Archive for April, 2009
The House Financial Services Committee is slated this week to hold a hearing on mortgage reform legislation. Representatives Brad Miller, D-N.C., and Mel Watt, D-N.C., last month introduced the bill, H.R. 1728 — called the Mortgage Reform and Anti-Predatory Lending Act of 2009 — which aims to curb predatory lending, "which has been a major factor in the highest home foreclosure rate in the nation in 25 years," the committee said in a statement.
The committee, chaired by Barney Frank, D-Mass., called the legislation "tougher" than the version approved by the House in 2007 but never passed by the Senate. The goal, however, remains the same: to impose strict regulations on originators to cut down on unaffordable mortgages, refinanced mortgages that have no positive effect on monthly payments, and instances of borrower fraud. The previous version aimed to "prevent another subprime mortgage meltdown," the committee said.
The legislation would impose regulations that prohibit mortgage originators from steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide a net tangible benefit in the case of a refinancing, or has predatory characteristics. Steering any consumer from a prime loan to a subprime loan, and engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age, would also be prohibited, according to a summary of the bill.
Write to Diana Golobay at diana.golobay@housingwire.com.
Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, today announced the extension of its contract with Fannie Mae (FNM: 0.00 N/A) as a preferred investor, allowing continued access to the competitive pricing inherent in the contract.
"Our members will enjoy superior secondary market execution while Fannie Mae can buy high quality loans from high quality lenders from across the country," Lenders One CEO Scott Stern said in a media statement. The traffic of loans moving from Lenders One members to Fannie Mae recently reached an all-time high, he said, making the contract renewal more relevant than ever.
The swift funding cycle associated with mortgage bankers selling loans to a government-sponsored entity — freeing up credit for more originations — remains "crucial" as the market continues to search for a bottom, Lenders One said. In addition to the mortgage bankers, Fannie Mae also stands to benefit from the renewed contract, the cooperative said, continuing to expand its market share through Lenders One's 140 members and combined $40bn in annual mortgage originations.
The announcement marks a continuation of Fannie Mae's seven-year history of working with Lenders One. The only GSE in Lenders One's network of preferred investors, Fannie Mae works with the cooperative and provides preferred pricing and priority service to Lenders One members.
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.
The countdown began Tuesday for Florida-based BankUnited FSB, which received a prompt corrective action directive from the Office of Thrift Supervision (OTS). The bottom line: Merge with or be acquired by another financial institution within 20 days. OTS said in the directive it considered the Coral Gables bank "under-capitalized" as of January 30 and gave BankUnited 15 days from the date of directive to submit a binding merger or acquisition agreement unless regulators agree to extend the deadline.
One of the few major pay option adjustable-rate mortgage (ARM) lenders still standing, BankUnited must achieve and maintain a minimum 8% total risk-based capital ratio, 4% Tier 1 core risk-based capital ratio and 4% leverage ratio within 20 days of the directive. Some $5.89bn in option ARMs accounted for 51% of its loan portfolio at year-end 08, according to a Business Journal analysis of bank data. ARMs by nature indicate increasing future monthly payments for borrowers as rates adjust, which may lead to a higher occurrence of default if borrowers cannot refinance. A high portfolio presence of ARMs and ARM-related defaults, therefore, may necessitate higher loss reserve ratios among lenders.
BankUnited in September received an OTS notice where its regulatory capital status changed from well-capitalized to adequately capitalized, effectively restricting its acceptance of brokered deposits. In an August Securities and Exchange Commission filing, the bank said the OTS had "certain concerns" about the bank, including capital adequacy. BankUnited "agreed to maintain capital ratios substantially in excess of the minimum required ratios to be deemed well-capitalized upon raising the agreed upon amount of capital" — it seemed advisable at the time, as pay-option ARMs accounted for more than 68% of the bank’s entire $10.4bn residential mortgage portfolio at the end of Q208.
A spokesperson from BankUnited did not return calls seeking comment before this story went to press. Parent company BankUnited Financial Corp. (BKUNA: 0.00 N/A) shares were trading at 31 cents, down 19.34% in late-afternoon trading.
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.
The concept of financial innovation has fallen on hard times, but it's a necessary tool for the economy, says Federal Reserve Chairman Ben Bernanke — so long as it's accompanied by proper regulation.
"Subprime mortgage loans, credit default swaps, structured investment vehicles, and other more-recently developed financial products have become emblematic of our present financial crisis," said Bernanke today at a conference in Washington, D.C. "Indeed, innovation, once held up as the solution, is now more often than not perceived as the problem."
But it would be unwise to stop financial innovation, he said. However, he urged the nation be more alert to the risks associated with innovation and the need to manage those risks properly.
