Archive for April, 2009
The TARP's Capital Purchase Program (CPP) may be eying the bottom of the cup, if the dwindling daily draughts of capital injections are any indication.
The Treasury Department announced earlier this week having invested $54.8 million in 10 financial institutions on April 3. One publicly-traded firm, Glen Ellen, Va.-based First Capital Bancorp Inc. (FCVA: 2.30 +0.44%), received $10,958,000, or 20 percent of the day's capital injections. The largest of the day's capital injections — $12.7 million — went to Harrison, Ariz.-based Community First Bancshares Inc. The smallest investment of the day — $1.7 million — went to Theodore, Ala.-based BCB Holding Co. Inc.
Although financial institutions and banks drank deeply from the well of TARP capital beginning with $115 billion on its first day of operations — Oct. 28, 2008 — and continuing with a handful of days afterword in excess of $30 billion from its various programs, daily injections dipped into millions territory as of Jan. 23 and have declined significantly in the last month alone.
Daily capital investments have slowed at a fairly steady pace since the March 13 infusion of $1.46 billion in 19 institutions. CPP investments slowed to $80.75 million on March 20 and ticked up to $192.96 million on March 27 before plunging to $54.83 million on April 3. The decline in daily volume indicates the Treasury may be reigning in its daily spending of TARP funds in order to reserve remaining capital at its disposal.
The Treasury has some $19.5 billion left of funding through the CPP after it adjusted its projected expenditure to $218 billion from $250 billion through that program, according to Treasury reports. The TARP — and Treasury — has faced rising criticism in recent weeks over an apparent lack of transparency in reporting transactions and changing policies.
The March 2009 report on TARP by the U.S. Government Accountability Office found that total remaining TARP funds may be as low as $32.6 billion under the maximum allowance model, which calculates the CPP at $250 billion and Term Asset-Backed Securities Lending Fund (TALF) at $100 billion. The GAO report did, however, include a separate “projected use of funds” scenario that used the reduced amounts — $218 billion for CPP and $55 billion for TALF. Under this scenario, the program retains $109.6 billion.
The accounting shuffle has given rise to the fear that TARP funds are running low and, combined with a TARP oversight report that urged the replacement of "failed management" and the liquidation of assets at financially unsound banks, has added to an industry-wide flight from government aid as a stigmata and sign of weakness.
On March 31, five firms repaid a combined $353 million to the Treasury through stock repurchases. Morgantown, W.V.-based Centra Bank, a private firm, returned its $15 million; New York, N.Y.-based Signature Bank (SBNY: 58.39 +0.37%) returned its $120 million; Evansville, Ind.-based Old National Bancorp (ONB: 12.09 +0.75%) returned its $100 million; Novato, Calif.-based Bank of Marin Bancorp (BMRC: 39.05 +0.44%) retuned $28 million; and Lafayette, La.-based Iberiabank Corp. (IBKC: 52.54 -0.11%) repurchased all of the Treasury's $90 million in stocks.
Many banks and financial institutions have said they intend to repay TARP funds as quickly as possible, with some professing they will not participate at all. Genworth Financial (GNW: 7.83 +0.38%) was the latest firm to announce it will not participate, though in Genworth's case it was the result of an application deadline that will not be renewed. The company announced Thursday that its application to the Office of Thrift Supervision to become a savings and loan holding company — in order to acquire Maple Grove, Minn-based InterBank fsb. as well as participate in the CPP — was not approved in time for the deadline already set by the agencies.
"Since Genworth's initial CPP application in November, we have made significant progress enhancing our capital levels and flexibility using various strategies including reinsurance, refinements in targeted markets, dividend reductions, risk mitigation and expense streamlining," CEO Michael Fraizer said in a media statement. He also mentioned that the nature of the CPP "has continued to evolve" since the application.
In other words: It's no longer the program we applied for, and we're just fine without it, thank you very much.
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 U.S. economy is on track to emerge from recession in the second half of 2009 as consumer spending and the housing sector make a come-back, according to a Blue Chip Economic Indicators Survey released Friday.
The survey of private economists showed that 86 percent of respondents believed the economic downturn would be declared as over in the second half of the year, according to a report by Reuters. However, the survey also predicted a continued rise in unemployment lasting well into 2010.
Chairman of the Federal Reserve Ben Bernanke sounded a similar tune in March, saying the U.S. will emerge from its still-deepening recession "probably this year," but he too cautioned that the nation's unemployment rate will continue to climb.
Improvements in consumer spending, business inventories and exports, and housing are expected to drive the economy's improvement. According to the Blue Chip survey, consumer spending — which accounts for a large majority of economic activity — will be supported by tax cuts from the government's $787 billion stimulus package, the extension of unemployment benefits and lower inflation.
