the subprime market: looking to the future

Transcription

THE SUBPRIME MARKET:
LOOKING TO THE FUTURE
June 20, 2007
10 am - 12 pm
Arent Fox LLP
1675 Broadway, 34th Floor
New York, New York
AGENDA
THE SUBPRIME MARKET: LOOKING TO THE FUTURE
WEDNESDAY, JUNE 20, 2007
10:00
Introduction
Hunter Carter, Partner, Arent Fox LLP
10:05
Keynote Speaker: Douglas Duncan
SVP and Chief Economist, Mortgage Bankers Association
10:30 -
Panel I:
11:15 The Impact on Business: A Legislative and Litigation
Assessment of the Challenges Facing the Subprime Market
James Anderson, VP of Government and Community Affairs,
ACC Capital Holdings
Lisa Rice, Vice President, National Fair Housing Alliance
Gary Tepper, Partner, Arent Fox LLP
11:15 - Panel II:
12:00 Opportunities and Challenges in the Subprime Industry:
Bankruptcy and Non-Bankruptcy Restructuring
Mark Adelson, Managing Director, Nomura Securities International
Schuyler Carroll, Partner, Arent Fox LLP
William Nolan, Senior Managing Director, FTI Consulting
12:00
Lunch
O
Dear Conference Participants:
Welcome to Arent Fox LLP and to our program, “The Subprime Market: Looking to
the Future.” We are thrilled to have you join us today. We believe that you will find the
members of our two panels, and our keynote speaker, to be highly informative on the
range of issues that face investors, lenders and others involved in the subprime
residential mortgage lending and securitization markets.
We are very fortunate to have as our keynote speaker the Chief Economist of the
Mortgage Bankers Association, Doug Duncan. Doug will address the roots, the
economic realities and the likely future direction of the subprime loan and securities
market problems.
Our first panel will discuss "The Impact on Business: A Legislative and Litigation
Assessment of the Challenges Facing the Subprime Market." This panel will be
chaired by Arent Fox partner Gary Tepper, a litigator with decades of experience in
mortgage lending litigation, including predatory lending and subprime lender fraud.
Joining Gary are panelists James Anderson, Vice President and Counsel,
Government & Community Affairs, of ACC Capital Holdings, Inc. (the parent of
subprime lenders Ameriquest Mortgage Company, Argent Mortgage Company and
AMC Mortgage Services), and Lisa Rice, Vice President, National Fair Housing
Alliance. The discussion will focus upon the legislative, regulatory and litigation
environment.
The second panel will explore "Opportunities and Challenges in the Subprime
Industry: Bankruptcy and Non-Bankruptcy Restructuring." Chaired by Arent Fox
partner Schuyler Carroll, an experienced bankruptcy attorney, the panel includes
Mark Adelson, an analyst at Nomura Securities International, and William Nolan of
FTI Consulting, a financial adviser and a participant in four of the five subprime lender
bankruptcies. This panel will address the lenders that are currently in bankruptcy,
their issues and potential outcomes, and the players in the market that stand to
benefit -- and to lose -- from present and future cases, as well as non-bankruptcy
transactional opportunities and strategies.
Afterward, we invite you to join us for a delicious lunch.
Warmly,
Hunter T. Carter
Moderator
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SPEAKER BIOGRAPHIES
DOUGLAS G. DUNCAN
SENIOR VICE PRESIDENT/CHIEF ECONOMIST
Douglas G. Duncan is Senior Vice President/Chief Economist at the Mortgage Bankers
Association (MBA). As leader of MBA’s Research and Business Development Group, Duncan is
responsible for providing economic and policy analysis services in the areas of real estate finance,
legislative and regulatory proposals and industry trends for MBA and its members. He also
oversees the Education products and services of the Association as well as its Industry
Technology committees and standards efforts. He has oversight responsibility for the Research
Institute for Housing America, the Mortgage Industry Standards Maintenance Organization, the
Secure Identity Standards Accreditation Corporation, and Lenders Technology Corporation.
Since joining MBA in 1992, Duncan has served as director and senior director of MBA’s research
group. During his tenure in these positions, Duncan broadened and deepened MBA’s
understanding of mortgage market and mortgage company data for purposes of policy analysis
and industry economic analysis including company performance benchmarking. Duncan also
oversees mortgage industry technology initiatives and standards development including the
development of data standards, electronic mortgages and secured electronic transactions
technology.
Prior to joining MBA, Duncan, served as a LEGIS fellow with the U.S. House of Representatives
Committee on Banking, Finance, and Urban Affairs. Duncan received his doctorate from Texas
A&M University, B.S. and M.S. degrees from North Dakota State University, and A.A. from
Fergus Falls Community College.
