Archive for March, 2009
Friday brought a ray of hope for battered mortgage markets, with the nation's largest mortgage lender saying that it is looking to expand its presence in jumbo lending markets — a market that has literally seen liquidity vanish amid the collapse of much of the nation's private-party mortgage markets.
Bank of America Corp. (BAC: 7.29 -0.14%) executive Barbara Desoer, who runs the bank's mortgage and home equity lending operations, told Bloomberg News in an interview that a previous acquisition of Countrywide Financial "is really paying off," and said the North Carolina-based bank was looking to expand jumbo lending.
“Bank of America has balance-sheet capacity, and we’ve allocated it to jumbos given our presence in some of the states and regions where that’s important,” she told the news service. “We’re very much open for business.”
It was unclear if Desoer was referring specifically to non-agency jumbo mortgages, however; the Bloomberg report — somewhat confusingly — defined jumbos as mortgages saleable to Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A). That's only part of the jumbo mortgage market, which traditionally has referred to mortgages above the conforming limit (hence, jumbo, or too large for the GSEs). Regulation last year created the so-called "jumbo-conforming" loan market, allowing both Fannie and Freddie to operate above their traditional $417,000 conforming loan limits in certain designated "high-cost" markets, with jumbo-conforming limits going as high as $729,750 in some areas.
But the suggestion that BofA is allocating any balance sheet capacity to jumbos should come as welcome news to industry participants, regardless.
Desoer said the bank has added roughly 3,000 employees to its origination unit, including about 1,000 new to the company and 500 shifted from its home-equity division, plus temporary workers; the bank's mortgage staff now totals roughly 25,000, a bank spokesman told Bloomberg.
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.
There are some things you expect from the chairman of the Federal Reserve: obtuse and circular references to "downside risk," speeches that only an academic could love, and an obsession from the business press to any references that might hint at future monetary policy direction. But there are also those things you do not expect — such as a Fed chairman breaking the long-standing 'blackout' practice, where members of the Federal Open Markets Committee do not comment to the press ahead of an upcoming FOMC meeting.
CNBC reported Friday morning that Bernanke has taped an interview set to be aired Sunday evening on CBS' newsweekly 60 Minutes; the next FOMC meeting is scheduled for March 17 and 18. "The Chairman thought this was a useful opportunity to communicate with a broad audience during an extremely stressful time," a Fed spokesperson told CNBC, when asked about the apparent blackout violation.
What wasn't said: there isn't a whole heck of a lot that the FOMC really can do right now, anyhow. There is very little suspense around the outcome of the next Fed meeting. With the federal funds target rate pegged at a range of zero to 25 basis points, critics suggest that the Fed may effectively be out of sufficient ammunition, beyond its capacity to signal future inflation to markets. And to do that, an interview on a widely-watched television newsweekly may be just the platform to push that message out to the masses — and to investors.
As economist and erstwhile op-ed columnist Paul Krugman at the New York Times noted in a recent editorial:
To appreciate the problem, you need to know that this isn’t your father’s recession. It’s your grandfather’s, or maybe even (as I’ll explain) your great-great-grandfather’s.
Your father’s recession was something like the severe downturn of 1981-1982. That recession was, in effect, a deliberate creation of the Federal Reserve, which raised interest rates to as much as 17 percent in an effort to control runaway inflation. Once the Fed decided that we had suffered enough, it relented, and the economy quickly bounced back.
Your grandfather’s recession, on the other hand, was something like the Great Depression, which happened in spite of the Fed’s efforts, not because of them. When a stock market bubble and a credit boom collapsed, bringing down much of the banking system with them, the Fed tried to revive the economy with low interest rates — but even rates barely above zero weren’t low enough to end a prolonged era of high unemployment.
Now we’re in the midst of a crisis that bears an eerie, troubling resemblance to the onset of the Depression; interest rates are already near zero, and still the economy plunges.
Krugman wonders who will stop the pain this time — a concern I share deeply. I don't know that a depression is in the offing, but I do think anyone expecting economic recovery in a near-term timeframe (say, one to two years) is likely deluding themselves. And it seems clear that Bernanke is trying a new strategy to get ahead of a market that continues to find itself stuck in reverse.
