Archive for July, 2009
Mortgage loan production at Flagstar Bank is up in Q209 from a year earlier, but non-performing mortgages and loan charge-offs continue to soar.
The bank's loan production — primarily agency residential first mortgages — fell to $9.3bn in Q209 from $9.5bn in the previous quarter, but is up 13% from $8.2bn in the year-ago quarter.
Flagstar Bancorp (FBC: 0.68 +3.03%), holding company for Flagstar Bank, posted $76.6m in Q209 net loss, compared with $67.4m in the previous quarter.
Flagstar took $117.7m of net loan charge-offs in the quarter, up from $68.2m in Q109 and nearly ten times the $11.2m of charge-offs taken in the year-ago quarter. Meanwhile, the provision for loan losses fell to $125.7m in Q209, from $158.2m in the previous quarter.
Residential first mortgages accounted for $588.2m of the bank's total $1.1bn in non-performing assets at the end of Q209. Non-performing mortgages rose more than 150% from $232.6m in the year-ago period while total non-performing assets grew by 120% from $500m.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
Real Estate Disposition’s (REDC) Auction.com will host an online foreclosure auction Aug. 3, encompassing more than 800 properties and homes in 45 states, according to a corporate release.
The properties range from million-dollar estates to modest single-family residences and are open to public inspection on August 1 and 2. The bids begin August 3 and the auction ends August 9.
“We created and designed this online platform for serious real estate buyers and investors that will maximize the benefits and profitability for banks, lenders and other financial institutions in the real estate sector,” says REDC/Auction.com chairman Robert Friedman.
REDC sold more than $5.5bn in distressed real estate assets in the last two years. Last weekend alone, more than $43m in homes sold at four REDC/Auction.com foreclosed home auctions in Chicago, Atlanta and Washington, D.C. In total, 542 foreclosed homes sold in front of 3,200 bidders.
Write to Jon Prior.
Despite the servicing industry's efforts to modify mortgage loans through the Home Affordable Modification Program (HAMP), foreclosure sales continued to rise in June.
A significant obstacle to reporting the progress of HAMP lies in the requirement that modifications remain in a three-month trial period before being considered complete. While the 90-day waiting period allows some time for the performance of the modified loan to become clear, it has a muddying effect on the loan workout data collected by certain industry groups.
HOPE NOW, the private sector alliance of mortgage servicers, non-profit counselors and investors, touted 310,000 completed workout solutions for struggling borrowers in June. The figure represents a 25% increase over May's data, which was 4% below the month before.
For the second consecutive month, the distribution of workout efforts between technical modifications and repayment plans remains skewed from ratios typically reported by the alliance.
Modifications slipped 5.1% in June while repayment plans jumped 44.9% from a month earlier. The alliance again attributed the swing toward repayment plans primarily to servicer participation in HAMP and the three-month trial period required before the status of the loan can be considered "modified."
The industry completed 93,924 foreclosure sales in June, 13% more than in May. The alliance's data for the first time showed prime foreclosure sales outpacing subprime foreclosure sales two to one.
At the same time, early foreclosures decreased slightly — by 1.2% — to 254,000 in June. Delinquencies of borrowers more than 60 days behind on payments rose from about 3m to 3.1m in June.
Write to Diana Golobay.
Scott Norman serves as vice president for the Texas Mortgage Banker's Association (TMBA). He has navigated the reverse mortgage business for the last 10 years and helped put together TMBA's reverse mortgage forum, which takes place in August at the Driskill Hotel in Austin.
In this episode of In This Corner, Scott Norman discusses the future of the mortgage industry and the ability of Texas' market to recover.
HW: Was Texas shielded from the housing bubble because it avoided over-inflating its housing prices, and does it look like this market will have an easier time recovering than others?
Scott: "Without question, Texas was shielded from the housing bubble. While our markets have seen numerous soft spots, we should recover quicker and stronger than most. As in the past, residential real estate and job growth will lead the way. By the year 2030, the Texas population is expected to grow by an additional 14m to 38m. Also of note, Texas hosts more Fortune 500 companies than any other state. Our diversity, when it comes to education and job creation, are second to none."
HW: With HVCC and RESPA, to name a couple of new policies, it seems like we’re in the age of regulation when it comes to housing and the way mortgage lenders operate. Do you see tightened regulation harming or helping the housing industry?
Scott: "While there is always a fear that overregulation may stifle competition, I don't see the new regulations hurting the reverse mortgage industry. In fact, one of the best aspects of a reverse mortgage are its numerous consumer protections. Probably the most important protection is the requirement that all prospective borrowers receive independent third party reverse mortgage counseling from an approved HUD counselor prior to taking a loan application. In addition, there is a limitation on closing costs and all borrowers must receive an advance disclosure showing the total transaction costs over the projected life of the loan. Also, there is not a penalty for canceling the loan after closing, i.e. the three-day right-of-rescission period."