M ARK H. A DELSON
Managing Director – Head of Structured Finance Research
Nomura Securities International
2 World Financial Center
New York, NY 10281
phone: (212) 667-2337
fax: (646) 587-8837
cell phone: (917) 882-0155
e-mail: [email protected]
Mark Adelson is a managing director and head of structured finance
research at Nomura Securities International in New York. He joined Nomura in
February 2001. Since joining the firm, he has published articles on a wide
variety of securitization topics and has worked closely with other members of
the fixed income division toward enhancing Nomura's securitization activities.
Before coming to Nomura, Adelson worked at Moody's Investors Service
for 9½ years. From 1995 through January 2001 Adelson was a managing
director in Moody's structured finance group and, at various times, headed or
co-headed Moody's ABS, MBS, and ABCP teams. Adelson joined Moody's in
1991 as a senior analyst in the asset-backed commercial paper area. He
authored numerous special reports on securitization subjects during his years at
Moody's.
Before joining Moody's, Adelson practiced law for six years at the firm of
Thacher Proffitt & Wood, where he worked on mortgage-backed securities
transactions and related regulatory matters. Adelson is a member of the New
York bar. He holds a JD from the University of Michigan (1985 cum laude) and
an AB in economics from Princeton University (1982 magna cum laude).
James L. Anderson
Vice President & Counsel, Government & Community Affairs
Mr. Anderson joined ACC Capital Holdings (ACC) in 2003 and manages the company’s
Washington, D.C. Office. He is responsible for analyzing and providing counsel on
legislative and regulatory matters that pertain to ACC’s subsidiaries, Ameriquest
Mortgage Company, Argent Mortgage Company and AMC Mortgage Services. He
meets regularly with various Federal and state agencies and elected officials to discuss
ACC business practices, products, and other matters as they pertain to the mortgage
industry.
Mr. Anderson assisted and participated in the negotiation, drafting and review of the
$325 million Multi-state Settlement Agreement between ACC’s subsidiary, Ameriquest
Mortgage Company, and 49 State Attorneys General. He also manages and implements
ACC’s community relations functions.
Before joining Ameriquest, Mr. Anderson was an attorney with the U.S. Department of
Justice (DOJ) where he specialized in banking, government contracts, and international
trade cases. Prior to joining DOJ, he practiced law as a staff attorney with the U.S.
Department of Housing and Urban Development and with the U.S. Commodity Futures
Trading Commission, where he specialized in FHA, fair housing, and fraud cases.
Mr. Anderson received a B.A. in Mathematics and African-American Studies in 1992
from Washington University in St. Louis. In 1995, he obtained a J.D. from George
Washington University in Washington, DC.
Schuyler G. Carroll
Partner
New York
212.484.3955
[email protected]
Bankruptcy
Financial Restructuring
Bankruptcy Litigation
Practice Areas
Schuyler Carroll is a partner in the Bankruptcy and Financial Restructuring Group.
Schuyler’s practice focuses on complex restructuring, transaction, litigation and advisory
work, in which he uses his experience to develop solutions that will protect or maximize
his client’s position. He has represented a wide variety of debtors, committees, creditors,
bondholders, indenture trustees, trustees, landlords, investors and purchasers in Chapter
11 and 7 bankruptcy proceedings, out of court workouts and non-judicial reorganizations
and restructurings in such industries as financial services, real estate, health care,
manufacturing, e commerce, technology and telecommunication and resort, hotel and
hospitality.
Client Work
Schuyler has often succeeded in devising unique solutions to complex bankruptcy
reorganization and liquidation matters, including the following:
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•
Schuyler represents the Creditors’ Committee in the Chapter 11 cases of Impath Inc.,
et al. in which all unsecured creditors were paid in full, plus interest, in cash before a
plan of reorganization was confirmed or a disclosure statement was approved. In this
unprecedented case, he was successful in devising a unique solution to a complex
case, which allowed his clients to be paid long before other parties.
•
In representing the Creditors’ Committee in the liquidating Chapter 11 case of Metiom
Inc., Schuyler was successful first, in defeating an expensive and ill-conceived KERP
motion and, later, in ousting management and transferring control of the liquidation to
the committee. He then guided the committee’s use of a combination of preference,
fraudulent transfer and state law breach of contract remedies against one of the
world’s largest software manufacturers to obtain the withdrawal of its claim, which
dwarfed the total of all other claims. The committee’s efforts resulted in the reduction
of the total claims against the estate to only 8 percent of the total originally filed.
