Archive for January, 2009
U.S. housing prices, by no surprise, continued a nationwide decline in November according to a report released Tuesday. Integrated Asset Services, LLC, a provider of default management and residential collateral valuation, said its most recent IAS360 House Price Index found that home prices declined 1.7 percent from October to November, posting a 13.3 percent annual decline.
“As expected, home prices on the national level continue to drop as the economic volatility continues,” said Dave McCarthy, president and CEO of Integrated Asset Services.
The IAS360 tracks home sales down to the neighborhood level, and then rolls up local totals in 360 counties, nine census divisions, four regions, and the nation overall.
County level house prices posted weak results across the board in November. At the census region level, results for November showed all four U.S. Census regions experiencing declines in home prices, with the South and West experiencing double digit declines year-over-year of 11.5 percent and 18.4 percent, respectively. The South and Northeast saw a slight improvement in their rate of decline from October. And the Midwest continued to generate the largest drop in values with a decline of 2.9 percent.
On the U.S. Census Division front, West South Central continued to defy the odds with an appreciation of 1.9 percent month-over-month, while the rest of the 9 U.S. Census Divisions languished in declines. Mountain, Pacific and South Atlantic census divisions continued to add to its double-digit declines year-over-year.
“But, as you peel away the onion, we are seeing some minor improvements at select county levels," said McCarthy. "The question is whether it is sustainable.”
The IAS360 data showed that some of the counties that have weathered 20 percent drops over the past year saw slight improvements in November — places such as San Diego, Denver and Orange County.
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.
Seattle Federal Home Loan Bank (FHLB) president and CEO Richard Riccobono on Monday distributed a letter to its members acknowledging the bank will likely report a failure to meet risk-based capital minimums as of Dec. 31. The overall tone of the memo was one of regret, as Riccobono wrote he believes the way risk-based capital is currently calculated "significantly overstates our market risk," given the state of the financial market and the bank's nearly $2.8 billion in permanent capital.
"[The] ongoing turmoil in the capital and mortgage markets has caused a decline in the market value of the Seattle Bank’s private-label mortgage-backed securities, significantly beyond any expected actual loss," he said. "Unfortunately, the risk-based capital rules … rely on market value rather than expected loss as the measure for determining our risk-based capital requirement."
Federal regulations prevent any FHLB that fails to meet capital requirements from declaring a dividend or redeeming (repurchasing) capital stock. Riccobono in his letter reminded members that the Seattle bank remains in compliance with all other regulatory capital requirements, "specifically our capital-to-assets ratio and our leverage capital ratio," and that its risk-based capital requirement — calculated on a monthly basis — may soon return to compliance without affecting the bank's balance sheet or capital position.
But the bank president still has his "concerns regarding the current risk-based capital methodology," which he said he has communicated to the bank's regulator. "In our opinion, the Seattle Bank … has more than enough capital to cover the risks reflected in the bank’s balance sheet," Riccobono said. "While the market values of mortgage-based assets are currently under extraordinary pressure, the vast majority of the private-label mortgage-backed securities that we hold are highly rated, credit-enhanced, adjustable-rate securities that we have the ability and intent to hold until they mature."
It was unclear at this time whether the deficiency will likely drive write-downs in FHLB stock in member banks, or whether the Seattle bank will require government assistance going forward. Representatives of FHLB Seattle could not be reached for comment and would not return inquiries before this story was published.
Write to Diana Golobay at diana.golobay@housingwire.com.
Deutsche Bank (DB: 44.44 +2.40%) announced Wednesday it anticipates an after-tax loss of around EUR 4.8 billion ($6.3 billion) for the fourth-quarter, which would bring full-year losses to a projected EUR 3.9 billion ($5.1 billion).
"We are very disappointed at this fourth quarter result, which leads to a loss for the year," said Deutsche Bank CEO Josef Ackermann. "The exceptionally difficult market environment of the quarter exposed some weaknesses in our platform, and we have determined a number of measures to address these weaknesses. Implementation of these measures is already underway"
The expected losses mentioned in the warning Wednesday morning were driven primarily by credit and equity trading activity at Deutsche, as well as further write-downs on exposure to monoline bond insurers. Such exposure isn't likely to be limited to outside U.S. borders, so it's possible that DB's surprising warning is a harbinger of similar exposure that may be reported by U.S.-based firms, as well.
