Archive for July, 2009
US home builders in recent months began walking away from their revolving credit facilities, choosing to rely instead on cash and other equivalents held on their balance sheets for short-term liquidity, according to a study by Fitch Ratings.
Builders snubbing short-term credit and voluntarily exiting their revolving credit lines indicates a general move toward conservative borrowing practices as the US banking and financial system continues to reel with loan-related losses.
The ratings agency in recent months saw DR Horton (DHI: 14.39 +1.91%), Ryland Group (RYL: 18.40 -0.97%) and Meritage Homes Corp. (MTH: 27.52 -0.65%) terminate or announce planned termination of revolving credit lines in advance of their scheduled maturity dates. Fitch said it has not yet taken action on three builders that recently ducked out the revolving credit doors, but future cases may warrant negative ratings action due to liquidity constraints in the absence of the facilities.
Action taken by the builders to exit revolving facilities not only reduces standby liquidity, but eliminates oversight of builder operations by bank groups, "a useful check on management's appetite for risk," the ratings agency said. Fitch noted the builders saved a "few million dollars" on non-use fees on certain facilities they had no need of, and in one case the existing facility constrained the management's ability to raise capital.
"This strategy may also reflect managements’ views that a bottom has been reached or is near for new construction and an upturn is on the horizon," Fitch said in a statement on the trend.
The builders' move to rely on cash for short-term liquidity comes in the midst of CIT Group's (CIT: 38.02 +0.05%) financial struggles. The lender last week confirmed a group of its bondholders agreed to lend up to $3bn in private capital so it can continue to extend credit to commercial businesses.
But the shake-up at CIT — beginning when the firm learned it would not receive a second federal bailout and culminating in discussion of potential bankruptcy among major media — may have spooked businesses that rely on credit extended by such lenders to make payroll and other expenses.
Industry sources, like the National Association of Home Builders, see a different solution to the lending crisis felt by home builders. The association last week urged Congress to increase the funding and loan size under the Small Business Administration’s America’s Recovery Capital loan program, which offers small businesses guaranteed deferred-payment, interest-free loans up to $35,000.
NAHB also urged the establishment of a supplemental loan assistance program to target businesses with capital needs in excess of $10m.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
The nation's housing markets are clearly developing a bi-polar disorder all their own: fresh evidence of a possible recovery is consistently tempered with equally fresh evidence of continuing trouble ahead. A new report released Wednesday morning by Jacksonville-based Lender Processing Services, Inc. presents the latest mixed bag of results, with fresh evidence that housing might be turning the corner.
Put the emphasis on might.
In particular, roll rates — which measure the volume of loans moving from good to bad, and from bad to worse — improved during June, with new delinquencies dropping to their second lowest level in the last year, the firm said. The percentage of delinquent loans moving from bad to worse declined across all product types, as well. Which is at least some good news for a market that has been in dire need of something positive for the better part of two years running.
But for the nascent improvements now being seen, there remain numerous hurdles that suggest the nation's housing market isn't really out of the woods just yet. In particular, foreclosures soared to new record highs in June, LPS found: The national foreclosure inventory rate during June was 2.86%, up 2.5% from one month earlier and a huge increase of 86.1% from year ago levels. Total delinquencies rose as well, to 8.58%, up 44% from one year earlier.
Reflecting the mortgage crisis' evolution away from all things subprime, prime jumbo mortgages continue to fare the worst, comparatively: foreclosures among good-credit borrowers with high loan balances are up a whopping 580% since Jan. 2008, LPS said.
And it's not just the overall inventory of foreclosures that is increasing, either: New foreclosures are on the rise, as well. "Foreclosure starts in June increased 1.6 percent to the second highest level on record, while reinstatement and recidivism rates are not yet showing signs of improvement," LPS said in a statement. Backing this sort of logic up, July ABX remittance data released Tuesday found that modification rates had actually declined slightly during the month among most of the tradeable indexes. (The ABX is a synthetic tradeable index referencing a basket of 20 subprime mortgage-backed securities.)
In other words: fewer borrowers appear to be getting in trouble with their mortgages, and those that are in trouble are moving into foreclosure at a decreased rate. Nonetheless, the number of foreclosures is still growing as servicers begin to work through a backlog of troubled borrowers–which shouldn't surprise, as HousingWire's key sources have long suggested such a ramp-up in foreclosure activity would be the outcome of various moratoria put into place earlier this year.
So, is housing in for a recovery in the months ahead? These days, the answer depends upon where you look.
Paul Jackson is the editor-in-chief of the HousingWire.com news service and HousingWire Magazine.
Bond insurer Ambac Financial Group (ABK: 0.00 N/A) this week estimated statutory impairment losses on credit derivatives for its Ambac Assurance segment rose by $1.6bn to a total $4.9bn in Q209.
These losses, which the firm expects to report on August 5, are tied to collateralized debt obligations on asset-backed securities, the underlying collateral of which continues to decline in performance.
