Archive for July, 2009
A private equity firm came to the rescue of struggling Chicago-based real estate auction house Sheldon Good & Company.
Sheldon Good auctions residential, commercial and industrial real estate.
New York-based Racebrook Marketing Concepts, led by former Sheldon Good executive John Cuticelli Jr., acquired the firm. Cuticelli said he will move the firm’s headquarters to New York City on August 1, but will maintain a regional office in Chicago.
“I am looking forward to working with the staff of Sheldon Good & Company to build on past successes and create a bright future by introducing the institutional quality management practices the company deserves,” Cuticelli said in a statement.
It’s been a tumultuous year for the auction house. It filed for bankruptcy protection in April, just months after former CEO Steven Good was found dead in what authorities ruled a suicide, according to multiple media reports.
Racebrook’s investments include a variety of distressed real estate and asset-backed securities transactions, including term asset-backed securities loan facility bonds issued by the US government and debtor in possession financing for bankrupt real estate firms.
Write to Austin Kilgore.
The number of foreclosure proceedings begun against Californian homeowners from April to June fell slightly from the previous quarter but rose 2.4% from the same time period last year, according to real estate information provider MDA DataQuick.
"There is a perception that the housing market is dragging along bottom, that it probably won't get much worse, and that the lenders need to get serious about processing the backlog of delinquencies, either with work-outs or foreclosure," said DataQuick president John Walsh.
And servicers are getting serious, according to Walsh, hiring additional staff to handle the pipeline of delinquency cases. But he warned that a push in the servicing space to move these mortgages through either workout or foreclosure will likely lead to a higher volume of foreclosure filings in the third quarter.
A total 124,555 notices of default (NODs) were filed in Q209 on 122,829 homes; some borrowers defaulted on multiple loans on a single property, although this trend is decreasing, according to DataQuick. The Q209 total of NODs came in 2.4% above the level seen statewide last year.
On a local level, the year-over-year growth of NODs ranged from 43% in El Dorado — from 442 to 632 NODs in Q209 — to -23.1% in San Joaquin — from 4,795 to 3,688 NODs.
The median origination month for loans that defaulted during the quarter was July 2006, the same month as Q1's median. A year ago, the median month was April 2006, indicating the foreclosure process has progressed three months during the last year.
The lenders that originated the most loans that went into default in Q209 were Washington Mutual, Wells Fargo (WFC: 29.60 +1.89%) and Countrywide. Only one of those banks is left standing. WaMu is now part of JP Morgan Chase (JPM: 37.21 -0.75%) and Countrywide was absorbed by Bank of America (BAC: 7.29 -0.14%).
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published.
Months after IndyMac Federal Bank failed a year ago, the Federal Deposit Insurance Corp. (FDIC) implemented a streamlined modification program to improve the performance of seriously delinquent or defaulted mortgages.
As of May 31, 2009 the redefault rate among modified IndyMac Federal Bank (IndyMac) loans was 15.6%. The bulk of these modifications took place in Q408 — as early as September 2008, according to FDIC spokesperson David Barr — indicating many of these loans are at least six months past modification.
The FDIC rate is well below the industry standard six-month redefault rate, which ranges from 30% to more than 40%.
For example, Lender Processing Services (LPS: 16.78 +1.39%) in late May 2009 reported that nationwide modification efforts as of April achieved a redefault rate of nearly 50% six months after modification.
Modification methods among servicers may vary nationwide, possibly accounting for the varying redefault performance.
The FDIC's modification plan — serviced by OneWest Bank — employs interest rate reductions, extended amortization and principal forebearance, according to initial program guidelines.
The FDIC began its IndyMac mod plan with the intent of lowering the mortgage payments to within 38% of a borrower's income, where cost-efficient. In 2009, however, the program cut the debt-to-income (DTI) ratio down to 31%. Income verification therefore plays a major role in the FDIC's plan.
"We look at their ability to repay based on their income," spokesperson David Barr says. "The lower you get that DTI, the lower the chance of redefault."
