Archive for May, 2009
Pulte Homes (PHM: 7.79 -0.13%) just reported its Q109 loss narrowed to $514.8m, or $2.02 a share, compared to a loss of $696.1m, or $2.75 a share, from Q108.
The quarterly loss includes $410.2m of pre-tax charges related to inventory impairments and other land-related charges.
Despite the positive news — and dismissing the fact that current economic conditions mean narrowing losses are a good thing — revenue at the Michigan home builder fell by 3X and new orders also continue downward on a year-by-year basis.
The company reports $587.4m in revenue from $1.45 bn, Net new home orders for the quarter totaled 3,022 homes, down 44% from the first quarter of 2008 but up 71% from the fourth quarter.
Quarterly, things are more positive: the company generated 3,022 net new orders in the quarter, a 71% increase compared to Q408.
Richard Dugas, Jr., CEO of Pulte Homes says: "The housing market continues to face rising unemployment, tight mortgage availability, increased foreclosure activity and declining home prices, all putting negative pressure on buyer demand. Despite this backdrop, affordability for housing has reached historic highs due to lower home prices and outstanding 30-year mortgage rates. These excellent buying conditions, combined with sharply reduced new home inventory levels provide the setting for an eventual housing recovery which inches closer every day."
The results echo those of homebuilder D.R. Horton which saw signs of several small recoveries as year-over-year losses narrowed and net sales increased over the previous quarter.
Pulte is in the middle of a merger with another large home builder, Centex, in a deal that is proceeding on schedule for a Q409 integration completion and close.
That firm also separately announced its results.
Housing operating losses at Centex are $54m this quarter, compared to a loss of $112m in the previous year's fourth quarter, reflective of a 200bps improvement in housing gross margin and a 310bps increase in general expenses as a percentage of housing revenues. Centex's fourth quarter general expenses include $27m of costs related to severance and lease abandonment charges.
"We generated positive cash flow from operations for the seventh straight quarter, ending with $1.77bn in cash and cash equivalents on hand," said Timothy Eller, CEO of Centex. "Additionally, the previously announced combination with Pulte continues to progress as expected, and we still anticipate the closing to be in the third calendar quarter of this year."
It seems the current recession could be prompting significant migrations from certain parts of the U.S., similar to a trend seen during the Great Depression.
And not only are Americans moving, they're moving farther, according to new data.
A survey from Relocation.com released Tuesday shows consumers are moving longer distances and making more out-of-state moves compared to a year ago, mainly due to economic factors like the loss of a job. The percentage of respondents who moved more than 1,000 miles reached 70%, nearly double the figure recorded in a similar survey conducted in early 2008.
The latest U.S. Census Bureau data actually shows a decrease in the total number of Americans who have recently moved. In 2007, 13.2% of Americans moved, while 11.9% moved in 2008, posting the lowest rate since 1948.
But of those consumers who moved, the new Relocation.com data shows that the financial crisis had a definite impact, with 60% more consumers now listing financies as the primary reason for moving compared to last year; 41% of respondents indicated that the recession and housing crisis had a strong influence on their decision to move.
The survey also found 3% of respondents lost their home through foreclosure, while 13% reported a job loss.
The number of people who said they moved for family reasons rose from 18% in the 2008 survey to 28% in 2009. Relocation.com says the numbers could reflect people moving in with family members to cut costs, a desire to be close to family members or other reasons.
"Even though a smaller total number are relocating, consumers are still on the move for jobs, better housing or family reasons," says Sharon Asher, chairman and founder, Relocation.com. "We are seeing more out-of-state moves from traditionally popular destinations, likely because of high foreclosure rates and diminished property values."
A small percentage of movers were making moves for the better with five percent of those surveyed moving to a "bigger, better" house, while 8% were looking for a better neighborhood to improve their lifestyle.
Relocation.com is an online marketplace that connects consumers who are relocating with professional movers. The website also provides free quotes for such services to web browsers.
