Archive for August, 2009
As of the end of June, more than 15.2m US mortgages representing 32.2% — or roughly one-third — of all mortgaged properties in the country had fallen underwater in a negative equity position.
The proportion of US mortgages underwater in Q209 came in slightly below the 32.5% seen at the end of March, according to data released Thursday by First American CoreLogic.
The top five states in terms of a proportion of underwater borrowers included Nevada with 66% in negative equity and Arizona with 51% negative equity. Florida followed with 49% underwater while Michigan and California rounded out the top five with 48% and 42% respectively.
“Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the event a borrower experiences some kind of economic shock such as a job loss, illness or other adverse situation," chief economist Mark Fleming says.
"Given that negative equity did not increase this quarter and home prices declines are moderating or flattening," Fleming adds, "we may be at the peak of the negative equity cycle. However, until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated."
The aggregate property value for loans in a negative equity position and at risk for default reached $3.4trn in June. California claimed the highest share of underwater loans valued at $969bn, followed by Florida with $432bn. New Jersey and Illinois each held $146bn while Arizona followed with $140bn.
Write to Diana Golobay.
Major accountancy changes and overhauls may take several years to implement across wide markets due to the complex nature of the instruments affected. Therefore, financial accounting boards in markets across the globe are taking the opportunity to begin revising rules in the midst of a lull in the securitization markets.
But coordinating sweeping rule changes on an international level can become not only complex but controversial, especially with native accountancy changes coming about at the same time. At least one industry group native to the US is speaking up this week on conflicting initiatives within US and international accountancy changes.
The American Bankers Association (ABA) on Thursday issued a white paper raising concerns on the apparent expansion of mark-to-market, lack of due process and divergence between the process being taken by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on projects relating to financial instruments.
The ABA said IASB and FASB are essentially moving on similar projects, but toward different solutions and at different speeds, which may make international convergence impossible. In the US, most firms adhere to the set of Generally Accepted Accounting Principles (GAAP), which is likely to be completely phased out by 2015. The accountancy methods pushed by the IASB are called the International Financial Reporting Standards (IFRS).
“What the accounting boards are discussing now would be the biggest accounting change we've ever seen,” said Donna Fisher ABA’s senior vice president of tax, accounting and financial management. “We are deeply concerned that the shortcuts being taken will result in flawed or inconsistent rules.”
The ABA expressed concern that the standard setting process is being compromised, partly because IASB’s time line for completion may not allow US companies to have a chance for appropriate due process in providing input. IASB plans to finalize a significant part of its financial instruments accounting standard in 2009.
“If the IASB finalizes its rule on accounting for loans and debt securities prior to the FASB finalizing its rule, FASB will have to adopt the IASB’s rules or adopt a different rule which would result in divergence between US GAAP and international rules,” the white paper says. “The goal should be improving the current accounting rules that are in need of repair within a time frame that provides for due process and strives for international convergence.”
The ABA also voiced its concern for the apparent encouragement of mark-to-market in both FASB and IASB. Marking assets to market, ABA argued, promotes procyclicality in pulling values down.
“Given the role that mark-to-market has played in exacerbating the current economic crisis, it is hard to understand the rational for expanding it at this time,” Fisher said. “Mark-to-market accounting lacks a sufficient level of reliability, which the current market has demonstrated.”
Financial accountancy in US and international markets remains in a state of flux, according to HousingWire's sources. Despite the drawbacks seen by ABA, the FASB/IASB changes reflect a step toward a more global accountancy standard.
To meet investors' needs and enhance investors' confidence, there's a general need for global accountancy rules, said Gavin Francis, director of capital markets at IASB, in past conversations with HousingWire staff. In December, he said new changes were not structured finance-friendly, and accountancy changes would take years to implement.
Write to Diana Golobay.
National Default Servicing rebranded its four mortgage service business units under The National Groups banner.
The four affiliate companies involved in the restructuring are National Default Services, an asset management, marketing and real estate owned property (REO) disposition outsourcer used by government agencies, institutions, and private investors; National Collections and Loss Mitigation Services, a default management firm that specializes in short sales and modification services, National Valuation Services, a valuation and quality control services provider and National Closing, Escrow, and Title Services, a closing and escrow services firm.