Schuyler also prevailed at the summary judgment stage in litigation before the
Bankruptcy Court against the Debtor’s former CEO on a promissory note and
substantial alleged offsets and counter-claims. Although several significant obstacles
remain before this case will be concluded, creditors recently received a significant
second distribution and additional distributions are expected.
•
After the board of TruMarkets Inc., a start-up that ran out of money and accumulated
substantial debt before bringing its bond trading software platform to market, voted to
file a Chapter 7 liquidation, Schuyler was asked to represent the company. After
persuading the board to seek a strategic purchaser rather than pursue liquidation, he
was successful in completing a multimillion-dollar sale transaction with a joint venture
formed by Lehman Brothers, CSFB, Salomon Brothers and Bear Stearns. He was
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also successful in obtaining dismissal of an involuntary petition filed against the
company by several dissident creditors, permitting payment in full to nearly all
creditors and permitting equity to retain a substantial percentage of the new joint
venture.
•
In an out-of-court restructuring of a large Long Island City jewelry manufacturer,
Schuyler was successful in taking the company from the brink of bankruptcy through
two refinancings and restructures, to the point where the company could grow and
repay its creditors while preserving the equity holders’ investment.
Schuyler has represented committees, debtors and creditors in such major bankruptcy
cases as In re Planet Hollywood International Inc.; In re Impath Inc.; In re Insilco
Technologies Inc.; In re Metiom Inc.; In re Winstar Communications Inc.; In re 47th Street
Photo Inc.; In re Caldors; In re United Artists Theatres Inc.; In re Moe Ginsburg Inc.; and
In re H. Park Central LLC.
He is particularly skilled in counseling parties on potential bankruptcy issues related to
non-bankruptcy transactions, such as securitized lending arrangements, and mergers and
acquisitions. Schuyler regularly issues opinion letters to issuers, underwriters and
servicers of securitized debt and on behalf of borrowers and acquirers related to
bankruptcy issues, including substantive consolidation, true sale and others. He also often
represents buyers and sellers of distressed debt and equity and has extensive experience
in representing acquirers of assets of insolvent and bankrupt companies.
Schuyler has extensive experience in enforcement of creditors’ rights, and creditors’ rights
state and federal court litigation, including fraud claims, loan recovery and collection
actions, fraudulent conveyance actions, foreclosures and replevin actions, enforcement
proceedings, reclamation and other actions under the Uniform Commercial Code, loan
participation and syndication actions, defense of lender liability, and usury and fraud
claims.
Professional Activities
Schuyler is a member of the American Bankruptcy Institute and participates on several
committees including the Unsecured Trade Creditors, HealthCare, Real Estate and
Business Reorganization committees. Schuyler is also a member of the New York State
Bar Association.
Publications/Presentations/Recognitions
Schuyler is a frequent speaker on bankruptcy issues and has published several articles,
including the following:
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“Reclamation Rights in Bankruptcy: What Every Credit Manager Needs to Know,”
The Credit and Financial Management Review; first quarter, 2007 (vol. 13, no. 1),
coauthored with George Angelich
•
“Conflicts, Connections and Disclosures: How to Get Paid and Ensure You Get to
Keep Your Fees," Moderator, AIRA 23rd Annual Bankruptcy & Restructuring
Conference, June 6-9, 2007
•
“Setoff and Recoupment in Bankruptcy: A Primer for Credit Managers,” The
Credit and Financial Management Review; fourth quarter, 2006 (vol. 12, no. 4),
coauthored with Jeffrey Vanacore
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“2005 Health Care Amendments to the U.S. Bankruptcy Code: Patient
Protection; Medicare Leverage and Who Pays?,” chapter in Bankruptcy Reform
2005, LRP Publications, 2005, by Schuyler Carroll and George P. Angelich
•
“SPE Structure Survives Substantive Consolidation, But What Does It Mean For
SPE Structures In General?” The Real Estate Finance Journal, Spring 2004
•
“Bankruptcy After a Leveraged Buyout: May Creditors Get Paid Through
Avoidance”, St. John’s Law Review selected for publication; Spring, 1991
•
United States v. Regan, Federal Case Review; Fall 1989
•
Florida v. Wells, Federal Case Review; Fall 1990
•
DNA Fingerprinting, J. Walter McKenna Public Forum, Spring, 1990
•
Collaboration: Book Review, by Joseph T. McLauglin: Horacio A. Grigera Naon,
Choice of Law Problems in International Commercial Arbitration, Fordham
International Law Journal, Vol. 16, No.1, 1993
Bar and Court Admissions
New York Bar
United States District Court, Southern District, New York
United States District Court, Eastern District, New York
United States District Court, Northern District, New York
United States District Court, Western District, New York
Education
St. John’s University School of Law, JD (cum laude, dean’s list), 1992, Law Review
SUNY Binghamton, BA, 1988
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Hunter T. Carter
Partner
New York
212.484.3946
[email protected]
Litigation
Intellectual Property
Real Estate
Practice Areas
Hunter Carter has handled sophisticated litigation in commercial real estate; advertising
and unfair trade practices; patent, trademark and copyright; bankruptcy and attorney
professional liability. Hunter has worked in both the Washington and New York offices of
Arent Fox. He currently serves on the firm’s Professional Conduct Committee and is the
New York office’s Loss Prevention Partner. Hunter is also the leader of the Firm’s Real
Estate Litigation Group.
