Archive for April, 2009
Wells Fargo & Co. (WFC: 29.60 +1.89%) is said to be in discussions to launch a warehouse lending unit that may provide billions of dollars in funding to independent mortgage bankers, Bloomberg reported last week. Wells is already telling lenders the program might provide up to $4 billion in warehouse credit, sources told Bloomberg.
The announcement comes as smaller, independent lenders are finding their warehouse lines shrinking — or disappearing altogether — as more and more borrowers flock to the promise of lower mortgage rates. 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 than usual 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.
The Mortgage Bankers Association recently said that it had increased its forecast of mortgage originations in 2009 by over $800 billion, due to a refinancing boom as mortgage rates have headed below the 5 percent mark in some cases. The MBA said it now expects originations to total $2.78 trillion. Jay Brinkmann, MBA's chief economist and senior vice president of research and economics, said the revised forecast could “test the operational capacity of a number of mortgage banking firms,” citing the reduced availability of warehouse lines as a chief concern.
In response to a growing dearth of funding for non-depository mortgage lenders, the MBA in late March sent a letter to key regulators asking for changes in risk-based capital weightings tied to various warehouse lines of credit. Calling the decrease in warehouse credit availability for lenders a “signficant, yet avoidable, bottleneck”, MBA president John Courson suggested that regulators look at easing capital requirements tied to warehouse lines of credit. Doing so, according to the MBA, would make it easier for banks to extend warehouse lines to independent, non-depository mortgage bankers; it would also remove an impetus many banks currently have for reeling in existing warehouse lines, as well.
JP Morgan Chase & Co. (JPM: 37.21 -0.75%) was the most recent in an alarming trend of lenders scaling back on their warehouse operations, announcing in late February it would close the warehouse lending division it bought from Washington Mutual, saying it "didn't fit our long-term strategy."
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.
Remarks delivered yesterday by Goldman Sachs (GS: 111.77 +2.96%) CEO Lloyd Blankenfein don't quite get into the mea culpa territory, but clearly get the closest any major Wall Street executive has come to saying "I'm sorry." Speaking at the Council of Institutional Investors' spring meeting in Washington, Blankenfein covered a litany of financial market sins behind the current crisis, and suggested that executive compensation plans should change to better incentivize risk management going forward.
"Compensation should reflect an individual's ability to identify and create value, including his or her contribution to the client franchise, enhancing the firm's reputation and contributing to the better functioning and efficiency of markets," he argued. "Equally important, compensation should take into account strict adherence to a firm's management and controls, especially with respect to a person's judgment and exercising that judgment in terms of risk in all of its forms."
Saying that "much of the past year has been deeply humbling for my industry," Blankenfein said that many investment and other bankers had made decisions that appeared "self-serving and greedy." A large part of those decisions lay in the mortgage finance industry, much of which has been laid to waste in the past 18 months amid a historic industry downturn.
"Enormous excess liquidity, strong global economic growth, and low real-interest rates created a desire to find new investment opportunities. Many of the best were thought to be in the housing market," said Blankenfein.
"First, governments, particularly the U.S., explicitly supported homeownership through a variety of government programs and initiatives. Second, mortgage assets were considered relatively impervious to sharp downturns. And lastly, the creation of more flexible and varied mortgage products attracted even more capital in search of higher returns."
I'm not too sure I agree with Blankenfein on the first count, as the market for private capital pretty much dug its own grave around mortgage banking with very little assistance from the government. Nonetheless, Blankenfein's assesment that the industry as a whole suffered from what he called "a systemic lack of skepticism" rings very true.
Mark to market is not the problem
Blankenfein's take on the mark-to-market and asset impairment debate is equally telling here, as the Goldman CEO suggested the problem isn't the accounting method used, it was in the assumption used to value the "assets" now in quesiton.
"I've heard some argue that fair value accounting — which assigns current values to financial assets and liabilities — is one of the major reasons for exacerbating the credit crisis. I see it differently," he said. "If more institutions had properly valued their positions and commitments at the outset, they would have been in a much better position to reduce their exposures.
"For Goldman Sachs, the daily marking of positions to current market prices was a key contributor to our decision to reduce risk relatively early in markets and in positions that were deteriorating. This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions. We mark-to-market, not because we are required to, but because we wouldn't know how to assess or manage risk if market prices were not reflected on our books."
Put that in your pipe and smoke it, M2M critics.
The full text of Blankenfein's remarks is available here.
