Archive for April, 2009
Existing, single-family California home sales rose 63.8% in March from the same period a year ago to a seasonally-adjusted annual rate of 522,980 units while the median sales price rose 2.2% from February to $253,040, according to a monthly survey released Monday by the California Association of Realtors (CAR).
The unsold inventory volume based on the current sales rate for existing, single-family homes in March 09 is 5 months, compared with 12.2 months recorded in the year-ago period. Single-family homes sat on the market a median 48.3 days in the month, from the 56.8 days seen in the year-ago period, according to the survey.
CAR president James Liptak said every California region saw month-over-month raw sales increases, from 9.7% in Sacramento to 32.2% in Riverside/San Bernardino.
"A number of regions around the state also have registered monthly gains for one or more months since the beginning of this year. While these are welcome signs, it remains to be seen whether home prices have stabilized," said CAR chief economist Leslie Appleton-Young. Low mortgage rates and home prices, in concert with the federal first-time home buyer tax credit, had a predictable effect on coaxing potential buyers into the market, Appleton-Young added.
But tax incentives aren't the only driving force behind borrower turnout. Real estate-owned (REO) properties accounted for 57.4% of monthly sales in March, up from 35.5% in March 08, according to a report published in mid-April by MDA DataQuick Information Systems. Notices of default in the January-to-March period rose 80% percent from 75,230 for the prior quarter and were up 19% percent from the year-ago quarter, DataQuick found.
Write to Diana Golobay at diana.golobay@housingwire.com.
The Treasury's actions under the Emergency Economic Stabilization Act, taken with other rescue measures, may help prevent the current financial crisis from triggering a 1930's style financial and economic meltdown, according to the Financial Stability Oversight Board.
"The actions taken by Treasury under the EESA provided critical support to the financial system during a period of market turbulence and weakening economic conditions," says the Board in its quarterly report to Congress.
Actions taken under the stabilization program improved conditions in short-term funding markets and likely imparted positive effects on bank and nonbank lending activity, says the Board. Meanwhile, activity by the Treasury under the Troubled Asset Relief Program (TARP), together with those taken by the Federal Reserve, also aided the housing market, the board explained, relieving strains in the functioning of credit markets and contributing to lower interest rates on residential mortgages.
Under EESA, capital positions at larger bank holding companies rose significantly during the fourth quarter – despite operating losses at some of the major banks – largely because the capital injections made under the CPP and TIP, says the Board.
However, the Board warns the magnitude of the Treasury’s benefit to the economy is difficult to single out in light of the presence of other government programs and the broader weakness in U.S. and global economic activity.
"Especially at this still-early stage, there remain significant conceptual and practical challenges to identifying the effect of Treasury’s actions in isolation on financial markets," read the report.
Foremost among these challenges, says the board, are the difficulties in disentangling the relative importance of reduced demand for credit due to weaker economic activity, reduced supply of credit because borrowers appear less creditworthy, or reduced supply of credit because lenders face pressures that restrain them from extending credit, such as possible concerns about their capital.
The Oversight Board is generally praiseworthy of the EESA and believes the Treasury should continue to use its TARP authority to stabilize financial markets, help strengthen financial institutions, improve the functioning of the credit markets and address systemic risks.
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.
At least three of the 19 financial institutions with assets in excess of $100bn may face pressure to build up capital reserves after failing to meet desired operational projections through the government-mandated stress tests, unnamed sources told the Wall Street Journal. The identities of the three firms remained confidential at the time this story went to press, but analysts told the Journal they likely include regional banks with commercial real estate exposure in the Midwest and Southeast.
The stress tests aimed to determine whether major US banks retain enough capital to weather even the more adverse economic projections. 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.
Staff research at the Federal Reserve calculated the ideal interest rate for the US economy at negative 5%, according to analysis prepared ahead of the Fed's latest policy meeting.
The assessment, taking into account the Fed cannot cut rates below zero, sized up some "unconventional" operations that could result in the desired effect, including the expansion of the Fed's asset purchases beyond the $1.15trn already committed, Financial Times reported.
Critics typically greet the expansion of the Fed's balance sheet as evidence of monetary creation that risks long-term inflation. The Fed’s balance sheet, for example, sits about 150% above its value at the same time last year, according to a balance sheet summary released Thursday. The data show the Fed’s consolidated balance sheet rose to a value of $2.17trn in the week ending April 22, up $70.36bn from $2.09trn the week before, and up $1.3trn from the year-ago week ended April 23, 2008.
Fed staff analyzers based the suggestion to expand the assets purchased and indirectly push rates below zero on the Taylor rule, which calculates the desired interest rate from the difference between actual gross domestic product (GDP) and potential GDP — also seen as unemployment — and between actual inflation and target inflation rates, Financial Times reported. The suggestion, however may not affect the policy decisions at the Fed's next meeting. Fed sources told Financial Times they expect to keep rates near zero for possibly the next two years.
