Archive for September, 2009
New York City-based mortgage real estate investment trust (REIT) MFA Financial (MFA: 7.27 +0.28%) used the capital raised from its July common stock offering to purchase $840m in senior mortgage-backed securities (MBS) through its wholly-owned subsidiary, MFResidential Assets I and $200m of directly-owned legacy senior MBS.
The more than $1bn investment is part of the REIT’s strategy to focus on MBS investment opportunities, said MFA chairman and CEO Stewart Zimmerman.
“We are pleased with our progress in investing the proceeds of our July equity offering,” Zimmerman said.
MFA president and chief financial officer William Gorin said the firm’s Q309 earnings are projected to be between $0.25 and $0.26.
Write to Austin Kilgore.
A new commercial mortgage total return swap index made a quiet entrance into the market late last week.
The index, launched by financial information services firm Markit, is designed to provide investors an opportunity to gain exposure to commercial mortgage-backed securities (CMBS) through total return swap (TRS) contracts.
The Markit TRX.NA allows investors to benefit from price appreciation or depreciation on CMBS without having to buy the securities, the firm said.
"The TRX.NA will allow investors to isolate the movement of CMBS prices, in contrast to the synthetic Markit CMBX contracts which are exposed primarily to the default risk of the reference obligations," Markit said in a statement.
The swap contracts will bear standardized documentation. The Depository Trust and Clearing Corp. (DTCC) will offer trade documentation and settlement, while Markit will provide third-party oversight and consensus pricing for use in trade settlement.
The TRX Total Return swap contracts, although so far under-reported in the trade press, have the potential to significantly impact CMBS trading over time, according to Malay Bansal, a managing director at asset management, advisory, and capital markets firm NewOak Capital.
"TRX will likely make it easier for dealers to hedge CMBS positions, and will provide some interesting possibilities to those who want to take a leveraged position, and others who have been active in the CMBX market,” Bansal said in market commentary Tuesday.
Write to Diana Golobay.
Deutsche Bank's (DB: 44.44 +2.40%) outlook on the residential housing market improved slightly from June but remains cautious, with the firm expecting the nationwide trough in another year.
"So, is the housing crisis over? Only if the technicals (i.e. a little momentum and glimmer of change in psychology) can outrun the fundamentals," researchers said in a Deutsche Bank Securities report. "But the technicals are fragile and may be fleeting, while the fundamentals remain very challenging and entrenched."
For example, serious delinquencies rise as unemployment climbs, inventory remains high and affordability slips in some areas. Summer marked a reversal in the downward trend of house prices, although recent gains remain modest.
Deutsche Bank is now estimating an additional 10.5% current-to-trough decline from house prices in Q209, compared with the 14% decline previously published. The peak-to-trough decline, measuring total decline from the height of house price values, now sits at 38.1% — slightly below 41.7% previously published in June.
The housing market "positively surprised" housing analysts including Deutsche in recent months.
"If indeed the U.S. homebuyer has had a change of heart, and fire-sale home prices no longer engender fear as much as they inspire greed, it may well be so because of government policies," researchers said.
The report points toward the conservatorship of Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A), the buying of agency mortgage-backed securities (MBS), the incentive program for loan modifications and the first-time homebuyer tax credit as some major government policies aimed at stabilizing the housing market.
First American CoreLogic discussed the effect of government initiatives on lowering mortgage interest rates in a recent white paper. Low interest rates have led to a "boom" of sorts in refinance mortgage production.
"Given the economic recession that the United States is experiencing and the fiscal and monetary stimulus being applied by the United States government, what are the economic benefits from this refinancing activity?" FirstAm said in the white paper. "The answer lies in the purpose and results behind government action: a direct result of Federal Reserve easing measures and the Making Home Affordable Refinance program (HARP) was a reduction in mortgage interest rates and an immediate corresponding increase in refinances."
Write to Diana Golobay.
Since acquiring Countrywide in 2008, Bank of America (BAC: 7.29 -0.14%) said it has taken increased measures to ensure fair and responsible lending. The comments came after a report issued by the Center for American Progress (CAP) questioned why black and Hispanic borrowers were sold higher-priced mortgages at a greater rate than white and Asian borrowers.
In addition, the bank has ceased originating a number of loan products critics have labeled as risky, including subprime mortgages, high-cost loans, option adjustable-rate mortgage (ARM) loans, no-income/no-asset or no-ratio loans, and it has significantly curtailed origination of other non-traditional mortgages such as low-documentation loans, a Bank of America spokesperson said.
“As we continue the integration of Countrywide, the practices and commitments that established Bank of America’s positive reputation and record in home lending will guide the combined companies,” Bank of America spokesperson Jumana Bauwens said in an e-mail.
Bauwens said the data used in the research, which came from bank-generated reports submitted to the federal government by mandate of the Home Mortgage Disclosure Act, does not present a complete picture of a financial institution’s lending practices, and that the bank embraces fair and responsible lending principles in all its activities.
