Archive for March, 2009
Standard & Poor's Ratings Services said earlier this week that it had deferred its annual review of its residential servicer rankings on American Home Mortgage Servicing Inc. (AHMSI), to allow the company time to complete its most recent acquisition.
On Feb. 4, AHMSI announced that it had acquired the servicing rights to some 185,000 residential mortgages for $1.5 billion from Citigroup, Inc. (C: 30.87 +1.61%), a $28 billion servicing portfolio.
Standard & Poor's currently maintains 'average' rankings on the company for residential prime and residential subordinate-lien loan servicing. The company also now has a 'strong' ranking for residential subprime loan servicing and an 'average' ranking for residential special loan servicing, both of which were previously assigned to Option One Mortgage before AHMSI purchased the company last June.
"Standard & Poor's acknowledges the growth and significant changes that come with the company's purchase of Option One, as well as the company's recently announced acquisition of a $28 billion servicing portfolio from Citi Residential Lending," the agency said in a statement. "As such, we will defer our annual review of AHMSI's servicing operations to allow senior management adequate time to complete the most recent integration."
American Home has been on a roll as of late, and has been adding staff at a fast clip ahead of and in the wake of its most recent acquisition. AHMSI expanded its operational audit function by adding experienced management and staff in mid-2008 to develop a separate internal audit function, S&P noted.
The agency said it plans update its residential servicer rankings on AHMSI within the next 90-120 days.
Write to Paul Jackson at paul.jackson@housingwire.com.
Keefe, Bruyette & Woods, Inc. (KBW: 17.65 +1.32%) says it is looking to bulk up its presence in the mortgage bond business, hiring two well-known mortgage bond traders on Tuesday. In a press statement earlier this week, the company said it had hired Peter Ma, who will lead the firm's efforts in the non-agency market, and Greg Hargraves, who joins the firm as senior agency pass-through trader.
Both are seasoned vets in the MBS space. Ma has spent more than 20 years in the business, and was most recently executive director on the MBS trading desk at UBS AG (UBS: 14.05 +0.50%). Hargraves has spent nearly his entire career at Merrill Lynch, where he was senior Ginnie Mae trader and had responsibility for the firm's middle markets mortgage business. Both will both report to Don Ullmann, head of KBW's MBS and agency trading areas.
The company says it may be looking to expand its team further in the MBS space. “What we are looking at here is a huge opportunity to be able to attract some very bright and talented people that have been in the business for a long time [and] that have been displaced for various reasons,” Craig Coats, executive vice president of fixed income at KBW, told Investment Dealers Digest earlier this week. “At the moment we’ll continue to look for opportunities that come along.”
“With these outstanding new hires, we have broadened and deepened our ability to execute value-added trades for our customer base,” Coats said in a press statement.
KBW representatives told IDD that the company's MBS business is currently splite "evenly" among agency and non-agency mortgages — but that it is expected to see the non-agency side of the business grow as we move into the back half of 2009, certainly an interesting sentiment in the market right now.
"A lot of firms have stopped using their balance sheet. We don't use alot of balance sheet. We generally tend to work on orders. We will position securities on the fringe, but we're not a big balance sheet user," Coats told the news service.
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.
One of my favorite reads each day is Calculated Risk — if you aren't reading, you should be. The blog's host put up a tour de force yesterday that asked the question: are we really facing a depression here in the States?
The bottom line of the well-reasoned analysis is worth paying attention to:
Even though the current recession is already one of the worst since 1947, it is only about 1/3 of the way to a depression (assuming a terrible Q1).
To reach a depression, the economy would have to decline at about a 6.6% annual rate each quarter for the next year.
Which means simply: things are bad, yes, but they could get a whole lot worse. While CR remains confident a depression isn't in the offing, and I agree we have a ways to fall before we could get there, I think I'm starting to side a bit more with Paul Krugman on this — things could get a whole lot worse. How much worse in anyone's guess.
(Update 1)
We're again seeing a mixed picture in mortgage applications this week, taking data on raw application totals and household applications into account. Data from the Mortgage Bankers Association, released Wednesday morning, shows that aggregate application volume rose 11.3 percent on a seasonally adjusted basis for the week ended March 6; most financial news services report this number, so most of you will see today that applications rose as mortgage rates decreased slightly.