Although statements out of the Federal Open Market Committee in recent months support the Fed's view of inflationary pressures remaining below even desired levels for some time, the committee recently began to project the need for changing monetary policy once demand returns, to prevent inflation. In other words: As demand recovers, the Fed must remove or neutralize some of the new money pumped into the system by its bloated balance sheet.
Write to Diana Golobay at diana.golobay@housingwire.com.
Federal regulators shut down another four banks Friday as the extent of the damage to the financial industry continues to unwind. All told, Friday's failures will cost the Federal Deposit Insurance Corp.'s (FDIC) insurance fund an estimated $698.4m and put a total $2.29bn in combined assets on the line for purchase or disposition.
It is the 26th, 27th, 28th and 29th failures so far in 2009.
California Department of Financial institutions closed First Bank of Beverly Hills and named the FDIC receiver. First Bank of Beverly Hills as of year-end '08 boasted total assets of $1.5bn and total deposits of $1bn, an estimated $179,000 of which the FDIC expects is uninsured. The FDIC approved the payout of all insured deposits and said it expects a $394m cost to the insurance fund.
Read the FDIC's statement on First Bank of Beverly Hills.
Office of Thrift Supervision closed First Bank of Idaho and named the FDIC receiver. First Bank of Idaho's seven branches reopen today as branches of Minneapolis-based US Bank, which assumes all of the failed bank deposits — except from brokers. First Bank as of year-end 08 boasted $488.9m in total assets, with $374m in total deposits. US Bank paid a 0.55% premium for the failed bank's deposits, except for the $112.8m in brokered deposits. The FDIC plans to pay the brokers directly for those deposits. US bank also agreed to purchase $17.8m of the failed bank's assets, the remainder of which the FDIC will retain for later disposition. First Bank's failure will cost the Deposit Insurance Fund an estimated $191.2m.
Read the FDIC's statement on First Bank of Idaho.
Michigan Office of Financial and Insurance Regulation shut down Michigan Heritage Bank. Level One Bank agreed to assume all the failed bank's deposits except those from brokers. Michigan Heritage as of year-end 08 boasted total assets of $184.6m and total deposits of $151.7m. Level One paid a 1.16% premium for all but $50m in brokered deposits. The FDIC plans to pay the brokers directly for those amounts. Level One also agreed to purchase $46.1m of the failed bank's assets, the remainder of which the FDIC retains for later disposition. The failed bank will cost the insurance fund an estimated $71.3m.
Read the FDIC's statement on Michigan Heritage Bank.
Georgia Department of Banking and Finance closed American Southern Bank. Bank of North Georgia agreed to purchase $55.6m of the failed bank's deposits at a 0.3-bps premium as well as $31.3m in assets, but declined to purchase $48.7m in brokered deposits. The FDIC plans to pay brokers directly for those funds and to retain the failed bank's remaining assets for later disposition. American Southern boasted as of late March total assets worth $112.3m and total deposits worth $104.3m. Its failure will cost the insurance fund an estimated $41.9m.
Read the FDIC's statement on American Southern Bank.
Write to Diana Golobay at diana.golobay@housingwire.com.
Countrywide Financial — perhaps the most recognizable name to come out of the nation's mortgage crisis — is now officially gone. Bank of America Corp. (BAC: 7.29 -0.14%), which acquired the mammoth lender and servicer last July, is replacing the brand with its own; the company said Monday it had retired the Countrywide name, replacing it with the eponymous Bank of America Home Loans to represent the company's combined mortgage operations.
The new branding push includes an effort to simplify mortgage disclosures to consumers, as well as a new mortgage product available via the company's retail origination channel. The new disclosure, which the bank is calling the Clarity Commitment, is a single, one-page loan summary that presents interest rate, terms and other details of a loan, including a "worst-case scenario" for any adjustable-rate mortgages; the new disclosure is made available to consumers both at application and closing of their mortgage, the bank said in a press statement. The disclosure goes above current disclosure regulations required during the origination process.
"We met with thousands of customers and created tools that reflect the transparency they want in the home-buying process," said Barbara Desoer, president at Bank of America Home Loans.
In addition, apparently product innovation isn't dead just yet in the mortgage space — with the bank saying it would roll out a flat fee mortgage called Flat Fee Mortgage Plus via its 6,100 branch locations. The new product has no application fee and a single closing fee that the bank says represents the lender and other fees required for third-party services, such as an appraisal. BofA's Desoer said the product will be made available via other origination channels in the near future.
The flat-fee mortgage is a follow-up offering to a much-publicized "no fee" mortgage the bank offered at the tail end of the nation's housing boom; according to a story at Bloomberg Monday, the bank stopped offering the product this year, after skeptical consumers felt the offer of a "no fee" mortgage was too good to be true.
