Archive for January, 2009
Adjustable-rate mortgages — or ARMs — used to be a popular product for refinancing: A borrower paying a high rate would trade in the remainder of a long-term fixed-rate mortgage for an ARM with a low introductory rate. But with the Federal Reserve having slashed its federal funds rate — the target rate for overnight bank lending — by more than four percentage points over 2008 to a range of zero to 0.25 percent and interest rates on 30-year fixed-rate mortgages effectively averaging 5.1 percent last week, refi options have migrated away from ARMs, according to the results of Freddie Mac's (FRE: 0.00 N/A) 25th annual ARM survey.
ARM applications accounted for only 3 percent of application volume in December, "the lowest recorded in our survey," compared with 2004 and 2005 peaks near 36 percent, according to Freddie's vice president and chief economist, Frank Nothaft. Of conventional, prime borrowers originally under a one-year ARM that refinanced in the third quarter of 2008, 94 percent refinanced into a conforming fixed-rate loan. About 82 percent of borrowers originally under hybrid ARMs refinanced into fixed-rate mortgages, according to Freddie's survey.
The data, released Friday, show large premiums for initial interest rates on Treasury-indexed ARMs, a "very thin market" for one-year, Treasury-indexed ARMs, and a continued decline in ARM share of overall lending as the typical starting interest-rate savings relative to fixed-term loans evaporated, according to Freddie. “Our survey found that starting rates for conforming one-year ARMs averaged 1.76 percentage points above their fully-indexed rate, the largest rate premium observed since Freddie Mac began collecting ARM data in 1984,” Nothaft said. “Further, rates on 30-year fixed-rate mortgages had fallen to 50-year lows and were near or below initial rates on ARM products."
These low fixed rates sparked an exodus to 30-year fixed rate mortgages as refinance products. “Mortgage rates for conventional conforming 30-year fixed-rate loans fell to a new record low in the final weeks of the fourth quarter of 2008, giving borrowers an opportunity to save quite a bit on their monthly payment," Nothaft said. "When interest rates fall sharply we tend to see more borrowers go for a simple rate-and-term refi that lowers their payment or lets them keep their payment about the same but shorten the maturity of their mortgage obligation.”
In the fourth quarter of 2008, borrowers cashed out $17.5 billion in home equity by refinancing — the lowest amount since the first quarter 2001, according to Freddie's quarterly refi review, released Friday. In another indicator of how homeowners are using their refis, Freddie saw 14 percent of refinancing borrowers pay in additional money at the time of refi, reducing mortgage debt and suggesting consumers are moving toward debt-reducing habits and away from debt-building habits apparent in cash-out refis.
“Borrowers who have owned their home for many years often have substantial equity in their homes," Nothaft said. "We found that, on average, borrowers who refinanced were replacing a mortgage that was 3.6 years old and over the time they had that mortgage their home value was up by 9 percent. In the fourth quarter of 2008, homeowners who refinanced lowered their coupon rate by one-quarter of a percentage point based on the refinance report’s median ratio of new-to-old interest rate.”
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The Federal Reserve Bank of New York on Thursday announced just under $16.84 billion in new agency mortgage-backed security purchases for the week ending Jan. 28. It claimed $5.346 billion off Freddie Mae (FRE: 0.00 N/A)'s balance sheets, $7.19 billion from Fannie Mae (FNM: 0.00 N/A) and $4.301 billion from Ginnie Mae. Altogether, the Fed has purchased — or at least agreed to purchase; not all transactions are final yet — approximately $33.5 billion from Freddie, $27.4 billion from Fannie and $8.6 from Ginnie, bringing total purchase to about $69.5 billion, just less than 14 percent of its total $500 billion purchasing power.
The Federal Reserve on Nov. 25 first announced the program to purchase the direct obligations of government-sponsored entities — a $100 billion reserve for GSE debt comes on top of the total purchasing power — and Federal Home Loan Banks, as well as mortgage-backed securities backed by Fannie, Freddie and Ginnie. “This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” Fed officials said in a media statement announcing the program.
The Federal Reserve may soon begin modifying mortgages it owns within the mortgage-backed assets it has purchased from government-sponsored entities, according to a letter written Tuesday by Fed chairman Ben Bernanke and addressed to Committee on Financial Services chairman Barney Frank, D-Mass. “The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank and that are subject to the policy through sustainable loan modifications and other actions that are consistent with the Federal Reserve’s obligation to maximize the net present value of the assets for the benefit of taxpayers,” the letter read, in part.
See the transactions posted on the Fed's site.
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Merry Christmas, Happy New Year, and now Happy Valentine's Day from your friends at the GSEs. Freddie Mac (FRE: 0.00 N/A) and Fannie Mae (FNM: 0.00 N/A) announced Friday morning they are extending the suspensions of evictions triggered by foreclosures through the end of February. The suspension will apply to all single family properties with Fannie or Freddie-owned mortgages that have been foreclosed upon.