The firm expects to post a $1.3bn quarterly loss, including an estimated statutory loss and loss expenses incurred at approximately $800m. Deterioration in Ambac Assurance's second-lien and Alt-A mortgage-backed securities financial guarantee portfolios drive the expected statutory loss and loss expenses, the company said in a corporate release.
Ambac also said it plans to discontinue paying certain monthly dividends in order to reserve cash.
In light of its capital troubles and the declining quality of its insured books, Standard & Poor's on late Tuesday slashed Ambac Assurance to double-C from triple-B, effectively lowering it to junk status.
"This rating action reflects our view of the significant deterioration in Ambac's insured portfolio of nonprime residential mortgage-backed securities and related CDOs," said S&P's credit analyst David Veno in a statement. "This has required the company to strengthen reserves to account for higher projected claims."
S&P said the additional reserves will have a significant negative effect on operating results, which will likely cause surplus to decline to below regulator-required minimums.
In March, Ambac Assurance bore $1.9bn of so-called contingency reserves. It requested permission from the Wisconsin Office of the Commissioner of Insurance (OCI) to release some of the contingency reserves into surplus.
Although the OCI had yet to respond to the request at the time this story went to press, S&P noted the approval for Ambac to boost its surplus might allow the rating agency to lift it up to triple-C, but not likely higher. If, however, the request remains unanswered and regulators must come to Ambac's aid, S&P may act on its "developing" outlook of the firm and revise the rating down to single-R.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
Colonial BancGroup (CNB: 0.00 N/A) on Monday consented to a cease-and-desist order given by the Federal Reserve.
The order, which takes effect July 22, addresses the capital, liquidity and loan loss allowance issues at the bank, Colonial said in a statement on the order.
Colonial BancGroup acknowledged loan losses in its portfolio are greater than estimated or expected, leading to a liquidity crisis that also affected the firm's ability to raise additional capital and close on a pending agreement with investors led by Taylor, Bean & Whitaker Mortgage Corp. (TBW).
In March, Colonial signed an agreement with investors led by TBW for a $300m equity investment, according to a quarterly report filed with the Securities and Exchange Commission (SEC).
The firm in May reported a $168.36m net loss in the three-month quarter ending March 31, compared with $30.13m of profit posted in the previous-year quarter, according to the quarterly SEC filing.
Write to Diana Golobay.
Disclaimer: the author held no relevant investments when this story was published.
The proposed merger between Dubai's largest real estate developers — Emaar Properties and Dubai Holding Commercial Operations Group (DHCOG) — would create a dominant entity that would essentially control Dubai's property market, Moody's Investors Service said Monday.
"Moody's recognises that consolidating Emaar and DHCOG's real estate interests into one entity will create a new giant in Dubai's market, with unrivaled access to a sizable land bank," said Martin Kohlhase, an associate analyst in Moody's Corporate Finance Group based in Dubai.
"Furthermore," Kohlhase added, "several drivers — such as the opening of Dubai's Metro (public transportation system), the inauguration of Burj Dubai (the world's tallest skyscraper) and the end of the school year/beginning of the summer period — will shape Dubai's residential property market in the near term and lead to greater differentiation within Dubai's residential areas, from which Emaar and DHCOG's real estate divisions may benefit."
Moody's noted that the Dubai residential property market generally remains oversupplied, and the downward trend in the market is unlikely to stabilize before Q210. Large-scale lending has not resumed and property developers report a number of buyer delinquencies, Moody's said, although a liquidity crisis and delinquency levels may not be the only risks posed to the companies.
"Larger government ownership in Emaar may not be sufficient to mitigate the detrimental impact that the merger would have on the company's fundamental creditworthiness," Kohlhase said. "Furthermore, ongoing market weakness and the prospects of weaker cash flow over the near to medium term will impact the combined group going forward."
In response to the merger announcement, Moody's placed the long-term issuer ratings of both companies on review for possible downgrade. Emaar currently bears a "Baa1" long-term issuer rating while DHCOG is rated at "A3."
Write to Diana Golobay.
The Securities and Exchange Commission (SEC) on Monday made permanent a rule against so-called "naked" short sales in the securities market and detailed some short sale reporting initiatives it said will increase transparency of the practice.
In a "naked" short sale, the investor short sells shares it has yet to borrow. The practice, although blamed for pushing down stock prices through speculation alone, was permitted as long as no legal requirement forced short sellers to borrow the shares before selling them short.
The new rule requires broker-dealers — as opposed to sellers — locate an entity that can deliver the shares within three days of the trade, essentially borrowing them in order to conduct the short sale. The temporary version of the rule was set to expire on July 31st, but the SEC's action makes the rule a permanent fixture.
