Archive for February, 2009
Government-sponsored entity Fannie Mae (FNM: 0.00 N/A) announced in a memo dated from Wednesday that it has relaxed its underwriting rules for certain cash-out refinance activities for borrowers with Fannie-held mortgages. These "flexibilities" will include a relaxed eligibility criteria, as well as reduced documentation requirements, according to Fannie.
For loans with a loan-to-value ratio less than or equal to 80 percent, Fannie will not require the 580 minimum credit score. High-balance ARM loans with an LTV ratio less than or equal to 80 percent similarly will not be subject to the 680 minimum credit score. Loans up to 80 percent LTV can be used on second homes, cooperative units or investment properties now, whereas these transactions were restricted to 75 percent LTV ratios before.
Fannie also relaxed the employment documentation requirements to one current pay stub, a verbal verification of employment and one year’s federal income tax return. The property fieldwork documentation requirements now stipulate the appraisal requirement may be waived — for a $75 fee — for lenders participating in the cash-out refi options. For loans delivered into mortgage-backed securities, the fee will be drafted in accordance with the requirements of the Selling Guide, Fannie said, while loans delivered pursuant to a cash commitment will have the fee taken from the purchase price upon delivery.
In the same memo, Fannie announced "updated" property fieldwork requirements for foreclosure or REO property sales. "The recent increase in property foreclosures has resulted in some real estate owned (REO) properties being neglected and/or sitting vacant for an extended period of time before they are sold to new homeowners," officials said in the memo. "In these cases an exterior-only property inspection or appraisal may not provide the most accurate assessment of the condition of the property. As a result, lenders will now be required to obtain an appraisal based on an interior and exterior property inspection for purchase transactions when the transaction is the result of the sale of an REO property…."
Warren, Ohio-based First Place Financial Corp. (FPFC: 0.00 N/A) announced Thursday it was one of five lenders selected by Fannie to participate in the new "HomePath" program, designed to sell off foreclosed homes owned by Fannie. The homes are available for a 3 percent down payment typical of any government loan, which can be paid by savings, gift or grant money, or a loan from a non-profit organization, state or local government or employer. Mortgage insurance and appraisal fees aren't required, according to the lender.
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.
Treasury Department Tim Geithner is set to announce the "comprehensive" bank plan Monday, according to various media outlets. An unnamed Treasury source told the Wall Street Journal this week that Geithner will unveil the plan in a speech regarding President Barack Obama's financial rescue initiatives.
Among the options that have been discussed and could possibly appear in the bank revitalization plan are additional capital injections, setting up a so-called "bad bank" to hold toxic assets and illiquid mortgage securities from struggling institutions, and government-guaranteed troubled assets. Sources told the Wall Street Journal in late January that the total purchasing power of a "bad bank" might top as much as $2 trillion, even beyond any TARP assistance it might receive and outside of the financial stimulus price tag, which is now past $900 billion in the Senate's version of the bill.
Talk is also circulating that the Treasury's plan may include a mortgage mitigation program similar to the one proposed by Federal Deposit Insurance Corp. chairwoman Sheila Bair, who suggested using $22.4 billion of the remaining funds allotted through the Troubled Asset Relief Program to help struggling borrowers avoid foreclosure.
Also facing change with the new plan is the "mark-to-market" accounting rule, which requires corporations to regularly adjust the value of their assets to reflect the fair market price. Senate Banking Committee chairman Christopher Dodd, D-Conn., has said bankers and lawmakers argue this rule is a key contributor to the weakening of financial institutions and the financial crisis altogether, and may require a temporary change or ban, according to a Market Watch bulletin.
The road to nationalization?
Geithner in late January announced the Treasury was in discussions on a plan aimed to “repair the financial system,” but did not confirm rumors about either a “bad bank” or nationalization of some major banks. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he said.
House speaker Nancy Pelosi days afterward, however, hinted at nationalization — or at least semi-nationalization — of the largest banks, although she denied any possible “total ownership” strategy, the New York Times reported. “Well, whatever you want to call it,” Pelosi said. “If we are strengthening [the banks], then the American people should get some of the upside of that strengthening. Some people call that nationalization.”
Write to Diana Golobay at diana.golobay@housingwire.com.