“The National Groups is an enterprise designed to create a meaningful change in the way the institutional and private investors service their assets,” The National Groups CEO Bob Vanderbilt said in a statement. “Our combined operations represent a streamlined, cross-functional approach that will achieve a higher degree of efficiency than the affiliates could ever produce individually.”
The firm runs two offices, one in San Diego, and a new facility in Glastonbury, Connecticut.
Write to Austin Kilgore.
Fitch Ratings released highlights of its European investor survey for Q209, with the vast majority of respondents being asset managers, and reports that 72% now say that the worse of the crisis is over, compared to only 29% in Q109.
Confidence in banks' abilities to remain well-capitalized played a part in the rosy outlook. However, Fitch notes that perception on the duration of the recession is shortening and likely the largest driver behind the results. This development is also not isolated from the US markets, the credit rating agency adds.
In the previous survey, 55% of investors believed the economic downturn would last longer than 24 months, compared to 18% today.
In the US, the same percentage (44%‐45% in both the Q109 and the Q209 surveys) believed the recession will last 12‐24 months, but those believing it will last less than 12 months has jumped to 44% from 32%. There is a similar reduction in the percentages of investors believing it will be of more than 24 months’ duration, the survey finds.
However, when broken down on a per asset valuation, the investors remained bullish only on RMBS. CDO outlook remains unchanged and a negative sentiment continues to surround CMBS. This is not unexpected, as the CRE market uncertainty (especially the short-term funding of long term projects) remains unclear.
Write to Jacob Gaffney.
In a report published today, Moody's Investors Service describes the degrees to which individual loan characteristics, such as LTV, income verification, occupancy type, etc., can act as drivers of loan default.
These results are based on the analysis of the performance data of several UK master trust and stand alone prime transactions – overall about £259bn ($429bn) of mortgages originated in or before beginning of 2008 were analysed.
The rating agency observes that while the performance of the “benchmark” loan, i.e. a loan without adverse credit characteristics, is so far significantly better than the default rate assumed in the loan-by-loan model used to analyze UK RMBS portfolios (the MILAN model), some adverse loan characteristics may lead to a significantly higher probability of default for the associated loans.
“In particular, these include high LTV loans, loans to self-employed borrowers, self-certified products or loans without full income verification due to the fast track process, buy-to-let loans, interest only loans, and remortgages,” says Jonathan Livingstone, a London-based analyst, and co-author of the report. “The performance of loans with these adverse characteristics will continue to be closely assessed to ensure that the adjustments assumed in the rating analysis reflect the credit risk of these loans.”
Moody’s also notes that loans displaying other adverse characteristics, such as borrowers close to retirement age and loans on high value properties or properties without a full internal valuation have marginally higher rates of default than loans without these characteristics. However, the effect of such factors may increase if the economic downturn continues.
Furthermore, loans with certain characteristics (first-time buyers, high income multiples, loans on newly built properties, and large loans) currently show no significant difference in the rates of default compared to similar loans without these characteristics. However, this is also subject to some limitations, and it should also be noted that many of these characteristics might be expected to impact the severity of loss following foreclosure rather than the frequency of default.
Write to Jacob Gaffney.
The drama continues to unwind at Montgomery, Ala.-based Colonial BancGroup (CNB: 0.00 N/A) after an investigation of its warehouse lending division last week.
Charlotte, N.C.-based Bank of America (BAC: 7.29 -0.14%) is suing Colonial for more than $1bn in cash and loans, according to industry reports.
BofA alleges Colonial is holding the cash and loans as a custodian for commercial-paper vehicle Ocala Funding, which receives funding from Colonial.
Ocala Funding is backed by Taylor, Bean and Whitaker (TBW), which faces its own troubles after the Federal Housing Administration (FHA) suspended its operations last week. The commercial paper in question is backed by residential mortgages, some of which were sold to Freddie Mac (FRE: 0.00 N/A).
BofA serves as the representative for holders of Ocala Funding debt. When Colonial received cash from Freddie for the mortgage sale, it was supposed to pass that on to Ocala Funding. BofA alleges that never happened, according to a Birmingham News report.
Federal agents executed search warrants on behalf of the Special Inspector General for TARP, probing Colonial’s warehouse mortgage lending facility last week as part of a fraud investigation allegedly involving funds from the Troubled Asset Relief Program (TARP).
a Colonial representative said it was the bank's policy to not comment on pending litigation.
