Denver-based Integrated Asset Services, LLC said Wednesday that it had rolled out a new “Conditioned Valuation Model" (CVM) — a first-of-its-kind integration of automated transparent property analytics with human observation.

The CVM is uniquely positioned along the continuum of existing property valuation products between the widely-used Automated Valuation Models (AVM) and Broker Price Opinions (BPO), the company said in a press statement. At half the price of a standard BPO, the new CVM targets those business applications requiring more than an AVM but less than a BPO.

“Black Box” AVMs often don't disclose supporting data and valuation methodologies, leading to what IAS characterized as "questionable and unsubstantiated property values."

“Traditionally, the industry has had the choice of a more expensive human-based solution, or faster and riskier automated solutions. But the current mortgage industry requires these two valuation approaches interact intelligently and at the right price point,” said Dave McCarthy, CEO of Integrated Asset Services. “We’ve combined revolutionary valuation technology with objective third party property inspection services to produce what we believe to be the first humanized automated valuation for residential property at a reasonable price.”

The CVM product is the first entry in a new suite of IAS Integrated Valuation Solutions that IAS plans to roll out in the months ahead. The valuation formula integrates accurate, transparent property data from IntelliReal, IAS’s technology partner, and provides accurate real estate intelligence supported by comparable sales, neighborhood analysis, current neighborhood sales, and active listings. These analytics are then combined with a hands-on inspection performed by a third-party property inspection firm, including photos on the subject and its neighborhood condition, occupancy status, and conditions that impact value. The data resulting from the third party inspection directly influences the automated valuation estimate, solving a long standing problem of the AVM: the lack of real-time property condition information.

“The market has suffered by blind reliance on traditional AVMs. Today’s market requires transparency and innovation in the approach to valuations, including the integration of human observation,” said Ric Miles, CEO of IntelliReal. “With a 14 year track record of delivering quality valuations and services nationwide, IAS is ideally positioned to deliver this new type of integrated solution.”

IAS has been busy this year. The Denver-based firm launched its own IAS360 Home Price Index last year, which pulls pricing data down to specific neighborhoods, and recently rolled out CDA Credit Due Diligence Analytics, a due diligence service for the mortgage industry.

Write to Paul Jackson at paul.jackson@housingwire.com.

In effort to mend the "critical gaps" which have led to multiple failures within the nation's financial system, Treasury Secretary Timothy Geithner unveiled Thursday morning the framework of a new regulatory reform for Wall Street.

"To address these failures will require comprehensive reform — not modest repairs at the margin, but new rules of the road. The new rules must be simpler and more effectively enforced and produce a more stable system, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market," Geithner said during congressional testimony.

Geithner discussed the need to create tools to identify and mitigate systematic risk, including tools to protect the financial system from the failure of "systematically important" financial institutions — an issue brought to the forefront amid spiraling anger over the bailout and then bonuses at American International Group Inc. (AIG: 25.25 +0.44%).

"The crisis — and the cases of firms like Lehman Brothers and AIG — has made clear that certain large, interconnected firms and markets need to be under a more consistent and more conservative regulatory regime," read a press release from the Treasury Department Thursday.

In addressing systematic risk — one of the four components of regulatory reform mapped out by Giethner's team, and the first of which the Treasury will focus on — the Treasury said, like many officials this week, there must be a single independent regulator with responsibility over systemically important firms — regardless of whether they own a depository institution — and critical payment and settlement systems.

The Treasury said it will also work to implement higher standards on capital and risk management for those "too big to fail" firms by setting more robust capital requirements and imposing stricter liquidity, counterparty and credit risk management requirements. Also, the regulator of these entities will need a "prompt corrective action regime" in the case capital levels decline — similar to the powers of the FDIC, Geithner explained.

Another part of the Treasury's plan in addressing systematic risk would require all private investment funds and hedge fund advisors with assets above a certain threshold to register with the Securities and Exchange Commission. See Full Story. "The Madoff episode is just one more reminder that, in order to protect investors, we must close gaps…" the Treasury said.

Geithner proceeded to outline actions to extend federal regulation to all trading financial derivatives and develop stronger rules for money market mutual funds, in order to reduce the risk of runs on the funds.

Geithner said his testimony today focused on systemic risk both because financial stability is critical to economic recovery and growth, and because systemic risk is expected to be a primary focus for discussions at the G20 Leaders' Meeting in London on April 2. But in the coming weeks, according to the Treasury, Geithner will also outline a framework of action, likely to require legislation, in relation to protecting consumers, eliminating gaps in the nation's regulatory structure and fostering international coordination.

