Archive for July, 2009
Existing-home sales rose again in the third consecutive month as unsold inventory eased in June, according to a monthly survey by the National Association of Realtors (NAR).
Sales transactions on all single-family homes, townhomes, condos and co-ops ticked up 3.6% in June to a seasonally-adjusted annual rate of 4.89m units, from the downwardly revised pace of 4.72m units in May. The rate is slightly below the year-ago level.
Single-family home sales rose 2.4% to a seasonally-adjusted annual rate of 4.32m units in June. The median existing single-family home sales price was $181,600.
Total housing inventory slipped 0.7% to 3.82m existing homes available for sale at the end of June, representing a 9.4-month supply at the current sales pace. A month earlier, the volume of unsold inventory represented a 9.8-month supply. Raw inventory levels are 14.9% below year-ago levels.
"This is another hopeful sign — if we can keep the volume of sales above the level of new inventory, prices could stabilize in many areas around the end of the year," said NAR chief economist Lawrence Yun.
The national median existing-home sales price on all unit types came in at $181,800 in June, 15.4% below the year-ago median. Distressed properties accounted for 31% of June sales, however, downwardly pressuring the overall effect of prices achieved through non-distressed sales.
Write to Diana Golobay.
Ratings downgrades among Australian prime and non-conforming residential mortgage-backed securities (RMBS) remain unlikely as collateral performs within expectations, according to Moody's Investors Service.
"Moreover, despite a long term trend of increased delinquencies, their ratings are anticipated to remain stable in the absence of mortgage insurer downgrades, while some upgrades should occur as subordination levels increase due to the typically sequential pay structures employed in Australia," said Moody's vice president and senior analyst Arthur Karabatsos.
The relative stability of performance among Australian RMBS may have something to do with the credit quality of the underlying collateral.
Prime loans representing 98% of the current outstanding as of March 2009 and loans originated by investment banks dominate the Australian RMBS market, Karabatsos said. Loans to credit-impaired borrowers account for only 0.6% of the RMBS market, on the other hand, indicating the strength of collateral performance.
Moody's noted the risk of RMBS servicer disruption due to the failure or collapse of a servicer is more likely to occur with a non-bank lender. Non-bank-originated portfolios display higher arrears due to the fact that non-banks originated loans with riskier characteristics like high loan amounts, higher LTVs and investment and low-doc loans.
"Since the credit crisis, non-bank lenders have been facing difficulties accessing new funds via the term market which in itself brings into question the long term sustainability of some of these entities given high dependency on RMBS," Moody's said.
RMBS across Europe has seen some rough patches lately, including Irish RMBS, which Standard & Poor's recently remarked as bearing relatively few repossessions for the 3.9% delinquency rate.
Write to Diana Golobay.
Bank of America (BAC: 7.29 -0.14%) may soon bring some $150bn of off-balance-sheet assets back onto its balance in Q110 with the implementation of a new accounting rule, FAS 167, potentially pressuring its capital reserves.
Of the assets the bank says it may bring to its balance sheet, home equity conduits account for an estimated $12bn, while card securitizations account for $85bn, and other variable interest entities make up the remaining $53bn, according to an equity research note by Keefe, Bruyette & Woods' (KBW) Jefferson Harralson.
"BAC will need to reserve for the lion's share of these loans, but according to BAC, the accounting standards dictate that the reserving will come in the form of a capital adjustment rather than through the P/L (profit and loss)," Harralson noted in the research piece.
Based on an estimated 11% annualized loss rate on the card book and 4% for the remaining loans coming onto the balance sheet, KBW estimates a capital adjustment of $7.9bn, or $0.91 per share, is needed. The firm said this estimate could be conservative if the Financial Accounting Standards Board (FASB) phases in the reserve requirements over time with the implementation of FAS 167 and if the reserve methodologies use less-than-peak expected loss rates.
Financial Accounting Standards (FAS) Statement 167 pertains to securitizations and special purpose entities, according to FASB.
"Statement 167 will require a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement," the Board said in a recent statement. "A company will be required to disclose how its involvement with a variable interest entity affects the company’s financial statements."
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published.
House prices in major local markets posted monthly gains stronger than seasonally expected.