The re-branding effort comes as Desoer has spent the past nine months managing the Herculean task of integrating Countrywide's systems and operations with North Carolina-based BofA's own infrastructure; while the Countrywide brand has been replaced, the integration effort is yet ongoing. "As the new brand becomes more visible through rebranded locations, account statements, marketing materials and advertising, customers should continue to use current methods for managing their accounts and contacting customer service until the full systems conversion later this year," the company said.
Desoer shared details of the conversion and integration plans with HousingWire, in an exclusive interview to be published in the May issue of HousingWire Magazine. Click here to get HW in print, if you don't already subscribe.
While the Countrywide name is now gone, other businesses gained through the Countrywide acquisition will retain their brands, including Balboa Insurance Services, one of the leading providers of lender-placed property insurance, and LandSafe, a supplier of pre- and post-closing services.
Bank of America is clearly anxious to get beyond the Countrywide brand name, which carries a high degree of recognition but also has become a target for consumer advocates, who say the lender's aggressive practices during the housing boom recklessly endangered consumers. Both Desoer and chief executive Ken Lewis have been adamant that BofA operates differently, and is committed to responsible lending practices.
"Purchasing a home is one of the biggest decisions an individual makes, and we take seriously our responsibility to educate customers and arm them with the information they need to make smart decisions," Desoer said.
BofA has seen mortgage production soar to $85bn in Q1 2009, up from $22bn one year earlier, helping drive the bank to a $4.25bn first quarter profit. The mortgage unit at BofA contributed $1.6bn to the bank's bottom line, helping to offset mounting provisioning expenses for bad loans. Both BofA and Wells Fargo & Co. (WFC: 29.60 +1.89%), which origination more than $100bn in the first quarter, have quickly become the dominant players in a vastly reshaped mortgage banking industry.
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.
Northbrook, Illinois-based HEART Financial Services, a loss mitigation outsourcer, said Monday that mortgage industry veteran Donna Krall had joined the firm as executive vice president of operations. With nearly 30 years in financial services, Krall will oversee the day-to-day home retention and client fulfillment operations of HEART Financial Services, the company said in a press statement.
Krall was senior vice president and national operations director for retail lending at Washington Mutual, which was acquired last year by JP Morgan Chase & Co. (JPM: 37.21 -0.75%); after the acquisition, she was senior vice president of operational quality and compliance manager for home loan production at the banking giant. She had direct responsibility for all compliance and audit activities, as well as policy and procedures, offshore services contracts, and operations management for all channels of loan production, including retail, consumer direct, and correspondent.
Prior to Washington Mutual and JP Morgan Chase, Krall was senior vice president and national operations director for CitiMortgage’s consumer direct lending operation in Southfield, Michigan, where she managed a lending operation producing $23 billion in yearly production.
“Donna Krall is an extraordinarily talented professional,” says HEART Financial Services CEO Gerald Alt, who also runs LOGS Network, a network of law firms that specialize in representing creditors rights in residential mortgage defaults and borrower bankruptcies. “She brings a wealth of experience and tremendous expertise in areas that will enrich our loss mitigation efforts on behalf of our clients, and ultimately will help us keep more people in their homes."
Write to Paul Jackson at paul.jackson@housingwire.com.
More than 160 industry professionals participated in the 23rd annual Users' Conference hosted by Financial Industry Computer Systems, Inc., held earlier this month in Dallas. Like many large tech vendors and others in the mortgage space, the company hosts its own events each year for users of the company's various platforms to network and gain special training on commercial and residential servicing, as well as loan production packages.
FICS has long targeted small to mid-size lenders with its products, and CEO Dawn Gibbs suggested in her opening remarks at the conference that a recent refinancing boom has helped this group of lenders moreso than some of the nation's larger lenders.
"For many years, I have seen clearly that the strength of the mortgage industry as a whole lies not with the very largest financial institutions and lenders, but with the types of institutions that you all represent. I have believed in this so strongly that, for more than two decades, I have built this company around serving that market specifically," she said. "Today, while the biggest lenders are flailing, it is you that are successfully stepping up and making the moves that will lead an entire industry — perhaps our nation's economy — to better days."
Like most vendors, FICS officials say the user conference is a way for the company interact more directly with its customer base.
"This year's annual User's Conference offered our customers the opportunity to network with other FICS users facing similar challenges in the current economy, which was even more important this year as the fast paced and ever-changing environment has forced most of our customers to keep up with the increased work load without increased staff," said Susan Graham, FIC president. "Having a forum to discuss the best ways to successfully accomplish this was very beneficial for customers."
Next year's Annual FICS Users' Conference will be held April 7-9 at the Embassy Suites Hotel Dallas-Frisco, the company said in a press statement.
