posted by : Yong Kim on January 26, 2012
I just came back from the ASF 2012 conference in Las Vegas. I have to admit, the first day (Sunday) was really all about football, but it was all business afterwards. Generally there seemed to be lot of activity and optimism this year (perhaps helped by the fact that the Giants are making another Super Bowl appearance). All the sessions appeared to be well attended, including the Wednesday morning sessions.
One session that was particularly of interest to me was on Securitization Data and Analytics Innovations. It was lead by Ned Meyers, SR. VP from Lewtan. On the panel were reps. from Bloomberg, Equifax, 1010Data, Morningstar, and LPS. Following are some highlights from the session:
- Equifax stated generally the biggest lift in the default models came from updated credit scores. I think this is little bit contrary to what Laurie Goodman has been touting which is that CLTV is the biggest determinant of default.
- Lewtan stated accurate property level valuations are critical for estimating losses. This may be obvious to those outside of the RMBS world, but identifying property level data has been unavailable until companies like us were able to figure out a way to match the data and is a fairly new best practice that is being adopted by more and more investors in this space.
- LPS stated that they definitely saw discounts on REO resales that helped estimate losses. Their method for estimating REO discounts is to use non-distressed HPI and compare against distress only sales.
- LPS stated according to their analysis the REO discount rate was generally the same across all geography. Our analysis, however, shows that there could be differences based on geography and is a function of market saturation.
- LPS displayed zip code level HPI heat maps of LA and NY with a simple message that MSA/CSA level HPI should not be trusted. It’s funny that these were the maps we were demonstrating two years ago. It’s good to see that our work is being validated by others as well.
- It appears that rating agencies are now taking a deeper interest in analyzing loan level and even property level data supporting the residential bonds that they are rating.
I would love to hear your impressions of the conference if you were able to attend.
posted by : Yong Kim on November 14, 2011
Lately there has been a lot of buzz around HARP 2, a restructure of Obama administration’s Home Affordable Refinance Program introduced in 2009 to help underwater homeowners with loans backed by Fannie and Freddie scheduled to roll out December 1. The version 1.0 results were underwhelming mainly due to the requirement limiting CLTV to below 125, among other restrictions. HARP 2.0 has many improved features such as a higher CLTV limit, lower origination fees and a couple of different loan term options which should benefit a lot more underwater home owners compared to HARP 1.0. In fact the benefits to the borrowers are clear and quantifiable. What is not so clear is the benefit to the servicer, which in my mind, may be the biggest stumbling block to success this time around.
For servicers, the primary incentive seems to be the waiver of lender liability – that they will not be on the hook for reps and warrants of the original loan if they successfully refinance the loan under this program. No doubt this is very appealing, but the benefits are very hard to quantify especially since the borrowers who qualify represent limited risk for buyback in the first place, since they must be current with no lates in the last 6 months with loans originated prior to June 2009 – essentially somewhat seasoned and performing loans. Consequently, it is hard to imagine servicers willing to hire more bodies to field a potential flood of phone calls and manage additional paperwork on top of all the short sales, foreclosures, and REOs that they are already struggling to work through. In fact, judging from the response from some of the servicers at the AmeriCatalyst Conference I attended in Austin, TX recently, my suspicion may be justified. Although official start date is December 1, based on the voluntary nature of the program, many servicers will be slow to initiate solicitation.
But contrary to the response from the larger servicers, we are receiving inquiries regarding identifying HARP 2 qualified borrowers from banks looking to grow their servicing portfolio and looking to acquire new deposit customers for cross-sell opportunities. In fact, we have already identified potential HARP 2 qualified borrowers from our nationwide database and are in talks with credit bureaus to potentially further enhance the list with respect to payment status. All in all, for some servicers HARP 2 may prove to be a very cost effective and profitable strategy for growing their customer base.