Archive for August, 2009
Fitch Ratings expanded its analysis of commercial real estate (CRE) as the performance metrics "deteriorate at an unprecedented pace."
As part of the broader analysis, Fitch issued surveys to more than 75 US bank and thrift institutions it rates, requesting more details on the firms' exposure to CRE. Details sought include collateral type, geography, internal risk rating and performance, according to a Fitch Ratings statement Tuesday.
CRE loans, excluding construction and development portfolios — which Fitch says tends to present more problems — represent more than 125% of total equity for the 20 largest banks Fitch rates. That risk is higher for banks with less than $20bn of assets, where average CRE exposure represents more than 200% of total equity.
This substantial exposure to CRE loans is only more risky considering the degree of deterioration among CRE loans, Fitch says. The rating agency released analysis last week detailing the 3.04% delinquency rate among commercial mortgage-backed securities (CMBS), which is on track to rise above 5% delinquency by year-end.
The exposure to this CRE debt and its deteriorating performance lends "major concern" to the current outlooks on large institutions. Fitch currently keeps negative outlooks on nearly half of the 20 largest US banks and thrift institutions it rates.
"While the relative size of the CRE portfolio is smaller for some of the very large banks Fitch rates, the recent performance trends, expectations for continued economic weakness and the uncertain availability of the CMBS market increases the concern regarding CRE exposure and makes it a likely rating driver as we look out over the next few quarters," says James Moss, managing director and co-head of Fitch's North America financial institutions group.
The Federal Reserve and US Treasury Department on Monday responded to this uncertain availability of CMBS, extending the deadlines of major liquidity programs through the Term Asset-Backed Loan Facility (TALF) aimed at stimulating CMBS issuance.
Write to Diana Golobay.
Richard Stewart Jr., chairman and CEO of Heritage Capital Resources, and Peter Monroe, CEO and founder of National Real Estate Ventures, on Tuesday announced they formed a $1.5bn joint venture to buy and sell distressed residential real estate-owned (REO) assets.
The new $1.5bn fund's co-founders bring a history in mortgages and financial regulation. Stewart, previously vice chairman of Lehman Brothers, joins Monroe, former president of the Resolution Trust Corp Oversight Board under Presidents Bush and Clinton and chief operating officer of the Federal Housing Administration.
"In the depressed real estate market that we see today, the greatest asset we have is experience and the trust of those who will continue to join our efforts," Stewart said in a statement. "The group's combined experience includes working within the inevitable booms and busts of real estate and capital markets, and within the framework of public and private partnerships."
"With the correct application of these principles," Stewart added, "we can help thousands of families, effect serious, positive change in the housing markets, and find opportunities on both sides of the cycle."
The joint venture will team up with Partners in Action, a not-for-profit founded by Curtis Cluff and that assists first-time homebuyers through its HUD-approved affordable housing program.
Monroe, Stewart, and Cluff jointly said, "We believe that our relationships, management skills and interest in preserving sustainable homeownership can help return foreclosed homes to productive use, prevent many foreclosures and also allow us to work with banks, servicers and federal agencies to reduce evictions. These goals, as stated by the Administration, are central to our nation's economic recovery."
The joint venture marks the second high-profile partnership unveiled today after a former president and CEO of Ginnie Mae and former FHA commissioner teamed up to form a new advisory firm to the financial services industry.
Write to Diana Golobay.
In advance of the new requirements added to the Real Estate Settlement Procedures Act (RESPA) that take effect January 1, 2010, the Minneapolis-based Wolters Kluwer Financial Services launched its RESPA Tool Kit to help financial institutions understand and implement the changes.
The software provides an overview of the Department of Housing and Urban Development's (HUD) changes, including revisions to the good faith estimate and HUD-1 and HUD-1A documents, as well as settlement cost booklets intended clarify loan terms to consumers.
Wolters Kluwer said the software also helps companies streamline their RESPA policy development with sample policies that can be edited to meet a company’s needs as well as provide employee training on the new requirements.
“Utilizing the complete RESPA Tool Kit provides financial institutions with the essential resources needed to help prepare for the upcoming changes,” says Jason Marx, vice president and general manager, Mortgage, Wolters Kluwer Financial Services.
