Archive for May, 2009
Citigroup (C: 30.87 +1.61%) plans to lend $1bn in mortgages to qualified borrowers looking to refinance their primary residences.
Today's announcement comes as part of the bank's four new initiatives that will cost up to a combined $8.25bn, as outlined in its second quarterly Troubled Asset Relief Program progress report.
Citi's efforts to lend to the mortgage industry are not limited to the refinancing effort. The bank today touts $8.2bn of TARP capital already committed to the economy as of March-end, primarily to purchase mortgage securities in the secondary market and consequentially free up capital in mortgage lenders' balance sheets.
Citi also worked with homeowners to prevent costly foreclosures on mortgages totaling more than $50bn. Citi prevented 80,000 foreclosures in Q109 alone, the bank says, with mitigation solutions outnumbering completed foreclosures by more than 10 to one.
The new programs approved in the first quarter also include an initiative for the bank to lend up to $5bn to state and local governments, municipal agencies, universities and non-profit hospitals to fund long-term projects that should create jobs and economic growth. The bank says it will provide loans to double-A-rated municipal clients either to begin investment projects or refinance existing debt.
Citi also plans to commit $2bn to supplier financing, purchasing trade receivables from and providing liquidity to small- and medium-sized businesses. As its final initiative announced today, Citi plans to lend $250m to consumers through financing departments at auto dealerships across the nation.
The announcement comes just days after stress test results revealed Citi will need $5.5bn in fresh capital to weather the more severe economic conditions projected by federal regulators.
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.
House prices across the US in March fell an average 1% from February and are down 13.9% from the same time last year, according to a monthly report released moments ago by Integrated Asset Services (IAS).
The report, which rolls house price data from thousands of 'neighborhoods' into counties for a detailed local view, indicates a slowing of the decline over the last several months. Prices on a national level slipped 3% in February on top of the 3.5% plunge in January.
"There was at least some leveling off in house prices for March, but it's too soon to call it a rebound in the housing market," company CEO Dave McCarthy writes in the report. "We'll keep looking at prices at the county level to see if there's any cumulative light emerging at the end of the tunnel."
Prices slipped 2.5% for the month in the Midwest region, which reported the highest number of unemployment claims — 81,957 — for the same period, according to the Bureau of Labor Statistics. House prices also slipped 1.3% in the South, 0.8% in the West and remained virtually unchanged in the Northeast, which also reported the smallest number of initial jobless claims, the report notes.
McCarthy linked the geographic spread of home price decline to the rising levels of unemployment claims, which might indicate joblessness, inability to pay, default and foreclosure (which historically brings 20% less than non-foreclosure sales).
Write to Diana Golobay.
Monoline bond insurer MBIA, Inc. (MBI: 12.18 +1.50%) posted a surprise profit for shareholders in Q109, despite ongoing issues in its structured finance portfolio. Analysts had largely expected a loss. The firm said it earned $696.7m, or $3.34 per share, during the first quarter, compared with a net loss of $2.4bn, or $12.92 per share, in the year-ago period.
Net income in Q109 was primarily driven by $1.6bn in pre-tax unrealized net gains on insured credit derivatives. MBIA also announced that it wrote no new structured finance business this quarter, but said that it is receiving turnover from existing platforms. The existing book of SF business generated $119m in scheduled premiums earned, an increase of $25m from $94m one quarter earlier.
The company warned the trend isn't likely to continue, however, as elevated mortgage defaults will take their toll later this year due to "a combination of high levels of ineligible loans in the mortgage pools, the overall weakening in the economic environment, servicer performance-related issues and relatively few successful loan modifications by the loan servicers."
Bond insurers like MBIA provided the top-rated portions of RMBS and related CDO deals with a guarantee that essentially was designed to serve as a private-party proxy for the implicit and explicit government guarantees that exist on Fannie/Freddie/Ginnie mortgage bond issues. But the strength of any such guarantee is only as good as the credit rating of the firm that provides it, which means that increasing MBS losses have led to downgrades affecting both the securities in question, as well as the insurers that guaranteed principal and interest payments to investors.
