Archive for March, 2009
Citigroup, Inc. (C: 30.87 +1.61%) is facing a slide into oblivion, if Thursday's historic slide in stock price is any indication: shares in the once most-valuable bank by both market cap and assets slipped below the $1 mark during morning trading, and were last seen hovering at $1.03, off 8.85 percent, when this story was published.
The New York-based bank has seen more than 85 percent of its market value disappear this year as investors came to grips with a mountain of bad mortgage and related other bad debt, that has pushed the troubled bank into needing some of the Federal government's largest amount of financial assistance. It's also pushed the bank towards the precipice of outright failure, according to various key analysts.
Traditionally, if a company's shares trade below the $1 mark for more than 30 days, the NYSE puts the company on notice for potential delisting. That won't happen here, since the exchange recently modified its rules, suspending the $1 rule amid what it called a "current period of unusual market volatility and decline," according to a press statement.
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.
Citigroup reported a net loss of $8.29 billion, $1.72 per share, for the fourth quarter of 2008, and an $18.72 billion, or $3.88 billion per share, net loss for all of 2008. It has also split into two parts: Citicorp and Citi Holdings, with Citi Holdings taking on many of the bank's riskier assets. The company is scheduled to report its first quarter earnings in April.
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.
An overwhelming majority — 10 of 12 — of the Federal Reserve district reports indicated weakened conditions and declines in economic activity from January through late February, the Fed said Wednesday in the Beige Book, a regular publication released eight times per year. Philadelphia and Chicago were the only exceptions, reporting regional economies that "remained weak" in the reporting period (it's a definite sign of recession that economies which only remain weak are at the head of their class).
"Looking ahead, contacts from various districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010," the Fed said in the report.
Markets reported understandably weak consumer spending across the nation, with Richmond, Chicago and San Francisco reporting sales gains at discount chains "as consumers continued to switch away from…luxury items and toward basic necessities." Households and businesses also scaled back on travel, which resonated in weaker airline and hotel business. Commercial, industrial and consumer loan demand fell in most markets, as did demand for new mortgage loans, although New York, Cleveland and Richmond experienced continued highs and increases in refinance activity.
"Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly," the Fed said. Many districts reported "small declines" in the pace of home sales, though New York cited a 60 to 65 percent sales drop in Manhattan from 12 months earlier. According to the Fed's reports received from Cleveland, Richmond, Dallas and San Francisco, sales paces for new or existing homes in some areas rose or performed better than expected, "attributed largely to falling prices and improving financial terms for some types of mortgages."
Federal Reserve Bank of Dallas president and CEO Richard Fisher shared the weak short-term outlook present in so many Fed district market reports, according to his statements from a speech Wednesday. "Our gross domestic product shrank at an annualized pace of 6.2 percent in the final quarter of 2008," Fisher said. "…All indicators thus far point to our economy being on track for a decline of roughly the same magnitude in the first quarter of 2009."
According to Fisher's remarks, "armchair quarterbacks" who claim they saw all this coming do not acknowledge the mentality that prevailed for so long: when times are good, the financial players and government can do no wrong, and "crisis" is a thing unheard of. "Indeed, we must acknowledge that many in the financial community, including those at the Federal Reserve, failed to either detect or act upon the telltale signs of financial system excess," Fisher said.
And although the Fed in coordination with the Treasury Department has taken a number steps including reducing the federal funds rate to a range of zero to 0.25 percent and more recently expanding Treasury commitment funding to the GSEs from $100 billion each to $200 billion each in an attempt to free up credit and keep interest rates low, "we have miles to go before we sleep" and much more remains to be done, Fisher said. He cited "cash and fetal" behaviors from banks and consumers that hoard cash as a form of protectionism that will only lead to increased economic hardship.
"As global growth slows and economic conditions in the United States toughen, our elected representatives, newly elected chief executive and his agents must resist with every fiber of their beings the temptation to compound our travails by embracing protectionism," Fisher said. "For if they fail to do so, the economic situation we are now all working so hard to overcome will seem like a cakewalk."