Write to Paul Jackson at paul.jackson@housingwire.com.
Shares of mortgage insurer MGIC Investment Corp. (MTG: 4.14 +6.98%) tanked Thursday after the company said it would defer interest payments on $390 million in junior subordinated debt, in a filing with the Securities and Exchange Commission. Mortgage insurers, including MTG ,have been battered amid the long-running U.S. housing crisis.
Thursday's disclosure by MGIC sent shares more than 40 percent lower in intra-day trading. Shares closed at $.86/share, a stunning fall from nearly $14/share one year ago. MGIC said it elected to defer for 10 years the interest on the debentures, but that the debt would continue to accrue interest due at a 9.0 percent compound semi-annually.
Fitch Ratings immediately said it was reviewing MGIC for further ratings downgrades, saying that current debt ratings assigned the insurer had already assumed that a suspension of payments was likely — but that the move to defer interest payments was "an indicator of the increasing financial pressure facing the company and the mortgage insurance sector as a whole."
The rating agency noted, however, that MGIC has sufficient liquidity to manage its short-term obligations.
After the pummeling the company's stock took on Thursday, Friday morning MGIC released a statement to the press on its decision, saying that the company was not remotely considering bankruptcy and that its decision to defer interest payments was borne solely of a desire "to maintain maximum financial flexibility." The company would not speculate on whether it would defer future interest payments going forward.
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.
Foreclosures nationwide surged 6 percent from January levels, and were up 30 percent from year-ago, according to data released Thursday morning by RealtyTrac, which provides nationwide listings of properties in foreclosure and owned by banks.
The company's data showed that foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 290,631 U.S. properties during the month, compared to 274,399 one month earlier.
The increase in foreclosure activity from January to February is somewhat surprising, given that many of the foreclosure prevention efforts and moratoria in place in January were extended through most of February as well,” said James J. Saccacio, chief executive officer of RealtyTrac.
Saccacio highlighted the effects of recent legislation in the foreclosure data, as well, including a 45-day voluntary moratorium in Florida expired at the end of January; foreclosure activity there was up 14 percent from the previous month, as a result. And New York saw foreclosures surge 23 percent, after a new state law had delayed the foreclosure process by an extra 90 days.
Nationally, the increase in what's called "foreclosure activity" was actually driven by two components — new borrower defaults and an increase in reported REO inventory. Actual foreclosure sales appear to have decreased, owing to the effect of new and pending legislation that is increasingly seeking to keep borrowers in their homes at almost any cost. Notice of Defaults and Lis Pendens — the first step in the foreclosure process — increased 10.6 percent between January and February, while reported REO volume increased 5.9 percent. In contrast, Notices of Trustee Sale and Notices of Foreclosure Sale — the final step in foreclosure that signals a courthouse auction is imminent — actually fell 1.4 percent.
Foreclosure filings were reported on 80,775 California properties in February, RealtyTrac said, the most of any state and a 5 percent increase from the previous month. The state’s foreclosure activity increased 51 percent from February 2008, with auction sale notices increasing nearly 179 percent — the most of any category on a year-over-year basis.
Florida and Arizona continued to rank second and third in overall foreclosure volume, according to the report.
Write to Paul Jackson at paul.jackson@housingwire.com.
Hands down it was Stewart in perhaps the most awkward and entertaining late night interview in at least five years, Thursday night on The Daily Show with Jon Stewart. Stewart and crew have turned up the volume a notch on criticism against CNBC in recent days, and last night's episode was the latest high note in what has become a long-running feud between the two.
Here's Part 1 of the interview:
Stewart was more serious than he was funny in the interview, which made for some awkward moments. But Cramer pretty much apologized for everything CNBC has ever aired, including his stuff. Business Insider said that "Cramer basically sounded apologetic all night, though Stewart didn't do himself any favors by coming off as overly serious and not very funny."
Stewart's funniest moments came earlier in the show, when — after Cramer had appeared on the Martha Stewart Show earlier that morning, kneading dough with the (in)famous personality, who has been convicted of insider trading — Stewart deadpanned: "Cramer, haven't enough people's dough taken a pounding already from you?"
