RATING ACTION COMMENTARY
Fitch Affirms PHH’s U.S. RMBS Master and Small Balance Commercial Servicer Ratings
Wed 28 Apr, 2021 – 5:33 PM ET
–U.S. commercial small balance primary servicer rating at ‘SBPS2-‘;
–U.S. commercial small balance special servicer rating at ‘SBSS2-‘;
–U.S. residential master servicer rating at ‘RMS3’.
The Rating Outlook is revised to Stable from Negative.
REPUBLISHED BY LIT: MAY 2, 2021
KEY RATING DRIVERS
PHH’s affirmation and Stable Outlook reflect the company’s diligent response to the coronavirus pandemic and its impact on servicing operations, effective enterprise-wide risk environment and compliance management framework, satisfactory loan servicing performance metrics, special servicing expertise, and efficient servicing technology.
The ratings also consider the financial condition of PHH’s parent, Ocwen Financial Corporation (OFC).
The company’s internal control environment includes a multi-layered enterprise risk management framework consisting of a three lines of defense approach to manage risk that consists of the business units and quality assurance and quality control on the first line, compliance and related areas on the second line, and internal audit on the third line.
Quality control reporting is robust, and internal audit results are satisfactory.
The company’s most recent Reg AB report and USAP statement did not contain any material findings.
PHH’s Small Balance Commercial (SBC) Loan Servicing division has a highly tenured management team with senior managers averaging 24 years of industry experience and 23 years of company tenure.
PHH’s commercial mortgage servicing operation is located in
Houston, TX,
West Palm Beach, FL and
Bangalore, India.
The commercial primary servicing operation provides support for SBC loans with collection calls, management of special requests related to assumption, partial release, lease reviews, Subordination Non-disturbance and attornment agreements (SNDA), watchlist management, reserve management, ordering and initial review of property inspections and valuations, reconciling annual business operating statements and invoice processing.
The commercial special servicing area performs collection efforts on delinquent accounts, loan workout analysis and processing, and foreclosure and bankruptcy case intake and tracking and REO management and disposition, which includes collecting and analyzing financial information on REO properties and processing work orders.
All of the global operations are wholly owned and operated by OFC.
In December of 2020, PHH onboarded a new client, a small balance commercial flow loan originator with an existing securitized portfolio serviced by PHH.
As of Dec. 31, 2020, the company was servicing a total of 1,648 small balance commercial loans representing an unpaid principal balance (UPB) of $531 million, a decrease from Dec. 31, 2019 totals of 1,757 loans representing $575 million.
The company is named as a primary servicer on 28 transactions consisting of 1,028 loans and named as a special servicer on 23 transactions consisting of 216 loans.
PHH’s residential master servicing operation was acquired from Residential Funding Corp in 2013 and has been located in the greater Los Angeles, CA, area since then;
however, as part of its restructuring and integration plan with PHH, the Glendale, CA, office has been closed and employees have been transitioned to the company’s other locations in West Palm Beach, FL and Bangalore, India with some employees working remotely.
The master servicing division consists of;
nine employees in West Palm Beach, FL,
seven in Bangalore, India,
and 16 virtual employees.
The company has more than 35 years of master servicing industry experience servicing non-agency RMBS transactions with an executive management team that has 25 years of relevant servicing experience and 10 years company tenure.
Master servicing consists of 31 full-time employees in securities administration, servicing oversight and loan operations.
Approximately 20% of master servicing functions are performed offshore.
The company uses the industry-standard SitusAMC SBO master servicing technology and is in the process of transitioning to the latest SBO.NET version in the third quarter of 2021.
As of Dec. 31, 2020, PHH master serviced over 87,000 loans totaling $10.4 billion, a decrease from 105,000 loans totaling $12.5 billion as of Dec. 31, 2019, encompassing loans in about 388 PLS transactions. (LIT: Thats just shy of a 20% drop).
The master servicing division provides oversight of 27 subservicers.
Fitch does not publicly rate PHH’s credit and financial strength.
