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» VISIT US ONLINE @ DSNEWS.COM FITCH: HEYDAY FOR SPECIALTY SERVICERS WILL FADE IN TIME While the current market environment is a haven for specialty servicers, Fitch Ratings suggests in time, these shops will have to rely more heavily on originations to survive. In the last year, specialty servicers have taken on banks' servicing portfolios consisting of loans with more than $500 billion in unpaid principal balance, according to Fitch. Nationstar Mortgage, Walter Investment Management, and Ocwen Loan Servicing have especially benefited from these sales. In June, Ocwen acquired a portfolio of mortgage servicing rights from OneWest Bank for $2.5 billion. Nationstar entered an agreement to purchase $215 billion in unpaid principal balance from Bank of America in January, and Walter Investment Management announced agreements to purchase servicing rights from Bank of America and MetLife Bank in January as well. "The decision by many banks to reduce or exit subprime and distressed mortgage servicing in part reflects regulatory risks faced by these institutions in the migration to Basel III," Fitch said. Basel III limits the amount of mortgage servicing rights a bank can claim as tier I capital to 10 percent, prompting many banks to take steps to reduce their servicing portfolios. This environment is ideal for nonbank servicers such as Nationstar and Walter Investments as they take on subprime portfolios. However, as servicers collectively continue to process these distressed loans and the market improves, specialty servicers will find less opportunity in this sector, Fitch noted. "[T]he sustainability of growth in the longer term will be constrained by the declining size of the subprime market reflecting the lack of new originations since 2007," according to Fitch. As a result, the agency contends specialty servicers will likely need to turn to originations. Fitch sees a potential for increased risk if future conditions necessitate a servicing transfer. "In high stress, low-probability scenarios used to analyze the ratings of high investment-grade structured finance bonds, a potential large portfolio transfer of servicing may have negative rating implications for these bonds," Fitch said. However, an influx of small servicers in the market may help alleviate some of this risk, the agency added. LIST OF IMPROVING MARKETS SHRINKS IN JULY The Improving Markets Index (IMI) put out by the National Association of Home Builders' (NAHB) and First American continued to elude any semblance of trend-making in July, slipping a bit after the previous month's increase. According to the IMI report, a total of 255 metro areas made the list for July, down from 263 in June. The index improved for seven straight months before declining in April and May, only to turn around again at the start of summer. To qualify for the index, a market must have shown improvement (from its trough) in housing permits, home prices, and employment for at least six straight months. While July's report showed a decline monthover-month, the number of markets to make the index was more than triple that of July 2012. "This is the sixth straight month in which at least 70 percent of all U.S. metros have qualified for the Improving Markets Index," said Rick Are you struggling with poor BPO quality? There are 4 reasons why we've been a leader in the valuation industry since 1995 » Exceptional QC Processes » Experienced Vender Panel/ Developed over 20 Years. » Completely Customizable Solutions. » Outstanding Customer Service. Judson, NAHB chairman. "The relative stability of the IMI is representative of the broad recovery under way, which is much more extensive than what we were looking at one year ago." July's index included markets across 49 states and the District of Columbia. Six new markets qualified for the list: Cumberland, Maryland; Saginaw, Michigan; Olympia, Washington; Kingston, New York; and Farmington and Las Cruces, both in New Mexico. Meanwhile, 14 metros were dropped. According to David Crowe, NAHB's chief economist, "Based on recent trends in home prices, housing permits, and employment, the outlook for a continued housing expansion remains very positive for the remainder of 2013." KNOW THIS Institutional investors, or non-lending entities that have bought at least 10 properties in the last 12 months, accounted for 9 percent of residential sales in June, according to RealtyTrac. www.AssetVal.com 800-560-7350 ext. 114 41