Archive for June, 2009
As the financial and banking industry prepares for President Barack Obama's formal proposal of regulatory overhaul, a report issued this week highlights one federal regulator's actions preceding the costly failure of Downey Savings and Loan.
The Office of Thrift Supervision (OTS) regularly monitored Downey, noting problems but failing to issue anything more than an informal enforcement action, according to a government watchdog.
The Office of Inspector General (OIG) for the US Treasury Department this week published a report on the failure of Downey, which the OTS closed in November and which so far has cost the Federal Deposit Insurance Corp.'s insurance fund $1.4bn.
OIG's report concludes the Newport Beach-based thrift had high concentrations of pay-option adjustable-rate mortgages, low-doc and subprime loans among its single-family mortgages. Pay-option ARMs accounted for 91% of Downey's single-family loans by year-end 2005.
"The downturn in the California real estate market that started in 2006 exposed the risk in these loans and Downey suffered large losses and erosion of capital," the report says.
Single-family residential loans made up 86% of Downey's assets in September 2008 and by then, 20% of its borrowers were more than 30 days delinquent.
This concentration of risk combined with inadequate risk monitoring, a high management turnover rate and "unresponsiveness to OTS recommendations" — including instances where management often challenged OTS opinions — ultimately led to the thrift's downfall, OIG found.
The report notes OTS regularly examined the thrift but fell short of its own written guidance in issuing only an informal — rather than formal — enforcement act in 2006 in response to Downey's trouble.
OIG reserved some mild language concluding OTS should more closely review thrifts in the future.
Write to Diana Golobay.
Foreclosure sales in California rose 31.9% in May after jumping 35% the month before, according to a survey by ForeclosureRadar.
The service, which tracks each foreclosure in the state, noted 30% fewer foreclosures went to sale at auction from the same time last year. The total auction sales in May — 17,871 properties — represented more than $8bn in total loan value, although the majority — 83% — of these sales started at an opening bid at an average 58.6% of the loan value, according to the survey.
Notices indicating the date and time of foreclosure auctions spiked 42% from April, reaching a record high and indicating a likely continuance of the rising trend of sales in months to come.
The survey noted that "lenders continue to voluntarily postpone the majority of foreclosure sales," although a law that took effect this week will make such freezes mandatory for some lenders that don't already have a thorough modification program in place.
Notices indicating default, the first step in the foreclosure process, actually fell 4.2% from April and were down 3.1% from the year-ago period.
“While many complain that lenders are foreclosing too aggressively, and others claim a wave of foreclosures sales is imminent, the data actually shows that lenders are doing everything possible to delay foreclosure,” says ForeclosureRadar CEO Sean O’Toole. “The reality is that we have very few homeowners being foreclosed on when viewed as a percentage of those scheduled to be foreclosed on, in default, delinquent, or upside down in their mortgage.”
Of the foreclosures scheduled, lenders postponed 40% percent at their own request and another 33% at the mutual request of the lender and borrower. In May, lenders weren't under obligation to modify, which would have shown up as a cancellation of foreclosure sale, rather than postponement, ForeclosureRadar says. Instead, May saw a record low 6% of scheduled foreclosure sales canceled.
Write to Diana Golobay.
Total mortgage application activity fell 15.8% in the week ending June 12 despite slightly lower average rates from a week earlier, according to a survey released today by the Mortgage Bankers Association (MBA).
The volume of refinance applications plunged 23.3% in the week, pulling the refinance share of total mortgage applications down to 54.1% from 59.4% a week earlier. The slide in refinance popularity in recent surveys correlated with rising mortgage rates.
But not this week.
The free fall in refi applications came despite falling average contract interest rates in both short- and long-term mortgages. According to data tracked each week by the MBA, the average borrower closing on a 30-year fixed-rate mortgage in the same week ending June 12 locked into a 5.5% rate, down from 5.57% a week earlier.
