Archive for March, 2009
In a deal originally expected to close in mid-February, the Federal Deposit Insurance Corp. said late Thursday that it had completed the sale of IndyMac Federal Bank to a consortium of private equity investors led by Steven Mnuchin, former Goldman Sachs (GS: 111.77 +2.96%) partner and current co-CEO of Dune Capital Management LP. That group, IMB Holdco LLC, will run the bank under the name OneWest Bank Group LLC, a newly-formed thrift holding company, according to a press statement.
At the end of January, IndyMac Federal had total assets of $23.5 billion and total deposits of $6.4 billion, the FDIC said. OneWest has agreed to purchase all deposits and approximately $20.7 billion in assets at a discount of $4.7 billion — the FDIC will retain the remaining assets for later disposition.
The complete sale of the bank includes 33 branches, a reverse-mortgage unit and a $176 billion residential mortgage servicing portfolio. The FDIC has agreed to share losses on a portfolio of qualifying loans with OneWest, assuming the first 20 percent of losses. From there, the FDIC will split losses 80/20 for the next 10 percent, and 95/5 thereafter.
As part of the sale, IMB Holdco and OneWest have agreed to continue the FDIC's much-publicized bulk loan modification program, despite some questions from critics as to the programs effectiveness thus far. The continuation of loss mitigation efforts was a condition to any loss sharing, the FDIC said when the deal was first announced in early January.
"We appreciate the support of the FDIC and the OTS in completing this transaction, and we are committed to continuing our work with the FDIC and other government agencies to implement programs to help homeowners," Mnuchin said in a statement.
The investor group — consisting of Dune Capital Management LP, J.C. Flowers & Company, hedge fund firm Paulson & Company, and MSD Capital, LP — said it had injected $1.55 billion in common equity into the new bank, and that the FDIC will rate the bank "well capitalized" on the basis of total common equity.
The group said it intends to focus on deposits and conforming and jumbo mortgage lending for its retail customers in Southern California in the near term.
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.
Update 1: Reflects Fitch's correction of new IFS rating.
Fitch Ratings said late Thursday that it had downgraded mortgage insurer MGIC Investment Corp. (MTG: 4.14 +6.98%), citing ongoing "capital constraints" and increased likelihood of losses as the U.S. residential housing sector continues to sour. MGIC saw its insurer financial strength rating downgrade to 'BB,' which is still an investment grade rating.
"In addition to limited capital markets access, MGIC has few remaining assets that could be monetized to increase its capital resources (as the company did in 2008 with the sale of its interest in Sherman Financial LLC) and will largely have to rely on current capital resources to satisfy ongoing MI claims," the rating agency said in a press statement.
Fitch said it maintained an investment grade rating on MGIC because of "substantial capital resources." The insurer and its operating subsidiaries hold an $8.1 billion investment portfolio, $3.7 billion of statutory capital and $4.5 billion of statutory loss reserves in support of the company's $54.5 billion of risk-in-force.
In particular, Fitch said that it had concerns around certain covenants in MGIC's credit facility, which has $200 million outstanding. "Given the current operating environment and MGIC's operating results, there is a high likelihood that MGIC would need to repay or restructure the credit facility prior to maturity in order to avoid breaching the facility's leverage (risk-in-force to capital) and other financial covenants," Fitch noted.
A default under the bank facility would trigger a cross default of MGIC's $500 million of senior debt outstanding. MGIC maintains approximately $394 million of funds at the holding company, Fitch said.
MGIC said on Mar. 13 that it would defer interest payments on $390 million in junior subordinated debt, in a filing with the Securities and Exchange Commission, as part of an effort to preserve capital.
Fitch said it expected the MI industry as a whole, and not just MGIC, to continue to face challenges such as rising unemployment, home price depreciation, and limited refinancing opportunities.
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.
Signaling that the U.S. Department of Justice is stepping up its investigation into mortgage fraud, the DOJ on Thursday afternoon said that Leib Pinter, 64, a former executive of Olympia Mortgage Corp., was sentenced today to 97 months in prison for orchestrating a scheme to defraud Fannie Mae (FNM: 0.00 N/A) in connection with loans refinanced by Olympia but owned by the GSE.
