Archive for June, 2009
Andrew Kalotay Associates will have exclusive rights to its new mortgage-backed securities valuation model.
Coupled Lattice Efficiency Analysis (CLEAN), which determines refinancings based on mortgagor credit and then discounts the resulting cash flows using an MBS issuer's credit, has been approved to be patented.
The new model's methodology is described as an "option-theoretic approach" to MBS valuation.
CLEAN is able to track mortgagors with a higher propensity to refinance, says Andrew Kalotay and Assoc., automatically capturing refinance fatigue following periods of low interest rates. And the model's option-based method ensures consistency with the valuation of callable agency debt.
The founding firm says the approach allows for speedy processing — 14,000 securities per minute – without compromising accuracy.
The model is a major breakthrough, says Andrew Kalotay, the firm's founder. "It's truly market-implied," he says.
Write to Kelly Curran.
In a day of mixed news for the thrift industry, the Office of Thrift Supervision (OTS) released a report showing losses at US thrifts narrowed significantly in Q109.
But the regulator also reported the number of problem institutions climbed and the value of the industry's bad assets hit a record high.
Thrifts reported a $47m loss in Q109, marking their best performance since September 2007, according to the OTS. During the quarter, 74% of savings and loan companies were profitable, up from 65% in Q408.
“Although it’s too early to say we’ve hit bottom or that the industry’s troubles are behind us, fundamentals such as solid capital, strong levels of loan loss reserves and improving operating income give the industry a solid platform for the future,” said OTS acting director John Bowman in a press statement.
Nonetheless, regulators suggest some red flags still sound warnings for US thrifts. The issues of nonperforming loans and the need to add to reserves haven't vanished.
Based on the OTS’s evaluation of institutions' capital, asset quality, management, earnings, liquidity and sensitivity to market risk, 31 thrifts are now listed as "problem" thrifts, up from 26 in Q408.
Profitability was a negative 0.02% in the first quarter, an improvement from the negative 1.82% in the previous quarter and the negative 0.17% in the first quarter a year ago. The improvement is likely due to lower loan-loss provisions, as the company added just $5.8bn in provisions over the quarter, compared to $9.3bn in the previous quarter.
At the end of Q109, the OTS supervised 801 thrifts with assets of $1.23 trillion. Total troubled assets valued a record $41 billion, surpassing the previous record of $40.5 billion set in 2008.
Write to Kelly Curran.
As mortgage rates hovered near historic lows for much of Q109, keeping borrower demand strong, 50 mortgage lenders joined the lender recruiting network at LendingTree, an online lending exchange service.
LendingTree matches thousands of high-quality borrowers to four banks, which then compete with one another for the loan business. The lead generator provides banks with the customers that fit their portfolios while freeing up the time they would have spent marketing to focus on the part of the process they specialize in: closing loans.
"We continue to see incredible opportunities to help borrowers find the home loan that is right for them, and offer lenders a more profitable and targeted solution to expand their customer base and close more loans," says Bob Harris, president of LendingTree's exchange service, in a media statement today.
Write to Diana Golobay.
As home prices continue to decline at the hands of an adjusting housing market, providers of accurate, up-to-date pricing data aim to keep brokers, originators and lenders informed and to keep competition sharp.
Internet-based application service provider Sollen Technologies today unveiled the integration of its product eligibility and pricing service and Calyx Software's loan origination and processing platform. The partnership merges Sollen's application eligibility and pricing data into Calyx's loan originating software.
Mortgage bankers, correspondent lenders and other users of Calyx's Point platform may now access Sollen's accurate, up-to-date pricing data to keep informed of mortgage product pricing and to engage in informed competition. The integration aims to save time and manpower by providing accessibility of the data directly through Calyx's platform, in turn allowing originators and lenders to operate more efficiently.
"All of this is based on the elimination of repetitive data entry and the smooth data flow into the subsequent steps of the mortgage process," Sollen CEO Michel Van Hee says in a press statement today.
Write to Diana Golobay.
While cautious not to declare an outright bottom in the housing downturn, IHS Global says a deceleration in the rate of home price depreciation just "might signal the beginning of market stabilization."
