Archive for February, 2009
House Democrats voted to pass the downwardly negotiated $787 billion economic stimulus package in a 246 to 183 vote, with no Republicans voting for and seven Democrats voting against the bill. A final Senate vote is expeced late Friday.
President Barack Obama's administration is reportedly in talks to finalize a mortgage subsidy program geared toward at-risk borrowers not yet delinquent on their loans. Unnamed sources on Thursday told Reuters the plan involves a reappraisal of homes for value and affordability, as part of an examination of homeowners to determine eligibility for the subsidy program. Sources also told Reuters that homeowners would not need to prove hardship to qualify for the program, which would subsidize lenders that lower monthly payments.
In addition to the segment of not-yet-delinquent borrowers the plan targets, another distinguishing feature of the subsidy program would be its lowered mortgage payment-to-income ratio from the level that currently defines other workout programs like the one employed by the Federal Deposit Insurance Corp. at failed IndyMac Federal Bank. Most modification and workout strategies currently target a 38 percent debt-to-income ratio, meaning homeowners with mortgage payments of more than 38 percent of their gross monthly income are eligible for participation. (Sources told the New York Times the new ratio would likely be 31 percent.)
Government-sponsored agencies Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) may have a role to play in administering the program, although details are unclear — and may not necessarily involve the much-anticipated push for the 4 or 4.5 percent government-sponsored mortgage interest rate — according to the Reuters article.
The subsidy program might be introduced as part of the $50 billion plan to address homeowners that has been discussed as a new TARP initiative, a foreclosure reduction program that sources told the Washington Post may be announced as early as next week. The Post's sources also said a provision within the plan may endorse the so-called "cram-down" legislation that would allow bankruptcy judges to alter mortgage terms. The program would come in excess of the $789 billion financial stimulus package, which passed a Senate vote earlier this week and is expected to pass a final Congressional vote as early as today — and as late as this weekend — in time to reach the President's desk by the preliminary Feb. 16 target date.
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.
Both Citigroup Inc. (C: 30.87 +1.61%) and JP Morgan Chase (JPM: 37.21 -0.75%) announced Friday they have enacted temporary foreclosure moratoriums. The news comes one day after House Financial Services Committee chairman Barney Frank and the Office of Thrift Supervision urged financial institutions to halt foreclosures, until lawmakers have had time to hash out the details of a "comprehensive" plan to address the housing crisis.
For three weeks, "we will not add to the foreclosure process any new owner-occupied residential loans that are owned and serviced by JP Morgan Chase," wrote JP Morgan CEO Jamie Dimon in a letter to Frank. "We believe three weeks is adequate time for the Treasury to announce — and for us to implement — a new plan."
Citigroup said its moratorium will last until President Obama has finalized the details of the alleged $50 billion mortgage modification program or until March 12, 2009 — whichever comes first. Citigroup's moratorium applies to mortgages that the bank owns and were linked to homes that are the borrower's main residence.
A Treasury staffer said Tuesday, according to a MarketWatch report, that the modification program could resemble a proposal introduced by Federal Deposit Insurance Corp. Chairwoman Sheila Bair — a loss-sharing program between mortgage servicers or investors and the FDIC that deals with loans that fail six months or longer after being modified.
Treasury Secretary Timothy Geithner suggested the plan will be presented in a few weeks. Although, according to Frank, that's "too much time."
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 Reserve Bank of New York on Thursday announced it had purchased another whopping $23.2 billion of agency mortgage-backed securities for the week ending Feb. 11, bringing total purchases so far to $114.96 billion. The weekly purchase announcements are second only to the second week in January — Jan. 8 to Jan. 14 — when total agency MBS purchases for the week came to $23.4 billion.
The Fed purchased nearly $14.7 billion from Freddie Mac (FRE: 0.00 N/A), the most purchased from that government-sponsored entity (GSE) since $15.8 billion was bought off its books in the week ending Jan. 14. The Fed reported another $7.2 billion bought from Fannie Mae (FNM: 0.00 N/A) and $1.4 billion from Ginnie Mae — the smallest weekly purchase from Ginnie since the first week of purchases, Jan. 5 to Jan. 7, when the Fed bought $450 million from the agency. The week's purchases mean the Fed has taken a total $57.9 billion off Freddie's hands, $45.06 billion from Fannie's books and $12 billion from Ginnie.
