Archive for July, 2009
Freddie Mac’s (FRE: 0.00 N/A) implementation of the Home Valuation Code of Conduct (HVCC) is in its third month, but that hasn’t stopped critics and supporters both from voicing strong opinions about the new policy.
Freddie Mac released a 10-page bulletin last week to reiterate its guidelines for income calculation, asset verification, liability calculation, appraisal quality and misrepresentation of occupancy.
The Appraisal Institute issued a release endorsing the new guidelines, specifically the "best practice" recommendation that appraisers should be members of a professional appraisal organization.
“The recognition of the professionally designated appraiser has been a missing component in mortgage reform,” Appraisal Institute president Jim Amorin said in the release. “These new guidelines are the right long-term solution for consumers and appraisers and will instill confidence in the safety and soundness of the mortgage lending process.”
Ultimately, the originator or lender of the mortgage loan is responsible for the ensuring the quality of the appraisal, Freddie said in the bulletin. Freddie recommends the use of automated valuation models to detect potential fraud and inconsistencies in the appraisal process.
Freddie’s bulletin also recommends appraisers’ licensing and performance should be reviewed at least once every licensing cycle, and highlights appraisal “red flags” like unverified comparable sales, the use of an appraiser not familiar with the market where the property is located and inconsistent or unexplained adjustments.
Freddie Mac, along with Fannie Mae, are the country’s largest buyers of mortgages, and implementation of the HVCC has been met with some resistance, including Congressional attempts at an 18-month moratorium on the code on concerns that its regulations – including the use of third-party appraisal management companies – are driving up the cost of appraisals.
Write to Austin Kilgore.
HousingWire magazine explores the hot-button issue of the HVCC in a forthcoming feature to be seen in the August issue.
[update 1: clarification on Option ARM delinquency time frame]
Monthly delinquency and foreclosure rates for pick-a-payment loans continued their ascent in the latest monthly data from First American CoreLogic, more than doubling from rates seen a year earlier.
In April, 36.9% of the Option ARMs First American CoreLogic tracks were delinquent by 60 days or more. Of these Option ARMs, a product that allows borrowers to choose only a minimum monthly payment, First American saw 19% of the loans in foreclosure in April.
Banks roundly lodged pick-a-payment loans into their portfolios when deferred interest allowed them to book current-period income when the borrower made only the minimum payment. Problems arose when borrowers realized that the monthly bill only addressed the minimum due, not including interest charged.
Banks essentially loan the borrower the remainder each month and stack it onto the principal, and when interest rates reset, the tiny growth balloons — and, as First American's data indicates, performance falls off a cliff.
As a result, foreclosed Option ARMs in First American's records have increased every month since October of 2005, when the rate was only 0.04%. Homes delinquent by more than 60 days rose every month since March of 2006, when the rate was at 0.49%.
Both foreclosure and delinquency rates more than doubled since the year-ago report when 8% of Option ARMs foreclosed and 15.7% sat in delinquency in April 2008.
Write to Jon Prior.
Goldman Sachs Group (GS: 111.77 +2.96%) posted strong $3.44bn net earnings for the second quarter of 2009 (Q209) despite a $700m loss on commercial mortgages.
The positive earnings come even after the firm's one-time preferred dividend of $426m, included in the $10.04bn repurchase of TARP preferred stock from the US Treasury Department. Goldman completed a public offering of 46.7m common shares at $123 per share for total proceeds of $5.75bn in an effort to boost capital.
"While markets remain fragile and we recognize the challenges the broader economy faces, our second quarter results reflected the combination of improving financial market conditions and a deep and diverse client franchise," said chairman and CEO Lloyd Blankfein in the earnings statement.
Net revenues in the firm's fixed income, currency and commodities business were $6.8bn, from $6.5bn in Q1 and much higher than the year-ago period's $2.4bn, driven by strong performances in credit products and mortgages. The firm lost $700m on commercial mortgage loans as defaults in the commercial market rise, slightly improved from $800m lost in Q109.
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.