In that vein, Bank of America said it now gives borrowers a one-page document that summarizes the terms of a loan in “straightforward language,” and launched an interactive Web page to help prospective borrowers evaluate their financing options.
Write to Austin Kilgore.
Glastonbury, Conn.-based default servicing software developer, the National Groups, launched its modification and short sale fulfillment program.
The software was released through the National Collections & Loss Mitigation Services, a subsidiary of the National Groups that provides default management services.
“The full roll out of this program is an effective response to the volume of distressed borrowers under President Obama’s Home Affordable Modification Program (HAMP) and the significant increase in foreclosed and real estate owned (REO) properties nationwide,” said Larry Bird, chief operating officer of the National Groups.
In addition to the new software launch, the firm is reintroducing its full valuation software suite that it offers through its National Valuation Services subsidiary.
The National Groups is a subsidiary of National Default Servicing.
Write to Austin Kilgore.
Jacksonville, Fla.-based mortgage software developer Lender Processing Services (LPS: 16.78 +1.39%) upgraded its mortgage servicing package (MSP) to support the requirements of Fannie Mae’s (FNM: 0.00 N/A) second lien modification program.
The change allows users to modify a second-lien mortgage when the senior loan is modified under the Home Affordable Modification Program (HAMP).
LPS' upgraded MSP helps servicers through the process, including capitalizing accrued interest and servicing advances, supporting escrow accounts, reducing the interest rate, extending the term, forbearing principal and setting up the trial period.
“Our teams have been working tirelessly to enhance MSP to fully support servicers as they complete HAMP modifications,” said Dan Scheuble, LPS co-chief operating officer.
“By servicing second liens on MSP as well as first mortgages, servicers can take advantage of the full functionality needed to participate in the [second lien modification] program,” he added. "We are proud to work with servicers in their HAMP and [second lien modification] efforts to lower payments on both first and second lien mortgages."
Write to Austin Kilgore.
The Senate passed an amendment to an appropriations bill that would prohibit the Departments of Housing and Urban Development (HUD) and Transportation from giving grants to the Association of Community Organizers for Reform Now (ACORN), or its subsidiaries.
ACORN is an activist group that represents the interests of minorities and low- and moderate-income individuals. More and more the non-profit is getting involved in the housing market (see September issue of HousingWire for in-depth coverage).
For the vote, held yesterday, the amendment passed 83-7. It introduced by Nebraska Republican Sen. Mike Johanns and co-sponsored by 14 additional Republican senators.
In a statement on his Senate Web site, Johanns said the amendment’s passage was a bipartisan move to stop tax dollars from supporting fraudulent organizations and activities.
Last week, ACORN was criticized after a filmmaker allegedly dressed as a pimp and an associate dressed as a prostitute, used hidden cameras to create a video allegedly showing employees of an ACORN Housing office explaining how to fraudulently obtain a mortgage to start a brothel.
ACORN Housing, an ACORN subsidiary group that provides home ownership counseling to minorities and low-income borrowers, said the employees have been fired and called the incident a smear campaign.
In a statement, ACORN CEO Bertha Lewis called the amendment a “rare and politically convenient step of supporting eliminating some federal funding for a single organization,” adding the group is funded primarily through private donations and “will have little impact on overall operations.”
Write to Austin Kilgore.
Blacks and Hispanics were more likely to receive higher priced mortgages in 2006, compared to white borrowers, at many banks that now participate in the Troubled Asset Relief Program (TARP), according to a report released by the Center for American Progress (CAP).
CAP is a think tank that focuses on US leadership, energy, economic growth and health care initiatives. It is headed by former President Bill Clinton's chief of staff, John Podesta.
CAP said the report’s data came from Home Mortgage Disclosure Act (HMDA) disclosures that provide loan-level data, including the race of borrowers. HMDA also defines a “higher-priced” mortgage as one when the difference between the loan’s annual percentage rate and a Treasury security of comparable maturity is above three percentage points for a first-lien mortgage.
The report said that in 2006, 17.8% of white borrowers were sold higher priced mortgages, compared to 41.5% of black borrowers, 30.9% of Hispanic borrowers and 11.5% of Asian borrowers. Combined, these loans accounted for 21.8% of all mortgages sold in 2006.
CAP's report also breaks out high-income borrowers, those whose household income is more than twice their area’s median income. For that segment 10.5% of white borrowers, 32.1% of black, 29.1% of Hispanic and 11.5% of Asian were sold higher priced mortgages in 2006.
The report acknowledges the HMDA data is not a complete picture of the factors that led to the results. In breaking down its data on a bank-level, the center combined Countrywide with its purchasing firm Bank of America (BAC: 7.29 -0.14%) and Wachovia with Wells Fargo (WFC: 29.60 +1.89%), as well as Washington Mutual and its parent, JP Morgan Chase (JPM: 37.21 -0.75%).