HW: What are the financial advantages of a reverse mortgage for senior citizens?
Scott: "For a majority of Americans, their home's equity is their biggest asset. A reverse mortgage allows homeowners, age 62 and over, the ability to convert part of their equity into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payments are 'reversed.' Instead of making monthly payments to the lender, as with a traditional mortgage or home equity loan, the lender makes payments to you.
"You can access your funds for any reason — health care, home improvement, prescription drugs, a new car or even to help pay for a grandchild's education. With interest rates below 5.6%, there has never been a better time to look at the options associated with a reverse mortgage."
HW: New packages and products are entering the fold of the reverse mortgage portfolio. What does the future of reverse mortgages look like?
Scott: "The most exciting thing about reverse mortgages is what the future holds. As more Americans are forced to cope with the rising cost of health care, reverse mortgages will continue to take on a greater significance in the retirement landscape.
"When you look at the demographics, you quickly see that issues like affordable senior housing and long-term care will become mainstays in the American retirement debate. There are over 34m Americans over the age of 65. This is expected to double in the next 30 years to almost 70m. In the next 20 years, nearly one in five Americans will be over age 65. Approximately 80% of seniors own their own homes, meaning there are 27m senior homeowners today.
"I anticipate the newly enacted Congressional changes to reverse mortgages, including higher lending limits, stricter consumer protections, and lower fees will lead to even more acceptance in the coming years. The overwhelming growth we’re seeing reinforces our belief that reverse mortgages remain a safe and viable option for American seniors as they assess their retirement plans."
Write to Jon Prior.
Existing home and condo sales in the Phoenix area soared in June to the highest level seen in that month in four years, according to housing data provider MDA DataQuick.
A total 10,731 new and resale houses and condos closed escrow in the combined Maricopa-Pinal counties metropolitan area in June, up 12.2% from May and up 40.4% from a year ago.
The June resale total of 9,720 homes and condos represented the highest monthly total since March 2006. A total 8,746 resale houses in June marked a 71.4% growth from last year's volume.
It is the sixth consecutive month of year-on-year gains in total sales, and the 12th consecutive month of gains in existing home sales.
The level of newly constructed homes sold in the area has declined 50% from June 2008, however, with the 1,011 new homes sold last month representing the lowest June new-home tally in a decade, DataQuick said.
June's data for the area showed a continued "modest shift" away from a majority of foreclosure sales in the distribution of re-sales. In June, 60.8% of Phoenix-area homes and condos that resold had been foreclosed on in the past 12 months, from 64% in May.
The area saw a "tiny" month-on-month median price gain of 0.4% to $130,000, the second monthly gain in a row for resale houses and condos. The median is 50.8% below the region's June 2006 peak of $264,100, and has fallen year-over-year for 29 consecutive months as buyers continue to work through foreclosure inventory.
"For the foreseeable future, the Phoenix region will continue to have many foreclosures to recycle, and that inventory of lender-owned property will weigh on home prices," DataQuick said in its regional report, noting lender repossessions spiked in June to 5,800 houses and condos.
June's repossession volume in the Phoenix area is up nearly 38% from May and up 40.8% from the year before.
Write to Diana Golobay.
While residential real estate remains weak overall, many local markets are showing signs of improvement, according to the Federal Reserve’s Commentary on Current Economic Conditions, also known as the Beige Book.
Sales volume is up, especially in the Fed’s Minneapolis and San Francisco districts, and with the exception of the St. Louis district, sales declines are letting up.
The Fed credited the federal government’s $8,000 first-time homebuyer tax credit for the improvement to the low-end of the residential housing market, especially in its New York, Kansas City and Dallas districts.
While sales are up, prices are still down. Many districts pointed to foreclosures as the cause of continued decline in prices. New residential construction remains low due to financing difficulties.
All of the districts reported varied levels of weak or slow commercial real estate leasing. Commercial real estate sales are low and even non-existent in some markets due to tight credit and weak demand, and most construction activity is on the decline.
Overall, the 12 districts reported economic activity would be weak throughout the summer, but the decline has shown signs of bottoming out.
Write to Austin Kilgore.
The Internal Revenue Service (IRS) is cracking down on fraudulent claims of the first-time homebuyer tax credit. The national tax service is trying to close loopholes in the system that it says allows unqualified borrowers access to taxpayer funds toward home purchases.
The first-time homebuyer tax credit provides up to $8,000 to individuals or married couples who haven’t owned a home in three years and who close on a property by Dec. 1, 2009.
Borrowers that meet certain requirements are even able to monetize the tax credit toward mortgage down payment use in excess of the Federal Housing Administration's 3.5% minimum in order to obtain an FHA-insured mortgage. In these cases, borrowers access the funds through short-term loans that are repayable after their income tax returns are filed with the IRS.
The IRS issued a statement Wednesday warning income tax fraudsters that it's watching for illegal uses of the first-time homebuyer tax credit, and has already successfully prosecuted a tax preparer who attempted the fraud.