Of MBIA's $224.8bn insured portfolio, 30% is tied to U.S. commercial and residential mortgage-backed securities, with another 12% in so-called multi-sector CDO deals. (Many such CDO deals involved tranches from subprime RMBS.) Of its $29.7bn in U.S. RMBS exposure, $7.3bn in net par outstanding lies in subprime and Alt-A first liens, with another $15bn in HELOCs and closed-end second liens, MBIA reported.
Overall, the company's structured finance operations incurred a $636m loss for the quarter; the firm said much of the loss was tied to its exposure in its quickly-souring second liens, as home values continue to descend. Second-lien RMBS deals saw an increase in early stage delinquencies late last year and early this year, MBIA said, which ultimately resulted in a greater-than-expected level of losses being realized.
Like many monolines, MBIA signaled it will look to deny claims payments for losses on deals it wrapped on the grounds that the quality of the underlying collateral was materially misrepresented to the insurer at the time of underwriting. MBIA is currently litigating against both Countrywide as Residential Capital LLC on just such grounds. The company hopes to be able to recover what it called a "substantial" portion of existing loss reserves incurred during Q1, as a result, although it did not speculate on the amount of any expected recoveries. Potential future recoveries notwithstanding, however, gross loss payments for the quarter totaled $750m — $614m of which was tied to second-lien RMBS, MBIA said.
The firm is expecting total loss payments for the year to fall just short of $1.9bn, according to an investor presentation.
Write to Jacob Gaffney.
American International Group, Inc. (AIG: 25.25 +0.44%) reports a first-quarter loss of $4.35bn, or $1.98 per share, driven in part by a number of restructuring charges, the company said late last week. Additional hits to AIG's balance sheet comes in the form of unwinding credit default swaps programs and risky investments in debt obligations backed by residential properties.
First quarter's loss is far narrower than the record $61.7bn Q408 loss, which marked the largest quarterly loss in the company's history.
But company executives said in a conference call Thursday there will be additional restructuring costs in the future as AIG continues to unwind financial products. AIG reported a $1.9bn pre-tax charge for restructuring costs in Q1, primarily related to this wind down.
Since December 31, 2007, the notional amount on AIGFP’s derivative portfolio has been reduced by more than 40% from approximately $2.7trn at December 31, 2007 to about $1.5trn at March 31, 2009.
AIG chairman and CEO Edward Liddy said first quarter 2009 results reflect the company's efforts, with the ongoing support of the Federal Reserve and Treasury, to execute the company's plans "designed to maximize the value of core businesses and repay taxpayers."
After AIG's initial government rescue in September, the Treasury agreed in March to exchange an existing $40bn in preferred shares for new preferred shares under revised terms that will "more closely resemble common equity and thus improve the quality of AIG’s equity….” The Treasury also promised up to $30bn in exchange for non-cumulative preferred stock through a new and upcoming equity capital facility, of which the company has yet to tap.
First quarter operating income at AIG's general-insurance business dropped 72%, while general-insurance net premiums fell 18%. Life-insurance and retirement-services profits decreased to $1.2bn.
Write to Kelly Curran.
Goldman Sachs (GS: 111.77 +2.96%) is paying the commonwealth of Massachusetts $10m as a result of an agreement between the firm and the state's Attorney General regarding subprime loan activity and related securitization activity.
Goldman is also pledging an addition $50m for loan refinancing to make the subprime mortgages more affordable to the borrowers. No money is set aside, as of yet, for any third-party investors who may feel the ouch from today's decision.
Under the settlement, Goldman is agreeing to significant principal write-down. Goldman will reduce the principal of first mortgages by up to 25 to 35% and second mortgages by 50% or more as part of the deal.
The move allows subprime borrowers to stay in their homes as long as they can still afford some kind of substantial monthly payment. Further for borrowers who can't make such a payment for six months Goldman will reduce the principal owed on the existing loan to assist the borrower.