Mortgage Cadence, Inc., a provider of origination technology for the mortgage industry, said Wednesday that it had integrated its enterprise lending platform, called Orchestrator, with DataVerify’s DRIVE platform. The combined solution provides Mortgage Cadence customers with a set of tools to combat fraud and streamline verifications, the company said in a press statement.
“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. "The reports and scores that are returned 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.”
In addition, DataVerify provides a proprietary collateral risk assessment model that evaluates market and subject property characteristics to determine the overall collateral risk, the companies said. This assessment provides public and non-public data analysis of foreclosure activity, flip activity, subject transfer history, geographic conditions, and market sale.
Chief information office at DataVerify, Mike Moseler, said that the combined solution leverages native rules engines both within the Mortgage Cadence platform and DataVerify to automate fraud detection. Fraud management and compliance issues have been at the forefront of most lenders' radar screens this year, as originators look to minimize buyback risks for their businesses.
For more information, visit http://www.mortgagecadence.com and http://www.dataverify.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
Raw mortgage application volume rose a seasonally adjusted 4.7 percent in the week ending April 3, according to a weekly survey released Wednesday by Mortgage Bankers Association. The four-week moving index for raw application volume rose 13.3 percent after the previous week's 16 percent increase, indicating overall interest — although still strong — may be cooling off slightly after the Federal Reserve's mid-March announcement it would fund an additional $1.5 trillion to credit-unlocking efforts, which began pushing down mortgage rates and driving up applications.
Refinance application volume rose 3.2 percent for the week, while the four-week moving average was up 16 percent, suggesting some seasonal strength in refinance interest. The refinance share of mortgage application activity fell slightly to 77.9 percent of total applications, from 79.1 percent the week before, according to the MBA's data. The index measuring purchase application volume rose 11.1 percent, with conventional purchase application volume up 7.7 percent and government purchase application volume — think FHA loans, here — up 17.1 percent for the week, according to the MBA. These new data show a jump from last week, when total purchase applications inched up 0.1 percent.
The shift of some interest away from refinance and toward purchase applications may have something to do with mortgage rates easing upward in the same week. The MBA found 30-year fixed mortgage rates rose to an average 4.73 percent from 4.61 a week earlier, while 15-year fixed mortgage rates rose to an average 4.49 from 4.45 percent the week before. With slightly higher rates this week, borrowers looking to purchase homes may have been quicker to apply than those trying to refinance into low interest rates.
A separate survey conducted by Mortgage Maxx LLC found that application activity adjusted for multiple applications from a single household rose 5.5 percent for the same week ending April 3. Household activity in California alone rose 9.7 percent, the study found. The Mortgage Application Index — or MAX — publisher Paul Descloux, in his weekly commentary on the index, warned recent refi popularity may not translate into actual closed refi loans — and that even those may have at best a marginal effect on monthly payments after various fees and other expenses.
"Mortgage applications continue to ramp up as the Fed piles into the MBS market pulling rates ever further into four percent territory," Descloux wrote. "However the MAX which in the past would have shown a response greater by a factor of two tells the story of this tattered economy. The expected increases in mortgage activity are appearing, but diminishing returns for the Fed’s quantitative easing may only provide a quantum of solace."
Visit www.mbaa.org and www.mortgagemaxx.us for further details.
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 recent boom in mortgage refinances has been a pleasant surprise for Cranbury, N.J.-based Visionet Systems Inc., the company said Wednesday morning. The company, which provides business process outsourcing and consulting services to the mortgage industry, said its business doubled in the first quarter of 2009.
The company's business increase was mostly in three areas: title processing, loan modifications, and forensic analysis. As the mortgage industry has severally curtailed its employment ranks over the last two years, Visionet's title search volume clocked in at 10,000 searches in March, and is continuing to grow, according to company officials.
"The Visionet team is in a perfect position to help companies benefit from the boom with no investment in technology or mortgage savvy resource," said Visionet president Arshad Masood. "They don't need to scale up or down — we will do it for them."
BPO providers — that's business process outsourcing, not broker price opinions — have been licking their chops as of late as the MBA dramatically revised its forecast for 2009 origination volumes, primarily due to a surge of refinancing activity. Executives in the space say that they see a number of new players that lack the capacity and technology to manage a steep growth curve, creating opportunity for outsourcing specialists to provide value.
Write to Paul Jackson at paul.jackson@housingwire.com.