The nation's Real GDP is expected to shrink even further in the second quarter of 2009 — albeit more slowly — before "turning very modestly higher in the third and fourth quarters," according to the survey, as reported by Reuters. Yet, above-trend growth is not expected until the second half of 2010.
Economists at The Conference Board seem to agree. "The behavior of the Conference Board's composite economic indexes suggests that the economic recession that began in 2007 will continue in the near term," the Board said in late March. And "a return to strong growth will not likely occur until 2010," said Ken Goldstein, an economist with the group.
Unemployment is still plunging. Participants in the Blue Chip survey predict the unemployment rate will not hit its peak until the second half of next year. The survey forecast the unemployment rate topping off at 9.8 percent.
The survey of 52 economists conducted between April 1-2 predicted that real gross domestic product would contract by 2.6 percent this year on a year-over-year basis, marking the largest annual GDP contraction in post-war era.
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 U.S. Federal Reserve has told Goldman Sachs Group Inc. (GS: 111.77 +2.96%), Citigroup Inc. (C: 30.87 +1.61%) and other major banks not to talk about the results — or even the process — tied to ongoing "stress tests" at U.S. banks, Bloomberg News reported Friday morning. Federal examiners have been busy crunching numbers at key U.S. banks to determine the ability of each to withstand a lengthy U.S. recession, the results of which are anxiously being awaited by investors.
Bloomberg's coverage cites numerous analysts as agreeing with the move, including FBR Capital Markets analyst Paul Miller. “If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” he told the news service.
But others are concerned about an apparent lack of transparency in conducting and managing the results of the tests; a claim that dogged much of the Henry Paulson-led Treasury. Current Treasury secretary Timothy Geithner has said the results of the stress tests will determine government strategy in clearing off distressed assets from banks' balance sheets; firms deemed to need more capital would have six months to raise it privately, or find the government stepping in via TARP funds to make up the difference.
Analyst Dick Bove from Rochdale Securities called the tests "a lose, lose, lose proposition" in a research note earlier this week, suggesting that "no good can come from it." And he argued that stress-testing is already being done at banks by the Federal Deposit Insurance Corp., using well-known standards for assessing a bank's health (or lack thereof). See a summary of Bove's position over at the NY Times.
The UK-based daily Telegraph, oddly enough, suggested Thursday that all 19 major U.S. banks have passed the "stress tests," but said that some banks are in weaker capital positions than others according to the results. The paper did not cite where it had obtained the information from.
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.
For weeks, I've been getting emails from readers about this survey released by the consumer group ACORN about a month ago. A refresher on the finer points of the survey:
In the first effort of its kind, ACORN (Association of Community Organizations for Reform Now) surveyed all major mortgage servicing companies in the nation, and has found that at least 76% of outstanding mortgage loans are serviced by companies who have committed to implementing the Obama plan.
I've received all sort of emails saying that we needed to cover this item here at HousingWire, either as good news, or to call ACORN to the mat on some sort of BS. We didn't cover this "news" for one very simple reason: the study is meaningless and says nothing.
It's not hard to find out who manages 76 percent of the nation's outstanding mortgage loans, folks. Four banks: Bank of America, Wells Fargo, JP Morgan Chase & Co., Goldman Sachs. Add ResCap/GMAC into that list, and you're roughly at 76 percent. Some sluething by the folks over there at ACORN, right?
More importantly, all five of those firms received TARP funding from the government. Meaning that they don't have a choice as to whether they will participate; participation is compulsory for such institutions. What ACORN didn't ask was whether any of the firms being forced to participate think the program will actually work. That's the money question, and it's why we didn't cover the ACORN study as news. Because it isn't news. It's just poorly informed research.
ACORN may not have asked the right questions, but in an upcoming exclusive interview with Bank of America mortgage chief Barbara Desoer, HW did. If you don't subscribe to our monthly print magazine, you're missing out — click here to subscribe today.
(Update 1: removed incorrect reference to Calif. Attorney General; AG Brown has prosecuted a number of foreclosure aid scams)
In the wake of a much-covered federal announcement designed to bring attention to a growing number of foreclosure assistance scams, state Attorney Generals and other state-level regulators are pressing back against firms they say are designed to profit from consumer misery.
In Indiana, state Attorney General Greg Zoeller has filed lawsuits against five foreclosure consultant companies that allegedly scammed consumers with similar false promises. "We recognize there is a foreclosure crisis in the country," Zoeller said in a statement. "Indiana has the tools in place that can help consumers avoid becoming victims of for-profit foreclosure consultants' bad intentions. Free mortgage counseling resources are available to Hoosiers that should be explored before paying a foreclosure consultant."
