Archive for May, 2009
Fueling increased anxiety over potential job loss, one in four — or 24% of — homeowners don't have any money in savings to cover living expenses should they lose their income, according to a Wells Fargo & Company (WFC: 29.60 +1.89%) quarterly survey.
The number of respondents indicating job loss as their top concern increased from 21% in fourth-quarter 2008 to 29% in the first quarter of 2009. Respondents also expressed a stronger desire to increase savings while reducing debt — and to do so quickly.
Amid the tightening economy, only 23% of survey participants actually managed to increase savings this quarter, but 37% say they paid down some debt, while 12% claim their debt was completely paid off in the past year.
Feeling the pinch, people continue to make lifestyle changes — in some cases drastic ones — in order to reduce expenses. Since last year, the survey found an astonishing one-third of homeowners now have family or friends living with them. 42% of homeowners are spending less on their children and 39% are budgeting more, while 41% are buying only necessities.
Adding to widespread angst, job losses continue to climb. Initial jobless claims rose last week by 32,000 to 637,000, according to the US Labor Department, and the total number of people collecting unemployment insurance surged to a record 6.56m.
When asked what would boost their confidence in the economy, one in four participants say an improvement in their personal situation is the top indicator. Meanwhile, homeowners are waiting for the economy to improve to make a major purchase: 30% say the first purchase they will make will be home improvement, 18% will buy an automobile while 13% say they will take a vacation.
Reports yesterday show signs that consumers are already investing in minor home improvement projects, as giant home improvement retailer Lowe's (LOW: 26.91 -0.15%) reported better than expected earnings.
Write to Kelly Curran.
The US Treasury Department authorized BlackRock's (BLK: 187.49 -0.20%) second interview for one of five asset manager positions in the Public-Private Investment Program (PPIP), which aims to attract private capital in the hopes of clearing bad assets from banks and encouraging lending.
BlackRock, which manages $132bn in mortgage-related assets, plans to raise as much as $7bn to invest in the program, unnamed sources told the Wall Street Journal.
But BlackRock isn't the only contender in the race. The Treasury in late April boasted more than 100 applications from hopeful PPIP asset managers.
Treasury officials said in late April they planned to inform applicants of their preliminary qualification around May 15, when the fund managers needed to raise a minimum $500m for investment. The government match for these investments takes the form of taxpayer dollars, which will also go toward clearing toxic loans and mortgage-backed securities from banks’ balance sheets.
Treasury said it plans to open the program to smaller fund managers in the future with a lower minimum capital requirement.
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.
President Barack Obama is poised to sign a $490m piece of mortgage fraud legislation into law.
The House voted 338-52 late last night in favor of approving the legislation after it passed a Senate vote in April, according to a Market Watch bulletin.
The bill calls for millions of dollars split between government and regulator departments to hire fraud persecutors and increase efforts to crack down on mortgage lending companies not regulated or insured by the government. The preventative efforts aim to reduce risky or inappropriate mortgages originated on fraudulent terms.
The legislation allows $75m in fiscal year '10 and $65m in fiscal year '11 for the FBI to use its resources to go after suspected fraudsters. Furthermore, $50m goes to the US Attorneys’ office. Up to $40m in funding goes to the Justice Department, to be shared among the criminal, civil and tax divisions. The legislation also would provide $30m each fiscal year to the Inspector General for the Department of Housing and Urban Development for investigation of fraud cases.
The bill sets up a commission of experts to examine causes of the recent economic free fall and to propose likely solutions.
Write to Diana Golobay.
Housing starts plunged 12.8% from the revised estimate in March to a seasonally adjusted annual rate of 458,000 after dropping 10.8% the previous month, according to data released today by the US Commerce Department.
These starts, annualized based on the monthly rate, sit 54.2% below the revised April 08 rate of 1.001m.
Single-family housing starts, which exclude apartment construction, were at 368,000 units annually in April, 2.8% above the previous month's figure. The gain indicates a slight rebound in single-family housing supply after several months of stagnation and despite a continued slump in total residential construction.
Building permits inched down 3.3% from March to a seasonally-adjusted rate of 494,000 units in April. The monthly rate sits 50.2% below the revised April '08 level of 991,000 permits. Permits for single-family homes alone rose 3.6% from March to an annualized 373,000.
Write to Diana Golobay.
European investors of covered bonds, collateralized by prime residential housing, are looking to increase their exposure to the product, indicating a growing confidence in the securitization alternative.
Unlike a securitization vehicle, covered bonds are guaranteed to perform by the issuer in the sense that the bank is on the hook for any loses.
