Archive for April, 2009
Activity in the asset-backed commercial paper (ABCP) market is showing a rise in activity, according to traders of the short-term debt product. The data comes amid a deluge of negative news flow in nearly every aspect of the mortgage market.
According to Credit Suisse, most ABCP issuers filled financing needs very quickly throughout trading last week, due to a weakening in supply, flat demand and a surprising increase in dealer participation. The bank is one of the few remaining major players of ABCP in the US market.
"Spreads to LIBOR for some issuers improved by as much as 5 to 10 basis points and for those issuers who did not change their pricing," say the traders. However, they stop short of sounding a bell of optimism as the upcoming May 4 bank stress tests may dent progress.
Instead, they assume a strange mix of bearish caution combined with bullish optimism: "Due to the nature of the underlying assets, it does not seem plausible that there will be any material increases in ABCP outstandings over the next few months and therefore, we could see this same sort of action of low to flat supply accompanied by continued pricing power for the issuer. As we all know, we can get kicked in the teeth at any time from another piece of negative financial news; however, we probably will go into the summer in this sort of sweet spot for ABCP issuers."
Levels of ABCP outstandings are indicative of the health of the trade. In an ABCP conference in Paris two years ago, by way of comparison, market traders remained optimistic on the future. At that session, they reported that as long as levels of ABCP outstanding did not dip below January 2005 levels, there would be no reason to worry.
At its height, ABCP outstandings stood at $1.2trn in mid 2007. In the beginning of 2005, the market stood at $700bn. But as investors in short term paper fled, being greatly comprised of managers of the now-defunct structured investment vehicle (SIV) product, the market rapidly dipped to $625bn by the end of March 2009.
The traders also worry about the impact of current events: "On Friday, Eurodollar futures began to sell off which is not surprising considering the unknowns in the market place, including: earnings, the bank’s stress tests, and the viability of the Fed’s toxic asset purchase plan."
ABCP is a form of property-denominated 'cash' that is traded by banks, or other large financials, for the purpose of liquidity, and typically mature between 90 and 180 days.
SunTrust Banks, Inc. (STI: 20.61 +0.54%) dislosed a first-quarter loss of $815.2m, or $2.49 per share, compared to a net income of $290.6m, or $0.81 per share, in the first quarter of 2008. The bank says losses are due largely to a non-cash, after-tax charge related to the collpase of good will towards the institution.
Excluding the impairment charge of $714.8mn, the first-quarter loss equals $0.46 per share.
“There are two clear messages that emerge from our first quarter results,” said James Wells, SunTrust chairman and CEO. “First, SunTrust, like other financial institutions, is still working through credit and earnings challenges as the weak economy continues to take a toll on performance. Second, there are some preliminary signs of improvement in several key areas, including mortgage originations, consumer and commercial deposit growth, and early-stage delinquencies.”
Wells said revenue improved due to significant growth in mortgage originations — likely due to a boom in refinances. Noninterest income increased 8.4% from the first quarter of 2008, driven by an almost three-fold increase in mortgage-related income, partially offset, however, by reductions in trust and investment management and retail investment income.
“Given that economic challenges remain, SunTrust is sharply focused on maintaining a strong capital position and mitigating near-term recession-related risk," Wells said.
Annualized net charge-offs came in at 1.97% of average loans for the first quarter of 2009, up from 0.97% of average loans in the first quarter of 2008 and 1.72% of average loans in the fourth quarter of 2008.
Nonperforming loans to total loans increased to 3.75% as of March 31, 2009 from 3.10% as of December 31, 2008 and 1.65% as of March 31, 2008, due mainly to increased levels of residential real estate and real estate construction loans.
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.
Fifth Third Bancorp (FITB: 13.23 +1.15%) posted $50m net income for Q109, indicating a recovery from the $2.14bn net loss reported for Q408. The bank touted $18bn in new and renewed credit in the quarter, mainly due to "particularly strong relationships" with customers, CEO Kevin Kabat said today in an investor call.
The bank boasted an average portfolio loan balance of $9.2bn in residential mortgage loans, down 2% from the previous quarter and down 12% from the year-ago period. The data illustrates the continued easing off on the business through last year. The Q108 mortgage portfolio totaled nearly $10.4bn — a figure that has declined every quarter since.
