FDIC Floats Pool of Seized Mortgages

The FDIC is marketing a $215.5 million portfolio of mixed- quality debt on commercial and residential properties in 20 states.
The 446 assets, which the agency assumed from 20 failed banks, range from performing loans to foreclosed properties. Commercial buildings account for $166.9 million, or 78%, of the underlying collateral. Another $22.4 million, or 10%, is land suitable for residential development. Acquisition, devel- opment and construction loans and land loans make up the rest of the package.
The FDIC is seeking bids for an outright sale, but also is willing to sell a stake in the portfolio via its “structured-sales” program. Investors can begin conducting due diligence on Aug.
23. Bids are due Oct. 1. Mission Capital is running the auction.
In a structured sale, the winning bidder would work out the
assets and split the proceeds with the FDIC, which may be will-
ing to provide low-cost financing for the purchase. In the 34
structured sales completed since the program began in May
2008, the stakes sold by the FDIC ranged from 20% to 50%.
The average balance on the mix of fixed- and floating-rate
loans in the offered portfolio is just under $500,000. Some 192
mortgages totaling $70.9 million, or 33% of the overall balance,
are current on payments. Another 165 mortgages totaling $92
million (43%) have already matured. The rest are delinquent
by at least a month, including 72 loans totaling $48.5 million
(23%) that are more than 120 days past due.
Some 92 mortgages with balances adding up to $57.7 mil-
lion (27%) mature in the next year, and 63 loans totaling $18.9
million (8.8%) come due in the year after that. The remaining
$46.9 million of notes have maturities ranging up to 25 years
from now.
The collateral properties are concentrated in Pennsylvania

(27% of the overall loan balance), Florida (12.7%) and Virginia (12.3%). Loans that the FDIC inherited from Nova Bank of Ber- wyn, Pa., represent the largest share (33%), followed by mort- gages seized from Bank of the Commonwealth in Norfolk, Va. (13.1%). 

COMMERCIAL MORTGAGE ALERT: Aug. 16, 2013, 5 Marine View Plaza, Suite 400, Hoboken NJ 07030. 201-659-1700

Fixed-Rate Focus Could Spell

Trouble For Smaller Banks

By Andy Peters

April 3rd, 2013

Community bankers know they must prepare for an eventual rise in interest rates. One way to get ready involves making variable-rate loans, but that task is proving daunting for many banks.
Just ask Paul Erwin, chief financial officer at Nuvo Bank & Trust in Springfield, Mass., who says it is tempting to stick with fixed-rate loans because they produce immediate profits. “You can make profits today, even though the yield is low,” he says.
Banks can get in trouble if they are too reliant on fixed rate products, especially on longer-term loans, says Chris Marinac, an analyst at FIG Partners. Those banks will
face significant pressure when the Federal Reserve Board
ratchets up interest rates.
“You don’t want to have a bank making a disproportionate amount of eight- to 10-year loans that are fixed at 3.75%,” Marinac says. “When rates go up, they’re going to hop up a lot, by 150 or 200 basis points. You could really be mismatched.
Most large banks are well-positioned for Fed tightening, according to data from SNL Financial. At banks with at least $100 billion of assets, the median gap between short-term assets and short-term liabilities, as a percentage of assets, was 22% at Dec. 31.
It is a different story at small banks. The median gap at banks with less than $2 billion in assets was 5.6% at the end of last year.
Banks with a high percentage of short-term loans can react quickly to changing rates. Variable rates add even more flexibility.
Many small banks are struggling with the issue. “It’s a two-edged sword,” Erwin says. “If you fund short and book long, you get [a better short-term return]. But you would get killed if rates go higher.”
Regulators have long harbored concerns about interest rate risk. The Federal Deposit Insurance Corp., as part of a series of technical assistance videos, plans to include a program that focuses on managing interest rate risk.
“If rates went up today, you could have serious consequences,” Daniel Frye, the FDIC’s Boston area director, said during a Wednesday meeting of the agency’s advisory committee on community banking. “Not to the extent it would cause banks to fail, but
it would put them in a position where it’s difficult to
absorb credit costs.”
Many community banks could end up in a precarious position when rates rise, Marinac says. In recent annual reports, about 80 banks disclosed data on the mix of loans in their portfolios.
Of those, five banks reported that fixed-rate loans made up at least 85% of total loans, Marinac says. At Dec. 31, fixed-rate loans made up about 91% of the total loans at Bank of Marin Bancorp (BMRC) in Novato, Calif.
To be sure, banks can migrate their risk by relyng on shorter durations. They can also use interest rate swaps as a hedge.
“These hedges allow us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset by swapping our fixed-rate interest stream for a floating-rate interest stream,” the
$1.4 billion-asset Bank of Marin said in it’s annual report.

