Archive for February, 2009
FirstFed Financial Corp. (FED: 0.00 N/A), the Los Angeles-based parent company of First Federal Bank of California, on Monday reported a fourth-quarter net loss of $244.8 million — or $17.91 per share — compared with the $51.6 million net loss reported for the third quarter. FirstFed attributed the loss to a $220 million loan loss provision and a $112.3 million valuation allowance recorded against the company’s deferred tax assets. Total allowances for loan losses as a percentage of gross loans were 4.97 percent at the end of the quarter. Meanwhile, the ratio of total non-performing assets to total combined assets decreased to 7 percent at the end of the quarter, down considerably from the 7.87 percent recorded at the end of the third quarter.
Loan charge-offs increased to $163.5 million during the fourth quarter of 2008 compared to $103.4 million during the third quarter as a "result of continued high levels of loan delinquencies and foreclosures, further deterioration in the California real estate market and the significant increase in unemployment in the fourth quarter," according to the bank's earnings statement. FirstFed executives were quick to point out, however, that the company's risk-based capital ratio totaled 11.26 percent, while its core and tangible capital ratio came in at 5.35 percent, both "in excess" of the 10 and 5 percent ratios respectively required by federal regulators to be considered "well capitalized."
On a bright note, non-accrual single family loans (loans greater than 90 days delinquent or in foreclosure) decreased to $403.8 million in the quarter, down from $445.2 million reported for the third quarter. Single family loans less than 90 days delinquent also decreased, however, to $208.2 million at compared with $212.1 million reported at the end of the previous quarter. FirstFed attributed the level of delinquent single family loans during 2008 to the impact of adjustable-rate mortgages that reached their maximum allowable negative amortization and required an increased payment.
In the earnings statement, the bank estimated that 1,741 loans with balances totaling approximately $802.3 million were scheduled to recast during 2008. Another 913 loans, with balances totaling $396.0 million, are scheduled to recast during 2009. "The Bank is continuing its loan modification programs and actively reaching out to borrowers likely to face a recasted payment to encourage them to modify their loans before the recast date," according to the earnings statement.
Earnings were also impacted by lower net interest income, which decreased $17.5 million — or 31 percent — compared with the year-ago quarter due to higher liquid cash balances throughout the fourth quarter and lower interest rate spreads compared to the previous year. Due to decreased rates, negative amortization decreased by $26.7 million from the previous quarter to stand at $262.9 million on Dec. 31. Loan originations for the quarter were at $272.5 million, bringing the total for 2008 to $1.5 billion.
The earnings come just days after FirstFed on Jan. 26 announced it had consented to the issuance of an order to cease and desist from the Office of Thrift Supervision, and had promptly cut 10 percent of its workforce to save $4.2 million annually. The order imposes restrictions on FirstFed's operations and requires that it notify and in some cases receive permission from the OTS before incurring, issuing, renewing, repurchasing or rolling over any debt, as well as increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposits during the quarter.
"We have made substantial progress on addressing a number of the OTS’s concerns, and we hope to finalize those plans promptly so that we can focus our energies on meeting the needs of our clients and communities," said CEO Babette Heimbuch in a media statement regarding the order.
Read further details at www.firstgedca.com.
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
It's a question that's on the mind of more than a few mortgage market participants as of late: just when do the secondary mortgage markets get up off the mat? According to a recent survey mortgage market experts, it appears as if market sentiment is projecting an answer that may be longer than most of us might like.
Industry insiders surveyed by New York and Dallas-based National Asset Direct Inc., a principal buyer of performing, sub-performing and non-performing residential assets, overwhelmingly suggested that secondary mortgage markets won't recover until 2011.
Nearly 51 percent of respondents — which span the residential construction, mortgage originations, servicing, real estate sales, REO management, capital markets and investor/hedge fund fields — fingered two years from now as a recovery point, while just under 17 percent said they believed a recovery was possible sometime this year. 4.6 percent said they never expect secondary mortgage markets to recover, according to survey results shared with HousingWire.
The effect of increasing government intervention in secondary mortgage markets was equally clear in the minds of industry insiders: 60 percent said they expected efforts by Congress, Treasury and the Federal Reserve to have either minimal or negative consequences for the market.
"[The government is] trying to set artificial bottom for housing prices, which is stalling any individual buyers and will in the future make real estate no longer a viable asset," said one anonymous survey respondent. "If an asset cannot fall in value, then it cannot go up in value."