The lawsuits filed in Indiana this week claim violations of three laws — the Deceptive Consumer Sales Act, Credit Services Organizations Act and Mortgage Rescue Protection Fraud Act. The companies that were named as defendants are based in California, Arizona and Florida.
Noteably, one of the lawsuits in Indiana was filed against Carlsbad, Calif.-based You Walk Away, LLC. The firm has received extensive press coverage for its efforts to "help" borrowers walk away from their mortgage and default when they owe more on their debt than their home is worth.
Massachusetts Attorney General Martha Coakley’s office earlier this week also filed a lawsuit and obtained a temporary restraining order against four defendants for their alleged involvement in such a scam. The complaint alleges that Loan Modification Group Corp. and Mitigation, LLC, as well as principals in the two companies, "sought to capitalize on the foreclosure crisis and prey upon Massachusetts residents facing the loss of their homes."
The firms allegedly aggressively marketed their services to consumers via telephone and email solicitations, and represented themselves as law firms when they were not law firms — with one company allegedly going so far as to claim they were "one of fourteen law firms recruited by the government" for loss mitigation initiatives. The firm regularly directed consumers to cease paying their mortgages, and collected up front fees of $2,000 or more, Coakley's office said in a press statement.
Last month, Coakley's office obtained a temporary restraining order against Express Modifications, Inc., d/b/a “Loan Mods By Lawyers, Inc.,” which ran prominent advertisements in a local Massachusetts newspaper offering to help homeowners avoid foreclosure. In that case, the company not only solicited illegal advance fees, the AG's office said, but there was no evidence that the company actually had any attorneys assisting consumers with loan modifications.
Many loan modification/foreclosure aid firms are based in California, given the housing problems now being seen in the state. The Calif. Department of Real Estate has been busy issuing "desist and refrain" orders to firms it says are scamming consumers. The latest such order came in early April, involving Fair Oaks, Calif.-based 2nd Chance Negotiations, Inc., ordering the company to stop performing loan modification services.
“While the current market has created some wonderful opportunities for those looking to buy, it has also fostered an environment ripe for abuse.” DRE commissioner Jeff Davis said. “With so many folks struggling to stay in their homes, foreclosure rescue scams have risen dramatically. The department is aggressively pursuing individuals and companies trying to cash in on Californians in their time of need.”
Write to Paul Jackson at paul.jackson@housingwire.com.
The Federal Reserve Bank of New York said late Thursday it had purchased another $74.7 billion in agency mortgage-backed securities this week from government-sponsored entities Freddie Mac (FRE: 0.00 N/A), Fannie Mae (FNM: 0.00 N/A) and Ginnie Mae. For the week ending April 8, the Fed purchased, net of $44.28 billion in coupon sales, $30.4 billion in agency MBS, slowed from last week’s almost $33 billion in net purchases.
The Fed bought $21.2 billion from Freddie’s books, $52.65 billion from Fannie and $850 million off Ginnie’s books this week. Thirty-year 4.5 percent coupons were the most popular item purchased at $21.6 billion from all agencies. Meanwhile, the Fed also sold $15.4 billion of 30-year 5.5 percent coupons. Thirty-year 5s came in second in terms of sales, at $13 billion. For the second week, the Fed listed “settlement month” data for both purchases and sales, indicating when its balance sheet will be affected by the final settlement of the transactions.
See a detailed table of the current week’s purchases and sales.
The Fed’s assets rose by almost $21 billion the same week ending April 8 after last week's slip, according to a balance sheet summary released Thursday. The data show the Fed’s consolidated balance sheet rose to a value of $2.07 trillion for the week, from $2.049 trillion the week before, and is up $1.2 trillion from the year-ago week ended April 9, 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. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
There is only one rule of legislation, and that is the rule of unintended consequences. The latest case in point comes courtesy of an $8,000 first time home buyer tax credit, passed as part of the American Recovery and Reinvestment Act of 2009; the credit is designed to stimulate sagging demand for homes, particularly among new home builders.
But one firm now says it has figured out a way to turn the post-closing tax credit into a pre-closing down payment — a move that should raise at least some eyebrows among anyone concerned about a growing number of homeowners that are finding themselves over-leveraged into a mortgage. An Alpharetta, Ga.-based firm, Metro Buyers Group, LLC, said Friday it will begin purchasing the tax credit from borrowers prior to closing, giving a check for the full $8,000 to any borrower that qualifies; the firm says the program is designed to help many would-be borrowers that wouldn't otherwise have the money needed to make a down payment on a new mortgage.
