Archive for April, 2009
Bank of America (BAC: 7.29 -0.14%) and Citigroup (C: 30.87 +1.61%) may face regulator pressure to raise billions of dollars in capital after the government-imposed stress tests of the 19 largest US banks, unnamed sources told the Wall Street Journal. The banks, both recipients of $45bn through the Treasury Department's Troubled Asset Relief Program, did not release official statements before this story went to press.
Analysts that predict regional banks exposed to commercial real estate loans also scored poorly on the tests. Regions Financial (RF: 5.31 +2.71%), Fifth Third Bank (FITB: 13.23 +1.15%) and Wells Fargo (WFC: 29.60 +1.89%) may sit close in line behind BofA and Citi as contenders for increased capital, analysts told the Journal.
Banks with excess of $100bn in assets participated in stress tests by federal officials to determine their ability to weather projections of future business both under current circumstances and a set of more adverse circumstances, should the recession last longer and dig deeper into banks' reserves than anticipated. Federal officials offered three alternatives to banks that lack sufficient reserves: 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.
The Federal Reserve, in reporting stress test methods late Friday, say most banks retain enough capital to weather a longer, more severe recession, although deteriorating economic conditions affect the reserve capital held among some banks.
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 clarifies Wilbur Ross' relation to WL Ross.]
Invesco (IVZ: 22.99 +0.92%) and its wholly-owned subsidiary WL Ross, chaired by investment giant Wilbur Ross, on Monday made preparations to invest up to $1bn in the government's Public-Private Investment Program (PPIP).
"We strongly believe that the Public-Private Investment Program will help stimulate the mortgage market and provide individual and institutional investors globally with compelling investment opportunities in the Legacy Securities and Legacy Loan programs," Invesco president and CEO Martin Flanagan said in a media statement Monday.
Real estate developer LeFrak Organization, Muriel Siebert & Co., Williams Capital Group and the Jackson Securities, along with WL Ross portfolio companies Assured Guaranty and American Home Mortgage Servicing, will assist in the investment process. The marriage of Invesco's team, which manages some $159bn in assets, with WL Ross' distressed investment skills should allow for experienced handling of so-called 'legacy' assets through the PPIP, company officials said.
The PPIP, announced in late March, aimed to stimulate more private capital investments in order to generate some $500bn in purchasing power to buy 'legacy' — or 'toxic' — assets. The program faced something of a makeover in early April as the Treasury Department updated guidelines "to better accommodate increased participation." In addition to extending the application deadline, the Treasury said the criteria would be considered "holistically," meaning it would not automatically throw out a proposal that didn't meet all the requirements.
The revisions did little to quell the original argument against the program: 'legacy' is a euphemism for 'bad' and no one wants questionable, toxic or bad assets. 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.
Invesco's and WL Ross' plans to participate mark perhaps the largest commitment to the program, especially after Bridgewater Associates, the world's largest hedge fund manager, in April decided against participating in the plan. Founder Ray Dalio said the securities side of the program presented both a conflict of interest for asset managers and one that offers little leverage.
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.
With stark changes to much of the appraisal process set to go into effect in less than one week, one firm says lenders remain ill-prepared to comply new requirements about to go into effect. Lansdale, Penn.-based Global DMS says that many lenders are ill-informed when it comes to implementing changes required by the Home Valuation Code of Conduct that goes into effect for the first time this Friday. The firm has provided appraisal process management solutions for the past 10 years and says that widespread misconceptions are leaving lenders and correspondents exposed to possible HVCC violations.
“A lot of lenders and correspondents are making some very common — but very erroneous — presumptions, which could be putting them at risk of noncompliance with HVCC guidelines as of May 1st,” says Vladimir Bien-Aime, president of Global DMS and the creator of OASIS Software, a web-based enterprise software that manages the appraisal process.