The result has largely been a lockup among sellers, one that should perhaps serve as a warning for policymakers now considering the future of the Treasury's Troubled Asset Relief Program and any future government intervention into mortgage markets. Roughly a quarter of survey respondents indicated that "sellers waiting to see what happens with TARP" is the single most prevalent reason otherwise viable sellers are not moving pools of mortgage debt.
“As the TARP plan continues to morph into something other than what it was originally portrayed, sellers are still waiting to determine if it will benefit them," said Ray Schalk, head of whole loan trading at National Asset Direct. "The relief they expected in removing some of the bad assets has not materialized yet. Many lenders appear to be in a “wait and see” holding pattern.”
Of course, part of the wait-and-see approach now being seen in the market comes from a fresh Obama administration that has revived whispers of a renewed bank bailout; such a bailout may involve buying up bad assets from those institutions that hold large volumes of troubled mortgage debt. “Sellers believe that the government will bail them out so they don't want to take the loss or admit what the pools are actually worth," said one survey respondent, under condition of anonymity.
The New York Times took an in-depth look this past Sunday at the problems inherent in valuing mortgage securities in a story worth reading. The bottom line is that a seller leaving value on the table is apt to hold onto the assets and prevent forced marks on the rest of their portfolio; likewise, a buyer is likely to price conservatively, to account for the as-of-yet unknown further fall in asset values that seems certain to lie ahead.
Write to Paul Jackson at paul.jackson@housingwire.com.
After pushing and huffing and puffing for a 4 percent primary mortgage rate, it now appears that at least one homebuilder wants to play a game of limbo with the Feds and mortgage rates — as in how loooow can they go?
The Orange County Register, reporting on a breakfast held at UC Irvine's Merage School of Business, finds Lennar's chief investment officer pining for 3 percent mortgage rates:
Under a plan backed by the home building industry, government-sponsored enterprises would provide 3% mortgages for six months, followed by 4% mortgages. The program also calls for homebuyers to get $20,000 in tax credits.
If you give people 3% home loans, Haddad said, “they buy. … We’ve tested it.”
Sure. I get it. Haddad may as well have noted that if you give away a free breakfast to everyone in America, consumers will line up to get it. But homes aren't pancakes and eggs.
What's telling here is that the homebuilder's push is even more aggressive than that being seen from the National Association of Realtors, who has pushed for a large-scale intervention to enable all borrowers to get a 4.5 percent mortgage. No word on if the NAR is going to decide it's time for a 2 percent mortgage. Or how about ZERO PERCENT FINANCING, anyone?
Perhaps the race to zero will be the story of 2009 when it comes to mortgages and housing. Have your say in our monthly Sound Off Survey, and your answer could be featured in the next HousingWire Magazine.
In its second assessment into the Troubled Asset Relief Program released Friday, the Government Accountability Office told the agency it's still lacking the necessary oversight needed to monitor the existing $700 billion bank bailout program.
The GAO said the Treasury Department must communicate a "clearly articulated vision" for TARP, and how all individual programs are intended to work in concert to achieve that vision. "The lack of a clearly articulated vision has complicated Treasury's ability to effectively communicate to Congress, the financial markets and the public the benefits and has limited ability to identify personnel needs," the GAO wrote in its report to the Treasury.
The first assessment found critical gaps in the program and called for additional actions — nine actions in particular — to "better ensure integrity, accountability, and transparency," relative to TARP spending activity. As of Friday, the "Treasury has taken steps to address our recommendations, but still faces several challenges," the GAO wrote.
In response to the first assessment, the Treasury began monthly capital purchase program surveys of its largest 20 participants. The oversight committee said Friday that in order to articulate a strategic vision, the Treasury must expand the scope of those surveys, collecting "at least some" information from all institutions participating in the program — As of Jan. 23, Treasury had dished out $294 billion in TARP funds, of which $194 billion have been used to buy large minority stakes in 317 financial institutions.
Friday's report also urged the Treasury to "expedite" efforts to ensure that sufficient personnel are in place to oversee and control TARP activities. The Treasury has taken steps to ensure a smooth transition to the new administration, the watchdog said, by keeping positions filled — even after losing potential candidates to conflicts of interest — and utilizing direct hire authority. "However, it [Treasury] continues to face difficulty in providing competitive salaries to attract skilled employees," the report said.