In the week ending Feb. 11, the Fed purchased only $200 million in agency coupons with 15-year maturities. The rest of its purchases occurred in maturities with 30-year and other maturities. Of the Fed's total purchases so far, approximately 94 percent have been purchases of agency coupons with 30-year maturities. About 5 percent have been purchases of coupons with 15-year maturities, and just under 1 percent has consisted of purchases of coupons with other maturities — 20- and 40-year maturities, for example.
The Federal Reserve in early February announced it had selected JP Morgan Chase & Co. (JPM: 37.21 -0.75%) as custodian for the program, which began on Jan. 5 and 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 has also said it may soon begin modifying mortgages it owns within the assets it owns.
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 March edition of the Mortgage Metrics Report, published jointly by the Office of the Comptroller of Currency and the Office of Thrift Supervision, will include new information that looks into the "affordability and sustainability" of loan modifications, the agencies announced Friday. "By bringing the same sort of standardized definitions and rigorous analysis to loan modification performance data that we have provided in our previous reports on mortgage metrics, lenders and policymakers can use this information to make loan modification programs more effective,” Comptroller of the Currency John Dugan said.
The added data will review whether loan modifications increased monthly principal and interest payments, had no effect on monthly payments, reduced payments by 10 percent or less, or reduced payments by more than 10 percent. The agencies will also publish expanded data regard recidivism — or re-default — of loans modified in the first half of 2008. New data will show the percentage of modifications in each of the four new categories that were 60 or more days past-due six months after modification.
"This will help gauge the effectiveness of the four categories of changes in monthly payments in making mortgages more sustainable and in keeping borrowers in their homes," agency officials said in a joint press statement. The agencies also said the future reports covering all of 2008 and subsequent periods will include the expanded data and show continued trends of these modifications at the various stages of the modification's life.
“We have promised to continually improve this data collection-and-reporting program to ensure that the results are meaningful and useful in the ongoing effort to address the nation’s foreclosure crisis,” said OTS director John Reich. “Today’s announcement marks a meaningful milestone in that effort.” (Reich had announced his Feb. 27 date of departure from the OTS one day earlier, on Thursday.)
Data published so far by the agencies shows a telling trend; as early as December, they reported that more than half of the loans modified in the first quarter of 2008 had re-defaulted after six months. At the time of publication, that data had not been broken out by the four modification categories. Going forward, the agencies' data should show revealing trends of various types of loan modifications and their possible ramifications for borrowers.
According to the results of a separate study, published in mid-December, 35 percent of voluntary mortgage modifications studied reduced monthly payments; 20 percent of modifications had no effect either way on the payment amount and nearly half of all modifications — 45 percent — resulted in an increased monthly payment, according to Valparaiso law professor Alan White. Less than 50 percent of loans modified in January 2008 were current on payments as of Nov. 25, according to his data.
Write to Diana Golobay at diana.golobay@housingwire.com.
Virgin Money USA announced Thursday it had entered the wholesale mortgage business and boasted more than 150 brokers that had already signed up on its network. Licensed in 35 states and planning to be fully licensed by year-end, Virgin Money will offer conventional mortgage products and Federal Housing Administration-backed loans. "At a time when others are exiting the mortgage space, leaving consumers with fewer financing options, Virgin Money is jumping in with its wholesale mortgage program," said Richard Branson, founder and chairman of parent company Virgin Group.
Virgin Money's wholesale business will operate with technology that provides real-time status updates and rate quotes, clear and up-to-date product guidelines and paperless underwriting. Officials said the company will offer competitive rates and a high-touch broker relationship, as well as deal structure assistance, to the industry. The company has also promised a "fair but stringent" broker approval process, according to a press statement.
"Virgin Money sees a growing service gap in the mortgage industry, which we plan to close and own," said founder and CEO Asheesh Advani. "…We're not there just to sell a loan. We support brokers through to the closing."
The news comes as brokers have seen a mass retreat from wholesale lending among major banks. The effects are far-reaching and, combined with a race for warehouse money, make originating in the industry a challenge, one source told HousingWire. The source, an independent mortgage banker, said his company did almost $2 billion in originations in 2008, partly working with JP Morgan Chase & Co. (JPM: 37.21 -0.75%) on the warehouse side. His company, however, is no stranger to the Chase's recent wholesale channel exodus, which effectively cut off business to many mortgage brokers in the industry. "For the broker side, it's hard right now," said the source, on condition of anonymity. "I don't know what people will do if they're working as a broker right now. I don't know how they're going to get through it."
