Archive for August, 2009
Mortgage giant Freddie Mac (FRE: 0.00 N/A) late Friday reported a net income of $768m for Q209, compared with a $9.9bn net loss in the previous quarter.
The return to green kept the government-sponsored enterprise from having to draw down more Treasury Department funds through its preferred stock purchase agreement.
"We are pleased that our financial results allowed us to finish the quarter with a positive net worth, meaning we will not need to request any additional financial support from the government at this time," said interim CEO John Koskinen. "However, we recognize that our financial results for the quarter include one-time accounting adjustments and mark-to-market gains that are subject to change in future periods."
During the quarter, the company recognized gains of $4.2bn on its derivative portfolio and guarantee asset, compared with gains of $25m recorded in Q109, primarily driven by net mark-to-market gains due to increases in long-term interest rates.
Freddie’s net worth at the end of the quarter was $8.2bn. Its provision for credit losses was $5.2bn for Q209, compared with $8.8bn for Q109. The decrease was driven by a reduced rate of growth in the company’s loan loss reserve due to the recent modest national home price improvements, which the company believes to be largely seasonal.
"While we are seeing some early signs pointing to a housing recovery — including a modest uptick in house prices in some markets — our outlook remains cautious due to rising foreclosures, growing unemployment, tight lending standards and buyers' reluctance to re-enter the market," Koskinen added.
While the origination side of the business may remain constricted by credit concerns, servicing and loss mitigation efforts continue at Freddie and among its servicers.
Freddie noted its servicers reported data that showed 16,000 loans entered the three-month Home Affordable Modification trial period in Q209. Freddie also bought $135bn worth of refinance loans in the quarter, compared with $95bn in Q109.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
[Update 1: Adds details on new CEO]
Robert Gifford joins American International Group (AIG: 25.25 +0.44%) as its president and CEO of AIG Global Real Estate.
In his new role, he will oversee AIG’s real estate investment division, which has $24.3bn in assets it manages in 50 countries. He succeeds Jeffrey Hurd, senior vice president, head of asset management restructuring and AIG chief administrative officer, who was serving in the role on a interim basis.
Prior to joining AIG, Gifford was a principal at Boston-based real estate investment management advisor AEW Capital Management, and served at the Rouse Company, a retail developer. He is an alumnus of Dartmouth College and Yale University.
“Rob Gifford brings to AIG a deep and versatile background in real estate investment, development and portfolio management,” Paula Rosput Reynolds, AIG vice chairman and chief restructuring officer, said in a statement. “He also has an outstanding reputation for earning the confidence of investors, including during challenging real estate market conditions.”
Also joining AIG Global Real Estate is William Glasgow, who will serve as chief restructuring officer.
Prior to joining AIG, Glasgow served as chief operating officer at the real estate private equity firm Scanlan Kemper Bard Companies, a number of executive positions at PacifiCorp and its subsidiaries, and various leadership positions in venture capital management. He is an alumnus of the University of Pennsylvania and Harvard University.
“Will Glasgow’s management and restructuring experience spans not only real estate, but also financial services and other industries,” Paula Rosput Reynolds, AIG vice chairman and chief restructuring officer, said in a statement. “His background is especially valuable as AIG seeks the best possible outcomes for its real estate assets.”
Write to Austin Kilgore.
New York City-based commercial real estate investment trust (REIT) Gramercy Capital Corp. (GKK: 2.80 +0.36%) reported a negative funds from operation (FFO) of $168.9m, compared to a positive FFO of $32.9m in Q209.
It resulted in a net loss of $198.1m for common stockholders.
The hybrid REIT’s property division didn’t acquire any new properties, and sold 12 for a combined sales price of $14.3m. It signed 18 new leases for a combined 41,714 square feet of office building and bank branch office space, bringing the occupancy rate to 88.2%.
During the quarter, Gramercy Realty sold 12 properties, for an aggregate sales price of approximately $14.3 million. During the quarter, 18 new leases totaling 41,714 net rentable square feet commenced. Gramercy Realty finished the quarter at 88.2% occupancy.
Gramercy’s finance division purchased 10 triple-A rated commercial mortgage-backed securities (CMBS) with a par value of $144.8m.