Client Work
Hunter has broad experience in all facets of litigation before federal, state and bankruptcy courts,
from preliminary injunctions to jury trials. Hunter’s ability to deal with complex legal situations has
developed not only from handling litigation, but also from handling Congressional and Federal
Trade Commission investigations. Arbitration, mediation and other forms of alternative dispute
resolution are commonly a part of Hunter’s practice. He prides himself on being not only a
vigorous advocate, but also a creative and diligent problem solver.
As a result of his litigation experience, Hunter is called upon from time to time to counsel
clients in developing licenses, advertising materials, disclosures, leases, loan and
partnership documents and other agreements. He has served for many years as general
counsel to one of the nation’s largest HIV/AIDS medical and social services organizations.
Hunter is a fellow of the American Bar Foundation and a member of the Association of the
Bar of the City of New York, the New York State Bar Association, the District of Columbia
Bar Association and the Virginia Bar Association. In addition, he is Chair of the Committee
of Professional Ethics of the New York Intellectual Property Law Association.
New York Bar
Virginia Bar
District of Columbia Bar
United States Supreme Court
United States Courts of Appeals for the District of Columbia Circuit,
Circuit, Second Circuit, and Fourth Circuit
United States District Court for the District of Columbia
United States District Court for the Eastern District of Virginia
United States District Court for the Western District of Virginia
United States District Court for the District of Maryland
United States District Court for the Eastern District of Wisconsin
United States District Court for the District of Connecticut
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Education
University of Virginia, J.D. 1988
University of Virginia, B.A. 1984
Life Beyond the Law
Throughout his career, Hunter has been active in the gay and lesbian community and in
the fight against HIV/AIDS. He has served in a number of capacities with the WhitmanWalker Clinic of Washington, D.C., beginning as a volunteer during law school in 1987,
and culminating as a Board Member, Secretary and General Counsel.
Hunter leads the Arent Fox team that serves as a national legislative advocate for the
CAEAR Coalition, which represents more than 300 grantees under Title I and Title III of
the Ryan White CARE Act, including the 51 major metropolitan areas most adversely
affected by the HIV/AIDS epidemic.
Hunter also has been active in a variety of political activities, as a fundraiser, voting rights
advocate and state-level political party delegate. He recently served on the board of
directors of a political action committee and currently is a member of the Latino Affairs
Advisory Committee to a Democratic Presidential Campaign. Hunter speaks Spanish and
French. Hunter lives in Manhattan with his partner, and enjoys frequent and extended
travel in Colombia.
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Selected Resumes
William J. Nolan
Senior Managing
Director
100 N. Tryon St
Suite 3350
Charlotte, NC 28202
Tel: (704) 972-4101
Fax: (704) 972-4121
william.nolan@fticonsulting.
com
Mr. Nolan has worked in all areas of corporate recovery including
working with senior management in business turnarounds and
corporate bankruptcy. He has over 20 years of diverse financial
consulting and management experience. Mr. Nolan has considerable
experience working with senior management teams in the areas of
financial and operational restructuring, loan workouts and business
planning. He has assisted management in developing business plans,
devising short to medium term financial strategies and projections for
use in troubled debt restructures, and implementing controls over
cash expenditures, overhead and operating costs. Mr. Nolan’s diverse
background
extends
into
financial
services,
manufacturing,
restaurants, healthcare, and real estate wherein he has served as
advisor to companies, and advised secured creditors, and unsecured
creditors committees in out-of-court and in bankruptcy distressed
situations. Mr. Nolan has also served as an expert witness in a case
before the US Bankruptcy Court for the Western District of
Pennsylvania.
He has considerable experience in reorganizing sub-prime lending
companies. Mr. Nolan co-authored two columns in the American
Banker entitled “The Fight for Survival: Sub prime Lending, Where to
From Here” and “At What Point Are Servicing Rights Born?”