Write to Diana Golobay at diana.golobay@housingwire.com.
Get ready for eviction volumes to start decreasing, at least in the short run. And perhaps it's time to start asking exactly when does a rental property ever become a owner-occupied resale?
Freddie Mac (FRE: 0.00 N/A) said Thursday morning that it had officially launched its new REO Rental Initiative, which will allow tenants and former owners the option to lease their recently foreclosed properties on a month-to-month basis. The new initiative will be managed by HomeSteps, Freddie Mac's national real estate unit, and implemented through several national property management firms; the GSE declined to identify which property management firms had obtained a contract to manage the program.
The GSE also announced it will continue to suspend all eviction actions until April 1, 2009, "to ensure there is ample time for current occupants to learn about the options available to them under the new initiative." Freddie, along with sister GSE Fannie Mae, has halted all eviction activity since mid-December under various auspices.
Freddie Mac's Ingrid Beckles, senior vice president of default asset management, said the program would give "renters and former owners more time to determine what options are best for them and their families," and argued that the program would stabilize property values as well.
Starting today, Freddie said in a press statement that the property management firms it contracts with will begin the process of contacting occupants of foreclosed properties to determine their interest in staying in the home and their eligibility for a month-to-month lease.
To qualify for a lease, the tenant or former owner must occupy the property and show they have adequate income to pay the monthly rental amount established by the property management company based on market rents for the area in which the home is located. Occupants must agree to allow HomeSteps to show the home to potential buyers as it will be marketed for sale during the lease period.
Write to Paul Jackson at paul.jackson@housingwire.com.
After remaining fairly stable last week, mortgage rates turned upward in the week ending March 5, according to Freddie Mac's (FRE: 0.00 N/A) Primary Mortgage Market Survey released Thursday. 30-year fixed-rate mortgages averaged 5.15 percent with an average 0.7 point, up from last week's average of 5.07 percent. Last year at this time, the 30-year fixed-rate mortgage average sat at 6.03 percent.
“Mortgage rates followed bond yields higher this week following reports of record continuing jobless claims and a downward revision in economic growth in the fourth quarter of 2008,” said Frank Nothaft, Freddie Mac vice president and chief economist.
15-year fixed-rate mortgages averaged 4.72 percent with an average 0.7 point this week, a jump from last week's average of 4.68 percent, but significantly below the year-ago reading of 5.47 percent.
Five-year Treasury-indexed ARMs also climbed, from 5.06 percent last week to 5.08 percent this week, according to Freddie Mac. One-year Treasury ARMs were no exception, rising from 4.81 percent last week to 4.86 percent — not terribly far off the year-ago reading of 4.94 percent.
Despite the slight increase this week, rates still remain at historic lows. But as Nothaft said last week, low rates have yet to spur housing demand. “The housing market continues to slow…" Nothaft said. "New home sales fell 10.2 percent in January to the slowest pace since records began…More recently the Federal Reserve noted in its March 4th regional economic report that residential real estate markets remained in the doldrums in most areas, with only scattered, very tentative signs of stabilization."
Bankrate's Holden Lewis said mortgage brokers and lenders say their clients keep holding out for even lower rates. But considering mortgage rates have hovered around 5.5 percent, give or take a quarter of a percentage point, "it doesn't take Sherlock Holmes to deduce that the feds have mortgage rates right where they want them," Lewis said.
Bankrate.com's survey — separate but simlar to Freddie Mac's — actually reported that mortgage rates were virtually unchanged this week. The benchmark 30-year fixed-rate, according to Bankrate, was unchanged at 5.41 percent, while the Benchmark 15-year fixed-rate rose a mere 1 basis to 4.94 percent.
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 U.S. Treasury Department on Wednesday launched the Making Home Affordable program, which was announced recently by President Barack Obama. The program's two branches — refinance and modification — are estimated to apply to some 9 million homeowners either behind on payments or at risk of falling behind due to dropping home values, job loss, or other hardship.