The program is already available through several mortgage lenders throughout the Southeast, the company said. "This program will have an immediate positive impact for builders," said Doug Cotter, past president of the Greater Atlanta Association of Home Builders.
"This is a legitimate monetizing program that actually works," said David Abrahamson, vice president of S.E. operations for American Home Key Mortgage Company, one firm participating in the tax credit purchase program.
Legitimate, perhaps — if only because legislators never envisioned that someone would set up a firm for the sole purpose to trade in tax credits. And its unclear exactly how the firm's tax credit-into-cash program works. But whether the program "works" is likely in the eye of the beholder; originators clearly will think it works for them, because it delivers more borrowers to the closing table that wouldn't otherwise be able to get there. But, as we've found out throughout this mess, originators are often notoriously short-sighted when it comes to managing credit risk (a joke from a colleague says that most loan officers only know three words: accept, deny, refer).
"The program essentially seems to take money from the government and allows borrowers to use that as free money as leverage into a home," said one bank risk officer that spoke with HousingWire, who said she wasn't quite sure how the program would operate. "It looks sort of like seller-paid down-payment assistance, but this time the funds are coming courtesy of Uncle Sam." She also said it would likely be hard for an originating bank to identify loans where this trade had taken place, if the loans were being originated via third party channels.
The National Association of Home Builders has been marketing the credit to consumers heavily since its introduction, and recently said that during Feb. and March, 1.5 million consumers visited a website developed by the organization to explain the tax credit, which expires at the end of November.
For more information on the program, visit http://www.metrobuyersgroup.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
Wells Fargo & Co. (WFC: 29.60 +1.89%) managed to bring some holiday cheer into financial markets Thursday, just ahead of the Easter holiday, with its pronouncement that it expects to post a record quarterly net income of $3 billion — or 55 cents per share — when it officially reports Q1 2009 earnings later this month. But more than a few voices are already questioning the results, warning that this quarter's big gain is more likely to be a flash in the pan than a market turning point.
In particular, Wells Fargo reported that they will absorb just $3.3 billion in charge-offs on bad loans for the quarter, and just $4.6 billion in loss provision expense; both numbers are well below most analyst estimates, and are the primary reason Wells will report earnings trumping earlier Street estimates.
"The shocker was that they only had only $3.3 billion [in] charge offs," said Whitney Tilson of hedge fund manager T2 Partners, in a CNBC interview Thursday afternoon. "It's weird, because in Q4 Wachovia and Wells Fargo together had $6.1 billion in charge-offs, and then in a quarter in which things were terrible, those charge offs fell by 50 percent … They're going to have a lot of losses over the next couple of years, [and] anyone baselining at $3.3 billion in charge offs per quarter is crazy."
Know what else is weird? That Tilson is still long Wells Fargo, after hearing all of that.
CNBC's Fast Money crew was quick to gloat over the positive results for WFC on air Thursday, however, poking fun at FBR Capital Markets analyst Paul Miller, who had recently been a guest and recommended shorting Wells Fargo stock over the bank's exposure to souring loans. "He [Miller] wasn't wrong, he was 27 percent early," cracked Jeff Macke of Minyanville.com and a regular Fast Money panelist, referring to the bounce in WFC's shares in Wednesday trading.
Of course, one day of trading does not a trend make.
"We believe that credit quality materially deteriorated in the first quarter, and that Wells Fargo is under-reserving for expected future losses," FBR's Miller wrote in a Wednesday research brief. "We reiterate our Underperform rating."
More questions from Miller: "[W]e remain cautious based on what we don't know. Most importantly, what happened to nonperforming loans and what would have been net charge-offs excluding purchase accounting adjustments? What are the trends in WFC's Option ARM portfolio? Did the company write up the MSR and what was the new capitalized cost of servicing? Was there any benefit from an increase in level 3 assets given recent accounting guidance?"
If the Fast Money crew had any desire to do basic analysis before running their collective mouths, they might have been able to pull up this chart — which should speak volumes about the value of skepticism here:
This shows the ratio of loan loss reserves/total loans at the four major U.S. banks still standing. Wells Fargo is in white. Notice anything? You know, like which bank is comparatively weakest on reserving activity against its loan book?
This chart doesn't include updated Q1 numbers for Wells, as the bank did not provide an updated loan total on Wednesday — meaning it doesn't include Wachovia. Historically, Wells has justified its lower reserves by maintaining a comparatively higher-quality loan book; can the same argument really be made now? With Wachovia's option ARMs lurking? Because there's an ugly truth about credit costs: they come home to roost eventually, irrespective of any games played with loss reserves in the interim.