But that's not the only difference: the traditional investor base is distinct from that of securitization. Covered bond investors tend to be larger institutions that are happy with the fixed bullet payment structure, as opposed to the securitization pass-through structure that carries added prepayment and refinancing risk.
Additionally, the product is more fee-heavy, with the price of dual recourse to losses passed to the investor. Proponents, however, say the investor base may be changing as the securitization market remains stalled.
The news of increased interest in the product comes from the European Covered Bond Investors Survey, conducted by the European Covered Bond Dealers Association (ECBDA), and it isn't all rosy. Of the surveyed participants, just 64% of respondents wish to increase or maintain their investment in covered bonds for 2009.
Nonetheless, covered bond trading in Europe is enjoying a rally. Last week was the busiest this year for covered bonds with five transactions priced for a total of $8.8bn.
Total issuance year-to-date increased to more than $31bn according to research at Barclays Capital. "Covered bonds remains an important asset class for funding purposes as demonstrated by the increase in new issue activity we have seen this week," said Torsten Elling, who heads covered bond syndicate and trading at Barclays Capital.
In Europe, Crédit Agricole announced the first covered bond issue in January. Operated by its new subsidiary Crédit Agricole Covered Bonds, the issue is worth €1.25bn (US$1.62bn) with a seven-year maturity. The annual coupon is fixed at 4.5% equal to the swap rate for the same maturity at 135bp over Euribor.
The deal is secured on residential housing in France, originated by local banks with a base of highly granular homes.
Bank of America and Washington Mutual are the only two existing domestic issuers of covered bonds stateside. At any rate, there is still a US Covered Bonds Council (USCBC). JP Morgan is now handling the WaMu trades after the FDIC took control of operations there.
At any rate, perhaps in an indication of where geographical interest remains in American covered bonds, JP Morgan head trader Alberto Basu works out of London.
Write to Jacob Gaffney.
The seasonally-adjusted delinquency rate among residential mortgages reaches a record high in Q109, soaring to 7.9% from 6.3% in the previous quarter, according to statistics calculated by the US Federal Reserve. It marks the 12th quarterly increase since Q106, when the rate sat at 1.6%, as well as the highest rate in the Fed's records starting in 1985.
The staggering rates led to charge-off-related losses at the banks studied and indicate the residential mortgage industry may continue to unwind for quarters to come.
The performance of commercial real estate also deteriorated, climbing to a 6.4% charge-off and delinquency rate in the quarter, from 5.4% in the previous quarter.
The year-ago quarter illustrates the depth of the performance plunge in a few months. The Fed found residential mortgages experienced a 3.7% charge-off and delinquency rate, while commercial real estate loans posted a 3.4% rate among all commercial banks in Q108. The rates have nearly doubled in the past 12 months.
Among the 100 largest commercial banks in terms of domestic assets, the figures are even bleaker for the current quarter: 8.8% of residential and 6.39% of commercial real estate loans are in the charge-off and delinquency stages among the largest banks in Q109.
The Fed gathers data, including charge-off and delinquency figures, from all commercial banks for quarterly release.
Charge-offs are the value of loans removed from banks' books and charged against reserves, while delinquent loans are more than 30 days past due and either accruing interest or considered in nonaccrual status, according to the Fed's release.
Write to Diana Golobay.
In attempt to successfully wade the troubled waters of the economy, one national alliance of mortgage bankers is careful to continue its steady expansion.
"Independent mortgage bankers must rely heavily on the help of their peers to transform today’s mortgage challenges into opportunities for growth," says Scott Stern, CEO of Lenders One.
Following the addition of 42 new members in 2008, Lenders One Mortgage Cooperative continues to grow, adding seven new members to its cooperative in first-quarter 2009 and another six members in April.
New to the roster in first quarter include Ideal Home Loans out of Englewood, Colo., Covenant Mortgage, Westford, Mass.; Advisors Mortgage Group, Manasquan, N.J.; Platte Valley Bank, Platte City, Mo.; Pinnacle Mortgage Group, Lakewood, Colo.; and Trident Mortgage Company, Devon, Pa.
Stern says his company provides members access to quality products and services, while giving them opportunities to network with a variety of industry professionals.
"Lenders One’s business model gives us the power of combined purchasing and working with some of the best investors and vendors," says Julie Barker, executive vice president of Oakstar Bank, who believes the bank will become stronger because of its membership with Lenders One.
Write to Kelly Curran.
Following April's noteworthy progress, new home sales and traffic maintained improved levels in May.
But builders' caution of what's to come in the near term, according to the John Burns Real Estate Consulting May survey released today.