The report also called for a well-defined and disciplined risk-assessment process, a review of existing conflict-of-interest mitigation plans, and continued efforts in developing a "comprehensive system of internal controls."
Given the recency of program actions and time lags in the reporting of available data, GAO continues to believe that it is too early in the program's implementation to see measurable results in many areas. "However, while perceptions of risk have declined in interbank markets, they changed very little in corporate bond and mortgage markets," the report said. As GAO also noted in December, these indicators may be suggestive of TARP's ongoing impact, but no single indicator or set of indicators can provide a definitive determination of the program's effects because of the range of actions that have been and are being taken to address the current crisis — and range of actions is no understatement.
As the GAO probes TARP, officials are also in talks with the Federal Reserve System and financial institution executives about their next strategy for revitalizing the economy.
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 Ryland Group, Inc. (RYL: 18.40 -0.97%), a Calabasas, Calif.-based homebuilder and mortgage finance company, said Monday that it had formed a joint venture with Oaktree Capital to acquire and develop distressed residential real estate projects. Terms of the JV were not disclosed, and it was not immediately clear if the partnership involved the purchase of land and projects already owned by Ryland itself.
"We are excited about the opportunities that will arise as a result of this partnership," said Chad Dreier, Ryland's chairman and chief executive officer.
"With more than $55 billion in assets under management, Oaktree is one of the premier investment managers in the country. Their considerable capital base and strong track record as an investor in distressed assets make Oaktree an ideal partner for us."
An executive committee consisting of representatives from both firms will make the purchase decisions, according to a press statement. Ryland will then provide the necessary improvements and permits with the intent to ultimately sell the projects as finished lots, and will have the right to option all lots sold by the partnership.
Last week, Ryland reported that a Q4 2008 loss of $59.9 million, or $1.40 a share, down from losses of $201.9 million, or $4.80 a share, in the second quarter a year ago. The Orange County Register reported on Lennar's plans to scale back on its own projects late last week, in an effort to pare back an oversupply of new homes.
Write to Paul Jackson at paul.jackson@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 new solution based on behavior modeling and optimization technology from Response Analytics now makes it possible not only to determine the value of distressed assets, but to direct their modifications so as to maximize "collectible" value, said Response Analytics Monday.
The solution operates at the loan level and with the requisite data, extends to mortgage-backed securities as it does for whole loans. By applying advanced behavioral modeling and optimization technology, the company said its Distressed Portfolio Management solution can establish the optimized individualized workout for each distressed loan in the portfolio, based on terms that have a much higher probability of being met.
"Until now, investors would have been taking a shot in the dark with pricing distressed mortgage portfolios and mortgage-backed securities," said Bren Lippman, CEO of Response Analytics. responseanalytics.com
Loan Mod Pilot Takes off
Austin Logistics Incorporated, a provider of event-based analytic solutions, in conjunction with Convergys Corporation, Bridgeforce Incorporated, and Collections Marketing Center, LLC announced Monday the success of their combined preemptive loan modification program for one of the nation's largest mortgage banks, as they've reached out to tens of thousands of at risk borrowers and had a "surprisingly high" number of customers who responded favorably, Austin Logistics said.
The program enables the bank to identify, contact, and treat "at-risk" but current first mortgage and home equity borrowers before they become delinquent. Austinlogistics.com
REOTrans Reports $45 billion in REO Sold
Southern California-based REOTrans reported last week that some $45 billion of defaulted-upon real estate has been sold through its online system since the company was founded in 2003.
REOTrans comprises what CEO Chris Saitta calls “a powerful Workstation and Marketplace.” The Workstation is a highly configurable and comprehensive system that allows lenders and servicers to execute their REO, short-sale and loss-mitigation strategies with real-time oversight and assured compliance, according to the CEO. The Marketplace is an exchange where 6,500 sellers, 10,600 vendors, 485,000 real estate agents and 32 Midsource™ partners handle more than 150,000 successful transactions every day, the company claims. reotrans.com
Loss Mitigation Decisioning Goes Automated
Overture Technologies, a provider of decisioning solutions for transparent, accurate and responsive lending processes, announced last week the launch of Mozart for Special Servicing, an automated decisioning system for servicing distressed mortgage assets.
“Significant loan-level data and analysis, up-front, and surgically applied is required to manage the unprecedented volume of distressed mortgages and increasing complexities of products, programs, and regulatory guidelines in the 21st century mortgage industry,” said Linda Simmons, general manager of Overture Technologies’ Mortgage Finance Solutions.