“It allows us to raise the questions, but not to fully answer it, as to whether banks were explicitly engaging in violations of fair lending practices, or whether there are simply other legitimate underwriting reasons to explain why the gaps persist between African Americans and Hispanics and whites,” said Andrew Jakabovics, CAP’s associate director for housing and economics co-author of the report, in a media conference call.
A JP Morgan Chase spokesperson said the bank evaluates a wide range of financial qualifications and said it treats “all borrowers fairly.”
CAP called for specific action in light of its research. Jakabovics said the report further makes the case for a separate government oversight agency for consumer protection, the proposed Consumer Finance Protection Agency.
“At the time these loans were made in 2006, the Federal Reserve Bank had oversight authority over consumer financial protection and there’s been trend of basically paying good lip service but not actually protecting consumers at the end of the day,” Jakabovics said.
“That’s in part because of the inherent conflict that exists between consumer financial protection and systemic risk obligations,” he added. “Systemic risk will always take precedent over fair lending that it’s important to provide consumers with an alternative vehicle for ensuring their protection.”
The data in the research is from 2006, but now that banks have received taxpayer dollars to help in the economic recovery, the TARP special investigator should be charged with ensuring lenders are following all fair lending regulations, the report said.
The report calls for institutions that have received TARP money to not be allowed to make future repayments, and continue to accrue interest on the funds, until the banks’ lending practices are reviewed to ensure they are operating under fair lending practices.
Representatives from Wells Fargo and Bank of America could not provide comments before this story was published.
Write to Austin Kilgore.
Investors anticipate the combination of near-term defaults and looming due dates on commercial mortgage backed securities (CMBS) maturities to “jump-start” distressed buying opportunities starting next year, according to PricewaterhouseCoopers’ Kropacz Real Estate Investor Survey.
Despite a still-limping US economy, tight credit markets and declines in commercial real estate values, equity investors continue to wait for forced sales and more motivated selling on the part of distressed owners, according the survey's Q309 findings.
The de-leveraging of the commercial real estate industry disappointed many investors poised on the sidelines for those distressed sales.
"Some investors sense that near-term defaults with commercial banks will allow them to acquire quality assets at steep discounts, as banks may no longer be able to continue to 'pretend and extend' troubled loans and would be forced to place assets up for sale,” said Susan Smith, editor-in-chief of the survey.
The looming debt of commercial banks and $153bn of CMBS loans could provide distressed buying opportunities before they are due in 2012, according to the survey.
Surveyed investors anticipate further declines in the underlying fundamentals of the commercial real estate industry through 2009 and into 2010, evidenced by the reported decrease in the average initial-year market rent change by all 28 markets participating in the survey.
Manhattan and San Francisco could expect rent declines by as much as 20% and Phoenix as much as 15%. Boston, Denver, Los Angeles and San Diego expect declines of as much as 10%, according the survey.
As rents declined in Q309, CMBS performance continued to deteriorate in August, according to Moody's Investors Service's monthly CMBS delinquency report. Moody's measured a 3.23% delinquency rate of payments more than 60 days late through August, up from July’s 3.02% rate and up from 0.5% the same time last year.
The South experienced a 4.66% delinquency rate, up from 4.32% in July, the worst in the country. In the West, delinquencies reached 3.51%, and the East kept a delinquency rate of 1.84%.
Nevada and Michigan lead all states with the highest delinquency rates of 8.69% and 8.55% respectively, according to Moody’s.
“While an industry-wide recovery is not expected to begin until 2012, the pace of the recovery will vary for each property sector, as well as across individual geographies,” the PricewaterhouseCooper’s survey reads.
Write to Jon Prior.
After beating up on the brokers, let’s give them a rest and bash the greenbacks!
Well, a report from Credit Suisse may do that for us. When the firm sat down with Giles Keating, the head of Credit Suisse Global Economics and Strategy Group, he noted that the dollar would be the first victim of the global economy’s recovery.
So, does that mean we're recovering? Keating thinks so, even though he states that the resurgence is starting from a very low base and that we still have lots of unused capacity and high unemployment.
He points to the investors who were left behind by the initial pick-up in the stock market and their eagerness to put their money back to work, and he notes that policy makers have signaled that they would maintain a “very expansive economic policy” that will keep interest rates low and continued fiscal spending.
But the dollar could be left behind, he says. In fact, it’s already showing a downturn.
“The dollar has seen some big downward movements over the last couple of weeks, and although we think that this won’t continue in a straight line, we do think it likely that the dollar will continue to weaken over the next six to 12 months,” Keating says.
Russia and China aren’t helping with their push for a new currency at the recent G20 hearings, and Keating points to the low interest rates, almost zero, set in the US. He says the dollar has always needed an interest rate premium greater than that in Europe in order to remain stable or rise in value.
“Another key reason is that, strangely, as financial conditions get less risky and become more stable, people tend to move out of the dollar,” Keating says. “Moreover, a lot of people put money into the dollar during the crisis, and now they have too many dollars.”
Write to Jon Prior.
Posted in Commentary | No Comments »