) over questionable practices related to mortgage investments are teaming up to bring to market the year's third multi-borrower bond backed by commercial real estate. Goldman Sachs and Citigroup are putting together a $788.5 million commercial mortgage-backed security (CMBS) offering comprised of debt from 48 retail and office properties.

The Securities and Exchange Commission (SEC) on Thursday charged Citigroup Inc. with misleading investors about the company's exposure to subprime mortgage-related assets. The SEC also charged former CFO Gary Crittenden and Arthur Tildesley, Jr., currently the head of cross marketing at Citigroup, for their roles in causing the company to falsely state in an SEC filing that its subprime exposure was a quarter of what it really was in 2007, just as the mortgage market was rapidly deteriorating.

Though volume remains low on an absolute level, commercial and multifamily mortgage loan originations seem to be on the journey upward. According to the Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations released Wednesday by the Mortgage Bankers Association, second quarter 2010 commercial and multifamily mortgage loan originations inched up 1 percent from the same period last year and surged 35 percent from the first quarter of this year.