Archive for August, 2009
The Association of Community Organizations for Reform Now (ACORN) organized four protests against Litton Loan Servicing and its parent company, Goldman Sachs, and HomEq and its parent company, Barclays Bank, Wednesday.
ACORN said while Litton and HomEq have signed on as participants in the Making Home Affordable Modification Program (HAMP), the servicers should do more to modify mortgages faster, enact a self-imposed six month moratorium on all foreclosures and create an appeals process with mandatory mediation for borrowers who the servicers initially deem are ineligible for HAMP modifications.
The events were held in Brooklyn, Philadelphia, Los Angeles and Dallas.
At the Dallas event, a group of nearly 30 people accompanied Maria Aguilar, a single mother of four who said she’s been trying to get Litton to modify her mortgage for the past year.
The group, many donned in red ACORN T-shirts, attempted to go in the Goldman Sachs office located in a high rise in Dallas’ Uptown district, but were turned away by a trio of the building’s security guards when they entered the building.
Armed with signs and yellow caution tape with “ACORN Foreclosure Free Zone” printed on it, the group drew attention to its cause with a number of chants outside the office — including, “Sharks bite, ACORN fights, predatory lenders: you’re not right,” “The people united, will never be divided,” and “Predatory lenders, criminal offenders,” among others.
The chanting drew the attention of some employees in the office tower, who came outside to watch, as well as passing motorists, but didn’t even garner a glance from two Dallas police officers that drove by the event.
At the end of the protest, the organizers again tried to enter the building to deliver half a “Thank You” cake to the Goldman office, with the promise of delivering the second half of the cake if Aguilar’s mortgage is modified.
Aguilar has lived in her two-bedroom south Dallas home for three years. It was financed with an 80/20-mortgage product, the 80% loan has an 8.8% interest rate and the 20% loan has a 9% interest rate. She said she’s been asking Litton for a modification for more than a year.
Aguilar got divorced in November 2008, and her hours were cut at her job at a north Dallas restaurant. Her regular monthly payment is $550, but she’s three months delinquent. Litton put her on a payment plan of $700 per month to help her get caught up, but she said she needs more help.
She said she’s frustrated with Litton because they claim to not receive faxes she sends. At one point in the process of her modification application, Aguilar said Litton told her she made too much money to get a modification. Then a few months later, she received a letter saying she didn’t make enough money.
HousingWire sources even say that Litton, in some case, wants thousands of dollars in fees in order to do a HAMP modification.
“I just need to know what they want. What they have given to me as proof is that they don’t want to give me the modification that I need,” Aguilar told HousingWire. “I have sent everything they have asked me for, but they are never happy. It is never enough.”
Aguilar added: “People should not go through all this to keep their houses, because all people who have houses go through a lot of trouble to get it, and now we’re going through the same thing to keep it. We’re paying for it, but we just need a modification because we don’t have enough to make payments with this economy.”
A Goldman Sachs spokesperson declined to comment on the protests.
In response to a request for comment, a Barclays spokesman issued the following statement:
“HomEq is firmly committed to helping borrowers remain in their homes. Our track record clearly demonstrates that our efforts have helped thousands of homeowners avoid foreclosure. Furthermore, HomEq’s recidivism rates are tracking well below those reported by the industry at large.”
Write to Austin Kilgore.
The administration's Home Affordable Modification Program (HAMP), which allocates federal incentives to servicers, lender/investors and borrowers that participate in mortgage modifications, is creating significant repercussions for the secondary market.
HAMP failed initially to address the treatment of forborne principal and the manner in which modifications should be handled in terms of delinquency triggers among securitizations, according to market insight this week from Amherst Securities Group.
The forbearance question has to do with the treatment of a forborne — not forgiven — amount of principal of a mortgage within a securitization. Confusion arose among industry players that were divided on whether the forborne principal — which carries a 0% interest rate and becomes payable at the end of the loan's life — should be realized as loss and written down immediately, or written off at the end of the contract's life.