Pinter was also ordered to pay more than $43 million in restitution to the victims of his fraud scheme, according to Benton J. Campbell, the U.S. Attorney for the Eastern District of New York, whose office prosecuted the cae. Pinter had pled guity to the charges on Sept. 11, 2008.
When Olympia refinanced a Fannie Mae mortgage loan, Fannie Mae typically wire transferred the money to an Olympia bank account. Olympia was then required to pay off the underlying mortgage loan by remitting the outstanding balance to Fannie Mae. Instead, Pinter misappropriated these proceeds for the benefit of Olympia. When the fraudulent scheme was revealed, Fannie Mae held nearly $44 million in unpaid principal in refinanced mortgage loans.
"The defendant took advantage of his relationship with Fannie Mae to enrich himself and others," said Campbell. "This case is yet another example of the Justice Department's swift and vigorous response to those who have corrupted our nation's lending practices."
The conviction comes after Campbell last year formed a task force comprised of federal, state and local law enforcement agents and investigators to address the burgeoning problem of mortgage fraud.
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.
In the wake of public outcry at the $165 million in bonuses paid out by American International Group Inc. (AIG: 25.25 +0.44%) to top executives at AIG Financial Products — the division largely blamed for the fall of the giant insurer — regulators are stepping up to bat with the only weapon they may have to reverse the payments after-the-fact: legislation.
House Democrats on Thursday passed a bonus-blocking bill that would discourage the use of funds at major financial institutions for lavish executive bonuses by imposing a 90 percent tax on such bonuses, according to a report by Bloomberg. The tax, if passed, would apply to employees at companies that have received more than $5 billion from the government through the Troubled Asset Relief Program.
The tax would be imposed on bonuses granted after Dec. 31, 2008 to employees that make more than $250,000 a year after bonuses. A crucial provision within the bill lifts the tax from bonuses that are returned to the company — an encouragement for recipients to forgo the hassle by returning funds directly to their employers.
According to Bloomberg's sources, the current bill wouldn't apply to foreign employees of these companies — like those working in the London office of AIG — but the Senate is compiling its own version of the bill, a 70 percent excise tax on bonuses, that would be split between employees and the company. Such an excise tax would mean the government could still collect back funds from foreign employees by forcing the company to pay their 35 percent share.
As vocal as the outcry has been regarding the bonuses (chairman Edward Liddy at a House subcommittee hearing Wednesday said the company has received word of threats on bonus recipients to the effect that they "should be executed with piano wire around their necks"), taxpayers may still have a long way to go before they see progress in the troubled AIG. According to a report released Wednesday by the U.S. Government Accountability Office, AIG's recovery and repayment of government funds might very well hinge on its access to more support funds.
"If the ultimate goal is avoiding the failure of AIG, the Federal Reserve and Treasury [Department] have achieved that goal in the short-term," the report's authors wrote. "…AIG and federal regulators acknowledge that there may be a need for further assistance given the significant challenges AIG continues to face. Therefore, more time is required to determine if the goal will be fully achieved in the long-term." AIG's repayment of federal funds is contingent not only on the company's maintained solvency, but the effective restructuring of AIG, "including the sale of subsidiaries," the GAO said.
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.
Moody's Investor Services announced Thursday it had revised its loss projections for residential mortgage-backed securities (RMBS) backed by prime jumbo loans. The vintage of RMBS in question was issued from 2005 to 2008; Moody's said it expects the 2005 vintage securitization to lose 1.7 percent, the 2006 vintage to lose 3.55 percent and the 2007 vintage to lose .505 percent. The 2008 securitization is projected to shed 6.2 percent. In light of the projections, Moody's said it has placed nearly 5,000 tranches of jumbo RMBS with an outstanding balance of $173.3 billion on review for various downgrades. About 70 percent of 2005 senior securities are expected to retain investment-grade ratings, while the rest likely will reach Ba or B ratings. Moody's said the majority of 2006 senior securities are likely to reach Baa1 to B3 ratings, while the majority of 2007 senior securities will likely migrate below B3.