According to Bernanke, certain questions about proposed innovations should be raised: For instance, how will the new product or practice perform under stressed financial conditions? And what effects will the innovation have on the ability and willingness of the lender to make loans that are well underwritten and serve the needs of the borrower?
The challenge faced by regulators is to strike the right balance, he said. Regulators must strive for the highest standards of consumer protection without eliminating the beneficial effects of responsible innovation on consumer choice and access to credit.
"Our goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities at all income levels."
A number of factors play a part in the recent credit boom and bust, including problems stemming from financial innovation, Bernanke explained. From a consumer protection point of view, a particular concern for the Chairman and his team has been the sharp increase in the complexity of the financial products offered to consumers — complexity which has been a side effect of innovation but which also has in many cases been associated with reduced transparency and clarity in the products being offered.
Mortgage products, for example, have become much more complex. "And, we have learned, loan features matter," Bernanke said.
Some studies of mortgage lending outcomes, after controlling for borrower characteristics, have found elevated levels of default associated with certain loan features, including adjustable rates and prepayment penalties, as well as with certain origination channels, including broker originations. "Although these results are not conclusive, they suggest that complexity may diminish consumers' ability to identify products appropriate to their circumstances," Bernanke said.
For some time, the vulnerabilities created by allegedly misaligned incentives and product complexity in the mortgage market were largely disguised so long as home prices continued to appreciate. But lesson learned: "We should be wary of complexity whose principal effect is to make the product or service more difficult to understand," Bernanke said.
"Innovation, at its best, has been and will continue to be a tool for making our financial system more efficient and more inclusive," Bernanke said. "But, as we have seen only too clearly during the past two years, innovation that is inappropriately implemented can be positively harmful."
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.
A story appearing in Dow Jones Bankruptcy Review managed to hammer shares of industry tech provider Lender Processing Services, Inc. (LPS: 16.78 +1.39%) on early Friday afternoon, suggesting the Jacksonville, Fla.-based firm was the subject of a formal investigation by the Department of Justice. Shares in the company tanked nearly 30% on the news, falling $9.61 to $23.57, before trading of the company's stock was halted on the New York Stock Exchange. Shares resumed trading late Friday afternoon.
The story, however, appears to be the latest example of bad reporting by the financial press when it comes to mortgage banking – because as far as LPS is aware, the DOJ is not (and has not) been conducting any investigation of the company, according to a statement released by the firm. Nor is the firm subject to any court sanctions, as the Dow Jones story also inexplicably suggests, citing a Pennsylvania bankruptcy case.
In that Pennsylvania case, the mortgage industry tech and services giant had been subject to a request by the court to explain its technology as part of a dispute involving HSBC, the bank's retained counsel, and two borrowers in a Ch. 13 plan that were arguing over $180 dollars in unpaid flood insurance premiums. (Yes, $180.)
Apparently, the lender's counsel in the case, New Jersey-based Udren Law Offices, P.C., had been instructed by Judge Diane Weiss Sigmund to produce a loan payment history to resolve the dispute over the amount owed; when the law firm failed to produce the history, the attorney representing HSBC explained the failure by telling the court he had made a request on LPS' NewTrack case workflow management platform but had not yet received a response.
That led Sigmund to ask some questions about LPS and NewTrak. In a June 9 order, she threatened sanctions against everyone involved — including LPS, although the technology provider was not a party to the case — for a possible violation of a bankruptcy rule, called Rule 9011, that requires "every pleading, petition, written motion and other paper" to be signed by at least one attorney. In her order, she railed against the use of technology, writing that such a "mechanical approach" to managing bankruptcy "offends the integrity of our American bankruptcy system."
Cue the Dow Jones "news scoop," which is based entirely on the contents of that June 9 order, and the subsequent comments of consumer bankruptcy attorney Max Gardner, who alleges in the Dow Jones story that LPS' system "represents a complete outsourcing of the foreclosure and bankruptcy process." (Never mind that Gardner has a vested personal interest in pushing his view of the world, so if he says it, it must be true, right?)
If the sleuths at Dow Jones had actually reviewed all the case files, as they claim to have done, they'd surely have noticed an April 15 opinion from Judge Sigmund that absolves LPS of liability altogether, after the firm voluntarily cooperated with the court and regional U.S. Trustees Offices in explaining its system to them.
"When this matter began, I was unaware of NewTrak and how it was routinely utlized in bankruptcy cases," she wrote in the opinion. "By this Opinion, I have sought to share my education with participants in the bankruptcy system who may be similarly unfamiliar with the extent that a third party intermediary drives the Chapter 13 process."