A BofA representative said the bank had no comment.
Write to Austin Kilgore.
Ponte Vedra Beach, Fla.-based Capital Markets Cooperative and San Diego-based software developer Del Mar DataTrac entered into a partnership to market their respective services to their clients.
The cooperative provides third-party secondary market services to lenders. The DataTrac suite is an automated software program for mortgage lenders, banks, and credit unions.
“Our typical client profiles are similar and we noticed quickly that there is an opportunity to collaborate to satisfy the technology and secondary marketing needs of our current and future customers,” Capital Markets Cooperative president Tom Millon said in a statement. “CMC mortgage banker clients will realize substantial cost savings under the structure of the new strategic partnership.”
Write to Austin Kilgore.
Thirty-year fixed-rate mortgages (FRMs) averaged a 5.29% interest rate with an average 0.7 point for the week ending August 13, up from 5.22% last week but still well below 6.52% a year ago, according to the weekly survey by mortgage giant Freddie Mac (FRE: 0.00 N/A).
The 15-year FRM also rose this week to an average 4.68% with an average 0.7 point, up from last week when it averaged 4.63% and far below 6.07% last year.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.75% this week, with an average 0.6 point, up from last week when it averaged 4.73%, and one-year Treasury-indexed ARMs averaged 4.72% this week with an average 0.4 point, down from last week when it averaged 4.78 %.
Freddie's vice president and chief economist, FrankNothaft, attributed the gain in rates to slightly improved unemployment figures released last week. The US unemployment rate ticked down to 9.4% in July, representing the first monthly decline since April 2008, Nothaft noted. The narrowed job losses combined with higher median house prices in MSAs across the US encouraged rising rates, he said.
Another interest rate survey that studies large banks and thrifts posted results much in-line with Freddie's survey. Bankrate.com found 30-year FRMs ticked up 2 bps, while 15-year FRMs fell 4 bps. At the same time, the average jumbo 30-year tumbled 18 bps, and ARMs dropped 1 bp for one-years and 10 bps for 5/1 ARMs.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
Genworth Financial (GNW: 7.83 +0.38%) kept 16,952 mortgages out of foreclosure in the past 12 months, according to its quarterly Foreclosure Prevention Scorecard.
The scorecard, which covers the 12-months from July 1, 2008 to June 30, 2009 showed that Genworth saved $2.3bn in mortgages. It also shows a 51% surge over the same period last year as a result of an increase of loan modifications, which accounted for 41% of the workouts.
California workouts increased by 159% from the year before, leaping into the top 10 states. Florida, Texas and Georgia topped the list. The southeastern region accounted for $666m worth of workouts, followed by the Northeast’s $520m.
Genworth “cured” 86% of the renegotiated loans, meaning that the borrower stayed in the home and became current on the mortgage.
“Homeowners are hit hard by declining home values, unemployment and unexpected financial constraints,” says Alan Goldberg, a vice president for Genworth’s financial business, in a corporate release. "For many borrowers foreclosure is their last resort. That not only impacts them severely, but it can mean many thousands of dollars in lost value for the communities in which they live."
Write to Jon Prior.
The number of foreclosure notices delivered to homeowners increased nearly 7% from June to July, and are up 32% from July 2008, according to Irvine, Calif-based RealtyTrac’s Foreclosure Market Report.
Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 360,149 US properties during the month, about one in every 355 households.
“July marks the third time in the last five months where we've seen a new record set for foreclosure activity,” RealtyTrac CEO James Saccacio said in a statement. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions.”
Nevada continues to lead the nation as the state with the greatest number of foreclosure filings for the 31st consecutive month, with one in every 56 households receiving a foreclosure filing in July.
However, a state law enacted July 1 that requires lenders to offer mediation before beginning the foreclosure process reduced initial default notices 18% in July, RealtyTrac said. But scheduled auctions and bank repossessions increased more than 20% during the same time period.
California and Arizona were second and third, respectively, on the list of top foreclosure activity states, with one in 123 California households and one in 135 Arizona homes receiving a notice during the month.
Florida, Utah, Idaho, Georgia, Illinois, Colorado and Oregon round out the top 10 states with the highest foreclosure activity.
Write to Austin Kilgore.