"We must not let turf wars or concerns about the shape of organizational charts prevent us from establishing a substantive system of regulation that meets the needs of the American people," Geithner said.

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.

Securities and Exchange Commission chairwoman Mary Schapiro on Thursday told the Senate Committee on Banking, Housing and Urban Affairs that the SEC may soon push for the registration of hedge funds.

"Among other things, we are considering asking for legislation that would require registration of investment advisers who advise hedge funds, and possibly the hedge funds themselves," she said at a hearing on regulating securities markets. Schapiro also said the SEC has also considered pushing for greater regulatory oversight on credit default swaps and municipal bonds. "It is time for those who buy the municipal securities that are critical to state and local funding initiatives to have access to the same quality and quantity of information as those who buy corporate securities," she said.

She expressed her support for a system-wide regulatory reform, so long as it can "be accomplished without compromising the quality of our capital markets or the protection of investors." She recommended toward that end a capital markets regulator that is independent, focused on investor protection, and that operates in concert with any systemic risk regulator created to police non-banks on behalf of the government.

A major goal Schapiro urged was the maintained independence of the SEC. "The SEC, as a strong independent regulator with market expertise, can perform its critical capital markets and investor protection functions without compromising the oversight of systemic risk," she said. "Even as attention focuses on reconsidering the management of systemic risk, investor protection and capital formation — both of which are fundamental to economic growth — cannot be compromised as a product of any reform effort."

She touted the SEC's role in bringing enforcement action against market manipulation, insider trading, Ponzi schemes and other types of fraud during the past year. "The Commission agrees that our goal is to improve the financial regulatory system," she said. "…In light of the economic events of the past year and their impact on the American people, I believe this Committee's focus on investor protection and securities regulation as part of a reconsideration of the financial regulatory regime is timely and critically important."

Read Schapiro's testimony.

The fight against systemic risk
The Obama Administration, Treasury Department and Federal Reserve are in the process of implementing a plan to increase the government's power to step in and unwind large non-banks. “As we have seen with [American International Group Inc. (AIG: 25.25 +0.44%)], distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” Treasury secretary Tim Geithner said earlier this week.

Proposed legislation sent to Congress this week would allow the government to put a firm — considered by the Treasury and Federal Deposit Insurance Corp. as requiring emergency measures — into conservatorship or receivership and then to administer its reorganization or wind-down. The Treasury said the bill would also reduce the need for taxpayer funds by enabling the federal agency as a conservator or receiver to sell or transfer the assets or liabilities of the institution in question, renegotiate institution’s contracts and address the company’s derivatives portfolio, hopefully reducing the potential for further disruption.

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 growing public outrage towards bankers, evident in the AIG bonus debacle, clearly has banking executives anxious to get out of the government's back pocket as soon as possible, with Bank of America Corp. (BAC: 7.29 -0.14%) CEO Ken Lewis telling the Los Angeles Times earlier this week that he intends BofA to begin repayment of government funds as soon as a "stress test" of the bank is complete at the end of next month.

"As soon as we think the markets normalize, we would very seriously like to pay it all back," he told the LA Times, adding that he hopes to have repaid all fund by the end of the fourth quarter of this year. BofA is the third largest recipient of government funds via the Capital Purchase Program–with $45 billion in U.S. aid, only American International Group, Inc. (AIG: 25.25 +0.44%) ($182.5 billion) and Citigroup Inc. ($50 billion) have received more support.

Firms receiving government aid are subject to strict executive compensation restrictions, and a growing fear of changing standards over how much freedom firms have to manage their businesses. Goldman Sachs (GS: 111.77 +2.96%) confirmed Wednesday as well that it planned to pay its entire $10 billion TARP stake back, possibly by the end of April, following the disclosure of “stress test” results.

But Lewis' pronouncement comes as analysts at Moody's Investors Service downgraded the bank on Wednesday afternoon, suggesting that the likelihood of further government support at the North Carolina-based bank was highly likely — implying a low probability that BofA would also be able to pay off its existing TARP stake.

Paul Miller of Friedman, Billings, Ramsey & Co. has been a vocal critic of both Lewis and BofA, and in January suggested that the bank needed $80 billion in fresh capital to support tangible assets. He told the LA Times Wednesday that "I think the regulators will not allow him to pay back the capital given the expected losses coming from his balance sheet."

