Archive for August, 2009
Acqura Loan Services unveiled its new loss mitigation platform, which assesses borrower risk and determines the most sustainable modification and/or collateral disposition solutions for the distressed loans it services.
The new Velocity offering scores loans at the time of acquisition or when they are boarded. The system incorporates granular, up-to-date macro and micro economic data, including credit, property, market and housing price data.
The platform predicts the likely outcome for each asset and recommends the optimal loss mitigation strategy, whether modification, repayment plan, short sale, deed in lieu of foreclosure, cash for keys or foreclosure.
“Risk, not just delinquency, is the focal point of our loss-mitigation strategy,” said CEO Amy Brandt in a press release. “Standard industry solutions don’t engage until a borrower is 60–75 days past due. The Velocity platform will evaluate each loan, including those that are performing, when they are boarded, if not before."
Brandt added, "This enables us to assess risk and borrower stress levels earlier and to implement the most effective loss mitigation strategy preemptively, in some cases even before the borrower goes into default.”
Write to Diana Golobay.
JP Morgan Chase Bank (JPM: 37.21 -0.75%) and HomeEq, the servicing arm of Barclays PLC (BCS: 14.09 +1.15%), joined the Home Affordable Modification Program (HAMP), according to a US Treasury report released last week.
HAMP allocates funds from Troubled Asset Relief Program (TARP) to servicers as interest rate subsidies or to distribute to participating lender/investors or borrowers.
Based on the latest TARP financial report, the Treasury allocated $20.7bn in funding caps to the servicers. The Treasury adjusts caps based on actual participation in the program.
The Treasury allocated a cap of $2.7bn to JPMorgan Chase Bank and $674m to HomeEq Servicing. Three other servicers, EMC Mortgage Corporation, Lake City Bank and Oakland Municipal Credit Union joined the program and received caps of $707m, $420,000 and $140,000 respectively.
Today OneWest Bank officially joined HAMP, implementing the program across its entire portfolio. Since March 2009, OneWest modified nearly 15,000 loans under the FDIC modification program and more than 3,600 with HAMP, according to a corporate release.
HousingWire recently reported Litton Loan Servicing, the servicing arm of Goldman Sachs (GS: 111.77 +2.96%), also joined HAMP, although the Treasury has yet to post the official cap amount granted to Litton.
The Association of Community Organizations for Reform Now (ACORN) lobbied for more modifications and for more participation in HAMP by both Barclays and Goldman Sachs.
Write to Jon Prior.
If increased affordability and the $8,000 federal tax credit were not enough, first-time homebuyers in New York will have one more incentive to get into the housing market.
A state-funded incentive will provide federal tax credits equal to 20% of annual interest costs for the life of a fixed-rate mortgage used to purchase a home in the state.
The governor’s office announced the New York State Mortgage Credit Certificate this week and said it will save the average new home buyers $1,500 a year for the first 10 years of a 30-year loan. The credit can be used in conjunction with the federal $8,000 first-time homebuyer tax credit.
“The best way to jump-start the housing market is to encourage home purchases by first-time homebuyers,” Governor David Paterson said in a statement. “The New York State Mortgage Credit Certificate will make it easier for first-time homebuyers to buy their first home and will help stimulate the State’s economy. It also means some form of federal tax credit will be available for homebuyers even after the federal government’s tax credit program expires in November.”
The state will fund the credit certificate program through an Internal Revenue Service (IRS) regulation that allows the state to trade portions of its bonding authority to fund federal tax credits, avoiding a direct impact on the state budget.
Essentially, for every $4 the state could issue in bonds, it will be able to fund $1 in tax credit. The state said it plans to use $80m in volume cap to finance $20m in mortgage credits.
There are a number of restrictions on the program. The mortgage must be a fixed-rate loan. Buyers who refinance lose the credit. Mortgage interest can still be an itemized deduction, but only the 80% not covered by the credit. The credit is only available on new loans and lenders will have the program’s applications in early September.
The state’s mortgage agency said it expects as many as 700 homebuyers will take advantage of the program by the end of the year.
Write to Austin Kilgore.
The home price index (HPI) produced by Integrated Asset Services’ (IAS) saw a 1.2% monthly increase from May to June, the Denver-based default servicer announced Tuesday.
While on its fourth consecutive month of gains, the IAS360 HPI — which tracks monthly changes in median sales prices of US detached single-family homes — is still down 16.7% from its June 2007 high. It fell 2.6% in the first three months of 2009, but has increased 2.7% since then.
IAS also broke down its HPI in the four US census regions. The index was up in all four regions — 1.8% in the Midwest, 1.9% in the Northeast, 1.2% in the South, and 0.4% in the West.
Of the country’s top 10 Metropolitan Statistical Areas (MSA), only Las Vegas (-1.8%) and Denver (-0.1%) declined in the month-over-month.
Boston and Chicago followed increases in May with improvements of 2.9% and 1.3%, respectively, along with three of California’ biggest MSAs — Los Angeles (2.2%), San Francisco (1.7%) and San Diego (1.4%).
Write to Austin Kilgore.
