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    SERVICER ADVANCES

    IS FORECLOSURE IN THE BEST INTEREST  OF THE INVESTORS? HELL NO

     

                   Before we begin with this analysis, let’s just make sure we have the rules straight. The Trustee, Master Servicer and Servicer have a duty to do what is in the best interest of the investors, right? 

     

                   In theory this is true, however in reality all of the participants who sold the investors all the garbage no longer have any financial benefits and are only left with the pain of the scheme they concocted.  Servicers now have billions out in advances for taxes and insurances. One example is Wilbur Ross, the vulture investor who purchased American Home’s servicing platform( “AHMSI”) out of the bankruptcy. He may just have shot himself in the foot this time.

    Friday, May 6th, 2011

    Fitch Ratings said Friday a new American Home Mortgage “servicer advance receivable transaction” failed to meet triple-A ratings criteria due to increased concerns over the regulatory landscape and liquidity risks created by longer foreclosure time lines.

    Fitch specifically made that statement about American Home Mortgage “AHM SART 2011-1″ transaction. American Home terminated the agreement with Fitch, the ratings agency said, after not getting the triple-A status. Fitch said it had a responsibility to publicized the development.

    According to Fitch Ratings, RMBS servicer advance receivable transactions “are comprised of a pool of receivables that loan servicers expect for advances made on delinquent loans. These usually include principle, interest, taxes, insurance, and property upkeep and maintenance.”

    The American Home Mortgage SART deal possesses characteristics more inline with mid-investment grade ratings, Fitch said.

     

     

                   A January 2008 article in Fortune Magazine asked if he had “Lost His Mind,” for investing in AMBAC the distressed insurer. 

     

    http://money.cnn.com/2008/01/25/news/newsmakers/boyd_ross.fortune/

     

     

     

    But I would like to focus on Servicer advances. 

    AH Mortgage Servicer Advance Revolving Trust 1, Advance – DBRS.com

    10 May 2011 Transaction Structure. American Home Mortgage Servicing, Inc. its four primary businesses: core servicing, special servicing,

    http://www.dbrs.com/research/239589/ah-mortgage-servicer-advance-revolving-trust-1-advance-receivable-backed-notes-series-2011-1-rating-report-series-2011-1.pdf – - CachedSimilar pages

     

    American Home Mortgage Servicing « HousingWire

    20 May 2011 American Home Mortgage Servicing issued $850 million of servicer advance notes and legal structure of the deal, support the gilt-edged ratings. ….American Home Mortgage Servicing Inc.’s increasing trend of loans in the reform doesn’t kill the mortgage servicing business in the revamp.

    http://www.housingwire.com/tag/american-home-mortgage-servicing – 88k – CachedSimilar pages

    Tweaks to PSAs could enable more short sales from MBS trusts: AHMSI

    Friday, May 20th, 2011

    An easy tweak to pooling and servicing agreements would allow short sales on defaulted mortgage notes in mortgage-backed securities trusts, according to a white paper distributed by American Home Mortgage Servicing.

    Short sales from MBS issues is the key to unlocking principal reduction modifications, according to the paper.

    Jordan Dorchuck, executive vice president and chief legal officer of the Texas-based mortgage servicing firm, said many PSAs prohibit servicers from selling loans out of trusts prior to liquidation through foreclosure. Dorchuck wrote the white paper with Jim Lockhart, vice chairman of WL Ross & Co., and Pete Mills, managing director of Mortgage Banking Initiatives Inc.

    The PSAs don’t authorize these distressed mortgage loan sales because loss of accounting sale treatment would have resulted in potentially financially costly results for the securitization sponsors, but a change in accounting rules last year no longer constrains servicers from selling distressed notes out of securitization trusts, the paper says.

    The authors said the Treasury Department and home loan industry need to consider principal reductions and increase the number of short sales on defaulted loans within MBS to lessen foreclosures and reinvigorate the market.

    Short sales “provide an additional tool to offer deeply distressed borrowers a last chance to avoid foreclosure.”

    The authors said millions of homeowners with loans that have been bundled as collateral for private-label, residential mortgage-backed securities aren’t able to get a modification for various reasons.

    Many borrowers don’t qualify for the federal government’s Home Affordable Modification Program or similar program because it would require a steep principal reduction that would result in the mod stressing or failing the net-present-value test.

    Also, a lot of contracts governing MBS include caps on the number of loans eligible for modification, prohibit certain loan mod options such as principal reduction, as well as banning the sale of notes from trusts, according to the authors.

    While there are a substantial number of homeowners underwater on their mortgage — where they owe more than the property is worth — servicers are reluctant “to reduce principal for fear of investor dissatisfaction and out of concern for moral hazard.”

    Dorchuck, Lockhart and Mills also said the massive volume of distressed properties interferes with servicers’ ability modify loans.