The company decreased its available cash from its fiscal Q209 by $45.5m to approximately $137m.
Write to Austin Kilgore.
[Update 1: adds eMBS research]
As the rate of refinancing begins to abate, securitization researchers at Barclays Capital are expecting the recent drop in Fannie Mae (FNM: 0.00 N/A) 30-year paydowns to continue, eventually reaching a 10-15% rate overall.
Mortgages that are currently pooled for securitization are showing delinquency buyouts for the first time, according to a strategy report by the firm. This trend is also likely to accelerate as more mortgages are removed from the pools.
Constant prepayment rates are also expected to jump in 30-year mortgages, especially in the 2006-7 vintages.
Month-on-month, some refinancing indices declined 51%. "But 30-year [Fannie] speeds only dropped 21% because of the significant build-up in originators' pipelines," the report reads, "and many borrowers who locked in low mortgage rates in April and May still had time to exercise their options to close."
Such developments are possible despite rising mortgage rates due to improvements in the Home Affordable Refinance Program (HARP), they add.
Internet-based analytics firm eMBS, also released information echoing the Barclays findings.
July prepayments for fixed-rate pools decreased for all 3 agencies.
They report drops in prepayments for Fannie Mae (as well as Freddie and Ginnie), with 30-years down 4.8% to 18.2% CPR and 15-years off 2.7% to 16.4%.
Fannie Mae fixed rate issuance also decreased by $45B to $71B, "as there appeared to be no securitizations of Fannie Mae's loan portfolio in July that would account for $35B of the decrease," said the eMBS research report.
Write to Jacob Gaffney.
American International Group (AIG) (AIG: 25.25 +0.44%) earned its first quarterly profit since the third quarter of 2007, after a year and a half of posting losses.
The insurance giant gathered $1.8bn in net income or $2.30 per diluted common share for Q209. The earnings come after a $5.4bn net loss in the second quarter of 2008, according to a corporate release.
The net income for its property and casualty insurance operation dropped 40% down to $1.02bn, compared to $1.7bn in the second quarter of 2008. The decline reflects a slip in underwriting profit as the combined ratio increased to 98.2 from 92.2 a year ago, meaning that for every dollar collected in premiums, $0.98 went to pay claims and expenses. The property-casualty business, long known as AIU, changed its name to Chartis in July. Though officially separate from AIG, Chartis is expected to be sold.
Since the end of 2008, AIG Financial Products (AIGFP) reduced its derivative portfolio by 17% from $1.6trn to roughly $1.3trn. In Q209 alone, they shaved 13% from the portfolio, according to the release.
AIG chairman and CEO Edward Liddy points to continued reductions in risk of the AIGFP portfolio among others, but that the financial services arm reports a $132m operating loss for the quarter. That is down from a $6.2bn loss in the second quarter of 2008. The Q209 loss included $636m in unrealized market valuation gains on its super senior default swap portfolio.
AIG reports $62.1bn in total equity, an $8.9bn increase from March 31, 2009, but their total balance owed to the Federal Reserve Bank of New York credit facility stands at $44.8bn. AIG still has $41.6bn outstanding of Series E Preferred Stock pursuant to an agreement with the US Department of Treasury under the Troubled Asset Relief Program (TARP).
“The primary drivers of our positive second quarter results were reductions in net realized capital losses, primarily due to the decline in other than temporary impairments resulting from the adoption of new accounting guidance and improved market conditions,” Liddy says in the release.
Write to Jon Prior.
Atlanta-based residential builder Beazer Homes USA (BZH: 3.25 +0.62%) lost $27.9m, or $0.72 per share, in its Q309 fiscal year, better than the $110m it lost in the year-ago period.
Beazer, which builds homes in 16 states, closed 950 homes in the quarter, a 33.2% year-over-year decline. New orders were down 5% to 1,537.
“Overall, margins continued to be negatively impacted by weak market conditions, impacting both closing volumes and pricing,” Beazer said in its quarterly report.
However, Beazer’s cancellation rate improved to 23%, from nearly 30% in its fiscal second quarter and 36.8% in its fiscal third quarter last year.