"If losses on the forborne principal are not realized until the payment comes due, the junior tranches are not written down, and will receive cash flow if there are sufficient funds," Amherst noted in market commentary Tuesday. "Alternatively, if forborne principal is taken as a realized loss when the loan is modified, the junior tranches are written down more quickly. It is in the senior-most investors’ interests to have the loan written down immediately -– that is, to have principal forbearance treated the same as principal forgiveness."
The US Treasury Department later issued guidance on the program, clarifying forborne principal should be realized as loss immediately upon forbearance. Amherst noted a recent Mortgage Investors Coalition, however, found only one of four major servicers plan to adhere to the Treasury's guidance.
Another issue raised by HAMP on the issue of securitizations is the treatment of modified mortgages in terms of delinquency triggers. Once a loan is modified, Amherst noted, it is typically considered current for purposes of delinquency triggers. Counting modifications as current may allow delinquency triggers to pass. This would release cash flow to lower-rated tranches and possibly disadvantage senior cash flows, Amherst said, which lose some enhancement if cash is released to the junior tranches.
"Since the loans being modified are those in grave danger of default, it may not make sense to count these loans as if they are current for the purposes of the delinquency triggers," Amherst noted in the market insight report.
"Aha, you might say, since the recidivism rate on modified loans is quite high, don’t we capture these loans in the cumulative losses upon their eventual re-default? Yes, but if we modify loans that will later re-default, you can still release cash flow to junior tranches, for a period of time, to the detriment of the senior cash flows," Amherst concluded. "Certainly this issue deserves closer scrutiny."
Write to Diana Golobay.
United Kingdom-based Countrywide, a residential real estate service provider not affiliated with the Countrywide Financial acquired by Bank of America (BAC: 7.29 -0.14%), may be on its way to default, based on a recent Standard & Poor's study of two "unusual and negative" aspects of the company's debt structure.
Countrywide acts as sort of an intermediary party in the UK housing market, and provides independent estate agents the opportunity to take a local franchise under the Bairstow Eves name and offer retail financial products. The franchises are highly pedestrianized in urban areas like London, where the brand is a household name.
Countrywide carries a strong market position, a widely known brand and an established branch network across the UK, which together made the company appear more likely to default due to high leverage rather than fundamental business problems, S&P said. But a recent review of the company led to an S&P report of several likely factors that may lead to default and a significantly low recovery rate. The rating agency noted the likeliness of Countrywide continuing as a going concern despite any default that may occur.
"This report charts the evolution of our default scenarios for Countrywide, the movement of issuer credit ratings as the company's financial profile deteriorated, and actual versus expected recoveries," said S&P research analyst Taron Wade. "Moreover, it shows that measures to protect credit quality are not necessarily positive for recovery prospects in the event of default."
S&P identified two aspects of the company's debt structure that may represent a risk of default: a payment-in-kind (PIK) 'toggle' option granted to lenders on a £100 million tranche of the senior secured notes, as well as the provision of a sizable revolving credit facility relative to the working capital needs of the company.
The 'toggle' option allowed the issuer to pay interest in cash or PIK form at its discretion until 2011. Countrywide opted to pay the full amount of the coupon on its toggle notes in kind for the interest period commencing May 15, 2008, Wade told HousingWire.
This feature, along with the sizable credit facility, supported credit quality by providing additional flexibility, but also enabled Countrywide's financial performance to deteriorate more severely than if the company had a higher interest burden or more constrained liquidity. S&P therefore assessed a 37% recovery rate for senior secured lenders — "significantly lower" than recovery prospects on other senior secured debt.
Write to Diana Golobay.
The country’s two largest home improvement stores had lower profits in the Q209 than they did in Q208, and said they are reevaluating strategies to face shaky consumer confidence.
Mooresville, NC-based Lowe’s (LOW: 26.91 -0.15%) earned $759m ($0.51 per share) in the quarter, down 19.1% from Q208. CEO Robert Niblock said the decline from 2008 was due in part to increased spending spurred by the financial stimulus package last year, along with unseasonable weather this year in core markets.
“Cautious consumers remain reluctant to take on discretionary projects until signs of economic improvement are more evident,” he said, calling the Q209 results lower than expected, but “reasonable.”