The modification program will be effective only or mortgages originated on or before Jan. 1, 2009 on owner-occupied, single-family one- to four-unit properties that serve as a primary residence, the Treasury said. Borrowers in bankruptcy are not eligible, but those facing foreclosure will see foreclosure action suspended during a trial period or while borrowers are considered for preventative options. Within hours of the announcement, the government-sponsored entities (GSEs) and a variety of the largest U.S. lenders and servicers began rallying in support for the program.
Freddie Mac (FRE: 0.00 N/A) quickly announced the launch of two initiatives to compliment the administration's housing plan. Freddie's new relief refinance mortgage product, which can be as high as 105 percent of the property's value, is designed to reduce interest rates or amortization terms for borrowers "to improve their position for long-term homeownership success…." Freddie also rolled out a modification initiative to begin April 1; borrowers with Freddie-owned or -guaranteed mortgages originated on or before Jan. 1 will be eligible to receive a workout "in some cases…before they fall behind on their mortgage payments," Freddie said in a media statement.
A GSE-wide foreclosure sale suspension at Freddie — originally announced in November — is set to expire Friday. Freddie announced Wednesday it would continue to suspend foreclosure sales on mortgages eligible for the modification program within the Making Home Affordable plan. Freddie will instruct its servicers not to complete a foreclosure sale without a complete and thorough effort to contact the borrower with workout options. For all other mortgages, Freddie said servicers retain authority to postpone foreclosure sales on a case-by-case basis if some other modification is being pursued.
Fannie Mae (FNM: 0.00 N/A) also announced Wednesday two similar initiatives — a refinance program with added flexibility so "underwater" borrowers can refinance up to 105 percent of their home's value — and a modification program that will target a 31 percent payment-to-gross-income range, apply to qualified borrowers even before they fall behind on their payments, and work in concert with a foreclosure pause to allow time for servicers to evaluate borrowers and determine need and eligibility.
Citigroup Inc. (C: 30.87 +1.61%) responded promptly to the Treasury's announcement, issuing a statement of support within hours of the plan rolling out. Bank of America Corp. (BAC: 7.29 -0.14%) also threw in its support, saying it would continue the foreclosure sale moratorium on borrowers that potentially qualify until the company "becomes operationally ready."
JP Morgan Chase & Co. (JPM: 37.21 -0.75%) came out in strong support of the plan, saying it approved of the fair and consistent guidelines, the targeted bracket of homeowners with mortgages below $729,750 on owner-occupied homes only, the requirement for full income documentation and evidence of financial hardship, and the collective impact of all factors (and incentives) of the program on servicers to pursue the most financially beneficial modification for the borrowers. "There is no silver bullet," CEO Jamie Dimon said of the troubled economy and tight financial market. "The thoughtful and rapid roll-out of various programs is the only intelligent way to begin to solve these problems. These mortgage modifications are economically and morally the right thing to do for individual customers."
Wells Fargo Home Mortgage under parent company Wells Fargo & Co. (WFC: 29.60 +1.89%) said Wednesday it would offer the modification program for its own loans and loans it services for GSEs Fannie and Freddie, as well as for all other investors whose servicing contracts allow. The company will also offer the refinancing options to its customers with Fannie and Freddie loans. “We believe the administration’s plan is thoughtful and comprehensive, and it addresses the current challenges our nation faces,” said Mike Heid, co-president of Wells Fargo Home Mortgage, in a media statement Wednesday. “Importantly, it helps customers facing true financial hardships while guarding against moral hazard.
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 House is expected to vote Thursday on a hotly-contested measure that would grant bankruptcy judges the authority to alter mortgage terms to help homeowners skirt foreclosure.
Bankruptcy courts are currently barred from rewriting the loan terms on a primary residence. But under the proposed legislation, bankruptcy judges would be allowed reduce the interest rate, reduce the principal or extend the life of an existing loan, subject to certain limitations.