Lewis and other major bank executives are slated to meet with President Obama in Washington Friday. See separate story.

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.

Real gross domestic product — or GDP — contracted at a seasonally-adjusted annual rate of 6.3 percent in the fourth quarter 2008 from the previous quarter, according to revised estimates released Thursday by the Bureau of Economic Analysis within the U.S. Department of Commerce. This rate was revised down from a previous estimate of a 6.2 percent decline. The downward revision was driven by "negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partially offset by a positive contribution from federal government spending."

The nation saw downturns in sectors across the board. Real personal consumption contracted 4.3 percent in the fourth quarter, down from the 3.8 percent decline in the previous quarter, according to the data. Real exports of goods and services decreased 23.6 percent in the fourth quarter, from a 3 percent increase in the third quarter, while real imports of goods and services fell 17.5 percent in the quarter compared with a 3.5 percent third-quarter decrease.

Real federal government consumption expenditures and gross investment increased 7 percent in the quarter — from a 13.8 percent increase in the third quarter — while national defense increased 3.4 percent, from an 18 percent increase in the previous quarter, according to the Commerce Department. Corporate profits — with inventory valuation and capital consumption adjustments — decreased $250.3 billion in the quarter, compared with an $18.5 billion third-quarter decrease. Final sales to domestic purchasers — or domestic demand — fell at a 5.8 percent annual rate.

Read the GDP release.

Early reports for first-quarter housing starts and consumer confidence, however, beg the question of whether GDP is likely to turn around sometime soon. The Commerce Department in mid-March announced a surprising 22 percent surge in housing starts in February, while the Federal Housing Finance Agency reported Tuesday that home prices –based on purchase prices of homes backed by Fannie Mae (FNM: 0.00 N/A) or Freddie Mac (FRE: 0.00 N/A) mortgages — rose 1.7 percent from December 2008 to January 2009.

With the uptick in home value, inventory, and record-low mortgage rates reported Thursday by Freddie in a weekly survey, market optimists have suggested the trends point to a possible bottoming out of housing. A Reuters/University of Michigan Consumer Sentiment Index released last week showed that consumer confidence and specifically longer-term outlook improved slightly in early March. It remains unclear whether lingering uncertainty will counter these developments and keep the nation's GDP weak in coming reports.

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.

Saying that it expects both banks to need further "systemic support" — codespeak for government funding — Moody's Investors Service on Wednesday cut key debt and bank ratings for both Bank of America Corp. (BAC: 7.29 -0.14%) and Wells Fargo & Co. (WFC: 29.60 +1.89%). In particular, Moody's cut Bank of America, N.A.'s bank financial strength rating (BFSR) to D from B-, while Wells Fargo Bank N.A. saw its BFSR cut to D+ from a prior B rating.

"The downgrades of the BFSR and the preferred stock ratings reflect Moody's view that [the banks'] capital ratios could come under pressure in the short-term, increasing the probability that systemic support will be needed," said Moody's senior vice president, Sean Jones, in a press statement. Read the BofA statement here, and the Wells statement here.

In the case of BofA, Moody's said it was concerned that the bank's tangible common equity position would be problematic, given its sizeable preferred dividend and likely high credit costs through 2010. The rating agency said it expects "significant additional loan loss provisions in 2009 and into 2010" and said it could not rule out a distressed debt exchange in the future to boost its common equity position; such a transaction would allow BofA to limit government intervention, Moody's said.

"The U.S. government could require Bank of America to suspend its common and preferred dividends in order to preserve capital," said senior vice president David Fanger.

BofA CEO Ken Lewis, however, has said that the bank was profitable the first two months of 2009 and would likely post a full-year profit in 2009. In particular, Lewis has singled out the bank's sizeable mortgage business — which posted a $2.5 billion fourth quarter 2008 loss — as a star performer that is adding to the bank's improved performance as of late.

As for Wells, Moody's made it clear that it sees the Wachovia acquisition as particularly problematic. "Wells Fargo will need to take provisions and merger expenses — predominantly in 2009 and into 2010 — against those Wachovia assets that were not marked down on December 31, 2008," the rating agency said. Moody's also suggested that the bank's life-time loss estimate of approximately 29 percent against the legacy Wachovia option-ARM portfolio may not be large enough for realized losses on the portfolio.