Not exactly damning material. But wait, it gets better. "Based on this record, I find that sanctions against LPS are not warranted," Sigmund writes in the April 15 opinion. "By misusing the resources made available to them, the Udren firm, not LPS, was responsible for the Rule 9011 deficiencies in this bankruptcy case."
"LPS was not a party to this case," the company said in a press statement Friday, referring to the Pennsylvania bankrupcty. "LPS, however, voluntarily demonstrated the use of its system for Judge Sigmund and provided all information requested by the U.S. Trustees Offices in connection with this case. In Judge Sigmund's opinion issued at the conclusion of the proceeding, Judge Sigmund stated that LPS was not responsible for any errors in the conduct of the case."
All of which means that facts can't apparently get in the way of a good ole' witch hunt at Dow Jones these days. I'm sure that comes as little consolation to shareholders of LPS; shares in the company had rebounded somewhat in afternoon trading, to $29.69 — still down 10.5 percent — when this story was published.
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.
Confidence among U.S. consumers soared in April to its highest level since the sudden collapse of Lehman Brothers in September 08, according to Reuters/University of Michigan preliminary consumer sentiment index.
The index rose to 61.9 from March's final reading of 57.3, marking the highest reading since September's index recorded 70.3, according to a report released today.
According to Reuters coverage of its own index, economists forecast the sentiment index would rise, but only to 58.5, according to the median of 63 projections in the survey. In November, the index reached a three-decade low of 55.3.
The survey's index of current economic conditions, which reflects Americans' perceptions of their financial situation, jumped to 66.6 in April from 63.3 in March, posting the highest reading since December. The index of consumer expectations rose to 58.9 in April from 53.5 in March.
"While consumers believe the economy may have hit bottom, most consumers believe that when the rebound starts the economy will gain ground very slowly," says survey director Richard Curtin in a press release, as Consumers' financial situations remain dismal.
Additionally, the news service did not elaborate on the process by which the collapse of a Wall Street firm so greatly impacted street-side spending.
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.
An estimated 36,215 new and existing homes and condos sold in California last month, a 23.9% month-on-month increase from February and 47.4% year-on-year increase from March 08, according to a report published Thursday by San Diego-based MDA DataQuick Information Systems. March marked the ninth consecutive month of year-over-year sales inclines.
Sales prices continue to slip in the Golden State, however, with March posting a median sales price of $233,000 — 0.4% below February's median and 37.7% below the year-ago median seen in March 08. DataQuick attributed the drop to the work of depreciation in concert with shifts in the types of homes sold toward foreclosure properties. Real estate-owned (REO) properties accounted for 57.4% of monthly sales in March, up from 35.5% in March '08.
California home buyers in March committed to an average mortgage payment of $958, 44% below the average payment entered in March '08, 63.1% below the latest bubble's June 2006 peak and the lowest average monthly payment, adjusted for inflation, reported in DataQuick's statistics, which track information back to 1988.
"Indicators of market distress continue to move in different directions," say DataQuick researchers. "Foreclosure activity is nearing its 2008 peak, while financing with adjustable-rate mortgages is at an all-time low, as is financing with multiple mortgages."
A continued increase in Bay Area home sales and continued decrease in median sales price indicates stabilization forces at work, while a "significant" slowing of the pace of median sale price declines suggests the nine-county market might be near its bottom, DataQuick found. A total of 6,325 new and resale houses and condos sold in the Bay Area in March, at a median sales price of $290,000.
"For now, the extent to which prices have fallen in the upscale markets is more difficult to gauge because many of those areas are essentially in hibernation, with scant sales," said DataQuick president John Walsh in a press statement.
March sales in the area average 9,025 with a high of 12,645 in March '04, the information provider said. March '09 marked the third-slowest March on record with DataQuick.
"More than any other region, the Bay Area is waiting for so-called jumbo loans to come back on line," adds Walsh. "Even with prices off their peaks, most home purchases in the upper half of the market still require a mortgage for more than $417,000, which are far more difficult to come by. We think there’s a good chance those larger loans will become more available during the second or third quarter.”
Write to Diana Golobay at diana.golobay@housingwire.com.
The recent reports of Wells Fargo & Co.'s (WFC: 29.60 +1.89%) plan to return to warehouse lending is prompting other lenders to reconsider a return to the lending space. The mortgage-lending business operating within recently bailed-out GMAC LLC, called Residential Capital LLC (ResCap), said Thursday its growing business relies on the warehouse lending industry.