Virgin Money's venture into the wholesale business may end up easing the strain placed on brokers that have found themselves without lenders willing to fund loans. Virgin Money is a company within the Virgin Group, whose many global subsidiaries offer a menagerie of services, from luxury hot air balloon flights to stem cell banking to mobile phone services.
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The authors 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.
January brought an unexpected, across the board drop, in the total Notices of Default, Notices of Trustee Sale, and sales at auction in California, not only from the prior month, but year over year as well, according to ForeclosureRadar's California Foreclosure Report released Thursday. Even after accounting for the fact that January had two fewer days than December, only properties sold at auction saw a slight increase of 3.4 percent.
"Analyzing the data at the lender level, it appears these drops can be primarily attributed to the significant changes taking place among the country’s major lending institutions," said the report. Wells Fargo (WFC: 29.60 +1.89%), with its recent acquisition of Wachovia, saw a drop in Notice of Default filings of 46 percent, while JP Morgan (JPM: 37.21 -0.75%), which acquired Washington Mutual (WM: 34.81 +0.23%), saw a drop of 49 percent. Bank of America Corp. (BAC: 7.29 -0.14%), which earlier acquired Countrywide, saw a significant 281 percent increase in filings, though still below the levels Countrywide experienced in the second quarter of 2008. "Given the significant integration issues faced by most major lenders today, it would be irresponsible to draw any conclusions about market direction from current foreclosure numbers," the report concluded.
But as for January, figures were clearly on the downfall. Notices of Default decreased 11.8 percent over Notices recorded for December, to a total of 36,138 default filings, a 10.6 percent decrease from January 2008. Accounting for the fact that January had two fewer recording days than December, the average daily decrease was about 3 percent.
The average daily volume for Notices of Trustee Sale filed from December to January dropped 8.3 percent. The 22,328 Notice of Trustee Sale filings for January represent a 4.5 percent decrease from Notices of Trustee Sale recorded in January 2008.
Properties taken to sale at auction also decreased, falling 6 percent from December to January; a 23.1 percent decline from the same period last year, and a 46.8 percent decrease from peak volumes seen in July 2008. The 15,314 properties sold at auction represent $6.8 million in loan value. Slightly more than 94 percent of these properties were sold back to the bank at auction.
The number of properties sold to third parties at auction, however, continues to rise – up 6.6 percent from December 2008 and more than doubling from January of last year. Lender discounts at auctions statewide averaged a whopping 41.4 percent from the outstanding loan balance for January, a significant increase from the 16.1 percent average discount a year earlier. Overall, lenders discounted their opening bid on 92 percent of properties taken to sale, making prices at auction reasonable for third party buyers, said ForeclosureRadar.
In Orange County, third parties purchased foreclosures with loan balances totaling $67.5 million at auction, representing 14 percent of the total properties sold in California. The average discount from the loan balance to the opening bid in Orange County was 34.1 percent. San Francisco County, with one of the lowest average discounts in the state of just 24.6 percent, still saw 9 percent of auction properties sold to third parties.
Providing insight into the coming months, Marin and Sonoma Counties have the highest numbers of listed preforeclosures at 15.4 and 14.1 percent respectively. "These figures are disappointingly low given the significant advantages to both homeowners and lenders of completing a short-sale when compared to allowing the home to be sold at foreclosure auction," said the report.
“Foreclosure is currently the only functioning mechanism for clearing the negative equity that is otherwise leaving homeowners in a prison of debt,” says Sean O'Toole, founder of ForeclosureRadar. “While it is our hope that better mechanisms for clearing unsustainable mortgage debt are ultimately identified, we are delighted to see continued improvements in the efficiency of California’s foreclosure marketplace as evidenced by the increasing number of sales to third parties at auction.”
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.
John Reich, Director of the Office of Thrift Supervision, on Thursday announced his resignation from the agency. Reich and Obama administration officials may have been at odds over whether the government should take part in mortgage workouts to help troubled homeowners, according to a Market Watch report.