Like BofA, Moody's suggested preferred shareholder interests would likely suffer in the event of further government intervention at Wells Fargo. On March 6, Wells Fargo slashed its quarterly common stock dividend 85 percent, from $.34 to $.05 per share, in an effort to preserve capital.

Wells Fargo lost $2.55 billion during the fourth quarter of 2008. After acquiring Wachovia, Wells holds $247.8 billion in first lien morgages, and $110.1 billion in seconds; $122 billion of the bank's first lien portfolio comes in the form of toxic option ARM loan products.

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.

Former Securities and Exchange Commission chairman Arthur Levitt fired a strong volley Thursday morning against the so-called mark-to-market lobby in a Washington Post op-ed, saying that proposed changes to key accounting rules governing the valuation of distressed assets would "obscure" and potentially "bury" the full extent of impairments on bad loans and ill-advised investments made by banks and other financial institutions.

"[T]hose charged with building confidence and trust and presenting numbers that can be believed are under sustained attack — and they are losing," he wrote. "Over the past few weeks, banks and their supporters in Congress have applied significant pressure on the Financial Accounting Standards Board (FASB) to rewrite standards for valuing distressed assets on bank balance sheets."

Levitt makes it clear that while he disagrees the the FASB's proposed guidance for both mark-to-market and other-than-temporary impairment, his primary concern is what he sees as a full-scale attack on the independence of market regulators.

"This isn't just about the income statements of banks," he argues. "It's about further eroding investor confidence, precisely at a moment when investors are practically screaming for more protection. The FASB was created to stand apart from partisanship and momentary shifts in public opinion precisely because the value of accounting standards comes in the consistency of their application over time and circumstance."

Frequent HW columnist Linda Lowell has echoed some of Levitt's concerns recently, particularly around mark-to-market accounting/FAS 157. "The fact is, under the proposed changes determinations of 'distressed' and 'orderly' will be very much in the eye of the holder," she wrote in recent commentary over the FASB's proposed new guidelines. "Those holders may be able to win more arguments with their auditors, but investors will have to work that much harder to figure out if Omega National Bank’s private-label CMOs really are worth what they are reported to be worth."

Levitt offered some harsh criticism for new SEC chairman Mary Schapiro, as well: "[T]he Securities and Exchange Commission should take a firm stand on the side of investors and vigorously resist all political efforts to reduce the independence of financial rule-making agencies and boards."

The SEC has itself come out in support of the proposed changes. SEC acting chief accountant Jim Kroeker said in testimony to the House Financial Services Committee on Wednesday afternoon that he supported the proposed guidance on both fair value accounting and on other-than-temporary impairment.

"There can be no doubt … the gravity and urgency of these issues as we all work in the public interest to address the global economic crisis," Kroeker said. "I believe swift action must be taken to address the accounting for investment impairments and to improve the measurement guidance for illiquid assets for first quarter 2009 reporting."

The comment period for the proposed changes announced on March 17 was shortened to just 15 days, and ends on April 1.

Write to Paul Jackson at paul.jackson@housingwire.com.

Freddie Mac (FRE: 0.00 N/A) said Thursday morning that beginning with March 2009 REMIC settlements, the company will offer Reverse REMIC Giant PC securities, a new mortgage-related security intended to provide liquidity to the U.S. residential mortgage market and new options for investors.

The Reverse REMIC program permits a pro-rata portion of all outstanding Freddie Mac REMIC security classes from a previously issued REMIC group — which, in aggregate, constitute a pass-through from the mortgage collateral backing the original REMIC group — to be recombined into a Pass-Through ReREMIC class. This pass-through Re-REMIC class in turn becomes the collateral backing a new Freddie Mac Giant PC security that is eligible collateral for all Freddie Mac resecuritization programs. Additionally, if the collateral backing the original REMIC met Securities Industry and Financial Markets Association TBA (to-be-announced) market good-delivery guidelines at origination, the new Giant security also will meet those same good-delivery guidelines.

"Freddie Mac Reverse REMIC Giant PC securities are designed to provide a new, additional dimension of liquidity to the residential mortgage-backed securities market," said Mark Hanson, vice president for mortgage funding. "Historically, remaining tranches in REMIC securities lacked the liquidity sought by investors. Freddie Mac Reverse REMIC securities provide a new alternative investment vehicle by converting them into Freddie Mac Giant PC securities."

Beginning with March 30 REMIC settlements, Freddie Mac will issue 15-, 20- and 30-year Reverse REMIC Giant PCs.

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.