"[D]uring the last six months, jumbo mortgage loans backing 2005 to 2008 securitizations have shown substantial increases in serious delinquencies and decreases in prepayment rates — levels that are unprecedented for this asset class," Moody's said. "…The quickly deteriorating performance, along with concerns about the continuing drop in housing prices nationwide and the rising unemployment rate has prompted" the revision.
Log in to read details on Moody's revision.
Continued housing market weakness, job loss and economic hardship is driving borrower delinquency elsewhere. A massive wave of recent foreclosures has led to various foreclosure halts, moratoriums and increased efforts for borrower workouts. With increased efforts by lenders and servicers — now made mandatory for TARP fund recipients by President Barack Obama's "Making Home Affordable" plan, launched March 4 — came an influx of homeowner hotlines to help navigate the confusing array of options. The Homeownership Preservation Foundation (HPF), which operates the Homeowner’s HOPE Hotline, announced Tuesday that on average, 13,500 homeowners have reached out to the Hotline each day since March 4, about three times the average number of daily calls the Hotline received prior to the release of the president’s program.
The Treasury Department on Thursday announced another homeowner assistance portal designed to help borrowers attempting to attain a more affordable mortgage payment. MakingHomeAffordable.gov features self-assessment tools that will help borrowers to determine if they're eligible to participate and calculate the monthly mortgage payment reductions under the program. With these efforts in place, the volume of borrowers defaulting on payments is hoped to lessen somewhat in coming months. It's still unclear what effect, if any, the mortgage plan will ultimately have on the securitizations being considered for downgrades at Moody's.
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 gap between REO sales prices and the rest of the market is growing at an accelerating pace, according to a recent study by Lender Processing Services, Inc., released Thursday. In general, markets that experienced sharp drops in home prices in 2008 also saw deeper REO discounts, revealing the impact of foreclosure sales on home prices, the study said.
The home price index by LPS provides a mechanism to "separate the general trend in home prices from the trends in foreclosure and REO sales," said Nima Nattagh, senior vice president, LPS Applied Analytics. "The ability to differentiate between the general trend in home prices and REO sales is important and allows REO asset managers to make more informed decisions about asset disposition strategies."
The largest drop in prices of REO sales were observed in Riverside County, California, where home prices fell 28 percent between 2007 and 2008; however, including REO sales, prices in Riverside County plunged a significantly higher 34 percent from 2007 to 2008.
The study also found that, including REO sales, home prices declined by 29 percent during 2008 in the Phoenix market, where analysts cite considerable overbuilding. When REO sales were excluded from the analysis, though, the price decline was much less severe at 19 percent year-over-year.
The gap between home prices with and without REO sales was smallest in Seattle, New York and Cambridge, Massachusetts, offering further evidence that the current downturn in the housing market is regional.
While the Western states and Michigan and Florida saw double-digit declines in home prices, other regions have fared much better. But based on study results, further deterioration in the housing market will most likely deepen the REO discount levels in these markets, the study's report concluded.
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 recession is likely to continue into the near term, according to The Conference Board Leading Economic Index released Thursday, which declined 0.4 percent in February, following a slight 0.1 percent increase in January.
“The U.S. Leading Economic Index declined in February, but strengths and weaknesses were roughly balanced among its components," said Ken Goldstein, economist at The Conference Board. "Financial market volatility remains strong, and the credit market freeze is relenting very slowly. The LEI suggests the recession will continue in the near term."
Six of the ten indicators that make up The Conference Board LEI increased in February. Some of the positive contributors included interest rate spread — the largest positive contributor — vendor performance, building permits and real money supply. The largest negative contributor was the weekly first time claims for unemployment insurance, followed by stock prices, the index of consumer expectations and the average weekly manufacturing hours.
The Conference Board Coincident Economic Index for the U.S. declined 0.4 percent — following a 0.6 percent decline in January — driven by continued declines in employment and industrial production. The Conference Board Lagging Economic Index also declined 0.4 percent in February, following a 0.3 percent decline in January.
"Taken together, the behavior of the composite economic indexes suggests that the economic recession that began in December 2007 will continue in the near term," the Board's report said. And "a return to strong growth will not likely occur until 2010,” Goldstein concluded.
