Archive for September, 2009
The Federal Reserve’s gross purchases of mortgage-backed securities (MBS) from the government-sponsored enterprises (GSEs) reached $25.6bn for the week September 17 through September 23.
The Fed uses its agency MBS-purchases program to provide credit to the securities market.
The weekly purchases include $6.02bn from Freddie Mac (FRE: 0.00 N/A), $18.5bn from Fannie Mae (FNM: 0.00 N/A) and $1.1bn from Ginnie Mae. During that same time frame, the Fed sold $2.6bn of MBS part of the program, for a net of $23bn in weekly spending.
The spending confirms the Federal Open Market Committee’s (FOMC) report that the Fed is on track to buy $1.25trn in agency MBS, and intends to wind down the purchasing program before its anticipated conclusion at the end of Q110.
Barclays Capital analysts reported that the Fed has bought MBS at a “steady pace of $25bn per week.” It may be the last week of steady purchases, as the analysts expect the pace to slow slightly in the weeks to come.
Write to Jon Prior.
August homes sales in Miami dropped from July, but the median sales price has remained steady for three straight months, according to MDA DataQuick.
There were 7,178 new and resale homes and condos sold in the Miami metro area of Miami-Dade, Palm Beach and Broward counties. That’s down 9.6% from July, but up 27.4% from August 2008. Sales have risen on a year-over-year basis for six straight months.
The median price for all residential properties sold in the region was $160,000 in August, a price that’s held steady since June, but is down 34.7% from $245,000 in August 2008.
The current median price is 44.8% below the peak of $290,000 in June 2007. Before May 2009, the median price had fallen on a month-to-month basis for 11 consecutive months.
The share of Miami homes sold for more than $500,000 was 8.1% in August, down from 9.1% in July and 13.9% in August 2008.
Write to Austin Kilgore.
Asset managers running real estate investment companies — who intend to file for real estate investment trust (REIT) status — are shooting to raise $450m in two upcoming public offerings.
Both firms hope to raise enough capital to invest in commercial mortgages and other commercial real estate debt, according to a Securities and Exchange Commission (SEC) filing.
In an earlier filing, Colony Financial reported it would issue 25m shares of common stock at $20 apiece to raise $500m, but that figure was cut in half in an updated filing this week.
If approved for publicly-traded REIT status, Colony Financial will trade under the symbol CLNY and issue 12.5m shares of common stock at the $20 price point. The REIT will be externally managed and advised by Colony Financial Manager, a subsidiary of privately held independent global real estate investment firm Colony Capital.
According to the filing, the common stock shares sold in the IPO will be ready for delivery on or about September 29.
The REIT’s portfolio will include a number of commercial real estate investments, including commercial mortgage-backed securities (CMBS), real estate-owned (REO) properties and collateralized debt obligations (CDOs) and potentially some residential assets as well.
Thomas Barrack, Jr. will serve as executive chairman of the board of directors. Barrack is the founder, chairman, and CEO of Colony Capital. Richard Saltzman will serve as the REIT’s CEO, president and director. He is the president of Colony Capital.
Bank of America’s (BAC: 7.29 -0.14%) Merrill Lynch unit, Goldman Sachs (GS: 111.77 +2.96%), Morgan Stanley (MS: 18.56 +2.26%), UBS Investment Bank (UBS: 14.05 +0.50%), Calyon Securities, HSBC (HBC: 42.59 +0.97%), JMP Securities, Keefe, Bruyette & Woods (KBW: 17.65 +1.32%) and RBC Capital Markets (RBC: 56.56 +0.44%) will serve as joint book running managers.
As investors slowly return to the investment market, a number of REITs have launched looking to take advantage of the declining commercial real estate market.
Earlier this week, Apollo Commercial Real Estate Finance issued an IPO of 10m shares to raise $200m to invest in senior performing commercial real estate mortgage loans, CMBS, among other performing commercial real estate debt. That REIT will be externally managed and advised by Acrefi Management, a newly formed subsidiary of Apollo Global Management.