The researchers at the website analyzed nearly 500,000 moving quote requests made to Relocation.com in 2008, the company found cities in the West and South continue to appeal most to people relocating. The biggest beneficiaries of population displacement around the nation were the Carolinas, which saw nearly 80% more moving requests to move to North Carolina than to leave North Carolina. South Carolina saw nearly 70% more moving requests to move into the state than to leave, while Texas saw 66% more and Georgia saw 36% more.
Write to Kelly Curran at kelly.curran@housingwire.com.
Private mortgage insurer Radian Group (RDN: 2.66 +2.70%) posted a $217.4m net loss, or $2.69 per share, for Q109.
"Our net loss in the first quarter was primarily attributable to unrealized mark to market losses on derivatives and the continued increase in mortgage insurance defaults," CEO S. A. Ibrahim said in the company's earnings statement. "Despite facing difficult operating conditions, we believe that our mortgage insurance franchise remains strong with sufficient capital to continue writing quality new business throughout 2009."
Additionally, unrealized losses on derivatives represented $284.4m of the total pre-tax loss of $334.4m, according to the statement. The mortgage insurance provision for losses of $322m reflects the continued increase in the primary first lien default rate, which rose to 13.2% at quarter-end.
First quarter paid mortgage insurance claims, however, came in below expectations at $152m for first liens and $88m for second liens. Radian said it expects an increase in paid claims on first liens through 2009 as new and existing defaults move into the claim stage and various foreclosure freezes and moratoriums expire.
The company said it wrote $5.6bn in new mortgage insurance in the quarter.
Radian expects second-quarter paid mortgage insurance claims of $300m and the full-year paid claim range of $1.2bn to $1.4bn.
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.
GMAC Financial Services posted a $675m net loss for Q109 in its preliminary first-quarter results, a widened loss from its $589m net loss last year.
The losses in GMAC's mortgage operations, however, narrowed more than 85% from the year-ago period, coming in at -$125m, from -$859m a year earlier. The segment continued to experience pressure as credit performance weakened, but mortgage origination volume began showing signs of improvement, the company said. For example, GMAC experienced $13.2bn in loan production in Q109, compared with $8.2bn in Q408.
"Margins have improved due to higher government production, and favorable interest rates have led to an increased level of refinance activity," company officials said in the preliminary earnings results.
To mitigate losses from increased delinquency rates and declining home prices, GMAC began participating in the Making Home Affordable modification initiative. The company said it distributed 100,000 "financial packages" so far to homeowners who may qualify.
Growing strength in GMAC's mortgage operations in recent months has grown the company's presence in warehouse lending, a segment of the mortgage industry that has suffered as retail lenders pull away from correspondent channels.
HousingWire looks in depth at the warehouse shortage and GMAC's re-emergence as a leading warehouse provider in the June 2009 magazine issue.
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.
Swiss banking giant UBS (UBS: 14.05 +0.50%) posted a net quarterly loss of 1.98bn in Swiss Francs (CHF). This is equal to $1.75bn and represents a narrowing from the $8.45bn (CHF9.56) loss taken in the previous quarter.
A $530m (CHF600m) goodwill impairment charge relating to the sale of UBS Pactual, in concert with risk positions — resulting from businesses UBS has either exited or is exiting — drove the quarter's loss.
Nonetheless, the company reduced its risks and balance sheet, trimming its risk-weighted assets by 8.1% in the quarter. It also began cutting operating expenses, which UBS said it expects to decrease by $3.09bn to $3.54bn (CHF3.5bn to 4bn) by year-end 2010.
"There has been an improvement in market sentiment during the first quarter, with a strong rebound in global stock market indices since early March, but the credit markets improved only partly and trading in complex financial products remains illiquid," UBS officials said in the earnings statement.
"The strong influence that government policy has on the market environment was clearly demonstrated in the first quarter as investors became less risk averse," company executives added. "However, the real economy has continued to deteriorate, and this is expected to have negative implications for credit-related provisioning in coming quarters."
The company's BIS tier 1 ratio stood at 10.5% while its BIS capital ratio was 14.7% in the quarter, both down from 11% and 15% respectively in the previous quarter. Despite the quarter-over-quarter slip in the ratios, the BIS tier 1 still held above the 10% UBS had previously predicted.