“In addition to numerous calls from companies telling us that they have no idea where to begin in getting themselves prepared for the HVCC, we’re also finding that many who think they’re prepared are actually not prepared at all — simply because they’re operating under some fundamental misconceptions. For example, quite a few companies are under the assumption that using an AMC (appraisal management company), will eliminate their liability in HVCC compliance. This is simply not the case and can leave them exposed to compliance violations.”
Bien-Aime cites other lender misconceptions as well, such as the idea that a lender is required to use an AMC, rather than independent appraisers. “Lenders and correspondents can actually use independent appraisers and still be HVCC compliant,” he said. “But they’ll need to do business with those independent appraisers in a manner that’s compliant with HVCC guidelines.”
Other lenders believe that COD payments will still be widely accepted for appraisals. “COD payments are going away, so lenders and correspondents are going to have to manage prepayments, in addition to managing the appraisal process,” he says. “For some, this will be a big issue. We’re providing relief through our software, which enables users to set up automatic payments.”
As the result of legal action almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A), and the Federal Housing Finance Agency (formerly OFHEO) to establish the HVCC. Currently, about 85 percent of U.S. mortgages are purchased or guaranteed by the GSEs, according to most industry estimates. After May 1, the GSEs will have the right to force the seller to buy back any loans found to be out of compliance with the Code.
Global DMS is the latest collateral valuation specialist that says it has found evidence suggesting lenders aren't yet ready for the change. Mortgage technology company FNC, Inc. said on April 6 that a survey of key industry personnel suggested that most had not yet completed system upgrades to ensure compliance with the new guidelines.
It shouldn't be too difficult, bank executives say, to bring existing operations into compliance — although the issue of compliance is likely to be slightly different for smaller mortgage bankers, they say. "We've seen at least 10 major vendors with software and solutions from a plug-n-play perspective that focus on HVCC compliance, and all seem to be a strong solution set," said one senior bank executive at a regional bank with large mortgage operations, who asked not to be named. "From our perspective, it's a matter of changing the systems we already have in place. It might be a larger issue for smaller firms that lack some of the IT infrastructure in this area."
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.
Private mortgage banker Stonegate Mortgage recently teamed with StreetLinks National Appraisal Services, its new preferred appraisal partner. StreetLinks will provide Stonegate's wholesale operations — based in the Midwest — with fully compliant valuations, just in time for the revised Home Valuation Code of Conduct (HVCC) taking effect May 1.
"Stonegate Mortgage selected StreetLinks based on their large concentration of approved appraisers in our lending area," stated Stonegate executive vice president Steve Landes in a company media statement Monday.
The banker's partnership with StreetLinks, which recently expanded its Indianapolis-based operations, provides Stonegate with HVCC-compliant appraisals in its geographic region of operation. "StreetLinks is operationally based in the same market as our corporate headquarters, which means the company's employees understand the markets in which we lend," said Stonegate president Jim Cutillo.
The partnership also ensures Stonegate's compliance with the controversial HVCC, which critics argue may push independent appraisers out of lending-related work. The government-sponsored entities and the then-OFHEO (now FHFA) agreed to the original HVCC in March '08 after negotiating with New York Attorney General Andrew Cuomo, who had threatened to sue both GSEs over alleged fraudulent appraisals. The code essentially requires the selection and assignment of appraisers on a blind basis via independent, third-party platforms to avoid conflicts of interest and fraud.
The code also has initiated a series of partnerships like Stonegate's, which essentially arms mortgage bankers with HVCC compliance to ensure their ability to originate future loans. Stonegate said it expects to originate $400m in purchase, refinance, construction and renovation loans in '09 with the help of StreetLinks' HVCC-compliant valuation.
Write to Diana Golobay at diana.golobay@housingwire.com.
Southfield, Mich.-based Woodward Asset Capital, LLC said Tuesday it had officially launched OfferSubmission.com, a Web-based offer management platform designed for REO disposition. The firm says the online platform streamlines the offer and negotiation process for bank-owned real estate, with zero added cost to a seller — buyers, or the buyer's agent, pay a $300 service fee if an offer is accepted by a seller on the platform.
