Archive for September, 2009
A look at the stories on HousingWire’s weekend desk…with more coverage to come on bigger issues:
President Barack Obama in his weekly address Saturday indicated the global financial system is due for a "checkup" at the meeting of the G-20 nations that begins this week in Pittsburgh. He touted US efforts to unlock frozen credit markets and rekindle demand for homes, which helped to stop the "economic freefall."
But it's not enough to prevent another crisis going forward, as Obama said the G-20 nations will discuss some steps needed to safeguard the global financial system and reform financial regulation. He had this to say in his weekly address:
"Central to these reforms is a new Consumer Financial Protection Agency. Part of what led to this crisis were not just decisions made on Wall Street, but also unsustainable mortgage loans made across the country. While many folks took on more than they knew they could afford, too often folks signed contracts they didn’t fully understand offered by lenders who didn’t always tell the truth. That’s why we need clear rules, clearly enforced. And that’s what this agency will do.
Consumers shouldn’t have to worry about loan contracts written to confuse, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card – that appear without a clear warning on their statements. And responsible lenders, including community banks, trying to do the right thing shouldn’t have to worry about ruinous competition from unregulated and unscrupulous competitors."
Buzz continued into the weekend around changes to the Federal Housing Administration's credit policy with the mortgagee letter set to take effect Jan. 1, 2010. FHA commissioner David Stevens said the changes include FHA-approved lenders to submit audited financial statements.
The new rules aim to make FHA lenders "assume liability for all the loans they originate and/or underwrite." Correspondent lenders — or brokers — can originate FHA loans, although the new rules indicate they are no longer required to receive FHA approval to do so. These changes may mean a potential increase in the number of brokers eligible to originate FHA-insured loans, indicating a move for a greater presence of FHA loans in the mortgage market.
FHA also plans to increase the net worth required for FHA lenders. The requirement, which is set at $250,000, has not been increased since 1993. The Department of Housing and Urban Development (HUD) is proposing an initial increase of $1m, which would be in place within a year of the new rule's enactment. HUD may also propose further increases to a level similar to that at the government-sponsored entities (GSEs), which will ensure FHA lenders have sufficient capital and will decrease risk to the FHA insurance fund.
Any risk posed now to the FHA's fund does not seem of concern to Mortgage Bankers Association (MBA) chairman David Kittle, according to a statement issued Friday in response to Stevens' announcement.
“It is important to note that FHA is not in financial trouble," Kittle said. "It has been impacted by the housing market, just as most lenders and mortgage insurance companies have been. Today’s announcement shows that FHA intends to take significant steps to strengthen its risk management processes and enhance its future financial stability.”
The increased net worth requirement for lenders may help the FHA's future stability by ensuring lenders operate with adequate capital reserves.
"It is important that lenders and brokers be made to have sufficient financial backing so they can be held accountable in the event of problem loans," Kittle said. "At the same time, it is just as important that any new requirements be reasonable, and not unduly hamper competition."
Friday marked another two bank failures, bringing the yearly total to 94. Regulators shut down Kentucky-based Irwin Union Bank and Indiana-based Irwin Union Bank and Trust Co. on Friday. The institutions — both banking subsidiaries of Irwin Financial Corp. — present an estimated $850m cost to the Federal Deposit Insurance Corp.'s (FDIC) deposit insurance fund.
First Financial Bank assumes all $2.5bn of deposits — $2.1bn from Irwin Union Bank and Trust Co. at a 1% premium and $441m from Irwin Union Bank with no premium. First Financial Bank also assumes "essentially all" $3.2bn of assets — $2.7bn from Irwin Union Bank and Trust Co. and $493m from Irwin Union Bank. The FDIC entered a loss-sharing transaction with First Financial Bank on about $2.5bn of the assets.
Write to Diana Golobay.
Commercial mortgage-backed securities (CMBS) spreads remained largely unchanged on Thursday despite the rally seen earlier this week.
That credit bonds held steady "should be seen as a net positive," according to market commentary by Manus Clancy, managing director of CMBS and commercial mortgage information provider Trepp.
Performance of collateral underlying CMBS bonds did not look positive Thursday, however, with two large loans in the Cincinnati market moving to special servicing.
The $144m Tri-County Mall loan, which represents 9.6% of an '05-vintage Credit Suisse deal, moved to the special servicer. The $75m Northgate Mall loan, which represents 9.3% of an '03-vintage Credit Suisse deal, also moved to the special servicer. The property faces the loss of Dillard's as "an anchor," Clancy said, adding that the "ominous" note on the remittance report describes a 78% occupancy rate.
