Archive for April, 2009
Of the 19 largest US banks with assets in excess of $100bn, at least six now require additional capital sources told Bloomberg News today. The money will be needed by the banks in order to weather projections of a more severe, longer-lasting recession.
A much higher number of banks with assets under $100bn will need some cash too, according to a financial advisory firm.
Days ahead of the public release of stress test results scheduled for May 4, reports began circulating that Bank of America (BAC: 7.29 -0.14%) and Citigroup (C: 30.87 +1.61%) were among those in need of additional capital and facing three government-offered alternatives: raise private investor funds, receive additional government aid or convert the government’s existing preferred shares into common shares, effectively placing part of the firm in government ownership.
Citigroup proposed several alternatives to effectively increasing government share of the company through a stock conversion. In an attempt to persuade the government of its viability outside of additional government capital, Citi suggested it would either sell business segments or ask investors to convert shares, sources told Financial Times. BofA, meanwhile, continued discussions with regulators to convert government shares, bankers told Financial Times.
Identities of the remaining four banks in need of capital were not public at the time this story went to press.
In addition to the six major banks, 17 of the 30 banks considered "regional" for their less-than-$100bn in assets may also need to raise additional capital or seek more government aid, according to a report published this week by Oppenheimer & Co. Rather than seeking private capital, the regional banks in need could simply convert existing government and private preferred shares to common equity to raise sufficient funds, according to a MarketWatch analysis of the study.
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.
Raw mortgage application activity slid 18.1% in the week ending April 24, according to a weekly survey released Wednesday by the Mortgage Bankers Association (MBA).
The four-week moving average fell 4.9% after remaining up 0.3% the previous week, indicating a sudden drop in seasonal strength of mortgage application activity. The volume of applications for refinance plummeted 21.9% while the four-week moving average of refi activity slipped 5.7%. The refi share of total mortgage applications fell to 75.3% from 79.7% the previous week, according to the MBA survey.
Bank of America (BAC: 7.29 -0.14%) analysts say the low refi index last week followed a decline in origination selling volume, although the overall lack of any significant refi volume spike in April "puzzles" the market. Most market participants say they expected refi volume to pick up after streamlined refinancings became available April 4.
"It appears that the combination of some originators not being ready to accept streamlined refi applications, some mortgage origination channels (like correspondent channels) not being active for the HASP refi program and the extreme sensitivity of borrowers to mortgage rate levels may have limited the mortgage origination/application volume so far this month," says one analyst. "However, it is still not clear to us why the refi index remains as low as it is."
What is clear, the analyst adds, is a low level of refis in April indicates May's prepayment speeds — or the rate of immediate repayments seen in securities when securitized mortgages refinance — are likely to remain much lower than touted when the Administration announced the streamlined refi program.
Purchase applications, on the other hand, eased at a much slower rate than refi apps. The rate of decline in the index measuring purchase applications slowed to 0.6% this week, from 4.2% last week and 11.3% a week earlier. Conventional purchase application volume slipped 1.4% and government purchase application volume — think FHA-insured loan applications, here — ticked up 0.8% for the week, according to the MBA.
A separate survey, conducted by Mortgage Maxx LLC found that application activity adjusted for multiple applications from a single household rose only 0.1% in the week ending April 24 after rising 3% the previous week. Household activity in California alone rose 0.2% after its 6.4% gain the week before, the study found. The Mortgage Application Index — or MAX — publisher Paul Descloux, in his weekly commentary on the index, said the weekly applications remain largely unchanged since last week as "applications may have reached their full potential."
The MAX's virtually static results from the week, combined with the MBA's dive in raw activity, suggests interest by number of households remains unchanged although the number of mortgage applications per household dropped by nearly one-fifth. The data suggest individual household optimism in terms of obtaining a purchase or refinance mortgage fell nearly 20% this week. In other words: An unchanged number of households submitted one-fifth fewer applications this week, even as 30-year and 15-year average fixed mortgage rates slipped to 4.62% and 4.45%, respectively, the MBA found.
