Archive for July, 2009
Credit Suisse Group breathed some life in the securitization market this week, after selling securities backed by non-government-guaranteed mortgages to a group of institutional investors.
It is one of the first such sales in more than a year. The notes carry a balance of $1.6bn and the transaction should be completed by the end of this month.
Credit Suisse purchased the mortgage-backed certificates from American General, a subsidiary of the American International Group (AIG: 25.25 +0.44%). The loans have an approximate certificate principal balance of $1.6bn, according to a Securities and Exchange Commission (SEC) filing dated July 8.
American General will receive anywhere from $925m to $975m, depending on the final size of the mortgage pool and after deducting expenses, according to the filing.
A ratings firm didn’t rate the securities, but The Wall Street Journal reported the majority loans are around four years old and are mostly performing.
Write to Austin Kilgore.
The Senate Banking Committee on Thursday heard from regulators and industry players on the progress of foreclosure prevention efforts including the Making Home Affordable Program, which has been criticized for what seems to be a slow start.
The US Treasury Department's assistant secretary for financial stability Herbert Allison told the committee that 27 servicers signed up to participate in the Treasury's Home Affordable Modification Program (HAMP).
Their participation, along with that of the government-sponsored entities, effectively covers more than 85% of all US mortgages, he said. So far servicers have offered 325,000 trial modifications, with "tens of thousands" of trials already underway, Allison said, although the program is not without its challenges.
He said the Treasury is calling for servicers to expand their capacity for the HAMP by adding staff, enhancing online offerings and sending additional mailings to borrowers that qualify. Last week, the Treasury sent a letter to servicers, asking for expedited implementation of HAMP and the appointment of a liaison to work with Treasury on the program's progress.
But the program is not a cure-all, Allison said, as the Treasury expects "millions of foreclosures," even if the HAMP is a total success.
"Some of these foreclosures will result from borrowers who, as investors, do not qualify for the program," he said, according to prepared remarks. "Others will result because borrowers do not respond to our outreach. Still others will be the product of borrowers who bought homes well beyond what they could afford and so would be unable to make the monthly payment even on a modified loan."
Testimony from another featured witness at the committee hearing indicates borrower circumstances are not the only thing slowing down foreclosure prevention efforts. The US Department of Housing and Urban Development's senior advisor for mortgage finance, William Apgar, said some borrowers actively seeking aid are running into difficulties on the end of the servicers.
"Many consumers have had trouble reaching their servicers and receiving a timely response from servicers after they have submitted applications for modification," he said. "Other consumers have complained of receiving inaccurate or misleading information from servicers."
Apgar noted the presence of second liens poses another challenge to some borrowers attempting to refinance. There are, however, substantial logistical complications in communication between first and second lien holders in coordinating modification of both liens, he said. And even should the modification commence, Apgar noted, the issue of incentive payments under the MHA Program only further complicate the issue.
He urged improvement to the FHA refinance program, HOPE for Homeowners (H4H) which he said could be integrated into the MHA Program to mitigate some of the confusion. Borrowers seeking assistance from servicers would be offered an H4H refinancing in tandem with an MHA trial modification option.
Even outside of the MHA Program's modification and refinance reaches into the single-family mortgage market, Apgar noted the risks that multifamily and rental property foreclosures pose for renting households.
"[R]ecognizing that there is an impending crisis in the multifamily mortgage sector which could have devastating effects for tenants," Apgar said, "HUD Secretary Donovan has led the Administration's review of potential means to expand access to bond financing to assist State and Local Housing Finance Agencies in continuing to pursue their important financing role to increase both affordable homeownership and rental housing opportunities."
Write to Diana Golobay.
Former California Rep. Bill Thomas and former Treasury Department counsel and counsel to President Ronald Reagan Peter Wallison will join the Financial Crisis Inquiry Commission to investigate the causes of the financial crisis and the collapse of major financial institutions on the heels of the housing bubble implosion.