Representative restructurings in the Sub-Prime Lending industry in
which Mr. Nolan has been engaged include, Mortgage Lenders
Network, ResMae Mortgage Corporation, Mortgage Corporation of
America; American Business Financial Services; Conti-Financial
Corporation; United Companies; Thaxton Financial; Oakwood Homes
financial corporation.
Other representative engagements in which Mr. Nolan has been
engaged in the financial services industry include Refco Inc; Crimi Mae
Inc; Toshoku America, Inc; and Fidelity Bond and Mortgage.
Selected Resumes
William J. Nolan
Senior Managing
Director
(page 2)
Employment History:

FTI Consulting, Senior Managing Director, Financial Consulting
Practice (formerly a Partner with PricewaterhouseCoopers LLP
Business Recovery Practice)

Senior Manager, Insolvency Division – Coopers & Lybrand –
London, England

Manager, Business Recovery Services, Coopers & Lybrand

Commercial Lending Officer – Mellon Bank

Internal Auditor – Mellon Bank
Professional Affiliations:

Member, Turnaround Management Association

Member, American Bankruptcy Institute

Member, INSOL, International Bankruptcy Association

Past Treasurer of the Delaware Valley Chapter, Turnaround
Management Association
Education:

B.S., Economics, University of Delaware

M.B.A., Finance, Wharton School, University of Pennsylvania
Lisa Rice
In her new capacity as a Vice President with the National Fair Housing Alliance, Ms.
Rice oversees the marketing, communications, resource development, public policy and
enforcement initiatives of the agency. She is responsible for helping to achieve the
organization’s goal of addressing the crisis of segregation in America and the ultimate
goal of realizing a truly open society. Lisa recently joined NFHA after serving as CEO
of the Toledo Fair Housing Center and the Northwest Ohio Development Agency
(NODA). The Fair Housing Center is one of the nation’s premier fair housing
organizations. NODA, which Lisa helped to found, is a community development
financial institution providing below-market interest loans, grants and financial services
to historically under-served markets. While serving at the organizations, Lisa developed
and implemented the state of Ohio’s first predatory lending remediation program.
While at the Fair Housing Center, Ms. Rice was involved in several seminal cases
including Toledo Fair Housing Center, et. al. v. Nationwide Ins. Cos. which was the
nation’s first class action lawsuit based on testing evidence to be filed under fair housing
laws. This case, along with several others, addressed disparate impact claims under the
Fair Housing Act. She lead the Center’s investigation against Prudential Insurance Co.
and played a leading role in the resolution of this case, which included allegations that
Prudential’s underwriting guidelines and credit scoring and risk assessment system had a
disparate impact on protected classes. She was one of the lead negotiators in the
resolution of NFHA and Toledo Fair Housing Center v. State Farm Ins. Co. which
challenged State Farm’s underwriting and sales practices. The National Underwriter, an
insurance industry trade periodical, presciently stated that this settlement agreement
would change the way homeowners insurance is written in America. Ms. Rice has been
involved in investigating and resolving a number of precedent-setting fair housing cases
including Briceno, Klear and Toledo Fair Housing Center v. United Guaranty
Residential Insurance Company, Toledo Fair Housing Center v. Farmers Insurance Co.,
Steptoe v. Savings of America, NFHA, et. al. v. Liberty Mutual Insurance Co., and
NFHA, et. al. v. Prudential Insurance Co.
Ms. Rice has provided extensive fair housing training to consumers, government
agencies, insurance companies, lending institutions, regulatory agencies, housing industry
professionals, real estate management companies, fair housing agencies, and non-profit
organizations. She has taught numerous courses for industry professionals that have been
approved and certified for credit by various state insurance departments. She has also
provided consulting on a wide range of fair housing and diversity issues to fair housing
organizations, insurance companies, lending institutions and government agencies.
Gary C. Tepper
Partner
Washington, DC
202.857.8982
[email protected]
Banking and Finance
Antitrust
Real Estate
Franchise
Practice Areas
Gary Tepper has broad experience in litigation across the country for lenders on all facets
of law relating to mortgage banking and real estate.
Client Work
Gary has successfully litigated cases and counseled clients with regard to loan purchase
agreements, warehouse lines of credit, the Fannie Mae and Freddie Mac Guides, the
False Claims Act, title insurance, state law receiverships, mechanic's liens, the Truth in
Lending Act, RESPA, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair
Credit Reporting Act, Gramm-Leach-Bliley, the Bankruptcy Code, usury and other relevant
regulatory and common law issues. Selective matters in this area include:
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Won summary judgment dismissing federal action filed against nationally ranked
mortgage wholesale lender in Massachusetts by settlement agents seeking
repossession of purchased notes and/or damages; won affirmance by U.S. Court of
Appeals for First Circuit. Successfully defended same wholesale lender in similar
actions in state Court of Appeals in Florida and U.S. District Court in DC and
Maryland.
