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Last Friday I moderated a panel at the 11th Annual IMN Real Estate Opportunity and Private Investment Forum in New York.  The two-day event consisted of about 40 separate concurrent panels and drew over 800 industry participants.  The topics covered revolved around distressed debt investing – loan workouts, exit strategies, tranche warfare and distressed asset sales. 

My panel‘s topic was “Loan -To-Own” strategies.  Our conversation began with the panelists discussing the common characteristics of successful loan-to-own transactions.  The common areas of focus included the importance of stringent property-level due diligence, exacting legal due diligence with respect to loan documents, a realistic understanding of foreclosure processes and timeframes, accurate modeling of acquisition and stabilization costs, and the importance of the local expertise that can be gained from local developers and operators.Continue Reading Distressed Debt Conference

Last week marked the three-year anniversary of New Century Financial filing Chapter 11 bankruptcy, an event that I tend to point to as demarcating "the beginning of the end" and "the end" of the housing bubble, and representing the true beginning of the credit crisis.

Until first quarter 2007, New Century Financial stood as the second-largest US subprime residential mortgage lender (after Countrywide), having contributed significantly to the awe-inspiring $500-plus billion in subprime loans made in 2006. However, faced with a funding deficit when New Century’s lenders pulled back amid rising defaults on subprime loans, the company ceased lending operations in early March, 2007. The inevitable Chapter 11 filing followed quickly on April 2.Continue Reading Celebrating Three Years of Crisis

The Wall Street Journal and Bloomberg, among other outlets, reported last week that the Royal Bank of Scotland Group Plc is in the process of placing a multi-borrower securitization – the first such issuance to come to market since June 2008. Of course, RBS is facing several hurdles as it trailblazes once-familiar territory. The offering, variously reported to be between $300 and $500 million, would represent a significant tool for other banks in determining pricing for future multi-borrower deals. The offering will also serve as a measuring stick for investor demand in the post-TALF world.Continue Reading First Securitization Since 2008: No April Fooling

The changes to the REMIC rules (PDF) were intended, at least in part, to ease restrictions on servicers of securitized mortgage loans. However, while expanding the scope of permitted modifications, the new REMIC regulations also impose a requirement that the modified loan be re-tested to ensure the mortgage loan continues to be principally secured by real estate. This generally makes sense REMICs are intended to hold mortgage loans, and this new requirement presumably prevents a servicer from modifying the mortgage loan so as to be secured by other assets, such as credit-card receivables, cash or other non-real estate collateral.

The problem, however, is that the new regulations also require mortgage loans to be re-tested any time real property collateral is released (even if the release is explicitly contemplated by the loan documents). On troubled multi-property loans (with an LTV of less than 80%), this re-testing requirement potentially puts servicers between a rock and a hard place, forcing them to choose between entering into a prohibited modification (resulting in the imposition of potentially severe tax penalties) and incurring liability to borrower (and potentially, junior lenders) for failing to meet the obligations of the loan documents.Continue Reading New REMIC Rules Leave Servicers with Questions