Archive for March, 2009
More than 8.3 million U.S. mortgages or 20 percent of all mortgaged properties were in a negative equity position at year-end 2008, according to data released by First American CoreLogic Wednesday. This is compared to the 7.6 million or 18 percent of borrowers who were underwater at the end of the third quarter.
And unfortunately, "the accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize," said Mark Fleming, chief economist of First American CoreLogic, in a news release. "The worrisome issue is not just the severity of negative equity in the 'sand' states, but the geographic broadening of negative equity that is expected to occur throughout the year."
During the fourth quarter of 2008, an average of 230,000 borrowers a month slid into negative equity, according to the report. California led the way with a whopping monthly average of 43,000 new negative equity borrowers, followed by Texas with 16,000, Nevada with 15,000 and Florida with 14,000.
Not to mention, there are an additional 2.2 million mortgaged properties that are approaching negative equity — mortgages within 5 percent of being in negative equity territory — said First American CoreLogic. Negative equity and near negative equity mortgages combined, now account for 25 percent of all residential properties with a mortgage nationwide.
The distribution of negative equity is heavily skewed, however, to a small number of states. Nevada has the highest percentage of negative equity: more than half of all mortgage borrowers in that state are now “upside down." The average loan-to-value ratio for properties with a mortgage in Nevada was 97 percent or less than $8,000 in equity: leaving the typical mortgaged homeowner with virtually no cushion for the rapidly declining home values, explained the report.
Michigan was ranked second in the nation with a negative equity share of 40 percent, which is double the national negative equity share. Arizona, Florida and California weren't far behind.
Over 2.2 million or 5.3 percent of all mortgaged properties were in severe negative equity in December with LTVs of more than 125 percent. More than 70 percent of these mortgages were in the five states with the highest percentage of Negative equity. Interestingly, If the top five ranked states are excluded, the negative equity share for the remaining states sat at just 13.9 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.
[Update one clarifies some eligibility statements.]
The $75 billion mortgage refinance and modification plan launched Wednesday by the Treasury Department is estimated to reach some 9 million homeowners, according to Treasury estimates. The Making Home Affordable program's guidelines will offer servicer and borrower incentives and are designed in such a way as to allow for immediate modifications, the Treasury said. "It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets, just as we work to stabilize our financial system, create jobs and help businesses thrive," Treasury secretary Tim Geithner said in a media statement. "Economic recovery requires action on all three fronts."
According to guidelines released by the Treasury, the program is made up of two levels of aid — a refinance program effective for an estimated 4 to 5 million homeowners and a modification program estimated to reach between 3 and 4 million homeowners. The refinance program will increase access to refinance options through relaxed standards. 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. Borrowers in bankruptcy are not automatically eliminated, and those facing foreclosure will see foreclosure action suspended during a trial period or while borrowers are considered for preventative options.
The Treasury has agreed to partner with servicers and share the costs of payment deductions in order to foster participation in the program. The lender or servicer, after reducing mortgage payments to no greater than 38 percent of the borrower's debt-to-income, will receive a Treasury match for further reductions in monthly payments on a dollar-for-dollar basis, down to a 31 percent debt-to-income ratio. Servicers will also receive up-front incentives of $1,000 for each modification initiated under the program's guidelines, as well as a $1,000 payment each year for up to three years for each borrower that remains in the program. Lender/investors of mortgages that enter the program while the borrower is still current on payments — but at risk of falling behind — will receive a one-time incentive of $1,500, while servicers of such mortgages will receive $500. The incentives are designed to help ease the losses that would be incurred by both servicers and investors when mortgage terms are written down.
A call to 5-year ARMs?
A close look at modification terms reveals an interest rate floor of 2 percent, and a modified interest rate that remains in place for 5 years, after which time it "will be gradually increased 1 percent per year [or less]…until it reaches the interest rate cap" which is either the original contractual rate or the Freddie Mac (FRE: 0.00 N/A) survey rate for 30-year fixed-rate mortgages. The language present in the guidelines suggests these modifications — principle forbearances — are little more than 5-year adjustable-rate mortgages, the low rates of which will increase after the first five years.
