Archive for April, 2009
The Obama administration may be set to tap current Fannie Mae (FNM: 0.00 N/A) CEO Herb Allison as the next head of the government's $700bn Troubled Asset Relief Program, leaving both Fannie Mae and sister GSE Freddie Mac (FRE: 0.00 N/A) searching for new chief executives. Freddie CEO David Moffett announced his resignation last month.
Allison is set to replace Neel Kashkari as assistant secretary for the Office of Financial Stability as early as the end of this week, a report in the Wall Street Journal said Monday evening, citing unnamed sources.
For Allison, the move might actually put him in a position facing far less scrutiny than his current role, even if he must defend a largely-unpopular program; both Allison and Moffett were installed as chief executives at the GSEs after the government placed both mortgage finance giants into conservatorship last year.
Treasury secretary Timothy Geithner has been searching for months for someone to run TARP, but has seen senior posts become increasingly tough to fill, as candidates withdraw or don't pass muster in the vetting process. Last month, hedge-fund manager Frank Brosens — largely expected to take Kashkari's now-temporary role — withdrew for what has only been described as "personal reasons."
Allison, 65, is the former chairman of investment company TIAA-CREF and was a longtime Merrill Lynch & Co. executive. If nominated for the Treasury role, he must be confirmed by Congress.
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.
Goldman Sachs Group (GS: 111.77 +2.96%) on Monday posted net earnings of $1.81bn — or $3.39 per share — for Q109, up considerably from the $4.97 per share net loss reported in Q408. Strong mortgage performance drove the $6.56bn net revenue at the company's fixed income and currencies trading unit, contributing to a total $7.15bn net revenue at Goldman's trading and principal investments business.
"Results in mortgages were higher compared with a difficult first quarter of 2008," Goldman executives said in the earnings statement. "During the quarter…mortgages included a loss of approximately $800m (excluding hedges) on commercial mortgage loans and securities."
The company announced moments after it released its earnings statement that it would offer $5bn in common stock for public sale. Goldman received $10bn from the Treasury Department in an Oct 28, 2008 capital injection through the Troubled Asset Relief Program (TARP) and is subject to a "stress test" to determine the company's need for further government aid.
"After the completion of the stress assessment, if permitted by our supervisors and if supported by the results of the stress assessment, Goldman Sachs would like to use the capital raised [through the common stock sale] plus additional resources to redeem all of the TARP capital," company executives said in a press release.
Goldman would join five financial institutions that, on March 31, repaid a combined $353m to the government through stock repurchases, according to TARP transaction reports from the Treasury. Morgantown, W.V.-based Centra Bank, a private firm, returned $15m; New York, N.Y.-based Signature Bank (SBNY: 58.39 +0.37%) returned $120m; Evansville, Ind.-based Old National Bancorp (ONB: 12.09 +0.75%) returned $100m; Novato, Calif.-based Bank of Marin Bancorp (BMRC: 39.05 +0.44%) returned $28m; and Lafayette, La.-based Iberiabank Corp. (IBKC: 52.54 -0.11%) repurchased all of the Treasury’s $90m in stocks.
Many banks and financial institutions like Bank of America Corp. (BAC: 7.29 -0.14%) have said they intend to repay TARP funds as quickly as possible, with some professing they will not participate at all, indicating that what began months ago as a flight to government aid has now become a fight against strict compensatory regulations associated with TARP funding.
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.
During March, home listing prices rose 1.1%, increasing in 16 of the nation's major housing markets, according to data released Monday by Altos Research LLC and Real IQ. Prices dropped, however, on a month-on-month basis in eight other American cities.
The report finds that listing price increases are tracking a shift toward the higher-end properties on the market. The median price of the listings absorbed was only $432,000 as less expensive properties come off the market, and more expensive properties come on the market, the median price climbs, the report said. Additionally in March, the median price for new listings in Altos' separate 10-City Composite Index was $460,000.
The largest monthly drop in asking prices occurred in Salt Lake City, followed closely by Las Vegas with drops of 4.0% and 3.9% respectively. Listing prices in Las Vegas are now down by over 37% during the last 12 months with the median listing price plunging from $318,157 year-on-year to $198,434 as of March 9 2009.
7 markets — New York, Boston, Houston, Los Angeles, San Diego, Miami and Charlotte — show sequential price increases for the last three months. Prices rose at the fastest rate in San Francisco which experienced a jump of 3.8%.