Loans serviced by Litton Loan Servicing, Goldman's affiliate, will spearhead this assistance. However, by cooperating with the state prosecutor, Goldman is making an admission of guilt, according to Attorney General Martha Coakley.
"We are pleased that Goldman cooperated during this investigation and that it has committed to working with our office to help Massachusetts borrowers who are struggling with unsustainable subprime loans," she said. "We will continue to investigate the deceptive marketing of unfair loans and the companies that facilitated the sale of those loans to consumers in the Commonwealth."
Goldman Sachs is not commenting.
The investigation is likely to continue, as today's announcement does not address a few points the AG set out to investigate when it launched its inquiry into Goldman in December 2007.
In that referendum, the AG set out to examine if Goldman also failed to correct inaccurate information in securitization trustee reports concerning repurchases of loans.
The Attorney General is also investigating if Goldman failed to make available to potential investors certain information concerning allegedly unfair or problem loans, including information obtained during loan diligence and the pre-securitization process, as well as information concerning their practices in making repurchase claims relating to loans both in and out of securitizations.
Write to Jacob Gaffney.
Lawyers are looking to cash in on the distressed asset space more and more as the real estate market continues to collapse.
California-based Reed Law created a "Distressed Real Estate Practice Group" in order to deal with the rising demand for legal guidance when dealing with distressed assets.
Managing partner Karyn Reed says the creation of the group is in response to the growing emotional nature of real estate litigation.
"These types of complicated, and often contentious, real estate transactions have been a key aspect of our practice for years," she said, but because these distressed asset "skills are needed by so many more people, for even more complicated matters, we have carved out a separate practice area within our firm."
The law firm is also expanding in other areas as a sign of the times, such as restructuring real estate deals, handling joint venture disputes, offering foreclosure avoidance strategies and settling. landlord-tenant issues.
Write to Jacob Gaffney.
The PMI Group (PMI: 0.00 N/A) is posting a first-quarter 2009 loss of $115.3m, or $1.41 per share, from continuing operations, driven primarily by higher-than-expected negative earnings and loss adjustment expenses (LAE) in its US mortgage insurance operations, the company said today.
The loss is narrower than the $181m loss Q408 — also driven by its US mortgage insurance operations — due largely to a higher net gain from credit default swaps and lower expenses. A nearly 10-fold surge in net gain from credit default swaps boosted the insurer's revenue which jumped about 6% from last quarter to $115.3m.
But the company's challenges are evident in its reserve for losses and LAE, which totaled $2.9bn as of March 31, 2009 compared with $2.7bn as of December 31, 2008 and $1.6bn as of March 31, 2008.
Reserves for losses and LAE in the US mortgage insurance increased in the first quarter of 2009 by a whopping $230m to $2.9bn, partially offset by a $66.7m credit from reinsurance recoverables, primarily from captive reinsurance agreements. The increase in the quarter for reserves for losses and LAE was primarily due to increases in notices of default, and higher expected claim rates and claim sizes.
In mid-march, PMI said in a filing with the Securities and Exchange Commission that it was exploring alternatives to enhance liquidity and capital, as its mortgage insurance business continued to prove a significant drag on the company’s assets.
The insurer said it maintained sufficient liquidity to repay $200m in outstanding debt under a revolving credit facility. PMI also states that is now tapped out, as a result, and does not hold enough reserves to cover balances due on outstanding senior notes. If not cured within 30 days, the facility will default and trigger repayment obligations on PMI’s senior notes, which may impact the firm's long-term health.
On Friday, the company announced that it reached an amended agreement with lenders that would completely replace the current credit facility. The new facility is required to meet certain covenants to avoid default by the end of this month.
Among those covenants includes the repayment of $125m of its borrowing under the facility. Certain conditions will require the consent of third parties and regulatory approval, the insurer said in a press release. And there can be no assurance that those consents and approval will be obtained by May 29, 2009.
Upon an event of default, the Company would likely be required to repay all outstanding indebtedness under the facility and the lenders would have the right to terminate their loan commitments under the facility.
Write to Kelly Curran.
