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Delgado - Carrington Out Of REO Trades, 2nd Housing Bubble?

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Capital Markets Today

Capital Markets Today


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Join us for the inaugural broadcast of Five Star Radio's Mortgage Markets Today.

Ed Delgado, President & CEO of The Five Star Institute discusses the genesis behind Five Star Radio as well as delves into housing values, servicing and what’s in store for us at the Five Star Conference in Sept 2013.


0:08 Intro

Five Star Radio presents Mortgage Markets Today, where industry experts discuss capital market, trading, real estate, lending in the mortgage servicing industry. For more information on guests of Five Star Radio: Mortgage Markets Today, and podcasts of previous episodes, visit us at thefivestarradio.com. Five Star Radio is brought to you by iServe company. Now your host of Five Star Radio: Mortgage Markets Today, Louis Amaya.

0:37 Louis Amaya

Welcome to the very first broadcast of Five Star Radio's Mortgage Markets Today, formally known as Capital Markets Today. My name is Louis Amaya, host of the broadcast. Today is June 5, 2013 and we are broadcasting live from San Diego, California. In case you missed the press release, the Five Star Institute announced yesterday the launch of Five Star Radio, an internet broadcast station designed to deliver timely solution or into subject matter to the housing and financial real estate industries. The Five Star took the daring leap into internet radio broadcasting to augment the web and conference based method of delivering impactful information and influencing the market. It is an innovative move on the part of the Five Star as it continues to pioneer new ways of pushing relevant discussions to entry leaders. We have a loaded calendar in the coming weeks, just to name a few I guess, Scott Gibson, Senior Vice President of fixed income securities and whole long evaluations at MountainView Capital; Thomas McOsker, president of BloxTrade on a new hybrid secondary market place for tax leans and tax needs; Dean Brown, CEO of Mortgage Capital Market, discussing float down locks and hedging; and Jordan Kavana, CEO of Transcendent Investments on the Oreo Toronto Trait an estimated liquidation timelines. We have posted the dates, times and topics on the web for your reference. Please visit thefivestarradio.com. They make sense with the __01:58__ opening broadcasts with the Five Star as our guest today, Ed Delgado, President and CEO of the Five Star Institute. The Five Star Institute is a mortgage making association that provides education and strategic services to the US and mortgage market. It has more than 20 years experience in mortgage making and is recognized as a thought leader and innovator. As CEO of the Five Star, he has hosted discussions related to housing and economy with global leaders including the former president, Bill Clinton and George W. Bush, former New York City mayor, Rudy Giuliani and former US secretary of state, Condoleezza Rice. Ed was previously chief operating officer of Wingspan Portfolio Advisor, a diversified mortgage servicing company.

2:42 Louis Amaya

He was also a senior vice president of government and industry relations at Wells Fargo and played an integral role with the company's mortgage servicing group. Wells Fargo and Ed interact with the mortgage community, industry trade groups in Washington, DC and government agencies such as the US department of treasury. In conjuction with other industry leaders that supported the Obama and Bush administrations efforts to develop mortgage solutions designed to prevent home foreclosures. We will be right back with Ed Delgado.

3:15 Interlude

Five Star Radio: Mortgage Markets Today is brought to you by the 2013 Five Star Conference and Expo, the largest and most comprehensive event in mortgage servicing. The Five Star features nationwide participation from experts and companies from across mortgage and develop servicing including those in investment compliance, loss mitigation, REO, short sale, title foreclosure and more. Join thousands of industry professionals in September for three days of academic networking, keynotes, exhibits, updates and private engagement. For more information on how to register, full sponsorships and speaking opportunities, visit fivestarconference.com or call 214-525-6766 today.

4:25 Louis Amaya

Ed, welcome to Five Star Radio. Great to be working with you.

4:29 Ed Delgado

Hey Louis, good to hear you on our first broadcast. This should be fun.

4:34 Louis Amaya

Yes. It is going to be exciting. Before we get in to some of the industry related topics, let's talk about Five Star Radio. What prompted you to move into internet broadcasting and what do you see as a future for Five Star Radio?

