Archive for May, 2009
A program aimed at helping delinquent borrowers become current once more on their mortgages will likely see decreased volumes at mortgage giant Fannie Mae (FNM: 0.00 N/A) after the Federal Housing Finance Agency (FHFA) noted a significant majority of participants soon redefaulted after receiving aid.
Fannie first launched the HomeSaver Advance (HSA) program in February '08 as a solution for borrowers experiencing temporary hardship. It allows servicers to offer unsecured, personal loans so delinquent borrowers can keep up on payments until the temporary hardship — unemployment, sickness, etc. — passes and borrowers can resume regular payments.
"This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure," a Fannie executive in the single-family credit risk management division said in a media statement announcing the program.
But as mortgage performance deteriorated through '08, Fannie's conservator, FHFA, noticed an alarming trend among the mortgages participating in the advance program.
"HSA is showing high redefault rates on the early offerings," FHFA director James Lockhart noted in a Congressional report this week. "Performance on the February through April offerings shows a redefault [or recidivism] rate of almost 70%, which calls into question the program's assumptions that borrowers have the capacity to make payments going forward."
In response to the sliding performance of these mortgages, Fannie took steps to focus on modification options like the Administration's Making Home Affordable (MHA) program. The company revised its mortgage workout heirarchy to favor the Home Affordable modification program.
"The HSA is not an appropriate foreclosure prevention alternative, and must not be used, for a borrower with a permanent or long-term financial hardship," Fannie officials said in the late-April report revising its heirarchy. Instead, the new heirarchy reccommends HSA as an appropriate alternative to the MHA modification program in cases where the borrower experiences only a temporary hardship and cannot qualify for MHA.
"Given the depth and scope of MHA, we anticipate a decrease in HomeSaver Advance volumes," Fannie spokesperson Amy Bonitatibus tells HousingWire. "Although HomeSaver Advance loans continue to be a viable foreclosure prevention solution for borrowers facing a temporary hardship, other home retention strategies, particularly modifications, are becoming more prevalent based on assessments of the needs and condition of borrowers."
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.
BankUnited just took over BankUnited (BKUNA: 0.00 N/A), and its not even Friday.
The Florida-based BankUnited Financial saw a number of bidders swirling this week, as the bank looked for buyers after receiving a ‘deal or die’ directive from the Office of Thrift Supervision. And, as sources originally told HousingWire, the winner is WL Ross & Company, funded by a consortium put together by billionaire investor Wilbur Ross. (That the newly-formed bank is taking the name of the bank it is assuming is sure to confuse a few of us.)
The Federal Deposit Insurance Corporation (FDIC) brokered the deal.
BankUnited's 86 offices will be open tomorrow during normal business hours. BankUnited, the successor institution, will be headed by John Kanas, a veteran of the banking industry and former head of North Fork Bank. Kanas had been hired by the Ross group in recent weeks, in anticipation of the acquisition.
While depositors may be happy to know their concerns are FDIC insured, loan holders will need to continue to pay back debt. The move will be disappointing to at least one shareholder, who shared his thoughts on the matter with HousingWire earlier this week: "I am very concerned that the FDIC will seize BankUnited and the shareholders will be wiped out completely," he said. "I sincerely cannot believe that the FDIC in good faith would accept an offer or bid under the condition to wipe out the equity of the shareholders and seize the bank."
Incredulity aside, BankUnited's assets are $12.8bn and deposits are $8.6bn as of May 2.
According to a statement from the FDIC, the new BankUnited will assume $12.7bn in assets and $8.3bn in nonbrokered deposits. The FDIC and BankUnited entered into a loss-share transaction and will share in the losses on approximately $10bn in assets covered under the agreement. The new BankUnited will recapitalize the old BankUnited with $900m in new capital, as well.
The new BankUnited will not assume the approximately $348 million in brokered deposits. The FDIC will pay the brokers directly, it said.
Write to Jacob Gaffney.
Seen circulating around mortgage trading desks today — set to Amy Winehouse's "Rehab:"
They want to make me try to refi,
but the Bank said – No-No-No!
Documents I lack,
but once my LTV comes back.
You will know-know-know.