Unlike some monoline bond insurers, DB noted that its results would have been helped had it elected to mark a large chunk of its debt to fair value — a decision not to do so cost EUR 5.5 billion ($7.2 billion) over the course of 2008, the firm said in a statement. In contrast, some U.S. monoline bond insurers posted large quarterly income gains during 2008 as the fair value of their debt fluctuated; oddly enough, the more distressed the firm was perceived to be by investors, the greater the value of outstanding debt contracts.
Despite the unexpected warning Wednesday morning, Ackermann stressed that the the firm will still hit its end-of-year capital ratio target. "Our capital strength, which we have successfully maintained, allowed us to withstand these extremely difficult market conditions and to take necessary steps to de-risk our platform," he said.
Deutsche Banks's fourth-quarter and full-year 2008 results will be published as scheduled on Feb. 5, 2009.
- Paul Jackson contributed to this report.
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.
Call it the bandwagon effect. Attorney General Bob McDonnell announced in a press release Tuesday that Virginia will take part in a nationwide settlement agreement with Countrywide Financial Corporation — Virginia is the the latest of many states looking to get their piece of the pie over alleged predatory lending practices at Countrywide.
"The settlement resolves any potential consumer protection claims the Attorney General could have filed alleging deceptive practices arising out of the mortgage origination or servicing activities of Countrywide in Virginia," the press release said.
The settlement will provide about $8.4 billion in home loan and foreclosure relief to as many as 397,000 homeowners across the country, including projected relief of $212.8 million for more than 8,900 homeowners in Virginia, according to the office of the attorney general.
“This settlement will provide crucial financial relief to thousands of Virginians who are struggling each month to pay their mortgages and keep their homes,” Attorney General McDonnell said. “I hope this settlement will serve as a model for other mortgage lenders to follow as they develop plans to help homeowners facing foreclosure.”
Under the settlement, Countrywide and its affiliates agree to modify loans for eligible borrowers — those who received either a qualifying subprime adjustable rate mortgage or a Pay Option adjustable rate mortgage prior to Dec. 31, 2007 and who meet other specific requirements — in an effort to keep people in their homes.
Depending on the loan type, modifications may include an automatic freeze or reduction in interest rates, conversion to fixed-rate loans, or refinancing or reduction of the principal owed, according to the press release.
Virginia will receive approximately $2.5 million, according to the statement, of the $150 million Countrywide has allotted for a Foreclosure Relief Payment Program for certain borrowers who have already lost their homes or are at least 120 days delinquent.
The settlement also calls for Countrywide to pay up to $70 million nationwide for relocation assistance to borrowers who do not qualify for a loan modification and who subsequently face foreclosure. Virginia’s projected portion of these payments is estimated at $2.3 million. Icing on the cake; Virginia will additionally receive an estimated $3.3 million in waivers – prepayment penalties, late/delinquency fees and default fees otherwise due, the release said.
Countrywide first announced the loan modification program on Oct. 6, as part of a settlement with 15 different state Attorneys General that had sued the lender over predatory lending charges.
An announcement was made Wednesday that yet another group, made up of Washington homeowners, filed a lawsuit against Countrywide, claiming the mortgage giant illegally rigged the appraisal process "in a scheme to boost profits at the expense of homeowners and independent appraisers."
The group has claimed that Countrywide forces homeowners to use its wholly owned subsidiary LandSafe, for appraisals. "The company then turns around and subcontracts the work to independent appraisers while charging homeowners as much as 200 percent the actual cost of the appraisal," the press release 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.
A previous foreclosure and eviction suspension to last until Jan. 9 was announced in November by government-sponsored entity Fannie Mae (FNM: 0.00 N/A) 2008 and later — on Jan. 8 — extended to the end of January. Originally said to be a pause to allow time for the streamlined modification process (SMP) to activate on Dec. 15, the suspension also appears to have been the precursor for a new program announced Tuesday — a national real estate-owned (REO) rental policy through which property managers and brokers may collect rent on Fannie's behalf — and a move by Fannie to essentially become a giant, government-controlled landlady.