The firm is one of a growing number of companies looking to court buyer's agents in the REO sales process; buyer's agents have traditionally been locked out of the space, agents tell HousingWire. The platform relies on the buyer's agent (rather than the listing agent) to submit binding financial terms of an offer online, which the company says allows sellers and third-party asset managers to generate an increased number of offers per property.
The company says that National City Bank and an unnamed top-rated subprime servicer have been using the platform on a trial basis for the past two months.
"In the first 60 days since OfferSubmission.com launched, our system literally doubled the number of properties sold compared to what the bank had historically sold from their portfolio," said Ronald Jasgur, partner at Woodward Asset Capital. "Sale prices are exceeding 97% of BPO values, while days on market have been reduced to just 22."
Jasgur says 70% of the properties sold via the online platform are purchased by owner-occupants, a number he characterized as "remarkable" in a press statement, and more than the trial users had typically seen in sales taking place outside of the platform's offer-management system.
Analysts and industry experts say they expect a rush of tools in the REO space over the next year, many of which are likely to be tied to connecting buyer's agents with institutional sellers. "It's a growth market, as consumers are now actually looking to buy foreclosed properties," said one banking executive, who asked not to be named in this story.
Write to Paul Jackson at paul.jackson@housingwire.com.
A nonprofit organization dedicated to helping a growing number of abandoned pets left behind by troubled homeowners in foreclosure said Tuesday that a Wisconsin-based law firm had raised $16,000 to aid the organization's mission. No Paws Left Behind, Inc., a 501c3 non-profit organization dedicated to bringing awareness to and finding solutions for the growing phenomena of foreclosure pets, said that the law firm of Blommer Peterman, S.C. had made the contribution after organizing and sponsoring a wine tasting and silent auction.
"We organized this event to increase local awareness of the increasing problem of foreclosure pets," said Deb Blommer, managing partner at the law firm. "We greatly appreciate the generous contributions, which made this fundraiser possible, and we look forward to strengthening our relationship with No Paws Left Behind in the future."
The March 28 fundraising event took place at the Western Racquet Club in Elm Grove, Wis. and featured 40 wine offerings provided by Vino 100, which donated 10 percent of its proceeds to No Paws Left Behind. Local stores and businesses donated over eighty gift baskets for the silent auction, many of which were dog-themed. Excluding the wine, Blommer Peterman underwrote all event costs, thus allowing all contributions to directly benefit No Paws Left Behind. The money raised will help Milwaukee-area no-kill shelters offset the expenses of lodging pets rescued from abandoned homes.
"By organizing this event, Blommer Peterman, S.C. has demonstrated its commitment to helping homeowners find alternatives — such as No Kill shelters — to abandoning their pets in the foreclosure process," said Cheryl Lang, president and founder of No Paws Left Behind. "The strong turnout for this event illustrates that people are aware of the foreclosure pet epidemic and are taking strides to reduce the number of pets that are left behind during foreclosure."
For Lang, No Paws Left Behind is a labor of personal interest, as the long-time default industry veteran also owns and manages Integrated Mortgage Solutions, a Houston-based national property preservation and field services company. Lang launched the nonprofit last year after seeing her firm face a growing number of abandoned pets in need of care and feeding.
For more information, visit http://www.nopawsleftbehind.org.
Write to Paul Jackson at paul.jackson@housingwire.com.
LoanMarq Mortgage Software added an appraisal manager user type to its web-based community in order to aid mortgage companies to comply with the new Home Valuation Code of Conduct (HVCC).
"In this economic climate, the mortgage industry should expect new regulations, and the new Home Valuation Code of Conduct is one that will operationally change mortgage company work flow," says Sthenia Software CEO Paul Piers. "Where we excel is taking those operational difficulties and simplifying them via LoanMarq mortgage software.
The appraisal manager within LoanMarq will now coordinate all home valuation aspects of the mortgage transaction, while fulfilling the HVCC rules, which go into effect May 1. LoanMarq says its software allows mortgage companies to handle HVCC compliance in-house.
Write to Kelly Curran at kelly.curran@housingwire.com.