The Federal Reserve approved final revisions to the Truth in Lending Act late last week.
The finalized requirements made by the Fed for mortgage loans will provide early cost disclosures to borrowers under the Mortgage Disclosure Improvement Act (MDIA), enacted in mid-2008.
Under MDIA, creditors must give so-called "early disclosures," or good faith estimates of mortgage loan costs, within three business days of receiving an application and before collecting any fees from a consumer in accordance with the Truth in Lending Act (TLA).
The MDIA broadens the TLA requirement even further by requiring these early disclosures for mortgages on dwellings other than the consumer's principle dwelling, such as a second home.
The final rules also require creditors to wait seven business days after they provide early disclosure before closing the loan and to provide new disclosures with a revised annual percentage rate (APR) — and wait an additional three days before closing — if any change occurs that makes the original APR inaccurate.
The rules allow a consumer to speed up the closing process in the case of a personal financial emergency like foreclosure. The new provisions become effective July 20, 2009 for all applications received from that day forward.
Critics have said the push for more disclosure even before the closing table puts pressure on third-party originators like mortgage brokers that must essentially detail the commission they stand to make off the origination. Brokers say this makes competition among third-party mortgage originators impossible.
HousingWire examines the House of Representatives' most recent action to curb third-party incentive compensation involved in mortgage origination in the upcoming June magazine issue.
Write to Diana Golobay.
Bond insurer Ambac Financial Group (ABK: 0.00 N/A) lost a net $392.2m, or $1.36 a share, in Q109 as its platform linked to residential mortgage-backed securities (RMBS) continued to deteriorate.
A positive net change in fair value of credit derivatives drove $279.7m in pre-tax net income, company executives say in the earnings statement today. Losses, loss expenses and other-than-temporary write-downs in Ambac's RMBS portfolio offset much of the unrealized gain in credit derivatives.
"The credit environment remains adverse, although perhaps the rate of degradation is slowing," Ambac CEO David Wallis says in the statement.
Certain Alt-A RMBS suffered $744.7 in other-than-temporary impairment write-downs, which drove the quarterly net loss, officials say. "Continued deterioration in the performance of the underlying RMBS loans was observed, most prominently in the Alt-A affordability product" which includes negative amortization and interest-only loans," company executives say in the statement.
Such steep losses and performance deterioration led Moody's Investors Service in mid-April to slash the company's Ambac Assurance bond insurance unit to junk. Company officials in the earnings statement said the downgrade of Ambac Assurance and Ambac Assurance UK to Ba3 from Baa1 had no material impact on corporate-wide liquidity or collateral requirements.
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.
The Federal Reserve purchased a gross $73.9bn of mortgage-backed securities (MBS) from government-sponsored entities Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A) and Ginnie Mae in the week ending May 6.
After a weekly record of $48.53bn in MBS sales, the Fed's net purchases totaled $25.37bn for the week.
The Fed bought $9.09bn off Freddie's books, $61.56bn off Fannie and $3.25bn from Ginnie in its ongoing efforts to clear mortgage-related assets from the agencies, freeing up securities investment power and in turn encouraging continued mortgage lending by banks.
The Fed bought $28.9bn in MBS with a 30-year maturity and a 5.5% coupon; $28.4bn of those purchases are scheduled to settle in May. Meanwhile, $26.53bn of the Fed's sales were 30-year MBS with 5.5% coupons. These sales are scheduled to settle on the Fed's balance sheet in June.
See a detailed chart of the Fed's weekly purchases and sales.
The month of lag between settlement of purchases and sales continues since the Fed first began reporting settlement months with its weekly data. The dollar amounts of sales as they pertain to corresponding purchases have somewhat evened out, however, indicating at least a month-to-month balance between liabilities taken onto the Fed's balance sheet and assets sold off.
The difference is evident in the weekly balance sheet, which has contracted slightly in recent weeks. The Fed's balance sheet shrank by $46.2m in the week ending May 6, to a total $2.04trn. The balance is still up $1.17trn from the year-ago week ending May 7, 2008, according to the Fed's data.
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.