However, Niblock said changes in consumer mindsets could lead the company to improved profits.
“There are some indications that a bottoming process in housing and the broader economy is under way, and we have seen customer traffic levels stabilize as we benefit from the resurgence of a do-it-yourself home improvement mindset,” Niblock said.
Atlanta-based The Home Depot (HD: 44.87 -0.18%) earned $1.1bn in the quarter ($0.66 per share), compared $1.2bn in Q208. The results were improved with a $50m benefit from what the company called a “favorable foreign tax settlement.”
“Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers," Home Depot chairman and CEO Frank Blake said in a statement.
Both companies are changing strategies to evolve in the current market. Home Depot completed the closure of its Expo chain of stores that focused on upscale interior design and sold luxury home improvement products this quarter. Home Depot said it expects 2009 sales will be down 9% from 2008.
Lowe’s expects 2009 sales will be down 3% from last year and said it is reevaluating its future store expansions. It opened 18 new stores in Q209, and plans to open 11 more in Q309. Lowe’s said its reduced expected expansion plans for 2010 and will only open 35 to 45 stores. Earlier this month, the company announced it would not renew its multi-million dollar contract for the naming rights to the NASCAR racetrack located outside Charlotte, NC, as it looks to reduce marketing expenses.
Write to Austin Kilgore.
The trend of larger financial institutions gobbling up other firms or divisions of their business to form conglomerate mortgage-lending entities — similar to Branch Bank and Trust's (BBT: 26.95 -0.33%) recent takeover of Colonial Bank's assets — is not isolated to US institutions.
National Australia Bank agreed to acquire mortgage operation segments of Sydney-based Challenger Financial Services Group.
National Australia takes on the mortgage distribution and multi-brand lending businesses. The firm will pay A$385m (US$316.8m) for A$4bn of residential mortgages held in warehousing.
The deal will add earnings to National Australia's balance sheet and expand its mortgage market presence in the land down under. It also signals Challenger's move to update its business focus away from residential mortgages and toward opportunities in the retirement income and investment management markets, CEO Dominic Stevens said.
"Whilst we are very proud of our history and performance within the mortgage industry, the changing dynamics of that market has meant that the significant capital tied up in the business will be better refocused into growth opportunities within the organisation’s other divisions," Stevens said in a corporate statement (which can be downloaded here).
The acquisition by National Australia is expected to close by Oct. 31, 2009 and includes a 41% stake in the listed mortgage origination company, Homeloans.
At the same time, Challenger Life Company paid A$575m for A$11bn of term funded mortgages. Challenger Financial Services said it will inject A$200m into Challenger Life to support the asset purchase.
Challenger said in the statement it expects pre-tax earnings of A$135m from its Mortgage Management for the full year ended June 30 2009 after widened asset margins and increased business with mortgage broker platforms.
Write to Diana Golobay.
Total mortgage applications submitted in the week ending August 14 rose 5.6% from last week's submissions.
Total applications were up 25% from the same week last year, according to the most recent weekly survey by the Mortgage Bankers Association (MBA).
Applications for refinanced mortgages rose 6.9% over last week, when refis were down 7.2% from the week before. The gain in refinance applications pushed the refi share to 53.3% of total applications, from 52.3% a week earlier.
The MBA, which also tracks mortgage interest rates in its weekly survey, said average rates fell across the board, with 30-year fixed-rate mortgages slipping 23 bps, 15-year fixed-rate mortgages falling 19 bps and one-year adjustable-rate mortgages decreasing 5 bps.
If the lower rates are connected with higher weekly applications, they did not seem to take any significant effect on the number of households participating in the application stage.
A separate survey conducted by Mortgage Maxx indicated a 1.9% decline in household activity. The Mortgage Application Index — or MAX — adjusts raw application data to count multiple submissions from a single household as one participant in the application process.
Household activity in California alone fell 2.4% in the week ending August 14.
Deterioration in prepayments, when mortgages are prepaid out of a securitization through refinance, poses a significant risk of pushing the index to lows near or below lows seen in 2008, MAX publisher Paul Descloux says in the weekly commentary.