This is the third extension of eviction suspensions. Both Fannie Mae and Freddie Mac started a program to suspend foreclosures evictions on Nov. 26, set to expire on Jan. 9, but it was extended until Friday.
In the same announcement Friday, Freddie Mac also outlined a new strategy — akin to Fannie Mae's new policy implemented this month — offering qualified owner-occupants and tenants the opportunity to lease properties on a month-to-month basis after foreclosure.
"First and foremost, Freddie Mac's REO Rental Option is intended to help cushion the impact of foreclosure on families who own or rent homes with Freddie Mac-owned mortgages," said David M. Moffett, CEO of Freddie Mac.
Under Freddie's REO Rental Option, leases will be offered to current renters on a month-to-month basis at market rents or the rent amount they were paying prior to foreclosure, whichever is less. The rent for former owner-occupants will be the market rent, determined by Freddie Mac's contracted property management firm.
To qualify, current tenants and former owner-occupants must be able to demonstrate they have "adequate income" to pay the monthly rental amount, the company said in a press release. The home must also meet applicable building codes or be "affordably" brought into compliance, to be eligible.
Further Efforts
Freddie Mac said it will also explore loan modification options that may enable owner-occupants to retain ownership of their homes by reinstating their mortgage with modified terms.
"In about half of all foreclosure sales there is no conversation between the borrower and the mortgage servicer about workouts," said Ingrid Beckles, senior vice president of Default Asset Management at Freddie Mac. "Before starting the eviction process, we want to ensure there is one last effort to achieve a workout."
Reports surfaced from the Wall Street Journal Thursday that Fannie Mae has taken another stride to prevent foreclosures via workouts by teaming up with Neighborhood Assistance Corp. of America, a non-profit community advocacy and homeownership organization. The agreement is one of many measures the government entity and its main rival, Freddie Mac, are working on to avoid a further surge in foreclosures. While the agreement hasn't been announced yet, the Journal said it was confirmed by Fannie Mae and Bruce Marks, chief executive of the NACA.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Flagstar Bancorp Inc. (FBC: 0.68 +3.03%), the holding company for Flagstar Bank FSB, announced Friday it had posted a net loss of $200.3 million, or $2.40 per share, in the fourth quarter — up more than 300 percent from the third-quarter loss of $62.1 million. Non-performing assets including real estate-owned and repurchased assets increased to $755.2 million at the end of the fourth quarter, up from $548.3 million at the end of the third quarter. Of these assets, non-performing residential first mortgage loans increased to $432.6 million, net of any FHA-insured assets, from the $304.8 million reported at the end of the previous quarter.
Net charge-offs of loans were $24.3 million in the fourth quarter, up from $19.6 million in the third quarter and nearly double the $12.2 million in the fourth quarter of 2007. As a result, the company reported an allowance for loan losses of $376 million — or 4.14 percent of loans held for investment — compared with the $224 million allowance in the third quarter.
The bank reported $5.4 billion in residential mortgage originations for the quarter, down more than 19 percent from $6.7 billion in third-quarter originations. Year-over-year figures paint a somewhat more optimistic picture for Flagstar's mortgage banking operations, with the bank reporting $28.3 billion in total loan production for all of 2008, up 6 percent from $26.7 billion in all of 2007.
The bank neared the end of a tough quarter with an announcement on Dec. 18 that private equity firm MatlinPatterson Thrift Investments LP would inject $250 million in Flagstar, taking a 70 percent stake in the Troy, Mich.-based bank. The bank also said in its earnings statement that it expected a total of $523 million in capital from outside sources including MatlinPatterson. Flagstar said it expected $5.32 million in private investments from management, as well as a $266.6 million infusion through the capital purchase vehicle of the Treasury Department's Troubled Asset Relief Program.
These transactions are expected to close Jan. 30, the bank said. Flagstar shares were trading at 66 cents, down more than 4.3 percent at the time this story was published.
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The U.S. economy tightened at a 3.8 percent annualized rate in the fourth quarter of 2008 according to advance estimates released by the U.S. Department of Commerce Friday. This marks the worst performance for the U.S. economy in nearly 27 years, according to a Market Watch report.
The fourth quarter figure is still less than the 5.5 to 6 percent annual contraction economists expected after real gross domestic product fell at a 0.5 percent annualized rate during the third quarter. However, the fourth quarter decline could have been worse, as the government counts unwanted buildups of inventory as growth.
According to the report, the decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. Residential fixed investment — a component that includes spending on housing — dropped by a whopping 23.6 percent, reflecting the ongoing troubles in the U.S. housing market.
Positive contributions came from private inventory investment and of course, federal government spending. The single largest component of GDP, consumer spending, fell 3.5 percent, far above second-quarter's 1.2 percent drop, but below the 3.8 percent fall in quarter three.