I haven't paid on time,
but the Treasury thinks I'm fine.
They want to make me try to and refi,
but the Bank said – No-No-No!
I've got a 7% FHA,
ain't paid it in 90 days
Cause there's nothing, nothing the bank can do… to reach me
Unless they come take my keys…away!
As the extent of the damage to monolines from deteriorating mortgage performance continues to unwind, at least one credit rating agency is busy again this week considering downgrades.
Moody's Investors Service placed the Aa3 insurance financial strength ratings of monoline Financial Security Assurance on review for possible downgrade. The action comes as the firm's US insured mortgage portfolio continues to deteriorate, affecting its capital adequacy.
Another monoline on Moody's review list, Assured Guaranty, recently suffered a ratings chop from triple-A to double-A by Fitch Ratings. According to a company media statement, Assured is also faces review for possible downgrade by Moody's. But Assured is not going gently into that good night, as CEO Dominic Frederico issued a response to the announcement, insisting the ability of the firm's insured portfolio to weather further economic downturn.
"It appears, based on our recent discussions with Moody's, that they have once again increased their economic and housing market assumptions — to a level significantly more stressful than that used by the Treasury in its recent stress testing of banks," he says.
The changing standards used by the main ratings agencies indicates the financial guaranty industry would benefit from the formation of a single regulator with clear standards for rating purposes, according to Frederico.
"We believe that the financial markets cannot and should not continue to be subjected to volatility and uncertainty due to the rating agencies' undisclosed changes in assumptions," he says in the response statement. "Moody's review of our insurance financial strength ratings may lead to near-term uncertainty and volatility in the markets that we serve — particularly in the municipal market, where we are effectively the only major active financial guarantor."
"Greater transparency of the factors and assumptions driving Moody's review would allow investors and issuers to draw their own conclusions about Moody's opinion of our financial strength," he adds.
Write to Diana Golobay.
Fifth Third Bancorp (FITB: 13.23 +1.15%) and Huntington Bancshares (HBAN: 5.70 +1.06%) revealed late Wednesday capital-raising action plans.
After failing to successfully endure the government's stress tests, meant to evaluate the potential performance of the nation's 19 largest banks under more severe economic conditions, Fifth Third was told on May 7 it must raise a capital buffer in sum of $1.1bn.
The company says two capital transactions, if successful, will provide common equity capital beyond the capital requirement set forth by the stress test results.
Fifth Third plans to sell up to an aggregate of $750m of its common shares from time to time through an at-the-market offering through Morgan Stanley and Merrill Lynch & Co. as sales agents or principals.
Some of that $750m will be used to partially fund an exchange offer to some of its preferred stock holders. Holders of the bank's $1.1bn Series G convertible preferred depository shares will be offered a fixed cash payment of $30 per share, in addition to a conversion of the common shares underlying the Series' shares.
According to the $7.99 closing price of Fifth Third's shares on May 18, the transaction offer values the Series G depository shares at $99.03, which tops the $91.69 closing price of the preferred securities on May 18, the bank explains.
These transactions, along with similar exchanges and the sale of non-strategic assets will more than cover the government's capital requirement, the bank says.
Huntington
Huntington didn't qualify as one of the nineteen biggest banks and was therefore not examined by the government; however, the bank has borrowed $1.4bn in government funds under the Troubled Asset Relief Program.
The bank has taken it upon itself to boost common equity by about $675m, in order to help repay the government.
Huntington plans to raise $350m selling new common stock. About $75m is expected to result from the after-tax gain on a cash tender for three series of Huntington trust preferred securities. And the remaining $250m will be raised by way of liability management initiatives, the adoption of new accounting standards and the exchanges of other capital instruments, among others initiatives.
"These actions should result in a sufficient equity cushion to accommodate even the adverse credit scenario used by the government " says Stephen Steinour, Huntington CEO.
Write to Kelly Curran.
Amid ongoing efforts by the Federal Reserve to lift billions of dollars in agency mortgage-related assets from banks' balance sheets and the Administration's intent to push interest rates down, mortgage rates across the US continue to hover near historic lows.
