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Sep 7, 2016

DealBook Today'sTop Story - September 7, 2016: Caliber Home Loans Embraces Borrowers With Spotty Credit


Caliber Home Loans Embraces Borrowers With Spotty Credit

Matthew Goldstein
Lone Star and Caliber are moving into these so-called nonprime mortgages as big banks in the United States continue to leave the business of managing mortgages to borrowers with spotty credit histories in the wake of the foreclosure crisis.

Big banks are focusing much of their effort on what are known as jumbo mortgages, home loans issued to wealthier borrowers with pristine credit histories who are borrowing more than $400,000. Jumbo mortgages are more profitable and less risky for banks than smaller loans to homeowners.
Caliber, a firm that Lone Star began cobbling together nearly four years ago, is now one of the fastest-growing mortgage finance firms in the country. Caliber is the 10th largest mortgage servicer, or bill collector, out of 30 major firms nationwide.
Its portfolio of subprime mortgages increased about 14 percent, to $17 billion, in the last year, according to Fitch Ratings. Mortgages to borrowers with shaky credit histories account for 18 percent of the $93 billion in mortgages that Caliber manages and collects payments on from homeowners.
Over all, the percentage of subprime mortgages managed by financial firms has declined by an average 16.7 percent in the last year, according to Inside Nonconforming Markets, a trade publication.
In a statement, Caliber said the focus on the increase in the number of subprime mortgages in its portfolio overlooks that the vast majority of mortgages it manages and underwrites are to borrowers with solid credit histories.
“The growth of Caliber’s servicing book should not be characterized by a single data point, as over time it will be driven by Caliber’s origination activity — which does not include any subprime products,” Caliber said by email.
The firm added that its Fresh Start loan program, “a new nonconforming product that Caliber offers to underserved borrowers, makes up less than 1 percent of all annual production and is not considered subprime.”
Subprime investing is not new to Mr. Grayken’s firm. In 2014, Lone Star, based in Dallas, bought DFC Global, a payday lender that makes high-interest, short-term loans to consumers.
The growth in Caliber’s subprime business in part reflects the fact that Lone Star has emerged as one of the largest buyers of distressed mortgages. One of Lone Star’s biggest purchases of soured mortgages was a pool of 17,000 loans it purchased at a steep discount from the Department of Housing and Urban Development.
That deal has prompted criticism. Housing advocates contend that Lone Star and Caliber have been too quick to foreclose on borrowers and have been unwilling to negotiate over the terms of a loan modification.
Caliber has foreclosed on roughly 21 percent of the mortgages brought from H.U.D., up from 14 percent at the end of last year, according to an analysis by RealtyTrac of the firm’s loan data that was reviewed by The New York Times.
Caliber has defended its handling of the H.U.D. loans, noting that most borrowers were more than two years delinquent on their mortgages.
“The vast majority of the loans in the H.U.D. pools came to Caliber in some stage of foreclosure, including some 8,300 loans associated with abandoned properties or borrowers whose loans we are legally prohibited from contacting to offer a modification opportunity,” the company said.
More recently, Lone Star has been buying thousands of distressed loans from auctions staged by Fannie Mae and Freddie Mac.
A Caliber representative said the criticism of the firm was misplaced and pointed to a recent survey by J.D. Power that ranked the firm eighth on consumer satisfaction, well ahead of much larger firms like Nationstar Mortgage, Bank of America and Wells Fargo.
The rapid growth at Caliber, which has more than 5,000 employees, has not been without problems.
The firm’s mortgage modification and foreclosure practices have prompted investigations by regulators in New York. Last year Fitch issued a negative outlook on Caliber, in part because of its rapid growth and heightened regulatory scrutiny.
Roelof Slump, a managing director at Fitch, said the ratings agency had no immediate plans to revise its outlook on Caliber, but had noted that the firm acted this year to “enhance their staffing.” He cited the appointment of Sanjiv Das, the former chief executive of Citigroup’s mortgage division, as Caliber’s chief executive.
In June, Fitch reviewed and rated the first securitization of nonprime mortgages Lone Star brought to market, a $161 million bond offering backed by nearly 400 mortgages, which is one of the largest securitization of nonprime mortgages since the financial crisis.
In its review, Fitch noted that the “credit quality of the borrowers is weaker than prime.”
Now, Lone Star plans an even larger bond offering backed mainly by nonprime mortgages written by Caliber. In a Sept. 6 pre-sale ratings report, Fitch said the newest $217 million securitization will be backed by 501 mortgages.