“We think the season’s modest uptick is fueled by Spring euphoria,” says John Burns, CEO of Irvine, Calif.-based John Burns Real Estate Consulting. “It’s been supplemented by improved affordability, low mortgage rates on conforming loans and federal and state new home tax credits.”
Although, further improvements are likely to hit roadblocks, the report says, as new home sales are continually forced to compete with foreclosures, buyers and builders face limited credit and unemployment continues uphill.
The Home Valuation Code of Conduct (HVCC) which took effect May 1, drastically changing the appraisal process, will likely be another leg down for new home sales in the near term, according to builders.
"Appraisers are now more likely to compare new homes to foreclosures, which can be 'apples and oranges' in many cases," Burns says. A significant 53% of the survey's respondents indicate HVCC will have a significantly negative or somewhat negative impact on their selling process.
Still, however, average sales per community have risen in May, driven by sales in entry level price points, with no region of the country reporting a decline. And 73% of survey participants have started homes, compared to 70% in April.
The percentage of homebuilders rating current sales as Poor continues to decline, now at 53% compared to 56% last month and 87% in January.
The ongoing issue of superfluous inventory shows improvement as well. The average number of unsold, finished units per community continues to trend down nationally, to 3.8 units from 4.0 last month. This is the lowest inventory level since the survey began in June 2008. Several builders even reported inventory getting tight in their respective markets.
Write to Kelly Curran.
Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) remain "critical concerns" as they continue to face the very challenges that led them into conservatorship last year, federal regulators said today.
The two mortgage giants still struggle to build staff and correct operational and credit management weaknesses, according to the FHFA's annual examination report. And large first-quarter losses sound warning of even more challenges to come as the housing market weakens further.
Since late 2008, the two entities have collectively required around $60bn in government capital in order to adequately support the mortgage market.
But despite significant trials over the past year, FHFA says the Enterprises did make strides in fulfilling their key mission of providing stability and liquidity to the conventional conforming loan market and keeping people in their homes through loan modifications and workouts.
Their support of the mortgage market grew by 5.6% in 2008 versus 14% growth in 2007, to a total of $5.2trn.
"If we had not put the Enterprises in conservatorship, we believe the downward spiral in the economy would have accelerated, because the Enterprises would have had to pull back dramatically from the housing market," FHFA Director James Lockhart said.
Lockhart, along with Treasury Secretary Timothy Geithner and other members of the oversight board emphasized, however, government conservatorship cannot be a permanent arrangement. But before the current model abates, the housing market will likely have to make a recovery.
The Obama Administration's efforts to push a higher volume of refinancings can help the companies improve their credit positions, the report says, though Fannie Mae this month also said implementing the plans could make it more difficult to return to profitability.
The oversight board also said in its report Federal Home Loan Banks continue to play a critical role in providing liquidity to their members through advances, which peaked at $1trn in October. "The FHLBanks' advance business continues to be a sound business with no credit losses," the report read.
Write to Kelly Curran.
Home builder confidence in May rose to the highest level since September 08 as inventory declined and affordability increased, according to survey results released today by the National Association of Home Builders (NAHB).
“Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime,” NAHB chairman Joe Robson, a home builder from Tulsa, OK, says in a statement today.
Housing affordability largely affects the conditions of the market's buy-side waters and borrowers' ability to not only purchase a home but maintain payments. The NAHB found the affordability for median house price rose to 72.5% in Q109 from 62.4% in Q408, the highest level in the index's 18-year history. The data indicates US households with a median income can afford the price of 72.5% of homes sold within the last quarter. The index remains well above the 53.8% seen in the year-ago period.
The national median house price in the quarter was $176,000, down from $219,000 in the year-ago period, while the average fixed mortgage interest rate entered into during the quarter was 5.14%, from 6.05% in the year-ago period, according to the NAHB.
"There are good signs on the horizon," NAHB CEO Jerry Howard says today in a media call. "It's fair to say we could be closing in on the bottom."
Despite the bright horizon, NAHB chief economist David Crowe in the media call warns of several "headwinds" possibly blowing the market's recovery off-course. Tightened underwriting standards led to decreased access to credit not only for borrowers but home builders, too. Higher expected ratios of down payment cash and smaller accepted ratios of monthly income devoted to payments also hinders borrowers' ability to access credit for home purchases, Crowe says.
These restrictions, however, are often the things championed as progress from the days of subprime lending, when borrowers put little — if any — cash down at the closing table and spent substantial portions of monthly income on mortgage payments. Tighter credit, according to HousingWire sources, indicates the industry's efforts to correct a history of imprudent lending habits.
Write to Diana Golobay.
