With mortgage delinquencies on a perpetual trend upward, there is no shortage of nonperforming loans in the market.
National Asset Direct (NAD) - a smaller company that purchases these types of assets - has big plans for growth in the sector. The company is ramping up its newly minted mortgage servicing platform to take advantage of these opportunities.
Housed in former Countrywide Financial offices, the San Diego-based mortgage firm was launched in October 2006 to purchase nonperforming whole loans and real estate.
The company runs the acquisition, due diligence and portfolio management operations for its assets, which it buys from financial institutions including investment banking companies, Wall Street firms and large mortgage originators, among others.
Indeed, NAD has solid business relationships with these firms. It has hired a host of senior managers from several mortgage institutions, including Option One Mortgage, Suntrust Mortgage and GMAC RFC, which is the former home of NAD Chief Investment Officer and Chief Operating Officer Louis Amaya, who was director of the servicing capital group at GMAC.
While NAD did not get into the business during the mortgage crisis, opportunity did fall into its lap. By purchasing distressed loans, NAD is able to help firms looking to manage risk or reduce their loss severity and is also able to help fuel market liquidity. But as residential real estate has begun to rapidly decline, and NAD has continued to purchase these assets, the company decided to start performing its own risk management as well.
"In this environment, we feel it is imperative to be able to manage the whole process and not outsource any of it, or use third-party vendors, because the performance just isn't there anymore," Amaya said. "Many of these shops were servicing 500 to 1,000 loans per employee; these models are not built to service the number of defaults that we are having."
As a result, iServe was born in April 2007. This subsidiary functions as an originator and servicer of first-lien mortgage loans, while also making NAD into a full-service distressed mortgage platform.
The iServe brand is divided up into three segments: iServe Servicing, iServe Real Estate and iServe Mortgage.
iServe Servicing, headquartered in Dallas, was set up to oversee the servicing of NAD's loan portfolio. The firm currently manages approximately 150 assets per loss mitigation employee. The smaller number of assets assigned to each employee ensures that there is personal interaction with each borrower in NAD's portfolio.
iServe Servicing started boarding loans in December 2007 and currently services about 70% to 80% of the mortgages NAD purchases, with plans for further expansion over the next year.
Part of this expansion is new hires. NAD recently announced that it had hired three former Accredited Home Lenders employees to its senior management team, including Ray Schalk, Melissa Dant and Jill Parker (ASR, 5/26/08).
Schalk joins NAD's whole loan trading team and will be responsible for all aspects of loan acquisitions including maintaining relationships with sellers, monitoring credit and real estate market trends and managing assumptions in NAD's pricing model. Dant joins as general counsel and will oversee all legal affairs for NAD and its subsidiaries, and Parker will serve as project manager. In this position, she will oversee all NAD and iServe projects.
Amaya expects a slew of new hires at the iServe level as well.
The Platform Pieces
iServe Real Estate, which is based in San Diego, acts as an asset manager for NAD's entire real estate owned portfolio. The company is the direct broker and sales agent throughout California and manages a network of brokers to dispose of assets throughout the rest of the nation. iServe Real Estate also assists with liquidating NAD's REOs and short sales.
Meanwhile, all of the financing for the REOs and short sales can be done through iServe Mortgage, also based in San Diego, which is set to originate its first loan in July.
Through its iServe platform, NAD seeks to find appropriate solutions for troubled borrowers. Once the company is able to work out these loans to a reperforming level, NAD will either hold them on their books or strategically refinance a certain portion of the pool to help the borrowers get into better loan products with better LTV ratios.
Amaya noted that when the secondary market comes back, the company would consider selling some of the loans as reperforming. But since the company can purchase troubled loans at a discount, NAD is able to hold the assets with a decent return until then.
Currently, NAD manages about $200 million in value, which equates to somewhere around 700 loans. While this number is not huge by market standards, Amaya says NAD expects to see expansion over 2008. "We have built the infrastructure. Now we hope to double the portfolio within the next two months and then continue to grow from there."
Late last month, iServe announced that it had received a license in California to originate and service first-lien mortgage loans, qualifying the company to service loans in 29 states, including Illinois, Texas and Florida - the proverbial eye of the mortgage storm. iServe is also exempt from qualification in 10 additional states.
Given the current state of the housing market, it has become a very bureaucratic process to obtain servicing licenses, not to mention costly and time consuming for mortgage companies like iServe. iServe is still awaiting licensing in 10 other states.
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