House prices fell at a 2.2% annual pace in Q109, compared to a significantly higher 12.5% pace recorded in Q408, according to the financial analysis and forecasting company.
Nationally, prices have fallen a whopping 10.4% below their 2007 peak.
But just 199 of 330 metropolitan areas studied by IHS Global experienced price declines in Q109. That's down from the 312 areas registering declines in Q408.
Of those metros that saw home values drop, the areas of greatest decline continue to be in Florida, California, Nevada and Michigan.
During the quarter, 57 metro areas posted declines over 25% from their peaks and 134 experienced declines greater than 10%. Nine metro ares — all in California, Florida, Arizona and Nevada — have seen prices plunge more than 50% from their peaks.
IHS Global's study found the nation's housing market, as a whole, is now slightly undervalued. Only the Pacific Northwest, extending across a region through Idaho and Utah, remains overvalued.
"The good news is that the declines are happening as consumer confidence is rising and housing sales and starts seem to be bottoming out," says Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service.
The bad news, Cataldi says, is that job losses continue at high rates, housing inventories are still elevated and consumers, while becoming somewhat more confident, are still hesitant in the face of economic uncertainty.
Write to Kelly Curran.
Real estate valuation services provider PCV Murcor said Tuesday its subsidiary renewed a service agreement with mortgage giant Freddie Mac (FRE: 0.00 N/A).
Under Vender Resource Management's (VRM) renewed agreement with Freddie's real-estate owned (REO) sales unit — Freddie Mac HomeSteps — it continues to provide loss mitigation and REO disposition services to one of the largest residential mortgage investors. The partnership provides Freddie with services designed to reduce an asset's time on the market while preserving value in the sales price.
“PCV Murcor and VRM are committed to selling REOs at a price that maximizes recovery for our customers, while at the same time supporting home prices in some of the nation’s hardest-hit communities," PCV and VRM CEO Keith Murray said in a media statement.
Chris Bowden, Freddie Mac HomeSteps' vice president, added in the statement that the companies share the joint goal of preserving larger communities through REO disposition and credit loss mitigation.
VRM has provided the outsourced service to Freddie since 2006.
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.
Multiple mortgage industry groups slated to testify this afternoon before a House Financial Services subcommittee will plead the case for continued government support in the future for mortgage giants Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A).
The subcommittee on government-sponsored enterprises (GSEs) will hear from the Mortgage Bankers Association vice chairman Michael Berman, who acknowledges the need for a limited level of government support going forward beyond the current crisis, according to remarks prepared ahead of the hearing.
Berman says the government can provide needed support through explicit guarantees against mortgage investment-related credit risks, the cost of which can be offset by risk-based premiums paid by the investors. He calls for increased private investor participation in the secondary markets to complement the limited government support.
A former member of the National Association of Realtors (NAR) board of directors, Frances Martinez Myers testifies on NAR's behalf. Despite the effect the GSEs had even from conservatorship on keeping the economy from slipping further, limited private capital in the jumbo mortgage market is still causing constriction elsewhere for borrowers seeking mortgages above the GSE limits, according to Myers's prepared testimony.
"For homeowners needing to refinance to a more reasonable mortgage product, the lack of liquidity is all but forcing many homeowners into foreclosure or short sale, which continues to place severe downward pressure on housing and the economy," Myers says.
Not only will the GSEs need government support going forward, but entities or facilities should be established to provide liquidity in the jumbo and commercial mortgage markets to solve this liquidity issue, Myers adds.
Read Myers's prepared remarks here.
Chairman of the National Association of Home Builders, Joe Robson, also appears before the subcommittee today to testify that the affordable housing mission must continue with federal government backing, as the private sector can't be counted on to maintain affordable housing credit, according to prepared remarks. Robson says the GSEs, responding to the economic contraction, tightened underwriting standards perhaps too much and must be reigned in if credit will continue flowing.
"We believe that the actions of the enterprises have forced the pendulum to swing too far, and, as a result, viable buyers are being denied credit," he says. "While the enterprises must operate in a safe and sound manner, beyond a point, such self-selecting measures become too restrictive."
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.