The Treasury's answer to this might just be its initiative to support the GSEs with more funding in the hopes it will muscle down interest rates. The program also attempts to support low mortgage rates by increasing Treasury funding commitment to Fannie Mae (FNM: 0.00 N/A) and Freddie from $100 billion each to $200 billion each. And if the GSE funding initiative doesn't work, there's always the incentive in place within the program that allows borrowers whose payments are reduced a minimum 6 percent to accrue up to $1,000 each year for five years — up to $5,000 — based on timely monthly payments. As long as the borrowers don't fall behind, they'll enjoy up to $5,000, which will be paid directly to the servicer, who will in turn apply it toward the principal loan balance. So if borrowers' interest rates begins to inch upward after five years and they find themselves with a chunk of principal forbearance to pay back when it's all said and done, at least they'll have a $5,000 contribution toward repayment from Uncle Sam.
The Making Home Affordable program's guidelines and fact sheet also contain language supporting so-called "cramdown legislation," which if enacted would allow bankruptcy judges to "reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value" as a last resort, provided the borrowers were ineligible for either Hope for Homeowners or the new modification and refinance programs. Such legislation has been hotly contested by mortgage industry participants that have suggested allowing so-called cramdowns to take place will likely lead to further significant write-downs in an already battered secondary mortgage market — leaving banks with even larger-than-expected holes on their balance sheets and further contributing to investor doubt in the U.S. banking system.
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.
Raw mortgage application volume slipped a seasonally-adjusted 12.6 percent in the week ending Feb. 27, according to data released Wednesday by the Mortgage Bankers Association. The four-week moving average — an indicator of seasonal trends — showed a 4.8 percent drop after remaining unchanged the week before. The MBA, which also studies weekly trends in mortgage interest rates, reported that 30- and 15-year fixed mortgage rates continued to inch upward; 30-year FRMs averaged 5.14 percent, while 15-year FRMS averaged 4.73 percent for the week. The steady increase of mortgage rates up from historic lows went hand-in-hand with decreased confidence in the mortgage application market this week, according to the data.
The refinance application index dropped 15.3 percent for the week, bringing refinance as a share of total application activity to 66.9 percent from 69.7 percent the previous week. The four-week moving average for the refi index dropped 5.7 percent from the average recorded last week, suggesting the weak refi trend overall might signal a leveling of the recent popularity boom for all things refinance. The seasonally adjusted purchase index slipped 5.6 percent for the week, while the four-week moving average for the index fell 2.5 percent to its lowest level since April 1998, according to the MBA. The conventional purchase index dropped 6.5 percent and the government purchase index, mostly monitoring FHA activity, slipped 3.9 percent.
A separate survey conducted by Mortgage Maxx LLC found that mortgage application activity adjusted for multiple submissions showed overall household activity followed the raw volume trend. Household applications fell 11.9 percent for the week ending Feb. 27, according to the Mortgage Application Index, or MAX. Household activity in California fell 12.4 percent after rising 15.1 percent the week before, according to the MAXcal, which breaks out the state's data. Taken together with the MBA's data, the MAX suggests that not only fewer households participated in the application market this week, but those households submitted markedly fewer applications than in previous weeks.
The MAX publisher Paul Descloux, in his commentary on the index, offered some consolation on the decline, saying that household activity has been static overall the last few weeks without last week's seasonal adjustment for the holiday. But Descloux also warned against undue optimism. "As the fallout from the initial blasts of financial turmoil reach ground, intensifying consumer angst may overtrump any government efforts near-term," he wrote. "Another leg down in activity might be expected except for the oncoming seasonal upturn in housing sales."
Visit www.mbaa.org and www.mortgagemaxx.us for further details.