In a statement, Christina Romer, President Barack Obama's chief economist, said the decline in GDP had spread throughout the economy, "emphasizing that the problems that began in our housing and financial sector have spread to nearly all areas of the economy." Romer underscored the need that an "aggressive, well-designed" fiscal stimulus be enacted quickly.
U.S. gross domestic product totaled $11.599 trillion in the fourth quarter, the government said.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
New single-family home sales ranked a seasonally-adjusted annual rate of 331,000 units in December, according to a joint report released Thursday by the U.S. Department of Housing and Urban Development with the U.S. Census Bureau. The rate came in 14.7 percent below the rate recorded in November. The average sales price of new homes sold in December was $246,900. The seasonally adjusted estimate of new homes for sale at the end of the month came in at 357,000, a 12.9-month supply at the current sales rate, according to HUD's data. An estimated 482,000 new homes sold in all of 2008, a 37.8 percent decline from 2007's 776,000 total.
Approximately 23,000 new homes sold in December, with roughly a third — 30.4 percent — selling at a range of $150,000 to $199,999 and just over 26 percent selling at a range of $200,000 to $299,999. In November, 22.2 percent of new home sales fell in the $150,000 to $199,999 range, while 25.9 percent of sales fell in the $200,000 to $299,999
The data show a steady shift toward the less expensive ranges for new homes over the year. In December 2007, 2.7 percent of new home sales fell in the $750,000-plus range; in December 2008, less than 0.5 percent of sales occurred in that range. In December 2007, 13.6 percent of new home sales went for under $150,000; by December 2008, that ratio increased to 17.4 percent of all new home sales. In December 2007, about 52 percent of new home sales occurred in the $150,000 to $299,999 ranges. In December 2008, that ratio had increased slightly to approximately 56.4 percent of all new home sales, according to HUD's data.
The move into the lower price ranges may be gradual over the past year, but the shift is apparent in the data. The market has a long way to go to reach the bottom of the inventory; December 2008 showed a 12.9-month inventory (based on the current rate) while December 2007 showed only 9.8 months' inventory. A look at the raw data for home inventory tells a slightly different story, however; while approximately 494,000 new homes were still for sale at the end of December 2007, some 357,000 were for sale at the end of December 2008. So, while the rate of sales may have declined — 44.8 percent, according to the data — the market is slowly selling off excess inventory.
Write to Diana Golobay at diana.golobay@housingwire.com.
Hope Now, the private sector alliance of mortgage servicers, counselors, and investors that works to prevent foreclosures and keep homeowners in their homes, announced Thursday that its members and the larger mortgage lending industry completed a record-high 239,000 foreclosure prevention workouts in December 2008. This marks the first time since Hope Now began to compile data in July 2007 that the number of workouts exceeded 200,000 in 4 consecutive months.
“Hope Now members know they have to keep doing more to keep up with the growing needs of homeowners at risk of losing their homes,” said Faith Schwartz, Hope Now’s executive director. “The December results demonstrate that Hope Now members are moving aggressively to do what’s needed to avoid preventable foreclosures.”
December's results show the mortgage lending industry is shifting its focus to loan modifications. 85 percent of homeowners with subprime loans who received workouts in December received modifications, while 37 percent of prime borrowers who received workouts completed a modification.
For the first time since July 2007, the number of loan modifications was more than half of all workouts completed in a single month. The 122,000 modifications completed in December 2008 are 19 percent higher than the previous record set in October 2008. Hope Now said it expects the increasing reliance on loan modifications rather than payment plans will continue as economic conditions warrant.
Despite the 34,000 month-over-month rise in foreclosure starts for December — 75 percent of which were in prime loans — December's results are a ray of good news for homeowners said Steve Bartlett, president and CEO of the Financial Services Roundtable, a Hope Now funding member.
“When coupled with the report from the National Association of Realtors earlier this week that existing home sales in December were higher than expected, Hope Now's record-high number of foreclosure prevention workouts should provide some optimism for homeowners about the future,” he said.
Including the December results, almost 2.3 million foreclosure prevention workouts were completed by the mortgage lending industry in 2008. Almost 3.2 million were completed between July 2007 and December 31, 2008.
Interestingly, for the seventh consecutive month, the number of foreclosure starts for prime loans well exceeded those for subprime.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The Federal Open Market Committee announced late Wednesday the outcome of its days of meetings: It decided to keep the target range for the federal funds rate at zero to 0.25 percent. The FOMC echoed projections it made in mid-December when it originally slashed the rate effectively to zero, saying on Wednesday that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." The committee acknowledged the economy has "weakened further" since its last meeting in December, but showed optimism that "gradual recovery" will begin sometime later this year.