If Fifth Third's mortgage business is bleeding, however, it is not holding back the bank. Officials touted high mortgage origination volumes during the quarter, which drove a $1.2bn increase in the warehouse of residential mortgages held-for-sale.
Mortgage banking business net revenue swung away from fourth quarter's loss, posting $134m no-interest income. On the not-so-rosy side of the bank's mortgage business, residential mortgages accounted for $265m in non-performing assets, up from $259m in the previous quarter. Residential mortgage loan charge-offs totaled $75m for the quarter, up from $68m in the previous quarter and up 120% from $34m in the year-ago period, while home equity loans accounted for $72m in charge-offs.
Fifth Third's loan loss provision totaled $733m in the quarter, down from $2.36bn in Q408. The allowance represented 128% of non-performing loans and 3.71% of total outstanding loans and leases compared with 3.31% in the previous quarter. Bank officials said in the earnings statement the increase in the allowance for loan and lease losses reflected growth in nonperforming assets and overall delinquencies, suggesting nonperforming assets and charge-offs may also increase in coming months.
Fifth Third shares traded at $3.82, up 3.52%, as this story went to press.
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.
Mortgage rates eased in the week ending April 23, according to Freddie Mac's (FRE: 0.00 N/A) Primary Mortgage Market Survey released today. 30-year fixed-rate mortgages averages are 4.80%, down from last week's 4.82% average, and well below the 6.03% average from this time last year.
This week's 15-year fixed-rate mortgage remains unchanged from last week, which hit an all-time low of 4.48% when compared to 4.54% two weeks ago. A year ago at this time, the 15-year FRM averaged 5.62%.
"Although long-term mortgage rates eased slightly this week, ARM rates remain elevated relative to those fixed-rate mortgages," says Frank Nothaft, Freddie Mac vice president and chief economist. "For instance, interest rates for 1-year ARMs exceeded those for 30-year fixed-rate mortgages over the last two weeks; this is the first time this has happened since Freddie Mac began collecting data for ARMs in January 1984."
The average for One-year Treasury-indexed ARMs sat at 4.82% this week with an average 0.4 point, down from last week when it averaged 4.91%. Five-year Treasury-indexed ARMs averaged 4.85%, also down from last week's average of 4.88%.
A separate rates survey conducted by Bankrate.com actually found mortgage rates climbed this week — albeit just slightly. According to Bankrate, the benchmark 30-year fixed-rate rose 5 basis points to 5.23%, while the benchmark 15-year fixed-rate rose 4 basis points to 4.76%. The survey reported, similar to Freddie Mac's findings, its 5-year ARM rate reading of 5.11% surpassed its 30-year rate.
Nothaft says the housing market is showing further signs of possible improvement. House prices rose for the second consecutive month in February, the first back-to-back increase since April 2007, according to data from the Federal Housing Finance Agency. Among the nine Census divisions, six experienced positive gains in February.
Write to Kelly Curran at kelly.curran@housingwire.com.
Existing-home sales eased in March although first-time buyers traffic rose in response to low mortgage interest rates and tax credits, the National Association of Realtors (NAR) said in a monthly survey released today.
Existing-home sales — including single-family, townhomes, condominiums and co-ops — declined 3% to a seasonally adjusted annual rate of 4.57m units in March from a downwardly revised level of 4.71m in February. The month's sales were 7.1% lower than the 4.92m-unit pace in March 2008. Single-family home sales slipped 2.8% to a seasonally adjusted annual rate of 4.1m in March, down from from a pace of 4.22m in February and 5.7% below the 4.35mn-unit pace in March '08. The median existing single-family home price was $174,900 in March, 11.5% below year-ago prices.
“The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey,” said NAR chief economist Lawrence Yun. “Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans.”
First-time buyers accounted for 53% of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available, according to a March NAR practitioner survey. Traffic from inquiries on the tax credit should positively impact summer home sales, especially if record-low interest rates hold, Yun said.