However, Fitch’s financial institutions group reviewed PHH’s financial statements to provide an internal assessment, as a company’s financial condition is a component of Fitch’s servicer rating analysis.
Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating.
Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating.
For more information on Fitch’s residential servicer rating program, please see Fitch’s report “Criteria for Rating U.S. Residential and Small Balance Commercial Mortgage Service,” dated February 2017 and available at www.fitchratings.com.
Redlining: Goodwin Law Bankin’ On Corrupt Federal Judge(s) and They’ve Been Blessed in Illinois
AG Merrick Garland announced he would stop redlining. LIT told him the first case should be this one in Illinois. Here’s what happened next.
Can Rocket Mortgage Continue It’s Cavalier Growth In Current Economic Conditions?
Rocket generates most of its purchase loans from its partner channel, where it works with companies including Credit Karma and Salesforce.
Facing the Turncoats. An Incredible True Story Exclusively on LIT
The significant and distressing difference is the Burkes battle is not just with the opposing parties, but with the judicial machinery itself.
Ocwen Financial (OCN) Unit Completes ResCap Asset Acquisitions
FEB 19, 2013 | REPUBLISHED BY LIT: MAY 3, 2021
On February 15, 2013, Ocwen Loan Servicing, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ocwen Financial Corporation (NYSE: OCN), completed the acquisition of certain Purchased Assets (as described below) pursuant to an asset purchase agreement (the “Asset Purchase Agreement”) with Residential Capital, LLC, Residential Funding Company, LLC, GMAC Mortgage, LLC, Executive Trustee Services, LLC, ETS of Washington, Inc., EPRE LLC and the additional Sellers identified on Schedule A thereto (collectively, the “Sellers”) in connection with the Sellers’ proposed asset sale pursuant to a plan under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”).
Each of the Sellers is an indirect subsidiary of Ally Financial Inc.
Pursuant to the Asset Purchase Agreement, Ocwen purchased approximately $49.6 billion in “private label” mortgage servicing rights (“MSRs”), $19.2 billion in Freddie Mac MSRs, $38.5 billion in Ginnie Mae MSRs, $42.1 billion in master servicing MSRs, $25.9 billion in subservicing contracts, $1.5 billion of related servicing advance receivables, and related elements of the servicing platform for these MSRs and advances (collectively, the “Purchased Assets”), in each case as measured by unpaid principal balances as of December 31, 2012.
The aggregate purchase price for Purchased Assets, net of adjustments for assumed liabilities, was approximately $2.1 billion, subject to post-closing adjustments for the unpaid principal balance of the related Purchased Assets as of the date of closing and other customary post-closing adjustments.
In addition, until certain consents and court approvals are obtained, Ocwen will subservice approximately $9 billion in “private label” MSRs previously serviced by the Sellers. When such consents and approvals are obtained, Ocwen will purchase those MSRs as well.
The transactions described in the previous two paragraphs are referred to herein as the “Transaction.”
Ocwen deployed approximately $840 million of net additional capital, all in the form of additional term debt described in greater detail in item 2.03 below.
To finance the acquisition of the servicing advance receivables, Ocwen borrowed approximately $1.25 billion pursuant to three servicing advance facilities with Barclays Bank PLC, JPMorgan Chase Bank, N.A. and Bank of America, N.A.
The foregoing summary of the Asset Purchase Agreement is qualified in its entirety by reference to the Asset Purchase Agreement, which was filed with the Registrant’s November 8, 2012 Current Report on Form 8-K as Exhibit 2.1 and incorporated herein by reference.
The strange story of ResCap bankruptcy that may pit Goldman against the US government
JUN 12, 2013 | REPUBLISHED BY LIT: MAY 3, 2021
Here are some facts (in Q&A format) surrounding ResCap’s recent bankruptcy, a story that has become somewhat of an enigma even to many in the financial services industry. This story involves some of the biggest players in the distressed and CDS markets, namely Citi, Goldman, Berkshire, Barclays, and of course the US government.