    “Removing these loans from securitization trusts at NPV positive prices, and allowing private sector distressed asset purchasers to compete for and acquire the loans, should provide a material benefit to borrowers by giving them the one last clear chance that HAMP was intended to provide, but appears unable to deliver to many homeowners,” they said.

    “From the MBS investor perspective, market prices of their securities already reflect large foreclosure losses. Short sales of mortgage loans should reduce those expected losses and achieve ‘finality,’ quickly. Hundreds of thousands of homeowners could potentially be helped with affordable loan modifications if they included responsible principal reduction components,” the paper said.

    The plan assumes that large bank servicers, which service approximately 60% to 70% of all outstanding residential mortgage loans, would look with favor on a plan allowing the sale of blocks of distressed loans out of MBS trusts. They’d get rid of their servicing responsibilities on those notes. After the sale, smaller, default management-oriented special servicers would be engaged by the new owners to handle these borrowers and assets, according to the white paper.

    There are roughly 4 million residential mortgages in some stage of default or already foreclosed on. Dorchuck and his co-authors cite a report from Amherst Securities in early October that states another 5 million to 7 million borrowers may enter the foreclosure process before the end of 2012.

    Meanwhile, servicers have modified about 634,000 loans for borrowers via HAMP and another 1.5 million received non-HAMP modifications through February.

    “Without changes, the volume of foreclosures will continue to outpace the number of loan modifications,” Dorchuck, Lockhart and Mills wrote in the white paper.

    Write to Jason Philyaw.

    Tags: American Home Mortgage Servicing, distressed properties, foreclosures, HAMP, Home Affordable Modification Program, home loans, MBS, Mortgage Banking Initiatives Inc., mortgages, PSA, RMBS, servicers, Treasury Department, WL Ross & Co.
    Posted in Servicing/Default, Top Stories | 2 Comments »

    American Home Mortgage issues $850 million of servicer advance notes

    Friday, May 13th, 2011

    American Home Mortgage Servicing issued $850 million of servicer advance notes recently after getting high ratings on the residential mortgage-backed securities from two ratings agencies.

    Standard & Poor’s assigned triple-A ratings to the $650 million senior tranches and triple-B ratings to the $200 million tranches. Last week, DBRS assigned provisional triple-A ratings to the senior notes, with triple-B ratings on the subordinate debt, as well.

    Analysts said the expected recovery rates for the underlying servicer advance receivables, liquidity sources, credit support, and legal structure of the deal, support the gilt-edged ratings.

    “The likelihood that the recoveries on the servicer advances together with the reserve fund, the overcollateralization, and the interest rate-cap proceeds will be sufficient under our triple-A and triple-B stresses,” Standard & Poor’s said.

    Deutsche Bank (DB: 45.80 -4.98%) led the private placement, which included a revolving pool of advances made on mostly subprime mortgages. The collateral for the notes comes from 157 RMBS trusts serviced by American Home Mortgage, according to published reports on the transaction.

    Fitch Ratings said the transaction failed to meet its triple-A criteria because of concerns regarding liquidity risks due to longer foreclosure timelines and the changing regulatory landscape.

    Fitch analysts determined the advance rates on receivables were too high to qualify for triple-A ratings. Also the reserve fund held enough to meet nine months of collections, which isn’t enough to satisfy the qualifications for the highest ratings, according to Fitch.

    Write to Jason Philyaw.

    Tags: American Home Mortgage Servicing, deutsche bank, RMBS, servicer advance notes
    Posted in Secondary Market/Investors, Top Stories | 1 Comment »

    New American Home Mortgage servicer deal falls short of Fitch ‘triple-A’ criteria

    Friday, May 6th, 2011

    Fitch Ratings said Friday a new American Home Mortgage “servicer advance receivable transaction” failed to meet triple-A ratings criteria due to increased concerns over the regulatory landscape and liquidity risks created by longer foreclosure time lines.

    Fitch specifically made that statement about American Home Mortgage “AHM SART 2011-1″ transaction. American Home terminated the agreement with Fitch, the ratings agency said, after not getting the triple-A status. Fitch said it had a responsibility to publicized the development.

    According to Fitch Ratings, RMBS servicer advance receivable transactions “are comprised of a pool of receivables that loan servicers expect for advances made on delinquent loans. These usually include principle, interest, taxes, insurance, and property upkeep and maintenance.”

    The American Home Mortgage SART deal possesses characteristics more inline with mid-investment grade ratings, Fitch said.

    Since December 2010, Fitch has used a more conservative methodology when dealing with servicer advance receivable transactions due to concerns over delayed foreclosures and an unpredictable regulatory landscape.

    After reviewing the AHM 2011-1 transaction, Fitch Ratings determined the advance rates on receivables were too high to qualify for triple-A ratings. In addition, the AHM deal only has a reserve fund to meet nine months of collections, which does not satisfy the qualifications for Triple-A status, according to Fitch Ratings.