The Financial Institutions Subcommittee on Wednesday conducted a hearing of mortgage industry participants to focus on comprehensive mortgage lending reform legislation the Financial Services Committee is expected to consider later in March. A part of the original H.R. 3915 — the Mortgage Reform and Anti-Predatory Lending Act of 2007 — managed to be signed into law within separate legislation. That one provision, the requirement of a nationwide licensing and registration system for mortgage brokers, has been criticized as not doing enough to reform the system.
“The Financial Services Committee continues to take the lead in establishing a national standard to rein in the abusive lending practices that contributed to the current mortgage crisis and our overall economic problems,” said chairman Luis Gutierrez. “I am disappointed that the White House and the Senate did not share our sense of urgency in 2007 when the House first passed historic mortgage reform legislation. But I am confident that new leadership in the White House will help us move this year’s version of mortgage lending reform quickly through both chambers and make sure that, as a nation, we never find ourselves in this situation again.”
The subcommittee acknowledged the absence of a handful of other provisions that were never passed, including: tougher penalties for originators who “steer” borrowers in to higher-priced loans; requiring mortgage originators to ensure that a borrower has a reasonable ability to repay the loan and, in the case of refinancing, will receive a tangible net benefit from the loan; establishing a national standard for assignee and securitizer liability and providing enhanced consumer protections that will subject Wall Street firms to liability if they buy, sell and securitize loans that consumers cannot repay; and providing protections for renters who are forced to leave foreclosed properties through no fault of their own. It was this assortment of potential requirements and restrictions for which many of the hearing's participants rallied.
Laurence Platt, a partner with K&L Gates, on behalf of the Securities Industry and Financial Markets Association and the American Securitization Forum, plead the the values of H.R. 3915, which passed a House of Representatives vote in November 2007 and was referred to a Senate committee in December 2007. The bill was touted as imposing such restrictions on mortgage lenders as to not be able to make mortgage loans without first making a "reasonable and good faith determination" of the borrower's ability to pay to mortgage, property tax, insurance and the like, based on verified and documented information. The bill also boasted of restricting mortgage lenders from making mortgage loans for the purpose of refinancing on existing loan unless first determining the refinanced mortgage's "net tangible benefit" to the borrower, according to Platt.
Joe Robson, chairman of the board for the National Association of Home Builders and a Tulsa, Okla.-based builder and developer, argued that the mortgage products and practices responsible for the housing crisis have already been edged out of the mortgage lending space and are no longer a major threat, now that lending practices have changed to adapt to stricter scrutiny. "The housing market, the financial system and the economy’s performance continue to reel from the impacts of the mortgage market excesses of earlier this decade," Robson said. "While the nation will continue to suffer these consequences in the months ahead, the mortgage system itself has already undergone radical reform and change."
Despite the progress Robson said has already taken place, he said in his testimony that the NAHB calls for underwriting standards based on documented credit, income and proven ability to pay rather than expected home price inclines. He warned against "overly rigid adherence to loan-to-value limits" that lead to the rejection of creditworthy borrowers, and urged Congress to "implement a clear national framework for mortgage origination standards to replace the current patchwork of state and local laws, which often lead unnecessary restrictions on mortgage credit."
Margot Saunders fro the National Association of Consumer Advocates, advised implementing a broker payment system similar to insurance brokers who receive commission only when the consumer is making current payments, thereby incentivizing the broker to provide a quality product to a qualified borrower. Overall, the participants that offered testimony in the hearing consistently urged the ban of unsuitable mortgage products, prepayment penalties and any no-documentation approaches to underwriting that originally led to the housing crisis.
Jim Amorin, president of the Appraisal Institute and vice president of Austin, Texas-based Atrium Real Estate Services, urged reform of the Home Valuation Code of Conduct, scheduled to go into effect May 1, which opens the door for "appraisal management companies" as a form of regulating an appraisal system that has been criticized as contributing to the upward pressure of house prices in the height of the housing bubble. "With many AMCs taking as much as 60 percent of the fee as their 'management' cost, many highly qualified appraisers are reluctant to perform mortgage appraisals for such entities. This flight of highly qualified appraisers is the last thing an already ailing mortgage market needs." According to Amiron, the provision for AMCs not only does little to help the situation, but allows for the same potential pressure on appraisers to provide "predetermined values."