National house prices gained 1.6% in May, the largest month-on-month increase since July 2005, according to an index calculated by default management and residential valuation provider Integrated Asset Services (IAS).
House prices are still down 10.5% since last year, but the latest IAS360 House Price Index recorded positive monthly numbers in all four US regions this month. The Northeast is up 3.2% since April, while the Midwest gained 1.9%, the South 1.1% and the West 0.9%.
With the South's recovery since posting the only regional decline back in April's report, the data would suggest national home prices may be skipping along some sort of bottom, although IAS warns against too much optimism.
"Two months' worth of positive data hardly signals a turn in the national housing market, but we have to be encouraged by what we're seeing in several important counties and neighborhoods," says IAS president and CEO Dave McCarthy in a statement on the report.
The IAS360 House Price Index tracks monthly changes in the median sales price of detached single-family residences across the US. The index, calculated from data on "arms-length" transactions, in May found that nine of the 10 largest metropolitan statistical areas (MSAs) posted substantial recoveries from just two months before, according to IAS.
Boston and Chicago posted 3.7% and 1.5% respective gains, according to the index, while San Francisco is up 3%, Los Angeles 2.8% and San Diego 1.2% from April. Denver gained 0.4%, but Las Vegas continued to slide, falling 0.9%.
The reason for these gains, according to a prominent real estate analytics and consulting firm, may be due to a shift of demand away from foreclosed and distressed properties.
"We're seeing a mix shift in home sales and that's manifesting itself as increased pricing," says John Burns, CEO of John Burns Real Estate Consulting. "For a while, the bulk of homes sales were distressed properties in declining neighborhoods… . Sales are shifting back to more traditional submarkets and neighborhoods."
Write to Diana Golobay.
Calyx Software, a provider of loan marketing, originating and processing software, expanded its network interface by adding three new companies.
The Calyx Network enables its program Point to connect users to mortgage service providers. With the addition of ValuFinders, NexGen Compliance Solutions and MDA Lending Solutions, users can access a streamlined loan origination process that automatically exchanges report and status data between potential borrowers and lenders.
MDA Lending Services, based in Delaware, provides credit reports to the mortgage industry. ValuFinders is a California-based appraisal firm, and NexGen, based in Rhode Island, provides title and escrow software.
The network streamlines a complex loan origination process. Application and disclosure forms can be efficiently completed for users, and loan officers can transfer data to the partner of their choice. New mortgage service providers are updated twice monthly.
Write to Jon Prior.
The Senate confirmed David Stevens' nomination to head the Federal Housing Administration (FHA).
The appointment is not yet official, and a schedule for Stevens' swearing-in has not been set. A Senate committee made the nomination in March 2009, and a panel approved the nomination at the end of June.
Industry groups, including the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) released statements supporting the decision.
"During this time of market uncertainty, NAHB believes that it is essential to have a strong and experienced leader at the FHA and David Stevens is the right man for the job," said Joe Robson, chairman of NAHB.
NAR, which represents 1.2m members in the real estate market, echoed praise for Stevens’ confirmation in a released statement.
“Dave brings a broad understanding of the importance of housing to the overall economy and the importance of FHA in bringing stability and growth to the housing market,” said Charles McMillan, president of NAR, in the statement.
Stevens served as president and chief operating officer at Long & Foster, a Washington D.C.-based real estate firm. He joined the firm in 2006 to lead the firm’s mortgage, title and insurance division.
Write to Jon Prior.
A trio of Los Angeles commercial real estate executives formed a new firm for real estate-based investments.
Led by principal Leslie Lundin, LBG Realty Advisors plans to raise $250m in equity by the end of the year for a fund that will be invested from 2010 to 2013.
The firm’s investments will focus on acquiring debt backed by distressed retail, multifamily, office and industrial assets, as well as purchasing retail properties and making joint venture investments in the western United States.
“In 2010 to 2013, there will be a historic opportunity to own class A and B cash flowing properties at significant discounts to replacement cost with relatively high equity yields,” Lundin said in a statement. “These are among the safest investment vehicles going into an inflationary market.”