“And every tool in the kit is built upon our decades of risk management experience and expertise,” he adds.
Write to Austin Kilgore.
Jason Marx is writing an exclusive feature on the practice of outsourcing loan modifications for the October issue of HousingWire magazine. Get your copy here.
San Diego-based software developer xplair Technology launched a Web-based residential mortgage portfolio management platform to provide asset data and analytics to financial institutions.
The software provides direct feeds to loan and real estate owned (REO) asset data, along with comparative analytics, risk metrics and interactive charting.
The software uses a customizable “dashboard” that provides real time portfolio information on a broad or granular level.
“This system also creates a new level of transparency and accountability between investor and servicer," Jill Parker, xplair managing director, said in a statement.
"Users can communicate with and create workflow for the servicer or individual managing a particular loan or segment and track performance over time by creating static pools of assets,” she adds.
Write to Austin Kilgore.
Bruce Witherell joins Freddie Mac (FRE: 0.00 N/A) as chief operating officer, effective September 14.
Witherell has served as managing director and global co-head of Morgan Stanley’s (MS: 18.56 +2.26%) residential mortgage business since 2006. Prior to that, he spent 15 years at Lehman Brothers in a variety of leadership roles, including CEO of Lehman Brothers Bank.
In his role at Freddie Mac, Witherell will oversee the integration of the company's business lines: single-family credit guarantee, multifamily sourcing and investments and capital markets, as well as its operations and technology division. He will report to CEO Charles Haldeman, Jr.
Witherell is a graduate of Carnegie Mellon University.
Write to Austin Kilgore.
The former president and CEO of Ginnie Mae, Joseph Murin, and former Federal Housing Administration commissioner Brian Montgomery teamed up to form The Collingwood Group.
The firm will provide advisory services to boards of directors and senior executives in financial services companies. In forming the company, Murin and Montgomery effectively merged the new operations with another consulting company, Capital Financial Solutions (CFS). Since 2007, CFS has served the financial services industry, targeting companies that require strategic business development, business and risk management, and business and technology systems design and development services.
"There has never been a time more important for the financial services industry to work hand-in-hand with the federal government to help restore stability and liquidity to the markets," Murin said. "We will advise our clients on how they operate strategically in this environment, as markets continue to shift and the regulatory landscape inevitably changes."
Montgomery added, "Our purpose is to help new clients and existing CFS clients to continue to grow their business and to effectively navigate the business and public policy environment in some of the most challenging economic conditions the nation has ever known."
Murin moves from the role of Ginnie Mae CEO, which he left last week after a year at the post. He brings a history of experience in the mortgage lending space. Montgomery comes from a background in public policy. He recently served as acting HUD secretary.
Write to Diana Golobay.
Fewer lenders tightened their standards for mortgage borrowers in July from a year ago, according to a Federal Reserve survey of senior loan officer opinions on lending practices.
After peaking at 75% in July 2008, the net percentage of domestic banks with tightened lending standards for prime residential mortgages fell to roughly 20% in July 2009.
About 15% of officers responding to the July survey reported increased demand for prime mortgages, down from 35% in April, the last time the survey was conducted. The percentage of officers that reported weaker demand remained relatively unchanged at 15% in July.
Banks with tightened lending standards for nontraditional residential mortgages fell to 45% from 65% in April.
Fewer lenders had tightened lending standards on home equity lines of credit as well. About 30% of loan officers reported tightened standards in July, down from 50% in the April survey. In addition, fewer banks (15%) reported a decline in demand for home equity loans, from 30% in the April survey.
Write to Austin Kilgore.
While overall housing starts and completions projections in July are down from their 2008 levels, the rate of single-family housing starts and building permits issued are both up from their June level.
Builder confidence also continues to improve and is at its highest level since June 2008.
The seasonally adjusted annual rate for completions of all housing types was 802,000 in July, according to a report released by the US Census Bureau and the Department of Housing and Urban Development (HUD). This is down 0.9% from the rate in June 2009 and 26.4% below the July 2008 rate. The rate of single-family housing completions in July was 491,000, 4.1% lower than the June 2009 rate.