Although prices rose from February to March, the national median existing-home price for all housing types fell 12.4% from March '08 to $175,200, the existing home sale survey showed. Prices rose 4.2% from February to March, higher than the typical 1.8% seasonal increase between those two months. Distressed properties accounted for just over half of all transactions in March, and typically sold for 20% less than traditional homes, NAR found.
Regionally, existing-home sales slipped 8% in the Northeast from February to 690,000 units annually. Existing-home sales fell 1.7% in the South to a 1.71m-unit pace and 4.2% in the West to a 1.13m-unit pace. Meanwhile, existing home sales remained unchanged in the Midwest at a 1.04m-unit annual pace. The median price in the Northeast was $231,700, down 18.4% from March 2008. The Midwest posted a median price of $141,300, 6.1% below year-ago levels. The median price in the South fell 12.2% from March '08 to $146,900, while the median price in the West slipped 11.1% from last year to $252,400.
Write to Diana Golobay at diana.golobay@housingwire.com.
Ahead of bank stress test results, slated for release Friday, a mortgage lending race is on for the two major U.S. lenders, Wells Fargo & Co. (WFC: 29.60 +1.89%) and Bank of America Corp. (BAC: 7.29 -0.14%), which are locked in a competition for mortgage business.
BofA's purchase of Countrywide last year and Wells' acquisition of Wachovia Corp. at year-end contributed to the competitors' substantial gains in mortgage originations in recent months. Wells' acquisition helped double the bank's mortgage originations in the quarter, which pushed it head and shoulders above the competition.
Quarterly earnings signaled Wells as the emerging winner of the mortgage origination race in Q109. Wells said it saw the best quarterly mortgage origination quarter since 2003, with $175bn in loan commitments, mortgage originations and mortgage securities purchases; $101bn of which were purchase or refinance mortgage loans for more than 450,000 homeowners. Wells also reported $190bn in mortgage applications lining the pipeline, including a record $83bn in applications in March alone.
BofA funded $85bn in first mortgages and provided more than 382,000 borrowers with either purchase or refinance mortgages in the Q109. The bank made an estimated $16bn of these originations to 102,000 low- and moderate-income borrowers. BofA modified 119,000 home loans in the quarter, part of its commitment announced last year to modify more than $100bn in loans held by some 630,000 borrowers.
Treasury Department lending reports among the 21 top TARP recipients signaled early results of the Wells/BofA mortgage race in past weeks. The Treasury reported in mid-April mortgage lending continued to grow since January, showing an increasing gap between the volume of purchase money mortgages and refinance volume as mortgage rates linger at historic lows and homeowners attempt to lower monthly payments. While both Wells and BofA showed strong growth in mortgage originations in February alone, Wells pulled far ahead of the competition.
Wells posted $34.8bn in mortgage originations in February, up a whopping 45% from $24bn in January. Refis accounted for 82% of Wells’ mortgage business in February, from 70% in January, according to the Treasury’s report. Meanwhile, BofA funded $28.7bn in mortgage originations in February, up more than 25% from $22.8bn in January. Refinances accounted for almost 78% of BofA’s February mortgage originations, with new home purchases made up the remaining $6.4bn.
The competing lenders also took the top positions in the commercial and multifamily origination market in 2008, according to a report released Tuesday by the Mortgage Bankers Association. BofA posted $37.69bn in commercial and multifamily origination volume, while Wells posted a close second with $37.57bn.
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.
Following an extensive evaluation process involving hundreds of applications, the Treasury selected AllianceBernstein LP, FSI Group, LLC, and Piedmont Investment Advisors, LLC to manage a $250bn portfolio under the troubled asset relief program (TARP).
The assets to be managed are issued by banks and other institutions participating in the Capital Purchase Program and other similar programs under the Emergency Economic Stabilization Act.
"By leveraging the professional experience and extensive resources of these investment management firms, the Treasury will ensure that the taxpayers’ assets are managed in a prudent and transparent manner," said the Treasury in a press release Wednesday.
The three firms will immediately begin providing asset management services to the Treasury, including valuing the government assets in the Capital Purchase Program, analyzing the ongoing financial condition of participating banks and evaluating their capital structure.