House Republican leader John Boehner of Ohio and Senate Republican leader Mitch McConnell of Kentucky announced the appointments Thursday.
Thomas and Wallison round out the roster of the 10-member commission. House and Senate majority leaders each had three picks and their minority party counterparts each made two selections.
The commission’s final report is due Dec. 15, 2010.
Thomas, a California Republican who began his Congressional career in 1979, chaired the House Ways and Means Committee for six years before retiring in 2007, and will now be vice chairman of the commission.
Wallison served as general counsel to the Treasury Department from 1981 to 1985 and later served as counsel to President Reagan from 1986 to 1987. He currently and the co-director of the American Enterprise Institute for Public Policy Research’s (AEI) program on financial policy studies.
Thomas is a visiting fellow of the AEI.
Other previously announced commission members are the commission chairman, Phil Angelides, and members Brooksley Born, Bob Graham, Byron Georgiou, Keith Hennessey, Douglas Holtz-Eakin, Heather Murren, and John W. Thompson.
Write to Austin Kilgore.
The number of properties involved in foreclosure filings continued to rise in the first half of 2009 (HI09), up 15% from the same period in 2008, according to the Irvine, Calif.-based RealtyTrac’s mid-year US Foreclosure Market Report, released Thursday.
RealtyTrac reported a total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — on 1,528,364 properties from January to June 2009.
Those more than 1.5m properties represent a 9% increase in total properties from July to December 2008, and represents 1.19% — one in 84 — of all US housing units.
There were at least 300,000 filings every month from March to June, bringing the second-quarter total to its highest level — 889,829 total filings — since RealtyTrac began its report in Q105.
RealtyTrac CEO James Saccacio said unemployment-related foreclosures are keeping levels up, despite industry moratoria and federal, state and municipal efforts to curb foreclosures.
“Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue,” Saccacio said in a release.
Nevada had the greatest number of foreclosure filings, with more than 6% — one in 16 — housing units receiving at least one. Filings in the state are up 23% from the previous six months and increased 61% from the first half of 2008.
Arizona had the second highest rate, with 3.37% of homes receiving at least one filing, followed closely by Florida, which had a rate of 3.08%.
The states rounding out the top 10 are: California (2.94%), Utah (1.46%), Georgia (1.42%), Michigan (1.34%), Illinois (1.31%), Idaho (1.26%) and Colorado (1.25%).
RealtyTrac’s report is based on data from more than 2,200 counties nationwide, representing more than 90% of the US population.
Write to Austin Kilgore.
There may be something lurking in the hedges; not a snake, but something with just as deadly a bite, according to financial market regulators. It's systemic risk.
The Obama Administration continues its campaign for financial market regulatory reform, on Thursday submitting legislation that would mandate registration of hedge funds.
The legislation calls for advisers to hedge funds and other private capital pools like private equity funds and venture capital funds to register with the Securities and Exchange Commission (SEC).
"At various points in the financial crisis, de-leveraging by such funds contributed to the strain on financial markets," Treasury Department officials said in a fact sheet on the legislation. "Because these funds were not required to register with regulators, the government lacked the reliable, comprehensive data necessary to monitor funds' activity and assess potential risks in the market."
And that, after all, is what transparency is all about. By taking a weed whacker to the murky world of hedge funds and instilling some transparency in the system, the administration aims to protect investors from potential fraud and abuse as well as give regulators the means to track potential systemic risk.
The administration's legislation would consolidate current loose standards for registration, mandating all investment advisers with more than $30m of assets under management to register with the SEC. The advisers thereafter would be subject to reporting requirements regarding assets, leverage and off-balance sheet exposure of their advised private funds.
They would also be subject to disclosure requirements to investors, creditors and counter-parties. The legislation would mandate conflict-of-interest and anti-fraud prohibitions, ongoing SEC examinations and comprehensive compliance programs.