IndyMac loans modified under the FDIC's program experienced an average 23% monthly payment reduction to achieve this ratio. In other words, a borrower whose IndyMac mortgage payment was $1,000 per month before modification now pays around $770 per month.
As of July 16, 2009 the program had modified 20,260 loans, according to Barr.
But even under a "streamlined" modification program, some mortgages are left untouched. The FDIC, in modifying IndyMac loans, must consider the value of modification as opposed to how much a foreclosure would cost. Some loans are too far outside the DTI ratio that foreclosure would be more cost-efficient.
Barr says: "There are instances where, to modify the loan down to that 31% DTI, we'd have to make too many concessions."
Write to Diana Golobay.
American Home Mortgage Servicing this week joined a growing list of servicers participating in the US Treasury Department's modification incentive program under the Troubled Asset Relief Program (TARP).
The Home Affordable Modification Program (HAMP) allocates TARP funds to servicers to use as interest rate reduction subsidies or to distribute to lender/investors and borrowers that participate.
The Treasury allocated a cap of $1.27bn to American Home under the HAMP program, according to a company statement.
American Home joins the list of 31 servicers already signed on, according to the latest TARP transaction report. Four others — PNC Bank, MorEquity, Shore Bank and Farmers State Bank — recently joined since the early July additions. They received caps of $54.47m, $23.48m, $1.41m and $170,000, respectively.
All told, the Treasury has allocated a total $18.74bn in TARP funding caps to these 31 institutions — $20bn with the addition of American Home as the 32nd — but may adjust individual caps based on actual participation in the program.
OneWest Bank recently implemented HAMP for loans serviced on behalf of mortgage giants Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A), and is in the process of working with the Treasury and Federal Deposit Insurance Corp. to apply the program toward the rest of the loans it services, according to a statement by CEO Terry Laughlin.
The influx of servicers to the program comes after Treasury secretary Tim Geithner and Housing and Urban Development (HUD) secretary Shaun Donovan issued a letter to the 23 servicers signed up at the time, pushing for a ramp-up of modification efforts under the program as well as increased staff and call center expansions.
Write to Diana Golobay.
The Federal Reserve Board, in response to consumer testing results, proposed significant changes to Regulation Z — Truth in Lending Act (TILA) — in an effort to improve disclosures and prevent "unfair practices" in mortgage broker compensation.
The Fed's proposal would prohibit payments to a mortgage broker or loan officer that are based on the interest rate or other terms, and would prohibit a mortgage broker or loan officer from "steering" consumers into transactions that are "not in their interest" in order to increase the compensation paid to brokers and officers.
Broker compensation is an issue long contested between regulators and industry players.
Last year, the Fed withdrew a proposed rule on Regulation Z regarding yield-spread premiums — a certain type of compensation paid to brokers based on the difference between the mortgage rate for which a borrower qualifies and the actual rate locked into by brokers on specific loans — but warned it would analyze "alternative approaches" to the issue.
Thursday's proposal also aims to improve the disclosures received by consumers on mortgages and home-equity lines of credit (HELOCs).
"Our goal is to ensure that consumers receive the information they need, whether they are applying for a fixed-rate mortgage with level payments for 30 years, or an adjustable-rate mortgage with low initial payments that can increase sharply," said Fed governor Elizabeth Duke in a statement Thursday. "With this in mind, the disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization."
The Fed's proposal would require that annual percentage rate (APR) disclosures capture most fees and settlement costs paid by borrowers on closed-end mortgages. It would also require lenders to show how the consumer's APR compares with the "average rate" offered to borrowers with credit considered excellent, as well as how much their monthly payments might increase for adjustable-rate mortgages.
The Fed is calling for a one-page, Fed-approved publication on the risks of HELOCs at the time of application. Then, the consumer would receive new disclosures addressing the terms of their specific credit plans. The Fed is also calling to prohibit creditors from terminating an account for payment-related reasons unless the consumer is more than 30 days late in making a payment, and to provide additioanal protections related to account suspensions and credit-limit reductions, and reinstatement of accounts.