Beazer’s inventory of unsold homes numbers nearly 1,900 and has a sales value of more than $430m. That’s up from an inventory of nearly 1,300 homes with a sales value of $296.6m one quarter ago, but lower than the year-ago inventory of more than 2,700 homes worth $668.1m.
Builders face fierce competition from the inventory of real estate owned (REO) properties on the market, and Beazer said it continues to substantially reduce its land and land development spending, which totaled $31.2 million in the third fiscal quarter, compared to $62.6 million for the same period in the prior year.
Beazer repurchased senior notes in the open market and reduced its debt by $55.2m.
Write to Austin Kilgore.
Government-sponsored enterprise (GSE) Fannie Mae (FNM: 0.00 N/A) said it needs a $10.7bn injection of cash from the Treasury Department to stay afloat after losing $14.8bn in Q209.
The Q209 loss, about $2.67 per share, is less than the $23.2bn ($4.09 per share) that Fannie had in Q109.
Fannie had $18.8bn in credit-related expenses, which was down from $20.9bn in Q109. The provision for credit losses was $18.2bn, but only $4.8bn of that was for net charge-offs. The remaining $13.4bn went toward building loss reserves, as Fannie expects continued losses.
It’s the third time Fannie has been forced to go to Treasury for funds to stay in business, and brings the total amount of money loaned to the GSE under its preferred stock purchase with the Treasury to $45.9bn. It has requested the funds on or before September 30.
Reports indicate that the Obama Administration may “wind down” Fannie and fellow GSE Freddie Mac (FRE: 0.00 N/A), and possibly spin off their bad assets into a federally backed corporation, a so-called "bad bank," and let the two companies keep their performing products. The White House denies this.
Fannie is seeing an across the board increase in delinquencies and defaults, even on loans considered less risky — those with lower loan to value ratios, higher borrower FICO scores and other variables.
“This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices,” Fannie said in its quarterly report.
Write to Austin Kilgore.
Jacksonville, Fla.-based Lender Processing Services (LPS: 16.78 +1.39%) is the broker technology provider for eight operating companies in the HomeServices of America network.
The companies will use a number of LPS’ rDesk Broker Suite products, including broker and agent Web sites, lead and contact management, comparative market analysis and document management, over the course of a multi-year deal with LPS’ Real Estate Group.
The eight companies are Edina Realty, serving North Dakota, Minnesota and Wisconsin; Kansas City-based Reece & Nichols; Prudential California Realty; Long Realty Company in Arizona; CBSHome Real Estate in Omaha, Nebraska; Champion Realty, Inc. in Maryland; and Home Real Estate and Woods Bros Realty, both in Nebraska.
Also, the company rebranded its vertical ad network Cyberhomes with a new name, Real Estate and Living Media Network, and made it a division of LPS’ Real Estate Group.
The ad network lets real estate agents, brokers and multiple listing services sell directed advertising on their Web sites. Nearly 800 Web sites that generate 4m unique visitors use the service. The service allows real estate professionals to dictate the number and type of advertisements that appear on their Web sites.
"Our goal is to add value to these Web sites by offering rich content to improve the user experience, together with a turn-key advertising platform that real estate professionals can use to introduce national advertising or local service offerings,” LPS Real Estate Group president Jay Gaskill said in a statement.
Write to Austin Kilgore.
Deutsche Bank (DB: 44.44 +2.40%) believes continued declines in home values will increase the number of US mortgagors with negative equity from 14m in Q109 to 25m in Q111.
According to a report Deutsche released this week, the 25m represents a projected 48% of all US mortgages. While subprime and option adjustable-rate mortgages (ARM) are the biggest source of underwater borrowers in the current market, Deutsche said a larger percentage of prime conforming and prime jumbo borrowers will join the fray.
Prime conforming and prime jumbo will make up 79% of all US mortgages and Deutsche estimates 41% of conforming and 47% of jumbo will be underwater, up from current levels of 16% and 29%, respectively.
This rapid influx of underwater borrowers will have a significant impact on default rates. In addition to future underwater borrowers being forced into default from a “life event” — unemployment, divorce, disability, etc. — Deutsche warned others may “ruthlessly” or strategically default.
Increased defaults in the middle class will suppress consumption, added Deutsche, further slowing housing recovery.