Across the 10-City Composite Index markets, inventory increased by 1.3% during March and by 2.2% over the most recent three month period. Inventory jumped in 16 of 26 markets which Altos said can likely be attributed to typical industry seasonality.
The question becomes whether a sustained increase in inventory during the spring selling season will overwhelm housing demand weakened by job losses and tight credit or whether low mortgage rates will provide a floor for the market.
Typically, houses spent more than 100 days on market in March. Salt Lake City, by contrast, averaged 84 days on market. By far, the market with the slowest rate of inventory turnover was Miami with a median of 234 days-on-market or nearly eight months.
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
Falling home prices and rising unemployment claims continued to put downward pressure on the Deloitte Consumer Spending Index in March. The index, compiled by Deloitte LLP "as an indicator of future consumer spending," found that rising energy prices countered much of the recent growth in real wages and put many consumers on spending sidelines last month. The drop in consumer spending may indicate hesitance from prospective home buyers to seek purchase money from mortgage originators while home prices continue to fall.
"Affordability is at an all-time high in the housing market, but home price deflation gives potential buyers an incentive to wait while also reducing homeowners' ability to tap home equity through refinancing," said Carl Steidtmann, chief economist with Deloitte Research. He said he expects the stimulus package and new tax incentives to boost consumer purchasing power, meaning that, "while consumers are still in a holding pattern, the pace of decline in real consumer spending appears to have stabilized."
The monthly index — calculated from tax burden, initial unemployment claims, real wages and real home prices — fell in March from an upwardly revised gain the month before. Deloitte found that the tax burden continued to fall with the weakened economy in March, while rising unemployment claims were up 75% from a year ago. Deloitte also found that real wages were up 4.1% from a year ago, although real wage growth stalled in March as energy prices rose. Real wages were up 9.9% over the last seven months on an annualized basis, "as energy prices have given a big boost to consumer purchasing power," Deloitte researchers wrote in a press statement on the index.
Although home prices continue to fall, Deloitte projected that "renewed efforts to forestall foreclosures coupled with a tax credit for home buyers may bring some stability to this market."
Write to Diana Golobay at diana.golobay@housingwire.com.
Last week, Wells Fargo & Co (WFC: 29.60 +1.89%) pre-announced $3bn in expected profit and growth for the first quarter of 2009, along with growth in a closely-watched earnings ratio known as tangible common equity. The stock soared over 30 percent on the incomplete earnings news, with an official announcement due later this month. Some analysts have questioned the results, as both loan loss reserves and charge-offs came in unexpectedly low, helping the bank boost reported profits.
It appears, however, that as much as nearly one-third of the bank’s first quarter earnings may be nothing more than the result of an accounting treatment; without such a move, tangible common equity would be 10 bps less than the 3.1 percent the Street expects.
The jump in earnings pertain to FAS 160, an accounting rule first announced in 2007 that became effective on January 1, 2009. The rule addresses accounting for minority interests, and mandates that the ownership interests in subsidiaries held by parties other than the parent corporation be clearly identified and presented as equity for the purpose of consolidated reports. Until now, minority interests in the U.S. have been reported either as a liability or as a mezzanine line item between liability and equity.
The effect of the new accounting rule allows certain liabilities to ‘jump over’ to the asset book as non-cash transactions via paid-in capital, thereby rolling directly into earnings and boosting reported equity. In the case of Wells Fargo, the bank found itself with up to $824m it could use this quarter as an accounting gain to earnings.
That gain comes as the result of WFC’s controlling interest in a legacy joint venture with Prudential Financial; the joint venture was acquired when Wells took over Wachovia last fall. Prudential currently holds a 23 percent non-controlling interest in the venture, as well as a put option on its interest in the venture; according to government filings, Prudential intends to exercise such an option “at a date in the future.”
Analysts are aware of this change, but say that a lack of transparency from Wells is making it difficult to see just how much of the bank’s jump in quarterly earnings is due to this ‘liability into asset’ transformation. And, of course, this one-time non-cash event happens to occur in a quarter where Wells needs a boost in earnings in order to bring up its lagging stock price, and ostensibly to set up any future capital raises.
”Have we overestimated WFC's losses, or is the timing obscured by purchase accounting adjustments from the Wachovia merger?” Paul Miller, an analyst at FBR Capital Markets asked in a letter to clients Monday morning.