1. What is ResCap?
Wikipedia: – GMAC ResCap (Residential Capital) is a financial service company that focuses on residential estate loans. It was part of GMAC which was then taken over by Ally Financial. Its corporate headquarters are in Minneapolis, Minnesota. Its subsidiaries include GMAC Mortgage and online home lender Ditech.
2. Who owns Ally Bank (Ally Financial)?
Ally used to be called GMAC – the finance subsidiary of General Motors (many who bought or leased a GM vehicle a few years back got their financing from GMAC). Since late 2008, Ally Financial has been majority-owned (74%) by the United States government. The owners have been trying to build the Ally brand with a fairly aggressive TV campaign (see video at the bottom).
3. Why did ResCap file for bankruptcy?
Basically the US government wants to sell Ally – as it should. But the highly leveraged ResCap subsidiary had made Ally an unattractive asset because of the fears that the bank may become responsible for ResCap’s debt. The US government decided to purge Ally of this perceived risk by putting ResCap into bankruptcy and walking away.
Wikipedia: – On May 15, 2012, Ally put the company into bankruptcy. ResCap posted a $402 million loss in 2011 and had missed a $20 million payment on unsecured debt on April 17, 2012. ResCap listed $10.9 billion in mortgages on December 31, 2012, after wiping $22 billion in mortgages off its books in 2009, 2010 and 2011. The company had booked a substantial number of subprime mortgages. The bankruptcy was seen as a step by Ally to exit the mortgage business to focus on its profitable auto loan and direct banking business.
4. Who owns ResCap debt?
ResCap bonds are widely held by numerous investors including many hedge funds. However Berkshire Hathaway (who said Berkshire is not a hedge fund?) until recently owned $500mm of the unsecured junior debt and $900mm of the 9.625% third-lien (secured) notes (40% of outstanding). Holding enough secured notes would allow Berkshire to prevent what’s called a “cram-down” on the unsecured notes. In a cram-down the unsecured holders would have to live with (often) harsh restructuring terms pushed through by the secured creditors. By holding enough secured notes, Berkshire would in effect “protect” their unsecured claim by blocking a harsh cram-down. At least that was the theory.
5. What did Ally contribute to the ResCap bankruptcy in order to try to walk away (what did Ally think it needs to do to pacify the ResCap creditors)?
Bloomberg: – Ally agreed to pay ResCap $750 million to settle any claims against the parent, buy as much as $1.6 billion of securities if others don’t, and provide $150 million to help finance ResCap’s operations during bankruptcy, according to a company statement.
6. Is Ally done? After this large commitment can the government-owned bank just walk away?
It’s not going to be as easy as the US government had hoped.
LCD: – In its own motion for discovery, the creditors’ committee identified at least 20 different transactions with Ally and its affiliates involving the purchase of assets and businesses from ResCap, or the extension of credit secured by ResCap’s assets. These transactions involved billions of dollars and sizable ongoing businesses, the most significant of which was Ally’s 2009 acquisition of ResCap’s ownership stake in IB Finance Holding Company, the direct holding company of Ally Bank.
7. What’s Berkshire’s involvement in this claim?
Apparently Berkshire was going to fight Ally (and the US Government) on this.
Bloomberg: – Ted Weschler, a Berkshire investment manager, … asked the judge overseeing ResCap’s bankruptcy in Manhattan to approve an examiner to investigate deals made before the company sought court protection, including transactions with its parent, Ally Financial Inc.
LCD: – This and other transactions may give rise to various potential claims that Ally harvested assets from ResCap before seeking a “quick and easy divorce through bankruptcy,” Berkshire said.
What is evident – abundantly so – is that the debtors’ plan fits neatly into Ally’s publicly stated goal of separating itself, once and for all, from ResCap,” Berkshire said. “Whether Ally’s agenda also happens to be in the best interest of ResCap and its creditors is another question, one that should be a focus of a searching inquiry.”