A third REIT, Alexandria Real Estate Equities (ARE: 72.59 +0.75%), is currently trying to shift 4m shares in a public offering terminating on September 29, in order to pay down the balance of its unsecured line of credit. Alexandria invests in real estate, technical infrastructure, and services to the life science industry.
So far, the market is accepting the offerings with mixed results.
Write to Austin Kilgore.
The American Securitization Forum (ASF), a trade body representing issuers, investors and servicers in the securitization industry, launched a new standardized universal code that will identify information about mortgage and other loans that are securitized.
The ASF Loan Identification Number Code (LINC), a 16-digit identification code, captures the loan type, origination date and country of origin. The code is designed to create a unique ID for a wide range of loans that can be pooled and sold into the capital markets.
It's part of ASF's Project RESTART, which aims to improve information flows to investors through enhanced disclosure and reporting. The ASF LINC is designed to allow investors to follow a specific loan throughout its life, according to Tom Deutsche, deputy executive director of ASF.
"This is an important step towards ASF Project RESTART's ultimate goal, which is to help rebuild investor confidence in mortgage and asset-backed securities, restore the capital flows to the securitization markets which are essential to our economic recovery and, ultimately, increase the availability of affordable credit to all Americans," Deutsche said in a statement.
The code is the product of a partnership between ASF and Standard & Poor's Fixed Income Risk Management Services (FIRMS), an analytics and research unit separate from S&P's ratings business. ASF in July announced it tasked the firm to create a method of identifying the origination timeline of a securitized asset.
ASF said at the time FIRMS would design a system that assigns the unique ID number to the loan at no cost to issuers, and that is linked to the Committee on Uniform Security Identification Procedures (CUSIP) and International Securities Identification Number (ISIN) numbers of the security where the mortgage is packaged.
Write to Diana Golobay.
The inventory of previously foreclosed homes is drying up in the Las Vegas region, causing sales volume to decrease from July to August, MDA DataQuick said.
There were 4,716 new and resale homes and condos sold in the greater Las Vegas region. That’s down 11.2% from July, but up 16.5% from the same month one year ago.
Of those sales, previously foreclosed properties accounted for 68.4% of all sales, down from 69.7% in July and the April peak of 73.7%, but up from 63.2% in August 2008.
The median price for all new and resale homes and condos was $129,990, down slightly from $130,000 in July, but down nearly 40% from 215,000 one year ago.
Sales have risen year-over-year for 12 consecutive months, but median sales price has fallen for 28 straight months on a year-over-year basis. In August, the median price was 58.3% below the region’s peak of $312,000 in November 2006.
Write to Austin Kilgore.
The US Treasury Department plans to publish ratings on servicer quality in implementing the Home Affordable Modification Program (HAMP), according to testimony from Herbert Allison Jr., the assistant secretary for Financial Stability, before a US Senate committee hearing.
HAMP provides cap incentives to servicers for the modification of loans on the verge of foreclosure and adjusts those caps based on servicer performance.
The Treasury reports the amount of cap incentives received by servicers participating in HAMP on the Troubled Asset Relief Program (TARP) transaction reports, and as of July publishes a monthly servicer performance report.
HAMP may exceed the Administration’s target of 500,000 trial modifications by November 1, Allison said.
“Nonetheless, we are receiving complaints as well from homeowners who are anxious and who are not receiving their responses as fast as they would like,” Allison said. “We are also going to be publishing reports on the service quality of the bank, and we hope that that daylight being shown on servicer quality is going to show additional impetus for them to improve their service quality.”
Allison also said the Treasury would be streamlining the process consumers use to provide documentation to their servicers, and progress on that would come over the next few weeks and months.
“We have to reach out more to people across the country to make sure they’re aware of the program,” Allison said. “Modifying mortgages is a homeowner by homeowner operation. It’s intensive. It requires personal counseling. We need to reach out and contact as many people as possible.”
A spokesperson at the Treasury told HousingWire the details of the new servicer quality ratings report are still in the development stages and will be released in the coming months.
Currently 57 servicers participate in HAMP and, according to the latest servicer performance report, started 360,00 trial modifications, led by Saxon Mortgage Services which started trial modifications for 39% of its eligible delinquency portfolio.