The FOMC also said the Federal Reserve will continue supporting the financial market by purchasing agency debt and mortgage-backed securities and is even prepared to purchase longer-term Treasuries "if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."
The committee acknowledged these actions will likely keep the Fed's balance sheet at a high level but predicted inflationary pressures will remain at lows "below rates that best foster economic growth and price stability in the longer term." Even so, the Fed's options appear limited now that the fed funds rate is hovering essentially at zero, making money cheaper than it's ever been.
The Federal funds rate has hemorrhaged in the past year and a half. In September 2007, the Fed cut the target for the rate 50 basis points to 4.75 percent — the first cut in four years. It has been bleeding since, in small 50 basis point- and slightly larger 75 basis point-increments. Some hesitation came out of the FOMC in June 2008, as worries that the rate — then at 2 percent — would fall much further, triggering inflation.
October proved to be another month of bloodletting, with two swift 50 basis point reductions, bringing the rate down to 1 percent, where it had lingered through November before finally being slashed to it's zero-to-0.25 range. “The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth,” Fed chairman Ben Bernanke said in October.
Write to Diana Golobay at diana.golobay@housingwire.com.
The federal government Wednesday broadened its bailout to include the credit union industry, one day after National Credit Union Administration chairman Michael E. Fryzel called upon new Treasury Secretary Timothy Geithner to "expand options" for credit union participation in the Troubled Asset Relief Program.
“Although I can understand the initial actions that the Treasury Department has taken to help the large banks, insurance companies, and other major financial institutions that have faltered or failed, I am concerned about the second-place status into which credit unions and other smaller financial institutions have been placed,” Fryzel wrote in a letter to Geithner.
The request of Fryzel and many others was answered Wednesday. One billion is now set to be infused into U.S. Central Corporate Federal Credit Union, which provides services to consumer-facing credit unions, to offset losses on mortgage-backed securities.
"We figured this day might come, with the overall market conditions the way they are, but we were attempting to allow U.S. Central to work though it,"Fryzel said, according to the Washington Post. "Now we've done what we felt we needed to stabilize the system and to put confidence back in the system."
Soured investments in highlyrated mortgage-relates securities has lead to the depletion of U.S. Central's funds, which has put many of the nation's 8,400 credit unions at risk. The credit union told the NCUA Monday it estimated a $1.2 billion fourth-quarter loss. It was at that point the NCUA, which regulates the industry, met and then announced the intervention, which will be funded by assessments upon the industry rather than taxpayers.
Beyond the issuance of a $1 billion capital note to U.S. Central, the NCUA Board also approved the guarantee of uninsured shares at all corporate credit unions through February 2009, and the establishment of a voluntary guarantee program for uninsured shares of all corporate credit unions through 2010.
The move by the NCUA marks the government's second attempt to help stabilize corporate credit unions. In December, NCUA said it would lend billions through retail credit unions. The agency has thus far loaned $5 billion under the program, and said it expects to give another $5 billion at the end of the month.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The House of Representatives on Wednesday passed its $819 billion version of the economic stimulus package in a 244 to 188 vote. The bill passed with support from all but 11 House Democrats; no Republicans voted in favor of it. Some of the major provisions within the bill include various tax cuts — for tuition, business expenditure and renewable energy — as well as a hefty list of spending programs aimed to "preserve and create jobs and promote economic recovery," according to the bill's language. The package would expand the food stamps program by $20 billion, give $11 billion in housing assistance, invest $3 billion in welfare, pour $50 billion into highways and school renovations as well as grant $9 billion to community and rural development projects, to name a few of the programs.
The American Recovery and Reinvestment Act of 2009, as the bill is called, includes a change to the $7,500 first-time home buyer tax credit previously implemented in Housing Recovery Act of 2008. The new change would remove the requirement that the buyer repay the tax credit over 15 years, making it a tax incentive for anyone buying a home as a primary residence and who has not owned a home in the past three years. The change to a non-repayable home buyer credit was a main goal of industry group National Association of Home Builders – a member of the Fix Housing First cooperative — that on Wednesday conducted a media conference hours before the House vote to extol the benefits of a home buyer stimulus as part of the overall package.
“A strong and direct stimulus to housing demand is absolutely essential if we’re going to have a timely and dependable economic recovery,” said Dwight Jaffee, a business professor at the University of California, Berkeley, at the NAHB media conference. Since housing sector recover has historically been linked to the recovery of the broader economy, Jaffee argued in support of a buyer stimulus that would spark demand for and reduce the supply of housing, create jobs in the housing construction and mortgage markets, increase tax revenues for state and local governments and generally create "a positive virtuous cycle rather than the vicious cycle that we're currently in," he said.
The House bill is headed for a Senate vote; the Democratic-majority Congress aims to come to a resolution on the package in time for President Barack Obama to sign the bill in mid-February.
Write to Diana Golobay at diana.golobay@housingwire.com.