Fixed mortgage rates slipped in the week ending May 21, according to Freddie Mac's (FRE: 0.00 N/A) weekly survey. Thirty-year fixed mortgage rates averaged 4.82% with an average 0.7 point, down from 4.86% last week, while 15-year fixed rates averaged 4.5% with with an average 0.7%, down from 4.52%.
Adjustable-rate mortgages (ARMs) were mixed in the week ending May 21, with 5-year Treasury-indexed hybrid ARMs averaging 4.79% with an average 0.6 point, down from 4.82% last week. At the same time, 1-year ARMs averaged 4.82% with an average 0.6 point, up from last week's 4.71%.
“Long-term fixed-rate mortgage rates have remained below 5% for the past 10 weeks as the US Treasury and Federal Reserve act to keep interest rates low through security purchases,” says Freddie's chief economist Frank Nothaft in a media statement today. The Fed through mid-May bought $740 billion in MBS, according to Nothaft, pushing its balance sheet to $2.12trn in the week ending May 13, up $1.25trn from the year-ago week ending May 14, 2008.
A separate rate survey conducted by Bankrate.com found conflicting results, however, as the 30-year fixed mortgage rates it studied averaged 5.24% the same week, up 3bps from the previous week. More in line with Freddie's results were 15-year fixed rates, which averaged 4.74%, 2bps down from last week, according to Bankrate's survey.
The monthly payment on 30-year fixed mortgages, which grew in popularity for home purchases after borrowers found refinancing out of increasingly expensive ARMs increasingly difficult, averaged $910.11, Bankrate found. This average sits $3 above last week's average but still historically low, indicating high levels of affordability.
But even if prospective buyers jump at the opportunity, stricter underwriting standards among lenders often make for a drawn-out closing process, according to Bankrate's mortgage report author Holden Lewis.
"While mortgage rates remain steady, wait times keep stretching longer — specifically, the time that elapses between applying for a mortgage and closing on it," Lewis says. "Only an optimist would count on getting a loan funded within 30 days of application."
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.
First time claims for state unemployment benefits dropped 12,000 to a seasonally-adjusted 631,000 in the week ending May 2, according to the Labor Department, dampening signs of improvement seen in some housing markets.
“In many markets we’ve seen signs you’d expect to see not long before prices would normally stabilize: robust investor and first-time-buyer activity, 10-plus months of year-over-year sales gains, and less price erosion, if any,” says John Walsh, MDA DataQuick president, speaking of the California housing market.
“The problem,” he continues, “is that we still face…layoffs," as does the rest of the US.
The largest increases in initial claims this week were seen in Michigan — where a whopping 16,817 people filed a claim, according to the department's most recent data — followed by North Carolina, Virginia, Kentucky and Pennsylvania.
The nation-wide insured unemployment rate for the week — the proportion of covered workers who are receiving benefits — continued to rise, from 4.9% to 5.0%, marking the highest level since at least December 1982.
And the total number of people who remained on the benefits roll in the reported week after collecting at least one week of aid hit a new record high, climbing 75,000 to a seasonally-adjusted 6.66m, according to Labor Department data.
Nonetheless, the four week moving average of initial claims across the US, which can smooth volatility in employment trends, actually dropped by 3,500 to 628,500 claims.
In a separate report this week, Wells Fargo (WFC: 29.60 +1.89%) said one in every four homeowners do not have any money in savings to cover living expenses should they lose their income, fueling yet more anxiety over job loss.
Write to Kelly Curran.
The long-term sovereign credit rating outlook of the UK is now downgraded, according to credit rating agency Standard & Poor's.
The new 'negative' credit outlook, from 'stable', comes based on the fact that the government is continuing to borrow at levels that are quickly reaching 100% GDP.
The news is likely to force the government to reconsider stamp duty relief—the suspension of taxes on recently purchased properties. The decision to extend the 'holiday' on stamp duty through the rest of 2009 will continue to erode tax revenues.
The rise in unemployment in the country also represents a double hit: A loss in taxable income coupled with a rise in benefit pay-outs.
The decision to modify the long-term credit rating outlook hints that S&P may lower the country's triple-A rating to double-A if conditions in the UK coffers do not improve.
