Archive for July, 2009
As part of the Obama Administration's plans for sweeping financial regulation overhaul, the US Treasury Department announced today the delivery of proposed legislation that would beef up the Securities and Exchange Commission's (SEC) authority to protect investors.
The legislation establishes standards for anyone who provides investment advice relating to the purchase of securities, improves the timing and quality of disclosures and requires greater accountability from securities professionals.
The legislation, called the Investor Protection Act of 2009, would also establish a permanent Investor Advisory Committee "to keep the voice of investors present at the SEC." It would also expand protection for whistleblowers, giving the SEC the authority to establish a fund to pay individuals that come forward with evidence of securities law violations.
"Currently, the SEC has the authority to compensate sources that provide evidence leading to a successful insider trading cases; that authority should be extended to other types of securities law violations," the Treasury said in a press release.
The legislation can be read here.
Write to Diana Golobay.
Sellers slashed prices for 24.6% of all homes listed in the US market as of July 1, 2009, totaling $27.1bn in reductions during their listing life, but some troubled markets could be finding their feet, according to a monthly report by Trulia, a real estate listing service.
On average, sellers cut price tags by 10.4% on homes, only a small decline from 10.6% from the previous month.
But swooning markets like Las Vegas and Los Angeles showed signs of improvement. Las Vegas saw a 33% reduction the number of homes being slashed in price compared to one month ago. Los Angeles marked a 25% improvement.
“All real estate is local and we’re seeing glimmers of hope as price stabilization occurs in major cities across the nation, including some of the earliest hit cities that have experienced huge declines in the past few years,” said Pete Flint, CEO of Trulia, in a corporate release.
But sellers could just be cutting prices, desperate shed properties off the market, Flint said.
Jacksonville, Boston and Minneapolis top the list of cites that saw the most price reductions. Owners cut prices on 39% of homes, resulting in more than $119m in total reductions.
Write to Jon Prior.
The addition of a new loan servicer to Fannie Mae’s (FNM: 0.00 N/A) HomeSaver Advance (HSA) loss mitigation program is unrelated to a cease and desist order issued to the program’s original servicer.
Ewing, NJ-based Central Loan Administration and Reporting (CENLAR) has joined North Texas-based Dyck O’Neal, which has serviced the HSA loans since the program was announced in June 2008.
The loans are designed to bring borrowers current on their first lien mortgages secured or owned by Fannie Mae. CENLAR will service new loans issued Friday.
The Georgia Department of Banking and Finance issued a cease and desist order to Dyck O’Neal on June 22. The order alleges the firm originated loans in the state without a license.
A Fannie Mae spokesperson said the addition of CENLAR is unrelated to the cease and desist order, and was planned before the order was issued. HSA loans originated before Friday will continue to be serviced by Dyck O’Neal, however the Fannie Mae spokesperson declined to comment as to how the Georgia order would affect Dyck O’Neal’s standing with the mortgage company in the future.
The HSA loan is a loss mitigation tool for home owners who are able to resume their monthly loan payments once their account is brought current. The 15-year note has a fixed 5% interest rate, and funds can be applied to delinquent principal interest, taxes and insurance (PITI), escrow advances, and advances, and foreclosure and bankruptcy fees and costs, as well as unpaid homeowners association fees.
The change, originally announced in June 2009, comes after Fannie Mae’s conservator, the Federal Housing Finance Agency (FHFA), noted in May that nearly 70% of borrowers that received a HSA loan redefaulted on their mortgage.
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 Council of Mortgage Lenders (CML), a UK industry group, this week said the tightening of lending criteria in the United Kingdom seems to be abating as the volume of first-time home owners receiving financial assistance grows.
The number of loans for home purchases edged up 4% from April to 37,400 mortgages in May worth £4.7bn (US$7.6bn).
At the same time, the volume of first-time homebuyers in the UK were little changed with 14,000 loans closed in May for a total £1.5, from 13,700 in April also worth £1.5.
The average first-time home buyer down payment holds steady in May after reaching a record 25% high in February. It may be a significant deposit, but the CML notes a rising volume of first-time home buyers receive financial help with their down payments. Newly updated CML analysis suggests that around 80% of first-time buyers aged under 30 are likely to be receiving help from parents as they are unlikely to have been able to build up the deposits needed to enter the market from their own resources.