The IRS already has 24 open criminal investigations involving fraudulent uses of the tax credit. It executed seven search warrants in relation to some of those cases.
“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, IRS criminal investigation chief, in a press release. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”
In one such case of the tax credit fraud, a Jacksonville-based tax preparer, James Otto Price III, pleaded guilty last week to falsely claiming the credit on a client’s tax return. When Price is sentenced, according to the IRS, he faces up to three years in jail and/or a fine of up to $250,000.
The IRS added individuals are ultimately responsible for the accuracy of their return, even if it’s prepared by a tax professional, and improper returns may result in not only back taxes, but penalties and interest, too.
Write to Austin Kilgore.
The total mortgage loan application volume fell 6.3% for the week ending July 24, ending a three-week run of increases, according to a weekly survey by the Mortgage Bankers Association (MBA).
But compared to the same week last year, the index rose 16.1%.
The amount of refinancing applications fell 10.9% from the previous week, and its share of mortgage activity decreased to 52.6% from 55.5% a week ago, according to the survey.
The MBA, which also keeps an eye on mortgage rates, noted the average rate for 30-year fixed-rate mortgages increase to 5.36% from 5.31% with points decreasing to 0.93 from 1.18. For 15-year fixed-rate mortgages, the average rate dropped to 4.75% from 4.80%, with points jumping to 1.14 from 1.03.
The amount of loan applications per household fell only 0.6% for the week, according to a weekly survey from Mortgage Maxx, which adjusts raw application data to count multiple applications from within a single household as one participant in the application process.
The Mortgage Application Index – or MAX – continued to show weakness overall, according to publisher Paul Descloux.
“With housing turnover soon to slide off its summer plateau," he said, "absent a sharp decline in rates the MAX will soon be under renewed pressure."
Write to Jon Prior.
The Securities and Exchange Commission (SEC) charged a Phoenix-based company and four promoters with securities fraud for coordinating a multimillion-dollar mortgage-lending scheme, according to an SEC statement.
The alleged scheme trapped hundreds of investors with false promises of investment performance by four parties, including two certified public accountants, a pharmacist and a grade-school principal. The charges allege the foursome raised more than $197m from investors across the country and pooled the funds through their company, Radical Bunny. From this pool, they made loans to Mortgages Ltd., a Phoenix-based originator of high-interest, short-term loans to real estate developers, according to the statement.
The SEC filed their complaint in federal court in Phoenix, naming in the scheme Radical Bunny and its four managing members: Tom Hirsch of Paradise Valley, Ariz.; Harish Shah of Phoenix; and Howard Walder and Berta "Bunny" Walder, both of Phoenix, according to the statement.
The complaint alleges the four promoters told investors that Mortgages Ltd. could only use their funds for commercial development, but no restrictions existed.
The SEC claims that the foursome held semi-annual meetings at a luxury golf resort in Scottsdale, Ariz. There, they reportedly pitched presentations and the updated status of investments to friends, families and others that were invited to the meetings as potential investors.
"These promoters promised investors more than they could possibly deliver," said Rosalind Tyson, director of the SEC's Los Angeles regional office, in the statement. "Even to friends and family, they repeatedly overstated the safety of the investment and their knowledge of the underlying business to which they lent investor funds. Unbeknownst to investors, more and more of their money was being shifted into fewer and riskier loans."
Radical Bunny never registered with the SEC, and, in addition to fraud, Hirsch, Shah and the Walders face charges of offering and selling unregistered securities and for acting as unregistered broker-dealers in violation of the federal securities laws, according to the statement.
In the suit, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against all of the defendants.
According to a story by the Phoenix New Times, Scott Coles, Mortgage Ltd.’s CEO, committed suicide in June, the same month the company filed for bankruptcy.
Write to Jon Prior.
As the industry looks for signs the housing sector is beginning to stabilize, the threat of a crash in the commercial mortgage market grows, according to San Francisco Federal Reserve president Janet Yellen.
Speaking this week at a bankers convention in Idaho, Yellen said while there are signs that the economic growth is beginning to return — house price declines are abating, consumer spending is stabilizing and new unemployment is lessening — the recovery will be painfully slow and the Fed believes commercial real estate is the economy’s next vulnerable spot.
The problem, Yellen said, is maturing loans for commercial properties that lost significant value.
“Borrowers seeking to refinance will be expected to provide additional equity and to have underwriting and pricing adjusted to reflect current market conditions,” Yellen said. “In some cases, borrowers won’t have the resources to refinance loans.”
Yellen urged the community bankers at the conference to be proactive in preparing for a potential downturn, which could include, she said, property value drops as high as 30% to 40%. Namely, she told the audience to address emerging credit problems and commission new appraisals, but also encouraged them to continue lending to creditworthy borrowers.
The remarks fall in line with a number of credit ratings reports that warn commercial real estate is set to take a tumble.
Write to Austin Kilgore.
