Archive for August, 2009
The 20-hour mortgage loan originator SAFE comprehensive course by mortgage lending industry information provider AllRegs gained approval by the Nationwide Mortgage Licensing System & Registry (NMLS).
AllRegs, which gained its education approval from NMLS in July, offers the 20-hour pre-licensing and 8-hour continuing education courses to meet the minimum requirements nationwide under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).
"Now, loan originators will be able to fulfill their 20-hour pre-licensing requirement with this single, all-inclusive course," said senior vice president Dan Thoms in a media statement. "Additionally, lenders are already calling us now to provide a comprehensive training solution at their location."
The SAFE Act requires state-licensed mortgage loan originators to complete the 20 hours of pre-licensing education by Jan. 1, 2011 or earlier, depending on state law.
Write to Diana Golobay.
Corporate single-name and index credit default swaps (CDS) remained resilient in '08 and so far in '09, despite credit events, according to a credit policy special report released Thursday by Fitch Ratings.
Initiatives to standardize the CDx market aim to make it even less susceptible to credit market events. One such initiative, the clearing of single-name contracts and indices through a central counter party, is a necessary first step in reducing overall concentrated risk, Fitch said.
"In some respects, the CDx market was at the heart of the credit crisis," Fitch analysts said in the report. "Therefore, it is not surprising that the notional amount outstanding of CDS contracts actually declined by 27% to $41.9trn at year‐end 2008 from $57.9trn in the previous year… ."
The analysts added: "The decline is to a large extent a reflection of the compression of CDS agreements by netting of outstanding multilateral contracts, but is also influenced by the severe dislocation in the credit markets. Although notional numbers are a simple and consistent measure of the size of the market and level of activity, they are not a true measure of risk."
The ratings agency surveyed 26 banks to find 30% of respondents indicated they anticipate growth of the CDx market. None of them anticipate growth surpassing the 11% to 25% range. Another 30% of respondents indicated anticipated declines of the market in excess of 25%.
The negative outlooks on the CDx market mark a shift from results gathered last year, Fitch said. The ratings agency noted $13.8trn of sold CDx contracts at year-end 2008 and $13.9trn of protection bought.
"As the buying and selling of CDS contracts is relatively well balanced for these 26 institutions, it is very difficult to establish whether they have been using credit derivatives as a tool to mitigate default risk, particularly as outstanding net CDS exposures are still not a significant percentage of their loan books."
Write to Diana Golobay.
Mortgage rates slipped to their lowest level in three months, according to reports by Freddie Mac (FRE: 0.00 N/A) and Bankrate.com.
The average interest rate for a 30-year fixed-rate mortgage (FRM) was 5.12% with an average 0.7 point during the week ending August 20, according to Freddie’s weekly survey. That’s down from 5.29% the week prior. A year ago, Freddie Mac’s survey rate was 6.47%. This week's rate is a three-month low for Freddie's survey.
Bankrate.com’s survey of large lenders put the same rate at 5.52% with a 0.36 point, down 15bps from one week ago. One year ago, Bankrate.com’s survey rate was 6.66%. It's a two-month low for the survey.
The 15-year FRM rate was 4.56% with an average 0.7 point, down from 4.68% last week and its year-ago rate of 6%, Freddie said.
Bankrate.com’s survey had the rate at 4.84%, down 9 bps.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged 4.57% with an average 0.6 point in Freddie’s report this week, down from 4.75% last week and 5.99% a year ago.
Bankrate.com said buyers are getting in the market to take advantage of the first-time homebuyer tax credit, especially with its November 30 deadline looming.
Frank Nothaft, Freddie Mac vice president and chief economist said the low interest rates are reinforcing the housing market, citing increased home construction and builder confidence.
Write to Austin Kilgore.
Gross lending for house purchases is slowly recovering in the United Kingdom due in part to rising mortgage approvals, but refinance activity remains subdued, leaving the overall mortgage lending volume at early 1990s-levels throughout June and July, according to Bank of England research.
The news comes as a Morgan Stanley (MS: 18.56 +2.26%) financial adviser survey showed investors are returning to the structured product market, including mortgage-backed securities.