"This should be cause for concern both in and out of the housing sector as it reflects unrelentingly dismal economics," he says. "The perennial deceleration in organic housing transactions begins in three short weeks with the onset of Labor Day. Add this entire mix to the notion that housing may not be the best investment, and the demand side of the equation will remain historically challenged."
Write to Diana Golobay.
[Update 2: Clarifies inaccessibility of videos in certain browsers]
The Homeownership Preservation Foundation (HPF) created a series of borrower outreach videos to inform distressed homeowners about the Making Home Affordable refinance and modification programs.
The videos outline the various options available to homeowners and detail the requirements to qualify for the programs. The foundation posted the videos on its Web site Monday, however, the clips do not play in all Web browsers.
“Consumers need access to as much information as possible to address their particular mortgage challenges,” said Colleen Hernandez, president and CEO of HPF, in a statement. “These videos provide homeowners with valuable tools to get started moving their situation forward. Over the last few years, HPF has helped over 2m homeowners. We are excited to add these easy-to-access online videos to reach even more.”
The Mortgage Workout Center produced the videos for the foundation.
Write to Austin Kilgore.
Lawyers involved in the massive Chinese drywall litigation pending in US District Court will use LexisNexis File & Serve system for document exchange, and case-file access and storage for all cases.
All federal cases involving the drywall — which was used during the housing construction boom and is alleged to contain dangerous levels of sulfur that’s caused property damage and health problems in homeowners and their families — have been consolidated to the United States District Court for the Eastern District of Louisiana.
The litigation will be especially complicated, as it is expected to involve numerous parties. To streamline the process, lawyers involved in the case will upload court documents to file and serve for electronic tracking, storage and access.
In a June installment of In This Corner, HousingWire interviewed Denise James, director of residential mortgage solutions for LexisNexis Risk & Information Analytics Group.
Click here to read that interview.
Write to Austin Kilgore.
Southern California posted the best July sales volume in three years and the fastest pace of any month since December 2006.
But as volume saw double-digit increases in all but one of the six Southern California counties, median prices saw double-digit declines from 2008 levels in the same number of counties.
A total of 24,104 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties in July, MDA DataQuick reported, an increase of 18.6% from July 2008.
Sales volume increased for the 13th straight month, driven by low mortgage rates, the availability of both Federal Housing Administration financing for first-time home buyers and improved financing for jumbo loans, a strong investor demand, and increased affordability, DataQuick said.
But median prices in the six-county area were down 23% on average. San Bernardino County saw the greatest increase in sales volume (40.8%), but the July 2009 median price was down 39.1% from July 2008. In Ventura County, where sales volume decreased 3.8%, the median price was only 10.7% lower than 2008.
The average monthly mortgage payment for Southern California buyers was $1,180, down from $1,193 in June 2009 and $1,710 in July 2008.
Foreclosures made up 43.4% of house and condo sales in July 2009, down from 45.3% in June 2009 and the peak of 56.7% in February 2009. It’s the lowest percentage since June 2008.
Write to Austin Kilgore.
Auctioneer Williams and Williams is making television interactive.
The Tulsa, Okla.-based real estate auction house will auction 70 homes during a live television program on the ION Television network. The “absolute” auction means there are no price reserves on the homes and the highest bidder will be awarded the property.
“An ‘absolute’ auction provides the most transparent buying experience and gives bidders confidence that the high bidder will be the winner,” Williams & Williams president and chief operating officer Pamela McKissick said in a statement.
Homes from Ohio, Florida, Missouri, Indiana, Arizona and other states will be on the auction block. The auction will also be broadcast on the Internet, and viewers can join the prospective buyers at the auction by bidding via phone or online. Auction Network is presenting the program in coordination with Williams and Williams.
“The format puts viewers at the front of the auction action allowing them to bid real time from the comfort of their home or office. This innovative format creates a whole new marketplace that few real estate sellers have been able to experience,” Auction Network general manager Fontana Fitzwilson said in a statement.
Prospective bidders can register on Auction Network’s Web site.
Write to Austin Kilgore.
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