Write to Paul Jackson at paul.jackson@housingwire.com.
The first 100 days of President Barack Obama’s administration have been marked by much pressure to address the financial crisis, help the U.S. economy, and establish regulatory reform. While substantial regulatory changes have already been made, more is clearly on the way — lawmakers are in the process of debating additional, more aggressive legislation in an effort to protect consumers. Compliance experts at Wolters Kluwer Financial Services say that the developments in the first 100 days of the new presidency have already changed the mood within the financial services industry in general, and mortgage banking in particular.
“Regulators are feeling much more empowered than they were during the previous administration,” said Edward Kramer, executive vice president for regulatory programs at Wolters Kluwer Financial Services. “More stringent regulatory exams, a rising number of enforcement actions and the growing number of financial institution closings during the first quarter of this year are evidence of that.”
Kramer said he believes the mortgage reform bill Congress debated last week could be the beginning of major financial services regulatory reform. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on non-prime mortgage lending and lender compensation — and, perhaps more importantly, it would require lenders establish what the bill calls a “duty of care” in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit.
“The proposed mortgage reform bill combined with numerous regulatory changes already scheduled to take effect this year could likely put financial institutions in a significant crunch,” said Amy Downey, a senior regulatory consultant at the firm. “These changes are very different from those of previous years that required a simple update to a document or disclosure. Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt.”
The securities industry has also seen a number of issues discussed during the first 100 days of the new presidential administration, including the potential regulation and registration of hedge funds, changes to credit rating agencies, and harmonizing rules between investment advisors and broker-dealers. Legislation concerning some of these issues has been introduced, and more will likely come.
“I think it’s clear that we are going to see more regulation in the coming months, as well as the regulators working to flex their muscles and extend their influence,” said David Thetford, securities compliance principal analyst at Wolters Kluwer Financial Services. “The SEC has already highlighted a number of areas where it would like to see reform, and has indicated it would like to increase the size of its staff. I’m anticipating we’ll also see similar activity from other regulators, including the Financial Industry Regulatory Authority (FINRA).”
Thetford notes that anticipation of a tightening regulatory net has created a level of suspense within the financial services industry, as the industry as a whole prepares itself for the growing pains associated with regulatory change. In addition to assessing their compliance programs in anticipation of regulatory changes, financial services firms are also being forced to evaluate the types of products they offer.
Jason Marx, vice president and general manager of the mortgage group at Wolters Kluwer Financial Services, says mortgage companies continued to expand their FHA lending programs at a fast pace to keep up with market demand. He expects lenders to increase their activities in reaction to currently lower rates, refinance initiatives and loan modification programs throughout the rest of the year as they take advantage of the Treasury’s new Making Home Affordable Program.
“Lenders are very interested in becoming involved with the program,” said Marx. “They realize that by helping distressed borrowers refinance or modify their loans, they can assist those borrowers that have the intent and ability to make regular payments and stay in their home.”
In HW's view, with the market for more traditional purchase originations remaining weak, it should come as little surprise to see originators turning more of their focus to "distressed" refis wherever the government enables such activity.
Write to Paul Jackson at paul.jackson@housingwire.com.
Analysts in the residential mortgage-backed securitization (RMBS) arena report that 30-year pass throughs (coupons) outperformed Treasuries last week.
While this is not an indication of a rally, the higher profitability of RMBS pass throughs may begin to entice more investors into the mortgage investment space. A pass through, a hallmark of securitization structuring, represents how much an investor gets paid after all fees and services are taken.
Equally encouraging for the market, trading in asset-backed commercial paper is also on the rise, though there is warning the uptick may be short-lived, as federal regulations on eligible commercial paper now must have the equivalent of a single-A or higher short-term rating from all credit rating agencies.
The tightening of the program in which the Federal Reserve lends cash against qualified asset-backed commercial paper through banks to money funds is likely to reduce demand, says Barclays Capital.
Research at Bank of America, however, recommends buying 30-year 5% and 4% swaps in RMBS, based on recent pass through activity. Overall mortgage origination volume remains low, however, signalling long-term trouble for the industry. Please see the upcoming June 2009 issue of HousingWire magazine for a full report on origination outlook in the secondary market.
Meanwhile, Amherst Securities, a broker-dealer specializing in residential mortgage-backed securities (RMBS), hired a new pass through trader, Michael McSweeney, a veteran with an 11-year history at UBS and Paine Webber. McSweeney will be based in Amherst’s New York City office where he will also expanded the firm's agency collateralized mortgage obligation (CMO) business, helping source collateral for deals.
Sean Dobson, CEO of Amherst Securities says: "Mike’s vast experience with and knowledge of specified pool trading will be a tremendous asset to our firm as we continue to add securitization expertise across our platform to help clients successfully take advantage of current trends in the bond market."