The company's loss was not wholly unsuspected, as UBS warned in mid-April it would lose $1.75bn and cut its head count by 11%. “The loss stems from a negative contribution totaling roughly CHF3.9bn due to losses on previously disclosed illiquid risk positions, credit loss expenses and valuation adjustments on the last positions transferred to a fund controlled by the Swiss National Bank,” UBS officials said in its April media release.
UBS shares traded on the New York Stock Exchange at $14.21, down 2.5% in mid-morning trading when 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.
Fitch Ratings cut the ratings of monoline Assured Guaranty, in another blow to the insurer's ability to do business. Assured is likely to continue to face rating struggles, a particular challenge, since under the terms of monoline operations, an insurer can not insure anything that carries a superior rating.
This means that Assured Guaranty, cut from triple-A to double-A will not face the opportunity to insure prime bonds, even in the municipal space, the traditional playground of monoline activity before the firms moved into mortgage-related bond assurance.
Fitch says its decision is based on the fact that Assured Guaranty continues to face negative credit migration within its combined insured portfolio, though primarily related to structured finance.
The deteriorating performance is outpacing the company's ability to build capital resources through earnings retention, according to Fitch Ratings.
The firm lost its Moody's Investors Service triple-A rating last November. As with Moody's, Assured objects to the reasons behind the downgrades, arguing that it's exposures to housing deals inked during the boom, is limited. Further, after falling under considerable scrutiny themselves, ratings agencies are constantly tightening criteria, in ways that don't always please clients and investors alike.
["Fitch's] decision reflects their new and more pessimistic assumptions about the economy and the future credit performance of our structured finance portfolio, in particular for US residential mortgage-backed securities (“RMBS”) and trust preferred securities collateralized debt obligations (“TruPs”)," says Dominic Frederico, CEO of Assured Guaranty.
"Both of these assumptions are subject to considerable uncertainty that will dissipate within the next several months as the economy begins to benefit from the federal government’s economic stimulus plans and mortgage assistance programs. Fitch’s action today results from the higher loss assumptions projected by their model because of these pessimistic assumptions, thereby changing their evaluation of Assured’s capital position relative to their rating criteria."
Fitch’s ratings on Assured Guaranty $200m of 7.0% senior notes due 2034 are now single-A, down from single-A plus. Ratings on Assured’s $150m series A enhanced junior subordinated debentures are now rated single-A negative, down from A.
With close to $18.4bn of net par in force as of Dec. 31, 2008, mortgage-related exposures are a particular area of concern and potentially represent a material source of credit risk.
Additionally, exposures to $7.3bn of trust preferred securities collateralized debt obligations, is considered by the credit rating agency as an "adverse credit development," which creates pressure upon the company's capital position vis-a-vis its current ratings level.
Changes to the Real Estate Settlement Procedures Act (RESPA), of all the regulatory changes affecting the mortgage industry this year, pose the greatest compliance concern for lenders in 2009, according to recent research.
74% of lenders who participated in a survey conducted by QuestSoft cited adjustments to fee accuracy rules set forth in RESPA as major concern for lending practices.
To prevent kickbacks that increase the cost of settlement services, RESPA requires lenders to supply complete disclosures to consumers during several stages of the transaction process. The new rules specify that lenders must provide borrowers with a Good Faith Estimate (GFE) within three days of receiving an application as one such disclosure.
QuestSoft says HR1728, which passed the House Financial Services Committee on April 29, has added to the confusion. The House bill would negate the current RESPA changes and force a rewrite to better complement the Federal Reserve's Truth in Lending Act (TILA).
"RESPA changes are very confusing right now, and lenders do not believe regulations will get easier to understand anytime soon," said Leonard Ryan, president of QuestSoft in a press release today.
In addition to the changes to RESPA, 54% of the surveyed lenders said that changes to Home Mortgage Disclosure Act (HMDA), which requires lenders to disclose public loan data to prove complete service within their community, posed major concerns in 2009. 49% of respondents cited Red Flags adherence as a major concern, 45% said compliance with federal, state and local consumer laws and 39% cited borrower identity fraud.