The average fixed interest rate for 15-year mortgages came in at 4.99% this week, from 5.1% a week earlier, while one-year adjustable-rate mortgages averaged 6.54% rates, from 6.75% a week before.
Rates have even further to fall if borrowers expect to obtain much-needed refinanced mortgages, says Field Check Group analyst Mark Hanson in market commentary today. "At present I estimate the there are $200bn in refi loan applications in process at lenders and brokers across the nation of which most will die unless rates get back at 5% with little cost — post-haste," he says.
A separate application survey conducted by Mortgage Maxx and released Tuesday showed household activity declined 8.2% in the same week. The Mortgage Application Index — or MAX — adjusts total data to count multiple applications submitted by a single household as one participant. The index specifically for California slipped 6% in the week.
The MAX publisher Paul Descloux, in his weekly commentary on the index, warned the refinance popularity wave is drying up as mortgage rates inch upward despite the Federal Reserve's best efforts.
"The MAX continues to retreat as the efficacy of the Fed’s alphabet soup treatments become publically doubted," Descloux writes. "The MAX is now down 23 percent the past four weeks, and 38 percent off the 2009 high. With rates nearing six percent for pristine credits, mortgages are making a round trip back towards five-year highs."
"For now," he adds, "housing looks to remain in intensive care as green shoots get shorn."
Write to Diana Golobay.
First American CoreLogic, a subsidiary of real estate services conglomerate The First American Corporation (FAF: 14.98 +0.07%), said Wednesday morning that it has acquired BasePoint Analytics, LLC, a well-known provider of predictive analytic fraud and risk management solutions for the mortgage and global banking industries.
The purchase was not unexpected, sources familiar with the transaction told HousingWire. First American CoreLogic originally formed a strategic partnership with BasePoint Analytics in 2005, and held a 40 percent minority interest in the company. The transaction includes BasePoint Analytics' patent-pending process for fraud detection in the review of loan applications, CoreLogic said in a press statement.
CoreLogic is looking to integrate BasePoint's technology for fraud detection with its own substantial loan-level data, according to First American CoreLogic CEO George Livermore. Once seen as a costly and unnecessary tool by lenders during the housing boom, Wednesday's acquisition signals just how important fraud prevention has become in a much-changed mortgage marketplace, as well.
"This transaction is consistent with our strategy of continuously improving the fraud detection process for our clients," he said. "The complete acquisition of BasePoint Analytics provides an opportunity to intensify and accelerate the combination of First American CoreLogic's data and analytic resources with BasePoint Analytics' proven fraud technologies."
Tim Grace has been appointed senior vice president of fraud analytics, to oversee the development and management of First American CoreLogic's fraud analytics solution suite, the company said. Grace was formerly president and chief operating officer at BasePoint, where he was responsible for managing the day-to-day operations of the company, as well as implementing strategic initiatives and pursuing new business opportunities.
Write to Paul Jackson.
Efforts to educate borrowers and promote responsible home ownership are growing, recently with a grant program for housing counselors that will give away 23% more government funds as last year.
The US Department of Housing and Urban Development today announced more than $58m in grants for housing counseling agencies and state housing finance agencies that coach consumers on how to purchase or rent homes, avoid foreclosures, improve credit scores and qualify for reverse mortgages.
"Now, more than ever, it is crucial that American families make informed decisions about their housing choices," says HUD Secretary Shaun Donovan in a media statement today. "These counseling agencies are also vital to the success of the President's Making Home Affordable Plan which is helping families avoid foreclosure and remain in their homes."
HUD's grant program helps HUD-approved counseling agencies provide home ownership and financial literacy education. The $58m will be distributed to approximately 400 applicants: $47m will be awarded for comprehensive counseling, $8m will fund reverse mortgage counseling, $2m will support loan document review counseling and $1m will go toward fair lending and mortgage fraud analysis and counseling.
Write to Diana Golobay.
The end of the economic recession later this year won't necessarily mean relief for thousands of unemployed homeowners struggling to make payments, according to the American Bankers Association's (ABA) Economic Advisory Committee.