New mortgage origination volume was about £5bn ($8.25bn), more than half of total mortgage business in the month, according to Bank of England research. Gross lending has spurred overall mortgage volume to consistently increase since reaching a 17-month low in May, but refinancing volume has remained stable during that period.
While on an upswing, the July volume is still lower than it’s March through January 2008 level.
“UK lenders reported an improvement in their ability to convert mortgage applications into mortgage completions, consistent with housing market chains becoming less fragile,” Bank of England said in the report. “Demand for remortgaging [refinancing] remains very weak, though some major UK lenders reported tentative signs of their existing borrowers seeking to move off standard-variable-rate mortgages on to fixed-rate products.”
As new mortgage business increases, 76% of financial advisors that participated in a Morgan Stanley survey rank structured products as their preferred investment type they recommend to clients.
It’s a 21% increase in adviser sentiment from a December 2008 survey, when structured products ranks third behind bonds and mutual funds. The survey also reported 45% of advisers are more inclined to recommend structured products in the past six months, compared to 40% in December 2008, indicating the demand for structured products is expected to remain strong, Morgan Stanley said in a release.
“The survey results indicate a much bigger appetite than we expected among financial advisers for structured products and are also extremely encouraging news for providers. Based on the demand for products with a good balance of capital protection and participation, backed by issuers with a good credit rating, Morgan Stanley will continue to offer a range of carefully-designed products to meet these requirements,” Morgan Stanley executive director Marc Chamberlain said in a statement.
Write to Austin Kilgore.
Moody's Investors Service put 15 classes of notes in seven Irish residential mortgage-backed securities (RMBS) on review for downgrade on declining performance.
The rate of 90 plus-day delinquencies rose to 2.3% of the current balance in Q209 from 1% in the year-ago quarter. The higher delinquency rate comes on the heels of greater unemployment, which rose to 11.7% as of June, from 10% in March.
The Irish RMBS market continues to issue despite low mortgage originations. Issuance reached €25.8bn (US$36.7bn) in all of 2008 and €3.8bn in the first half of '09.
"The Irish economy is in a deep recession," Moody's said in an international structured finance report. "Reduced global demand and falling property prices are the main drivers of the current recession. A painful de-leveraging process will have to be endured as households reduce indebtedness in the new environment."
Falling exports led to the shrinkage of the Irish economy, which drives unemployment higher and house prices lower. The weakening real estate sector poses a major problem for the Irish banks, Moody's notes, all of which may require outside support in the future.
The two largest Irish banks — Allied Irish Banks and Bank of Ireland — already received government support in Q109, but the recent downgrade of the Irish government to 'Aa1' from 'Aaa' weakened its ability to provide more support.
Write to Diana Golobay.
Mississippi-based real estate investment trust (REIT), EastGroup Properties (EGP: 48.15 +0.35%) closed a large business distribution deal this week with the acquisition of three Dallas buildings.
The buildings, located along the Stemmons Freeway, contain 227,000 square feet and went for $6,675m. The first order of business for EastGroup is to change the names of the building, which are 87% occupied by six clients, to Interstate Distribution Center V, VI and VII.
David H. Hoster II, president and chief executive said the purchase will expand EastGroup into an "in-fill" submarket "where we have a successful existing base of assets," he said.
"It increases our cluster of business distribution properties there to over 800,000 square feet in ten buildings," he adds.
Despite the down commercial real estate market, Hoster adds that not all business are suffering: "We are continuing to look for additional acquisition opportunities in our major markets."
EastGroup Properties is a self-administered equity real estate investment trust focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the US with an emphasis in the states of Florida, Texas, Arizona and California.
Write to Jacob Gaffney.
Commercial real estate losses may be narrowing, but the market will face many challenges through next year as it continues to stare down its own credit crisis, according to research by the National Association of Realtors (NAR).
The credit constraint will likely pressure the commercial mortgage market so that the Federal Reserve may be urged to grant a second extension to an important liquidity program, NAR said.
The Commercial Leading Indicator for Brokerage Activity was 1.3% lower in Q209 than its Q109 level and 13.7% lower than its year-ago level. The index, which began in 1990, is currently at its lowest level since Q194.