Wells Fargo representatives said they will not answer specific questions centered on the accounting moves, according to another bank analyst. A spokesperson referred us only to a disclosure of the Prudential joint venture in its most recent 10-K filing with the SEC, when asked. But a large WFC institutional investor also told HousingWire that when asked about the accounting move last week, Wells confirmed that it had impacted the earnings statement.
But in the case of Wells Fargo, this positive impact may at best be transient; when Prudential exercises its put option on the legacy joint venture, that interest in the joint venture may likely return to being booked as a liability and not as an equity interest, sources said.
Analysts, including FBR’s Miller, say they are finding answers tough to come by. “We encourage investors to demand better disclosures going forward, and it is our sincere hope that WFC will revisit its long held practice of not holding live quarterly public conference calls,” he said.
“I am always still amazed how the market responds to a stock because of an accounting move,” said USC School of Accounting professor and GASB board member William Holder, after reviewing the developments at Wells Fargo.
Holder reiterated that a negative vote by FASB board member Leslie Seidman on FAS 160, who published a written dissent, states that one of the reasons she voted no on the accounting rule was because she was concerned about a non-cash capital transaction now following through to earnings.
– Paul Jackson contributed to this story.
Editor’s note: Teri Buhl is an investigative journalist covering Wall Street who has written for the New York Post Sunday Business and Trader Monthly. Contact her at teribuhl@yahoo.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
Wingspan Portfolio Advisors, LLC, a Dallas-based mortgage servicer specializing in delinquent loans, formed a professional network of attorneys to assist in efforts to help borrowers in arrears stay in their homes. Traditionally, law firms are involved in seeing foreclosure actions through to their conclusions, but membership in the Wingspan Professional Attorney Network (WPAN), according to Wingspan, signifies their interest in seeking other ways to help their lender and servicer clients, without reaching default status.
"As an attorney myself, I understand that while law firms provide the legal services associated with foreclosure, they and their clients will benefit more by finding ways to make the assets re-perform and keep people from losing their homes," says Steven Horne, CEO of Wingspan Portfolio Advisors. "They want to explore all the options before foreclosure becomes inevitable, and that’s where the Wingspan Preferred Attorney Network comes in."
Wingspan Portfolio Advisors will take over when traditional loan servicers give up on severely delinquent transactions, working closely with borrowers on payment plan options and structuring loan modifications that can be sustained over long periods of time.
Wingspan Professional Attorney Network members are referred foreclosure actions by servicers and Wingspan Portfolio Advisors representatives enhance their conversations with struggling borrowers to make certain they know that options other than foreclosure may be available to them.
"Borrowers are often in shock through much of the default process," Horne says. "The more people telling them that the beginning of a foreclosure action is not necessarily the end of their homeownership, the more willing they become to explore all the alternatives with us."
Wingspan Portfolio Advisors is not compensated by borrowers, Horne adds, but by lenders and servicers when they succeed in bringing loans back from default to performing status once more.
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
Another two bank failures announced late Friday pushed the running total to 23 banks shut down by federal regulators so far this year. Friday's bank failures — one in Colorado and the other in North Carolina — will cost an estimated $801m to the Federal Deposit Insurance Corp. (FDIC) insurance fund. A total $2.5bln in combined assets are on the line from the failed banks' portfolios.
The State Bank Commissioner in Colorado closed Greeley-based New Frontier Bank, naming FDIC as receiver. The FDIC created the Deposit Insurance National Bank of Greeley (DINB) from the bank's insured deposits "to protect the depositors," who now have 30 days to open accounts at other insured banks. San Francisco, Calif.-based Bank of the West assumes operational management of New Frontier's main office and two branches during the 30-day transition period while the accounts are resolved.
New Frontier had $2bln in total assets and $1.5bln in deposits as of late March, although the FDIC said some $150m in insured deposits and $4m in deposits "potentially exceeded the insurance limits" and were not transferred to the DINB at the time the bank was shut down. The FDIC did not transfer Frontier's brokered deposits, certificates of deposit and individual retirement accounts to the DINB as part of the transaction. As receiver, the FDIC said it will retain New Frontier's assets for later disposition and will absorb an estimated $670 million cost to the Deposit Insurance Fund.
Read the FDIC's press statement on New Frontier.
The North Carolina Office of Commissioner of Banks closed Wilmington-based Cape Fear Bank, appointing the FDIC as receiver. The FDIC said it entered a purchase and assumption agreement with Charleston, S.C.-based First Federal Savings and Loan Association of Charleston, which assumes all of Cape Fear's deposits. First Federal will purchase $468m of $492m in assets, as well as $403m in total deposits, from Cape Fear. The FDIC entered a loss-sharing agreement with First Federal on $395m of Cape Fear's assets and estimated the cost to the Deposit Insurance Fund at $131m.