Write to Diana Golobay at diana.golobay@housingwire.com.
Bond insurer MBIA Inc. (MBI: 12.18 +1.50%) said late Monday it had recorded a $2.7 billion net loss — or $12.29 per share — for the full year 2008, up from the $1.9 billion — or $15.17 per share — lost in all of 2007. The company said it saw $1.2 billion lost in the fourth quarter alone, although this figure showed a decline from year-ago levels, when the company posted a $2.3 billion net loss in the fourth quarter 2007. The company said its quarterly loss was driven by a $1.7 billion pre-tax unrealized net loss — mark-to-market — on insured derivatives, as well as a $534 million realized loss on insured derivatives.
MBIA reported paying a total $1.4 billion in claims on its second-lien residential mortgage exposures, including $483 million net of reinsurance in the fourth quarter, resulting "from defaulted mortgages that were ineligible assets in the securitizations the company insured," according to the earnings statement. The company also said it is pursuing litigation against the two largest seller/servicers for reimbursement of the losses incurred on the ineligible assets, although any potential funds to be recovered have not been factored into the earnings.
"The worst credit crisis since the Great Depression has stressed and bruised our company, and cost our shareholders dearly over the past 18 months as reflected in both our financial statements and our stock price," said CEO Jay Brown.
Fellow bond insurer Ambac Financial Group, Inc. (ABK: 0.00 N/A) similarly filed hefty quarterly losses, reporting late last week that increased loss provisioning on residential MBS insurance led to a fourth-quarter net loss of $2.34 million, or $8.14 per share. The company said it had built its net loss provisioning to $916.4 million in the quarter. The increase in provisioning from a net expense of $208.5 million in the year-ago period was driven "primarily relating to the RMBS insurance portfolio," company officials said.
"Over the past 24 months, Ambac has recorded significant mark-to-market losses on its CDS portfolio and has incurred losses in its insured RMBS portfolio," the company earnings statement read, in part. "The actual loss experience for these mortgage-related securities has been greater than originally anticipated. As such…management revised its estimate of potential future increases in loss reserves to conservatively reflect the potential impact that further deterioration in Ambac’s insured portfolio would have on future taxable income."
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.
As you know, each month we like to run a section in the print edition of HousingWire that turns the focus to the opinions of our readers. We've run across a few gems of insight, a chuckle or two and plenty of colorful language during the course of the section's history. This time around as we turn the microphone over to our readers, we have a very (intentionally) simple question we'd like to have answered: Who do you think is to blame for this mess we're in, and why?
We’ll pick the best entries to appear in the April issue of HousingWire. Click here to complete the survey and be included in the next print issue. Please be as detailed as you’d like, but be sure to include your name, city and e-mail address for inclusion.
New data released this week by the HOPE NOW coalition of servicers, lenders and investors shows a continued disparity between the modification help given to prime borrowers over subprime borrowers. The ratio of repayment plans to modifications for prime borrowers during January was 2.23 percent — up from 1.95 percent in December — while for subprime borrowers that ratio was 0.53 percent — unchanged from December's data.
The coalition touted 123,000 modifications and 125,000 formal repayment plans made in January, together preventing some 248,000 foreclosures — a 4 percent increase over the total number of preventions reported for December. There were, all told, about 3.7 workouts for prime borrowers for every one prime foreclosure and 3.6 workouts for subprime borrowers for every one subprime foreclosure. The raw volume of foreclosures came in at just 68,114 for January, still under levels seen in 2008 but a slight increase from the 55,608 foreclosures reported for December.
“In the midst of this ever-changing and extremely challenging mortgage crisis, HOPE NOW members continue to increase the number of homeowners they are helping and are trying hard to provide additional positive solutions,” said executive director Faith Schwartz. “The constantly growing use of modifications as the primary way to help homeowners is very likely to continue.”