The Treasury received over 200 submissions from interested firms. The firms selected come from the pool of applicants that have over $2 billion in assets under management. In addition to these three asset managers, the Treasury said it intends to hire a group of smaller asset managers from the pool of applicants with less than $2 billion in assets under management, in order to ensure a diversity of service providers. The Treasury anticipates completing this second round of selections in the next 2 months.
Each of the agreements with the three firms is effective until April 20, 2014.
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.
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, real estate information provider DataQuick Information Systems reported Wednesday.
Lenders filed a record number of mortgage default notices — 135,431 in total — against California homeowners during the first three months of 2009 as the recession continues and as a temporary moratorium-related lull in foreclosure activity ceases.
Q109 posted an all-time high for any quarter in DataQuick's statistics, which trace defaults back to 1992.
"The nastiest batch of California home loans appears to have been made in mid- to late-2006 and the foreclosure process is working its way through those," says president John Walsh. "Back then different risk factors were getting piled on top of each other. Adjustable-rate mortgages can be good loans. So can low- down-payment loans, interest-only loans, stated-income loans, etc. But if you combine these elements into one loan, it's toxic."
Last quarter's defaulted loans showed a median origination month of July 2006 — only four months after the median origination month for Q108's defaulted loans, suggesting a period of "particularly lax" underwriting criteria, DataQuick said.
The increasingly poor behavior of consecutive vintages is especially telling. Lenders so far filed notices of default on less than 1% of the 3.7m home loans originated in 2004, whereas lenders so far filed notices of default on 4.9% of the 3.7m vintage 2005 loans. Of the 3m loans originated in 2006, 8.5% have so far resulted in default. "A particularly toxic period appears to have been August through November 2006 which had more than a 9% default rate," DataQuick said. "Of the 2.1m loans made in 2007, it's 4.6% — a percentage that's likely to rise significantly during the rest of this year."
While most Q109 foreclosure activity affected affordable inland communities, DataQuick saw signs the problem is slowly migrating into other areas. The affordable sub-markets representing 25% of the state's housing stock accounted for 47.5% of all default activity in Q109, down from more than 52% of all default activity in 2008. DataQuick found foreclosure resales emerging as a significant market factor, accounting for 58.1% of all California resale activity in the quarter, up from 33.1% last year. Foreclosure resales as a percent of total sale activity varied significantly by area, from 13% in San Francisco County to 80.8% in Merced County.
Write to Diana Golobay at diana.golobay@housingwire.com.
Editor’s note: HousingWire is receiving numerous responses to the tragic passing of David Kellerman, acting CFO of Freddie Mac. Many sound a similar chord to the perceived uneven treatment of his death in the mainstream media. One such opinion is published here, written by an industry veteran who wishes to remain anonymous. It is not reflective of the opinions or objectives of the HousingWire editorial staff, and represents a third party submission.
How did you feel when you heard that David Kellerman, acting CFO of Freddie Mac, allegedly committed suicide yesterday morning? I wondered what could possibly make a successful family man resort to taking his life.
In following coverage of this event, I viewed some reader comments on [a national news network] about the story. Theories of political intrigue, plots and payback abound. According to many of these comments, every single thing that happens to us is because of outside forces; everything we do has some ulterior motive.
Sometimes not everything is about politics.
Sometimes it’s about right and wrong.
When something like this happens, human nature dictates that we think the victim (yes, he is a victim) was guilty of something; that he took the ultimate way out to keep from getting caught.
We read that Mr. Kellerman recently received an $800,000 bonus, and that he had hired a security company to guard his house. We learn that reporters had been dogging him for comments about whether he deserved the bonus in view of Freddie Mac’s recent poor performance.
But buried in all the hype, after I managed to extricate myself from those disturbing comments about conspiracies and punishment, I found a Washington Post article that reported:
“Kellermann has figured in several recent controversies at Freddie Mac. He and a group of company lawyers tussled with the company's regulator in early March as the firm prepared to file its quarterly disclosure. The group insisted that Freddie Mac disclose the $30 billion cost to the company of carrying out the Obama administration's housing recovery plan, but the regulator urged the company not to do so.
