Archive for July, 2009
Genworth Financial (GNW: 7.83 +0.38%) estimates the recent expansion of loan-to-vaue limits within the Home Affordable Refinance Program (HARP) will qualify an additional 44% of all loans it covers through its mortgage insurance business, and an additional 65% of loans it covers in the hardest-hit states.
Housing regulators raised the loan-to-value (LTV) maximum from 105% to 125% to increase the refinance program's reach to deeply underwater borrowers with mortgages owned or guaranteed by Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A). Just how many additional borrowers qualified under the new limit remained unclear, with bank analysts estimating a "minimal" impact, with only 6% of agency loans bearing LTVs between 105% and 125%.
But Genworth appears confident in the expansion's reach among the loans it insures, estimating a total 530,000 loans eligible in all. Soon after the Making Home Affordable Program's announcement, the company implemented initiatives at its mortgage insurance business that would allow for mortgage insurance modification in concert with the borrower's refinancing.
Early in the program's implementation, Genworth estimates its insured mortgages refinanced through HARP saw a 1.5 point interest rate reduction, and an average monthly payment savings of 13.5%.
"Increasing the LTV ceiling for the Home Affordable program will allow us, and others in the industry, to help many more borrowers refinance into a loan they can afford," said Mark Goldhaber, senior vice president of the Affordable Housing & Government Business Development segment of Genworth's US mortgage insurance business, in a statement.
"That's especially important in states that have been hardest hit by home price declines," Goldhaber added.
The new LTV limit qualifies an additional 65% of loans insured by Genworth in just these states — the so-called "sand states" including Arizona, California, Florida and Nevada — for insurance modification under the program.
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.
Increases in sales figures and affordability for existing homes tend to mask more unstable conditions of US home builders, according to the first report in a series on economic recovery by Moody’s Investors Services.
While mortgage rates held recently at record levels, Moody’s notes underwriting requirements sidelined many potential home buyers. And although consumer confidence began to recover earlier in the year, it remains at fall '08 levels.
“The ‘recovery’ is still quite precarious, with progress to date and further progress hindered by rising unemployment and the massive level of actual and expected foreclosures flooding the market,” Moody’s report said. “Hence, our conclusion is that while the U.S. economy and homebuilding industry may have inched away from being green around the gills, they are a far cry from sprouting green shoots.”
In light of these market conditions, Moody’s projects the number of finished homes delivered to buyers will fall 30% to 50% in '09, the fourth consecutive year of declining new home completions.
Not surprisingly, the report ties housing recovery with the nation’s overall economic stability. It calls for more governmental intervention to boost effective foreclosure mitigation efforts.
“For foreclosures to abate and house prices to stabilize anytime soon, policy efforts to mitigate foreclosures through loan modifications must soon begin to work more effectively,” the report said. “To date, the Obama administration's foreclosure mitigation plan has not had a meaningful impact.”
Write to Austin Kilgore.
The Senate Committee on Banking, Housing and Urban Affairs heard testimony today from industry leaders on the proposed creation of the Consumer Financial Products Administration (CFPA), a new regulatory agency that would oversee financial products such as mortgages and other loans that are marketed and sold to consumers.
Many voices applauded the need for the new agency, including Edward Yingling, the American Banking Association’s (ABA) president and CEO, who noted an estimate that 94% of the high cost mortgages occurred outside the regulated banking sector.
"The most pressing need is to close the regulatory gaps outside of the banking industry through better supervision and regulation," Yingling said in his testimony. "The need is for the same bank-like structure, supervision and examination to be applied to non-bank financial service providers."
Michael Barr, the assistant secretary for financial institutions at the US Department of Treasury, testified in a written statement that the new agency should establish a clear mission focus for a market-wide jurisdiction, which would prevent financial institutions from choosing a less restrictive regulator. Barr also suggested that that the new agency should consolidate regulation, supervision and enforcement.
“The need could not be clearer,” Barr said. "Today's consumer protection regime just experienced massive failure. It could not stem a plague of abusive and unaffordable mortgages and exploitative credit cards despite clear warning signs."
Others organizations urged Congress to confirm the CFPA as a new regulating agency of the financial market.
In a report published on its Website, the Center for Responsible Lending blamed the Federal Reserve for turning a blind eye to shady loan practices in the mortgage industry.
According the Center’s report, the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency (OCC) and the Federal Reserve failed to protect consumers from unsuitable mortgage products. The Center's report weilds hefty claims against the agencies, including ignoring regulations to oversee these products and impeding state law enforcement regarding mortgage lending.
Spokespeople from both the OTS and OCC said they had not yet read the report, and the Fed did not return request for comment before this article went to press.
Write to Jon Prior.
June foreclosure sales in California spiked the third consecutive month as moratoriums expire for lenders, according to the California Foreclosure Report from ForeclosureRadar.com.
The sales jumped by 24.7% after a 31.9% increase in May and a 35% hike in April. Banks issued 44,691 notices of default in the month of June, the second highest level on record and an 11.8% increase from May and a 10% hike from June 2008.