"The larger-than-average increase in home prices from April to May 2009 could indicate that seasonal price fluctuations do not fully account for the strength we are seeing in many areas and that seasonal gains are being augmented by a more general recovery in the housing market," Radar Logic says in its RPX monthly housing market report.
Of 25 major metropolitan statistical areas (MSAs) tracked by Radar Logic, 22 — or 88% — posted month-over-month price gains in May.
The 25-MSA composite reading rose 3.7% overall since late March, when it hit its lowest point since the beginning of the housing crisis. Prices in the Western region performed "particularly well," rising 6.9% since their low in late January.
"We have been observing strength in the RPX since April, and it now appears that this improvement in home prices was an early indicator of some strength in the general economy," Radar Logic says.
The strongest monthly gains in price per square foot — the scale Radar Logic uses to eliminate the exaggerating effects of house size and location — occurred in the San Francisco (7.3%) and Minneapolis (5.5%) MSAs. The Milwaukee MSA followed with a 4.9% increase, while Charlotte and San Jose both gained 4.7%.
Only Atlanta, Las Vegas and New York took exception with the broader trend, posting monthly declines of 0.2%, 0.6% and 1.7%, respectively. Radar Logic attributed the price declines in Las Vegas and New York to the strong economic ties to struggling tourism and finance markets in those MSAs.
Write to Diana Golobay.
Minneapolis-based US Bancorp (USB: 27.86 +0.25%) reported a record $4.2bn net revenue for Q209.
A record $16.3bn in mortgage loan origination bolstered the bank’s record revenue. The bank’s mortgage revenue was $75m in the quarter.
Repayment of Troubled Asset Relief Program (TARP) funds, increased credit costs and an increase to the credit loss reserve brought second-quarter profits to $471m, or $0.12 per share. That’s down from $950m in Q208 and $529m in Q109.
The bank also made a more than special assessment payment to the Federal Deposit Insurance Corporation that amounted to $.05 per share, and spent $1.4bn to cover credit losses and shore up its loss reserve.
US Bancorp repaid the government’s $6.6bn TARP investment in June.
“Today we reported the company's second quarter earnings which, although lower than the same quarter of 2008 and the prior quarter, continued to demonstrate US Bancorp's core earnings strength during a period of unsurpassed challenges and economic stress for the financial services industry,” Richard Davis, the bank’s chairman, president and CEO said in the quarterly report.
The bank has a Tier 1 capital ratio of 9.4%.
Write to Austin Kilgore.
Mike Dealy is president of MDA Lending Solutions, a wholly owned subsidiary of MacDonald Dettwiler and Associates. He is responsible for leading the real estate services company, expanding its capabilities and footprint in the US through acquisition and by leveraging its platform of residential lending products and services.
In the latest installment of In This Corner, Mike discusses his firm's ability to track the moving challenges facing the mortgage industry.
Housing Wire: MDA Lending Solutions provides trusted MDA DataQuick reports that track housing-related data across the country. Based on the data you track, what local housing markets might recover quicker than others?
Mike: "MDA DataQuick's data indicates that recovery will come sooner to the mid- and high-valued markets across the country than the low end markets. Because a greater concentration of sub-prime loans in these mid-range value areas led to a greater number of foreclosures, these markets have a larger inventory of distressed properties for sale at lower prices. The combination of the greater number of homes up for sale and the fact that distressed home owners must reduce the asking prices has led to a significant drop in residential property values.
"On the positive end, these neighborhoods are more affordable, which has led to a recent up tick in sales volume. The other half of recovery would be reflected as an increase in property values, but the foreclosure rate must slow down to allow prices to stabilize. The higher end markets have the opposite situation. Fewer home owners in high-end areas were forced to sell their homes through foreclosure, keeping values stable but sales volume low as owners wait for market prices to recover.
"Our national data includes many local areas and sub-markets demonstrating these trends. In particular, Southern California provides an interesting case study of these trends. The sales volume chart below shows the volume of sales in two high-value areas, Cardiff and La Jolla, is down in 2008 and 2009 from where it had been in 2007. Conversely, sales activity in the more mid-priced areas, National City and San Marcos, has increased since 2007."
HW: You provide streamlined solutions for loan processing. Some sources say the industry prefers the legal comfort of a signed piece of paper to Web-based mortgage closing services. What future do you see for electronic mortgages?