"Even with the cheerleading about refinancing and affordability from the media and the [National Association of Realtors], the other side of the equation remains extremely challenged," the MAX's Descloux wrote. "Organic [non-foreclosure] home sales have reached the basest of levels and credit from all angles is problematic. As home prices continue to slide, more and more home owners will slip underwater, eliminating refinancing or sale opportunities as well as ramping up the chance for a [Notice of Default]."
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.
The Securities and Exchange Commission (SEC) today charged two former executives at American Home Mortgage Investment Corporation with accounting fraud.
The charges against the heads of the now-bankrupt former Alt-A lender out of New York stem from their alleged engagement in a pattern of false and misleading claims that concealed financial losses from investors.
The SEC alleges that former chairman and CEO Michael Strauss and former CFO Stephen Hozie fraudulently understated American Home Mortgage Q107 loan loss reserves by tens of millions of dollars, in a way to convert the company’s loss into a fictional profit.
Strauss and Hozie also misled investors about the financial condition of the company, including the riskiness of the mortgages originated and held by American Home Mortgage, the SEC maintains.
American Home Mortgage internal analysis at the time showed the company needed at least $38m in additional reserves.
Furthermore, the analysis also showed that the company’s losses on its delinquent second liens were mounting quickly and that American Home Mortgage would lose at least 72% of the value of these loans after the properties went through foreclosure.
Strauss is settling his charges by paying $2.45m in penalties to the SEC. He can not own or operate another company for five years under the deal, and will neither admit or deny the allegations.
Write to Jacob Gaffney at jacob.gaffney@housingwire.com.
According to research released by the US Department of Commerce Census Bureau, the rates of homeownership is dipping to levels not seen since the second quarter of the year 2000.
The data indicates that gains in ownership obtained during the recent housing boom in the country are now gone.
Currently, 67.3% of Americans own homes, according to the Census Bureau. This number peaked in Q105 at 69.1%.
By comparison, the research found a historic low of 63.6% in the fourth quarter of 1985.
Rates of homeownership are falling comparatively across racial lines since the boom ended. Today, as in 2006, blacks represent fewest mortgage borrowers, with 46.1% of the population currently owning their home. Hispanics followed at 48.6%, with the vague category of “all other races” experiencing a homeownership rate of 57.4%.
74.7% of adult whites own their homes.
Write to Jacob Gaffney at jacob.gaffney@housingwire.com.
The Treasury Department said Monday it expects to borrow $361bn of marketable debt in the quarter ending June 09, up $196bn from the estimate announced in February.
The revised estimate includes $200bn for the Supplementary Financing Program (SFP), which accounts for much of the driving force behind the increase, said the Treasury in a statement. It also will drive the assumed $269bn cash balance for the end of Q309, during which Treasury projects will borrow $515bn of marketable debt.
The department borrowed a total $481bn during Q109, finishing at the end of March with a cash balance of $269bn. The actual borrowed amount in the quarter represents a decrease from the originally estimated $493bn, due to lower receipts offset by lower outlays and adjustments in the cash balance, the Treasury said.
Much of the Treasury's spending in recent months has focused on liquidity and credit market programs that, although aimed to encourage lending and boost investor and consumer confidence, create a side effect of raising the federal budget deficit. The Office of Management and Budget estimates the deficit to rise to $1.75trn — or 12.3% of gross domestic product (GDP) — in the 2009 fiscal year from $459bn — or 3.2% of GDP — in fiscal year 2008, said Office of Macroeconomic Analysis Ralph Monaco.
"The expenditures leading to these deficits represent an investment in near-term economic growth," Monaco said Monday, according to a statement. "Without the programs that these deficits support, the U.S. economy would be in much worse shape, and the conditions to support a recovery would take longer to take hold."