Read the FDIC's press statement on Cape Fear.
Write to Diana Golobay at diana.golobay@housingwire.com.
Loveland, Colo.-based Kroll Factual Data, a provider of business information solutions to financial organizations, added Third Party Verification (TPV) as an expanded service — addressing the growing need of lenders, servicers, and financial institutions to obtain an unbiased verification of information.
Kroll's TPV system performs verifications of information including identity, employment, assets, tax information and any outstanding liabilities. Since the work and accuracy of verifications performed become the responsibility of a third party — in this case the TPV system — Kroll said clients then have the ability to transfer risk while producing quality loans faster. For more information visit www.krollfactualdata.com
Partnership Provides Fraud Risk Analysis Solutions
Mortgage Cadence, Inc., a provider of Enterprise Lending Solutions, integrated DataVerify’s DRIVE platform and Mortgage Cadence Orchestrator.
“The integration with DataVerify, a leading fraud detection and prevention platform, enhances our overall compliance offering and provides customers with a seamless loan data feed into the DRIVE platform that then returns comprehensive and imperative information back into Mortgage Cadence Orchestrator," said Tim Counterman, director of product management & compliance at Mortgage Cadence, Inc.
Returned reports and scores allow Orchestrator users to quickly identify legitimate borrowers while reducing false positives, ensuring compliance with Red Flag Rules and minimizing costly queries to the Social Security Administration, according Mortgage Cadence.
In addition, DataVerify provides a proprietary collateral risk assessment model that evaluates market and subject property characteristics to determine the overall collateral risk. This assessment provides public and non-public data analysis of foreclosure activity, flip activity, subject transfer history, geographic conditions, and market sale. For more information visit www.mortgagecadence.com
Demand Grows for Same-Day Payment Availability
Fidelity National Information Services, Inc. (FIS: 28.55 +0.49%), a provider of processing and technology solutions is teaming with Western Union (WU: 19.16 +0.10%) and leading online financial application provider Yodlee, Inc., to expand the value and capabilities of online bill pay for FIS customers and other financial institutions worldwide.
Through the relationship, FIS will integrate Yodlee PayToday into the FIS online bill payment solution, providing end-to-end electronic billing and payment solutions directly to customers' computers, according to a joint statement by the trio. Bill pay customers will be able to take advantage of the revenue-generating capabilities offered by Yodlee payments solutions and immediately begin to generate new fee-based revenue by offering customers guaranteed, same-day electronic payments. For more information visit www.fidelityinfoservices.com
Firms Partner to Provide Efficient Income Verification
Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, entered into an agreement with Fort Worth, Texas-based Rapid Reporting, a provider of pre-funding income and identity verification products for the mortgage industry. Lenders one said the partnership will provide cooperative members with more aggressive pricing and quicker turn times on Form 4506-T requests with Rapid Reporting's IncomeCheck product.
"Today's lending environment is about improving efficiencies while reducing costs, all to ultimately increase a company's return investment," said Luke Pille, Lenders One director of national programs.
IncomeCheck is Rapid Reporting's Web-accessible income verification tool that is directly interfaced with the IRS to confirm and verify borrower income against tax return (W-2 and 1099) data. It produces personal, business or tax transcripts in as little as 24 hours. For more information visit www.lendersone.com and www.rapidreporting.com
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
Mortgage and life insurer Genworth Financial Inc. (GNW: 7.83 +0.38%) saw its shares tumble in early trading Monday, falling as much as 31 percent on investor concern after the company said late last week that it had failed to qualify for a capital injection from the U.S. Treasury. The former General Electric Co. (GE: 19.03 -0.21%) unit was one of several insurers that last year sought to buy banks or thrifts and become a bank holding company, enabling the firms to receive taxpayer funds under the Troubled Asset Relief Program.
Genworth abandoned its request for capital from TARP funds on April 9, according to a filing with the Securities and Exchange Commission, one day after the Treasury said some life insurers were eligible for funding under the program. Genworth's denial for TARP funds came after the Office of Thrift Supervision denied the company's application to become a thrift holding company, the company said in its filing with the SEC.