NAR said the quarterly decline was driven by decreases in industrial production, demand for office and retail space, fewer durable goods shipments and reduced consumer spending. But that decline is less than the 4.8% decrease seen between Q408 and Q109.
The narrowed loss doesn’t mean commercial real estate is on the rebound yet, but could improve as early as next year, said NAR chief economist Lawrence Yun.
“With the economic recession likely coming to an end within six months, a recovery in commercial real estate may soon follow,” Yun said in a statement. “The office sector requires job growth to fuel the demand for additional space, the industrial sector needs a rise in production and the retail sector is tied to consumer spending. Multifamily housing – the apartment market – often performs in reverse to trends in home sales, but can improve if there is sufficient household growth.”
Another commercial real estate index also shows the market will continue to decline.
The Society of Industrial and Office Realtors (SIOR) Commercial Real Estate Index, a survey of more than 650 market players, has declined for 10 consecutive quarters, and 96% of respondents reported deep rental discounts and increased tenant concessions in Q209.
One of the biggest challenges facing commercial real estate firms is the lack of lending.
“Properties with positive cash flow have had trouble finding financing to roll over debt, transactions are essentially at a standstill and new development is virtually nonexistent in most areas,” NAR Commercial Alliance Committee chair Robert Toothaker said in a statement.
There may be some relief, however, with the Federal Reserve recently extending the Term Asset-Backed Securities Loan Facility (TALF) for commercial mortgage-backed securities (CMBS).
“The flow of liquidity to commercial real estate will be critical for a sustainable economic recovery,” Toothaker said. “However, unless there is a tremendous short-term recovery in the [commercial real estate] markets, we expect the Fed will be revisiting the issue of another extension of the TALF program early in 2010.”
Overall, commercial vacancy rates continue to rise while rents decline, and all sectors of commercial real estate face their own unique challenges as well, according to a third study, NAR’s Commercial Real Estate Outlook.
Yun projects the unemployment rate to peak around 10.4% in Q409, before gradually improving during 2010, and the office sector continues to suffer from those job losses. The outlook predicts office commercial vacancy rates will increase from 15.5% in the Q209 to 18.8% in the Q210. Annual rent declined 0.4% in 2008 and is expected to fall 14.1% this year and an additional 10% in 2010.
Yun also projects the gross domestic product to contract 2.9% in 2009, and will grow 1.5% next year. It’s expected to impact the industrial sector with a 13% increase in the vacancy rate in Q209, followed by a rate of 15% in Q210. Rents should fall 11.4% this year and another 11.7% in 2010, according to the outlook report.
While more families are taking advantage of the first-time homebuyer tax credit, multifamily housing is seeing increased demand from families who have lost their homes to foreclosure. Apartment vacancy rates should decline from 7.4% in Q209 to 7.1% in Q210, the outlook report said.
Write to Austin Kilgore.
Single-family mortgages set a new record delinquency rate of 13.16% in Q209, according to the quarterly survey by the Mortgage Bankers Association.
The delinquency rate includes mortgages at least one payment past due or in foreclosure.
The results were lead by Florida with 12% of mortgages somewhere in foreclosure, another 5% at least 90 days past due and a total 22.8% delinquent at least one payment delinquent or in foreclosure at the end of June. Nevada followed Florida with 21.3% at least one payment past due or in foreclosure.
The MBA also saw a jump in foreclosures on Federal Housing Agency-ensured mortgages. The percentage of loans with foreclosures started, the percentage in foreclosure and the percentage seriously delinquent at 90 plus days past due all set records for FHA loans in the quarter.
“While the foreclosure starts rate for FHA loans at 1.15% is lower than all other loan types with the exception of prime fixed-rate loans, the FHA percentages have remained low due to a large increase in the number of loans outstanding, the so-called 'denominator effect,'” said Jay Brinkmann, MBA’s chief economist, in a statement. "If the number of FHA loans had stayed the same as a year ago and we saw the same number of foreclosures, the FHA foreclosure rate would be almost 1.5%."
Delinquency and foreclosure rates are unlikely to improve until unemployment rates ease, MBA said, despite the administration's mortgage workout initiatives.