"We must return to the fundamentals of mortgage lending: capacity to repay, credit history soundness and collateral," Amorin said. "Today, even in the midst of our current economic crisis, inadequate attention is paid to the collateral held in support of a loan. This oversight, combined with loose credit policies and a lack of universal and enforceable underwriting guidelines, produced economic disaster. We no longer can continue to ignore these fundamental basics."
In returning to basics, Amorin urged improvements to H.R. 3915 — or passage of similar legislation — that will take more consideration for (surprise!) appraisers. He called for the establishment of a high-level position for collateral valuation review (appraisal czar, anyone?), and asked for an immediate review of loan modification guidelines inherent in the Home Affordable Modification plan, to ensure the protection of consumers and neighborhoods, as well as the utilization of "proper valuation."
David Kittle, chairman of the Mortgage Bankers Association, asked the committee not to forget to pay "special attention" to mortgage lenders (who else?) amidst a movement for reform in consumer protection, systemic risk and safety.
For more on the hearing, visit www.house.gov.
Write to Diana Golobay at diana.golobay@housingwire.com.
When it comes to household net worth, declining home prices and a falling stock market are a recipe for disaster. U.S. households saw their net worth fall a whopping $11.2 trillion, or 18 percent, to $51.5 trillion at the end of 2008, essentially wiping out five years of gains, the Federal Reserve reported Thursday.
In the fourth quarter alone, household net worth dropped $5.1 trillion, posting a record 31 percent annualized decline. Net worth — defined as assets minus liabilities — has fallen for six consecutive quarters since it's peak in the second quarter of 2007.
At year-end 2008, assets fell by $11.3 trillion to $65.7 trillion, while liabilities fell $87 billion to $14.2 trillion. Interestingly, as household assets were plunging, households were also acquiring less debt, deleveraging their balance sheets — mind you, after five years of double-digit growth in debt.
Household debts fell at a two percent annual rate in the quarter, including a 1.6 percent decline in mortgage debt and a 3.2 percent decline in consumer credit. Fourth-quarter 2008 actually saw households pay off more debt than they took on for the first time since at least 1952, which was when the Fed began reporting the information in its quarterly Flow of Funds report, explained a Market Watch Report.
For all of 2008, household debt rose a historically low 4.8 percent, considering debt had never risen less than five percent in a year since the early 1950s, said Market Watch.
As for the federal debt, that's a different story. Federal debt increased 24 percent in 2008 and increased at a 37 percent annual rate in the fourth quarter.
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 labor market took yet another hit as first-time applications for state unemployment benefits climbed 9,000 to a seasonally-adjusted 654,000 in the week ending March 7, the Labor Department said Thursday.
"The numbers continue to worsen," said Michael Gregory, a senior economist at BMO Capital Markets. "While retail sales were better than expected last month, according to the Commerce Department report, "it's hard to believe spending will hold up" with jobless claims so high, he told Bloomberg News.
The total number of people remaining on the benefits roll after drawing at least one week of aid topped analysts predictions, jumping 193,000 to a record 5.31 million in the week ending Feb. 28, the most recent week for which data is available. The insured unemployment rate now sits at 4 percent, the highest reading since June of 1983, according to a Reuters report.
The four-week moving average of new jobless claims, which can sometimes smooth volatility, rose to 650,000 from 643,250 the week before.
The largest increases in initial claims were in New York — where 16,481 people filed a claim in the week ending Feb, 28 — California, Oregon, Georgia and Wisconsin. The largest decreases were seen in Missouri — where claims dropped by 3,350 — Massachusetts, New Jersey, Florida and New Mexico.
Companies across the nation continue to shrink work forces. The ADP National Employment Report released last week showed private companies cut 697,000 jobs in February, alone.
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
After turning upward last week, mortgage rates eased a bit in the week ending March 12, according to Freddie Mac's (FRE: 0.00 N/A) Primary Mortgage Market Survey released Thursday. 30-year fixed-rate mortgages averaged 5.03 percent with an average 0.7 point, down from last week's 5.15 percent average, and far below the average last year at this time — 6.13 percent.