4:47 Ed Delgado

Yes. That's a great question. A couple of things, right? I think first and foremost, you have to adapt to the needs of your audience and we are an organization that is our focus has always been in publishing, but in this day of advanced technology and hypermedia, we have to extend our read. So developing messaging system using podcast on some key topics and interest in speakers and company profiles, I think we are just a natural part of our evolution being digital in the publications was also important. Our regent in social media and our expanded footprint there is also critical. This was just a perfect fit at the right time in our growth plan.

5:32 Louis Amaya

Excellent. Yeah, we really look forward to working with you and expanding this medium for you. So jumping into industry topics, there is a lot of information that indicates that housing has not always stabilized, but rebounded in some areas. Some parts of the country is seeing high rates of value growth. What do you see happening with evaluations and is it a second bubble or is this real? I'm just not as optimistic as a lot of people are on the housing market. You know, I think we have been struggling the trough for a period of time. I do think there are some signs of resiliency in some bounce pack. I am still concerned about a lot of errors. You know, we have to put things in someone in perspective. I mean, everybody points to what is going on in Arizona and parts of Nevada and saying, "Oh look, the markets are coming back". The gap to look at where they work, right? So, were you taking about depreciation of asset that range anywhere between 40% and 60%. And say, "Hey, things are starting to look up. But there was no place else to go after the collapse of those markets. I am a little bit more bearish on housing than most folks. I also think that there is a confluence of circumstance. I think we will think about it later on in our discussion that points to some potential of future weakness on the rebound. You know, predominantly, I think right now, investors coming back to the market or key and they will give us some balance, but when we look at mortgage applications, the majority of that has been driven to refine, is not that homeownership has been kind of bust in and put out there and consumers are flocking. It has been a very gradual return of interest from your historical purchasers of homes and new homes. So in that context, I think we are seeing what I would call a measured returned to housing stability and I am not ready to declare victory and put the flag in the front yard.

7:32 Louis Amaya

I just don't think were there yet. And I don't think were going to get there until we see some resolution on unemployment and I am pleased that unemployment is ticking downward, it is a good number, but the total unemployment is really be the true measuring stick as who where the economy is headed, and in that regard, we are still in double digits closer to 14%-13% then the 7% national unemployment. So the total unemployment, those who had left the workforce no longer eligible for unemployment benefits substantially higher than the number that is more familiar with your listeners.

8:13 Ed Delgado

You make a good point. The rebound or -- I call it rebound, but the increasing values, is primarily as a result of restricted inventory and investor participation. We heard just last week that Carrington is getting out of the REO to rental trade. Big investors like that pulling out, credit does not open up, you have a limited number of buyers that can actually qualify for home long. So Carrington is announcing that they are getting out that would indicate to me that they have some certain concerns. What do you see that market going and at what point do you think that the hedge funds that had been acquiring would actually liquidating back into the marketplace.

8:56 Ed Delgado

Yeah, it is interesting. I think Bruce Rose is their CEO. He was quoted recently as saying that there was a lot of stupid money that jumped into that segment of the market which is just kind of pullback. They jumped into a two so I guess their retreat is note worthy. I think the REO rental space is somewhat matter, those companies that are diving in head first, like Black Stone and they have all aware of 4.5 billion dollars invested and over 25,000 homes and then you have those that are saying, look we are simply not going to get the returns that we thought. I think most of these investors are looking at yields in the 68% range and the last time I checked him, my numbers maybe a little bit off, I think that number which in 2010 was around 5-5 and then fell to 5-3 and then in 2012 was down to 5-1. its just not here. And then you have from peak to trough, the total retreat of REO of nationally down 50% and some markets down as much as 60% to 70%. So REO have evaporated, but again, I am not an economist Louis, so I'm just studying the numbers as the article ends, I am a little concerned that there is a bubble sitting behind that. Whether that shadow inventory or that the procedure of managing alone at the link upon to foreclosure is in such a state of reengineering that it is delaying the inevitable and at one point, that letting has to break, and you are going to see numbers pop up a little bit and so is there this 2.0 bubble that we have heard so much about. I am leaning more towards the yes than the no. Everything's fine. Everything is stabilized.

10:40 Louis Amaya

You know, a recent article in DS News by Ester Cho indicates a shadow inventory. I mean, she had communicated some interesting numbers specific to government owned assets where the shadow inventory that the government has, between Fannie, Freddie and HUD greatly outnumbered the number of REO assets that are currently on the marketplace. Kind of indicating what you just mentioned, but if that is true, what are your thoughts on the liquification of the shadowing and the outlet for the default industry?