Pulte Homes Inc. (PHM: 7.79 -0.13%) said Wednesday it would acquire Centex Corp. (CTX: 0.00 N/A) Wednesday in a stock-for-stock deal valued at $1.3 billion that will create the nation's largest homebuilding company. The merger comes as many of the nation's home builders are struggling amid a recession and steep price correction in the nation's most populous housing markets.
The $1.3 billion deal includes $1.8 billion in debt, the companies said in a press statement. Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own, under the merger terms; that places the value of Centex shares at $10.50, well above their $7.62 closing price Tuesday. The combined company currently would have an equity market capitalization of $4.1 billion, and an enterprise value of $7.2 billion.
The merger clearly is an effort by both builders to weather a historic downturn in the new home building market, with Pulte president and CEO Richard Dugas, Jr. saying that the merger "puts us in an excellent position to navigate through the current housing downturn, poised to accelerate our return to profitability."
Centex CEO Timothy Eller sounded downright bullish. "By acting decisively now, we're creating unrivaled firepower to capitalize on the opportunities in homebuilding that are now becoming visible on the horizon," he said in a press statement.
The company called the deal a merger, but it's really an acquisition; the all-stock deal will leave Pulte stockholders with roughly 68 percent of the combined business. and Centex shareholders will own the remaining 32 percent. The combined business will operate under the Pulte name, as well. with Dugas retaining the rains as chief executive; Centex's Eller will join the board and "will serve as a consultant to the company for two years following the close of the transaction," the companies said.
It's unclear what the merger means for many of Centex's local work forces, particularly in Texas, where the builder has a strong local presence; the companies said only that they plan "to maintain a significant presence in Dallas," but offered no further details.
Write to Paul Jackson at paul.jackson@housingwire.com.
The U.S. Treasury Department on Monday released updated guidelines on the public-private investment plan (PPIP), two weeks after first announcing the program in late March. "To better accommodate increased participation," the Treasury said it had extended the application deadline to end-of-day April 24, with applicants being informed of preliminary qualification by May 15. The Treasury assured that the criteria will be viewed "holistically," meaning a proposal will not be thrown out if it doesn't meet all the criteria of the program.
The theme of the Treasury's press release, buried by the morning hype over the multi-agency crack-down on foreclosure rescue scams, was: expansion, expansion, expansion. The Treasury emphasized the potential for more proposal approvals, more business participation and more fund manager participation. The Treasury said it may select more than the original goal of five asset managers to invest along with the government's public funds. The Treasury also said firms with less than $10 billion in managed assets may qualify.
The Treasury encouraged small, minority-, veteran- and women-owned businesses to participate by partnering with fund managers as asset managers, equity partners or fund-raising partners. "Other ways to participate include providing such services as trade execution, valuation, and other important financial services," Treasury officials said in the media statement. Treasury said it "will consider opening the program to fund managers that are not selected in the initial pre-qualification process," reiterating the program's potential for expansion. The Treasury also indicated the "legacy securities" program, although currently limited to non-agency CBS and RMBS, could be expanded "at a later date to include other asset classes."
Anyone out there?
All the expansion efforts, however, may prove to be a moot point if interest so far has been low enough for the Treasury to seek "increased participation" by revamping the program's guidelines. HousingWire's Linda Lowell wrote expansively on the PPIP and the way potential bank participation has been "vastly overestimated" due to issues raised on the investor side. As Lowell put it:
"…as the program is currently described, the banks would continue to service the loans they have sold. I just don’t get what investor -– aside from Fannie or Freddie, who can securitize loan purchases –- would want to buy a loan without the servicing. If there is money to be made in distressed loans, it requires properly servicing them…. I wouldn’t buy a loan from a distressed seller and trust the loan would be properly serviced. So why would an investor with the size, experience and ability to raise capital required by the program guidelines be more willing to do that?"
The world’s largest hedge fund manager, Bridgewater Associates, seems to have already made the decision not to participate in the plan. The $71 billion money-management firm reversed course last week, after earlier indicating it had planned to participate, according to a report in the New York Post. Bridgewater founder Ray Dalio blasted the program — at least the securities side of the program — as both a conflict of interest and one that offers very little leverage.
“The managers are clearly in a conflict-of-interest position because they have both the government and the investors to please and because they will get their fees regardless of how these investments turn out,” Dalio is quoted by the Post as writing in his letter.
Write to Diana Golobay at diana.golobay@housingwire.com.
