Residential Mortgage Finance

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This is all about the difficulty of taking the punch bowl away from a roaring good party. Over the past several weeks a number of major banks folded under enormous pressure from the US DOJ to settle fraud claims resulting from the sale of bonds prior to the financial crisis of 2008. The allegations here were that, as they have been in many many cases over the past several years, the banks knowingly sold bonds backed by crappy residential mortgage loans. Apparently, no one else had a clue that this stuff was crap! Who knew? These last suite of deals were relative bargains for the banks because, reportedly, the DOJ was highly motivated to get these deals done before Mr. Trump took the helm at the White House.

For some reason this calmed investors’ concerns.

I don’t get it.
Continue Reading Hey Guys, Let’s Sue a Financial Institution! Our Government at Play

I’d like everyone to go out and buy a copy of Professor Paul Mahoney’s slender new book, Wasting a Crisis – Why Securities Regulation Fails.  Paul is a brilliant guy.  Until this spring, he was the dean of the University of Virginia School of Law where he is the David and Mary Harrison Distinguished Professor of Law and the Arnold H. Leon Professor of Law, teaching securities laws.  This is a great book and an important read.  Paul argues cogently that:
Continue Reading Why Regulation Fails

We thought it would be useful to give a quick, interim update on the slow-motion train wreck that is our industry’s response to the upcoming effectiveness of the Risk Retention Rule.  For those of you who have been blessedly snoozing under a rock these past couple of years, the Risk Retention Rule becomes effective on Christmas Eve and applies to all transactions closed (priced?) after that date.  The Rule, to generalize a bit, requires the sponsor of a securitization to retain a 5% vertical or horizontal strip with the additional possibility of laying off some or all of that risk onto a qualified B piece buyer or a mortgage loan originator.  For more detail, please see our OnPoints, our risk retention briefing white papers and many, many back issues of this CrunchedCredit.

Here’s the headline in Muddville in May of 2017:

We As An Industry Are In Trouble. 

We as an industry don’t have a scalable solution to the problem.  We as an industry do not know what this will cost, who will pay for it, and to what extent this is an existential risk to CRE capital formation as it has been conducted for the past twenty-five years.Continue Reading Risk Retention: It’s the Fourth Quarter and the Home Team is Getting Glum

More than two years after the first single-family rental securitization, the single-family rental market continues to evolve and grow. The rise of single-family rentals reflects both a demographic shift among the American population and a reactionary change in consumer habits resulting from the financial crises. According to U.S. Census Bureau, the percentage of Americans that own homes has decreased from almost 70% in 2004, to 63.6% in the first quarter of 2016, the lowest percentage in over 25 years. Over 13% of Americans rent single-family homes – a 4% increase from before the crises, accounting for approximately 36% of all rental homes. The decline in homeownership and the increase in the percentage of Americans that rent single-family homes reflects several key demographic and economic changes:
Continue Reading A Contrarian View on the Single-Family Rental Market

MERSCORP, Inc. (“MERS”) has been under fire for years. We wrote about it a while back when residential mortgage borrowers challenged the ability of MERS to foreclose on mortgages it held on the theory that MERS, as a mere nominee to the lender, was not a real party in interest.  More recently, local recording offices have filed class action suits against MERS arguing that the MERS system prevented them from collecting fees supposedly required under state law.  Now there’s a sympathetic plaintiff!  In the past month, the Third Circuit and Fifth Circuit both rejected these arguments.
Continue Reading MERS: Better Than a Faster Horse

93850823-1As time goes by we start to get close to the first of two risk retention effective dates; December 24, 2015 for residential product and everything else looming December 24, 2016 (does anyone really think a Christmas Eve Effective Date was unintentional?  Bah, Humbug!).  More and more attention is now beginning to focus on the Risk Retention.  We are grappling with the Rule right now in our resi market, in the CLO space where reissuance is a common deal feature (bringing forward 2017 concerns to today’s deals) and in the Single Family Rental (SFR) space which, much like the coupling of a donkey and a horse, is an oddly structured mule of a deal where no one is certain when risk retention will apply.
Continue Reading Risk Retention – “How I Learned to Love Risk Retention and Live With It.” (Apologies to Stanley Kubrick)

Never a dull moment.  We at Crunched Credit are probably guilty of excess and perhaps myopic focus on our federal government and its regulatory apparatus; it is such a consistently reliable source of commentary and outrage.  So here’s one out of left field, but no less important for that. 
Continue Reading “First” Deeds of Trust now Second in Line?

We have previously written here on CrunchedCredit about Chinese banks lending in the U.S. With recent news that Chinese state-owned developer Greenland Group has agreed to purchase a 70% stake in Brooklyn’s Atlantic Yards development for $725 million, we have seen the first headline grabbing real estate acquisition of U.S. property by a Chinese investor. As the Chinese real estate market begins to cool, and the U.S. continues to be one of the few global real estate bright spots, it is unlikely that Atlantic Yards will be an isolated occurrence.Continue Reading Chinese Developer Makes Large Footprint in U.S.