In his testimony this week, however, Allison said servicers have sent over 2m inquiries and trial modifications are approaching 400,000.
Write to Jon Prior.
GMAC Financial Services created a new unit in its Ally Bank subsidiary to promote correspondent lending at community financial institutions.
The Correspondent Community Bank Team will serve local banks, thrifts and credit unions by purchasing closed residential mortgage loans and offering table funding services.
In table funding transactions, a third party — in this case, Ally Bank — provides the funds for a brokered deal — again, in this case, between the borrower and the community bank — at closing.
The new business unit will also offer services to supplement each institution’s in-house operations by providing access to GMAC’s technology, underwriting, processing, servicing and marketing capabilities.
“We will focus on community financial institutions that outsource some or all of their mortgage fulfillment services,” said Matt Detwiler, a senior vice president in GMAC’s correspondent and warehouse lending division. “By employing a consultative sales approach, we can match GMAC’s mortgage services to any client’s existing operation.”
Detwiler said the climate is right to fill this critical niche in the mortgage market, as recent market conditions have reduced funding alternatives for these smaller institutions.
Write to Austin Kilgore.
The Federal Reserve faces pressure from lawmakers Friday as the House Financial Services Committee considers a bill that would require full audit of the Fed by the Government Accountability Office (GAO).
Supporters of HR 1207, called the Federal Reserve Transparency Act of 2009, including committee chairman Barney Frank (D-Mass.) say there is an element of concealment regarding the Fed's transactions. Opponents raise concerns that a full GAO audit to reveal those details would bring the Fed into the legislative process and compromise its independent monetary policy decisions.
The bill's sponsor, Rep. Ron Paul (R-Texas), said in opening statements for the hearing Friday a GAO audit would not affect policy decisions but instead implement more transparency at the Fed.
Scott Alvarez, general counsel of the Board of Governors of the Federal Reserve System, tells the committee in prepared remarks that the Fed is already accountable to Congress and the public. It additionally further strengthened its ongoing commitment to transparency, routinely testifies before Congress and regularly publishes annual audits of the Fed's financial statements.
"We recognize that these programs must be accompanied by additional transparency so that the Congress and the public can be assured that we are exercising the best possible stewardship of the resources and responsibilities that have been entrusted to us," Alvarez says in prepared remarks. "For these reasons, we have substantially increased both the type and amount of information that we disclose concerning our liquidity and asset purchase programs."
For example, he notes the Fed publishes its weekly balance sheet as well as a monthly report on liquidity programs.
HousingWire's Linda Lowell agrees that, except for a detailed list of the programs' actual transactions including dates, amounts and names of counterparties names, "the Fed is quite forthcoming about its activities."
The Fed must act in independence from legislative pressure, Alvarez says at the hearing.
He warns GAO audits of monetary policy may second-guess the Fed's policy judgments and attempt to influence subsequent monetary policy decisions. He indicates in prepared testimony the bill would "cast a chill" on policy talks if policy-makers anticipate GAO audits to push early publication and analysis of policy decisions.
The broader market facilities are necessary to unfreeze credit markets and the GAO audits may impede these facilities, he adds. Banks' unwillingness to use the discount window, for example, can result in high and volatile short-term interest rates.
"Permitting GAO audits of discount window lending and the broad liquidity facilities that the Federal Reserve uses to affect credit conditions generally could reduce the effectiveness of these facilities in promoting financial stability, maximum employment, and price stability," Alvarez says in prepared remarks.
When asked by committee members what types of information about monetary policy would be "damaging" if revealed, he indicated no specific types of information are of concern. Instead, he reiterated the participation of the GAO would second-guess the Fed's monetary policy decisions.
But economist Thomas Woods, Jr. of the Ludwig von Mises Institute, will deliver testimony that supports the bill and makes an argument against the idea that a GAO audit would have any influence on increasing money supply, determining interest-rate targets or adopting any other policies.
The bill "seeks nothing more than to open the Fed’s books to public scrutiny," Woods writes in prepared statements. "Congress has a moral and legal obligation to oversee institutions it brings into existence. The convoluted scenarios by which merely opening the books will lead to an inflationary catastrophe at the hands of Congress are difficult to take seriously."
