Origen Financial Discusses Redemption Features Of Its Securitized Trusts

SOUTHFIELD, Mich., June 18, 2014 /PRNewswire/ -- Origen Financial, Inc. (Pink Sheets: ORGN), a real estate investment trust that manages residual interests in securitized manufactured housing loan portfolios, today released information regarding its securitized loan portfolios and associated risks.

Ronald A. Klein, Origen's Chief Executive Officer, stated: "The loan portfolios in which we own residual interests were securitized between 2004 and 2007. Each of these securitized loan portfolios contains a redemption feature under which the loans may be purchased or auctioned and the securitization trust may be terminated. As the redemption dates grow closer, we believe it is important to remind our stockholders and the market of the mechanics of the redemptions and certain risks relating to the securitized loan portfolios."

Background

Since 2008, Origen's business has consisted of managing its interests in securitized loan portfolios. In each of the securitizations, a number of manufactured housing loans owned by Origen were transferred to a trust, which then issued interest bearing notes secured by the loans to investors and issued an ownership certificate to Origen evidencing the residual ownership interest in the trust. Cash flow received from payments of principal and interest on the underlying manufactured housing loans are used to pay interest and principal to the noteholders. "Excess Cash Flow," if any, which we define as the amounts remaining after payment of interest and required principal to noteholders and payment of fees and costs, including servicing fees, trustee fees, administrative fees and other expenses, are distributed by the trusts to Origen monthly as the holder of the residual trust certificate. The amount of Excess Cash Flow, if any, available for distribution to Origen is affected by many factors such as delinquency, defaults, prepayments and losses on the underlying manufactured housing loans, redemption rights and fees and costs of the trust. This Excess Cash Flow is the source from which, after paying its operating expenses, Origen is able to make distributions to its stockholders.

Redemption Mechanics and Related Risks

Each securitized loan portfolio is structured so that when the aggregate outstanding principal balance of the loans in the portfolio declines to 20% of the original unpaid principal balance, the servicer of the portfolio, which is not affiliated with Origen, has the option to purchase the remaining loans from the trust for a purchase price equal to the par value of the loans. 

If the servicer of the securitized portfolio exercises the redemption right and purchases the loans, then the proceeds of that purchase will be used first to pay off the notes and certain fees and costs and the remainder will be paid to Origen as the holder of the residual trust certificate.

If the servicer does not exercise its redemption right, then Origen will have the right to purchase the securitized loans for a purchase price equal to the par value of the loans. Origen's ability to execute the redemption right will depend on the availability of financing to fund the redemption on acceptable terms.

If the servicer does not exercise its redemption right and Origen is unable to execute its redemption right for a securitization, then the trustee of the securitization trust is required to attempt to sell the underlying loans at auction. The trustee must accept the highest offer at auction so long as the offer price is sufficient to pay off the notes and satisfy the trust's other expenses. The trustee will not be obligated to distribute any cash to Origen as the holder of the residual trust certificate unless there is cash available after paying off the notes and satisfying the trust's other expenses. If the loans are sold in an auction at a price less than their par value, the value of Origen's residual interest in the securitized loan portfolio will be decreased or may be eliminated entirely. Any securitized loans that are sold at auction will likely result in a payment to Origen that is less than the amount that it would have received had a redemption by the servicer occurred.

Additionally, if the trustee cannot sell the underlying loans in the initial auction for a price that is sufficient to pay off the notes and satisfy the trust's other expenses, then all residual interest cash flow would cease being distributed to Origen as the holder of the residual trust certificate and would be distributed instead to the noteholders as additional principal payments until (i) the notes are paid in full, or (ii) a subsequent auction is successful. Origen may bid to purchase the loans at any auction.

Increased Cost of Funds

Ambac Assurance Corporation issued a financial guaranty insurance policy in each of Origen's 2006-A, 2007-A and 2007-B securitizations. These insurance policies were intended to provide additional credit support to noteholders and thereby reduce Origen's cost of funds and increase the cash flow available to be paid to it. However, following the financial crisis of 2008, Ambac was reorganized in bankruptcy and the credit rating agencies downgraded its credit ratings to non-investment grade ratings. Ambac's bankruptcy and the downgrade in its credit rating reduced the value of the insurance policies to the noteholders which led to downgrades of the trust notes and increased Origen's cost of funds for each of these three securitizations. As a result of these developments, among other things, the value of Origen's residual interest in each of these three securitizations has been severely adversely affected. Origen currently does not anticipate receiving any significant distributions or payments from the 2006-A, 2007-A and 2007-B securitizations.

Estimated Redemption Trigger Dates and Amounts

The various redemption dates for the securitizations are partially a function of the actual prepayment rates of the underlying loan collateral and therefore are difficult to estimate. However, Origen currently estimates that the redemption rights relating to its securitizations triggered by the portfolio balances decreasing to 20% of their original balances will be triggered approximately on the following dates and that at those dates the aggregate unpaid principal balance of the securitized loans, the aggregate unpaid principal balance of the notes issued by the applicable trust and the value of Origen's residual equity interest in the applicable securitization will be approximately as follows:

Securitization

Estimated
Trigger Date

Estimated Balance of
Securitized Loans at

Estimated Trigger

Date

Estimated Balance of

Trust Notes at

Estimated Trigger Date

Estimated Origen Equity in
Securitization at

Estimated Redemption

Trigger Date

2004-A

Autumn 2015

$47 million

$33 million

$14 million

2004-B

Autumn 2015

$40 million

$31 million

$9 million

2005-A

Autumn 2016

$38 million

$29 million

$9 million

2005-B

Autumn 2017

$35 million

$27 million

$8 million

2006-A

Autumn 2017

$45 million

$45 million or greater

$0

2007-A

Autumn 2017

$40 million

$40 million or greater

$0

2007-B

Summer 2018

$28 million

$28 million or greater

$0

Origen incurs ongoing expenses in connection with its corporate operations. In addition, Origen will incur certain expenses if it exercises the redemption right and in connection with distributions of its assets and any liquidation of the company. Therefore, (i) the funds available to Origen to distribute to its stockholders before any redemption or auction will be less than the gross distributions it receives from the applicable securitization trust from time to time, and (ii) the funds available to Origen to distribute to its stockholders after any redemption or auction will be less than the estimated equity values set forth above.

Forward-Looking Statements

This press release contains various "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and Origen intends that such forward-looking statements will be subject to the safe harbors created thereby. The words "will," "may," "could," "expect," "anticipate," "believes," "intends," "should," "plans," "estimates," "approximate" and similar expressions identify these forward-looking statements. These forward-looking statements reflect Origen's current views with respect to future events and financial performance, but involve known and unknown risks and uncertainties, both general and specific to the matters discussed in this press release. These risks and uncertainties may cause Origen's actual results to be materially different from any future results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, the foregoing assumptions and those risks referenced under the headings entitled "Factors That May Affect Future Results" or "Risk Factors" contained in Origen's filings. The forward-looking statements contained in this press release speak only as of the date hereof and Origen expressly disclaims any obligation to provide public updates, revisions or amendments to any forward- looking statements made herein to reflect changes in Origen's expectations or future events.

About Origen Financial, Inc.

Origen is an internally managed and internally advised company that has elected to be taxed as a real estate investment trust. Origen is based in Southfield, Michigan.

For more information about Origen, please visit http://www.origenfinancial.com.

SOURCE Origen Financial, Inc.



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