Reich said in November he had concerns about using federal funds to complete loan modification programs. Reich also disagreed with Federal Deposit Insurance Corp. Chairwoman Sheila Bair in her efforts to seek billions in government funds to modify loans for troubled borrowers. Nonetheless, the OTS on Wednesday urged, along with House Financial Services Committee Chairman Ben Bernanke, all financial institutions suspend foreclosures until Treasury Secretary Timothy Geithner and his team have hashed out the details on a $50 billion mortgage modification program.
Reich was nominated director of OTS by former President George W. Bush. In his capacity as Director, Reich also served as a member of the Board of Directors of the FDIC. Reich joined the OTS after serving since November 2002 as Vice Chairman of the FDIC Board. He also served as Acting Chairman of the FDIC from July 2001 to August 2001.
Reich's resignation changes the make up of the FDIC board, which has five members, as it also adds to speculation that the Obama administration may consider combining the OTS and the Office of the Comptroller of the Currency. It's possible the Obama administration could replace Reich with a chairperson whose focus would be to combine the agencies, an observer familiar with the agencies told Market Watch.
“I am honored to have led this agency during one of the most challenging economic periods in U.S. history,” Reich said upon announcement of his departure. “I am tremendously proud of the enormous efforts by OTS employees to preserve the health of the U.S. thrift industry and I feel confident that those efforts will continue under my successor.”
Scott M. Polakoff, Senior Deputy Director and Chief Operating Officer, will become Acting Director upon Reich’s departure. Pursuant to statute, Polakoff will serve in that capacity until President Obama appoints a successor.
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.
(Update 1)
Distressed asset investor Wilbur Ross, of WL Ross & Co., wants to be a banker. But buying troubled banks like Florida’s BankUnited Financial Corp. (BKUNA: 0.00 N/A) just doesn’t really fit his ‘good bank’ plan.
This week, the Financial Times reported that Ross was running due diligence on the $14 billion bank, and about to make a bid with fellow private equity firm The Carlyle Group. But sources familiar with the transaction said Ross walked away from the potential deal, likely leaving the government to the task of cleaning up any bad assets at the bank directly.
According to regulatory filings, 60 percent of BankUnited’s $12 billion loan portfolio is in the form of toxic option ARMs; two-thirds of the bank’s deposits are in the form of CDs, as well, leaving only $2.5 billion in the natural deposits investors like Ross see as truly valuable.
Ross said he would not comment directly on any deals his firm does until they’re signed and delivered. BankUnited spokeswoman Melissa Gracey did not immediately return a call seeking comment.
Ross has made billions investing on the cheap in troubled companies that no one else wants. This time, however, rather than wheeling and dealing with industry titans, he appears to be looking to the Obama administration to make new rules that can help turnaround specialists like himself build a good bank from the pieces of broken banks. Given that his American Home Mortgage Servicing, Inc. platform is performing nicely as the nation’s largest independent servicer and just got upgraded two notches by Fitch Ratings, as well, Ross’ investment firm isn't in bad shape or desperately seeking deposits.
"He has the time to pick through the FDIC's litter of smaller failing banks and buy the best ones," a source familiar with the situation said.
For his part, Ross told HW, “The future of banking will look like the old-fashioned banks like Hudson City Savings Bank in New Jersey where I grew up. The days of high-flying, go-go banks are gone and should have never happened.”
It's not like Ross is looking for a hand out from the Treasury’s trillion-dollar piggy bank, akin to the billions Citigroup, Inc. (C: 30.87 +1.61%) or Bank of America Corp. (BAC: 7.29 -0.14%) were given to keep their operations alive. In fact, he’s already plopped down $7 million of his own money last month to take a majority position in a small Florida-based bank, First Bank and Trust of Indiantown. The community bank, which holds only $83.5 million in assets and according to sources inside its regulator is ranked is as healthy, paved the way for Ross to pick up a bank charter. It’s a move that some say the FDIC, who sits in the power seat to dole out the best deals to investment firms like Ross’ own, likes to see.
Now that he holds his ‘license to be banker,’ Ross isn’t being shy about what he wants to see from administration officials. “We really need the regulators give us time to do due diligence on these failed banks and comb through their assets bucket by bucket to get our own view on where the value is,” he said in an interview.
Ross said he picked up his stake in the Florida-based bank, housed near his Palm Beach home, when a friend’s husband passed away, and not because it was troubled bank. He said it was good fit because he knew the local real estate market on the loans the bank holds. He also liked the fact that its vault is packed with natural deposits from wealth within the community — and not so-called “fast money” CDs, or out of state brokered deposits that are often seen as quick to withdraw.