Federal Reserve Board Chariman Ben Bernanke predicts economic activity will likely bottom out and then turn upward later this year, according to his testimony before the House Budget Committee this morning.
"Our assessments that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast," he said.
Consumer spending, which dropped sharply in the second half of last year, has been roughly flat since the beginning of the year, at the same time consumer sentiment has improved. The Fed says the government's fiscal stimulus program will further boost households' spending power in coming months.
Nonetheless, a weak labor market, declines in equity and housing wealth and tight credit conditions will continue to negatively impact spending, Bernanke warned.
On the upside, with home sales on the rise and home price declines on the slowdown, the housing market looks a bit brighter. And while the construction of new homes has been sufficiently retrained — bad news for home builders — the backlog of unsold new homes is diminishing, according to reports by the US Census Bureau and the Department of Housing and Urban Development, which is vital to a recovery in homebuilding.
Increased consumer spending and improved housing conditions, however, will not be enough to drive a full recovery. "An important caveat is that our forecast also assumes continuing gradual repair of the financial system and an associated improvement in credit conditions," Bernanke said.
"A relapse in the financial sector would be a significant drag on economic activity and could cause the incipient recovery to stall."
And even after a recovery is under way, Bernanke cautioned the economy will only gradually gain momentum. Economic slack will fade away slowly. In particular, he says, businesses are likely to be cautious about hiring.
Write to Kelly Curran.
A San Diego real estate agent is taking on the "big banks" in a self-styled David and Goliath battle.
Bob Hamzey, sure the banks are taking advantage of the Obama administration's "Foreclosures Alternative Program," (FAP) is asking for the submission of personal stories documenting alleged short sale abuse.
After the collection process is finished, Hamzey will bundle the testimonials into a single package, a compendium of complaints, to send to the big guy in the White House.
He is asking others to send him their personal stories of getting caught up in short sale abuse. Hamzey intends to send these stories to federal regulators in an effort to encourage the Obama administration to develop a system that is fair and responsible for the people they were designed to help.
The FAP streamlines the short sale process for distressed homeowners, under guidance from the OCC and FDIC. But, Hamzey says, the big banks unfairly use the program to make top dollar.
"The banks have been transferring their equity lines of credit in the middle of the short sale process to affiliate companies," said Hamzey. "These affiliates are not under the auspices of the OCC or obliged to follow the rules set up under the president's new program. In essence, they are almost free to be as uncooperative as they please."
Hamzey claims that by not signing off on the short sale package, the affiliate companies may force the first mortgage to foreclose.
Interest in refinance mortgages continued to fall in the week ending May 29, despite a growing ratio of delinquent mortgages to 5.2% of total mortgage loans in Q109.
Applications filed for refinance loans slipped 24% from last week, according to a survey released today by the Mortgage Banker's Association (MBA). Refinance applications accounted for 62.4% of total applications this week, from 69.3% a week earlier.
The total volume of mortgage applications fell 16% in the week ending May 29, according to the MBA. Without the adjustment for the Memorial Day holiday, the decline more than doubles to -32.5%. Unadjusted, the index sits 14.4% below year-ago levels, the MBA found.
The slip in overall interest might have something to do with increasing mortgage rates, which the MBA also tracks in its weekly survey.
Thirty-year fixed-rate mortgages averaged a 5.25% interest rate this week, 44 bps up from 4.81% last week, marking the largest weekly increase since October '08, the MBA said. The average rate seen among 15-year fixed-rate mortgages came in at 4.8% this week, from 4.44% last week.
A separate application survey, conducted by Mortgage Maxx, found application activity adjusted to count multiple submissions from a single household as one participant fell 12.5% in the same week. Household application activity fell 15.5% in California alone, according to the Mortgage Application Index — or MAX.
MAX publisher, Paul Descloux, in his weekly commentary on the index, warns application activity may have passed its high mark for the year as mortgage rates continue to inch up, despite the Federal Reserve's quantitative easing efforts.
"As home sales reach their perennial peak, it will be up to REO and refinancings to push the MAX higher," he writes. "But as some credit spreads narrow and benchmark rates move higher, refinancings and maybe even home sales pick up some more headwinds."
Write to Diana Golobay.