"Dillard's owns its parcel, so it does not qualify as collateral for the loan – but the loss of a major anchor cannot be good news for the space," Clancy said.
Despite new tax rules that may increase the occurrence of modification within CMBS, investors may remain hesitant, according to a Barclays Capital securitization research report Friday. Rules issued this week by the International Revenue Service (IRS) and US Treasury Department lift tax penalties for certain cases of commercial mortgage modification within securities.
"The ruling potentially opens the door for many recent vintage borrowers to pursue loan modifications well before the stated maturity of a loan, even if such loan is performing," Barclays Capital noted.
The firm added: "However, it should raise some uncertainty for CMBS investors with a potentially differing effect across the capital structure. Also, it places a greater burden on special servicers to uphold the servicing standard and maximize proceeds to the entire trust, and on investors to monitor such actions."
Investor interest remains muted in the Term Asset-Backed Securities Loan Facility (TALF), which aims to encourage investment in certain ABS through the help of government loans. The Federal Reserve Bank of New York on Thursday received requests for $1.4bn of loans to purchase legacy CMBS, down from $2.3bn of requests in August.
Thursday's facility offered fixed 3-year loans at 2.94% and fixed 5-year loans at 3.79%. It received no bids for new CMBS issuance, indicating the program may have a minimal impact on the credit-tight market, according to Real Estate Econometrics, an analytics firm that tracks data from banks and Federal Deposit Insurance Corp.-insured institutions.
"Consistent with our assessments of the TALF program to date, today's results suggest that the expansion of TALF to CMBS will have a limited impact on liquidity and the availability of credit in the near-term," Real Estate Econometrics said in market commentary.
The firm added: "While new CMBS deals are anticipated as soon as October, we do not expect that the volume of securitization activity in the fourth quarter will itself result in a material change in broader commercial real estate market conditions."
Write to Diana Golobay.
A wave of bank failures in 2009 has pressured the Federal Deposit Insurance Corp.'s (FDIC) deposit insurance fund, with regulators shuting down another three banks just one week ago, bringing the running total to 92 failures so far in 2009.
Last week’s failures will cost the federal deposit insurance fund an estimated $2.02bn. It's only the latest round of costly failures that have brought industry players to question the overall impact to the FDIC's insurance fund.
FDIC chairman Sheila Bair on Friday answered some of those calls, indicating in a post-speech question-and-answer session the agency may consider borrowing from the US Treasury Department to help replenish its insurance fund.
In the speech, Bair noted the need for a way of closing large financial companies without inflicting collateral damage on the economy, although she acknowledged the importance of allowing certain financial firms to shut down.
"[W]hen firms, through their own mismanagement and excessive risk-taking, are no longer viable, they ought to fail," Bair said. "Preventing companies from failing ultimately distorts market discipline, including the incentive to monitor competing firms and to allocate resources to the most efficient ones."
Bair warned on the systemic significance of firms that grow to the point of being seen as "too big to fail."
"[W]e need an orderly and highly credible mechanism that's akin to the process we use to resolve FDIC-insured banks," she said. "When the FDIC closes a bank, what typically happens is shareholders are wiped out … creditors take a substantial haircut, management is replaced, and the remaining assets of the failed institution are sold off."
She called for a new resolution regime that would focus on maintaining a failed institution's liquidity and key activities so it can be resolved without the "near panic" seen year ago after the collapse of Lehman Brothers. Losses should be borne by the stockholders and bondholders of the holding company, and senior managers should be replaced.
In some cases, Bair said, marking banking assets to market prices does not make sense. A bank that holds a loan or a similar banking asset for the long-term should not have to mark the asset to market values that may vary widely over time.
"Extending [mark-to-market] accounting to all banking assets takes a good approach for market-based assets, like securities, but extends it to areas where it doesn't accurately reflect the business of banking," Bair said.
The American Banker Association (ABA) also voiced its concern recently for the apparent encouragement of mark-to-market in both Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) accountancy changes. Marking assets to market, ABA argued, promotes procyclicality in pulling values down.
In other words, asset values are pulled down further by marking them to assets whose values have declined. As asset values declined and loan performance worsened, financial firms and banks exposed to heavy loan losses face the risk of being shuttered.
The FDIC has several options to consider as it looks to replenish the insurance fund after nearly 100 bank failures this year. There has been a general shift of mindset that the FDIC should consider taking government funds, Bair said at a question-and-answer session following the speech Friday.