11:15 Ed Delgado

Yeah. Nobody has the answer on breaking down that shadow inventory. Those ratios are scary, right. And the piece that Ester rode, I'm familiar with it, the ratio she quoted was that for HUD, it was 20 times greater than their REO inventory, meaning that it was 21 ratio shadow inventory to axial REO disposition and 6 to 1 for the GSEs. So that is an alarming number that is sitting out there approximately two million homes. You whether or not there is a plan behind there, I don't know. I like to study root cause more than anything else. So why do you have shadow inventory? Interestingly it was earlier in May, three out of the four big banks suspended foreclosure action and foreclosure sales because of some impending rules that were being presented by the OCC, their federal regulators while struggle being of the banks. Well, that is a very scary thing because what happens, right? When you delay a foreclosure sale, you're disrupting the natural flow in the course of servicing from bridge accelerate and foreclosure and then REO disposition. The moment you created an impediment there, you start to tamper with timelines and when you tamper with timelines, and you tamper with timelines, it has a direct corollary to the pricing mechanics. Now, you are messing around with whether or not you are going to get the net proceeds on sale that you need to deliver back to the investor, you may just be the servicer. You could have some degradation of equality of the asset, you upgrade your exposure, you have greater carrying cost, you have corporate advances, so it is just a very, very disruptive mechanism of the regulatory over site, all the new roles and the influences coming out of the settlement and the prescriptions by the CFPB in treasury in as much as their intended benefit consumers in the marketplace, they do have a very disruptive influence on a natural order of events.

13:15 Ed Delgado

So that to me is what is driving up that shadow inventory. There is a hesitation to execute on policy or procedure if you won the risk of opposition or objection to a foreclosure sale, therefore delay in sure equality practice before engaging. So it is a stutter-stop stall process that we are experiencing in the industry right now. And it would just take some time before you work the kings out like any other new procedure, it takes time for the banks to adapt and restore some balance and execution.

13:54 Louis Amaya

We're an asset manager and we have seen our portfolio kind of migrate from the west coast, from some REO perspective to more of the Midwest and this we are thought was that the west coast states, trustee states, we kind of move through that portfolio more efficiently because we are not to deal with the courts, and therefore, we have had a good, there is volume in the west coast for the Midwest and especially in the east coast are lagging because they are priming away to the judicial process. But we have seen in a discussion, we have seen state regulations that have hampered the process on the west coast Nevada in 2012 with the state legislation that virtually stocked foreclosure sales overnight. We have seen the Homeowner Bill of Rights in California impacting the flow in California foreclosures, we have seen a drop in that. Do you anticipate the shadow inventory to kind of rebuild on the west coast as shadow inventories maybe sourced to liquefy a little bit in the Midwest and the east coast as they are don't working through this decision process for the past few years.

15:09 Ed Delgado

It's just funny that as you were saying and I am trying to formulate my answer. It is an old attitude, it's like floor boards, you step on one end, the other one pops up, right? I think what we are going to experience is interesting the contrast that you draw between judicial versus nonjudicial. I live in the state of Texas. Texas has -- for all intents and purposes, missed the disaster in terms of the housing crisis and it is not to say that it was not without a downcycle, it obviously was, but not as exaggerated as you would see in other states, and the reason why that is, it shares along with Georgia, the shortest foreclosure timeline of any state in the nation. So invariably what happens if the process is allowed to move at the speed of which it was intended, it has a very positive and stabilizing on values and unless the sale times, because it is managing the inventory process. I mean that is the intent. So once we start to see some of the state all those pop up and as you mentioned the California Homeowner Bill of Rights, and what does that mean to servicing and how do they have to adapt, and how do they have to specify to those rules, again it could potentially result in another bubble or another delay in that increase of inventory that as an adverse in impact on pricing. So this is a phenom that were going through and that the best of intentions and plans to go ahead and modify process and enhance controls, and ensure protective action against or on behalf of homeowners, actually is having a negative impact right now in the marketplace and we have -- I am of the opinion that we have reached the degree of over regulation of a housing market and more importantly conflicting rules. If you talk at any servicing executive, what little hair they have left on their head, they are saying, the OCC wants me to do one thing one way, but we're getting different rules from the FDIC and we always have to keep an eye out on UDAP and QM and QRM, and then we still have to answer to the administration this would be the treasury department because they keep a watchful eye on what we are doing on the hampside and on making home affordable and we have to -- the confluence of rules is just creating controversy on behalf of how the shops are effectively operating and delivering solutions at the same time.