The claim here is that Ally stripped ResCap of some juicy assets at below-market prices via “affiliate transactions” prior to filing. That would be the equivalent of someone selling a piece of bank funded property to their uncle before walking away from the mortgage.
The bank would surely go after the uncle.
New post: Hank Greenberg of GT Law and Chief Judge Janet DiFiore’s Friendship Influences Foreclosure Cases https://t.co/s3wygYSg84
— LawsInTexas (@lawsintexasusa) May 1, 2021
7. Does such action indicate that Berkshire is going to hang in there and fight for a higher recovery on their unsecured notes?
Surprisingly Berkshire’s commitment to this fight that would potentially recover more on the unsecured notes was not as solid as people thought. The news came out last week that Berkshire dumped their $500mm of their unsecured notes. Some in the market wonder if the Obama administration gave Berkshire a call and asked them to walk away.
LCD: – Berkshire Hathaway dumped more than $500 million in unsecured bonds of Residential Capital, starting just hours after it filed a court motion seeking the appointment of an independent examiner in ResCap’s Chapter 11 proceedings, court filings show.
8. Who did Berkshire sell the notes to?
The exact details of the sale are unknown, but the market talk is that Berkshire sold at least a large part of their holdings to Citi.
9. What was Citi going to do with these notes?
This is where things become even more strange. Apparently Citi decided to deliver these notes into the ResCap CDS settlement auction. Remember the Greek bonds delivered into the Greek restructuring CDS auction? Welcome to the same type of auction but corporate credit style (a fairly common occurrence). Some speculate that Citi was long ResCap CDS protection. Dumping a big block of bonds would make the recovery lower and the payment on the CDS higher.
10. Who bought the ResCap bonds at the CDS auction?
It turns out that Goldman was on the other side of the trade. Being short the ResCap CDS (as many suspect it was), Goldman was interested in raising the recovery price because that would mean the bank didn’t have to pay as much on the CDS settlement. The reason Goldman believed the recovery was going to be higher had to do with Berkshire’s court filing (discussed above), complaining that Ally was stripping ResCap of good assets. Also Berkshire’s holding of the secured (3d lien) notes to protect the unsecured gave Goldman comfort that Berkshire will fight for higher recovery in the unsecured bonds. And that likely got the firm involved in the short CDS trade. If Berkshire is indeed expected to recover more on the unsecured, the CDS will have to pay out less. But when Berkshire dumped their bonds, Goldman got caught on the wrong side of the trade and had to bid on the bonds to defend their CDS position.
LCD: – But during the auction, there was a faceoff between two of the dealers, one delivering bonds and one that had a long thesis, according to sources. Those dealers were Goldman Sachs and Citi, sources said.
Goldman and Citi faced off during the CDS auction about the recovery of these unsecured bonds, because Citi came to market with a big block of the bonds – presumably Berkshire’s – while Goldman had a long thesis that gave them more recovery, using Berkshire’s own call for an examiner as support for the possibility that this allocation could somehow be renegotiated to get more recovery.
At the CDS auction, Citi offered $520 million of the bonds &or sale, and Goldman bid on $345 million of those…
11. What happened to the bonds?
Bloomberg: – Yesterday and today, those same bonds fell. The 6.5 percent bonds that matured on June 1 dropped more than 7 percent. The 6.5 percent bonds maturing next year fell 16 percent. And the 6.875 percent bonds fell almost 12 percent. All were selling for 17.6 cents on the dollar…
12. What was the auction recovery on the CDS?
LCD: – Heavy trading of ResCap 8.5% notes due 2013 began June 5, continuing through today, at between 17 and 21.5, according to trade data. The level is not surprising given that the credit-event auction held on Wednesday to settle CDS contracts referencing Residential Capital set a final price of 17.625 cents on the dollar…
New post: $9 Billion in Toxic Loans and Counting https://t.co/u1yZy1RajN
— LawsInTexas (@lawsintexasusa) April 30, 2021
13. Who benefited from this mess?
Why Berkshire decided to sell the bonds remains unclear (a call from the government to Buffett would certainly explain it), but the firm is obviously not interested in a prolonged fight for the unsecureds’ recovery. Berkshire may have taken a hit on its position. It is possible the firm hopes for a better recovery on their secured bond holdings. The cram-down is now far more likely as Berkshire no longer has the unsecured notes to defend.