Monaco said the deficit is expected to narrow in subsequent years as the economy strengthens and temporary spending measures expire. Over the longer term, the deficit will average about 3% of GDP and the level of publicly held debt, net of the assets the government has acquired, will be stable at about 60% of GDP and in line with other developed nations.
Write to Diana Golobay at diana.golobay@housingwire.com.
Car dealerships everywhere are blaring the incentive of payment protection plans, offering to cover car payments up to an amount for a certain period of time, should a borrower lose his job.
Oklahoma City-based First Mortgage Company launched a similar initiative Today.
The company said it will pay homeowners' monthly loan payments for up to six months if the homeowner becomes unemployed within the first two years of the loan.
The program, Job Loss Payment Protection, covers payments of up to $1,800 per month, if one of the signers on the loan loses his or her job.
“Home prices are affordable, interest rates are the lowest they’ve been in decades, and first-time buyers get an $8,000 tax credit," says George Akers, executive vice president of First Mortgage Company. Akers says the only reason people may not buy now is fear of losing their jobs — although, most industry insiders say fear of unemployment, albeit an overwhelming concern, is just one cause of hesitation for potential homebuyers in the current economy.
Nonetheless, Job Loss Payment Protection offers a safety net for those whose main drawback to homeownership is the fear of job loss.
The program is available to all new First Mortgage Company customers applying for FHA, VA, and USDA loans. The program covers the monthly loan principal, interest, taxes, and insurance. First Mortgage said it hopes the program serves as a tool for Realtors and builders to help sellers provide added value to their home and buyers feel more secure in their decision to purchase a home.
The company says mortgages with Job Loss Payment Protection are available at all locations in greater Colorado Springs, Colorado; Boise, Idaho; Omaha, Nebraska; Tulsa and Oklahoma City, Oklahoma; Amarillo, Dallas-Fort Worth and Eagle Pass, Texas; and Puyallup, Washington.
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.
Home prices in major metropolitan areas continued to fall in February; however, for the first time in 16 months, the annual decline did not set a new record, possibly suggesting early signs of market stabilization.
The S&P/Case-Shiller 10-City and 20-City Home Price Indices released Tuesday recorded nationwide, annual declines of 18.8% and 18.6%, respectively. This is a slight improvement from the returns reported for January, which fell by 19.4% and 19.0%.
“While the declines in residential real estate continued into February, we witnessed some deceleration in the rate of decline in some of the markets,” says David M. Blitzer, chairman of the Index Committee at Standard & Poor’s. “All 20 metro areas recorded a monthly decline in February, but 16 of the 20 metro areas saw an improvement in their monthly returns compared to January."
Still, the indices show an ongoing, broad-based decline in the prices of existing single family homes across the United States, with 10 of the 20 metro areas studied showing record rates of annual decline, and 15 posting declines in excess of 10%.
In terms of annual declines, the three worst performing cities as of February are once again, located in the Sunbelt, each reporting negative returns in excess of 30%. Phoenix was down 35.2%, Las Vegas declined 31.7% and San Francisco fell 31.0%. Dallas, Denver and Boston faired the best, down a significantly lesser 4.5%, 5.7% and 7.2%, respectively. Dallas also holds the distinction of being the best performer for the month, returning -0.3%, according to the report.
As of February 2009, average home prices across the United States are at levels similar to those seen in third-quarter 2003. And despite the deceleration in home price declines seen in February, from the peak in mid 2006, home prices are still down over 30%.
Standard & Poor's Blitzer says, "we will certainly need a few more months of data before we can determine if home prices are finally turning around."
Write to Kelly Curran at kelly.curran@housingwire.com.
The decline of housing sales will continue well into 2010, but the good news is that the end is now in sight, according to analysts at Deutsche Bank.
Fitch Ratings also predicts home prices will fall an additional 12.5% during this period, reverting to 2002 prices. Currently, prices are more in line with the average cost of a home in 2003, the ratings agency reports.
