Archive for May, 2009
Commercial and multi-family mortgage origination volume in the first quarter slipped 26% from Q408 and is down 70% from the year-ago period, according to a survey released Wednesday by the Mortgage Bankers Association (MBA). The data illustrates the nation's credit woes are not isolated to residential mortgages.
A slide in commercial mortgage-backed security (CMBS) conduit loans led the overall decline in origination, the MBA said. Conduits for CMBS plunged 96% since the same time last year. Once again, CMBS lags behind the residential mortgage market, suggesting the worst may lie ahead for the commercial market.
Investors reduced their participation even since last quarter, from an 83% decrease in conduits for CMBS, to a 37% drop in commercial bank portfolios. The government-sponsored entities' volume fell by 17% while life insurance companies decreased 7% in Q109.
Multi-family origination slipped 39% from the fourth quarter and held 61% below levels seen at the same time the previous year.
"In the first quarter of 2009 we saw the effects of the continued recession coupled with little demand from borrowers and a constrained supply from lenders as a result of the credit crunch," said Jamie Woodwell, commercial real estate researcher at MBA.
CMBS weighed on origination in the quarter, but the market may have found an ally in federal regulators. The Federal Reserve on May 1 announced CMBS and securities backed by insurance premium finance loans as of June are eligible collateral for participation in the Term Asset-Backed Loan Facility (TALF). The additions are aimed at stimulating lending in the commercial real estate and small business sector by allowing private investors to purchase securities with a matching government investment.
“The CMBS market came to a standstill in mid-2008,” Fed officials said in a media statement. “The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties.”
Write to Diana Golobay.
Illinois-based homebuilder The Kirk Corporation just filed for Chapter 11 reorganization under the US bankruptcy code.
The Chicago construction firm says it need to reshuffle operations in order to secure credit lines to service the sales of recently built homes. The employee-run firm states the decision is being made on a voluntary basis.
Day-to-day operations at Kirk Homes will likely continue as normal, said CEO John Carroll.
"We are confident that the reorganization process gives us more opportunity to work with our lenders JP Morgan Chase, Bank of America and others, and to secure additional financing, which will allow us to continue building high quality homes for Chicago area homeowners for many years to come," he said.
"We enter this process with strong fundamentals, robust sales at many of our communities and the continued commitment of our employee owners to work through this temporary situation and emerge as an even stronger organization."
Carroll said that Kirk Homes' standing inventory is significantly less than the industry average, and that while under the protection provided by the filing, the company will complete homes currently under construction, begin new construction on recently sold homes and continue new home sales and marketing. Construction is expected to start on any sold homes that have not already begun construction within the first 60 days of reorganization.
Kirk Homes also will seek to sell its non-residential properties at a variety of sites in Northern Illinois.
Write to Jacob Gaffney.
The assets used to underwrite several securitization series put together by parties affiliated with Morgan Stanley Capital are now the focus of litigation by pass-through certificate investors who claim underwriting did not meet proclaimed standards.
While the series passed SEC regulations, the class action lawsuit bought by Coughlin Stoia Geller Rudman & Robbins claims the registration statement omitted and/or misrepresented the fact that sellers of the underlying mortgages to Morgan Stanley Capital were issuing many of the mortgage loans to borrowers who did not meet the prudent or maximum debt-to-income ratio purportedly required by the lender or provide adequate documentation to support the income and assets required for the lenders to approve and fund the mortgage loans pursuant to the lenders' own guidelines.
The suit also claims borrowers were steered to stated income/asset and low documentation mortgage loans by lenders, lenders' correspondents or lenders' agents, such as mortgage brokers, because the borrowers could not qualify for mortgage loans that required full documentation.
In addition, the investors say borrowers did not have the income required by the lenders' own guidelines to afford the required mortgage payments which resulted in a mismatch between the amount loaned to the borrower and the capacity of the borrower.
The case seeks to recover damages on behalf of so-called pass-through certificate investors. In ABS payments are made to third parties via pass-through certificates in which investors are compensated according to the rating of each traunch.
Housing Wire is currently unclear as to the status of the lawsuit, but can confirm the claim that the SEC approved the regulatory structure of the series in question.
Coughlin Stoia is asking that anyone involved with this series contact them by the first week in June.
Write to Kelly Curran.
Mid-size banks have a new advocate in warehouse lending, even after large retail lenders cut down on facilities or completely exit the space.
Lending solution provider Mortgage Warehouse Network (MWN) launched a platform offering banks the connections needed to establish and maintain a warehouse facility without creating a separate bank division to manage the lines. Warehouse lines allow banks to generate profit on short-term investments while simultaneously offering the industry needed access to funding for single-family mortgages.