It is also unclear if Citi made money on this transaction, although it looks like the bank (which coincidentally is also partially US government owned) was more in the loop than Goldman. GS is now stuck with the unsecured bonds (which it bought in the CDS auction) as part of the game of ResCap musical chairs.
14. How will ResCap operate in the mean time?
Barclays has arranged a DIP loan to the tune of $1.45 billion, which was well received in the market.
Reuters: – Barclays cut pricing on Residential Capital’s $1.45 billion debtor in possession (DIP) facilities amidst strong investor demand.
The DIP facility will be modified to consist of a $175-200 million revolver, a $1.05-1.075 billion term loan A-1, and a $200 million term loan A-2. The DIP facility previously pegged the revolver at $200 million and the term loan A-1 at $1.05 billion.
The revolver upfront fee has been raised to 200bp from 100bp. The proposed pricing on the revolver loan is now 375bp over Libor, down from 400bp over Libor, with a 75bp unused line fee unchanged.
15. What will happen to the unsecured claims?
The new bond holders, with Goldman being the largest, will try to prove in court that Ally (effectively the US government) needs to cough more money because of the bank’s affiliate transactions with ResCap.
It certainly would be politically easier for the US government to fight Goldman in court than to take on Berkshire. Goldman vs. the US government will make for an interesting court case to say the least.
Whatever the outcome, this story is far from over.
Wild West Hired Guns Misfire: PHH ONITY’s Cooked-Up n’ Cockamamie Arguments Implode
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All non-attorney pro se litigants must deliver or mail filings to the Clerk’s Office, as per SD TX Guidelines for Litigants Without Lawyers.
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GMAC, ResCap Complete $60 Billion Refinancing Deal
JUN 4, 2008 | REPUBLISHED BY LIT: MAY 3, 2021
GMAC LLC said early Wednesday afternoon that it had successfully arranged more than $60 billion in new and refinanced credit for ailing mortgage arm Residential Capital LLC, in a move designed to push the lender through ongoing mortgage market woes.
Touting the package as “one of the largest global refinancings ever completed,” more than 50 firms were involved in structuring or restructuring financing for both GMAC and ResCap, the companies said. Among the deals involved in the financial package, GMAC said it had agreed to provide a $3.5 billion two-year credit facility to ResCap, which includes $750 million of first loss protection from General Motors Corp. (GM) and majority investor Cerberus Capital Management, L.P. — that credit facility was seen by investors as critical to managing ResCap operations going forward, according to sources that spoke with Housing Wire earlier on Wednesday.
“I am extremely proud of our team’s achievement,” said GMAC CEO Alvaro G. de Molina. “Executing a transaction of this magnitude and complexity in such a challenging capital markets environment demonstrates the dedication of our people and the international banking community’s confidence in our company.”
The deal, somewhat surprisingly, also included $14 billion in private exchange and cash tender offers for outstanding debt.
ResCap said earlier on Wednesday (article below) that it had extended its original offer deadline amid tepid response from investors.
For many investors, the offers saw them exchange current notes for debt with longer maturities and higher interest rates — but at the cost of receiving less than the face value of their current investment.
ResCap had said in previous filings with the SEC that it expects to issue $5.7 billion in new notes under the program.
It also said in a separate filing with the Securities and Exchange Commission late Tuesday that both GMAC and Cerberus had agreed to provide roughly $2.4 billion in immediate cash funding to meet liquidity needs after a planned asset sale and hedging strategies at ResCap had failed.
“Cerberus is confident of GMAC’s future and is gratified by the support the company has received from the capital markets, as well as our continuing constructive partnership with GM,” said Steven Feinberg, CEO of Cerberus Capital.