The news comes as part of systematic revisions in housing projections from research departments across the nation. For its part, Fitch claimed in an October 2008 forecast prices would tumble only 10%.
Since then, the macroeconomic climate in the nation became darker. “Very weak employment, limited re-financing opportunities and turbulent financial markets have extended into the first months of 2009, while government-initiated programs have yet to yield any positive benefits,” says Huxley Somerville, head of Fitch’s mortgage-backed securities group.
As of today, home prices have fallen an average of 27% from historically highs achieved in mid-2006. However, Deutsche Bank says there are some tentative signs that new and existing home sales are near a bottom and opportunistic home buying is on the up.
Nonetheless, sales of homes will not see a remarkable boost until home prices decline further relative to rent costs, in order to achieve fair value. Also, the labor market must eventually stabilize, as further job deterioration will weigh on the housing sector, states the investment bank in recent economic research.
Write to Jacob Gaffney at jacob.gaffney@housingwire.com.
Senate legislators are set to vote this week on controversial legislation, S 896, which would allow bankruptcy judges to modify mortgage terms and possibly lower (or cram down) a portion of the principal balance.
Senate leaders, however, face a shortage of support from the financial industry and within the Senate itself, even as talks continue. The bill's principal sponsor, Sen. Richard Durbin (D-IL), continued discussions with large banks like Bank of America (BAC: 7.29 -0.14%) and JP Morgan Chase (JPM: 37.21 -0.75%) without any apparent compromise from either side, sources told American Banker.
The bankruptcy modification section, as it stands, would require borrowers to fall two months behind in payments on an outstanding balance of less than $729,750 in order to qualify, Senate aides told the Washington Post. The bill would also require borrowers to split any profits from the sale of the home with the lender while in bankruptcy proceedings.
"I hope we can muster the courage and find the votes, although I know it will be hard," said Durbin on the Senate floor Monday, according to the Washington Post. "It's hard to imagine that today the mortgage bankers would have clout in this chamber, but they do."
The so-called "cramdown" legislation must pass a Senate vote for those cases in which President Obama's Making Home Affordable modification and refinance plans fail, according to head of the Congressional Oversight Panel on the TARP Elizabeth Warren. And the plans will likely have little effect on hard-hit markets where borrowers sit 30% to 50% underwater on the mortgage principle, Warren told Reuters.
"[Cramdown] would be the one way to deal with principal that exceeds the value of the loan," she said. "Without that, we risk a foreclosure mitigation plan that is helpful in the areas of modest need, but not helpful where the problems are acute."
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.
[Update 1 reflects the Treasury's announcement.]
The Treasury Department plans to use $50bn in rescue funds to pay mortgage investors to go along with borrower modifications.
Specifically, the Treasury aims to resolve the issue of second lien holders who must agree either to forgive debt or take a smaller financial return on modified loans held in investment, according to a joint press release Tuesday.
"It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments," an unnamed administration official told Reuters hours ahead of the announcement.
Second liens — or second mortgages sometimes piggybacked on top of first mortgages for borrowers without 20% to put down — raise an issue for the investor. With inherently higher interest rates (and lower principal balances) than first mortgages, these types of loans must face substantial modification if the plan is to have the far-reaching effect touted by the Treasury.
"The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate," an anonymous source told Reuters. "The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there."
The plan will allow for the adjustment of second liens automatically when a borrower's first mortgage goes through the federal modification program. It aims to ease the process of borrowers seeking second liens like home equity loans for additional help, Tresaury said.
The Treasury and US Department of Housing and Urban Development on Tuesday officially announced the program along with additional steps to incorporate the Federal Housing Administration's Hope for Homeowners program into Making Home Affordable.
Government-sponsored entities Fannie Mae and Freddie Mac plan to implement the initiative with $75bn the Obama Administration set aside for housing, sources told Bloomberg.
Write to Diana Golobay at diana.golobay@housingwire.com.
