Pipeline

Mozilo Speaks

Angelo Mozilo took the stand in a Van Nuys, Calif., courtroom this week and defended his stewardship of Countrywide Financial Corp.

According to a story published Wednesday in the Los Angeles Times, Countrywide's founder and former chairman and chief executive — who's kept a low profile for several years — testified Tuesday in a wrongful-termination lawsuit filed by Michael Winston, the lender's former chief leadership officer. Mozilo, 72, "appeared tired, walking slowly and leaning on a hallway railing," the Times said.

Winston claims he fell out of favor with Countrywide management, in part for refusing to falsify a report to a bond-rating firm about the lender's management and succession plans. Although they didn't fire him, Winston alleges Countrywide executives "poisoned his reputation to such a degree that Bank of America didn't keep him on" after it acquired the mortgage company in 2008, the Times said.

Mozilo said he deferred to Countrywide's human resources director and that Winston showed he was not devoted enough to the company because he continued to run his own outside firm.

"I always regarded myself as a CEO, not a dictator," Mozilo said. "I think the jury will note that I'm a pretty frank person — straightforward, I say what I believe. But I'm also willing to listen."

He also testified that Countrywide employees were held to a higher standard, the Times reported. "My primary responsibility was to make sure that we recruited and retained the best and the brightest and rid ourselves of mediocrity. I always felt that mediocrity is comparable to cancer," Mozilo said. "It spreads rapidly if you permit it to grow, and if you tolerate people who are not performing, it makes it very hard for the people who are working hard."

Tax-Lien Trading

In recent years, big banks and other institutional investors have become more active buyers of property tax liens from cash-strapped municipalities.

Those firms have tended to keep the liens on their balance sheets, reaping a steady yield, mostly because there wasn't a formal market to trade the receivables. But the hedge fund manager Thomas McOsker is trying to change that.

For nearly a year, McOsker, the founder of Sycamore Capital Partners LLC in New York, has been working with the brokerage GFI Group Inc. to establish a secondary market for tax liens.

Since October, roughly 70 participants have been vetted and uploaded to the firm's trading platform. Currently, there's about $100 million of tax liens on the platform available for trade — or about 1% of the total market. McOsker hopes to have $500 million to $1 billion of tax liens on board at any one time.

Because the average face value of a tax lien is small (around $2,500), McOsker and his team work with clients to amass tax liens into pools of $250,000 to $10 million, then shop the pools to potential buyers.

"The market in general is growing exponentially, in terms of availability of product," McOsker said. "The market participants are becoming more varied and greater, so now we're seeing even more institutions come in, because they have options."

Currently 28 states and the District of Columbia participate in some form of tax receivable financing. Though rules vary by state, typically an investor is entitled to the homeowner's overdue real estate taxes, plus interest and other penalties, all to be paid when the property owner settles the debt. After a certain period, the owner of the lien can move to foreclose on the homeowner, but McOsker said such an outcome is rare.

McOsker said pools of tax liens are fetching 70 cents to 103 cents on the dollar, depending on different factors, including the collateral, the average age of the lien and the interest rate.

"I think that the way the people view the asset class is going to become much more sophisticated," McOsker said. "This was previously a passive investment. Now this is becoming an actively managed asset."

"It's definitely not for everybody," he said. "What we're providing is the option. We're matching different types of players, bringing them to the feeding trough so you can price this stuff."

Time to Get Granular

The Federal Housing Administration has stopped allowing lenders to use appraisals of model homes in a subdivision or condominium project to value units under construction.

"As economic instability continues to impact many segments of the economy and the housing market in particular," FHA Commissioner David H. Stevens wrote in a letter to lenders last week, "it is in the best interest of the [FHA] Insurance Fund … to require an appraisal be performed on each individual unit within a larger housing project to determine the maximum mortgage amount" for that unit.

Historically, he noted, lenders used so-called master appraisal reports to cut costs and loan processing times and to make sure similar units were being consistently valued. Master appraisal reports used to be good for a year, and in some cases two years. But in 2009 the FHA cut the validity period to four months. That "largely removed the advantages of using MARs," Stevens wrote.