It's a bill which many lawmakers believe is essential in easing the housing crisis; nonetheless, the original version hit a snag last week when some Democrats, who likely heard complaints from the lending community and even the general public, voiced their concerns that homeowners might abuse bankruptcy to obtain reductions in mortgages they can actually still afford.
"Our intention was to make sure this was available, but as a last resort," said Ellen Tauscher (D-Calif.), a leader in the quest for provisions.
Tauscher, joined by colleagues Zoe Lofgren (D-Calif.) and Dennis Cardoza (D-Calif.), helped to hammer out a compromise to the housing bill. The compromise requires bankruptcy judges to consider whether banks offered homeowners a "qualified" loan modification – defined as one that set monthly payments equal to approximately one-third of a borrower's income — before opting to grant judicial aid.
"The Concern is that we want to ensure that those people who get relief have tried other avenues," House Majority Leader Steny Hoyer, (D-Md.), said Tuesday, according to Yahoo News. In other words, borrowers must prove they've thoroughly attempted to help themselves.
Wherein lies the revised bill's stipulation that would require homeowners facing foreclosure to seek a loan change 30 days prior to pursuing one in court and provide their lender with the necessary personal financial information– "not just [make] a phone call to an answering machine," said Lofgren.
Judges would also have to use federally approved appraisal guidelines in determining a home's value and weigh a borrower's income against their current payments before deciding whether an interest rate or principal reduction was essential.
"Some may think the changes made to the bill go too far, while others will contend that they do not go far enough," wrote Tauscher, Lofgren and Cardoza to their colleagues. "Given the ever deepening housing crisis, however, we ask you to place such differences aside — as we have done — and support this effort." Democrats say the legislation could cut foreclosures 20 percent.
The mortgage industry still argues that such loose access to bankruptcy court mortgage modifications could impose significant costs on its companies, which would eventually be handed off to borrowers in the form of higher fees and rates — although, the revised bill may seem somewhat more appealing to the mortgage industry.
The cram-down bill has faced tough opposition in the Senate too, which could consider its own version of the bill later this month.
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.
Wow. This you have to see. It's amazing.
The Treasury Department on Tuesday announced details on capital investments in another 28 financial institutions — 24 of which are privately-held — on Feb. 27. So far, the Treasury has purchased $196.76 billion in preferred stock through the Troubled Asset Relief Program in an attempt to shore up financial institutions and unclog credit markets. Of the $394.9 million invested Friday, 47.3 percent was given to publicly-traded firms, while the majority — 52.7 percent — was invested in privately-held firms.
The Treasury completed its smallest-ever Capital Purchase Program transaction Friday when it invested $541,000 in Limerick, Pa.-based The Victory Bank. Meanwhile, the Evansville, Ind.-based Integra Bank Corp. (IBNK: 0.00 N/A) claimed the largest capital purchase of the day — $83.59 million.
All told, the TARP had dispensed — and promised — a total $326.54 billion as of Friday through its various programs, including the Targeted Investment Program, the Systemically Significant Failing Institutions program, the Asset Guarantee Program and the Treasury's $20 billion share of the Fed's Term Asset-Backed Securities Lending Facility, which rolled out Tuesday and which aims to lend up to $200 billion initially to owners of AAA-rated securities backed by auto loans, credit card loans, student loans and SBA-guaranteed small business loans.
The Treasury on Friday announced it would work with Citigroup Inc. (C: 30.87 +1.61%) to exchange common stock for preferred securities purchased through the CPP. On Monday, the Treasury announced it had reached an agreement with American International Group Inc. (AIG: 25.25 +0.44%) to fund restructuring efforts with up to $30 billion in additional TARP funds in exchange for preferred stock through a new and upcoming equity capital facility. The shaky week for the financial sector sparked investor fears that the U.S. banking system might not hold itself up outside of at least partial nationalization. The Ethisphere Institute reported for the week ending Feb. 27, TARP investments had lost another $5 billion from an original $306.1 billion.