"[O]verall, access to mortgage finance will still be constrained by the diminished number of active lenders and shortage of funding available to them," said CML economist Paul Samter. "Meanwhile the Bank of Mum and Dad remains an apparently important source of help for young first-time buyers."
Write to Diana Golobay.
Moody's Investors Service is putting to rest some fears about the recent passage of the UK Banking Act 2009 and the rating impact on the structured finance portfolios of those institutions licensed to conduct securitization business in the country. The agency, for its part, does not see a negative affect on these transactions.
However, the rating agency does not discount that this opinion may change in the future, adding that it does not expect those in power to actively seek to administer regulation and reform to the detriment of residential and commercial-related mortgage finances.
Some sections of the law alarmed market players, especially concerning a 'Safeguard Order' which allows for the modification or removal of the terms on which the bank holds property on trust for the ultimate benefit of investors. The fear lies in giving UK authorities broad discretion to modify or terminate trust arrangements, potentially to the detriment of investors exposed to securitizations and covered bonds.
The report clarifies, mentioning two banks under government control: "The political will to support covered bonds is clearly evidenced by past actions in respect of Northern Rock and Bradford & Bingley — in each case covered bonds were guaranteed by the government — and Moody's expects they will not be left with a residual bank unless they are guaranteed."
Northern Rock, until its retail-side collapse, originated tremendous amounts of high LTV loans. Bradford & Bingley is a specialist lender catering to non-owner occupied-type rental borrowers.
The Moody's report should be well-received by investors in the aforementioned banks' Master Trusts: Granite and Aire Valley, respectively. A structured finance report dated June 23 2009, from Fitch Ratings on underwater exposure to UK prime RMBS found that 22% of borrowers in B&B's Aire Valley were in negative equity. That number was eclipsed only by Granite, with 38% of such borrowers underwater.
Fitch did note in the report that prime borrowers are unlikely to default, even in negative equity.
Write to Jacob Gaffney.
Government-insured loans in June reached its highest share of mortgage applications since 1990, according to the Mortgage Bankers Association (MBA).
The MBA’s Weekly Mortgage Applications Survey found that the Federal Housing Administration (FHA) and the Veteran Administration (VA) backed 35.9% of all mortgage applications in the month of June, spiking from 25.7% from a month earlier and 27% from June 2008.
“A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s associate vice president of economic forecasting, in a corporate statement Thursday.
Tighter lending standards restrict conventional loans backed by private mortgage insurance, Velz said.
The upward trend in mortgage rates hampered conventional refinance activity due to a combination of credit and LTV requirements, Velz said. As a result, the government insured 33.6% of refinance applications in June.
The MBA's study considers mortgage applications, which don't always represent closed and funded government-insured loans. The Department of Housing and Urban Development’s (HUD) outlook shows that FHA-backed loans are also on the rise as applications hit the closing table.
According to the HUD’s report from June 1st to June 15th, the FHA insured 94,069 mortgages, a 23.7% increase from the previous two-week period. That growth represents the highest spike in over nine years. First-time buyers made up 80% of those mortgages.
Write to Jon Prior.
The Manhattan District Attorney’s office indicted 13 people and a mortgage origination company for allegedly perpetrating a mortgage fraud scam that ran for four years and cost lenders more than $100m.
The indictments and convictions come after a 10-month investigation of the Garden City, Long Island-based AFG Financial Group and 19 of its mortgage transactions. In the indictment, District Attorney Robert Morgenthau alleges the defendants targeted distressed residential properties in New York City and surrounding counties.
According to Morgenthau, AFG would find straw buyers with good credit and dupe them into investing an up-front payment and completing mortgage application documents. The straw buyers were told they would help distressed borrowers stay in their homes and receive a return on their investment.
The homes were allegedly over-appraised by AFG cohorts and the straw buyers’ loan worthiness was falsely inflated to help secure more money from the mortgage.
When the money came, the straw buyer was left with nothing but ruined credit and the conspirators laundered the money and kept it for themselves, the district attorney alleged.
Morgenthau said flaws in the city’s deed recording and registration system and limited regulatory oversight of the mortgage industry led to AFG’s four-year-long scam.
“These defendants were able to get away with this conduct for four years because the mortgage industry simply passed the defective loans to the secondary markets with little motivation to scrutinize the actual risks, industry regulators paid little or no attention, and the city and state’s systems provide for no verification of property sales,” Morgenthau said in a statement released by his office. “These defendants and others who commit mortgage fraud contributed to the failure of the securitized debt market. Our investigation will continue as we make efforts to hold accountable those who cheat, lie and steal to undermine our financial systems for personal gain.”