It’s hard to predict exactly how high the default rates will go. The current housing recession is unique in that it was brought on and perpetuated by a number of factors — unstable loan products, crashing housing prices, and unemployment, among others. Deutsche cited a study of the Massachusetts housing decline of the late 1980s and early 1990s that showed less than 7% of underwater borrowers defaulted as perspective on the default rate for underwater borrowers.
But in the early 1990s, borrower and loan product quality were significantly better, the home price decline wasn’t as severe, and unemployment was lower. Deutsche said the 7% experienced in Massachusetts should be the floor — a best-case scenario — for the surge of underwater borrowers it expects in 2011.
Borrowers with loan products with already high underwater rates will only get worse.
By 2011, Deutsche predicts 89% of option ARM borrowers will be underwater, up from 77% in 2009. The rate of underwater subprime borrowers will increase from 50% to 69%, and underwater Alt-A borrowers will increase from 49% to 66%.
An important factor to consider is how deep underwater borrowers will be, and it depends on their loan type.
For prime conforming borrowers, Deutsche predicts the number of borrowers with negative equity — loan to value (LTV) between 105% and 125% — will virtually equal the number of borrowers with what it calls “severe negative equity” — LTV over 125%.
But Deutsche expects the 89% of option ARM borrowers underwater to be split with most — 77% of total option ARM borrowers — holding severe negative equity. For underwater prime jumbo loans, more borrowers will have severe negative equity — 29% of the combined 47%.
The split for underwater Alt-A borrowers is expected to take an opposite proportion, with 49% of all Alt-A borrowers in negative equity and only 18% in severe negative equity. Underwater subprime borrowers will face a similar breakdown.
Write to Austin Kilgore.
A look at the stories on HousingWire’s weekend desk…with more coverage to come on bigger issues.
Regulators closed three banks over the weekend, making it 72 total bank failures for 2009. The Federal Deposit Insurance Corp. (FDIC) estimates that the closings will cost a combined $185m.
The Florida Office of Financial Regulation closed the First State Bank in Sarasota, Florida, which costs the FDIC $116m. Stearns Bank will purchase all but $8m of the $387m in total deposits and agreed to buy $451m of the failed bank’s $463m in total assets.
The Oregon Division of Finance and Corporate Securities closed Community First Bank in Prineville, Oregon. The closing costs the FDIC $45m. Home Federal Bank will purchase the $182m in deposits except $31m in brokered deposits and will buy $197m of the $209m in total assets.
The Office of the Comptroller of the Currency closed Community National Bank of Sarasota County in Florida. The failure costs the FDIC $24m. In addition to assuming all $93m in deposits, Stearns Bank agreed to purchase $94m of the failed bank’s $97m in total assets.
Mortgage giant Freddie Mac (FRE: 0.00 N/A) reported a net income for Q209 of $768m. The gains come after a net loss of $9.9bn for Q109. After the dividend payment of $1.1bn to the US Department of the Treasury, the net loss per diluted share registered $0.11 for the quarter.
Freddie’s net worth at the end of the quarter was $8.2bn, and as a result of the positive net worth, the Treasury will not have to add funding as required under the terms of the Senior Preferred Stock Purchase Agreement. It’s provision for credit losses was $5.2bn for Q209, compared to $8.8bn for the first quarter of 2009.
“The decrease was driven by a reduced rate of growth in the company's loan loss reserve due to the recent modest national home price improvements, which the company believes to be largely seasonal,” the report reads.
Ambac Financial Group filed a suit against Citigroup (C: 30.87 +1.61%) and Credit Suisse Group seeking to nullify $2bn in a portion of the credit default swap protection Ambac wrote on risky residential mortgages Citigroup originated, according to a Reuters report.
Ambac alleges that the two companies misrepresented the risks and market value of the securities. According to the report, Citi allegedly told Ambac that the assets were at 96% of the market value when they were worth less than 79%.
Also, the Senate Select Committee on Ethics cleared Senators Christopher Dodd and Kent Conrad of receiving discounts on mortgages from Countrywide Financial.
And, Senator Barbara Boxer, D-Calif., introduced legislation that would force members of Congress to reveal information about their mortgages, included loan date, amount, interest rate and issuer, according to a San Francisco Chronicle report.
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