Mozart for Special Servicing allows servicers to manage and successfully apply a more robust set of alternatives to borrowers in distressed mortgages, according to a statement by Overture Technologies, and more quickly yield a “best-fit” modification that can reduce repeat default rates and preserve the value of mortgage assets.
Write to Kelly Curran at kelly.curran@housingwire.com.
Editor’s note: Tech Roundup runs every Monday, and offers a look into the various technology that makes the entire mortgage market work — whether origination or default, through to secondary market operations. If you’ve got a tech bit that we should know about, email the reporter above.
We're starting to see some sanity appear in the financial press regarding the nation's housing mess — even if only in the op-ed sections. This past weekend, a must-read opinion piece from former REO broker Ramsey Su in the Wall Street Journal makes the argument that has long been made here at HousingWire: the foreclosure process exists for a reason. No different than the emerging sense among some in the banking community that we should allow the bankruptcy process to do what it was set up to do.
"If the intent is to help homeowners, then foreclosure is undoubtedly the best solution," Su writes. ""Foreclosures provide the foundation of recovery, both for Main Street and Wall Street. As properties are foreclosed, they can move from weak hands to strong hands. Households that have been foreclosed upon today are the buyers of tomorrow, when given a chance to recover."
Bingo.
By now, we've all read plenty of comparisons of the current mess to the 1930s, and in some ways we're undoubtedly already there as an economy. But in one very critical regard, the current mess is nothing like the Depression-era — we have a nation of homeowners that are now more akin to renters than they ever were actual homeowners, at least in the traditional sense of the word.
As we covered extensively in the most recent HousingWire Magazine, which looks at the unintended consequences of foreclosure moratoria, mortgages were a very different financial instrument then than they are today. The modern borrower, especially the most troubled among us, is underwater on their investment — but also has likely invested little in the way of equity to begin with into a debt instrument with a comparatively longer time horizon. Mortgages in the 1930s, by way of contrast, were much shorter in duration and required that a household put up far more in the way of their household's net worth to obtain a property.
In short, the loss of a home during the Depression era was more than just a mere psychological event — it was a psychological event precisely because it was also a catastrophic hit to any household's financial wealth. Can we really say the same now? In most cases, I'd argue that the answer is NO.
"Credit may be damaged, but homeowners can rebuild it," Su writes in the Journal. "And by renting something they can afford, instead of the McMansion they cannot, homeowners are most likely to have some money left over each month that they can save toward a down payment on a house they can eventually afford."
So instead of focusing on clearing the mess, much of our legislative effort is now being spent on prolonging the misery for both banks and borrowers — for borrowers, by putting them into modified loans that are the functional equivalent of indentured servitude; and for banks, by putting hastily-conceived policies into place that fundamentally change the nature of real estate lending in this country. Policies that will not only force larger near-term hits to a bank's damaged balance sheet, but policies that will serve to constrict the flow of credit even further in the long run.
Who can lend, but for the government, when no market participant maintains certainty over the security of the collateral that is to be lent against? These are the sort of questions we should be forcing our policy makers to consider, rather than the well-intentioned but misguided logic that has bought into the idea that homeownership is a right to be maintained at all costs.
Write to Paul Jackson at paul.jackson@housingwire.com.
In a weekend address, President Barack Obama promised to act with a "sense of urgency" to meet the economic challenges, alluding to the pending release of a new program to stabilize the financial system.
"Soon my Treasury [Department] secretary, Tim Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families," he said in his weekend address. "We'll help lower mortgage costs and extend loans to small businesses so they can create jobs. We'll ensure that CEOs are not draining funds that should be advancing our recovery. And we will insist on unprecedented transparency, rigorous oversight, and clear accountability — so taxpayers know how their money is being spent and whether it is achieving results."
Unnamed sources told the Wall Street Journal last week that a revamped financial bailout could top as much as $2 trillion in additional spending to restore the banking system’s vitality and get credit flowing. The funds would come in excess of the $700 billion already granted through the TARP, as well as the $800 billion-plus economic stimulus package circulating through Congress; the House has passed its version of the bailout legislation, designed to stimulate spending and economic growth through a combination of tax cuts and government spending programs, all constructed with the flailing financial market in mind.