The government’s cost of capital is the cheapest out there. So Ross and his fellow private equity friends, who can’t get cheap billion dollar financing like they did last few years from investment banks, simply wants to go direct to the government coffers to pick up the lowest interest rates – and they also expect plenty of time to pay it back, too. Enough time, at least, to turn a lackluster bank into one that behaves like a profit center, so they can sell it for a profit when the market rebounds.
“If Treasury wanted, they could open up their federal assistance programs, like TALF, to fund the private sector buying their troubled banks. I need to see a low cost of leverage on the transaction,” said Ross.
Last week, Ross’ firm spent $1.5B to buy a good chunk of Citigroup’s servicing business, but did not buy any of the underlying $37 billion in Alt-A and subprime loans. Ross suggested to HW that at some point he will look to buy whole loans and house them in a new ‘good bank,’ but not until “cheap leverage” is there for the taking. He also said he needs at least a month to make sure the servicing piece he just bought integrates well with his existing team at AHMSI, so things don’t get out of control.
“There are plenty of smaller community banks in Florida, Arizona, Nevada who have built excellent core deposit bases,” Ross said. “But their exposure to construction loans for residential housing projects and commercial real estate in deals like strip malls will subject them to losses and [a need for] federal assistance. That’s what we’re looking to buy.”
And to motivate Ross — and other investors like him — to take any of the hundreds of small community banks the FDIC has suggested they expect to fail off of their hands, he expects them to wash most of the toxic assets off of their balance sheets before they offer him a chance to invest.
“The share of losses the government took on in the sale of IndyMac to private equity investors last month really set a precedent,” he said. “We need to see more reasonable risk sharing formulas like that to make it a worthwhile investment.”
“Why would these guys pay full price, when the government will remove the stuff you don't want for free and share future losses, too?” said Mark Hanson, a mortgage analyst with The Field Check Group.
In a New York Post story this week, Ross offered glowing praise to the new Democratic administration for understanding that they are going to need the private sector to help them clean up their banking mess. “Let us hope that when the details are finally released they are equally logical,” he opined. But he also has warned in recent television interviews that investors won't begin buying toxic mortgages until banks reduce their marks on them.
So long as logical means profitable for private investment firms like Ross’ own, however, the Feds may have found a much-needed friend to start digging a newly-minted Financial Stability Plan out of its trillion-dollar hole.
Teri Buhl is an investigative journalist covering Wall Street who has written for the New York Post Sunday Business and Trader Monthly. Contact her at teribuhl@yahoo.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.
Twelve percent of Americans have either filed or considered filing for bankruptcy, according to a new survey released Thursday by FindLaw.com, a legal information Web site. The number of consumer bankruptcy filings has nearly doubled in the last three years, from 573,000 in 2006 to 1,064,927 in 2008, according to the National Bankruptcy Research Center.
"Bankruptcy can be a powerful, useful tool for debtors," said Stephanie Rahlfs, an attorney and editor at FindLaw.com. "However, it is often a complicated and difficult process, and there are many misconceptions about what bankruptcy can and cannot do to help relieve debt burdens."
According to the new FindLaw survey, 10 percent of Americans said they have considered filing for personal bankruptcy at some point in their lives, while two percent of Americans said they actually have filed for personal bankruptcy at some point in their lives.
The survey's results come at a time when lawmakers are attempting to pass measures that would allow bankruptcy judges to change the terms of a mortgage — possibly increasing that two percent figure, as bankruptcy might be more appealing if a mortgage workout is on the table. Democrats have long advocated allowing judges to modify principal amounts of mortgages on primary residences in Chapter 13 bankruptcy cases filed by debtors; currently, such modifications are precluded by law.
In contrast, Republicans and most industry groups have strongly opposed so-called “debt cram-down” proposals for mortgages, saying that allowing cram-downs would add to the costs of a mortgage for most consumers and swell the ranks of borrowers filing for bankruptcy protection.
The House Judiciary Committee approved in a 21-15 vote at the end of January a measure for "cram-down" provisions that would allow bankruptcy judges to reduce interest rates, extend the life of a loan, and lower the principal or balance of a loan. The measure is headed for a full vote in the House next, before going to the Senate.
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.