"Short selling often can play an important role in the market for a variety of reasons," the SEC said in an announcement, "including contributing to efficient price discovery, mitigating market bubbles, increasing market liquidity, promoting capital formation, facilitating hedging and other risk management activities, and importantly, limiting upward market manipulations."
The SEC also said it is pushing for greater transparency around short sales. Instead of renewing a temporary short sale reporting rule set up in fall of 2008, the SEC is looking into daily publication of short sale volume information, disclosure of short sale transactions and twice-monthly disclosures of instances where investors fail to deliver shares within three days of trade.
Write to Diana Golobay.
Texas-based eMortgage Logic, a company that provides broker price opinions (BPOs) to the mortgage servicing industry, partnered with Ohio-based inspection and preservation company A2Z Field Services.
The alliance brings together realtors, brokers, inspectors, REO field contractors, licensed debt collectors and loan modification personnel. Through the combined channels of the companies, eMortgage Logic said it will provide valuations and then offer preservation services through A2Z, which is also active in loan modifications.
"With our first hand knowledge of the contents of the BPO, we often see photos and comments related to the condition of these properties and now we will be able to inform our clients that we can help with preservation and/or securing the asset on their behalf," said eMortgage Logic founder Ralph Sells.
The alliance indicates these new services and other "hybrid" products are on the way, according to a press statement.
Write to Diana Golobay.
Independent credit-rating agency DBRS on Monday assigned ratings to a new issuance out of Citigroup (C: 30.87 +1.61%).
The new issuance — one of the first major private-market issuances in several years — comes as deals involving residential mortgages have begun picking up in recent months, according to a DBRS spokesperson.
The certificates involved in the ratings assignments, within Citigroup Mortgage Loan Trust 2009-B, are worth nearly $300m combined.
Nine of the classes received triple-A ratings, while one received a double-A and one received a single-A rating. Three Class B certificates received triple-, double- and single-B ratings.
DBRS said the triple-A ratings reflect the 2% of credit enhancement provided by subordination. The other classes bear credit enhancement below 2%, down to 0.65%. Interest and then principal will be paid on the pass-through certificates beginning in August 2009, with payments going first to senior and then subordinated certificates.
The trust contains CitiMortgage-originated loans that are on average 94 months seasoned first-lien, prime, fixed-rate mortgages secured by one- to four-family residential properties.
The loans consist of 30- and 15-year fixed-rate mortgages that as of July 1 bore an aggregate principle balance of $151.71m. The loans bear a weighted-average mortgage rate of 5.56% and a weighted-average FICO score of 774. The weighted-average original and amortizing loan-to-value ratios are 48.14% and 36.77% based on the original appraised values.
Write to Diana Golobay.
Residential Capital's executive vice president and senior managing director, Thomas Neary, resigns effective July 31.
ResCap operates GMAC's residential mortgage business, including the GMAC Mortgage and Ditech brands.
Neary joined the company in June 2008, after serving as executive vice president and head of mortgage capital markets at Wells Fargo (WFC: 29.60 +1.89%) and other senior positions with Bank of America (BAC: 7.29 -0.14%) and BancBoston Mortgage.
ResCap said Neary’s departure is voluntary and for personal reasons.
“We commend Tom for his leadership, and regret that we will be losing an exceptional manager and colleague,” a ResCap spokesperson told HousingWire.
Neary will assist in the transition of his successor, Adam Glassner.
Glassner will continue his previous role leading ResCap’s correspondent and warehouse lending group, as well as take on his new role of managing business risk for the lender’s mortgage servicing rights and oversight of ResCap’s pipeline hedging activities.
Glassner joined GMAC earlier this year after spending 10 years in a variety of positions at Bank of America.
Write to Austin Kilgore.
Representatives from 25 mortgage servicers participating in the Making Home Affordable initiative’s Home Affordable Refinance Program (HAMP) meet in Washington today, discussing how the program can be more effective.
The meeting, called for in a letter from Treasury Department secretary Tim Geithner earlier this month, comes at a time when industry groups including credit rating agencies are questioning how many homeowners HAMP will help.
One of HousingWire's sources at a participating servicer said the meeting's agenda could be boiled down to one item: “They’re going to say ‘Here are the guys who have done okay; here are the guys that need to do better — do better.’”
In order to keep up with the demand in modification and refinance applications, servicers have increased temporary staff, and are still catching up.
Borrowers are reportedly having trouble receiving mortgage modifications under the program, especially those who are not delinquent on their mortgage, but are in risk of falling behind. Last week, Senate Banking Committee chairman Chris Dodd (D-CT) called for an investigation into accusations that servicers were violating HAMP's terms and in some cases refusing to help borrowers not yet delinquent on their mortgages.
In response to some concern that the Making Home Affordable initiatives were not reaching enough troubled borrowers, the administration recently expanded the Home Affordable Refinance Program to include borrowers with loan-to-value ratios of up to 125% on mortgages owned or guaranteed by the government-sponsored entities.
Write to Austin Kilgore.