"This information would help determine whether systemic risk is building up among hedge funds and other private pools of capital, and could be used if any of the funds or fund families are so large, highly leveraged, and interconnected that they pose a threat to our overall financial stability and should therefore be supervised and regulated as Tier 1 Financial Holding Companies," the Treasury's fact sheet concludes.
Write to Diana Golobay.
Lending among the top 21 recipients of bailout funds through the Capital Purchase Program within the Treasury Department's Troubled Asset Relief Program (TARP) posted modest growth in May, with mortgage originations rising by 7% over April's figures.
Mortgage lending among the top 21 TARP recipients rose slightly to $122bn in combined originations in May, from $114bn in April. Home equity lines of credit slipped 12% to $3.79bn in combined originations in May.
Wells Fargo (WFC: 29.60 +1.89%) originated $42.1bn in first mortgages and Bank of America (BAC: 7.29 -0.14%) posted $35.9bn in first mortgage originations. JP Morgan Chase (JPM: 37.21 -0.75%) took the third slot with $13.8bn in originations, while while Citigroup (C: 30.87 +1.61%) originated $9.7bn.
Respondents to the Treasury's survey indicated high mortgage application volume through May, but noted their pipelines decreased — particularly among home equity lines of credit — as interest rates rose toward the end of the month.
"Many homeowners are electing to refinance their first lien mortgages and not to take on any additional debt via home equity lines of credit," Treasury officials said in the May report. "Declining home values also contributed to lower home equity demand."
Growing financial pressure and higher unemployment rates also constricted consumer spending, and outstanding credit card balances held by the institutions dipped 1% in May as consumers largely refrained from adding to their existing credit card debt.
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.
JP Morgan Chase (JPM: 37.21 -0.75%) posted $2.7bn in net income — or $0.28 per share — for Q209, 36% stronger than the $2bn posted in Q109 despite the firm's $3.5bn provision for credit losses in its consumer lending segment.
The company's earnings-per-share reflected a $1.1bn — or $0.27 per share — reduction due to the repayment of Troubled Asset Relief Program preferred capital. Even after TARP repayment, the firm boasted a 9.7% Tier 1 capital ratio, a 7.7% Tier 1 Common ratio and in all a 5% loan loss coverage ratio at quarter-end.
Investment banking, commercial banking, asset management, securities services and retail banking all fared well, posting "solid performance, " according to the firm, but high levels of credit costs among the consumer lending and card services segments negatively affected overall results.
Consumer lending, for example, reported $955m of net losses, compared with $171m in the year-ago quarter and $389m in the previous quarter.
Chairman and CEO Jamie Dimon said the firm expects credit costs in this segment "will remain elevated for the foreseeable future."
The firm said $523m in servicing revenue drove the income in the mortgage business as its third-party loans serviced grew by 70% due to the purchase of Washington Mutual banking assets. No-interest expense in the segment totaled $1.5bn, up by $399m or 36% from last year, reflecting higher servicing expense due to increased delinquencies and defaults. The firm's provision for credit losses was $3.5bn, from $1.5bn last year.
Mortgage production revenue was $284m as an increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were offset partially by wider margins on new originations.
JP Morgan posted $41.1bn of mortgage originations in Q209, down 27% from last year but up 9% from Q109. But while overall originations — still weaker than last year — showed some recovery from the previous quarter, the firm's participation in home equity loans is only slowing down 89% from last year and 33% from Q109 to a total $593m in originations for the quarter.
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.
Trading of beleaguered CIT Group Inc. (CIT: 38.02 +0.05%) was halted on the New York Stock Exchange late Wednesday as the small and medium business lender negotiated with federal regulators on a potential bailout.
But as the afternoon came to a close, CIT said it would not receive government assistance.
“CIT…has been advised that there is no appreciable likelihood of additional government support being provided over the near term,” the firm said in a press release on its Web site Wednesday afternoon, adding it is now “evaluating alternatives.”