If only it were so simple.
Household applications actually fell, according to Mortgage Maxx LCC, which tracks weekly mortgage applications as well for its proprietary prepayment projections. The MAX index published by the New York-based company fell 5.1 percent last week — so while overall applications appear to have increased, the number of households applying for a mortgage dropped. This suggests that households, either in distress or not, are having a tough time qualifying for a mortgage and are having to shop to get a loan.
Anecdotally, we know this is taking place. We know that underwriting criteria are tougher, and that borrowers are having a tough time qualifying for a loan. That distress appears to be even comparatively sharper in California, where a MAX sub-index tracking California application activity found a 8.2 percent drop in household applications last week.
"With consumer psyche traumatized, twenty percent of all home owners over the
negative equity cliff into the drink, and whole swaths of potential mortgagors
unable to qualify, the MAX may have already passed its highs for 2009," said MAX publisher Paul Descloux in a note to clients. "Each week of currently opaque policies continue to weigh on mortgage application activity as the promise of a four percent mortgage rate proves mythic."
According to the MBA data, refinancing applications surged 13.3 percent, while purchase apps rose 7.1 percent; the refi surge erased a 15 percent drop a week earlier, mostly. Purchase applications remain down what Barlcays Capital analysts called Wednesday a "staggerting" 31.3 percent year-over-year, despite mortgage rates that are 100bps lower than a year ago.
Conventional applications rose 5.4 percent, while government apps — mostly FHA — rose a smart 10.4 percent, the MBA said.
For more information, visit http://www.mortgagebankers.org and http://www.mortgagemaxx.us.
Write to Paul Jackson at paul.jackson@housingwire.com.
The 10-city composite index for home prices remained flat in February but was down 2.1 percent for the last three months, according to data released Tuesday by Altos Research LLC and Real IQ. Asking prices on homes fell in 18 of the markets studied, increased in seven markets and remained flat in one. The largest monthly decline in asking prices — 4 percent — occurred in Las Vegas, marking the 11th consecutive month of the fastest rate of decline there. The median listing price in Las Vegas fell 36.7 percent from the year-ago period to $206,406 in February 2009.
The Houston market posted a 1.6 percent increase for the month, while Miami and Charlotte were up 1.3 percent and 1 percent, respectively. "Pricing trends in these markets appear to be driven by a 'flight to quality' where home buyers focus on a limited supply of the best properties," analysts said in a media statement about the index.
House inventory rose by 0.9 percent during February across the 10-city composite, but fell 2.5 percent during the past three months, according to the data. Inventory grew by the largest margin — 6.7 percent — in Seattle, while it fell by the largest margin — 3.1 percent — in Phoenix. "With housing demand being pummeled by tight credit and job losses, the big question is whether inventory growth will balloon during the spring selling season or remain relatively restrained as it was in February," the report's authors wrote.
San Francisco was the only city with fewer days-on-market than 100 in February, while Miami posted the slowest turnover rate at 193 days- (or six months-) on-market. Houses stayed on the market a median 98 days in San Francisco.
Write to Diana Golobay at diana.golobay@housingwire.com.
Senator Richard Durbin (D-Ill.), joined by lawmakers from both the Senate and the House, introduced Tuesday legislation that would create a Financial Product Safety Commission. The czar-like commission would approve mortgage products and oversee the safety and soundness of consumers, according to press statements.
"This new safety commission would hold those who offer consumers financial credit accountable and ensure that they act responsibly," read a statement from Durbin's office.
The bill has rallied support from House Financial Services Committee chairman Barney Frank (D-Mass.) who has previously stressed that the formation of such a commission is of utmost importance to the business committee.
Harvard Law School Professor Elizabeth Warren, chairman of the TARP oversite committee, has been pushing the theory for years, arguing that consumers have become exposed to increasingly complex mortgage products. The idea is that the Financial Product Safety Commission would be able regulate those products in addition to providing independent advice to consumers.