President Barack Obama's Making Home Affordable modification plan lacks critical servicer protection laws needed to reach the maximum 3m to 4m borrowers touted as potentially eligible, Bank of America's Barbara Desoer tells Bloomberg. Lawmakers additionally must draft crucial legislation to shield servicers from lawsuit by holders of securitized bonds.
“If the government wants to go down a path of being all-inclusive of who would be eligible, then I think that’s required,” says Desoer, head of the BofA's mortgage business, according to Bloomberg. “If they’d be willing to stop at some point, and leave some borrowers with 'pay-as-agreed' or 'go-to-foreclosure' options, then it’s clear, you don’t need that.”
The program offers incentives to servicers that initiate maintainable mortgage modifications. A so-called servicer "safe harbor" would impose legal protections for servicers who modify the $1.8trn in loans underlying residential mortgage-backed securities (RMBS).
Critics of President Obama's modification plan — and of any so-called "streamlined" modification plan — usually draw attention to the program's apparent lack of consideration for bondholders with a vested interest in RMBS platforms that may be altered when servicers modify securitized mortgages. BofA seems conscious of the dispute and plans to limit its participation in the modification program where investors decline, as Desoer tells Bloomberg:
“To the extent an investor does not want to participate, and has not delegated authority and requires prior approval, we will respect that,” she says. “We are not going to put that relationship at risk by doing anything differently.”
Write to Diana Golobay at diana.golobay@housingwire.com.
Players in the asset-backed securities (ABS) space continue to leave the Paris-based investment bank. Nonetheless, sources at Société Générale report active trading in ABS and other markets as well, especially in commodities and liquidity management, but stopped short of providing numbers.
The bank is perhaps better known in the US as falling victim to the alleged rogue trading of Jérôme Kerviel who, by some accounts, cost the bank nearly €5bn ($7.29bn) in losses.
At any rate, the ABS department in London is experiencing losses, whereas staff is opting to leave, as opposed to being forced out. Recently, the head of ABS trading Alex Lazanas and trader Rajan Dosanjh, left for positions at Evolution Securities. ABS analyst Chris Greener also recently left to take a buy-side position at BlackRock.
Société Générale is not likely to refill the positions anytime soon.
Write to Jacob Gaffney at jacob.gaffney@housingwire.com.
After surging 17% in February, housing starts slowed again in March, dropping 10.8% to a seasonally-adjusted annual rate of 510,000, according to data from the Commerce Department.
The March dive in housing starts marks the second-lowest rate since the 1940s and sits 48.4% below the March 2008 rate of 988,000. In stark contrast, last month's jump in housing starts marked the first increase in eight months and the largest percentage gain in a whopping 19 years. But economists at Wrightson ICAP, among others, warned they were "inclined to write it off as a weather-related fluke," as they were hesitant to draw any conclusions that new construction had found a floor.
But with single-family starts at a very low level over the past three months, Michelle Girard, an economist for RBS securities believes the residential real estate sector may be starting to stabilize. "Of course, a meaningful upturn in home building will not be seen until inventory levels have been significantly reduced," she told Market Watch.
The number of single-family housing starts in March — which excludes apartment buildings — remained unchanged from the rate of 358,000 recorded in February. The South lead the way in March with 191,000 new housing starts, while the Northeast only started construction on 47,000 single-family homes.
Building permits, which are less volatile than construction starts, fell 9% to a seasonally adjusted annual rate of 513,000. Permits for single-family homes dropped as well, from 390,000 in February to 361,000 in March.
The National Association of Homebuilders says new-home inventory in March shrank to 311,000 units, which they calculated is a 10.7-month supply at the current sales pace. In a statement the Association says, "builders are doing a great job of thinning the supply of unsold homes and positioning themselves for a slow but steady housing recovery."
Builder confidence in the market for newly built, single-family homes rose five points in April to its highest level since October 2008, according to the latest National Association of Home Builders sentiment index.
Write to Kelly Curran at kelly.curran@housingwire.com.
