Archive for August, 2009
Two giant players in the US mortgage finance market share a 'bleak' near- to immediate-term outlook as losses continue to mount, according to Moody's Investors Service.
Regulators may begin to wind down government-sponsored enterprises (GSEs) Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) within the next 18 months, Moody's said Monday in a global banking analysis report.
Fannie and Freddie landed in conservatorship under the Federal Housing Finance Administration in September, and since have drawn a respective $35.2bn and $50.7bn from the government under an agreement with the US Treasury Department, which said it would purchase up to $200bn of senior preferred stock.
The Moody's report, authored by Brian Harris, Craig Emrick and Robert Young, noted bondholders will benefit from the government support. But with the GSEs taking heavy losses, a winding down and ultimate resolution by the US government looks likely.
Moody's noted since Q307, the Fannie and Freddie reported seven consecutive quarterly losses totaling $86.9bn and $63.7bn, respectively. Due to these rising losses, it could take a decade of government ownership before the GSEs can operate as "viable stand-alone entities," Moody's said.
Instead, the analysts said the government could resolve Fannie and Freddie's business and then a new organization might be created to take on their role. A replacement entity would likely bear a different organizational structure and would avoid the criticism that would likely arise if Fannie and Freddie were simply resurrected.
"This is not bad news for Fannie Mae and Freddie Mac bondholders as the US government has become entwined with these companies and the creation of a new entity to support housing finance likely means the orderly conclusion of Fannie Mae and Freddie Mac," the report reads, in part.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments at the time this story was published.
G8 Capital purchased more than 70 units of the La Mirage condominium development located in Ridgecrest, Calif., allowing tenants to remain in their homes.
The development was originally military housing, which supported the China Lake Naval Base. However, after its conversion into investment properties under straw buyers that receive payment for the use of their credit score during a purchase, the value plummeted and the units began foreclosing.
Some tenants were forced out of their homes and into a serious housing shortage that plagued the central California town. After learning of the displaced La Mirage tenants, G8 Capital worked with lenders to acquire the units, and the tenants were allowed to remain in their homes.
“We are really pleased to be helping many of the tenants, forced out ultimately because of a fraudulent investor scheme and economic downturn, to stay in their homes,” says Evan Gentry, CEO of G8 Capital, in a corporate release. “Our goal is to acquire a majority of the units in the project, and based on our current discussions we are well on our way to getting this done.”
G8 Capital portfolios include distressed mortgage loans, performing loans and real estate owned (REO) property.
Write to Jon Prior.
Prospective home buyers and refinancers submitted 4.4% more applications in the week ending July 31, according to a survey published Wednesday by the Mortgage Bankers Association (MBA).
Total application volume is 18% higher than the same time last year on an unadjusted basis, although a different survey is showing household activity on the decline this week.
Refinance applications alone increased 7.2% from the previous week, bringing the refi share of total applications to 54.2% from 52.6%. The MBA noted the index measuring refinance applications is up 35% from its recent low at the end of June, although it remains well below recent highs.
The MBA reported lower interest rates this week alongside the application data, indicating higher refinance interest goes in-hand with decreased rates.
Despite the weekly gain in total applications, a separate application index saw the number of households submitting applications retreat this week.
A survey conducted by Mortgage Maxx found that household activity fell 8.5% the same week ending July 31. The mortgage application index — or MAX — adjusts raw application data to count multiple submissions from within a single household as one mortgage applicant. The index found activity in California alone fell 10.2%.
MAX publisher, Paul Descloux, in his commentary on the index, has long warned the costs and fees associated with refinancings would outweigh the financial benefit for many borrowers, perhaps accounting for the drop-off from recent refi popularity.
"The MAX plumbs new lows for the year as reality meets green shoots," he writes. "The multivariate attack on mortgage consumer demand appears to have won over the current ‘all’s clear’ rhetoric. With the refinance incentive lukewarm in absolute terms and qualifying decidedly antagonistic, homeowners [are] still playing defense."
Write to Diana Golobay.
More than 4,000 distressed borrowers received foreclosure prevention counseling from the HOPE NOW Alliance at two separate events in the greater Las Vegas and Phoenix areas.
The counseling was provided in partnership with NeighborWorks America, the Treasury Department as well as municipal and community-based housing groups.
Participants could meet with representatives from their lender and counselors from Department of Housing and Urban Development (HUD)-approved organizations to pursue options to avoid foreclosure.