Bank economists generally see the recession ending in the third quarter, signaling economic growth despite lingering highs in unemployment.
“The economy will return to growth but not to health,” says Bruce Kasman, committee chairman and chief economist for JP Morgan Chase, New York. “Growth in the coming quarters is likely to gather momentum but will not prove sufficiently robust to undo much of the severe damage done to our labor markets and public finances."
The committee sees an end to the three-year housing market downturn, with housing starts rising later in 2009 and home prices moving modestly higher in 2010.
"Lower prices and low mortgage rates have greatly improved the affordability of homes,” Kasman adds. “A recovery in the housing sector will be an important contributor to economic growth.”
But credit conditions are likely to remain tight and employers will continue to shed jobs, pushing unemployment up to a 10% peak before leveling out at or above 9.5% through next year.
Write to Diana Golobay.
A number of advocacy groups locked at the elbows this morning to call for widespread changes in the financial markets, in step with expected policy changes to financial regulation set to be unveiled by the Obama Administration on Wednesday. The new initiative is called Americans for Financial Reform, and includes members from all types of interest groups, from former Soros fund managers, to AARP legislative policy directors to firms such as the National People's Action.
During a conference call to announce strategy, and to rail a little against the financial markets, the speakers expressed their support for Obama's upcoming announcement for a new regulatory regime, as long as such an entity is publicly accountable.
"Wells Fargo is pulling money on a die casting plant," in the United States, said George Goehl, from the National People's Action, "yet Wells Fargo received $25m in Tarp money." Goehl hinted that this decision seems unfair considering that Americans' jobs could be lost as a result and that the Federal funding would be better directed more broadly into the country's economy.
The coalition intends to make its biggest impact through lobbying for stronger consumer protection services.
"We want to expand strengthened and enforced regulation. Only 6% of subprime loans were covered by the Community Reinvestment Act," adds Jim Carr, COO of the National Community Reinvestment Coalition in response to a question posed by HousingWire, adding that if the 1970s Act would have been properly implemented in the new millennia, "we wouldn't have this crisis."
Members of the association did not seem automatically opposed to new initiatives, such as APD Solutions, a new capital provider of socially responsible investing, despite its affiliation with Australia's Macquarie Group a global financial firm of the caliber the coalition vilified today.
"Unfair and deceptive mortgage products that disproportionally targeted disadvantaged families destroy communities," Carr argues, echoing a common refrain among consumer advocates. In the short-term, however, the Americans for Financial Reform hopes to conduct "more specific work around REO," according to Carr.
Write to Jacob Gaffney.
Former Freddie Mac national director of Expanding Markets, Vaughn Irons, is now CEO of APD Solutions, a firm established to provide capital support for socially responsible investing.
The capital will be made available from Waterfall Asset Management's billion dollar portfolio, according to a release on the matter. While APD is a business, it is rooted in activities more closely associated with charities; it's aims are to "revitalize communities" hardest hit by the economic recession in an effort to "jump start" housing activity.
Waterfall is a high-yield asset-backed securities and non-performing residential mortgage loan investment adviser with $1.1bn under management.
"The current housing industry crisis has created the residual negative effect of eroding support for housing programs in targeted markets and underserved households," said Irons.
"There needs to be an ongoing commitment to providing working families a safe path to responsible housing choices," he adds. "One of our goals is to provide strategic counsel and real estate expertise to those local governments, and organizations that have secured federal funding through the Neighborhood Stabilization Program."
In order to actualize this so-called stabilization program, APD Solutions is using a two-fold business strategy. According to the firm, the first tenet is to provide strategic management services and assist with the implementation of revitalization efforts in stricken areas nationwide. Secondarily, it will provide comprehensive real estate services to institutional investors, local governments, banks, and community stakeholders.