"As Congress embarks on fundamental financial regulatory reform, it is imperative that the improved regulatory system focus not just on the safety and soundness of the providers of financial products, but also on the safety of the consumers of financial products," Durbin's office said in a press statement.
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.
House prices fell 3.5 percent in January, according to an index released Tuesday by Integrated Asset Services LLC, a provider of default management and residential collateral valuation. The most recent IAS360 House Price Index found that home prices posted their worst single-month decline from December 2008 to January 2009 since the index's peak in November 2006.
“These are unprecedented times to say the least,” said Dave McCarthy, President and CEO of Integrated Asset Services. “We’re seeing house prices plummet at a rapid pace throughout the country. We’ll be keeping a close eye on the data for signs of a bottoming out.”
The decline seen in January represented some $610 billion in lost housing stock value, bringing the total value lost since "the start of the economic meltdown last September" to approximately $2.4 trillion. The national price index has fallen almost 25 percent from its peak in November 2006, according to IAS. House prices had posted a 13.8 percent decline overall in 2008 since 2007, the company reported in February.
The IAS360 tracks home sales down to the neighborhood level, and then rolls up local totals in 360 counties, nine census divisions, four regions, and the nation overall. Counties in California and Florida overall have been hit hardest, IAS said, with six Californian counties and four Floridian counties posting declines of more than 41 percent from their peaks. The San Joaquin county in California has posted a 59.9 percent decline from its May 2006 peak, while the Pasco county in Florida posted a 57.3 percent decline from its July 2006 peak.
Wealthy counties are not exempt from sweeping declines, IAS reported. Three Virginian counties — Loudon, Stafford and Prince William — have posted declines of more than 30 percent since their respective peaks in 2006. Two of the wealthiest counties posted month-over-month inclines since December. Douglas, Colo. saw house prices creep up 2.1 percent in January, when they held at 0.6 percent above the year-ago level. The Putnam, N.Y. county saw a 1.1 percent month-over-month increase in house prices, which are at a surprising 3.4 percent above the year-ago level.
Visit www.iasreo.com or further details on the index.
Write to Diana Golobay at diana.golobay@housingwire.com.
Citigroup Inc. (C: 30.87 +1.61%) Chief Executive Officer Vikram Pandit said in an internal memo obtained Tuesday, he is "disappointed" with Citi's current stock price — as well as the "broad-based misperceptions" about the company and its financial position — as it doesn't reflect the bank's capital strength or earnings potential.
Thursday, the bank took a historic slide in stock price: shares in the once most-valuable bank by both market cap and assets slipped below the $1 mark during morning trading.
Despite market behavior, Pandit said he is "most encouraged" with the strength of Citi's business so far in 2009. The bank was profitable through the first two months of 2009, marking its best quarter-to-date performance since the third quarter of 2007, he said. And during that time, revenues – excluding asset write downs — rang in at $19 billion.
In coming weeks, the Fed will conduct "stress tests" for all large banks, but Pandit said Citi already conducted its own stress test using assumptions that are "more pessimistic" than the Fed has outlined. The result? "We are confident about our capital strength," he said, adding that the preferred exchange transaction announced two weeks ago is expected to make Citi the strongest capitalized U.S. bank, as measured by tangible common equity.
"[O]ver time, the markets will recognize the many strengths of Citi," Pandit wrote to his employees, thanking them for their efforts. But Critics have been quick to question the CEO's seemingly positive perception of the the New York-based bank's financial position.
Citi has seen more than 85 percent of its market value disappear this year, as investors likely came to grips with a mountain of bad mortgage and other related bad debt that has pushed the troubled bank into needing some of the Federal government’s largest amount of financial assistance. And just how far has the former banking giant fallen? Consider that in Jan. 2007, market cap at Citi was just north of $270 billion; it’s now $5.61 billion. Read that again.
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.
Want a stunning figure? Half of Americans now say they are only one month or less away from not being able to meet their financial obligations if they were to lose their job — just two paychecks or less. And of these, more than half — 28 percent of all Americans — say they could not survive financially for more than two weeks without their current job.
This disturbing data comes courtesy of the 2009 MetLife Study of the American Dream, released Monday, which looks at how the financial crisis has affected the American Dream and consumer perceptions. It's all the more disturbing considering that unemployment in the U.S. has already surged to 8.1 percent, with 651,000 jobs lost last month alone.