“These cities have been hit hard by foreclosures and it was important for these borrowers to learn about the available options to avoid foreclosure,” HOPE NOW deputy director Larry Gilmore said in a statement.
HOPE NOW said it will hold similar outreach programs in Washington, DC, Tampa and Boston.
Write to Austin Kilgore.
The number of modifications on mortgages owned by Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) declined in May, the second recorded month of decline as servicers focused on implementing the Home Affordable Modification Program (HAMP), according to the Federal Housing Finance Agency’s (FHFA) monthly Foreclosure Prevention Report, released Tuesday.
HAMP guidelines require a three-month trial period to ensure borrowers can and do make payments on their modified mortgage before it is considered a completed modification, creating a delay in recording HAMP modifications initiated in May.
FHFA said there were about 10,400 modifications completed in May. Modifications peaked to a 12-month high of 15,703 in March, but fell to 13,787 in April.
Modifications accounted for 47% of all completed foreclosure prevention measures, the majority of which included both rate reductions and term extensions.
After declining in April, foreclosure starts increased 5% to nearly 90,600, mostly on non-owner-occupied properties and others determined ineligible for HAMP. It’s a new 12-month peak for US foreclosures, a mark previously held in March.
More homeowners’ incomes are decreasing, and so are delinquencies. There were 80,100 loans 60 or more days late in May, bringing the total up 7% to 1.3m and 40% of borrowers reported a loss of income as the biggest reason for their delinquency.
Write to Austin Kilgore.
Moody's Investors Service maintains a negative outlook on some asset classes, including mortgages, within Japan's structured finance market.
Of 11 asset classes reviewed, Moody's takes a stable outlook on five classes including mortgage-backed securities collateralized by 'conforming' residential loans. The other six classes keep their negative outlooks, including MBS collateralized by commercial mortgages and 'other' residential mortgages.
The outlooks on key asset classes remain mixed but are unchanged from Moody's last report on them in March.
"The unchanged outlooks are due to the fact that while the Japanese economy has largely started to worsen in H208, its slowdown could also be said to have bottomed," said Moody's senior credit officer Mitsuteru Masuoka.
Moody's also saw auto loans, credit cards and cash advances making up asset classes within stable securities. These types of debt, although steady, may not see a significant level of growth for some time, analysts noted in a statement.
"[A]lthough we believe that the uncertainty over the macro-economy is now somewhat less than before, the unemployment rate and the number of bankruptcies of medium- and small-sized business are still at high levels," Masuoka added. "Therefore, it will take some more time before people are convinced of a recovery, which should accompany growth in income and private consumption."
Write to Diana Golobay.
[Update 2: Reflects Fitch's, Moody's rating outlook negative]
The Federal Housing Administration (FHA) on Tuesday suspended Ocala-based Taylor, Bean & Whitaker Mortgage Corp. (TBW) from originating and underwriting new FHA-insured mortgages, resulting in a negative rating watch on its residential servicer ratings.
At the same time, Ginnie Mae terminated TBW's status as an issuer in its mortgage-backed securities (MBS) program and as a servicer of its securities. Effective immediately with the announcement, Ginnie takes on TBW's nearly $25bn Ginnie portfolio.
"TBW failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream," said FHA commissioner David Stevens.
Stevens added: "We were also troubled that the Company not only failed to disclose it was a target of a multi-state examination and a separate action by the Commonwealth of Kentucky, but then falsely certified that it had not been sanctioned by any state. FHA won't tolerate irresponsible lending practices."
HousingWire reported in June that TBW agreed to pay out $9m after the conclusion of a multi-state regulator examination of its '06 originations of non-traditional mortgages — including interest-only, pay-option and stated income loans — a now-shuttered practice at the company. In addition to instances of potential overcharging of fees to consumers, the state examinations unveiled possible issues in the submission stage by brokers where mortgage applications were submitted multiple times until the automatic underwriting system accepted them.
Following FHA's announcement on the suspension, Fitch Ratings placed TBW's residential servicer ratings on negative watch pending an ongoing investigation. The ratings currently hold at 'RPS3+' but may face downgrades depending on results of the investigation. The ratings agency rates servicers from 1 to 5 with 1 ranking the highest. Moody's Investors Service also placed TBW's servicer quality rating on watch for possible downgrade.
The US Department of Housing and Urban Development (HUD) said in a statement that TBW's immediate suspension remains temporary during the completion of an investigation by HUD's Office of Inspector General, an ongoing review by the Department's Office of Housing and any legal actions that may follow the review.