January brought unwelcome signs of an ever deepening recession, as unemployment reached 7.6 percent, up from 7.2 percent in December, and nonfarm payrolls fell by the largest amount in thirty-four years, the Labor Department reported Friday.
Nonfarm payrolls plunged 598,000, after dropping 577,000 in December. Payroll employment has now declined a total of 3.6 million, representing about 2.6 percent of employment, since the start of the recession in December 2007, according to the report. If that's not astonishing enough, about one-half of that 3.6 million decline occurred in the past three months.
Job losses were "large and widespread across the major industry sectors," in January. Manufacturing was particularly weak, experiencing its largest decline — 207,000 job losses — in 26 years, while construction was also hit hard, losing 111,000 jobs.
But Profiles International Inc., specializing in the development of high-performance workforces through human resources management solutions, said some sectors of the economy remained vibrant; those included healthcare, transportation and Credit Unions, all of which added staff in January.
Nonetheless, the number of long-term unemployed persons — those jobless for at least 27 weeks — sat at a whopping 2.6 million in January, similar to December's reading. As for those who were employed, they might have seen their hours cut. Total hours worked in the economy fell by 0.7 percent in January, down 4.6 percent from a year ago. The average workweek clocked in at a record-low 33.3 hours.
"The only positive of today's report is that these ugly numbers put even more pressure on policymakers to finally agree on fiscal measures to stop the downward spiral of the economy," wrote Harm Bandholz, economist for UniCredit Markets.
The Senate is expected to vote on the newly proposed economic stimulus late Friday. The current bill has a price tag of over $900 billion, after several amendments were approved. Senate Majority Leader Harry Reid said Thursday evening that Democrats have enough votes to pass the bill in its current state. But under Senate rules, a few Republicans would need to join the Democrats to reach the 60-vote threshold and avoid a filibuster.
"Every day, our economy gets sicker — and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now," wrote Obama in an op-ed in the Post, as he urged a speedy passage of the bill.
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 Senate on Wednesday passed a home buyer tax credit provision in its version of the financial stimulus bill. The provision will allow a tax credit of 10 percent of the value of a new or existing residence — up to $15,000 — an increase from the current $7,500 tax break for new home purchases. The provision will cost $18.5 billion and brings the total price tag of the bill to over more than $900 billion.
Both sides of the aisle are expected to work to cut down on the final price tag of the bill in order to meet President Barack Obama's limits for the bill and garner Republican support. Senator Harry Reid of Nevada has said the final Senate vote on the bill could come as early as this week, according to the New York Times, although no vote had been announced as of the publication of this story.
The House last week passed its own $820 billion version of the bill — including a provision to eliminate the repayment requirement of the current $7,500 home buyer tax credit — in a straight-Democrat vote. The House version, as well as the bill forming through Senate discussions, has come under recent criticism for an emphasis on government spending and few tax cuts — measures that critics and Republican dissenters say only add to the deficit and don't create enough short-term solutions to get credit flowing and Americans spending.
The rising skepticism of the bill caused Obama to stray from the script in a recent speech and fire back at a reluctant GOP arguing for more tax cuts and less spending associated with the bill, which he argued is designed to stimulate (you guessed it!) spending.
"Don't come to the table with the same tired arguments and worn ideas that helped to create this crisis," he said. "We are not going to get relief by turning back to the very same policies that for the last eight years doubled the national debt and threw our economy into a tailspin. We can't embrace the losing formula that says only tax cuts will work for every problem we face that ignores critical challenges like our addiction to foreign oil, or the soaring costs of health care or falling schools and crumbling bridges and roads and levees."
Watch highlights from his speech.
Write to Diana Golobay at diana.golobay@housingwire.com.
The Federal Reserve Bank of New York on Thursday announced it had purchased another $22.3 billion in agency mortgage-backed securities in the week ending Feb. 4, an increase from the $16.8 billion purchased the week before. The new purchases bring the Fed's total to $91.7, nearly one fifth of its total $500 billion purchasing power.
The Fed took $9.7 billion off Freddie Mac's (FRE: 0.00 N/A) books, $10.5 billion from Fannie Mae (FNM: 0.00 N/A) and $2 billion from Ginnie Mae. It purchased securities primarily with 30-year maturities, but invested $950 million in securities with 15-year maturities and $553 million in securities with "other" maturities (20-year, 40-year, etc.)
