Residential: What Drives Valuations of Re-Performing Residential Whole Loans?

What Drives Valuations of Re-Performing Residential Whole Loans?

Re-performing loans (RPLs) are defined as loans in which payments had previously ceased for at least three months but have been consistently made for the past 12-24 months. New buyers of RPLs and longtime holders of the assets continue to question how best to quantify the risks associated with loan performance and how that translates into pricing. Both investors continue to evaluate their prepayment, default and loss assumptions in the context of a tightening market over the past 18 months, particularly when portfolios have loans with such varied characteristics and performance history.

On June 28, MountainView Financial Solutions, a Situs company, will provide firsthand insights on these topics in a webinar: Re-Performing Residential Whole Loan Valuations – State of the Market, Valuation Issues and Approaches to Deferred Balances. The webinar’s presenters are Brian Dunn, Managing Director of Analytics on MountainView’s Whole Loan and Structured Finance Securities Valuation Team, and Mike Kelleher, Vice President of Business Development on the company’s Residential Whole Loan Transaction Advisory Team.

While the cash-flow driven valuation methodology for re-performing loans is similar to the methodology used for performing loans, Dunn states that the framework and approach for pricing RPLs need to be unique and factor in issues related to loan modifications. He says deferred balances are one of those issues they often discuss with clients, so deferred balances will be one of the webinar’s focus areas.

“Modifications come in all shapes and sizes, and analysts and investors continually ask how deferred balances are going to be monetized,” says Dunn. “Assigning a value to the deferred balances can be challenging and requires a number of considerations.”

The RPL market lacks the transparency found in other areas of the secondary market for mortgages. In the webinar, Kelleher will discuss recent trading activity and trends for RPLs, share MountainView’s thoughts on the influences of that activity, and give an outlook for the market.

“The RPL market has evolved significantly in the last 18 months, and careful portfolio construction can result in very significant changes in execution levels,” says Kelleher. “The differences in value from one portfolio of RPLs to the next can be very sizable, and understanding what drives the value of the underlying loans is critical to all market participants.”

Experienced investors and new participants in the market are encouraged to register for the webinar.

Why West Coast Home Prices Are Surging

Housing markets out west are on fire.

Prices are rising, supply is tight and competition among buyers is fierce. That’s all good news for homeowners. Not so much for buyers.

Home prices have risen faster than wages in many cities, creating affordability issues for buyers — especially first-timers.

“Everything from the Rocky Mountain states and west from there are doing much better than the rest of the country and it’s been like that quite consistently,” said Lawrence Yun, Chief Economist at the National Association of Realtors.

Seattle, Las Vegas and San Francisco are leading the way with annual double-digit home price gains in March, according to the latest S&P CoreLogic Case-Shiller Indices.

Nationwide, price rose 6.5% during that period.

During the peak years before the housing boom, it was the sunblet states that were dominating home price appreciation, noted David Biltzer of S&P Dow Jones Indices.

Read more: CNN Money

Beyond Millennials: Generation Z Buyers Are Poised To Upend the Housing Market

Real estate agent Benjamin Ulloa may have been one of the first home buyers of his generation. Two years ago, at age 17, he used his savings and a $9,000 loan from his parents to buy a three-bedroom fixer-upper in Hoquiam, WA, for $18,000. The young investor made some repairs and has been renting it out ever since.

“I’m OK with buying fixer-uppers, because I have the means to fix them up,” says Ulloa, who wanted to start building equity early and quickly. “I’m looking for the diamond in the rough that I can then turn into a beauty.”  

While Ulloa may be ahead of the curve, his attitude is pretty typical of Generation Z, the cohort of 65 million to 75 million young people who are expected to start buying homes en masse within five to 10 years, demographers say. (The Pew Research Institute defines Generation Z as those born in 1997 and beyond.) Following hot on the heels of millennials — currently the largest group of home buyers — these upcoming bargain-hunting, tech-loving, and real estate-savvy buyers are expected to be a force to be reckoned with as they compete for smaller, more affordable abodes in what may still be a tight housing market, real estate experts say.

Read more:

State Tells Florida Keys To Add Affordable Housing

Gov. Rick Scott and the Florida Cabinet rejected appeals from planners and environmentalists last week to halt a state plan to bypass the rigid growth limits of the Florida Keys and allow the construction of 1,300 new affordable housing units that planners say will make evacuation from a hurricane worse.

The Keys Affordable Workforce Housing Initiative is a program of the Department of Economic Opportunity that allows Monroe County and its growth-limited cities to build up to 300 additional housing units each to replace the thousands of mobile homes and single-family homes destroyed by Hurricane Irma.

Instead of updating the administrative code, a lengthy process that would have required public input, DEO proposed leapfrogging that process by requiring anyone who lives in the new housing to leave the island chain 48 hours before a storm — current law requires permanent residents to leave 24 hours before a storm. The agency said enforcement of that provision will be up to local governments.

But planners and environmentalists urged the governor and Cabinet to find an alternative to the idea or wait until they can be assured that the new housing units don’t strain the already difficult evacuation efforts along U.S. 1.

Read more: Miami Herald

Regulations Blamed for Nearly One-Third of Multifamily Development Costs

Government regulations are responsible for nearly one-third of all multifamily development costs, according to new research released by the National Association of Home Builders (NAHB) and the National Multifamily Housing Council (NMHC).

While the average price tag for regulatory expenses is 32.1 percent, that sum can reach as high as 42.6 percent for some developments. An average of 7 percent of regulatory costs come from the building code changes put into place over the last 10 years, while 5.9 percent is attributable to development requirements — including streets, sidewalks, parking, landscaping, and architectural design — and 4.2 percent of the costs come from non-refundable fees charged when site work begins. Although local governments generally have authority for approving the development and adopting building codes, increased layers of fees and regulations have been applied in recent years by state and federal government agencies.

“The home building industry is one of the most highly regulated industries, and the multifamily sector is particularly subject to these obligations,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “Housing affordability is a huge issue throughout the county, and this new research only further illustrates how the layers of excessive regulation translate into higher rents and reduced affordability for consumers.”

Read more: National Mortgage Professional

U.K. Housing Market Is Stuck in the Doldrums

The U.K. housing market stayed stuck in a rut in May as activity and prices remained broadly flat, according to the Royal Institution of Chartered Surveyors.

RICS’s gauge of prices came in at minus 3 last month, up from minus 7 in April but still consistent with no change in prices, the organization said in a report last week. While there was some cause for optimism, with a measure of new instructions turning positive for the first time in 27 months, forward-looking indexes suggested the market is unlikely to gain near-term impetus, RICS said.

London was once again the nation’s weak spot, although prices also dropped in the southeast and the previously solid southwest. The capital has been roiled by tax changes and the U.K.’s decision to quit the European Union, while years of rampant price gains have also stretched affordability, putting off potential buyers.

Read more: Bloomberg

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