Fear of unemployment and the state of the job market influences homeowners the most when it comes to managing finances, according to a quarterly survey of US homeowners by Wells Fargo (WFC: 29.60 +1.89%).
The survey results indicate homeowners are doing what they can to navigate the choppy financial waters. For example, 30% of those surveyed paid down debt in the past year and 25% say they’ve learned how to better manage their budget.
"It's encouraging to know there are many homeowners trying to manage the factors they can control — like spending, budgeting and handling their personal debt — especially when they're unsure about the economy," says Jamie Moldafsky, of the Wells Fargo Home Equity Group, in a corporate release.
In another sign that homeowners could make a long-term change in spending habits, 77% of those who purchase only what they need plan to do so from now on. But when Wells Fargo asked homeowners how they managed their personal finances, 38% said they made no significant changes over the last year, claiming they have no need.
"Homeowners are worried about their jobs and debt is still historically high, however many people may not be making the necessary changes to improve their finances," Moldafsky said.
The findings may seem elementary, but the survey makes an important link echoing the July securitization report from Deutsche Bank that tied the flood of unemployment to rising delinquencies and, ultimately, deteriorating home prices. US unemployment recently hovered around 9.5%, the highest since the early 1980s.
More reports show signs linking unemployment concerns and the rise of delinquencies is not simply a US phenomenon. Recent Moody’s research drew a direct line between job losses and climbing Dutch RMBS delinquency rates. According to one economist, households shudder under financial stress as a termination forces the rise of personal insolvencies.
Write to Jon Prior.
Citigroup (C: 30.87 +1.61%) approved two new initiatives during Q209 that will operate under the Troubled Asset Relief Program funding.
The initiatives, totaling $6bn in funding, include a lending facility for mortgage originators. The program allocates up to $2bn for Citi to fund financing to mortgage loan originators via warehouse lending facilities. Citi said it will provide originators with collateralized lines of credit that are backed primarily by residential mortgages which are eligible for sale to government-sponsored mortgage agencies.
The bank also approved up to $4bn for municipal letters of credit to provide direct lending to municipal clients. Both programs are TARP-supported initiatives that are closely monitored to ensure funds are put to work prudently, transparently and according to clear guidelines.
With the $6bn in new initiatives during the quarter, the aggregate value of programs supported by TARP capital is up to $50.8bn as of June 30. At the close of the second quarter, Citi has put to work $15.1bn of that total, or nearly one third.
In addition to the lending programs, Citi said it will continue to aid at-risk homeowners and has already helped 625,000 US homeowners avoid potential foreclosure on mortgages totaling more than $67bn since the onset of the foreclosure crisis in 2007. Citi helped 108,000 borrowers with mortgages worth $16bn in Q209 alone.
Citi's move to increase warehouse funding comes at a time when warehouse lenders are becoming scarce. Of those that remain, a major warehouse lender recently faced a federal probe as regulators look for more transparency in mortgage lending. GMAC Financial Services announced last week it will step up its correspondent and warehouse lending volume, although it gave no dollar amounts at the time.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
A rule proposed by the Securities and Exchange Commission (SEC) that may enforce transparency among investment advisers may soon have those advisers paying for costly annual examinations of client assets. However, the Securities Industry and Financial Markets Association (SIFMA), a trade body representing the capital markets, says the eight grand cost estimation put forth by the SEC will more likely run into the hundreds of thousands, if not millions, of dollars.
Currently, only registered advisers with custody of client assets and that send out account statements to clients must undergo an annual examination. But the SEC's proposed rule would require all registered advisers with custody of client assets to hire an independent public accountant to perform an annual surprise review of client assets.
Industry players face a tricky position between a desire to protect investors' assets and the cost-inefficiency of shelling out as much as $200,000 each year to do so.
In a recent letter signed by SIFMA, private client legal committee chair Mark Shelton, the industry group acknowledged that "recent scandals involving misappropriation and other misuse of investors’ assets" prompted the formation of the rule. But the letter urges SEC secretary Elizabeth Murphy to reconsider some of the rule's adverse effects.
"[F]or advisers that are dually registered as broker-dealers, and for advisers to wrap fee programs for which a broker-dealer maintains custody of assets," the letter reads, "SIFMA believes that the cost of a surprise examination and an internal control report greatly outweighs any potential benefits to clients, and that these two additional requirements would duplicate existing safeguards afforded to advisory clients of dual registrants."
Chiefly, SIFMA disagrees with the $8,100 annual price estimated the SEC for a surprise examination. The group noted that the size of the advising firm, the number of its accounts, number of its custodians and number of its holdings all work as variables in determining the cost of such a review.
"SIFMA suggests that this [$8,100] figure significantly underestimates the actual cost of such an examination, particularly if the verifications are required to be undertaken on an account-by-account, asset-by-asset basis," the letter reads.
SIFMA surveyed 17 member broker-dealers and their accounting firms, which estimated the actual cost anywhere between $8,000 and $1m, with a survey-wide average indicating a typical cost of a little more than $200,000. The group also estimated an average $250,000 cost for the internal control report, the same estimate provided by the SEC.
Combined, however, the average cost of an examination and report could far outweigh any benefit enjoyed by the investor clients.