"We are considering all options, including borrowing from Treasury," Bair said, adding the board will meet before the end of the month and should soon issue some requests for comment on the subject.
Senator Carl Levin (D-Mich.) this week urged FDIC to take advantage of borrowing authority included a provision in the Helping Families Save Their Homes Act. He noted the Act authorizes the FDIC to borrow up to $100bn from the Treasury if additional funds are needed to replenish the insurance fund. He urged the FDIC to choose borrowing from the Treasury over increasing fees charged to all banking firms.
"While most community lenders were not caught up in the exotic excesses of their larger peers, the ongoing economic crisis has still had a tremendous impact on them," he told Bair in a letter this week. "Adding yet another major financial obligation during this crisis could further deplete the capital of these small financial institutions, making it difficult for them to extend the credit needed to turn our economy around."
Write to Diana Golobay.
While national homes sales are expected to rise 10% year-over-year basis during the Q409, the sharp drop in sales experienced earlier in 2009 will keep yearly sales on par with '08 levels, according to projections from residential mortgage insurance and credit enhancement product provider The PMI Group (PMI: 0.00 N/A).
The report projects the continued oversupply of housing inventory will drop median housing prices 12.5% by the end of 2009. But a boost in the second half of 2010 will stabilize prices and sales of existing homes will rise 9.4% and new home sales will increase 21.6% next year.
PMI anticipates Federal Reserve policies will remain constant and short-term interest rates should remain close to current levels, although long-term rates will “edge upward” next year.
“Ultimately, both long- and short-term rates will rise substantially once the Fed begins to tighten in earnest – with the yield curve beginning to flatten at that time,” the report said. "Yields on riskier assets should continue to slip over the coming year as investors reduce their default expectations in a growing economy."
The report also projects a 33% increase over last year in mortgage originations by the end of 2009. As purchase mortgages decrease 6.1%, there will be a projected increase in the share refinance mortgages to 66% of all mortgages originated in the year.
But that will shift in 2010. PMI projects origination will decline 22%, but purchase activity will take a 15% greater share of the market, and the refinance share will drop to 50%.
Write to Austin Kilgore.
The Securities and Exchange Commission (SEC) is seeking public comment after proposing measures Thursday to improve the "quality of credit ratings" through greater disclosure by and even competition among credit rating agencies (CRAs).
CRAs face criticism by industry players that say they over-rated mortgage-backed and other asset-backed securities created by their clients but that were comprised of assets that turned out to be toxic. Since the subprime mortgage fallout, critics have called for regulation of the firms as early as February 2008.
The SEC's proposals are part of an effort to reform regulation of CRAs and enforce greater transparency within the securitization market.
"These proposals are needed because investors often consider ratings when evaluating whether to purchase or sell a particular security," said SEC chairman Mary Schapiro in a statement.
"That reliance did not serve them well over the last several years," she added, "and it is incumbent upon us to do all that we can to improve the reliability and integrity of the ratings process and give investors the appropriate context for evaluating whether ratings deserve their trust."
The SEC adopted rules to create a stronger regulatory framework for CRAs like Fitch Ratings, Moody's and Standard & Poor's. The SEC also proposed amendments to current rules that seek to strengthen compliance programs by requiring annual compliance reports from the CRAs.
The SEC proposed new rules that require disclosure of information including what a credit rating covers. The rules would require disclosure of any limitations on the scope of the rating. The SEC's proposed rules also seek to discover occurrence of "rate shopping" by requiring whether any preliminary ratings were obtained from other CRAs.
Public comment is due with in 60 days of the proposals' publication in the Federal Register.
Write to Diana Golobay.
While August home sales in the San Francisco region are up year-over-year for the 12th consecutive month, month-to-month sales dipped in the Bay Area, MDA DataQuick reported.
There were 7,518 new and resale houses and condos closed escrow in the nine-county Bay Area — Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano, and Sonoma counties. That’s down 14.3% from 8,771 properties sold in July and up 4% from 7,232 properties in August 2008.
MDA DataQuick said the decline in available foreclosure inventory — and thus the perception of fewer bargains in the market — contributed to the decline. The number of foreclosed properties that resold in August fell 15.2% from July.
Historically, the drop in sales between July and August is atypical, but not a new trend. Sales between the two months fell during the past two years, MDA DataQuick said.
“Part of the mid-summer pause in the market could have been caused by home shoppers becoming frustrated by market conditions they didn’t anticipate. In many areas there were fewer homes, especially cheap foreclosures, to choose from, and lots of talk about multiple offers and all-cash deals. It might have driven some back to the sidelines,” said MDA DataQuick president John Walsh.