“Mortgage rates had room to ease this week following news of a weaker job market, which may slow consumer spending and keep inflation at bay,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The 30-year fixed-rate mortgage rate remains very close to January’s all time recorded low of 4.96 percent. Indeed, mortgage rates have drifted up and down only by about one-quarter of a percent in the first months of this year."
This week, 15-year fixed-rate mortgages averaged 4.64 percent with an average 0.7 point, down from last week's average of 4.72, and significantly below the year-ago reading of 5.60 percent.
Five-year Treasury-indexed ARMs also slouched this week, averaging 4.99 percent compared to 5.08 percent last week. One-year Treasury-indexed ARMs were down as well, falling from 4.86 percent last week to 4.80 percent this week. At this time last year, the 1-year ARM averaged 5.14 percent.
Given the recent historically low mortgage rates, homeowners continue to have a strong incentive to try and refinance, said Nothaft. "For instance, the Bureau of Economic Analysis reports that the effective mortgage rate for loans outstanding in the fourth quarter of 2008 was around 6.2 percent, or almost 1.2 percentage points above this week’s average rate for 30-year fixed-rate mortgages.”
The Mortgage Bankers Association said Wednesday there was an 11.3 percent jump in mortgage applications last week– two-thirds of which were from homeowners who wanted to refinance. Mortgage Maxx, which also tracks mortgage application volume — but accounts for multiple applications from one household — actually recorded a drop in applications. If both indexes are accurate, then roughly 16 percent of applicants are applying for loans in two places, hoping to have their application approved by at least one, said Bankrate.com's Holden Lewis in his weekly mortgage analysis.
Paul Descloux, publisher of Mortgage Maxx, said "with consumer psyche traumatized, 20 percent of all homeowners over the negative equity cliff into the drink, and whole swaths of potential mortgagors unable to qualify, the MAX may already have passed its highs for 2009," which means we might not see a surge in application volume — refinance or otherwise — anytime soon.
Nonetheless, average rates continue to hover around 5.4 percent, seemingly attractive to borrowers. Bankrate.com's mortgage rate survey, which is separate but similar to Freddie Mac's, also reported a slight drop in mortgage rates this week. The benchmark 30-year fixed-rate fell 4 basis points to 5.37 percent, according to Bankrate.
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
U.S. Treasury Department secretary Tim Geithner called on global finance leaders to increase their contribution to the International Monetary Fund (IMF) by up to $500 billion in a move for global stimulus support that surprised few. His statements, released Wednesday before the G-20 meeting of finance ministers in London, urged a worldwide effort in concert with recent actions geared toward stabilizing the U.S. financial system.
"Forceful financial sector actions are critical to rebuild confidence, restore market functioning, get credit flowing and bring stability to the global financial system," Geithner said. "In the United States, we are implementing a series of aggressive initiatives to stabilize and strengthen our financial system to support economic recovery, and we look for complementary actions around the world."
He called for a wave of support for developing countries and countries in crisis beyond the individual efforts already called for by the IMF (the benchmark for member countries to in place a fiscal stimulus of 2 percent of aggregate gross domestic product each year for 2009 and 2010).
Geithner called on the G-20 to not only "substantially" increase emergency IMF resources, but also to increase country membership in the G-20 summits. "We welcome the international effort to raise temporary resources for the IMF," he said. "In addition, we are prepared to explore additional actions to provide support for the poorest countries given the impact of the crisis and the need for global liquidity."
He also urged G-20 countries to implement increased regulation going forward, to construct "strong standards" with which to supervise and govern "systemically significant" global financial firms, to oversee markets — like derivatives — that are critical to the functioning of the global financial system, and to implement a stronger framework of capital requirements to insure institutions are able to "build up capital in good times and draw capital down as a buffer in bad times." Geithner called on the G-20 countries to fight money laundering, terrorist financing and the use of offshore tax havens by those avoiding tax payments, and to build a framework of cooperative global action that can be used in times of financial crisis.
Write to Diana Golobay at diana.golobay@housingwire.com.