The REO rental policy applies to renters — not "mortgagers" — living in single-family foreclosed properties owned by Fannie. At the time of foreclosure completion, Fannie offers either a cash incentive for the renter to vacate the property or the option to sign a new month-to-month lease and pay the local market rate. The policy states, however, that the property being occupied by the renter will be listed for sale and may undergo repairs at any time the renter is occupying it. The lease will transfer to the property's new owner at the time of sale.
"Renters in foreclosed properties have often been a casualty of the foreclosure crisis the country is facing," said Fannie's COO Michael Williams. "This policy will allow qualified renters to remain in Fannie Mae-owned properties should they choose to do so, mitigate the disruption of personal lives that foreclosures can cause, and help bring a measure of stability to communities impacted by high foreclosure rates."
The original suspension was viewed as a sort of foreclosure moratorium for the 2008 holiday season — a pause like so many other voluntary and state-mandated moratoria to allow time for modification. Now that the target date for the modification program has come and gone and the SMP is in place, the announcement to extend the suspension through the end of the month to put a second program into place calls into question what effect, if any, the SMP had, at least where rental properties are concerned — although a Fannie spokesperson told HousingWire the effectiveness of the SMP had no bearing on the latest extension of the foreclosure and eviction suspension.
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.
Raw mortgage application volume increased 15.8 percent on a seasonally adjusted basis for the week ending Jan. 9, according to the weekly survey released by the Mortgage Bankers Association. The four-week moving average of raw application volume increased 10.8 percent, suggesting a bit of recovery in the broader market. The MBA's raw refinance application index increased 25.6 percent while its purchase index decreased 14.1 percent for the same week. The refi share of raw mortgage activity increased to 85.3 percent of total activity from 79.8 percent the previous week, emphasizing a continued influx of refi popularity.
The MBA also reported some updated mortgage rates, which are creeping downward to the much-ballyhooed 4.5 percent that was rumored recently as a goal of the Treasury Department (secretary Henry Paulson publicly denied such a plan, but recent slashes in the federal funds rate might still trickle down to the everyday borrower). According to the MBA's data, the average rate for 30-year fixed-rate mortgages decreased to 4.89 percent, "the lowest recorded in the survey." The average rate for 15-year fixed-rate mortgages — a common refi product — decreased to 4.63 percent. The average rate for one-year adjustable-rate mortgages also showed a slight decrease, though it remains above the 5 percent mark at an average of 5.89 percent for the week ending Jan. 9.
A separate application survey conducted by Mortgage Maxx LLC, which adjusts raw data to count multiple applications submitted by a single household as a single entry, found that household activity on the application level increased 2.2 percent for the week ending Jan. 9. The Mortgage Application Index for California — or MAXcal — also showed a statewide increase of 2.8 percent in household application activity.
According to commentary from MAX publisher Paul Descloux, the 2008 year-end readings of strong mortgage demand were confirmed by the data from the first week of 2009, though the reaction to low mortgage rates was "average." However, he warned that strong application performance may not necessarily mean more originations. "With so many potential loans not flowing to completion, ultimate impact on prepayments still needs to be demonstrated," Descloux said. "Any stall at the current level would be indicative that even lower rates will be needed to stimulate marginal demand."
Visit www.mbaa.org and www.mortgagemaxx.us for further details.
Write to Diana Golobay at diana.golobay@housingwire.com.
As one of only a few broad industry publications, we're hitting the road in February to support three key conferences that we think you should know about — if you are attending any of the three, let us know. We'd love to say hello! If you aren't, you'll probably want to double check your travel schedule.
Also, if you work in media and want to schedule time with our editorial staff, send an email to editor@housingwire.com.
Feb. 8-11, we'll be at the Venetian in Las Vegas for ASF 2009; this is a literal giant of a show, even with the credit markets frozen up. Unlike last year's show, which acknowledged trouble and tended to focus on who should bear blame for it, this year's show likely will feature a strong look at the future of capital markets activities spanning into residential and commercial mortgage lending. Learn more here.
Feb. 17-19, we'll be in Tampa for MBA's National Mortgage Servicing Conference & Expo 2009; this year's show should be PACKED. We've got our own booth in the exhibit hall, and will be shaking hands and passing out magazines. We'll also be reporting on the sights and sounds each day, in true HW fashion. Learn more here.