“[W]hile the various loan modification programs continue to have an impact on holding foreclosure rates below where they otherwise would be, the issue is that many of the foreclosures involve homes that are vacant, borrowers who no longer have jobs, or loans where there was fraud involved," Brinkmann said. "Therefore, in measuring the effectiveness of industry or government loan modification programs it is necessary to compare the results not with the total foreclosure and delinquency numbers reported here but with the smaller subset of borrowers who can and want to qualify."
Write to Diana Golobay.
Yet another housing official has found a new role in the financial market.
James Lockhart III, chairman and CEO of the Oversight Board of the Federal Housing Finance Agency (FHFA), will soon become vice chairman of WL Ross & Co., the distressed investment affiliate of Invesco (IVZ: 22.99 +0.92%). He takes the role in September.
"Our investment team will benefit from Jim's unique insights into the US mortgage markets, which will help us expand the compelling investment opportunities we can offer our institutional and individual clients," said Wilbur Ross, chairman of WL Ross & Co. and of Invesco Private Capital, in a statement on the appointment.
WL Ross accomplished more than $200bn of workouts globally in the last 30 years. The firm has sponsored and managed more than $8bn of equity investments in distressed securities and closed a $4bn distressed private equity fund in 2007.
Lockhart confirmed several weeks ago he would soon leave his post as overseer of mortgage giants Freddie Mac (FRE: 0.00 N/A) and Fannie Mae (FNM: 0.00 N/A). He held the post for more than a year, since the Housing and Economic Recovery Act set up the FHFA.
His transition to WL Ross comes on the heels of several announcements of other former housing and mortgage officials moving on to form partnerships in the financial space.
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.
Richard Stewart Jr., former vice chairman of Lehman Brothers, and Peter Monroe, former president of the Resolution Trust Corp Oversight Board and chief operating officer of the Federal Housing Administration, formed a $1.5bn joint venture to buy and sell distressed residential real estate-owned (REO) assets.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
House prices spread over 25 metropolitan statistical areas (MSAs) rose 3% in June, according to the monthly index compiled by Radar Logic.
Prices rose in 23 of the 25 metropolitan areas tracked for the index. The Boston MSA experienced the largest monthly gain of 6.5%, followed by Denver at 5.1%. Only the Seattle and Milwaukee MSAs experienced a decline since May, slipping 1.6% and 0.2% respectively.
Radar Logic found all MSAs came in below their year-ago levels of price per square foot — the measurement used to neutralize the exaggerating effects of house size. Year-on-year declines ranged from -2.9% in Philadelphia to -32.1% in Las Vegas.
In the first half of 2009, however, not only have prices gained, but the sales activity has shifted toward more expensive neighborhoods. Radar Logic found home sales have become a larger share of total sales in each of the 25 MSAs.
"The stabilization and subsequent uptick in home prices in the first half of 2009 indicates a return of demand on the part of buyers, and the shift in the mix of sales toward more expensive neighborhoods sheds some light on who the buyers are," Radar Logic says in the report. "Given the shift in sales toward homes in expensive neighborhoods, first-time home buyers may not be driving demand, particularly given the conservative lending environment."
The trend toward more expensive housing may indicate a return of investor confidence, Radar Logic said. If investor demand once again drives the housing market, the report notes, the current level of price recovery "could be resilient to the effects of a double-dip recession."
Prices in many metropolitan markets continued to rise into July, according to another pricing index released last week.
The Altos Research/Real IQ 10-city composite index rose 0.9% in July after gaining 1.2% in June. The slowed gain in prices signals a traditionally slow fall and winter season, Altos Research said.
The index, which tracks listing prices, found monthly increases in 15 of 26 major metropolitan markets in July, with all 15 showing the third consecutive month of price gains. Listing prices gained the most (6.1%) in San Diego in July, followed by San Francisco (4.5%). Las Vegas experienced the worst monthly slip in listing prices (-1.8%), followed closely by Salt Lake City (-1.4%) and Chicago (-1.3%)
Listing inventory declined in 17 of 26 markets, which Altos Research said would help the markets as they enter a seasonally slow period.
Write to Diana Golobay.