Correspondent lenders originate two-thirds of ResCap's mortgages, meaning GMAC's mortgage business relies heavily on warehouse facilities, according to CEO Thomas Marano. The company hired Bank of America Corp. (BAC: 7.29 -0.14%) veteran Adam Glassner several weeks ago to head ResCap's warehouse business, to which Marano did not assign a dollar amount in a Thursday interview with Bloomberg News. “What we’re able to do is provide funding to the midsize mortgage banks out there to reach more consumers and give them a more competitive price,” Marano said, according to Bloomberg. “We’re looking to do it in a meaningful way."
The announcement comes as smaller, independent lenders are finding their warehouse lines shrinking — or disappearing altogether. The influx of interest in refinance has put pressure on independent mortgage bankers’ resources to the point that loans are taking weeks longer to close and, in some cases, are being turned away due to a lack of funding from a shrinking number of warehouse lenders, HousingWire’s sources say.
Available warehouse credit lingers at a volume 85% lower than 12 months ago, to just $20bn to $25bn, the Mortgage Bankers Association reported in late March. Various industry sources warned as early as December that recent swells in refinance activity pressured diminished warehouse facilities, raising questions whether correspondent lenders hold enough warehouse credit to close all the loans in their pipelines.
The early April reports that Wells may launch a $4bn warehouse lending unit mark a possible turnaround from major lenders that are beginning to toe the line back into warehouse territory. If history lessons hold true, other large lenders may soon follow suit. HW's sources confirmed at least one Dallas-based servicer plans to follow Wells and GMAC into the warehouse space.
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.
Three government rescues and billions in losses later, Citigroup Inc.'s (C: 30.87 +1.61%) quarterly loss contracted to $966m, or 18 cents per share in first-quarter 2009, the company said Friday morning. That's down from a loss of $5.19bn, or $1.03 per share, a year earlier.
Citi's first-quarter revenue jumped 99% year-on-year to $24.79bn. By contrast, bank analysts expected a loss of 30 cents per share on revenue of $21.73bn, according to Thomson Reuters.
But the banking giant posted a larger than expected first-quarter income of $1.6bn, driven primarily by improved performance in institutional clients group and continued expense reductions, the bank said. Its operating expenses fell 23 percent from the first quarter of 2008 and its work force has been cut by about 13,000 since fourth-quarter 2008.
Citi holds $135.2bn in first mortgages and $57.8bn in second mortgages. However, the amount of note losses on subprime and Alt-A mortgages are coming more into control at the bank. Direct subprime exposure fell from $14.1bn to $10.2bn. And concerning Alt-A, the bank posts $3.5bn in writedowns during the quarter, with $18.8bn in held to maturity/available for sale properties and $3.1bn in the trading book, the majority of which are held in mezzanine and equity tranches from the 2006 vintage. Exposures to the rapidly fading monoline industry and structured finance products funding long-term debt with short-term paper, such as Structured Investment Vehicles, decreased greatly of the course of the year as well.
The release of the numbers contrast to the fact Citigroup lost $37.5bn in the last five quarters, and Pandit says the latest results were the best in nearly two years. "We have lowered risk and dramatically reduced the problem legacy assets that have caused many of our losses," he said.
In January, Pandit split Citigroup into Citicorp and Citi Holdings, which includes brokerage and insurance units, bad debt and other assets that it wants to shed.
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.
The Federal Reserve Bank of New York purchased another $30.4bn in gross agency mortgage-backed securities (MBS) this week from government-sponsored entities Freddie Mac (FRE: 0.00 N/A), Fannie Mae (FNM: 0.00 N/A) and Ginnie Mae, according to a late-Thursday announcement. The Fed purchased, net of $8.65bn in coupon sales, $21.75bn in agency MBS in the week ending April 15, a slowdown from last week’s $30.4bn in net purchases.
The Fed bought a gross $1.75bn from Freddie’s books, $25.45bn from Fannie and $3.2bn off Ginnie’s books this week. The Fed's purchases continued to favor thirty-year 4.5% coupons, at a $13bn price tag from all agencies. Meanwhile, the Fed also sold $4.68bn of 30-year 6% coupons. Thirty-year 5.5s came in second in terms of sales, at $2.48bn.
The Fed's MBS net purchases after sales continue their weeks-long slide from recent activity. For the week ending April 8, the Fed's purchases grossed $74.7bn in coupon sales before $44.28bn in weekly sales. The Fed bought $21.2bn from Freddie, $52.65bn from Fannie and $850m from Ginnie last week.
See a detailed table of the current week’s purchases and sales.
The Fed’s assets rose by almost $29.2bn the same week ending April 15, according to a balance sheet summary released Thursday. The data show the Fed’s consolidated balance sheet rose to a value of $2.09trn for the week, from $2.07trn the week before, and is up $1.2trn from the year-ago week ended April 16, 2008.
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.