Analyst Meredith Whitney, well-known for her work at Oppenheimer & Co. and now at her own firm, told cable television news outlet CNBC Tuesday morning that she expects home prices to fall another 30 percent — a bearish prediction that, if correct, means that U.S. banks and mortgage lenders may yet have their worst work ahead of them.
"Home prices cannot bottom while liquidity is still contracting from the economy," she told the news outlet, predicting that peak-to-trough home price declines will average 50 percent nationally before the nation's housing crisis is over.
Whitney is known both for her bearish calls, and thus far, for being largely correct. Which makes her predictions worth paying attention to. But despite her thoughts on the near-term future of U.S. housing, she was surprisingly more upbeat than expected about the banking sector, saying that she expects banks to post flat to slightly positive earnings for the first quarter.
"I think you’ll see a directional turn," she told CNBC. "Banks will make a little money, as little as a penny a share, but they won’t lose money."
Whitney's remarks were surprisingly less bearish than comments Monday from another well-known analyst, Michael Mayo, a former Deutsche Bank analyst who now works for CLSA's Calyon Securities. Mayo went biblical on the banking sector in a research note, predicting that loan losses in the sector will likely exceed Great Depression-era levels. The research helped send financial stocks lower Monday, and they were little changed from that direction in early trading Tuesday. See earlier story.
Watch the entire interview below.
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.
As though the $8,000 non-repayable first-time home buyer tax credit recently passed as part of the national stimulus weren't enough of an incentive to become a homeowner, certain industry groups are now supplementing the up-front tax credit with an incentive of their own on the back end of the mortgage process. In the event of sudden job loss due to unexpected layoffs, some qualified first-time home buyers are now being guaranteed up to six months of mortgage payment assistance to stay in their homes and avoid foreclosure.
But the question remains whether these programs will have the desired effect of encouraging home ownership, and just what impact they will eventually have on retaining home ownership for borrowers that lose their jobs or health and are unable to make payments for longer than six months.
The California Association of Realtors (CAR) announced late last week it would offer a new "mortgage protection program" that promises qualified first-time home buyers — buyers that have not bought a home in the last three years — the guarantee of up to $1,500 per month for six months in the event of job loss due to layoffs. The CAR program is applies to first-time home buyers that close on or before Dec. 31, 2009, purchase a home in California, are considered a W-2 employee but not self-employed and use a California Realtor in the process.
CAR said it would provide buyers with up to $1,500 per month for six months, and co-buyers with up to $750 per month for up to six months, in the case of layoffs. The program also includes benefits for accidental disability as well as a $10,000 death benefit, CAR said.
A separate localized effort, announced Monday by North Carolina-based Brookside Homes, will pay up to $1,000 per month for six months in the event of job loss due to layoffs. The buyer must have occupied the home for at least 60 days before the job loss and have been continuously employed 12 consecutive months before settlement. Brookside also said in the event of a spouse's job loss, it would pay for the share of income the spouse earned (if a homebuyer's wife made 60 percent of the combined income before being laid off, Brookside will pay $600 per month).
The catch? Under Brookside's program, only homes purchased in a specific community, Leland, N.C.-based Ashton Place, will qualify for the program. The community boasts seven floor plans; the three- to four-bedroom homes range from $184,500 to $209,500 with an average 1,600 square feet. The community's Web site and builder media statement encourage the use of the $8,000 first-time home buyer credit as an incentive to purchase in the community under the mortgage payment guarantee program.
"These payments will be covered by the community's developer," officials said at Ashton Place's Web site. "Their bets are on the improving economy and the resilience of all Americans. The difficult times will be short lived, and you have an opportunity to buy when the most value is available and the best interest rates."
According to statements made by Brookside owner Page Robertson in the media statement about the program, jobless rates in the qualifying area are "now over 10 percent." If that's not a risky enough bet for any home buyer considering relocating just to take advantage of the program, there's always the issue that finding another job within six months of being laid off is not part of the guarantee.
Oh, and did we mention the Brookside program only applies to 25 buyers? You read that correctly: two dozen, plus one. And that's not even the first 25 buyers to be laid off within the Ashton Place community. That's just the first 25 people to buy within the community that will be guaranteed under the program.
These and similar guarantee programs in the face of rising joblessness may have the desired effect of soothing consumer fears and coaxing buyers onto the market and into homes in some local areas. They may work as intended and provide a backstop against delinquency, default and foreclosure in the case of extended joblessness. Or they may provide only temporary relief for borrowers that find themselves locked out of job markets that continue to dry up.