SIFMA said advisory firms dually registered as broker-dealers already follow strict regulatory oversight. Requirements to conduct surprise examinations and form internal control reports may even double up on regulations already being followed.
Write to Diana Golobay.
Fitch Ratings downgraded iStar Financial’s (SFI: 7.26 +1.11%) Issuer Default Rating and reported that default appears probable for the commercial real estate investor.
Fitch cited a weakened liquidity position for iStar, a Real Estate Investment Trust (REIT) that raises equity capital from leading institutional and high-net worth investors, sending the rating to double-C from a B-minus, and Fitch removed iStar from Rating Watch Negative, according to a release.
In addition to the liquidity crunch, a Coercive Debt Exchange (CDE) figures into the probable default. A CDE occurs when impending bankruptcy or depleted liquidity forces an issuer to restructure its debt, but even without the CDE, Fitch believes that a default is probable.
The downgrade comes after iStar’s Q209 report, which revealed a weakening quality of iStar’s loan portfolio. For the quarter, iStar reported $435m in loan losses and $1.3bn over the last 12 months, according to Fitch.
Non-performing and watch-list loans accounted for more than half of iStar’s loan portfolio, which grew from 43% at the end of March, 2009. Fitch continued to forecast further increase in loan losses and non-accrual loans for the rest of 2009 given the shortage of capital available in commercial real estate debt capital markets.
Essentially, borrowers can’t repay loans and the difficult landscape makes it difficult to sell assets, according to Fitch. This constricts iStar’s cashflow, which will likely result in liquidity shortfall between now and the end of 2011, snowballing in probability given iStar’s future funding obligations and debt maturities.
To make things worse, iStar has expended all term loan capacity and revolving credit facilities, according to Fitch, forcing the investment firm to rely on asset sales and loan repayments for liquidity. If iStar receives 30% if its payback between now and the end of 2011, the liquidity deficit would climb over $3bn if it could not sell any of its assets.
Write to Jon Prior.
Median home sales prices declined from their Q208 levels in the counties of 13 major markets across the US during Q209, according to MDA DataQuick home sales reports published on DQNews.com.
Some markets, like Las Vegas, which saw a 43.1% decline in median sales price during the quarter, and Phoenix, which saw an average of nearly 30% decline, aren’t new to the double-digit price declines shown on these reports.
But other areas — Washington, D.C. (2.6%) and Denver (3.32%), among others — saw more modest reductions.
The reductions didn’t just vary from state to state or city to city. Some counties, like Florida’s Dade and Broward counties in the Miami region, saw percent declines above 42%, while nearby Palm Beach County’s decline was 29.2%. But up Florida’s east coast in Jacksonville, the average price decline for the four-county area was just over 12%.
It was a similar situation in the Atlanta region. While most of the 13 counties in the region saw declines between 5 and 10%, Jonesboro County had a 24.3% decline in prices.
In Nashville, the decline was somewhat softer, at 7.67%.
In New York City and surrounding areas, price declines in the 10-county area ranged from a low of 8.3% in Putnam County to a high of 14.4% each in Bronx, Richmond and Rockland counties.
Chicago may be the “second city” next to New York, but its price declines topped the Big Apple’s. Chicago’s Cook County saw a 20.8% decline, with Lake County following close behind with a 19.1% decline. McHenry and Kane counties were down 11.4% and 11.1%, respectively.
On the west coast, Portland’s four counties averaged a nearly 11% decline, while Seattle’s five counties averaged an 8.54% decline.
In Hawaii, prices were down 10.7% during the quarter in the Honolulu area.
To see prices in the cities broken down by ZIP codes, view the quarterly charts.
Write to Austin Kilgore.
Triad Guaranty (TGIC: 0.00 N/A), the mortgage insurer, reported a $359.4m net loss for Q209, compared to a net loss of $55.2m for Q109.
Ken Jones, CEO of Triad, points to a decline in cure rates on default loans and severe settled losses that swelled Triad’s loss reserves for the second quarter, according to the report.
The total insurance in force, or the dollar amount Triad issued, shrank to $57.5bn at the end of Q209, a 4.9% dip from the end of Q109 and a 13.3% drop from this quarter a year ago. But total revenues grew to $77.7m for the second quarter of 2009, a jump $50.9m from the first quarter and an uptick from $75.2m from a year ago.
Despite a drop in total dollar amount insured by Triad for 2009, earned premiums stayed above last quarter’s levels.
Net losses for Triad totaled $431.4m for the quarter, swelling from $101.6m in losses for the first quarter of 2009. Net settled losses increased to $149.9m from $53.9m in the previous quarter. The jump stems from the lifting of various foreclosure moratoriums and a higher number of defaults from the 2006 and 2007 vintages progressing through the foreclosure process.
Triad holds $1.18bn in total assets but $1.70bn in liabilities.
As of June 1, 2009, Triad settles all claims under mortgage insurance policies with 60% cash and 40% with the creation of a deferred payment obligation (DPO), which accrues a carrying charge from the investment yield of Triad’s portfolio. Payment from the carrying charge depends on future performance and requires approval from the director of the Illinois Department of Insurance.
Write to Jon Prior.