"Today, we suspend one company but there is a very clear message that should be heard throughout the FHA lending world — operate within our standards or we won't do business with you," said HUD secretary Shaun Donovan.
HUD also sent notices of proposed debarment to TBW's CEO Paul Allen and president Ray Bowman. They have 30 days to contest the proposed debarments, which allege submission of false and misleading information to both HUD and Ginnie.
TBW is the third largest direct endorsement lender of FHA-insured loans and the eighth largest issuer of Ginnie Mae MBS, according to HUD. It's also one of the top 10 national wholesale mortgage lenders, according to company statements, meaning it funds loans originated by third-party brokers.
TBW did not return requests for comment before this story went to press.
Write to Diana Golobay.
The Colonial BancGroup (CNB: 0.00 N/A) on Tuesday confirmed it is complying with an investigation of its mortgage warehouse lending facility.
Federal agents from the Special Inspector General for the Troubled Asset Relief Program executed a search warrant at the firm's Orlando-based mortgage warehouse lending division. Colonial said in a statement that it continues to conduct business as usual in spite of the investigation.
Colonial last week cited 'substantial doubt' it could continue as a going concern after posting a $606m net loss in Q209.
The company recently consented to a cease-and-desist order given by the Federal Reserve. The order, which took effect July 22, addresses the capital, liquidity and loan loss allowance issues at the bank, Colonial said in a statement on the order.
Colonial BancGroup previously acknowledged loan losses in its portfolio are greater than estimated or expected, leading to a liquidity crisis that also affected the firm’s ability to raise additional capital and close on a pending agreement with investors led by Taylor, Bean & Whitaker Mortgage Corp. (TBW).
HousingWire's sources this week have said Colonial's woes are not wholly unexpected, and indicates its ties to TBW as a major warehouse lender may cause more financial fallout.
Write to Diana Golobay.
You know the luxury penthouse might be overpriced in today's market if the developer has to offer a $20m discount to attract buyers.
It also says something about the cash reserves of the developer if he waits around 54 weeks before cutting the price.
And that's just what developer Donald Trump did when he recently cut the asking price of a four-bedroom penthouse at 502 Park Ave. A New York Post article has the scoop on the luxury apartment, which was slashed to $31m from $51m.
The 35% decline is not too out-of-line with national price declines from regional peaks, although the latter phenomenon occurred gradually over several years as the market adjusted and the former happened virtually overnight.
The cut 54-week hesitation indicates the luxury housing market may not be as insulated from economic downturn as it — or its developers — would care to believe.
We were reporting back in August that the luxury sector was beginning to feel the pangs of buyers cutting back on just how much luxury they can afford. Luxury houses are even hitting the auction block these days in the midst of low buyer turnout.
Servicers of mortgages 60 days delinquent and over may be implementing more than 230,000 trial modifications since the Home Affordable Modification Program (HAMP) began in March, but the largest non-profit organization representing such borrowers says more is needed to stop the "hemorrhage" of foreclosures across the nation.
The Association of Community Organizations for Reform Now (ACORN), in response to the Treasury announcement, calls for a full stop to foreclosure on any HAMP-eligible property, whether the borrower is committed or not. Additionally, ACORN wants servicers to explore alternative methods of aiding ailing borrowers, for example by principal forgiveness as opposed to forbearance. Furthermore, servicers are unevenly applying the program, they say, with little adherence to regulatory hurdles, such as in the inappropriate levying of modification fees onto the borrower.
"There is a great incentive [for servicers] to take part," says Brenda Muniz, legislative director at ACORN National. "Yet there are no consequences if [HAMP] is violated."
ACORN is also asking for the servicing arms of investment banks Barclays (HomEq Servicing) and Goldman Sachs (Litton Loan Servicing) to participate in the program.
However, the community activists admit sign-up rates from borrowers could be better, as currently around half of distressed borrowers engage their mortgage servicers on this front. ACORN community outreach programs attempt to address this issue, but the firm says it is undercapitalized to achieve significant traction in rebuilding the distressed borrower/servicer relationship.
HAMP is a federal program intended to insure foreclosure as a last option. The home must be owner-occupied and the mortgage originated before Jan. 2, 2009. Borrowers have to prove that their incomings fall short of monthly outgoings. This includes income beyond employment, such as alimony or child support payments. Under HAMP, If a borrower is in foreclosure, the foreclosure process is suspended while the borrower is being considered for the program.
Write to Jacob Gaffney.
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