“The near term economic outlook is weak,” the Fed said in a statement in Washington Wednesday. Still, policy measures “will contribute to a gradual resumption of sustainable economic growth."
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
As the House considers a bill that would impose hefty taxes on bonuses paid to employees by firms that have received significant amounts of government aid, the administration might soon be requesting "resolution authority" to step in and effectively seize troubled companies, according to recent statements by President Barack Obama. "This is part of the broader package of financial regulatory steps that we're going to be taking that ensures that, going forward in the future, we're not going to find ourselves in these kinds of terrible positions again," he said, according to an Associated Press report.
The AP's sources have said a forthcoming proposal from the administration would allow the Treasury Department secretary to seize control of a major financial institution — after gaining the blessing of Federal Reserve officials — and run that company in what would basically work as conservatorship.
Such a system, if it had been in place before the American International Group Inc. (AIG: 25.25 +0.44%) bonus distribution, would have allowed the administration to block the company's bonus flop. If enacted, the plan will allow the administration to proactively prevent the payment of bonuses at significant institutions, rather than reacting after-the-fact as Congress plans to do with some version of the House's 90 percent tax on bonuses.
Fed board of governors member Daniel Tarullo, in testimony delivered Thursday before a Senate committee on "modernizing" bank regulation, said merely supervising banks is not enough. He called for "statutory coverage" of any systemically significant firms, not just those affiliated with an insured bank. "The current financial crisis has highlighted a fact that had become more and more apparent in recent years–that risks to the financial system can arise not only in the banking sector, but also from the activities of financial firms that traditionally have not been subject to the type of consolidated supervision applied to bank holding companies," he said.
Tarullo urged that "especially close supervisory oversight" of the risk-taking behaviors, risk management and capital conditions traditionally applied to bank holding companies also be applicable to all institutions. "Application of a similar regime to systemically important financial institutions that are not bank holding companies would help promote the safety and soundness of these firms and the stability of the financial system generally," he said, although he acknowledged the need for clear guidelines on just which firms would be subject under the new regime, as opposed to the broad and debatable "too big to fail" standard.
"One issue that has received much attention recently is the possible benefit of establishing a systemic risk authority that would be charged with monitoring, assessing and, if necessary, curtailing systemic risks across the entire U.S. financial system," Tarullo said. Such an authority would need to have a "sophisticated" and thorough approach to systemic risk, clear and detailed expectations and responsibilities and proper supervision.
Federal Deposit Insurance Corp. chairman Sheila Bair, before the same Senate committee, also called for some sort of "legal mechanism for the orderly resolution" of significant financial institutions similar to that in place at FDIC-insured banks. She went so far as to urge not just the elimination of the "too big to fail" standard in supervision and tighter regulation, but an end to the complexity and over-leveraging of banks and institutions that makes them "too big to fail" in the first place.
"In the face of the current crisis, regulatory gaps argue for some kind of comprehensive regulation or oversight of all systemically important financial firms," she said in her testimony. "But, the failure to utilize existing authorities by regulators casts doubt on whether simply entrusting power in a single systemic risk regulator will sufficiently address the underlying causes of our past supervisory failures. We need to recognize that simply creating a new systemic risk regulator is a not a panacea."
Bair called on Congress to consider limitations on the size and complexity of systemically significant institutions whose failures would cause far-reaching damage. She also urged institutions to recognize limits to diversified risk through securitization, structured finance and derivatives. "If large complex organizations concentrate risk and do not provide market efficiencies, it may be better to address systemic risk by creating incentives to encourage a financial industry structure that is characterized by smaller and therefore less systemically important financial firms, for instance, by imposing increasing financial obligations that mirror the heightened risk posed by large entities," Bair said.
Overall, she encouraged a "thoughtful, deliberative approach" to establishing tighter regulations on non-banks and urged "prudential supervision" of significant non-bank institutions — including hedge funds and investment banks, insurance companies and bank and thrift holding companies. "[H]aving a mechanism for the orderly resolution of institutions that pose a systemic risk to the financial system is critical," Bair said. "Creating a resolution regime that could apply to any financial institution that becomes a source of systemic risk should be an urgent priority."
