Secondary Market

The economic downturn has choked off demand for commercial space, with vacancy rates rising and new occupancy limited by the duress in today's job market. At the same time, commercial real estate (CRE) values have dropped more than 40 percent in some markets. Plagued with the same trip wires that have set off a barrage of residential mortgage delinquencies - unemployment and negative equity - the CRE market, too, is seeing default volumes soar to new heights, both on loans held by banks and those owned by securities investors.

Allonhill, an independent third-party review firm specializing in mortgage due diligence and credit risk management, has announced the hiring of former Fidelity executive Kathy Ireland as director of securitizations. Ireland, a 30-year veteran in banking and financial services, will manage Allonhill's core securitization solutions.

With the deterioration of the U.S. mortgage market, the credit rating agency DBRS has noticed a deep divergence in delinquency, foreclosure, and REO timelines from historical norms. As servicers have stepped up loss mitigation strategies to deal with the increase in delinquent borrowers, some loans have spent a longer-than-usual time in each delinquency bucket. The analysts at DBRS found that non-performing loans now remain in the 90 or more days delinquency column for an average of three to four months before moving to foreclosure.

International real estate investment and services company Kennedy Wilson has announced the planned formation of a new partnership with Fairfax Financial Holdings Limited to pursue acquisitions of commercial real estate assets, including purchases of loans and real property. The companies say they will focus their efforts on assets in California.

The Treasury's most recent Home Affordable Modification Program (HAMP) report shows ""extremely low conversion rates,"" with success just a 50/50 gamble, according to Moody's Investors Service. As of the end of April, servicers had converted almost 300,000 permanent modifications. However, they had also canceled 277,640 trial mods. Moody's says this represents approximately a 50 percent success rate. The report also shows 3,744 permanent modifications have been canceled.

Mortgage interest rates have fallen to their lowest level of the year. Economists say homebuyers have the financial turmoil in Europe to thank for that, as overseas investors have put their dollars instead towards what they see as safer U.S. Treasury securities, which are closely tied to rates for home loans. Freddie Mac puts the average rate for a 30-year fixed mortgage this week at 4.78 percent. Bankrate says 30-year fixed-rate home loans are averaging 4.92 percent at the nation's 10 largest banks.

A report released this week by the Congressional Budget Office (CBO) says the U.S. Federal Reserve more than doubled the size of its asset portfolio to over $2 trillion through its purchases of mortgage-backed securities and other crisis-mode acquisitions, and assumed far more risk than is considered ""normal"" for the central bank. But the risk-taking Fed is proving to be a savoir-faire investor. According to CBO estimates, the central bank will turn a record $70 billion profit this year.

Newark, New Jersey-based Prudential Mortgage Capital Company, the commercial mortgage lending business of Prudential Financial, Inc., recently appointed John DeWitt and Marty Fayer as managing directors and joint leaders of the company's Freddie Mac Program Plus platform. Together, DeWitt and Fayer will be responsible for managing all aspects of the platform, including originating new loans. Additionally, they will arrange multifamily loans on behalf of Prudential's other capital sources.

The commercial real estate market continues to be plagued with rising vacancy rates. But according to a recent report by the National Association of Realtors, vacancies should level out in most markets by the end of this year or early 2011. The Society of Industrial and Office Realtors (SIOR), in its SIOR Commercial Real Estate Index, an attitudinal survey of nearly 700 local market experts, confirmed that significant fallout from the recession remains, but to a lesser extent.

Freddie Mac recently announced the appointment of Mike McRoberts, an 18-year veteran of the company, as VP of multifamily production and sales. In his new position, McRoberts is responsible for the origination and purchase of conventional multifamily loans nationwide, the Program Plus Seller/Servicer network, and the four multifamily regional sales offices.