The median price paid for all new and resale homes and condos also fell. The August median price of $360,000 is 8.9% lower than July’s median of $395,000 and down 19.5% from $447,000 in August 2008. MDA DataQuick attributed the decline to an increase of sales in lower-cost inland areas.
Write to Austin Kilgore.
Illinois passed a bill that requires purchasers of recently foreclosed homes to provide written notice to the property’s occupants of the change in ownership.
The bill — HB 3863 — also requires distressed mortgagors to notify tenants renting a property if it goes into foreclosure. It requires the new property owner to get court approval before raising a tenant’s rent. The law takes effect in October.
The governor signed HB 3863 at the end of July, on the same day of another bill's signing. The second law requires loan originators to obtain state licenses in compliance with the federal Secure and Fair Enforcement (SAFE) for Mortgage Licensing Act.
The law sets requirements for originator education, exemptions, fees, renewals, bonds and notifications. According to state regulators, both individuals working as originators and loan origination companies are required to register and obtain state licenses.
The state has set a March 2010 deadline for individuals to establish an online profile with the Nationwide Mortgage Licensing System (NMLS). The state license test will be available at that time, and once originators have completed the requirements, they will be issued licenses in December 2010 to be effective during the 2011 calendar year.
Companies are also required to register with the NMLS and meet requirements, including ensuring employees are registered and have bond insurance, to comply with the state law.
Write to Austin Kilgore.
Four new servicers joined the Home Affordable Modification Program (HAMP) this week, pushing the total to 57, according the most recent report from the US Treasury Department.
HAMP provides cap incentives to participating servicers for modifying loans on the verge of foreclosure. The Trouble Asset Relief Program’s (TARP) transaction report lists the servicers and their cap figures.
According to the most recent report from the Treasury, servicers so far offered more than 570,000 HAMP modifications and started more than 360,000 trial modifications.
Franklin Credit Management received $27.5m in cap incentives, according to the TARP transaction report. ORNL Federal Credit Union received $2m in incentives. Allstate Mortgage Loans and Investments and Metropolitan National Bank received $250,000 and $280,000 respectively.
The new lineup of 57 servicers receives $22.2bn in incentive payments, up from $20.6bn in August.
A House committee held a recent hearing to determine if HAMP could reach its target of 3-4m homeowners and start 500,000 modifications by Nov. 1, 2009. In his testimony, Michael Barr, the Treasury assistant secretary for financial institutions, reported that HAMP was on track to reach 4m borrowers over the next three years.
Write to Jon Prior.
First American Corporation’s (FAF: 14.98 +0.07%) First American CoreLogic unit released the latest version of its LoanPerformance Risk Model software.
The software forecasts future mortgage prepayments, defaults, losses and projected cash flows at the loan and portfolio level. New features include a “prime transition model,” that adjusts analytics equations for recent history of home price volatility and new conforming loan limits. Other added features include a new tool to import data and expanded reporting for loan-level data on prime, Alt-A, and non-prime loans.
Another feature added to the software is a tool that executes multiple simulations tasks on a batch of loans in a portfolio. As the tasks are completed, a log is created detailing the progress.
“The release of RiskModel 4.2 represents both significant enhancements and improved performance for our clients at a most critical time for our industry,” said George Livermore, First American CoreLogic CEO.
“The updated prime model will more accurately forecast performance given the expanded dataset used to build the model and better capture both the recent volatility of, and the structural changes in, the market,” he added.
Write to Austin Kilgore.
Terry Edwards joins Fannie Mae (FNM: 0.00 N/A) as executive vice president, credit portfolio management.
Former president and CEO of fleet vehicle and mortgage service provider PHH Corp. (PHH: 11.73 +0.51%), Edwards will lead Fannie’s national servicing organization, its national property disposition center, and its national underwriting center. He will take responsibility for Fannie’s foreclosure prevention and loss mitigation activities for Fannie Mae’s single-family book of business.
The three offices are responsible for executing the Making Home Affordable refinance and modification programs and managing the government-sponsored enterprise’s (GSE) real estate owned (REO) portfolio.
“Terry brings his broad industry knowledge and a wealth of mortgage experience to a critical role at Fannie Mae at a critical time,” Fannie Mae president and CEO Mike Williams said. “I look forward to Terry's leadership of our foreclosure prevention and loss mitigation operations as we continue to work through the impact of the nation's housing crisis on borrowers and on our own book of business.”
Write to Austin Kilgore.