The Fed also said it will work with the US Department of Housing and Urban Development (HUD) to coordinate the disclosures mandated by TILA and HUD's disclosures required by the Real Estate Settlement Procedures Act. A complementary enforcement of these disclosures could potentially result in a single disclosure form that creditors could use to satisfy both laws, according to the Fed.
Write to Diana Golobay.
Mortgage interest rates show a mixed performance for the week ending July 23, up ticking on average, but adjustable-rate mortgages (ARMs) dropped slightly, according to mortgage giant Freddie Mac (FRE: 0.00 N/A).
The 30-year fixed-rate mortgage (FRM) averaged 5.2% with an average 0.7 point, which rose from last week when it averaged 5.14%. For this week last year, the 30-year FRM averaged 6.63%. The 15-year FRM averaged 4.68% with an average 0.7 point for the week, up from 4.63% a week ago and down from 6.18% from last year.
Five-year Treasury-indexed hybrid ARMs averaged 4.74% with an average 0.7 point for the week, down from 4.83% a week ago and 5.49% from last year. One-year Treasury-indexed ARMs averaged 4.77% this week with an average 0.6 point, also down from last week when it averaged 4.76% and 5.49% a year ago.
A separate rate survey conducted by Bankrate.com, which tracks large banks and thrifts, echoed the fluctuation of the rates. The 30-year FRMs averaged 5.55% for the week ending July 22, slipping from four weeks ago when they averaged 5.8%, and 15-year FRMs fell to 4.89%, according to Bankrate.com.
The rates come after Ben Bernanke, chairman of the Federal Reserve notified Congress that the Fed would tighten monetary policy to defeat inflation, says Bankrate’s Holden Lewis.
But, Lewis adds: “Bernanke said that he doesn’t believe the Fed will have to break out its Whip Inflation Now buttons anytime soon."
Write to Jon Prior.
The American Securitization Forum (ASF), a trade body representing issuers, investors and servicers in the securitization industry, is tasking Standard & Poor’s to create a method that identifies the origination timeline of a securitized asset.
With this new number, the ASF hopes to give investors more information on the nature of the underlying collateral.
S&P’s Fixed Income Risk Management Services (FIRMS), an analytics unit separate from the company’s ratings business, will implement the numbering system as well as create a central loan information database on behalf of ASF’s Project RESTART, the forum’s initiative to promote transparency in the asset-backed securities market.
S&P will assign the unique ID to the loan at no cost to issuers, and it will be linked to the Committee on Uniform Security Identification Procedures (CUSIP) and International Securities Identification Number (ISIN) numbers of the security where the mortgage is packaged.
The numbering system hasn't been finalized, S&P told HousingWire, but the 11-character alphanumeric code will be a so-called "intelligent number," that investors can use to break down the when and where the loan was originated and who issued it.
With this unique loan number, investors can analyze the risk, collateral and credit of the loans that make up a security.
“This partnership with FIRMS allows the market to develop better infrastructure necessary to develop commonly accepted and widely used standards for transparency, due diligence and risk retention,” says Tom Deutsch, deputy executive director of the American Securitization Forum. “The creation of unique loan-level identifiers is an enormous step forward in the process of creating a more transparent information on underlying collateral in securitizations.”
Write to Austin Kilgore.
Maine counties are working to implement the state’s new mandatory foreclosure mediation program, and a pilot program is already underway in the state’s most populous such municipality.
The law allows homeowners who face foreclosure to request state-supervised mediation. It is modeled after similar mediation programs established in Connecticut and other states.
The state’s other 16 counties are required to establish mediation programs by Jan. 1, 2010. In York County, in the state’s most southern tip, a pilot program is already underway and establishing procedures for mediation.
According to RealtyTrac data, in January 2008, Maine ranked 37th in the country in rate of foreclosure.
District Court Judge Andre Janelle is heading the effort, and recruited a group of retired judges to serve as mediators, Will Lund, director of Maine’s Office of Consumer Credit Regulation in the Department of Professional and Financial Regulation, told HousingWire.