17:42 Louis Amaya

You bring up mortgage servicing and that's business we're in as well and that industry as you just indicated is influx and it appears the environment is favoring larger services again, primarily due to the amount of regulation compliance in the risk of being sued at the highest levels that have ever been and the margins for servicing continue to shrink. So explain to us, what is happening with servicing today as it evolve from procuress and how do you think it is going to evolve in the two or three years and is that evolution good or bad for the borrower, who is the ultimate customer.

18:24 Ed Delgado

You just hit me like four questions at once.

18:29 Louis Amaya

I'm sorry. I'm doing the best that I can. Look, it is cool to say that regulations and complaints are in good. It is a good thing, right? But it is like any good thing in moderation, I think it has the greatest impact and the greatest influence. Over regulating the market as we previously discussed can create some chaos and some panic. It is interesting that the environment is favoring a larger services again. I do think that is the case. And the reason why that is as these rules were being delivered to the industry, a lot of the smaller midsized has had a lot of difficulty in adapting to those rules very quickly and they simply couldn't. They did not have the bandwidth, they did not have the manpower to do it and it became difficult for them not only to react, but to deploy the solution. The larger banks I think they were very, very strategic. They were aggressive in retaining some big firms to support their compliance over sight or in young APMG, Deloitte, a price order house coopers and I said alright, we're faced with this crisis, what do we have to do to set up these rules. How do we become compliant? How do we build effective stamping models? How do we maximize the return on our margins based on our servicing fee and it would very, very, very quick to engage in that space. So, I do think that the big boys are going to come out stronger than before. Your other question, is this good for consumers? I think it is, right. I think the banks have a new found accountability in terms of their practice. I don't think that any of what I call the surviving or the big Core Four were faults to the crisis. Companies like AmeriQuest, New Century, Fremont, Contrarywide, these were organizations that was steep in the subprime space and probably acted in a manner of breed that resulted in and going out of business, what you are left with this organizations that have 100 of years of history behind them, the commitment to the financial sector to provide quality _20:51_, fair responsible lending practice in servicing, so they are cleaning up the mess, but they are best equipped to do that. So that is the state of servicing as I see it today. I don't think you will see any retreat on rules and regulations quite frankly I think, we are talking about the other day at our office, Doug Frank regulations, only approximately 42% have been absorbed currently. So you have a long way to go before you can say yes. You know what? We've now adopted all the rules that had been placed on the table and we feel pretty good about it. I don't think we're there yet.

21:27 Louis Amaya

Yeah. That's a whole another broadcast now. It's an interesting topic and there is a lot to discuss there. You know it is just from a servicing model, I think there was an initial spot that there would be an exodus of loans from the big servicers to smaller servicers. However, I think it is going to be more of a component plan, your former employer, Wingspan I think nailed it in the sense that they went off to the component piece, because the big banks, make an interesting point in the sense that they are still around. Anybody who is still around no matter what type of issues that they turn we have today, we a good enough company to whether the storm, which means that there is some value there. And I think as the default industry and the regulation and everything such that influx and giving corporated to daily process from a service provider component service and I think is probably has a really good outlook as the banks continue to expand and compress with what is going on and the use of component servicing platforms I think is a very good outlook. So, let's talk about the Five Star Conference. There is no doubt from industry insiders that this is the conference of the year. Historically, we have some powerhouse key notes, relevant discussions and I have created a great place to network. So how do you top that? I mean, what is in store for September? Is there anything that you're planning that is difficult from the past years? And any surprises that we should expect.