Bank of Marin spokeswoman Sandy Pfaff declined to
comment further.
Swaps have limited use as a hedge. For instance, the $13 billion-asset IberiaBank (IBKC) uses interest swaps to cover less than half its fixed-rate loans, Marinac says. The Lafayette, La., company has roughly $3.6 billion in loans that it doesn’t get hedge against. “They know you can’t hedge everything because it’s too expensive,” Marinac says.
Smaller banks should remain cautious about hedging because of it’s complexity. “You need to go into it with a well-though-out plan,” Frye said. “You really need to get it right before you enter a hedging strategy.”
Another problem is that many borrowers demand fixed rates to “lock in low-rate financing,” says David Tobin, a principal at Mission Capital Advisors.
It is very hard for banks to turn away business when credit-worthy borrowers are hard to come by. “If I’m
a bank with a lot of fixed-rate loans, the good news is that I’m making a tremendous amount of money today,” Tobin says.
Plus, some fixed rate loans may be safe to hold when rates rise. “If you have a legacy fixed-rate book that had some credit issues, rising rates aren’t going to affect [the portfolio] because those borrowers couldn’t refinance anyway,” Tobin Says.

To view the original article:

http://www.americanbanker.com/issues/178_64/fixed-rate-focus-could-spell-trouble-for-smaller-banks-1058024-1.html

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ant People in Commercial Real

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28. David Tobin, Principal, Mission Capital Advisors

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Founded by David Tobin in 2002 as just a five-person firm focused on note sales, wi some debt and equity capital-raising activities, Mission Capital Advisors is brimmin with both business and employees—so much so that Mr. Tobin said they’ll be lookin for larger office space when their current lease is up.
“Fast-forward to 2008, 2009—business has been steadily increasing up until then, and then it really took off,” Mr. Tobin said. “Even though our note sale business wa growing nicely during the upturn, it’s a fundamentally counter-cyclical business. So when banks started going sideways, we really kicked into high gear.”
Major contracts with the FDIC and the Federal Reserve Bank of New York followed.
2012, Mission traded roughly $3.8 billion of commercial and residential real estate loans, which represented a 23.5 percent increase over the year previous.
Then, over the course of both 2011 and 2012, Mission closed $730.5 million of debt and equity transactions. This volume includes land loans for condo developments i New York and Florida.
Asked how the debt and equity side compares with the note sales side, and how the two shift as a percentage of Mission’s business, Mr. Tobin explained by taking a loo back over the past several years.
“It was basically zero in 2009,” he said of the volume of debt and equity business. Now, he pointed out, the firm has staffed up that group, a reflection of how that portion of the business has grown. “From zero, I would say that if you take our 2011 and 2012 totals, which probably measure somewhere on the order of $8 billion of debt sold, those guys have done close to $1 billion of debt and equity over the same period.”
He estimated that this made it 10 percent of their business and added that “I would expect [it] within two years to be 50 percent of our business.”

The Mortgage Observer asked Mr. Tobin if having a multifunctional business—in which clients buying sub-performing and distressed debt deals on the private equit side return to invest JV equity in real estate deals Mission arranges—was always a goal.

“It was always the intent, but the debt trading side was the thing that took off immediately when we started the firm in 2002,” he said. “So in 2002 we were still cleaning up the ’98 mess and the dot-com implosion mess, and that accelerated to
’06, and it was busy, and we did new origination trading where banks are buying portfolios of newly originated loans and trading them and syndicating them. When the wheels came off everything, we were just perfectly positioned to help clean up the mess.”
Next up for the firm, he said, is investment sales. “We’re licensed in a number of states, and we’re rolling out that whole platform, because it dovetails well with the note sales platform,” Mr. Tobin said. “Ideally, we will be a very diversified, multiple office shop at the end of 2014.”

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