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.
HOPE NOW, the private sector alliance of mortgage servicers, non-profit counselors, and investors, on Wednesday announced a new campaign targeting homeowners "at serious risk" of foreclosure. The campaign — called "Reach Out" — will pair at-risk borrowers with U.S. Department of Housing and Urban Development-certified counseling agencies to "determine options that will best serve their needs."
“Reach Out," a targeted state-by-state initiative, will begin with a preliminary phase aimed specifically at Wisconsin homeowners who are 90 or more days delinquent. HOPE NOW, partnering with the Wisconsin Housing and Economic Development Authority and 11 HOPE NOW member servicers, is mailing outreach materials to homeowners urging them to take advantage of the local, "HUD-certified, free, legitimate" counseling firms. So far, the campaign has contacted at least 900 borrowers via these campaign mailers, the alliance said in a press statement.
“HOPE NOW wants to make sure that homeowners are aware of the legitimate housing counseling services available to them in their community,” executive director Faith Schwartz said. “Qualified, professional assistance is available at no cost to the homeowner and we want to be sure everyone who needs it actually gets it.”
HOPE NOW said it plans to expand "Reach Out" to other states with the highest percentages of 90-plus-day-delinquencies, including New Jersey, Texas, South Carolina and Florida.
But will it stick?
Past studies have shown that outreach programs on the part of servicers and lenders almost always result in some portion of borrowers that never return inquiries, cannot be reached at all, or even refuse help. As for those mortgages that are actually modified, studies show an alarming trend of near 50-percent-recidivism — or re-default rate.
The Office of the Comptroller of the Currency and the Office of Thrift Supervision announced in their most recent joint quarterly mortgage performance report that 41 percent of loans modified in the second quarter had fallen at least 60 days behind payments after eight months. The specific reasons for re-default were not clear, the report said, but a separate trend in the data indicates the degree to which a mortgage is modified — or how much monthly payments are reduced — may have some bearing on affordability and, consequentially, a borrower's ability to remain out of default.
“Overall for 2008, about 42 percent of modified loans resulted in reduced payments, 27 percent in unchanged payments, and 32 percent in increased payments,” the agencies reported. “The proportion that reduced payments increased significantly in the fourth quarter, to more than 50 percent of all modifications.”
Re-default rates among modifications that actually lowered monthly payments “were consistently lower,” according to the report. About 23 percent of modifications that eased payments by more than 10 percent re-defaulted six months later, compared with the 51 percent of unchanged modifications that re-defaulted after six months. Some 46 percent of modifications that led to an increased payment had re-defaulted six months later.
Write to Diana Golobay at diana.golobay@housingwire.com.
Bank of America Corp. (BAC: 7.29 -0.14%) announced Thursday that it has started processing its first wave of mortgage refinance applications under the Administration's new "Making Home Affordable" program, which provides refinance opportunities to homeowners who previously could not qualify.
"[T]his program has generated significant interest from borrowers seeking the benefit of lower mortgage payments," said Barbara Desoer, president of Bank of America Mortgage, Home Equity and Insurance Services. "In just one month since announcing this program, nearly 200,000 homeowners have contacted us to determine their eligibility for refinancing."
The U.S. Treasury plan allows homeowners with loans owned by Fannie Mae (FNM: 0.00 N/A) or Freddie Mac (FRE: 0.00 N/A), who are current with their mortgage payments and whose home value is no more than 105 percent of the current mortgage balance, the opportunity to refinance their loans. The program's guidelines are designed to provide increased flexibility, such as expanded guidelines for high loan-to-value loans, no mortgage insurance requirement for loans not previously carrying insurance and no required minimum credit score.
Under the Treasury's plan, anywhere from 7 to 9 million homeowners could refinance into lower mortgage rates, President Barack Obama said before a White House housing finance roundtable early Thursday. With mortgage rates hovering at historic lows and borrowers facing potential yearly savings of about $2,000, there have already been "extraordinary jumps" seen in refinance activity, Obama said, according to various MarketWatch bulletins.
In its first wave of refinances, Bank of America will be able to serve the majority of eligible customers – homeowners whose mortgages are serviced by Bank of America or Countrywide and who do not have mortgage insurance on their current loans. Additional borrowers will be included as systems become operational, the company said in a press release.
Bank of America also said it's in the process of implementing the Treasury Department's "Home Affordable Modification" program for Bank of America and Countrywide customers. In the next two weeks, the company expects to begin offering trial modifications under the plan. Bank of America has extended its voluntary moratorium on the foreclosure of loans that may be eligible for the "Home Affordable Modification" program until April 30, 2009.
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.