    The failure to meet triple-A status on the SART transaction does not impact the positive news reported earlier in the week when Fitch Ratings assigned proficient and high performance ratings to various mortgage servicing segments operating under the umbrella of American Home Mortgage Servicing.

     

     

    Luminent Mortgage Trust 2007-2

     

    SEE EXHIBIT A– Page 1 and page 57 of the September 26, 2001 investor report.

     

    1.      The remaining loans in the trust are 1160 loans with a value of $357,226,082.44.

    2.      If all 1120 loans were modified to a 2% interest rate, 1, 320,300.77 would be available for distribution to the investors each month.

    3.      Over the life of the loans(remaining term of 26 years), the investors would receive $118,109,600.69.

    4.      Over the life of the loans, the total of all payments of principal and interest would be $475,335,600.69.

     

    AMORTIZATION CHART

     Mortgage Repayment Summary
    $1,320,300.77Monthly Payment   $475,335,600.69Total of 360 Payments
         
    $118,109,600.69Total Interest Paid   Sep, 2041Pay-off Date

     

    MONTHLY PASS THROUGH

     

    1.      The best interest of the investors is not met when loan liquidations result in losses and loan modification of only 2% would result in sufficient funds to pay the pass through rate. If loans were not liquidated the classes would suffer no losses.

    2.      The current pass through interest is $151,905.50 per month.  The amount that the remaining 1160 loans would generate if modified to 2% is $1,320,300.77 per month.

     

    LIFE OF THE LOAN TEST

    3.      The remaining certificate balance is $ 359,854,605.61 and the remaining amortization term of 26 years at 2% would result in a return of $475,335,600.69 for a gain of $115,480,995.

     

    CUSIPS

    5.      The INVESTMENT CLASSES (CUSIPS) are broken into 2 loan groups, GROUP 1 and GROUP 2.  Each class is further broken into senior “A” classes and subordinate “B” classes.

    6.      Class I-A-1, I-A-2, I-A-3, I-A-4, I-A-5 for Group 1 senior classes.

    7.      Class I-B-1, I-B-2, I-B-3, I-B-4, for Group 1 subordinate classes.

    8.      Class II-B-1, II-B-2, II-B-3, for Group 2 senior classes.

    9.      Class II-B-1, II-B-2, II-B-3, II-B-4, II-B-5, II-B-6, II-B-7, for Group 2 subordinate classes.

    10.  Class I-C-1, I-C-2 are overcollateralization classes for Group 1.

    11.  Class II-C-2 is overcollateralization for classes in Group 2.

    12.  I-P is prepayment penalty premium beneficiary related to Group 1 loans.

    13.  II-P is prepayment penalty premium beneficiary related to Group 2 loans.

    14.  R and RX are residual classes for excess interest spread after all classes are paid pass through.

     

    BEGINNING CERTIFICATE BALANCE

    1.      CUSIP group I-B-2, I-B-3, and I-B-4 invested -0- at inception, but would receive a share of the interest pass through.

    2.      CUSIP group II-A-3 invested -0- at inception, but would receive a share of the interest pass through.

    3.      CUSIP groups II-B-2, II-B-3, II-B-4, II-B-5, II-B-6, and II-B-7  invested -0- at inception, but would receive a share of the interest  pass through.

    4.      CUSIP group I-C-1 and I-C-1 invested -0- at inception and were created to hold the overcollateralization fund which consisted of excess interest to a predetermined amount.

    5.      CUSIP I-P and II-P invested –0- but would receive all proceeds from prepayment penalties collected from borrowers.

    6.      CUSIP classes R and RX would receive excess spread left over after investor pass through was paid.

     

    LOSSES

    GROUP I

    1.      CUSIP 55028EAF8 invested $6,319,974.37 principal in tranche I-B-1. This class is still viable to receive pass through if the trust was performing. The current pass through rate is only .700839%.  Losses are suffered due to loan liquidations in group I loans which then reduce the principal remaining balance of group I.

    2.      This investor will not receive any more interest if the borrower pays 10% or 2%. The pass through is tied to LIBOR ( current LIBOR)plus a small margin.

     

    GROUP II

    3.      CUSIP 55027WAB8 invested $11,252,266.01 principal in tranche II-A-2. This class is still viable to receive pass through if the trust was performing. The current pass through rate is only .48839%.  Losses are suffered due to loan liquidations in group II loans which then reduce the principal remaining balance of group II.

    4.      This investor will not receive any more interest if the borrower pays 10% or 2%. The pass through is tied to LIBOR ( current LIBOR)plus a small margin.

     

    AUDITOR CONCLUSION

    The best interest test of the investors is not met when loan liquidations result in loss of principal invested while loan modifications result in no losses and pass through over the life of the loan is well over the original principal invested.

     

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