Despite the refinancing, it’s yet possible that ResCap will continue to run into financial difficulties, sources told Housing Wire. GMAC risk chief Sam Ramsey suggested otherwise.
“This refinancing is expected to provide GMAC and ResCap with the important liquidity and financial resources to execute our business plan,” he said.
Why are all the Chief Judges taking extreme interest in 2021 in Foreclosure cases? LIT suggests with the tsunami of anticipated new foreclosures the judiciary is tightening their nooses on homeowners rights for the Bankers. We’ll show you why as we continue to educate and inform. pic.twitter.com/t4I5vGgMTX
— LawsInTexas (@lawsintexasusa) May 1, 2021
As ResCap’s Woes Continue, GMAC and Cerberus Provide $2 Billion Rescue
JUN 4, 2008 | REPUBLISHED BY LIT: MAY 3, 2021
Troubled Residential Capital LLC, the mortgage lending unit of GMAC LLC, said in a regulatory filing with the Securities and Exchange Commission Tuesday that it needs roughly $2 billion in cash before the end of June to stay in business — a number more than three times the company’s earlier estimates.
Previously, the company had said it needed roughly $600 million to satisfy its short-term liquidity needs.
The troubled lender cited numerous “adverse conditions” behind its latest cash needs, saying that a plan to sell $1.3 billion in assets collapsed and that “adverse movement of hedge collateral” had hurt the company’s financial position.
The disclosure makes ResCap the latest financial firm to see its hedging strategies head south — Lehman Brothers Holdings Inc. (LEH: 0.00 N/A) has been facing speculation of similar problems, as well.
News of a cash crunch anew at the former subprime lending giant sent both GMAC and investor parent Cerberus Capital Management, L.P., which controls 51 percent of GMAC, scrambling to shore up the firm’s weakening cash position — to the tune of nearly $3 billion, including the short-term capital the lender said is needed to keep the doors open.
To help with cash needs, ResCap said in its SEC filing that it would draw $450 million this week from an amended credit facility provided to it by GMAC and secured by some of the company’s mortgage servicing rights; GMAC recently increased its available credit under that facility from $750 million to $1.2 billion, Rescap said.
GMAC will also pump an additional $750 million to ResCap after agreeing to purchase RFC’s resort-finance business and buying the company’s mortgage servicing receivables.
For its part, Cerberus will provide roughly $1.2 billion in additional capital, after agreeing to buy ResCap’s model-home assets as well as serving as backstop for an “orderly sale” of the company’s performing and non-performing mortgages and associated mortgage-backed securities.
Debt offer flounders
ResCap said early Wednesday morning that it had extended a deadline for investors to exchange $14 billion in existing notes, so that the firm can ostensibly avoid heading for the bankruptcy heap; not encouraging, however, has been investors’ lackluster response to the offer, which for many would see them exchange current notes for debt with longer maturities and higher interest rates — but at the cost of receiving less than the face value of their current investment.
The company said Wednesday that approximately 80 percent of notes expiring this year and next had been tendered as of Tuesday evening; investors with longer maturities have been less receptive to the offer, however, with the lender disclosing that only 63 percent of notes with a maturity later than 2010 had been tendered.
Those numbers were little changed from levels reported in a separate SEC filing last month.
The fly in the ointment, HW’s sources say, is a proposed $3.5 billion senior secured credit facility that ResCap is attempting to secure from parent GMAC — the SEC filing said that ResCap is still “in negotiations” on the facility. Without it, sources suggested, ResCap faces an uncertain future.
“Investors are playing wait-and-see,” one source told Housing Wire Wednesday, a senior executive for a large private equity firm that asked not to be identified. That source suggested that the moves by Cerberus and GMAC signal that neither will likely let the troubled lender fall into bankruptcy, although a restructuring was likely in the offing in the very near future.
ResCap has been a drag on GMAC’s earnings for well over a year, and posted a $859 million loss during the first quarter.