Mike: "As with most things, change takes time. This is true in the mortgage industry, but signs point to a strong future for electronic mortgages. Despite slow adoption of this technology, more lenders are dedicating resources to make the technological changes necessary to support this solution. This has led to increased demand for support of an electronic mortgage process. The legal and technological components of this solution are well-developed, but education and training are keys to a full understanding of the process.
"Adoption of a fully integrated eMortgage solution requires significant investment on the part of lenders. Therefore, this solution must align with their business models and loan origination goals. A strong business case can be made to support this solution and many early adopters are benefiting from the process efficiencies and cost reductions that can be realized from implementation. The industry will eventually embrace this concept as it did with the introduction of automated underwriting/origination systems and risk based decisioning models. The demand for a more efficient and expedient closing and settlement process will eventually lead us down a path to adoption and increased acceptance."
HW: You provide powerful residential credit services. As we pull ourselves out of this crisis, how important is it for lenders to go back to giving loans to those best able to pay them back?
Mike: "Mortgage originators have traditionally relied on credit worthiness as one of the key indicators for repayment. This crisis has certainly reinforced the need to prudently review all information available when underwriting and approving real estate secured loans. MDA’s credit solutions have helped our customers to make informed decisions on loan applications throughout the economic downturn.
"Lenders realize the importance of managing the information available to them to more effectively underwrite loan applications. This includes Credit, Capacity and Collateral, along with other key indicators such as employment and income verification. The biggest change we have seen is our customers leveraging the additional customer service available through MDA in the form of score updates, trade line validation and other research to support the additional due diligence required by today’s underwriting needs."
HW: Obviously compliance is a big issue to industry players. One of the more recent — and most contested — policies is the Home Valuation Code of Conduct. How has MDA Lending Solutions adapted to the HVCC?
Mike: "The Home Valuation Code of Conduct basically outlines a best practice approach for securing collateral valuations in the residential lending market. The Code is consistent with, and supports, the best practice guidance presented in the Interagency Guidelines for securing collateral valuations as well. Because our business model incorporated these best practices even before HVCC implementation, MDA Lending Solutions is fully compliant with the Code’s requirements, including independent selection and assignment, provider quality control, and an appraiser 'hotline.'
"With that said, the Code clearly requires the lender to be compliant, not the appraisal management company. To support our business partners and customers, our major HVCC focus since announcement of the Code’s May 1, 2009 effective date has been to work closely with our customers to ensure the combined processes are compliant. The market segments impacted the most appear to be the mortgage broker origination and correspondent lending channels. The legacy business model in those channels commonly allowed the loan production personnel to choose and work directly with the appraiser. In response to the Code, lenders implemented business model changes in the Wholesale channels to create separation between the loan production capability and the appraiser. To assist, MDA Lending Solutions implemented workflow changes, enhanced specialized customer service support and developed appraisal fulfillment processes to meet the specific needs of the mortgage broker and correspondent lender channels."
New York-based Morgan Stanley (MS: 18.56 +2.26%) reported a $159m quarterly loss, or $1.37 per share, after TARP capital repayments.
Morgan Stanley closed its deal with Citigroup for controlling interest in Smith Barney on May 31, a transaction worth $11.1bn, according to Citi’s Q209 report, issued last week. The deal closed earlier than expected.
Additional expenses this quarter include $850m to repurchase preferred stock investments the US government made in the firm through its Troubled Asset Relief Program (TARP).
Morgan Stanley chairman and CEO John Mack noted the firm’s improvements in credit default spreads and the TARP repurchase came at a cost to the bottom line.
“Morgan Stanley would have been solidly profitable this quarter if not for these two positive developments,” Mack said in the report.
He added the firm must improve performance in fixed income trading and asset management.
“Morgan Stanley delivered improved performance across many of our businesses this quarter — including in investment banking, where we were the No. 1 adviser in global announced [mergers and acquisitions], and saw strong gains in both equity and debt underwriting,” Mack said in the report. “But we are not satisfied with our performance in other key areas of fixed income trading and in asset management, and we are taking steps to deliver better results in those businesses.”
Morgan Stanley reported the company’s Tier 1 capital ratio is approximately 15.8%.
Write to Austin Kilgore.
Securities brokerage, investment banking and securities clearing service provider Southwest Securities added several traders to its taxable fixed income trading desks.