•
Successfully negotiated large settlement in multimillion dollar repurchase action filed
in federal court in Arizona on behalf of nationally ranked mortgage wholesale lender.
Completed 100-subpoena investigation demonstrating fictitious nature of purported
borrower downpayments.
•
Won summary judgment for mortgage lender in District of Columbia lending
discrimination case. Won affirmance by U.S. Court of Appeals for District of Columbia
Circuit.
•
Won summary judgment in federal court in Texas on behalf of mortgage wholesale
lender against title company that had misrepresented the terms of the loan closing.
•
Won summary judgment for lender in multiple Truth in Lending/usury actions in
Virginia state court.
•
Assisted mortgage lender in obtaining summary judgment in late fee class action in
Illinois. Wrote amicus brief for mortgage banking trade association.
•
Assisted in resolving lending discrimination investigation in Connecticut of nationally
ranked wholesale mortgage lender.
•
Won summary judgment for commercial lender in multiple Due Process challenges to
DC foreclosure statute.
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Gary also represents franchisors and distributors in litigation around the country before
state and federal courts and arbitral panels. He has effectively defended and counseled
franchisors and distributors on matters relating to the FTC Rule on Franchising, antitrust,
state franchise acts, state business opportunity acts, consumer fraud statutes, trademark
law, unfair competition, trade dress infringement, RICO, the Bankruptcy Code and breach
of contract. Some of his most recent representative cases include:
•
Won a $2.5 million award for fast food franchisor in arbitration against multinational
Southeast Asia conglomerate in dispute over conglomerate's failure to develop tencountry territory.
•
Obtained defense verdict for fast food franchisor in three-week antitrust jury trial in
Pennsylvania. Affirmed by Third Circuit.
•
Obtained dismissal of RICO and other claims brought against accounting services
franchisor in U.S. District Courts in Pennsylvania, New Jersey and Maryland.
Decision in Maryland affirmed by Fourth Circuit.
•
Successfully defended car rental franchisor in breach of contract/deceptive trade
practices action in Massachusetts. Won partial summary judgment motion, conducted
mini-trial and obtained favorable settlement.
•
Obtained preliminary injunction in Michigan against terminated franchisee's use of
trademark and violation of non-competition covenant.
•
Won summary judgment in New Jersey for franchisor dismissing breach of contract,
deceptive trade practices and franchise statute claims brought by majority of
franchisees of franchise system.
•
Obtained preliminary injunction in North Carolina for fast food franchisor barring
terminated franchisee from using trademarks and violating non-competition covenant.
Gary is a member of the ABA Forum on Franchising as well as the Mortgage Bankers
Legal Issues Committee.
Publications/Presentations/Recognitions
While attending Yale Law School, Gary served on the Board of Editors of The Yale Law
Journal.
District of Columbia Bar
U.S. Court of Appeals for DC, 1st, 2nd, 3rd, 4th, and 10th Circuits
U.S. Court of Federal Claims
U.S. Court of International Trade
Education
Yale
Brandeis University, B.A. (magna cum laude, Phi Beta Kappa) 1975
Life Beyond the Law
Outside of the office, Gary loves music and tolerates cats.
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PRESENTATION BY DOUGLAS DUNCAN
The Subprime Market: Looking
to the Future
Arent Fox
New York, NY
June 20, 2007
Doug Duncan, Mortgage Bankers Association
SVP & Chief Economist
Legislative Events That Set the Stage for Subprime
• 1968: Housing and Urban Redevelopment
Act
• 1970: Emergency Home Finance Act
• 1980: DIDMCA
• 1982: Garn – St. Germain
• 1989: FIRREA
2
10-Year Treasury at Constant Maturity
15%
10%
5%
0%
1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Source: Federal Reserve Board
Foreign Holdings of Long-Term Securities
50%
T re a s u ry
A g e n c y
40%
C o rp o r a te
D e b t
E q u it y
30%
20%
10%
0%
1974
1978
1984
1989
1994
2000
2002
2003
2004
2005
2006
Source: U.S. Department of Treasury, Federal Reserve Board , and the Bureau of the Public Debt
Securitization Shares of Single-family and Commercial/Multifamily
Mortgage Debt Outstanding
70%
60%
50%
40%
30%
20%
10%
0%
1970Q1 1975Q1 1980Q1 1985Q1
1990Q1 1995Q1 2000Q1 2005Q1
Single-family, % securitized
Commercial/multifamily, % securitized
Single-family, % pvt label securitized
Commercial/multifamily, % pvt label securitized
At What Price Are Homes Sold?