APDS services include asset management, property acquisition, real estate disposition, due diligence and valuation, and property management services. Combined with the overarching advisory and technical assistance capabilities, APDS is offering a one-stop turn-key solution for their clients and is headquartered in Atlanta, with other offices in Chicago, Dallas, Jacksonville and San Francisco.
Write to Jacob Gaffney.
Construction starts on US housing units jumped 17.2% in May, rising to a seasonally adjusted annual rate of 532,000 units, according to estimates released today by the US Commerce Department.
The good month for housing starts comes after the volume dived 12.9% the month before. A 62% increase in new multifamily construction drove the month-over-month gain, while single-family home starts rose 7.5% to an annual rate of 401,000 units. Single-family building permits — an indicator of future starts — rose 7.9% in the month to an annual rate of 408,000 permits.
Economists previously surveyed by MarketWatch had expected an increase in starts to 485,000.
Despite the month-on-month recovery of housing starts, overall home builder confidence was down during the month, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released Monday.
The home builder outlook on the market slipped a single point to 15 in June, where an index of more than 50 would indicate most builders see conditions as good rather than poor.
The indices on current home sales and the traffic of prospective buyers held from the previous month's levels, although still low overall. It was the index gauging expectations for the next six months that led the decline. Regionally, the South posted the worst performance, falling three points to 15, while the other regions posted slight gains.
“As expected, the housing market continues to bump along trying to find a bottom,” said NAHB chief economist David Crowe in a media statement. “Meanwhile, builders are taking their cue from consumers, who remain uncertain about the economy and their own situation. Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes.”
Write to Diana Golobay.
We've all had one at some point: a lemon of a car that turns out to be too good of a deal to be true, that always seems to be in need of a repair and that — we later discover — survived some massive accident in its history that somehow miraculously escaped reporting and isn't tied to the vehicle identification number.
Sure, the damage is no longer visible from the outside as soon as the body shop replaces a panel or two, hammers out the dents and fixes the paint. But the damage never goes away. It will always be a car that's been through an accident, whether or not its electronic record shows it.
Credit scores pose a similar situation.
No matter how hard a consumer works to build up his or her FICO after credit card delinquencies, home foreclosure or other financial hardship, one negative mark on a credit report may mean denial on an application for an auto loan or home mortgage, a line of credit, apartment or even a job. That is, unless, a credit repair company works on the consumer's wrecked credit history.
One such credit repair company, Credit Rewind, this week touted new free online results tracking so customers can watch the "derogatory marks" disappear from their credit reports. Credit Rewind's process takes two to four months to clean up a credit report, although the $500 service lasts for a full year, according to company statements.
Typical issues Credit Rewind sees in troubled credit include charge-offs, foreclosures, bankruptcy, repossession and "slow pays." The company touts its service as an utterly legal way to erase those marks from credit scores, increasing a consumer's chance at approval for a mortgage loan.
"Credit Rewind has put more people in houses than Habitat for Humanity," said president and CEO David George. "We are dedicated to helping people with less than perfect credit restore their credit so that they can take advantage of low interest rates and the buyer's market when it comes to real estate. This gives everyone a chance at the American dream, even if they have had problems with their credit in the past."
Another program, called 4/40 for Freedom, also appears to put potentially detrimental credit history aside in favor of helping out consumers. The proposed program calls on Congress to draft a bill reducing interest rates on all home mortgages to 4% and offering new buyers 4%, 40-year loans. The program — essentially a call for a mandatory mortgage modification — would apply automatically to existing homeowners, no credit checks and no questions asked.
The emergence of this trend where credit is not an issue and any scratch, dent or crater in credit history is only a small fee away from deletion illustrates an alarming view that consumers deserve the loan they want today no matter how badly they performed on a credit card yesterday.
The whole point of a credit score is to keep record of credit and repayment history. Allowing a borrower to opt into a credit score the bank or lender will find more attractive is like assigning a triple-A rating to a securitization made of subprime mortgage-related junk because the investor finds it appetizing.
Write to Diana Golobay.
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