While housing completions paint a representative picture of new home inventory entering the market, housing starts and permits provide more of a forecast for new housing inventory in the pipeline. Both indicators edged up in July for the single-family market.
The seasonally adjusted annual rate of all housing starts in July was 581,000, down 1% from June 2009 and 37.7% below the July 2008 rate. The rate of single-family housing starts in July was 490,000, up 1.7% from June. The rate of all housing building permits issued was 560,000, 1.8% below June 2009 and 39.4% below July 2008. Single-family building permits were 5.8% higher than the June 2009 rate of 458,000.
Builder confidence appears to be returning, or at the very least, improving along with the more positive outlook on housing starts and permits. After rising two points in July to 17, The National Association of Home Builders (NAHB)-Wells Fargo Housing Market Index for builder confidence in August was an 18, its highest point since June 2008. Any figure over 50 would indicate that more builders view sales conditions as good than poor.
While August showed a slight improvement, the index remains low. Builders are asked to rate traffic of prospective buyers and about their sales and sales expectations.
“Home builder expectations have been buoyed by the success of the first-time home buyer tax credit and its anticipated boost to buying activity leading up to the Nov. 30 expiration date,” NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said in a statement. “The question is what happens after that – whether there will be enough momentum to keep us moving toward a recovery?”
Write to Austin Kilgore.
A recommendation recently proposed by the Mortgage Bankers Association regarding an industry-wide standard loan purchase and sale agreement will work with an initiative in the securitization market to "level the playing field for investors and issuers," according to market commentary by Canadian independent rating agency DBRS.
The Mortgage Bankers Association's (MBA) request for comment on the recommended agreement comes as part of its initiative to boost liquidity and efficiency in the non-conforming residential mortgage market. The MBA's proposed agreement standardizes the structure of mortgage sale and servicing agreements, which DBRS says will save both time and money. It also incorporates standard procedures for servicing non-conforming residential mortgage loans.
DBRS said in a US structured finance newsletter that it hopes purchase and sales agreement "will become the standard form for industry participants to use voluntarily for whole loan purchases and sales, made with an eye toward potential securitization."
The proposal arrives in concert with the American Securitization Forum's "Project RESTART," an initiative in the secondary market geared toward restoring investor confidence in mortgage- and asset-backed securities. Recent actions within Project RESTART include a final release of residential MBS disclosure and reporting packages.
"By increasing data and standardizing available information, institutional investors will be able to better distinguish pools of high quality loans from those of a lesser quality," DBRS says in the commentary. "The resulting differentiation will produce greater market discipline, as market forces will serve to reward originators who deliver higher quality packages of mortgage and consumer loans, while penalizing those originators who do not."
The DBRS commentary adds, "[T]he differentiation will also enable more complete and accurate valuations of existing transactions backed by these loans — a necessary condition for generating much needed secondary market liquidity."
Write to Diana Golobay.
The Office of the Comptroller of the Currency this week announced an upcoming round of workshops for community bank directors in Charlottesville, Va.
The workshops aim to "expand directors' skills and understanding of issues facing their banks" and cover topics like risk assessment and credit risk, according to a media statement.
It seems only natural that regulators like the OCC would host workshop events to address the troubles facing community banks. There may be no better time (except, perhaps, for four years ago before the height of the housing bubble) to educate community banks on risk assessment than when they seem to drop like flies every Friday with a new batch of bank failures.
The workshops might proactively prevent bank failures by educating directors. They come at a time when weekly failures and costly one-time government-assisted takeovers of US banks continue to hit the Federal Deposit Insurance Corp.'s deposit insurance fund, which market players speculate is going broke.
The workshops are limited to 50 registrants. They also cost $65 per attendant.
Considering the unwinding mortgage crisis and the need to educate banks and prevent further losses to the FDIC, it seems like the ideal event for free admission would be the one that educates bankers on credit risk.
But perhaps we underestimate the brilliance of the OCC's plan. Perhaps the $65 registration and admission fee heralds a new wave of alternative funding for bank regulators.
Should the FDIC, for example, host a series of five workshops on protecting consumer deposits and charge $65 for up to 50 registrants, it could raise an easy $16,250 in a weekend toward its insurance fund.
Just a few years of that, and the FDIC might be able to pay for a single community bank failure.
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