Source: Office of Federal Housing Enterprise Oversight
Yield Spread: BBB* and Treasuries**
Basis Points
350
250
150
50
1997 - Jan
1999 - Jan
2001 - Jan
2003 - Jan
2005 - Jan
2007 - Jan
*Moody’s seasoned Bbb corporate bond yield ** 10-year Treasury note yield at constant maturities
Initial Fees and Charges on
Conventional Purchase Mortgage Loans
$ Fees
(Nominal)
Percent of Loan Balance
2,500
3
Dollar Amount (right axis)
2,000
2
1,500
1,000
1
500
Percent (left axis)
0
1980 Jan
1983 Jan
1986 Jan
1989 Jan
1992 Jan
1995 Jan
Source: Federal Housing Finance Board
1998 Jan
2001 Jan
2004 Jan
0
2007 Jan
Average Production Net Income
Large Prim e
63.4
179.7
95.1
186.9
94.1
163.0
31.2
118.8
13.9
Subprim e
52.5
(8.8)
2001
2002
Source: MBA/STRATMOR
2003
2004
2005
2006
(9.4)
Collateral Characteristics
Source: UBS
Underwriting Standards
Net % of banks tightening mortgage loan standards*
60
Total
Prime
Nontraditional
Subprime
40
20
0
-20
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1 - Q1
*In the latest survey released in April 2007, residential mortgage questions were separated into 3 groups:
prime, nontraditional (includes option ARMs, I-Os and Alt-A), and subprime (blemished credit).
Data for total loans comparable to historical data were not reported.
Source: Federal Reserve Senior Loan Officer Survey
Subprime Delinquency Rate, 60 days or more
Source: UBS
ARM Share of Conventional Purchase Mortgages
80%
Actual
60%
40%
20%
0%
1983 Q1
1986 Q1
1989 Q1
1992 Q1
1995 Q1
1998 Q1
2001 Q1
2004 Q1
Source: Federal Housing Finance Board Mortgage Interest Rate Survey
2007 Q1
Forecast
ABX BBB Synthetic Index
Source: Markit Group Limited
Retail Mortgage Applications Profile
March 2007
US Total
Pacific
States
E. North
Central
States
Home Purchase
ARM Share
I/O Share
Investor Share
56.0%
16.1%
16.8%
5.7%
44.7%
40.2%
41.1%
5.6%
50.7%
8.5%
7.2%
5.6%
Refinance
ARM Share
I/O Share
44.0%
21.3%
17.5%
55.3%
34.8%
31.4%
49.3%
13.7%
9.8%
Total I/O Share
17.1%
35.7%
8.5%
Source: Mortgage Bankers Association
Trends in ARM and I/O Applications
2006-2007
US Total
Pacific States
E. North Central
States
ARM Share
January 2006
41.9%
59.3%
35.4%
June 2006
41.6%
59.6%
33.0%
January 2007
28.7%
43.2%
18.4%
March 2007
18.4%
33.5%
11.1%
January 2006
23.0%
36.5%
16.0%
June 2006
24.5%
40.5%
13.4%
January 2007
25.5%
42.1%
13.0%
March 2007
17.1%
35.7%
8.5%
I/O Share
Source: Mortgage Bankers Association
Single-Family Mortgage Originations
Billions
Refinance
Purchase
$2,500
$2,000
$1,500
$1,000
$500
$0
2001
2002
2003
2004
*F = Forecast
Source: The Mortgage Bankers Association
2005
2006
2007F
2008F
Product Type Composition of Loans Outstanding in Q1 2007
Q1 2007
No Mortgage
With Mortgage
Prime Fixed
Prime ARM
Subprime Fixed
Subprime ARM
FHA Fixed
FHA ARM
VA
Total
35.0%
65.0%
40.0%
10.3%
3.6%
4.9%
4.0%
0.3%
1.9%
100.0%
Source: MBA National Delinquency Survey
With Mortgage
Prime Fixed
Prime ARM
Subprime Fixed
Subprime ARM
FHA Fixed
FHA ARM
VA
Total
61.6%
15.8%
5.5%
7.5%
6.2%
0.5%
2.9%
100.0%
Investor Share for Prime
Conventional Conforming Purchase Loans
Percent
25
Investor
Investor and Second Home
20
15
10
5
0
1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1
Source: LoanPerformance
Housing Starts Per Capita
Percent
Percent
0.010
0.010
0.009
0.009
CA, AZ, NV, FL
0.008
0.008
0.007
0.007
0.006
All Other States
0.006
0.005
0.005
0.004
0.004
MI, IN, OH
0.003
0.003
0.002
0.002
0.001
0.001
0.000
0.000
1998
1999
2000
2001
2002
2003
Source: New York Federal Reserve and Economy.com
2004
2005
2006
Defining Delinquency Terms
•