Visit www.ustreas.gov for further details on the TARP.
HousingWire recently looked into the specifics of the TARP’s many investments, which will be featured in the upcoming March issue of the magazine, set to hit mailboxes this week. Don’t forget to subscribe.
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.
U.S. private-sector firms shed 697,000 jobs in February, a jump from January's 522,000 jobs lost, according to the ADP employment index released Wednesday.
359,000 of those job cuts took place in the hard-hit, service-providing sector. The goods-producing sector took a beating as well, slashing 338,000 jobs in February, marking its twenty-sixth consecutive monthly decline.
Professions making up the manufacturing industry dropped a combined 219,000 jobs, marking three full years of consecutive monthly declines. As for construction, employment fell 114,000 in February, bringing the total loss of construction jobs since the peak in January 2007 to over one-million.
Large Businesses — defined as those with 500 or more workers — saw employment decline 121,000, while medium-size businesses with between 50 and 499 workers shed a much larger 314,000 jobs. Employment among small-size businesses fell 262,000.
"Sharply falling employment at medium- and small-size businesses clearly indicates that the recession is spreading aggressively beyond manufacturing and housing-related activities," said Joe Prakken, Chairman of Macroeconomics Advisers, LLC.
Just last week, the U.S. Department of Labor reported initial unemployment claims rose 36,000 to a seasonally-adjusted 667,000 in the week ending Feb. 21, hitting a 27-year high. That volume was an astonishing 95 percent higher than the year-ago level of 342,000.
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.
So-called "motivated sales," or foreclosures, drove a 7 percent increase in home sales across the nation in December, according to data released Wednesday by Radar Logic Inc., a New York-based real estate data and analytics company.
Prices declined year-over-year since December 2007 in all 25 metropolitan statistical areas (MSAs) studied. Two MSAs — St. Louis and Denver — posted price inclines in December since the previous month. St. Louis posted a 2.1 percent increase in the price of housing per square foot (a measurement implemented by Radar Logic to remove overall home price factors like location and size), while Denver saw a 1.2 percent increase in the price of housing per square foot. One MSA — Columbus — saw no change since November and two MSAs — Tampa and San Diego — reported declines of less than 1 percent.
The falling prices and improving home affordability combined with mortgage rates lingering at historic lows drove the month's sales increase as well as year-over-year increases in transaction counts in more than half — 14 — of the 25 MSAs studied. Motivated sales rose 177 percent from December 2007 while the sum of all other sales in the MSAs fell by 17 percent, according to the data. Foreclosures represented more than 40 percent of total transactions in Las Vegas, Phoenix and the California MSAs. Meanwhile, MSAs where foreclosure sales have either not increased or make up a small percentage of total sales actually experienced declines in total transactions.
So, while the home sale vehicle may have charged uphill in December, the driver was a massive number of foreclosures. It's unclear now how the path of home sales will look in the coming monthly reports, but a number of foreclosure prevention efforts do not bode well for a sales increase if the current trends continue. GSEs Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) in November announced a foreclosure and eviction suspension that has been extended through this week to allow time for the Streamlined Modification Program to go into effect at the GSEs, as well as President Barack Obama's home affordability modification and refinance program to begin.
These combined efforts may have temporarily reduced the volume of new foreclosures and foreclosure sales that, when combined with the declining conventional sales indicated by Radar Logic's data, might lead to declines in sales in coming reports. But the foreclosure problem has not disappeared, and as the report's writers indicate, may continue to drag down home prices. "There is an enormous inventory of foreclosed homes already on the market, and these homes need to be purchased before home prices can recover," Radar Logic officials said in the monthly report. "Therefore, initiatives to promote the absorption of the existing inventory of unsold homes, both in and out of foreclosure, are crucial. The government’s initiative to lower mortgage rates will not be sufficient."
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.
