New Oak Capital on Monday announced its new Mortgage Credit Service business that will be based in Danbury, CT.
Chad Burhance will head NewOak’s credit services. Initially the business will provide forensic underwriting of loans, putback defense for some of the larger banks and ultimately some litigation in the re-underwriting of loans.
Burhance said that the unit is also currently working with two investment banks to perform the role of third-party, independent credit surveillance manager. The role for New Oak here, explained Burhance, is to resolve disputes at an earlier stage before it become litigious.
“In some new securitizations one of the mechanisms that they are looking at using in the deal documents to govern disputes of loans that have fallen into delinquency is to have an independent third party that is pre –named and has access to all the origination information as well as ongoing servicer performance information.”
The interest for a third party credit surveillance manager comes from both the buyside and the sellside, said Burhance. The buyside wants the process by which problems are mediated very clearly delineated vs. the typical repurchase demand work. But also the credit agencies, in order to reduce some risks, are going to want someone there who has the capability and the systematic approach to actually execute this in the right way, he explained.
On the whole loan side, New Oak Mortgage Credit Service is targeting the new investor base that has emerged in the last several years that have been actively buying whole loan pool, both from a hedge fund view and private equity perspective. “From a new securitization and a new origination perspective that is our new audience for the due diligence type work that we will be performing.”
There also remains a huge amount of work however on legacy transaction reviews.
Non-agency RMBS litigation still has several years left to play out. Burhance said that the MBIA/BofA settlement is just one of difficult cases that will come over a period of time. “Obviously the monoline cases were the first ones that have come through the courts now we are dealing with a portion of the government cases with the FHFA – that will play out over the course of the next 12 to 14 month and then onto the next phase – there is still lot of activity.”
The New Oak Mortgage Credit Service business plans to provide its expertise from its team, made up of former traders, structurers and bankers that understand how these structures work.
“We get deployed to help the client understand how their securities work and how they compare to other securities at that point in time,” said Burhance. “We help them resolve damage calculations that are being put forth by the plaintiff. On the credit services side, we also get hired to work with plaintiff loan breach allegations.”
The complexity here is the tight time schedule that often leaves little time to do a quality job. To tackle this, Burhance said, New Oak spent its resources both in the type of people on the new team but also on the technology. “It’s a huge technology investment not only from the legacy file review perspective but also then take us forward from the origination.”