Under provisions from the mediation law, Lund’s office, which traditionally serves as a regulator and licensing body for non-bank lenders in the state, created a hotline for homeowners facing foreclosure. In addition, all lenders in the state must report the names and addresses of borrowers that it initiates foreclosure filings.
The consumer credit office then takes that information and mails a packet of information on foreclosure prevention resources in the state, including a one-page document borrowers fill out to request mediation from the court.
Lund said his office receives the names of as many as 150 homeowners every week who get the foreclosure packets.
Under the program, the borrower attends two meetings. The first is with a foreclosure counselor who advises homeowners on what documentation and financial information they need to have ready during the mediation.
At the second meeting, the law requires the lender send a representative who is authorized to broker a modification deal, if feasible.
With the program in its infancy, it is too early to tell the extent of the effect mandatory mediations will have on the foreclosure process, or even if it will actually prevent foreclosures rather than merely delaying the inevitable.
But Lund said his office received a call to its foreclosure hotline Wednesday from a homeowner who completed a successful mediation. He believes as the rest of the state implements mediation programs, more homeowners will be able to avert foreclosure.
Write to Austin Kilgore.
Dallas-based Sollen Technologies’ Web-based borrower evaluation program can now be accessed through Ellie Mae’s Encompass mortgage management software.
By accessing Sollen’s online platform through Encompass, originators can verify a borrower’s eligibility for various loan products and compare pricing and other data for multiple products, in real time without switching software programs or re-entering borrower data.
Sollen CEO Michel Van Hee believes if originators can provide faster product and pricing information to borrowers, it will improve consumer confidence in the mortgage and home buying process.
“Each time a borrower needs to wait to find out an answer, and each time an originator has to retract information that was previously presented, can result in a negative impact on whether that prospect ever becomes a client,” Van Hee said in a press release.
Write to Austin Kilgore.
The British Bankerss Association (BBA) found that personal deposit inflows rose sharply in June while mortgage lending business grew modestly among high street banks.
The data indicates British businesses continue to make payroll, putting cash into consumers' accounts for deposit purposes on home purchase mortgages. And considering traditionally low loan-to-value ratios accepted among UK mortgage lenders — as restrictive as 70% to 80% — it means a lot of cash is needed for British consumers to become homeowners.
The banks approved £4.7bn (US$7.78bn) of home purchase mortgages in June, from £4.1bn in May. The main high street banking groups account for £602bn of outstanding mortgage balances — some two-thirds of all UK mortgage lending outstanding, BBA says.
“Numbers of new home loans approved by the high street banks are recovering from the very low level last November and so far this year, gross mortgage lending has topped £50bn," says BBA statistics director David Dooks in a statement. "After repayments and redemptions, the banks’ net rise in mortgage lending of £18bn in the first six months is in sharp contrast to lending by the rest of the market, which is still contracting."
"People are showing little appetite for unsecured borrowing," Dooks adds, "and are generally keeping more money in their accounts."
The BBA announcement is the latest evidence from the UK that a traditional, and more stable, mortgage finance market is beginning to take root.
For instance, following a change in the reporting of covered bonds from April 2009, the mortgage assets held within such special purpose vehicles have been added back into the originating banks' mortgage lending books, BBA says.
In addition, requirements for Home Information Packs (HIPS) went into effect in late 2007, requiring any home seller to make available to potential sellers various information about the home: flood risk information, previous structural damage, parking arrangements, electrical safety, energy and carbon emission efficiency and evidence of title documents. It's a sweeping package similar to inspections obtained by US home buyers but coming at cost to the seller.
It was a step toward disclosure without sweeping housing regulation, but it caused waves in an already weakening UK mortgage lending market.
The BBA back in mid-2007 anticipated the ripples the HIPS would make: "The recent trend in mortgage lending had been downward, so the stronger demand in May (2007) was somewhat surprising, particularly as it was before the anticipated introduction of Home Information Packs, which encouraged people to put their properties onto the market in May and will tend to boost lending in June and July," Dooks said at the time. "HIPs may well distort mortgage data in the short-term, but this effect should smooth out with the phased introduction now planned."
Write to Diana Golobay.