If such a downgrade occurs, the government would no longer be able to issue triple-A debt, which would make Treasuries less competitive than other triple-A rated nations, such as the United States. Standard & Poor's credit analysts say: "We base our opinion on our updated projections of general government deficits in 2009-2013."
"These projections reflect our more cautious view of how quickly the erosion in the government's revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow," they add.
The rating agency notes that the triple-A ratings of the UK are confirmed for the time being. Long-term rating outlooks assess the potential direction of a rating, typically over a period of up to two years. An outlook does not necessarily precede a rating change.
Meanwhile, housing conditions in the country are not improving. Gross mortgage lending declined to an estimated £10.4bn ($16.3bn) in April, down 9% from £11.4bn in March and 60% from £26.1bn in April 2008, according to new data from the Council of Mortgage Lenders, a trade body that represents around 95% of real estate players in the UK.
"It’s still too early to spot a clear pattern of recovery in the housing market as some commentators have suggested," says CML director general Michael Coogan. "Activity remains weak, and we have said we will see volatility in monthly lending figures as we bounce along at the bottom of the market. Our forecast for gross lending of £145bn in 2009 remains unchanged."
Write to Jacob Gaffney.
Following a free fall in much of 2008, the value of many households' largest asset — their home — seems to show signs of stabilization so far in 2009.
A composite index of 25 major metropolitan areas across the US showed a 0.3% slide from February to March, adding to the composite measurement's Q109 stability, according to a monthly housing report released today by Radar Logic.
“While not a bottom, the stability in home prices we are seeing is certainly good news,” says Radar Logic CEO Michael Feder in a media statement today.
House prices improved in 11 of the 25 major metropolitan areas studied for the report. Six of the remaining areas showed declines less severe than those seen in the previous month.
The Boston market showed the strongest month-over-month gain (6%) in house price per square foot — the measurement used by Radar Logic to remove the factor of house size and to show house prices in real terms. Denver followed closely with a 5.7% increase since February, while Milwaukee house prices rose 5.6% and Charlotte posted a 5.1% increase.
The Washington, DC market fell the farthest in terms of price per square foot, dipping 7.5% below February's levels. The only other area to come close, Las Vegas, fell 4.3% from the previous month, while the other 12 areas that showed declines only fell less than 2% from last month.
Sales counts rose in 23 of the markets since February, in line with historic seasonal patterns for the month, Radar Logic found. The findings also correspond to increases in so-called "motivated" sales — a kinder term than "foreclosure" sales — across 23 local markets on a year-over-year basis during the month, and in 21 areas on a month-over-month basis.
The increases correlate with expiring foreclosure freezes and moratoriums that dragged down foreclosure sales in previous months, Radar Logic's analysts say in the report.
Foreclosure sales, which historically bring 20% less than non-foreclosures, pull down house prices in hard-hit areas. An influx in foreclosure sales following the expiration of many moratoriums might have a negative impact on house prices in future reports, making the stability seen in the first quarter a seasonal anomaly.
And with online foreclosure marketplace RealtyTrac reporting foreclosure filings up 32% in April from the same time last year, it's unclear how much longer housing markets across the US have to unwind.
Write to Diana Golobay.
Investors have a new way to track the performance of mortgages and home equity loans backing non-agency mortgage-backed securities (MBS).
Asset-backed securities surveillance data provider Lewtan Technologies today unveiled the beta version ABSNet Loan, with an official release scheduled in June. The new product provides up-to-date key performance metrics and predictive variables of the loans backing certain MBS.
"Obviously, the continued deterioration of loans backing non-agency securitized pools necessitates a loan by loan review of credit risk," says Lewtan's spokesperson Ned Myers in a press release today. "Coupled with the lack of consistent, normalized, timely, and transparent data otherwise available in the market, ABSNet Loan became a logical extension to Lewtan's market-leading surveillance data and analysis tools."
"We have found that investors have taken greater ownership of the credit analysis of their holdings in this credit downturn," Myers adds.
The new offering provides investors with an in-depth look at the potential of each loan involved and aims to help investors make informed decisions and track investments more closely than before through Lewtan's platform. Users either download the product directly or use a Web-based interface for broad accessibility of the data.
Write to Diana Golobay.