Feb 25-28, we'll be at the Executive Housing Summit in Park City, Utah — yeah, we know, rough place to be this time of year. But the long-running executive summit, now in its 38th year, draws roughly 150 key executives from the mortgage industry; and FHFA director James Lockhart is delivering the keynote. Learn more here.
HousingWire Magazine will be available at all the shows, so be sure to grab a copy while there; and if you want to subscribe — you know you do — click right here.
We've written for months now that extending foreclosure timelines — either via the use of legislation to lengthen notice periods, or through more direct moratoria efforts — will accomplish little more than delaying defaults, while simultaneously driving up costs and stretching servicers to a whole new level of thin. Proving that point yet again is ForeclosureRadar's latest report on California foreclosure activity during December, released late Tuesday evening. The company specializes in monitoring California residential mortgage defaults.
Notices of Default, which represent the first step towards a foreclosure, rebounded sharply from an earlier stall caused by California State Senate Bill 1137, ForeclosureRadar reported. With 42,421 filings recorded in December, Notices of Default are back to the record levels reached in the second quarter of 2008, nearly doubling the 21,557 Notices of Default recorded in November alone. NOD filing levels in Dec. were 24.7 percent above year-ago totals, as well.
Notice of Trustee Sale filings were relatively flat month-over-month, but were still up 29.8 percent compared to last Dec.; such notices are filed an average 116 days after the Notice of Default, and indicate an imminent foreclosure sale, so a rebound in NTS levels in coming months seems likely.
Properties taken to sale at auction increased only slightly between November and December, to 16,298 sales — but a 72.6 percent increase from the same time last year. (And let's all recall, for the record, that December 2007 wasn't exactly a walk in the park for the nation's housing markets.) Third party purchases at trustee sale auction decreased 12.5 percent from one month earlier, but were still 156 percent above third party purchases in Dec. 2007; lenders took back nearly 95 percent of the 16,298 properties sold at auction, with a combined loan value of $8.95 billion.
“The effort by the California State Legislature to reduce foreclosures has now clearly failed,” said Sean O'Toole, founder of ForeclosureRadar. “While State Senate Bill 1137 was well intentioned, forcing lenders to talk to homeowners won’t fix this problem.
"While a number of lenders have announced significant loan modification programs to reduce payments to affordable levels, these plans fail to address the fact that the average foreclosure in California now has $180,000 in negative equity. “Lowering payments may provide a temporary fix, but lenders simply don’t have sufficient reserves to lower principal balances enough to
help homeowners in foreclosure escape the prison of debt their home now represents.”
The SB 1137 legislation in the state that added 45 days to the borrower notice period for defaults.
The story of arcing defaults resuming in California follows the experience that has been observed in other states, even during the current cycle. Massachusetts implemented such a 90-day stay on the foreclosure process in early 2008, a move that generated ton of press coverage initially, but little follow up since. The number of foreclosures recorded in the state shrank for a few months, until the stays began to expire; the state saw a more than 400 percent increase in foreclosure volume mere months after the moratorium went into effect, suggesting little action was taken on severely delinquent loans during the pause.
The current issue of HousingWire Magazine, out now, takes an in-depth and critical look at the history and likely future for foreclosure moratoria in the United States. If you aren't a subscriber, click here.
Write to Paul Jackson at paul.jackson@housingwire.com.
(Update 1 clarifies the statement made last week by Wells Fargo.)
JP Morgan Chase & Co. (JPM: 37.21 -0.75%) announced Tuesday it would cease its wholesale lending operations to brokers. National Mortgage News broke the story late Tuesday, and a Chase spokesperson forwarded to HousingWire a copy of an internal company memo explaining the shift. In a letter to employees signed by Dave Lowman, who runs home lending, and Pat Sheehy, a representative for business-to-business, the bank said it would continue to purchase retail-oriented loans — but not broker-originated loans — through its correspondent channel.
"We believe that our customers are best served when a mortgage officer works directly with them, explains our products clearly and then helps them carefully evaluate the choices in light of their personal financial situation," the memo read, in part. "Homeowners with loans originated by Chase professionals and other retail-focused teams have historically performed better than those originated by brokers."