In one such transaction, the district attorney’s office said, the defendants created an appraisal report for a duplex with an alleged value of $500,000, but the property in question was nothing more than a vacant lot.
The 13 defendants were indicted for enterprise corruption, a class B felony punishable by up to 8 years, four months to 25 years in prison, second degree grand larceny, a class C felony punishable by up to 5 to 15 years in prison, scheme to defraud in the first degree, a class E felony punishable by up to 1 year, four months to 4 years in prison, and conspiracy in the fifth degree, a class A misdemeanor punishable by up to 1 year in jail.
An additional 12 people pleaded guilty to felonies related to the alleged scheme. The 25 people implicated in the scam either worked as principals or employees of AFG, or served as lawyers, appraisers and bank liaisons for the firm.
Lists of the indicted and convicted defendants are available on the statement released by Morgenthau's office.
Write to Austin Kilgore.
[Update 1: adds details on other transactions that IMA is advising]
The Federal Deposit Insurance Corp. (FDIC) in its capacity as receiver for Franklin Bank will sell servicing rights on more than $1bn of residential mortgages.
Interactive Mortgage Advisors (IMA) said this week it will serve as the FDIC's financial advisor on the transaction and will assist it in the marketing and sale the Mortgage Servicing Rights (MSRs) related to $1.06bn of residential mortgage loans. It marks a busy week for IMA, which said it is also accepting bids on behalf of Fannie Mae and Freddie Mac for a bulk servicing offering of 3,416 loans valued at $509.4m.
Houston-based Franklin and its designees currently provide mortgage servicing on the related loans, but after the expected bid date of Aug.14, 2009, the winning bidder will claim the weighted average net servicing fee of 0.27% on pools of loans, which bear a current average principal balance of $128,008 and a weighted average interest rate of 6.16%.
IMA said the definitive bidding structure will be announced on or about July 17.
In November, the Texas Department of Savings and Mortgage Lending shut down Franklin Bank — which as of Sept. 30, 2008 boasted $5.1bn of total assets and $3.7bn of deposits — and named FDIC receiver. The failure was estimated at a $1.4-$1.6bn cost to the FDIC's insurance fund.
Write to Diana Golobay.
Citigroup (C: 30.87 +1.61%) shuffled its deck of senior managers Thursday to help further their strategic priorities, a spokesman for Citigroup said.
The bank’s CEO, Vikram Pandit, elevated Edward Kelly from chief financial officer to vice chairman of Citi. John Gerspach will move from his position as controller and chief accounting officer to the CFO seat.
Eugene McQuade’s long history of commercial banking earned him the new role as chief executive officer for Citibank. Citi plucked him from the vice chairman seat of Merrill Lynch (MTTX: 0.00 N/A). McQuade also served as president and chief operating officer of Freddie Mac, and steered Bank of America (BAC: 7.29 -0.14%) as president.
“These moves are meant to highlight our corporate businesses like Citibank and to manage assets under Citi Holdings,” a spokesman for Citi said.
Which is where Kelly comes in. Citi believes that his experience will help their brokerage and asset management, specifically the mounds of difficult debt accrued from the mortgage crisis - an amount that has the bank on the brink of the Federal Deposit Insurance Coporation’s list of troubled banks.
Write to Jon Prior.
Seven minutes. A keyboard, a bowl of cereal and $100. That’s all a buyer needs to have a shot at a discounted condo on iBidcondo.com.
On July 27th, an online auction will open for a sleek condominium in the Beat condos on the south side of Dallas, TX. A seat at the eBay-like auction room costs $100, but the last property went for $86,840. The winner probably fell out of his or her computer chair, because the Austin condo was valued at $690,000.
So, who’s crazy enough to let a property go for a fraction of the valued price?
Developers approached iBid founder Eugene Marchese, a developer himself until the banks cut off his funding. He put his remaining property online, charged seat fees, sold the condos at a fraction of the price and kept the seat sales.
The actual money from the sale goes Dallas-based charities, which are yet to be determined. Developers hope to sell 2,800 seats per auction, but for the Austin sale, only 1,000 were sold.
That said, developers still unload their property, help out a charity and pocket revenue from seat sales. Not to mention cause a lucky buyer to choke on their cereal.
Write to Jon Prior.
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