Default - any loan not currently in compliance with contractual
terms
•
Delinquency – any loan on which the payment is more than 30
days past due and on which foreclosure proceedings have not
yet commenced
•
Foreclosure Starts – loans on which formal proceedings to
seize the collateral have begun during the current quarter (this
is a trend variable)
•
Foreclosure Inventory – loans on which formal foreclosure
proceedings have started and are ongoing (this is a stock
variable)
•
Other items – sample, coverage, number vs. dollar, first liens,
loan quality
21
New Foreclosure Rate by Loan Type
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Quarter/ Year
All
Prime
Subprime
Source: MBA National Delinquency Survey (Q1 2007)
FHA
VA
Delinquency and Foreclosure Rates
Total Loans Past Due Rates by State for Q1 2007
Foreclosure Inventory Rates by State for Q1 2007
Total Loans Past Due by Loan Type, Quarterly
Foreclosure Inventory by Type, Quarterly
10.00
16.00
9.00
14.00
8.00
12.00
7.00
6.00
10.00
5.00
8.00
4.00
3.00
6.00
2.00
4.00
1.00
0.00
2.00
0.00
Q ua rt e r/ Y ear
Qua r t e r / Ye a r
All
Prime
Subprime
FHA
VA
All
P rime
Source: MBA’s National Delinquency Survey (Q1, 2007)
Subprime
FHA
VA
2007 Q1 Serious Mortgage Delinquencies By Loan Type
Subprime ARM
Subprime Fixed
FHA
Prime ARM
Prime Fixed
All Loans
HIGHEST FIVE STATES
Ohio
Michigan
Louisiana
Mississippi
Indiana
19.86
18.98
18.27
17.93
17.26
Mississippi
Ohio
Louisiana
Michigan
Indiana
14.06
12.70
11.48
10.51
9.90
US Average
California
10.13
7.57
US Average
California
5.89
2.92
Utah
Oregon
Hawaii
Arizona
Alaska
2.53
2.23
2.16
2.07
1.38
Michigan
Ohio
Louisiana
Indiana
South Carolina
10.01
8.72
7.82
7.58
7.14
Mississippi
Indiana
Ohio
Oklahoma
Louisiana
4.77
4.16
4.10
4.01
3.92
Ohio
Louisiana
Indiana
Mississippi
Michigan
1.92
1.75
1.67
1.65
1.21
Ohio
Mississippi
Indiana
Louisiana
Michigan
5.14
4.52
4.51
4.23
4.16
US Average
California
5.26
1.96
US Average
California
1.66
1.22
US Average
California
0.67
0.20
US Average
California
2.23
1.36
Idaho
Montana
North Dakota
Alaska
Wyoming
1.91
1.67
1.61
1.35
1.22
Utah
Oregon
Hawaii
Washington
Idaho
0.77
0.67
0.66
0.64
0.63
California
Montana
Hawaii
Wyoming
North Dakota
0.20
0.19
0.13
0.13
0.12
Washington
Montana
Oregon
Hawaii
Wyoming
0.88
0.80
0.79
0.74
0.74
LOWEST FIVE STATES
Idaho
Washington
Oregon
Arizona
Utah
5.40
4.72
4.17
4.10
3.99
Seriously delinquent loans are those 90 days or more past due or in foreclosure
Source: Mortgage Bankers Association National Delinquency Survey
Implications of Subprime Market Events
•
This is the final phase of the shift to capital markets
funding for housing
•
This is not a national macroeconomic event
•
The market has corrected the underwriting errors
•
The only evidence of a contagion is widened spreads in
CRE recently
•
Expect foreclosures to rise modestly in the next few
quarters
25
Contact Information & MBA Resources
Doug Duncan
[email protected]
1919 Pennsylvania Ave - Washington, DC 20006
202-557-2825
MBA homepage: www.mortgagebankers.org
Research and Forecasts:
http://www.mortgagebankers.org/ResearchandForecasts/EconomicOutlookandForecasts
Research Data:
http://www.mortgagebankers.org/ResearchandForecasts/ProductsandSurveys
MBA Research DataNotes:
http://www.mortgagebankers.org/ResearchandForecasts/EconomicOutlookandForecasts/DataNotes.htm
Research Institute for Housing America:
http://www.housingamerica.org/sitemap.html
Home Loan Learning Center:
http://www.homeloanlearningcenter.com/default.html
MBA Newslink:
http://www.mortgagebankers.org/NewsandMedia/MBANewsLink