Notices of trustee sales declined by 28.7% in June. Researchers cited in the report that timing of the California Foreclosure Prevention Act caused the dip in notices. The legislation adds 90 days to the time a lender must wait before filing a notice of trustee sale, The 22,291 foreclosures taken to auction in June represented $9.57bn in loans, a 24.7% jump from May but 8.2% lower than June 2008.
Lenders can avoid the additional waiting period if they put in place a loan modification program. Almost all lenders in the California earned exemption as of June 16, but the notice filings still dropped significantly, according to the report.
“Given the number of exempt lenders it was quite surprising to see Notice of Trustee Sale filings drop by nearly 50 percent the day the new law went into effect,” said Sean O’Toole, CEO of ForeclosureRadar.com, in the report.
Write to Jon Prior.
The Securities and Exchange Commission (SEC) chair Mary Schapiro is seeking authority to mandate enhanced measures to promote the transparency and integrity of the nation’s statistical ratings firms, including the limitation of ratings shopping, according to testimony delivered Tuesday to a House Financial Services subcommittee.
Ratings agencies have faced criticism for over-rating mortgage-backed and other asset-backed securities created by their clients but that were comprised of assets that turned out to be toxic. Since the subprime mortgage fallout, critics have called for regulation of the firms.
The proposed regulations aim to eliminate the credit-shopping issue by requiring firms that solicit reports from ratings firms like Moody’s Investor Services, Standard & Poor’s and Fitch Ratings to disclose the pre-ratings they use to determine which firm to hire to conduct the analysis.
In addition, each ratings firm — called a nationally recognized statistical rating organization, or NRSRO — would be required to make additional public disclosures on its processes.
The proposals come on the heels of already implemented actions the SEC took to regulate NRSROs and the allocation of more resources to NRSRO oversight.
“The requirements are designed to increase the transparency of the NRSROs' rating methodologies, strengthen the NRSROs' disclosure of ratings performance, prohibit the NRSROs from engaging in certain practices that create conflicts of interest, and enhance the NRSROs' recordkeeping and reporting obligations to assist the Commission in performing its regulatory and oversight functions,” Schapiro told the subcommittee.
Schapiro, who began her tenure as SEC chair earlier this year, also advocated requiring hedge, private equity, and venture capital funds advisors to register with the SEC. However, Schapiro warned the subcommittee the approximately 2,000 additional advisors that would be required to register with the SEC would put an increased strain on a commission already stretched too thin.
“Significant additional resources would be necessary for the Commission to take on additional responsibility in this area,” she said.
Write to Austin Kilgore.
The European Commission proposed tighter risk assessment and higher capital reserve requirements for European banks.
The new proposed rules restrict banks' investments in highly complex re-securitisations without fully understanding the risk associated with them. They also strengthen rules on banks' pay structures and disclosures of risk exposure.
"New rules on re-securitisations – the highly complex financial products that caused huge losses for banks – will require banks to hold significantly more capital to cover their risks when investing in these products, while the additional disclosure rules will help to create a climate of market confidence," said Internal Market and Services commissioner Charlie McCreevy in a statement on the proposal.
The Commission said a proper disclosure of the risk exposures faced by a bank regarding securitisations will spark greater market confidence and will encourage banks to continue lending. Changing the way banks assess risks connected with their trading books should create more transparency and ensure the books reflect all potential losses under adverse market conditions.
The proposed new rules also tackle "perverse pay incentives" by banning compensatory policies that encourage or reward excessive risk-taking practices.
The Commission's proposal is only the latest in a recent series of policy actions designed to strengthen the European financial system. A significant policy, the UK Banking Act 2009, has been raising eyebrows among market players that say the Act gives UK authorities broad discretion to modify or terminate trust arrangements, potentially to the detriment of investors exposed to securitizations and covered bonds.
Moody’s Investors Service this week put to rest some fears about the Act and the rating impact it poses to the structured finance portfolios of those institutions licensed to conduct securitization business in the country.
Write to Diana Golobay.
Southfield, Mich.-based GCC Servicing Systems has rebranded its loan servicing software.
G/SERV is the new name for the firm’s loan servicing platform, which automates loan servicing and data management for mortgage companies, servicers, banks and credit unions.
The software development company changed the name of its flagship product to reflect its commitment to “Great SERVice,” and is one of many steps it will take to increase its marketing efforts, GCC president Glenn Liebowitz said in a press release.
In addition to the rebranding, GCC has launched a new Web site.
GCC Servicing Systems was known as Glenn Computer Corporation until 2003. After forming in 1977, the company launched its first computerized loan origination software in 1984, and its first Windows-format software was released in 1988.
Write to Austin Kilgore.
The Obama Administration’s Making Home Affordable initiative and its two programs, the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) have created a demand for upgrades to mortgage industry software so that it will comply with the new federal guidelines.
The HAMP alone is expected to help as many as 9m homeowners modify their mortgages.
Add First American’s (FAF: 14.98 +0.07%) VendorScape software to the myriad of mortgage industry-centric programs that have been upgraded to implement the HAMP. The software upgrade includes a calculator that can assist loss mitigators in modifying a borrower’s loan in accord with HAMP guidelines.