Faced with regulator pressure to secure $10bn in fresh capital, Citigroup (C: 30.87 +1.61%) is considering some creative pay alternatives for its employees. It's also considering forcing shareholders to step up to the fund-raising initiative.
Now Citi, which received $45bn in government aid through the Troubled Asset Relief Program (TARP), may pay more employees on a commission basis, pay out larger base salaries to avoid awarding bonuses, or even pay out special stock-based bonuses, unnamed sources told Thomson-Reuters.
Citi is also in discussions to force holders of more than $15bn of trust preferred shares to transfer to common stock to meet capital requirements measured in the recent bank stress tests. Citi may threaten to cease interest payments to stock holders that refuse, sources told Financial Times.
The considerations come as Citi is reported to face either seeking private capital or conversion of the Treasury Department's preferred shares to common stock — consequentially creating a partial-ownership scenario — to meet capital requirements under the government-initiated stress tests. Other banks pressured to raise capital may include Wells Fargo (WFC: 29.60 +1.89%), Bank of America (BAC: 7.29 -0.14%) and some regional banks, sources told the Wall Street Journal.
The stress tests results, scheduled for public release later this week, may show as many as 10 of the 19 banks tested lack sufficient capital to withstand a deeper, longer-lasting recession than currently anticipated, sources told Bloomberg. Banks can meet much of the capital requirements through stock conversions, although this option carries the negative connotation of a significant government stake, which rings of nationalization.
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.
Real estate appraisal management company StreetLinks National Appraisal Services on Monday announced the integration of its systems with loan origination software provider Ellie Mae, expanding the reach of compliant services just days after a new regulation cracked down on appraisals.
The partnership allows users of Ellie Mae's Encompass software to order appraisals through StreetLinks and receive completed reports within their loan origination system and without having to use separate systems or risk duplicate entries often associated with a less streamlined approach.
"Through this integration, lenders can launch an appraisal order with the push of a button from within their loan origination system," StreetLinks chief operating officer Tony Ebeyer said in a media statement. "This will reduce processing time and eliminate errors inherent in duplicate entry."
Accuracy of information, especially when it comes to the appraisal process, is even more important now that the May 1st deadline has passed and the revised Home Valuation Code of Conduct has officially become effective. 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.
StreetLinks, which recently announced the expansion of its Indianapolis-based operations center, is a non-influence, fully HVCC-compliant appraisal management service provider offering compliance solutions to mortgage bankers.
Write to Diana Golobay at diana.golobay@housingwire.com.
Home builder D.R. Horton (DHI: 14.39 +1.91%) late Monday reported a quarterly net loss of $108.6m, or 34 cents per share, as lack of demand continues to pressure the residential construction industry. The company saw signs of several small recoveries, however, as year-over-year losses narrowed and net sales increased over the previous quarter.
The quarterly loss, driven by costly inventory impairments and land option contracts the builder said it no longer intends to pursue, illustrates a slowing of losses since the year-ago period, when D.R. Horton lost $1.3bn, or $4.14 per share.
The builder closed 3,585 unit sales in the quarter for $775.3m in revenue, compared with the 6,719 units sold in the year-ago quarter at $1.6bn in revenue. Not only were the company's business and losses larger last year, but so was its backlog of homes under contract.
In the quarter ended March 31, 2008, D.R. Horton had 8,947 homes — at $2.1bn — on its sales order backlog. In the same quarter this year, the builder had 4,581 homes — or $963m — in backlogged orders. The company's cancellation rate came in at 30% for the quarter.
The company reported 4,160 net home sales in the quarter alone and a total of 6,937 net home sales for the running six-month period. The figures indicate the previous quarter saw only 2,777 net home sales, for a quarter-over-quarter increase of 49.8% in net sales.
"We saw a seasonal increase in sales activity in the March quarter, with our net sales increasing 50% from our December quarter," chairman Donald Horton says in the earnings statement. "However, market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence."
The company announced it had terminated its homebuilding revolving credit facility and refused to borrow its potential $275m, which D.R. Horton said it would not need, as it has a "substantial cash balance." Terminating the facility also allows the company to save more than $3m annually in fees.
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.