CIT received $2.3bn from the $700bn federal bailout fund. With public criticism over the cost of corporate bailouts mounting, it appears regulators drew the line with CIT, and the lender now faces bankruptcy.
Unlike larger institutions such as AIG and Bank of America, along with government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac, who received billions in financial bailouts, CIT's collapse wasn’t considered big enough to trigger the catastrophic financial failure feared by the firms deemed “too big to fail.” However, as a lender to a reported 1m small and medium businesses, many believed not providing CIT with a bailout would make regulators look insensitive to the credit needs of its customers.
Two of the nation's largest retailer trade groups called on Washington to extend a lifeline to CIT, saying its failure would be a massive blow to the already suffering retail sector.
“CIT is a critical financial partner to many of our members, many of whom are small and medium sized businesses and make a substantial portion of the clothing and shoes worn by hard working American families,” said Kevin Burke, president of the Arlington, Va.-based American Apparel and Footwear Association in a release. “If we fail to act, everyone in the supply chain, including the designer, the manufacturer and the consumer, will suffer.”
The National Retail Federation echoed the association’s demands.
“If CIT were to fail, a chain reaction would be set off that could very well leave retailers with a shortage of merchandise during the crucial holiday season this fall,” federation president Tracy Mullin said in a press release and letter to Treasury Secretary Timothy Geithner.
Not that CIT’s customers are jumping at their lines of credit anyway. According to media reports, the firm’s customers have already begun drawing down their lines of credit, to the tune of $750m, according to some estimates.
But the halting the trade of CIT’s stock, which dipped to a $1.51 per-share-low Wednesday, and rebounded to $1.64 before trading was stopped, causing speculation that news of a bailout was soon to come.
Write to Austin Kilgore.
On June 26th, Safeguard Properties, a privately held field servicer, earned recognition as the primary donor for a three-year commitment to the Cuyahoga County Foreclosure Program.
The program offers homeowners counseling as part of the Don’t Borrow Trouble campaign, which warns borrowers about the dangers of defaulting on their payments or tumbling into foreclosure.
In 2005, Cuyahoga County, which lies in the greater Cleveland, Ohio area, faced an estimated 10,000 foreclosures – four times the amount from 1998, according to their Website.
“The goal of the expanded Don’t Borrow Trouble campaign is to decrease inappropriate mortgage lending and mortgage foreclosures through outreach, education, counseling, legal assistance and advocacy,” the site reads.
Ohio State Representative Mike Foley spoke at the event honoring Safeguard and discussed a bill currently being passed through the state’s general assembly. HB 3 includes a foreclosure moratorium for troubled homeowners in Ohio.
Jim Rokakis, the treasurer of Cuyahoga County, acknowledged others for their contributions including United Way, Chase Bank, Freddie Mac Foundation, The Cleveland Foundation and others.
Write to Jon Prior.
The Federal Trade Commission (FTC) announced the launch of Operation Loan Lies today, a coordinated national law enforcement effort to hunt down mortgage modification scams.
FTC Chairman Jon Leibowitz and California Attorney General Jerry Brown introduced the operation that involves 189 actions by 25 federal and state agencies. The actions targeted defendants who marketed deceptive foreclosure rescue and mortgage modification services to homeowners on the verge of default. Some defendants even promised to give refunds if they failed to rescue the borrower, according to the announcement.
“These con artists see the high foreclosure rates as an opportunity to prey on people in distress,” Leibowitz said in the announcement. “They promise to rescue homeowners in troubled financial waters, but after they take their money they throw them an anchor instead of a lifeline.”
Leibowitz also offered advice to desperate borrowers walking the tightrope between foreclosure and loan modification.
“People facing foreclosure should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company,” Leibowitz said.
Since April, the FTC brought 14 lawsuits to mortgage foreclosure rescue and loan modification scams.
Write to Jon Prior.