23:03 Ed Delgado

We were betting that Romney was going to win the general election and we are going to sign President Obama because we have throw intensive purposes one out of president __23:17__. That didn't happen. So respectfully due to Mitt Romney, he is not on a speaking circuit so not somebody we're going to track. I will tell you what, I have had the pleasure of meeting Dr. Condoleezza Rice spending some time with her. I have never met a speaker that is more engaged or insightful as this lady. She is just spectacular and we were beyond fortunate to have her agree to speak as our keynote. She is just a fascinating person and the insights that he has built on domestic and foreign affairs, and somehow she is able to tie back into the housing market which is spectacular. I think it is great. We have another feature to hear, we want to focus on women on housing and finance. So we will be doing a lady's luncheon anchored by and keynoted by former first lady Laura Bush. The first lady has graced our stage several years in a row now. She is conference favorite and she is an inspiration to me and here speak and just two days ago, we announced that we will have Barney Frank. It was a thought that we kind of kick around here. We started to talking about the complexity of the Dodd Frank which would mean to the industry, the implications, the adoption strategy, the timeline, the influences and then somebody just said, "Can we get Barney Frank to talk about it?" Well, that's a great idea. So we got him and the former congressman has been kind enough to agree to speak at our compliance vertical. This has always been positioned as a conference within a conference, because we have so many different tracks that will focus on. We are talking about short sales, we are talking about mortgage servicing, foreclosure, law smith, evaluation, property preservation, compliance, I know who is still working with us on the investment track, title holding, we have certifications. So this is unlike other conferences that would focus on a particular subject matter or material, we cover the spectrum of mortgage banking and finance, whether its real estate servicing compliance, REO, foreclosure or lending, it is going to be featured at the conference.

25:33 Louis Amaya

So you had mentioned that we are going to be working on together. Can you give us a little bit of background on what will be discussed, who may be participating in the topics and really the audience that were trying to attract in that regard.

25:50 Ed Delgado

Right. So for foreign investors I think we are trying to build in consisting with how Five Star presents to its audience. A very broad representation what does investment and real estate mean today? So whether you are an institutional investor or a small investor that maybe trading on two or three different properties, this is the event for you. The companies that we are talking to right now are Mission capital will be there. I know you have an upcoming guest Jordan Kavana from Transcendent Investments, he is going to participate obviously I'm sure we will have a presence there. David Tobin who is the principal over at Mission Capital and David and I worked together for the better part of 25 years. It is just a brilliant, brilliant entrepreneur. He will be speaking at the conferences as well. So we are building a good list of your institutional investor and capital providers, also we are in discussions with the couple of companies, home investor, and owned America, Greg Rand and I spoke to a fascinating individual who often featured on Fox Business and Fox News to comment on the housing and real estate market. He will be participating. Tim Harry from Home Investor will also be there. He is an interesting model for that is operates in the __27:11__ of what you would see from a hedge fund or from a large investor. So big medium or small investors all are welcome and we are looking for an exciting event. Well, we are definitely keep the audience updated as we are closer to September because the investor track I think is going to track some very interested folks that have generally not have attended such as conference, but I know the folks that I have been speaking with giving me great feedback and are excited to participate. We are just about wrapped up for the very first broadcast of Five Star Radio: Mortgage Markets Today. Do you have any closing comments that you would like to give us?

27:52 Ed Delgado

Thank you. I want to thank iServe in particular for providing Five Star the opportunity to partner on this broadcast. Louis, you have done a fantastic job. I have listened to several of your shows and so have a lot of our followers here at Five Star. This is a perfect coming together two brands. I am a fan of the show. I am a fan of work you do. I am a fan of iServe and its other companies. So this is great. I can't thank you enough. Wish you all the best. And we look forward to a long partnership with you and your organization.

28:22 Louis Amaya

Excellent. Same here. I look forward to working together. Thank Ed for taking the time. I know your busy and we will have I am sure sooner than later.

28:33 Louis Amaya

Thanks a lot.

28:33 Ed Delgado

Thanks. Have a great day.

28:36 Ed Delgado


28:37 Louis Amaya

That wraps up today's broadcast. Please connect through LinkedIn, Facebook and Twitter. Today's show in closing __28:45__ is sponsored in part by iServe Companies, a fully licensed component servicer, asset manager, and an origination platform. iServe Real Estate Operations would like to know if you're interested in buying an occupied home during the premarketing stage before the asset is listed. This is a unique program that is needed platform. If you're interested, please send an email to investorpurchase@iServeREO.com and someone from our investor relations team will reach out to you. The email again is iServepurchase@iServeREO.com, sorry for messing that up. Thanks for joining us for Five Star Radio: Mortgage Markets Today. We will talk to you next time.