The Federal Reserve has selected JP Morgan Chase & Co. (JPM: 37.21 -0.75%) as custodian for its mortgage-backed securities purchase program, the New York-based bank said in a press statement Tuesday morning. The program, which began on January 5, 2009, will purchase up to $500 billion in MBS that are backed by government-sponsored entities, in an effort to maintain liquidity in a vital section of the U.S. mortgage market.
The Fed may soon begin modifying mortgages it owns within the mortgage-backed assets it has purchased from government-sponsored entities, according to a letter written late January 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.
Visit www.newyorkfed.org for further details.
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.
American Home Mortgage Servicing Inc., owned by billionaire investor Wilbur Ross, has picked up a sizeable servicing portfolio from Citigroup, Inc. (C: 30.87 +1.61%); the acquisition will make the Irving, Tex.-based servicing platform the largest third-party servicer in the nation. Ross broke the news of the acquisition on CNBC's Squawkbox program early Thursday morning, although industry sources have been buzzing privately about the deal for well over a month now.
Specifically, the acquisition entails what's known as the Citi Residential Lending servicing portfolio, or Citi Res for short; the portfolio was acquired in 2007 from now-defunct subprime lending giant Ameriquest under terms that have not been disclosed. WL Ross & Co.'s AHMSI acquired the servicing rights to some 185,000 residential mortgages for $1.5 billion, an estimated $37 billion servicing portfolio.
The purchase price includes receivables at the Citi Res platform, Ross told HousingWire. Most servicers advance mortgage payments on delinquent loans, pay insurance, taxes and the like, and are reimbursed when the loan becomes re-performing or is pushed out of foreclosure; the receivables in this area are often substantial, and in this case are by far the lion's share of the deal price, an estimated $1.1 billion if you assume a servicing strip worth 100 basis points of the portfolio.
Ross also suggested to HW his firm is aggressively looking for further acquisition in the servicing space.
"We make no bones about the fact that we are in the market for servicing," he said. He also suggested that AMHSI will look to aggressively cut deals with troubled borrowers, and signaled that American Home has had incredible success in loan modification thus far. In particular, he said that the servicer modified almost 15 percent of its portfolio in the last year, and that AMHSI's six-month recidivism rate — that's the number of loans that re-default within six months of a completed modification — was hovering around just 15 to 20 percent of modified loans.
Which is an incredible number. Most analysts have found recidivism rates near 50 percent for most loan portfolios, and sources have suggested that even the FDIC saw similar redefault rates on its much-ballyhooed IndyMac loan modification program while it was managing the servicing portfolio for the failed California thrift.
"We really think we have the best team in the business at American Home," he said.
The primary Citi Res location in Rancho Cucamonga is slated to close on March 1, sources have suggested, a move that is estimated to affect some 500 to 600 employees there; and American Home has recently closed a deal on a large new facility in the Dallas-Fort Worth area, according to publicly available records, suggesting that the Ross-owned company intends to bring the servicing of the old Ameriquest loans in-house rather than maintaining a satellite operation.
The acquisition moves American Home's servicing portfolio to some 760,000 loans, given that the Dallas-area servicer managed roughly 575,000 loans at the end of last year.
"I really feel that we're not going to get out of this terrible economic environment until housing prices are stabilized," Ross told CNBC. "This whole credit crunch really started with the housing problem, and I think until we end the housing problem, we're not going to end the credit crunch, either."
Write to Paul Jackson at paul.jackson@housingwire.com.
Mortgage interest rates began inching upward in late-January after their 11-week reprieve into sub-5 percent territory. They have since in the last several weeks shown an upward creeping trend before jumping in the week ending Feb. 5, according to the Primary Mortgage Market Survey, a weekly rate survey released Thursday by Freddie Mac (FRE: 0.00 N/A). The data show that 30-year fixed-rate mortgages (FRMs) averaged a 5.25 percent rate with an average 0.8 point, up from 5.10 percent recorded the previous week. Despite the hike, rates still look better overall from the same time last year: 30-year FRMs averaged 5.67 percent in the year-ago week.