Kelly Curran contributed to this report.
Write to Diana Golobay at diana.golobay@housingwire.com and to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
After a slight drop last week, mortgage rates continued to fall in the week ending March 19, reaching near-record lows, according to Freddie Mac's (FRE: 0.00 N/A) Primary Mortgage Market Survey released Thursday. 30-year fixed-rate mortgages averaged 4.98 percent with an average 0.7 point, down from last weeks 5.03 percent average, and significantly below the average last year at this time — 5.87 percent.
“Long-term mortgages followed bond yields lower for the second week as reports of slower industrial production suggested that business spending might ease this year,” said Frank Nothaft, FreddieMac vice president and chief economist. "Following the March 18th Federal Reserve monetary policy statement, which announced further spending initiatives on financial assets, long-term bond yields plummeted. Yields on 10-year Treasury bonds fell by about a half percentage point after the announcement, marking the largest one-day decline since October 20, 1987.”
15-year fixed-rate mortgages were no exception to the falling trend, dropping from 4.64 percent last week to 4.61 percent this week. The 15-year FRM has not been lower since June of 2003, when it averaged 4.6 percent, according to Freddie Mac.
Five-year Treasury-indexed ARMs also slouched this week, averaging 4.98 percent compared to 4.99 percent last week. One-year Treasury-indexed ARMs, however, rose to 4.91 percent from 4.80 percent last week. At this time last year, the 1-year ARM averaged 5.15 percent.
A separate survey conducted by Bankrate.com also found that mortgage rates slid close to all-time lows. The benchmark 30-year fixed-rate, according to Bankrate, declined 8 basis points to 5.29 percent, while the benchmark 15-year fixed-rate fell 2 basis points to 4.86 percent.
Bankrate's Chris Kissell points out that the survey occurred before the Federal Reserve's announcement Wednesday to purchase additional long-term Treasury bonds and mortgage-backed securities; meaning, rates have fallen further and it's not unlikely they're continuing to do so as you read this sentence.
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
In the wake of public outcry at the $165 million in bonuses paid out by American International Group Inc. (AIG: 25.25 +0.44%) to top executives at AIG Financial Products — the division largely blamed for the fall of the giant insurer — regulators are stepping up to bat with the only weapon they may have to reverse the payments after-the-fact: legislation.
House Democrats are slated to vote later Thursday on a proposed bonus-blocking bill that would discourage the use of funds at major financial institutions for lavish executive bonuses by imposing a 90 percent tax on such bonuses, according to a report by Bloomberg. The tax, if passed, would apply to employees at companies that have received more than $5 billion from the government through the Troubled Asset Relief Program.
The tax would be imposed on bonuses granted after Dec. 31, 2008 to employees that make more than $250,000 a year after bonuses. A crucial provision within the bill lifts the tax from bonuses that are returned to the company — an encouragement for recipients to forgo the hassle by returning funds directly to their employers.
According to Bloomberg's sources, the current bill wouldn't apply to foreign employees of these companies — like those working in the London office of AIG — but the Senate is compiling its own version of the bill, a 70 percent excise tax on bonuses, that would be split between employees and the company. Such an excise tax would mean the government could still collect back funds from foreign employees by forcing the company to pay their 35 percent share.
As vocal as the outcry has been regarding the bonuses (chairman Edward Liddy at a House subcommittee hearing Wednesday said the company has received word of threats on bonus recipients to the effect that they "should be executed with piano wire around their necks"), taxpayers may still have a long way to go before they see progress in the troubled AIG. According to a report released Wednesday by the U.S. Government Accountability Office, AIG's recovery and repayment of government funds might very well hinge on its access to more support funds.
"If the ultimate goal is avoiding the failure of AIG, the Federal Reserve and Treasury [Department] have achieved that goal in the short-term," the report's authors wrote. "…AIG and federal regulators acknowledge that there may be a need for further assistance given the significant challenges AIG continues to face. Therefore, more time is required to determine if the goal will be fully achieved in the long-term." AIG's repayment of federal funds is contingent not only on the company's maintained solvency, but the effective restructuring of AIG, "including the sale of subsidiaries," the GAO said.
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.