“In these times of low interest rates and surplus capital, banks are looking for ways to bring higher returns on equity while still staying in safe investments,” says MWN's CEO Dennis Ferstler in a media statement.
As retail lenders like Citigroup (C: 30.87 +1.61%) and JP Morgan Chase (JPM: 37.21 -0.75%) shutter or slash warehouse facilities, independent mortgage bankers face a growing shortage of funding. A Wells Fargo (WFC: 29.60 +1.89%) spokesperson recently confirmed to HousingWire that the bank plans to launch a $4bn warehouse facility, indicating at least one major lender sees value in operating within the space
“From a risk standpoint, the warehouse lending business is now one of the best businesses a bank can be in because the industry is only funding safe, pre-approved agency paper,” says MWN's COO Jeff White in a media statement.
The company offers a seamless technology platform that manages operations, funding logs, fraud detection, redundant underwriting and real time reporting so banks interested in entering warehouse lending can keep an accurate record of operations and avoid errors associated with manual processes.
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
California, Arizona and Florida home prices will fall considerably farther before stabilizing in late 2010, according to the latest US home price forecast from Fitch Ratings released today.
Additionally the credit agency is reporting that, for now, residential mortgage-backed securities (RMBS) tied to the properties remain unchanged.
California is likely to lead the way with an additional 36% decline in home prices over the next 12 to 18 months, while Florida and Arizona are expected see prices plunge over 20% from today's levels.
Not surprisingly, these states saw the largest run up in prices between 2002 and 2006. To date, home prices in these three states fell by a whopping 40% on average peak-to-trough.
However, Fitch says the additional declines remain within the ranges previously predicted in its RMBS rating actions and therefore, are not expected to lead directly to any widespread negative rating actions.
California, Arizona and Florida account for about 50% of the overall non-agency mortgage origination volume over the past four years. Home price declines in the higher volume states outside of these three fared substantially better and are expected to see more moderate declines, Fitch says.
Places such as Texas and Illinois are anticipated to see further declines of 1% and 9% respectively and New York prices are forecast to fall an additional 11% before the market reaches stabilization.
Write to Kelly Curran.
The German Finance Ministry is planning to create a bad bank to hold, on its own balance sheet, risky assets to be swapped with government backed bonds, according to information released on its website.
The announcement is in some ways surprising, considering the central government's positioning against such measures. The country is also home to the oldest covered bond platform, the Pfandebrief, where asset-backed bonds must be held on balance sheet. Germans hold a special place in their heart for this product and often view securitization as a sort of wicked step-child. This move will no doubt further ingrain this mentality and may prove to be more damaging in the long-term that envisioned.
Therefore it is likely that the bad bank will apply more to securitization structures, such as collateralized-debt obligations, which allow for rapid short-term refinancing, if the liquidity is available.
The bad bank is likely to take up to 10% in haircuts for its troubles, as well as fees for servicing. Nonetheless, the offer is still more attractive that what the European Central Bank is laying on the table, where ABS swaps can run up to 18% in haircuts.
Analysts long claimed that ECB rescue operations are unsustainable as the central bank piled up its balance sheet with risky assets for much of 2008, so that by this year, it could really take on no more.
Under the German plan, the bad bank may hold the asset for up to 20 years if necessary. Another obvious benefit is in asset versus liability management, whereas bank need no longer claim these toxic assets on their own balance sheet.
However, a translation of the Finance Ministry's proclamation in German, indicates a longer term strategy behind the bad bank: one where the government is establishing a vertical slicing solution to securitized assets, where shareholders and bond investors alike may take a hit.
Although government-sponsored entities Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) increased their foreclosure prevention actions by 9% in February, completed foreclosure sales at the GSEs surged nearly 900% from January, according to the foreclosure prevention report issued Tuesday by the Federal Housing Finance Agency (FHFA) on behalf of the enterprises.
FHFA director James Lockhart touted a 26% growth in completed loan modifications between the GSEs, while repayment plans grew 38% in February. Loan modifications accounted for 43% of all preventative actions in the month, he said, up from 43% in January. Of the month's modifications, 70% involved both interest rate reductions and term extensions.
Credit quality deteriorated in the month, however, as collateral performance declined. Some 41,000 loans became 60+ days delinquent in February, bringing the total delinquent volume among the enterprises to 1.1m loans. One in 10 nonprime loans, which account for 16% of the enterprises' combined 30.2m loans, qualified as 60+ days delinquent at the end of February.