Freddie Mac employees argued they had a legal obligation to disclose the information and would have to get the Securities and Exchange Commission, which oversees such disclosures, to sign off if they didn't. The regulator backed down.”
Did you read this carefully? Do you get it? This isn’t the story of a guy who was trying to cover something up. It’s the story of a guy who was trying to do the right thing.
If the information is correct, Kellerman and his cohorts insisted on reporting Freddie Mac’s financial status as they believed it should be represented, disclosing all of its obligations. It sounds like they were able to get the regulators to agree, but at what price? Who knows what machinations took place during those struggles, and who knows what the aftermath was/will be like, for Freddie Mac and for Mr. Kellerman personally?
Could it be that this guy, David Kellerman, was just trying to do his job to the best of his abilities, embracing the ethics and spirit of financial accounting as well as the technical requirements? Could it be that, rather than having something to hide, rather than feeling guilty about his bonus, he simply could no longer tolerate the grinding of the giant gears that continually attempt to convince the public, us taxpayers, that everything will be all right and that our government has everything under control?
Not everything has political undercurrents. Sometimes it’s just about right and wrong and trying to do your job. I don’t know what Mr. Kellerman’s feelings were at the time he allegedly took his life. I have no inside (or other) information about his job performance, or about his history with Freddie Mac. I do know that if he had worked there since 1992 – he was 25 when he started – he saw massive changes come to what was probably the only company he ever worked for. It’s possible that, in the end, he just couldn’t stand to see the company he loved be eviscerated.
In testimony today before the House Financial Services Committee the chairman of Mortgage Bankers Association (MBA), David Kittle, says the risk retention provision currently drafted in Mortgage Reform and Anti-Predatory Lending Act of 2009 (HR1728) would make it impossible for many lenders to compete, among other faults.
"First and foremost, HR1728 does not establish a national standard for mortgage lending to replace the uneven patchwork of state and local mortgage lending laws," Kittle told the committee. "We are just as concerned about the requirement that lenders retain at least 5% of the credit risk presented by non-qualified mortgages."
According to Kittle, the suppression of competition will be felt most acutely among non-depository lenders who do not keep significant cash on hand but rather rely on warehouse lines of credit. It is believed most lenders would have to retain the 5% in a reserve fund — an expensive prospect. This idea would ultimately narrow choices, lessen credit and significantly increase costs to borrowers, according to a statement released by the MBA. Supporters of risk retention argue that firms that are not forced to be on the hook in some form to their lending may be enticed into creating adverse mortgage products.
While the MBA maintains a broad support for the bill, in its current form HR1728 would raise costs on broad categories of safe mortgage products, including loans with adjustable rates, as well as fixed 15-, 20-, 25- and 40-year loans, Kittle says. He adds the bill would likely have the same effect on FHA, VA and Rural Housing loans, as well as some Fannie Mae and Freddie Mac mortgages.
He also reiterated the MBA’s commitment to ensuring that sound credit options remain available to qualified borrowers and suggested a more flexible set of standards to achieve this, without giving more specifics.
Additionally, the American Bankers Association (ABA) called for HR1728 modifications so that banks' traditional loans to creditworthy borrowers are not curtailed.
Speaking to the same committee Gary Berner, executive vice president of First Niagara Bank says any regulation or legislation should promote a return to universal and conservative underwriting practices like those maintained at most banks. Conservative practices must be codified and promoted for all lenders at the same time. At a minimum, legislation must ensure that non-bank lenders comply with the same duties of care as federally regulated banks.
"The fallout of the mortgage markets has been very troubling to the banking industry," Berner said. "It has been primarily the actions of loosely regulated non-bank lenders that have caused tremendous damage for consumers and for the lending industry."
Historically, the ABA embraces amendment from the Federal Reserve to curb subprime excesses and is committed to working with the Fed and other regulators. However, Berner also sounds an alarm on the risk retention provision of HR1728, "which would require the restructuring of much of the securitization market and likely would also require significant accounting changes," he says, adding that the availability of credit could be curtailed by requiring significant increases in capital requirements in the loan origination process.
Write to Jacob Gaffney at jacob.gaffney@housingwire.com.