A Bloomberg News survey of economists released Tuesday morning found that economists now expect unemployment levels in the U.S. to reach 9.4 percent this year alone, and remain elevated through at least 2011 — prospects that paint a potentially grim picture for the U.S. economy in general, and for housing in particular. Traditionally, borrower defaults are driven by macro-economic factors such as increased rates of unemployment.
The survey data underscores that the mortgage industry would do well to remain focused on economic fundamentals: following a job loss, 59 percent of survey respondents said they'd be somewhat or very concerned about having to file for bankruptcy, and 64 percent would be concerned about losing their home.
And evidence of the spending binge most Americans are still recovering from is evident in even the broadest sense, not just limited to those with more limited financial means. Even the "mass affluent" — those making $100,000+ in income per year, according to the MetLife study — haven't been saving enough, with more than one-quarter (29 percent) saying that they couldn't meet their financial obligations for more than one month following a job loss.
That's the sort of information that should give every lender, investor and servicer pause as we think about managing a growing number of bad loans.
"The American dream is on pause. The majority of Americans still believe they can still achieve the dream in their lifetimes but, for the next year, it's all about shoring up the foundation of their personal safety nets," said Beth Hirschhorn, senior vice president for global brand and marketing services at MetLife. "For the one-third of Americans who believe they have already achieved the dream, being able to sustain the dream — without backsliding — is becoming as important as achieving it in the first place."
The MetLife study alludes to some amazingly sharp and fast changes in the attitudes of most Americans — the kind of changes that usually take decades to manifest, instead being forced upon an entire population immediately by a financial crisis that has proven to be unlike any other faced by most.
For the first time since MetLife fielded the annual study, there is evidence that consumers are no longer interested in keeping up with the proverbial Jones'. Nearly half (47 percent) of consumers say they already have all the possessions they need, up from 34 percent in November 2006 — and a full three-quarters (74 percent) no longer agree that the pressure to buy more and better material possessions is greater than ever.
"Sweeping changes in the economy have led to a reevaluation of priorities for most Americans and a fundamental shift away from materialism," said Hirschhorn.
Write to Paul Jackson at paul.jackson@housingwire.com.
Federal Home Loan Bank of Seattle late Monday announced a fourth-quarter loss of $241.2 million and a full-year net loss of $199.4 million, compared with a net income of $18.6 million and $70.7 million in the fourth quarter and full-year 2007.
Private-label mortgage-backed securities drove $304.2 million in charges for the year. These "other-than-temporary" charges, although somewhat offset by $178.6 million in net interest income for 2008, exhausted the $148.7 million the bank held in retained earnings as of Dec. 31, 2007. "The Seattle Bank's financial results reflect the effects of mark-to-market accounting treatment for private-label mortgage-backed securities that are other-than-temporarily impaired," bank officials said in a statement.
Bank president and CEO Richard Riccobono in mid-January distributed a letter to the bank's members acknowledging the bank would likely report a failure to meet risk-based capital minimums as of Dec. 31. The overall tone of the memo was one of regret, as Riccobono wrote he believed the way risk-based capital is currently calculated “significantly overstates our market risk,” given the state of the financial market and the bank’s nearly $2.8 billion in permanent capital.
The bank on Monday reported that as of Dec. 31, it had a total capital-to-assets ratio of 4.6 percent and a leverage ratio of 6.8 percent, remaining in compliance with both requirements. But the distressed prices of some of Seattle Bank's held-to-maturity MBS resulted in a risk-based capital deficiency as of Feb. 28. Federal regulations prevent any FHLB that fails to meet capital requirements from declaring a dividend or redeeming (repurchasing) capital stock.
"We are more than disappointed by these results, particularly in light of the significant gains we have made over the past several years," Riccobono said in a statement. "I want to stress, however, that even in this very challenging time for our industry and our economy, we continue to fulfill our mission by serving as a steady source of liquidity and funding for the members of the Seattle Bank cooperative."
Write to Diana Golobay at diana.golobay@housingwire.com.