The deterioration seen in the month hardly touches the massive influx of foreclosure sales completed on mortgages that became delinquent up to three months before. The enterprises temporarily froze foreclosure sales on owner-occupied properties from late November '08 to late January '09 and then revived the moratorium for the last two weeks of February.
"The suspension led to a substantial reduction in completed foreclosure sales in December 2008 and January 2009," FHFA's Lockhart said.
Once the moratorium expired at the end of January, however, completed foreclosure sales surged to 28,897 in February from 3,222 the month before. And that was just for the first half of the month. The second freeze expired March 6. If February's data is any indication, sales might also spike in next month's report.
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 Home Valuation Code of Conduct took effect May 1, drastically changing the appraisal process, essentially requiring that appraisers are selected and assigned to all appraisals on a blind basis via third-party platforms. Two weeks later, the code's regulations still brew confusion within the lending sector, prompting one mortgage technology company to provide a means of clarification.
Mortgage technology company FNC compiled audio files of its recent HVCC call briefings as well as a printable copy of the Code itself in efforts to bring the industry up to speed. The company on Tuesday posted the information on its Web site for review.
The confusion surrounding HVCC is not a new phenomenon, according to sources that spoke with HousingWire. Just days before the Code went into effect, companies cried out for clarification.
"In addition to numerous calls from companies telling us that they have no idea where to begin getting themselves prepared for the HVCC, we're also finding that many who think they're prepared are actually no prepared at all — simply because they're operating under some fundamental misconceptions," Vladimir Bien-Aime, president of Global DMS, told HousingWire days before the Code went into effect.
Bank executives say it shouldn't be too difficult to bring existing operations into compliance — although the issue of compliance is likely to be a bit different for smaller mortgage bankers. "From our perspective, it's a matter of changing the systems we already have in place," said one senior bank executive who asked not to be named.
Write to Kelly Curran.
Mortgage giant Freddie Mac (FRE: 0.00 N/A) posted a $9.9bn net loss — or $3.14 per share — in Q109, from the $23.9bn net loss in Q408. The company's refinance-loan purchase volume quadrupled since the previous quarter, but poor performance of securitized loans drove Freddie into a net worth deficit.
During the quarter, Freddie purchased or guaranteed $148bn in mortgage loans and mortgage-related securities. With 30-year fixed mortgage rates near historic lows, Freddie's single-family refinancing-loan purchase volume during Q109 increased to approximately $95bn, nearly four times the refinancing volume the company experienced during Q408.
Freddie saw its real estate-owned operations expenditure rise to $306m in the quarter from $291m in the fourth quarter. Higher REO disposition volumes drove the increase, officials said in the earnings statement today.
Credit-related expenses of $9.1bn and $7.1bn of securities impairments on deteriorating collateral performance drove the company's massive losses. Partly offsetting the losses were net mark-to-market gains of $3.8bn on Freddie's derivative portfolio, guarantee asset and trading securities.
The losses tipped Freddie into a $6bn net worth deficit between the company's assets and liabilities as of March-end. The Federal Housing Finance Agency (FHFA) acting as conservator requested $6.1bn in funding from the Treasury Department through its funding commitment. The Treasury's commitment, part of the purchase agreement entered with FHFA, was amended as of May 6 to $200bn from $100bn. After the $6.1bn draw, Freddie said $149.3bn remains in Treasury's commitment.
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.
Private capital firm Paramax and Maria Fiorini Ramirez, a firm providing independent economic forecasts, teamed-up to target investment opportunities within the US Treasury's Public-Private Investment Program (PPIP).
"Successful execution of PPIP could help to unfreeze the credit markets and jumpstart the recovery of the housing finance sector," said Paramax CEO Gordon Baird, who believes investment PPIP is an opportunity for the newly formed group to play a significant role in the recovery process.
The group joins the ranks of more than 100 firms that hope to participate in the investment program.
The PPIP, announced in late March, aims to stimulate more private capital investments in order to generate some $500bn in purchasing power to buy toxic assets.
The program faced somewhat 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.” In other words, the Treasury will not automatically throw out a proposal that doesn't meet all the requirements.
Paramax, one of the first participants in the Treasury's TALF funding program, invested in or financed over $17bn in mortgage and credit related assets. The firm's management team underwrites and manages more than $70bn in PPIP-eligible assets. Paramax also uses long-term private capital for buy and hold strategies – the type of capital ideally situated for investing in the PPIP and other financial sector assets, Paramax says.
In other reports today, media outlets say the Treasury is expected to notify a group of asset managers that they were picked to oversee the first wave of public-private investment funds. The selected firms will likely include BlackRock and Allianz SE's Pacific Investment Management.
Write to Kelly Curran.