For borrowers who do not qualify for HAMP, their information is already in the system so servicers can access VendorScape’s other applications to attempt additional modification solutions.
The upgrade can also compile the reports that are needed for servicers to receive incentive payments from the HAMP.
Along with its improvements to VendorScape, First American launched a new Web site for borrowers. Homeowners can access the site to respond to direct mail and call campaigns while avoiding potentially embarrassing conversations with servicers in person or over the phone.
The site offers online forms borrowers can fill out to predetermine their HAMP eligibility and facilitates servicers’ electronic communications with borrowers.
Write to Austin Kilgore.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
The Senate Banking Committee chairman Chris Dodd, D-Conn., and House Financial Services Committee chairman Barney Frank, D-Mass., late last week dispatched a letter to the heads of bank regulators, calling for action on the issue of second liens.
Second mortgages held on banks' balance sheets, according to the congressmen, might be virtually worthless now that house prices across the country have plunged so many homeowners underwater.
The Hope for Homeowners (H4H) program launched last fall — long before the current administration's Making Home Affordable Program (MHA Program) — to help struggling borrowers adjust their mortgages to 90% of the assessed property value. The program, the lawmakers say, keeps borrowers out of foreclosure and reduces the risk of even greater losses posed to mortgage companies if the homes went into foreclosure.
The problem, according to Dodd and Frank, is that second lien holders refuse to consent to the H4H program because they believe the liens may be worth more than they really are.
"In recent discussions with servicers, investors in mortgage backed securities, and Administration officials, it has become clear that one of the most significant impediments to the success of H4H is the unwillingness of subordinate lien holders to extinguish their liens as required for participation in this program, even in return for offers of reasonable compensation," the letter reads, in part.
The solution offered by the lawmakers involves banks' participation in associating more realistic values with the second liens held on their balance sheets.
"Carrying these loans at potentially inflated values may contribute to resistance on the part of servicers to negotiate the disposition of these liens, and thus may stand in the way of increasing participation in the H4H program," the letter concludes. "Inadequate reserving would also overstate the capital position of these institutions at a time when an accurate picture of the capital adequacy of the banking system is crucial."
Second liens — or second mortgages sometimes piggybacked on top of first mortgages for borrowers without 20% to put down — raise an issue for the investor. With inherently higher interest rates (and lower principal balances) than first mortgages, these types of loans must face substantial modification — or be extinguished outright — if H4H is to have a substantial effect.
And second lien holders appear hesitant, despite the $50bn in rescue funds intended by the Treasury Department to help facilitate the modification of second liens along with first mortgages in the Making Home Affordable Modification Program.
For the time being, servicers handle the issues arising from second liens during the H4H modification process on their own, but the lawmakers and the administration may intervene soon, a source within a major mortgage lender/servicer tells HousingWire on condition of anonymity. The source says borrowers there have long complained the H4H process is slow and the results disappointing.
"Second liens are a complicating factor in an already complicated arena," says the source. "They turned out to be a much bigger issue than everyone thought when H4H was designed. We as an industry have to get this sorted out."
The issue of second liens, however, all but dropped off the radar in recent months, according to Scott Stern, CEO of Lenders One Mortgage Cooperative. Despite talk of the administration's MHA Program having dwarfed discussion on second liens recently, it's a timeless issue as long as the underlying complication remains.
Stern tells HousingWire second lien holders have a vested interest; they want to hold on to the second lien in hopes home values recover and the second lien becomes valuable again. Imposing industry regulations to assist the borrower and wipe out second liens would come at the expense of the second lien holder, he says, but doing nothing would be even worse.
"I don't think it's fair to ask second lien holders to walk away or reduce the value of the asset," Stern continues. "But if they don't do either of those, they prevent the problem from being eliminated."
Instead, Stern suggests a move to modify borrowers' first mortgages into more affordable ranges would not only boost their performance on first liens, but improve an investor's position as second lien holder. A borrower maintaining payments, he says, makes the mortgage worth more and protects the second lien holder from financial loss posed by foreclosure.
Write to Diana Golobay.
Underwriting losses in the mortgage and finance guaranty segment reached $1.9bn for Q109, but compared to the same quarter for 2008, losses might reach a plateau, according to a report from A.M. Best, a global credit rating system.
In Q108, mortgage and financial insurance companies registered $3.3bn in losses, an analyst at A.M. Best said. The losses are decreasing, but their magnitude still impacts the US property and casualty insurance industry’s net income, which plummeted by 87% in Q109 from the same quarter last year to $1.2bn.
“The year over year decline in earnings was primarily due to the severe and prolonged turmoil in the financial markets and the related impact on the industry’s net investment income and realized capital losses,” analysts said in the report.
Mortgage insurance companies protect lenders against loss on defaulted loans. Analysts couldn’t point to a specific cause for the quarterly losses, and a mortgage insurance firm could not comment ahead of Q2 earnings releases.
Write to Jon Prior.