The number of modifications to foreclosures has fallen from December's data. Although there were more than two modifications — 2.19 — to every foreclosure in December, there are now less than two — 1.81 — modifications per every foreclosure in January. The difference may not be severe, but it does hint at increased efforts lately to keep mortgages out of foreclosure, culminating in the GSEs' joint foreclosure moratorium originally slated to end in January but extended through March 6, to allow President Barack Obama's homeowner plan and foreclosure mitigation efforts to take effect.
“It’s clear that the mortgage problem is still growing,” Schwartz said. “That’s why HOPE NOW members are looking for additional ways to help homeowners and are working hard to assist the Obama administration implement its just-announced foreclosure-prevention initiative.”
Write to Diana Golobay at diana.golobay@housingwire.com.
The government as of market close Friday had lost another $5 billion in value last week from an original $306.1 billion in capital investments through the Troubled Asset Relief Program, according to data released by business ethics think-tank Ethisphere Institute. The decline in value of preferred stocks for the week ending Feb. 27 brings the total loss to $112 billion to date.
"Many financial institutions tracked in the TARP Index saw their stock value go up for the first time in weeks, in part due to news that the Federal Reserve will be administering stress test to financial institutions that received money under TARP," Ethisphere officials said in the media statement regarding the index. But increased government intervention in Citigroup Inc. (C: 30.87 +1.61%) and American International Group Inc. (AIG: 25.25 +0.44%) may spark fears that wipe out those gains, the officials said.
The Ethisphere TARP Index tracks the government’s loss-on-investment based on the idea that as stocks of publicly-traded TARP fund recipients lose value, so too does the government lose a portion of the investment made in the financial sector. “Through the Index, Ethisphere hopes to encourage participating companies to promote transparency, accountability and ethical business practices related to the TARP funds,” officials said in a press statement regarding the index.
Top performers on TARP investments for the week included BB&T Corp. (MSDXP: 26.9501 -2.28%) with an estimated gain of about $123.7 million, Ist Source Corp. (SRCE: 25.06 +0.12%) with a gain of about $19.5 million, and Great Southern Bancorp (GSBC: 24.69 -0.24%) with a gain of $18.6 million, according to the index. The worst performers as far as TARP investments for the week included Citigroup with a $34.2 billion loss, Bank of America Corp. (BAC: 7.29 -0.14%) with a $22.5 billion loss, and AIG with a $20 billion loss.
Continued fears about the U.S. banking system plunged the Dow Jones below 7,000 at market-close Monday, the first sub-7,000 level in more than a decade. The dive came after the Federal Reserve and Treasury Department announcement that troubled AIG — having lost $99.3 billion in 2008 — would restructure, splitting off non-core businesses and absorbing up to $30 billion in additional funds from the TARP.
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.
A now-established trend remained consistent in January, as pending home sales declined, yet again, on the heels of a weakening economy and as some buyers waited for clarity on housing stimulus provisions, said the National Association of Realtors Tuesday.
NAR's Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.7 percent to 80.4 from a downwardly revised reading of 87.1 in December, said the Association. That is 6.4 percent below January 2008 when the index read 85.9. Currently, the index is at its lowest level since tracking began in 2001, when the index value was set at 100.
“Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales,” said Lawrence Yun, NAR chief economist. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit.”
The PHSI in the Northeast dropped 12.7 percent to 57.8 in January and is 19.7 percent below a year ago. In the Midwest the index declined 9.2 percent to 72.6 — 13.8 percent below January 2008. The index in the South fell 11.9 percent to 82.2, while the index in the West rose 2.4 percent to 103.6, up 13.5 percent from January 2008.
Despite an overall weak housing market, affordability conditions have actually improved dramatically, explained NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Housing affordability is at a record high – the buying power of a typical family has risen significantly,” he said. “With the drop in interest rates, a median-income family can afford a home costing $20,000 more than a year ago for the same monthly mortgage payment. With the strong housing stimulus, we are hopeful inventory will get trimmed and help prices to stabilize in many areas by the end of this year.”