In his address Saturday, Obama urged the Senate to pass the House's financial stimulus bill, which was passed by the House last week in a Democratic majority vote and which aims to save or create more than 3 million jobs over the next few years. 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. Even with the home buyer incentive, the government spending programs and tax cuts inherent in the bill, Obama acknowledged in his weekend address that the "economic recovery will take years — not months."
"No one bill, no matter how comprehensive, can cure what ails our economy," he said. "So just as we jumpstart job creation, we must also ensure that markets are stable, credit is flowing, and families can stay in their homes." He also expressed faith in the American people to have patience while they wait for the effects of the recovery act and — in the more short-term future — the Senate to recognize the merit of the act and pass "the strongest possible bill" for Obama to sign.
Write to Diana Golobay at diana.golobay@housingwire.com.
The latest data released late last week by Radar Logic, Inc., a New York-based real estate data and analytics company, make it pretty clear that so-called "motivated" home sales — sales at foreclosure auction and sales of foreclosed properties by banks — are now driving key real estate metrics in nearly all of the nation's major housing markets.
According to the company's latest RPX Monthly Housing Market Report, year-over-year price declines in November accelerated in all 25 MSAs covered. "This trend was anticipated due to the increased influence of 'motivated sales' at substantial discounts relative to other elements of the market," observed Michael Feder, Radar Logic's CEO. "That said, there are some interesting signals which may indicate that we are getting closer to some stability in the housing markets."
Price declines during November reflected the typical seasonal pattern for winter months, but the declines were made more severe by large and growing concentrations of motivated sales relative to total transactions. On the whole across the 25 MSAs, motivated transactions increased from 28 percent of total transactions in October to 31 percent in November, Radar Logic reported.
But with the price declines came buyers — something many markets have been missing for well over a year now. Transaction counts in the RPX MSAs increased in Nov. 2008 versus Nov. 2007 in 13 of the 25 MSAs tracked by the firm, and the rate of decline decreased in eight more. "This is an interesting development in that it bucks the historical pattern," Feder said.
The RPX data, which is normalized to a per-square-foot price, serves to make a trading market for housing futures that has become a hedging instrument for plenty of the funds now looking to ply themselves into the distressed residential mortgage markets. Radar Logic reported that total volume in the 15 months of trading on contracts that settle against RPX daily home price values in key local markets is now approaching $3 billion.
The contracts traded — a composite, New York, Los Angeles, Phoenix and Miami — show a capital market expectation of further declines in 2009 followed by stabilization in 2010, based on trading activity. In general, traders seem to expect that prices in these key markets could stabilize near 2002/2003 levels, Radar Logic said.
To read the full report, click here.
Write to Paul Jackson at paul.jackson@housingwire.com.
Late Friday, three banks closed in quick succession, with the Federal Deposit Insurance Corp. named receiver. The Office of Thrift Supervision closed Crofton, Md.-based Suburban Federal Savings Bank. Its deposit accounts transferred to Tappahannock, Va.-based Bank of Essex. The Office of the Comptroller of the Currency closed Florida-based Ocala National Bank, the non-brokered deposit accounts of which transferred to Winter Haven, Fla.-based CenterState Bank of Florida. The Utah Department of Financial Institutions closed Salt Lake City-based MagnetBank.
No institution was willing to take over failed MagnetBank's deposits, forcing the FDIC to directly refund insured deposits. "This bank did not have an attractive franchise value, and not many retail deposits or core deposits," said FDIC spokesman David Barr, according to a MarketWatch bulletin. MagnetBank had total assets of $292.9 million and total deposits of $282.8 million, with no estimated uninsured funds.
Suburban Federal had a total $360 million in assets and $302 million in deposits. Bank of Essex, when taking it over, agreed to purchase approximately $348 million in assets at a $45 million discount, and to enter a loss-sharing transaction with the FDIC, which estimates the cost to the insurance fund will total some $126 million.
Four-branched Ocala National had total assets of $223.5 million and total deposits of $205.2 million. CenterState, when taking over, agreed to assume all the failed bank's deposits for a 1.7 percent premium, as well as $23.5 million in assets. The cost to the insurance fund is an estimated $99.6 million. Ocala National's $17.2 million in brokered deposits were not part of the agreement with CenterState and will be insured directly by the FDIC.
The three closings Friday brought the total number of banks closed so far in 2009 to six; the FDIC and state regulators on Jan. 16 shut down two banks and a third — Redlands, Calif.-based Ist Centennial Bank — on Jan. 23.
Write to Diana Golobay at diana.golobay@housingwire.com.