The average rate for a 15-year FRM — a popular refinancing product — came in at 4.92 percent with an average 0.8 point, up from the 4.8 percent reported last week. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) showed an average 5.26 percent rate with an average 0.6 point, down slightly from last week's 5.27 percent. One-year Treasury-indexed ARMs averaged 4.92 percent with an average 0.5 point, a slight increase from 4.9 percent a week earlier.
“Interest rates for fixed-rate mortgages rose this week amid economic reports that were somewhat better than consensus forecasts had anticipated,” said Freddie vice president and chief economist Frank Nothaft, who pointed out that rates, although increasing again, remain at historic lows. "Low mortgage rates and falling house prices have made housing the most affordable in 19 years."
A separate mortgage rate survey conducted by Bankrate.com found that average fixed rates for 30-year FRMs soared 22 basis points to 5.7 percent, while rates for 15-year FRMs jumped 21 basis points to an average 5.31 percent. The average jumbo 30-year fixed rate rose slightly to 7.12 percent. One-year ARMs averaged a rate of 5.73 percent, a 14 basis-point drop, while the 5/1 ARM averaged a rate of 5.5 percent, showing a 9 basis-point increase.
Visit www.freddiemac.com and www.bankrate.com for further details.
Raw mortgage application volume rose 8.6 percent for the week ending Jan. 30 with refinance applications accounting for 73.2 percent of all activity, according to a weekly survey released Wednesday by the Mortgage Bankers Association. A separate survey conducted by Mortgage Maxx LLC found that raw data adjusted for multiple applications from a single household showed a 13.3 percent drop in household activity for the same week. The combined data suggests an application market that is drawing a larger frequency of applications from a decreased number of households. With mortgage rates back on the rise, these figures may soon change to show a continued drop in the popularity of refi options.
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 special inspector general for the Troubled Asset Relief Program, Neil Barofsky, is expected to release his first official report late Thursday. Barofsky, whose nomination for the inspector general position was confirmed Dec. 8., was sworn in on Dec. 15 and has since been conducting looking into ways greater transparency and oversight of the TARP program can be achieved. The first report over the program takes a severe look at the Treasury Department's decision to value the government's capital investments at cost and concludes that "the cost-based valuation methodology will not provide an accurate view of the value of the securities over time," especially since so many of the financial institutions that have participated in TARP have posted huge fourth-quarter losses and still struggle with write-downs and other byproducts of a volatile market.
Barofsky's report will call for a reform of this cost-based valuation methodology and the development of a long-term investment strategy for the program, according to an article by American Banker, which has obtained an advance copy of the report. "How long these securities should be held and when, and under what circumstances, they should be sold into the market are vitally important questions that implicate not only the taxpayers' return on their investment, but also the stability of the markets," the report reads in part, according to American Banker. "[Special Inspector General for the TARP] recommends that Treasury quickly determine its going-forward valuation methodology."
According to an article by Forbes, which also received an advance copy of the report, Barofsky's report will also ask the Treasury to postpone investing the $20 billion promised as the Treasury's share of the Federal Reserve's Term Asset-Backed Securities Loan Facility until the program is strengthened and an issue with compliance — which is currently limited to signed certifications.
In a letter addressed to Max Baucus, chairman of the Committee on Finance, and dated Jan. 7, Barofsky shared his initial thoughts on rules that should be implemented in TARP going forward. He suggested, among other regulations, that each recipient of TARP funds should establish internal controls to meet the conditions placed on them within their respective contracts, report to the program directors on the progress of implementing those controls and make an effort to account for their use of TARP funds. (Click here to read the letter to Baucus.)
"If the American taxpayer is to be expected to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public and its representatives in Congress have some understanding as to how those funds have been used by the recipients," Barofsky wrote in a separate letter written Jan. 22 to Charles Grassley, a ranking member of the Committee on Finance. "The current lack of transparency…has the potential to erode the trust of the public in the effectiveness and integrity of TARP, potentially putting at risk the legitimacy of the entire program." (Click here to read the letter to Grassley.)
Write to Diana Golobay at diana.golobay@housingwire.com.
Fidelity National Financial Inc. (FNF: 18.15 -0.55%) on Wednesday posted a $1.7 million quarterly loss — or 1 cent per share — narrowed from the $44.9 million loss posted in the year-ago quarter. The Jacksonville-Fla.-based title insurer reported a total 2008 net loss of $165.8 million — or 79 cents per share — compared with the $129.8 million profit posted for all of 2007. Analysts polled by Thomson Reuters had predicted on average a 3 cents-per-share loss for the quarter, according to the company, which also reported that revenue fell 21 percent to $1.02 billion from the year before.
