Illustration by David ColeJuly 27 was a dark day for commercial mortgage-backed securities, or CMBS.
On that day, Goldman Sachs and Citigroup were set to begin selling a $1.5 billion batch of CMBS, secured in part by some New York City properties.
But at the last minute, Standard & Poor’s essentially put the kibosh on the deal. The rating agency said it had discovered a “glitch” in its methodology and would need more time to vouch for the worth of the mortgages at the heart of the bonds. Without the blessing of S & P, the deal died. And with that, the CMBS market — in which pools of real estate loans are bundled together and sold to investors — hit a major snag few had anticipated when the year began.
S & P’s move — along with wild stock market fluctuations, concerns about the debt crisis in Europe and the renewed round of economic problems — helped knock the wind out of the sails of the CMBS market and confirmed the industry’s worst fears of a slowdown. Many expected the CMBS market to quadruple in value from $13 billion in 2010 to $50 billion by the end of 2011, as investors started to regain faith in the strength of the commercial real estate market. Instead, they now expect CMBS issuances to be just $30 billion this year, which calls into question reports of the market’s recovery. [more]

A $1.5 billion commercial mortgage bond sale between Goldman Sachs and Citigroup has been scrapped, the companies said, because Standard & Poor’s would not rate the notes. According to Bloomberg News, the deal had been slated to close today but was delayed because S&P is reviewing its criteria for rating commercial mortgage-backed securities.

“Ratings are a condition precedent to closing and settlement,” Goldman Sachs and Citigroup said in the statement to Business Wire. “Standard & Poor’s had previously informed Goldman and Citi that they were prepared to rate” the transaction, they said.

The risk assessor explained the change in a separate statement.

S&P ’’is reviewing the application of our conduit/fusion CMBS criteria in relation to the calculation of debt service coverage ratios,” it said yesterday. [more]

U.S. banks are bickering over how to split the tab of a mortgage settlement, the Wall Street Journal reported, with Wells Fargo telling government officials it should pay less than Bank of America and JPMorgan Chase. The quarrel between the banks looks set to further delay the settlement relating to mortgage irregularities, with negotiations already having exceeded the mid-June deadline set by U.S. officials.

“As time goes on, banks will lose the PR battle,” said Paul Miller, a banking analyst at FBR Capital Markets, warning that investors will find the fighting off-putting. The terms of a settlement, he said, are less important than getting it done.

While all parties have agreed to a framework that would govern how banks meet their obligations once the deal is in place, including principal reductions on certain mortgages, forgiveness of second-lien loans, restitution to borrowers and dealing with foreclosure-related blight, the banks are still contesting tiny elements of the deal, the Journal said. [more]

As part of a new national strategy to deal with foreclosed and abandoned houses it can’t sell, Bank of America will donate 100 foreclosed houses in the Cleveland area for demolition in partnership with a local agency that manages blighted property, Bloomberg News reported. The bank is planning similar strategies in Detroit and Chicago, with more cities to come, it said.

Getting rid of repossessed properties is one of the biggest issues facing lenders nationally; in the U.S. 1.68 million  houses, or one in every 77, were in some stage of foreclosure as of June, Realty Trac said. If these properties were to flood the market, it would negatively affect prices and discourage buyers.

“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization, which works alongside lenders, government officials and homeowners to save vacant homes. [more]

Shares of real estate listings website Zillow.com have opened on the NASDAQ at $60 per share, technology blog TechCrunch.com reported, giving the company a $1.6 billion valuation. Zillow priced its initial public offering at $20 per share yesterday, after increasing the pricing of its IPO to $16 to $18 per share. The company raised $69 million in the offering.
Zillow is the third most visited real estate-related site in the U.S., according to Experian Hitwise, and received 5.36 percent of all real estate traffic in March, up 53 percent from March 2010. However, the company has been seeing losses in net income over the past three years, TechCrunch said.
In the three months ending March 31, Zillow generated revenue of $11.3 million, an increase of 111 percent from the same period in 2010. [more]

In a sign of Wall Street’s recovering interest in commercial property, banks such as Deutsche Bank AG, Goldman Sachs and JPMorgan Chase are weighing bids for parts of Anglo Irish Bank’s $9.5 billion U.S. real estate portfolio, according to the Wall Street Journal.
The portfolio, the largest to hit the market since the start of the recession, offers a relatively low risk opportunity to jump back into commercial property, the Journal said, as the majority of debt is concentrated in large cities such as New York, California and Chicago. There are around 250 properties in total.
“It’s the first foreign bank to sell its entire U.S. loan portfolio, and it will be a good test of the market,” said Robert Ivanhoe, head of the global real estate practice for the law firm Greenberg Traurig. [more]

U.S. regulators are barring certain law firms from assisting in eliminating foreclosure abuses, citing potential conflicts of interest, the Wall Street Journal reported.  In one case, the Federal Reserve rejected a GMAC mortgage proposal that Alabama-based attorney Bradley Cummings would assist with an independent, U.S.-mandated review of past home seizures, given that his firm had previously defended GMAC is a foreclosure-related lawsuit.
This is just the latest hurdle in a long-fought battle by U.S. bank regulators to have banks rectify shoddy foreclosure practices. [more]

America’s largest mortgage providers are nearing a deal with the Department of Justice and 50 state attorneys general to work out some “thorny” foreclosure issues, including robo-singing, the New York Post reported. A proposed settlement, scheduled to be announced in the next few weeks, could range as high as $60 billion and include provisions for principal reduction.

The agreement would form national and state funds for each of the states and settle most civil foreclosure claims against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Sources close to the action are wary of talks falling apart at the last moment as the state and bank representatives iron out small details, the Post said. [more]

Carver Federal Savings, the nation’s largest bank founded and run by African Americans, has avoided collapse by raising $55 million in new capital, Crain’s reported. The bank had recently moved into large commercial real estate lending, veering away from its tested strategy of lending to one- to four-family homes — the move backfired. Earlier this year, faltering under a load of delinquent real estate loans, the bank was ordered by regulators to raise additional cash.
The new investors include Goldman Sachs and Morgan Stanley, which have agreed to invest $15 million each, while Citigroup and Prudential Financial have agreed to put in $10 million, according to an announcement from Carver’s parent, Carver Bancorp. [more]

U.S. bank regulators have extended the deadline for 14 financial institutions to submit plans to rectify problems with home-foreclosure practices by 30 days, according to the Wall Street Journal. Instructions issued in April gave the institutions, including Bank of America, Wells Fargo and Citigroup, until mid-June to instigate plans after widespread problems with bank foreclosure processing operations became public last fall.
As per the instructions, the banks were required to hire independent consultants to evaluate all foreclosure proceedings from 2009 and 2010 to establish whether they improperly foreclosed on any homeowners. [more]