NAR’s Housing Affordability Index rose 13.6 percentage points in January to 166.8, a new record high. The HAI, a broad index of affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is oddly the most favorable since tracking began in 1970.
NAR said the HAI indicates a median-income family, earning $59,800, could afford a home costing $283,400 in January with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest; affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. A year ago, the typical family could afford a home costing $263,300.
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 Board and the Treasury Department on Tuesday jointly announced the launch of the Term Asset-Backed Securities Loan Facility (TALF), through which the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of AAA-rated asset-backed securities backed by new and recently-originated auto loans, credit card loans, student loans and SBA-guaranteed small business loans.
The Treasury announced Feb. 10 the program would be expanded to as much as $1 trillion from its original funding range, intended to target small business lending, student loans, consumer and auto finance and commercial mortgages. "The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government," Fed officials said in a media statement Tuesday.
The Fed is scheduled to market the first round of funding to investors through March 17 and distribute the funds on March 25. Disbursement of the second round of funding is scheduled for April 14.
The announcement came as the industry contunues to buzz with speculation about a possible bad bank that would take on the toxic assets clogging up credit markets. President Barack Obama is in discussions over possibly setting up multiple investment funds that would buy up bad loans and other distressed assets, unnamed sources told the Wall Street Journal. The initiative may include a private-public financing partnership, with funds led by private investment managers that would control which assets would be bought and at what price, and with government funding provided through the Troubled Asset Relief Program, according to the Wall Street Journal's sources. No decision had been made at the time this article went to publication.
Write to Diana Golobay at diana.golobay@housingwire.com.
It's kind of the oldest adage in the mortgage servicing playbook: job losses mean borrower defaults. And with unemployment rising, it's pretty clear that that old adage is back at the forefront of the business, yet again. Citigroup Inc. (C: 30.87 +1.61%) announced Tuesday Morning what it's calling its Homeowner Unemployment Assist Program, a new initiative that the company said will look to help those recently unemployed stay in their homes by paying a reduced monthly mortgage payment for three months.
"Unemployment is a major concern facing the American economy right now, and it especially worries mortgage holders," said Sanjiv Das, CEO of CitiMortgage. "Our Homeowner Unemployment Assist program is intended to serve as a bridge toward a longer-term solution, helping homeowners stay in their homes and in their communities while they get their feet back on the ground."
Beginning March 3, CitiMortgage customers meeting certain criteria who have recently lost their jobs will be eligible to participate in the new assistance program, the company said in a press statement Tuesday morning. The bank will actually drop the required monthly payments for the "majority of qualifying customers" to an average of $500 for three months — $500 is below the cost of the nationwide average rent for a one-bedroom residence.
Citi said it will remain in contact with customers during the three-month period in an "effort to sustain an ongoing dialogue while customers work toward long-term employment solutions." If the customer is not employed within the three month window, Citi will work with customers on a case-by-case basis, but did not specify what would happen beyond that three month window should a borrower remain unemployed an unable to afford a full payment on their mortgage.
The bank, which has received dramatic assistance from the government to remain afloat, said it anticipates that thousands of homeowners may be eligible to participate in the program over the next two years, if they choose to do so. And following the evaluation of initial results, Citi said it will also consider expanding the program to include borrowers at earlier stages of delinquency or who are current on their loans — you know, to maybe sidestep the whole moral hazard thing.
As it stands now, however, in order to qualify a borrower must have involuntarily lost their job, be at least 60 days delinquent on their mortgage, have sufficient funds to make reduced payments and not be eligible to participate in the FDIC's long-term modification program, among a few other requirements.
"Citi's foreclosure prevention efforts helped approximately four out of five borrowers with mortgages serviced by Citi stay in their homes," Citi touted in a statement. "This new initiative is designed to help those in the remaining twenty percent who may have no other options available because they have lost their jobs."
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.