The bank explained the shift was necessitated not only by a concern for the quality of service at the time of origination, but by an increase in Chase's presence as a branch-based franchise. Chase has historically relied on brokers and third-party originators when it had just 600 bank branches in four states — as recently as five years ago — according to the memo. With the addition of Washington Mutual, Chase's bank branch presence flourished and now stands at 5,000 branches serving 23 states, the memo said. With such a large branch presence, Chase would appear to be in a better position to service more borrowers on a face-to-face basis.
"We know that a home loan often is core to a family's long-term relationship with their bank," officials said. "And we believe that Chase loan officers — who know our customers and products best — are in the best position to help families make choices to achieve and sustain homeownership."
The Chase memo confirmed the bank would retain some affected underwriting and operations staff to handle the influx of refinance customers, but acknowledged some sales and other support jobs were being eliminated. A spokesperson could not estimate the number of jobs that would be shed at the time this story was published, but confirmed the bank would attempt to redeploy talent to handle the surge of refinance applications — which she said has tripled. "We feel confident we can move people into that area of need," she said.
Wells Fargo & Co. (WFC: 29.60 +1.89%) was the latest to change the face of wholesale lending by banking giants. Last week it exited nonconforming lending through its wholesale channel due to “low market demand and higher risks,” according to a statement from the banking giant Thursday. The move was said to be temporary by officials, though no details were released on when the bank may re-enter the business and the bank is "still very much in the wholesale business," according to a company spokesperson. Citigroup Inc. (C: 30.87 +1.61%) said back in October 2008 it would severely limit its wholesale business to a list of only 1,000 brokers. And Bank of America Corp. (BAC: 7.29 -0.14%) one year earlier in October 2007 said it would shutter its wholesale lending division in favor of a renewed focus on retail originations.
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.
(Update 1 reflects details on the joint venture released late Tuesday.)
Citigroup Inc. (C: 30.87 +1.61%) confirmed Tuesday it reached an agreement with Morgan Stanley (MS: 18.56 +2.26%) about the joint venture of its retail brokerage business, Smith Barney, and the wealth management business operated by Morgan Stanley. The joint venture, to be called Morgan Stanley Smith Barney, will boast more than 20,000 financial advisers, $1.7 trillion in assets, $14.9 billion in combined revenues and $2.8 billion in combined pre-tax profit, serving 6.8 million households worldwide from a combined 1,000 offices around the globe. "For Citi, the joint venture provides significant synergies and scale, substantially reduces our expenses and enables us to retain a significant stake in a company that immediately becomes the industry leader with real growth opportunities," CEO Vikram Pandit said in a media statement.
But will the shift in business end with the new joint venture, which is expected to close in the third quarter? In addition to the spin-off of its brokerage business, people close to the issue told the Wall Street Journal Citi may even downsize and shift the focus of its business to two key areas — possibly corporate wholesale banking and retail banking in select markets worldwide. The expected bloodletting may involve eliminating a third of Citi's assets, is rumored to shutter consumer-finance operations and is expected to be announced Jan. 22 as Citi releases its fourth-quarter results, according to the Journal's sources.
A shaky foothold in 2009
Citigroup is expected to report massive fourth-quarter 2008 losses much greater than expected, but its lead independent director Richard Parsons said the bank’s board stands behind CEO Vikram Pandit, according to a Wall Street Journal report Monday. “We have confidence in the current management and leadership of Vikram,” Parsons told the Journal Sunday. He also denied recent rumors that Pandit may lose his job in light of the company recently losing Robert Rubin, according to the Journal.
Citigroup has so far received $45 billion in TARP funds — a $25 billion injection through the capital purchase program on Oct. 28 as well as an additional $20 infusion through the new targeted investment program months later on Dec. 31. The massive — and so far ineffectual — injection from the Treasury Department, combined with speculation the bank may soon begin announcing intensive restructuring plans, calls into question the bank's ability to operate without even more bailout funds.
Citi’s senior counselor Robert Rubin on Friday stepped down from his position, signaling internal trouble. “My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today,” Rubin said in his letter of resignation to Pandit.
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.