"Title insurers have been pummeled in the sharp housing market downturn since the middle of last year," the company said in a media statement regarding the earnings report. "However…open door order counts more than doubled in December compared with November, and order counts in January improved significantly as well." Direct orders opened in December were at 204,100, a more than 100 percent increase from November's 101,400 direct orders opened.
"We continued to operate in challenging markets during the fourth quarter as low order volumes in October and November caused us to continue to aggressively reduce expenses in our title operations," said chairman William Foley, Jr. "However, there were two positive events which occurred during the month of December that provide momentum and renewed optimism as we enter 2009." One of these events was the acquisition of various title units from now-bankrupt LandAmerica Financial Group Inc. in December, making Fidelity National the nation’s largest title insurance conglomerate with a claim loss reserve of more than $2.6 billion and an investment portfolio of more than $4.7 billion, according to Foley.
"The second positive event was the significant increase in open order counts in the months of December and January," Foley said. "Absolute total open order counts more than doubled in December versus their November level, with per day open orders of 9,300 increasing by approximately 65 percent. January open order counts improved further from the significant December increase, as we opened approximately 14,200 orders per day in the month of January, more than a fifty percent increase over December."
Fidelity National reported having cut 1,500 of the 5,500 employees and closed 125 of the offices it inherited through the acquisition of LandAm's Commonwealth Land Title, Lawyers Title and Unit Capital Title units. In total, the company reported having eliminated run-rate savings of approximately $180 million through the various cutback measures implemented around the merger. The acquisition had been delayed in November 2008 when LandAm filed for bankruptcy protection, but then was renegotiated around specific units of the company, which Fidelity National bought for $298 million in December. Then, in late December, Fitch Ratings said it cut its IDR on Fidelity National to ‘BB’ from ‘BBB,’ and cut all of Fidelity National’s title insurers to ‘BBB’ from ‘A-,’ on concerns that taking on such broad exposure to the title business via the LandAm acquisitions could strain capital positions at any single underwriter now owned by the nation’s largest title insurance conglomerate.
Read the quarterly earnings statement.
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.
States should be able to enforce consumer protection regulations that apply to all banks that operate within their borders, according to Consumers Union, the nonprofit publisher of Consumer Reports. The group urged Treasury Secretary Timothy Geithner in a letter Thursday to rescind Bush Administration-era regulations, that according to the group's statement, have prevented states from protecting consumers from many of the mortgage lending abuses that contributed to the current foreclosure crisis.
"While federal regulators were asleep at the switch, state agencies were blocked from taking more aggressive action to protect consumers," said Mark Savage, senior attorney with Consumers Union. "It's clear we need more cops on the beat. The Obama Administration should make sure states aren't prevented from addressing financial industry abuses…"
In its letter to Geithner, Consumers Union called on the Treasury Secretary to repeal a set of regulations adopted by the Office of the Comptroller of the Currency in 2004 that prevent states from enforcing state laws against national banks and their operating subsidiaries.
The role of states in enforcing existing laws applying to national banks is a key issue in the debate over the effective regulation of the financial industry, said the consumer group, and is at the heart of a case now before the U.S. Supreme Court. In Cuomo v. The Clearing House Association, L.L.C. and the Office of the Comptroller of the Currency, the Court will decide if the New York Attorney General has the right to investigate whether several national banks discriminated against African American and Latino borrowers by charging them significantly higher mortgage interest rates. New York was prevented from investigating the banks after the OCC sued the state and cited its preemption regulation to argue that the AG didn't have the authority to take such action.
In a case decided by the U.S. Supreme Court last year against Michigan, the OCC sided with Wachovia Bank citing that state mortgage lending laws and oversight could not apply to a national bank's operating subsidiary. Similarly, according to Consumers Union, the OCC has also taken action to block more aggressive mortgage lending oversight by regulators in California, Georgia, and Ohio – states that have been hit hard by the foreclosure crisis.
"If states had been allowed to act, consumers would have been better protected from unfair lending practices that led to the mortgage meltdown," Savage 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.