U.S. mortgage insurers have been hit hard, as delinquencies and foreclosures remain at historically high levels and capital levels come under pressure; on Feb. 17, Moody's Investors Service downgraded key credit ratings at most U.S. mortgage insurers, cutting Genworth to Baa2 from Aa3. Moody’s analysts expressed some concern for the company’s growing paid claims on mortgages, saying “were losses to be in excess of current expectations, the company could breach maximum statutory risk to capital guidelines within the next two years."
It's unclear why the OTS denied Genworth holding company status, as the company did not specify a reason and officials at the thrift regular have not commented on the matter; the OTS has already approved similar plans from competing insurers, however, including Hartford Financial Services Group Inc. (HIG: 17.57 +0.06%). As a result, analyst opinion on Genworth's future was clearly split.
Alan Rambaldini, an analyst with Morningstar Inc., told Bloomberg that the denial “signals a lack of confidence, and I think people are going to see this and realize that they don’t have many options left."
"OTS' rejection of Genworth's application under TARP is a major blow," analysts at Egan-Jones Ratings Co. wrote late Thursday, as well. "The company is no longer able to provide value to most obligors and therefore is basically in run-off mode."
But UBS AG (UBS: 14.05 +0.50%) analyst Andrew Kligerman suggested to clients Monday in a research note that "would have aided capital flexibility, but GNW's viability does not hinge on TARP," according to a report filed with Dow Jones Newswires.
"CPP participation by way of a thrift acquisition was only one of the strategic levers Genworth has considered to provide another level of capital flexibility," Genworth CEO Michael Fraizer said in the late week press statement.
Shares of Genworth were at $2.16, down 21.45 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.
Chicago-based credit bureau TransUnion said Monday that it had partnered with First American CoreLogic to roll out a new risk management platform that pairs consumer credit data with loan-level information.
"Billions of dollars in mortgage securities were traded without visibility into the risk of the underlying borrowers of the loans backing the securities, focusing instead on pool-level home price appreciation (HPA) and initial loan-to-value (LTV)," said Jeff Hellinga, president of TransUnion's U.S. Information Services division. "But now, with the collapse of the housing market, direct insight into the actual risk of the underlying borrowers is critical."
The TransUnion platform, called Consumer Risk Indicators, is tailored either for securities trading or whole loans; it includes information such as complete adjustable-rate mortgage (ARM) exposure, and specific data on the consumer's capacity to pay — data that has long been available for individual mortgages, according to officials at TransUnion and First American, but is often unavailable in analysis of mortgage-backed securities.
"This is particularly relevant given the recent creation of the Public-Private Investment Program (PPIP), which is designed to draw private capital into the market to facilitate price discovery of legacy assets and the expansion of other government programs, such as the Trouble Assets Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF)," Hellinga said.
"In pre-release reviews with select hedge funds and investment banks, we have received very positive feedback on the RMBS and Whole Loan solution set," George Livermore, CEO of First American CoreLogic said.
The RMBS platform offering matches individual loans backing non-agency mortgage-backed securities to the consumer credit information of specific borrowers, according to TransUnion. Gaining access to this information illuminates the credit risk a borrower represents beyond just the aggregate loan data available in a given security, both companies said. "It also allows investors to directly tie the newly-available consumer credit information to the First American CoreLogic LoanPerformance Securities Database, which spans subprime, Alt-A, option ARM, and jumbo securities and represents over $1.8 trillion in loan-level data, or 96 percent of all non-agency securities," the companies said in a press statement.
The idea here is a simple one: deal cash flows and valuations are a function of expected default rates. Two loan pools in two different deals may often have very similar aggregate characteristics–same average weighted loan size, loan-to-value, and geographic mix–but differ dramatically in expected loss experience based on current and trended consumer credit characteristics, such as credit utilization and total debt outstanding. This information is traditionally not part of the information given to investors on the securities side of the mortgage industry.
TransUnion officials said that initial analysis of their consumer-credit enhanced data found that it improved default predictions (so-called 'involuntary prepayments,' for those in the securities side of the business) more than 15 percent over current predictive models.
The whole loan risk management platform also provides new information previously unavailable for risk assessment of whole loan bids and portfolio monitoring, the companies said. TransUnion's solution provides a time-series of consumer data specifically proven to predict risk, rather than a simple credit snapshot.
"This time-series is more predictive than the updated consumer reports currently used in the industry," Hellinga said. "We've also developed it to be easily incorporated into the existing bid process."
For more information, visit http://www.transunion.com and http://www.facorelogic.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