Lundin was formerly senior vice president and national director of originations at Inland Mortgage Capital Corporation, a national investment firm based in Oak Brook, Illinois. Doug Beiswenger and David Goldman, co-owners of the Los Angeles-based retail developer Allied Retail Partners, will join Lundin as principals at LBG.
With Lundin at the helm, LBG is one of few woman-owned investment firms in the country, and the three principals each bring an average of 20 years of real estate experience to the firm.
Write to Austin Kilgore.
McLean, Va.-based Freddie Mac (FRE: 0.00 N/A) cut its origination forecast for Q309 from $890bn in June to $625bn in July.
In addition, the government-sponsored enterprise (GSE) lowered its refinancing shares forecasts. Its June 8 report predicted 70% of applications and 74% of originations would be for refinanced mortgages. In the July 8 report, those figures were reduced to 55% and 59%, respectively.
June’s monthly report predicted 71% of Q209 applications and 75% of originated loans would be for refinanced mortgages. In the July report, those figures were reduced to 65% of applications and 69% of originations.
The new, lower Q309 forecasts, along with lower Q409 forecasts, makes Freddie Mac’s new annual origination forecast $2.3trn, down nearly 15% from the June forecast of $2.7trn.
The news comes just weeks after the Mortgage Bankers Association reduced its origination projection $700bn to $2.03trn.
Freddie Mac's total mortgage portfolio decreased 1.6% in May, due in part to a 7% decrease in refinance-loan purchases from April to May. Recent action by the Department of Housing and Urban Development (HUD), however, may potentially increase Freddie's refinancing efforts.
The Home Affordable Refinance Program (HARP), which originally allowed borrowers with mortgages owned by Freddie or sister GSE Fannie Mae (FNM) and worth up to 105% of the home's current value, was off to a slow start. In response, HUD recently increased the program's loan-to-value limit from 105% to 125% to allow more homeowners to take advantage of the program.
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 economy in the Republic of Ireland fell into a deep recession with the global financial crisis, dragging down mortgage performance with it.
Average delinquency rates among prime Irish residential mortgage-backed securities (RMBS) have risen to 3.9% from 2.1% in March 2008, while 90+ day delinquencies in particular more than doubled to 1.5%, according to a report by Standard & Poor's.
Despite rising delinquencies, however, S&P notes few repossessions so far and negligible losses.
"This could be due to a number of factors; we understand that the legal system, for example, is generally considered to be 'borrower-friendly,'" said S&P credit analyst Kate Livesey. "Furthermore, the introduction of schemes such as the Code of Conduct on Mortgage Arrears, which prevents lenders from entering court proceedings until at least six months after arrears first arise — or 12 months in some cases — could also be lengthening the time from first arrears to repossession."
Irish mortgage loans show traditional strong performance in the last 10 years, supported by rising house prices and low unemployment levels, but harsh recessionary conditions like higher unemployment and price depreciation pressure borrowers.
Despite the poorer performance, prepayment rates typically seen among refinances fell to less than 10% from a peak of almost 50% among the two nonconforming Irish RMBS transactions S&P tracks. The ratings agency attributed constrained credit availability to these slowed prepayments.
Write to Diana Golobay.
Well, we did push for simpler explanations.
The Bank of England is creating more money in an effort to increase spending. And Great Britain's Deputy Governor for Monetary Policy, Charlie Bean, wants to make sure the public understands this process by undertaking a seven-day tour ending on Monday across different parts of England, Scotland and Wales.
He is also distributing perhaps the most powerful tool of information dissemination known to man: the pamphlet.
The Bank's pamphlet explains (excuse the bait-and-switch) that no new money will actually be printed. Ouch!
"Instead, the bank buys assets from private sector institutions (didn't Ministers of Parliament sound out on the BBC that such programs aren't working?) and credits the seller's bank account," the Quantitative Easing Explained pamphlet states. "So the seller has more money in their bank account, while their bank holds a corresponding claim against the Bank of England (known as reserves)."
"The end result is more money out in the wider economy."
Bada-Boom, Bada-Bing.
At least the pamphlet is worth the paper it's printed on.
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