The SWS Group (SWS: 7.37 +0.41%) subsidiary noted the additions arrive to support growth in sales volume among mortgages, asset- and commercial mortgage-backed securities.
Steve Palmer joined the New York office as senior vice president in mortgage trading, while Derek Rose joins the Chicago office as senior vice president on asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) trading.
"We have been active participants in the taxable fixed income market for many years and we are finding there are opportunities now to grow because of the experienced talent available," said Dan Leland, Southwest Securities executive vice president and head of fixed income.
Palmer, who most recently was an executive director with JP Morgan, trading non-agency, fixed-rate securities and unsecuritized residential loans, worked at Chemical Securities, Smith Barney, HSBC Securities and FTN Financial prior to joining Southwest Securities, the company noted in a corporate release. Rose served most recently as ABS/CMBS trader and director of securitization syndicate at RBC Capital Markets in New York. He also managed ABS trading at ABN Amro, Sutro and Nesbitt Burns.
Write to Diana Golobay.
Loan sale advisor DebtX is selling more than $1bn in loan participations from 15 banks in Federal Deposit Insurance Corp. receivership.
The portfolio for sale consists primarily of commercial real estate loan participations from the failed banks with concentrations in Georgia, Texas and western US. DebtX is offering the 421 loans in the portfolio on an individual basis, with bids due by Sept. 1, 2009.
"Given the size and diversity of this portfolio, banks across the US will have a unique opportunity to purchase high-quality loans," said CEO Kingsley Greenland. "DebtX expects a significant interest from banks seeking this type of product."
The "participations" relevant to the DebtX sale only involve the loans, rather than the servicing rights, a DebtX spokesperson told HousingWire.
A loan participation agreement is usually considered an "arms-length commercial contractual relationship," according to The First American Corp., but participating lenders can take one of several different relationships with the lead lender. This relationship may involve, according to First American, a sale of interest in the loan, a joint venture or partnership or an agency relationship between the participating and lead lender. Or the lead lender may hold the title in trust for the participant as a beneficiary.
Write to Diana Golobay.
HousingWire attended the SourceMedia Best Practices in Loss Mitigation Conference, in Dallas this week and actually didn't make it to a single panel. This was due mainly to being pulled aside for a series of discussions with market players who are either completely new to the space, or veterans to loss mitigation. In between these meetings, readers of HousingWire used the opportunity to get inside the editor's head.
Needless to say many of the surreal comments they made got into mine.
Here is a sample, all off the record of course, of some of the more interesting quotables:
"When we finally made it out to view the property, it wasn't there. It was an empty lot worth maybe $200,000 set among $4.5m homes. Of course that didn't stop the owner from selling the "house" four times over before we got there." — an REO listing agent.
"One broker actually took a green marks-a-lot to a photo to make the winter ground look summery." — on a dodgy BPO.
"Oh, the poor homeowner, the poor homeowner! Oh no, they can't lose their homes. Oh, well excuse me, but we've lost millions." — an MI insider.
"One guy, the president of a non-profit that represented the deaf could only be reached via email and teletype. So he flew under the radar for a long time, and when we finally got him in and realized he artificially and fraudulently inflated the price, and successfully flipped the same property several times, it turned out he wasn't even using his own social security number. And that he made $15,000 that year and not the $1.5m his tax return claims. And to think this guy, if we are lucky, is going to get 18 months behind bars, tops. And, as it turns out, he isn't even deaf." — a fraud attorney.
"The borrower was a waitress who lived by herself and worked nights at Hooters. For some reason in 2006, common sense walked out the door and no one thought to question that she 'made' $25,000 a month at that job. At least not until it came time to modify the loan. So, just wait until the 2007 and 2008 vintages hit our desks." — a loan modification officer.
"My business is 16 times higher than this time last year. I have to move into a large business property and expect to take on 1,000 more new employees by year's end to sell my loan verification systems. When I tried to sell this product three years ago, people used to look at me like I was Greenpeace." — a third party loan verification boss.
"People will always ask me, 'Why are you wearing a hardhat?'" — a Nevada short-sales broker who goes to garage sales to hone her bargaining skills wearing a hard hat in order to quickly break the ice.
Posted in Commentary | No Comments »