With the promise of "We'll pay your mortgage if you lose your job," indeed, few prospective home buyers may be able to resist. Hooked in also by mortgage rates that continue to linger at historic lows and an $8,000 non-repayable tax credit, borrowers may come flocking to California Realtors and North Carolina communities. Once on the line for mortgage payments, however, the issues of job scarcity, of payment non-affordability and home prices that continue to sink don't disappear, even if part of the monthly payment is guaranteed temporarily by mortgage assistance guarantee programs.
Write to Diana Golobay at diana.golobay@housingwire.com.
In its ever-present search to find someone to vilify for the mortgage crisis, the New York Times has found an easy — if unwitting — target in REO agents and brokers at the REOMAC Spring Conference in Palm Desert, Calif. A story that ran Monday in the Times by Eric Lipton paints real estate agents that specialize in selling bank-owned real estate as profiteering from the real estate mess.
Witness Lipton's description of the conference: "The crowd brimmed with a gusto that is hard to find in this recessionary era. The hotel bar did more business on Saturday night than it did on New Year’s Eve. Small wonder: These are the people cashing in on the boom in foreclosed properties."
Let's at least get a few things straight, before we wade any further into the muck Lipton's willfully serving up here: the agents that list and sell bank-owned properties make anywhere from 1 to 1.5 percent in commission per property, not the 6 percent commissions you'll see in traditional retail transactions. (And that's on a good transaction; sometimes the effective commission is far less after accounting for advances.)
Because of the nature of the business they're in, these agents also tend to list and sell properties that are priced well below and in a condition far below anything a traditional retail real estate agent would touch, as well. These aren't usually the agents selling multi-million dollar properties beachside in California, although a few such properties are now coming down the REO pike (and making the agents that get to list these properties ecstatic, even at the lower commission rate). These are the people usually charged with listing and selling beat-up single family homes in hard-hit areas like Detroit and California's Inland Empire.
And to make that money, they have to work harder than any real estate agent most of us know. REO agents don't control the marketing of their properties, nor do they get to control their listings they get, and are often charged with property maintenance tasks (and must put up the cash in advance to cover the cost of such work), and more often than not risk their own personal safety — vacant properties have a way of attracting unsavory sorts — all for the opportunity to earn a meager commission. It's far from a glamorous life, and it's not the sort of work that maps onto the simple listing and resale of properties usually associated with the more traditional retail real estate business.
Not that you will read any of that sort of background in Lipton's story. He's more interested in sitting poolside with a few agents that have come to Palm Springs to relax, network, and blow off some steam — as if that's where he is going to find some sort of hidden evidence into the nation's mortgage mess:
Benny Nassiri, who with a partner handles R.E.O. sales in California, Kansas and Louisiana, was sitting poolside Sunday on a chaise longue in a red-white-and-blue bikini, Dior sunglasses and Bebe sandals, sipping a beer and asking her assistant about the party planned that night.
Extra! Extra! Exclusive story on what a broker is wearing poolside! Real estate crisis revealed! Next thing you know, we'll have to read that an auto executive wore an Italian wool suit to work on Monday, and who the label was. How absolutely scandalous. This isn't insight; it's a poorly-executed witch hunt masked as real journalism, of which the Times seems to be making a habit of publishing lately. It's also amateurish, too, the sort of thing you'd expect to see in a college newspaper.
If the Times is interested in finding villians for the real estate crisis, they might want to stick to covering the parties that made, underwrote and/or otherwise sold the bad loans, and perhaps even some of the banks and servicers responsible for managing these loans; but going after the real estate agents that list and sell properties after the fact? These aren't the people that created the real estate mess, after all. They're the clean up crew, for crying out loud.
REOMAC has held their conference for agents for well over a decade now, and I know the group made its executives available to the Times, since their press folks reach out to me personally all the time (no REOMAC execs were quoted in the Times' coverage).
The New York Times decided that this year was a worthwhile time to crash REOMAC for the first time, and the news daily had a unique opportunity to tell consumers and investors something useful. Maybe about how banks are trying to manage swelling REO inventories, or about the strategies involved in listing and selling REO; maybe even to do a day in the life of an REO agent, to get tidbits on some of the challenges faced in that market, given that it's now such a large part of real estate in general.
Instead, what we got was lifestyle reporting worthy of something in the National Enquirer. We all deserve better than that, and it's a reminder of why I started HousingWire more than two years ago. Even now, the general press still just doesn't get it.
Write to Paul Jackson at paul.jackson@housingwire.com.