The Fed, contrary to "conventional wisdom" that the monetary system is sound, is not adequately audited, according to Woods.
His testimony says: "My point is simply this: if our monetary system were really as strong, robust, and beyond criticism as its cheerleaders claim, why does it need to rely so heavily on public ignorance? How can it be a sound banking system that depends on keeping the public in the dark about the condition of its financial institutions?"
The bill is being considered amid ongoing hearings over financial regulatory reform. Former chairman of the Board of Governors of the Federal Reserve System Paul Volcker on Thursday defended the Fed's "natural function" and suggested the Fed should play a significant role in surveying the overall financial system.
Write to Diana Golobay.
The Department of Housing and Urban Development (HUD) will host a series of public seminars in eight cities to teach the public about avoiding predatory lending and foreclosure.
The seminars are produced through HUD’s Patricia Roberts Harris National Fair Housing Training Academy (NFHTA), a Washington, DC-based subsidiary that conducts fair lending courses for housing professionals.
The courses will cover lending discrimination and predatory lending, financial aspects of lending, foreclosure prevention and borrower/buyer beware strategies.
The first event will be held Oct. 5, in Marina Del Rey, Calif., west of Los Angeles. The other two- and three-day seminars will be held in Cleveland, Fort Worth, Los Angeles, Miami, Phoenix, Philadelphia, Salt Lake City and Stockton, Calif.
“In order to combat discriminatory lending and fraud, community advocates must be armed with education, training, and strategies to help the public,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “These seminars will allow participants to begin to obtain advice and, if necessary, file fair housing complaints.”
The seminars will explain the mortgage process using hands-on demonstrations with actual loan documents and paperwork. The events are free and open to the public on a first come, first serve basis.
Write to Austin Kilgore.
The Office of the Comptroller of the Currency (OCC) issued a consumer advisory warning consumers 62 years of age or older of the drawbacks and dangers associated with taking out a reverse mortgage — and outlining the benefits of these "complex loans."
The bulletin comes at a time when getting back to "plain vanilla" financial products continues to be a huge topic of discussion, especially among lawmakers conducting hearings over financial regulatory reform. The House Financial Services Committee this week is hearing testimony regarding the Administration's proposed reforms, including a consumer financial protection agency that may regulate the types of loans banks can sell to consumers. Committee chairman Barney Frank (D-Mass.) has opposed the "plain vanilla" requirement that lenders would be allowed to market and sell only simple loans.
The "plain vanilla" language was mirrored in comments by American Securitization Forum deputy executive director Tom Deutsch to Forbes, when he compared the mortgage-backed securities (MBS) of the future to vanilla ice cream as opposed to past 'Baskin-Robbins flavors.'
If reverse mortgages — or home equity conversion mortgages (HECMs) under the Federal Housing Administration's lending program — were a flavor of ice cream, they might be chocolate.
They certainly would be appealing to qualifying homeowners looking for additional income to supplement their retirement plans or meet health care costs. Reverse mortgages typically bear low interest rates and do not require monthly payments. In fact, they are not due until the borrower ceases using the home — either sells it, moves out or passes away.
But just like that single-scoop of fudge-ripple, double-churned dark chocolate ice cream is likely to go straight to your thighs, reverse mortgages pose some drawbacks. The OCC points out mortgage insurance premiums and other up-front costs tend to make reverse mortgages more expensive over the long-term, and payments received are added to the loan balance over time, which also increases due to interest charged.
Plus, borrowers that neglect to pay property taxes, insurance and reasonable home repairs may find their loans become payable prematurely. Reverse mortgages are typically repaid by surrendering the collateral — the home itself. That works best when the borrower has passed away or moved into a retirement or assisted living facility.
But a reverse mortgage that becomes due when the borrower is not yet ready is a huge risk. If the borrower (or the borrower's family in the case of the borrower passing away) wishes to keep the home, the mortgage must be repaid in full, plus all accumulated interest and fees.
So when the sugar high of a reverse mortgage wears off and the reality of the expense crashes down, borrowers might wish for a more "plain vanilla" loan. The OCC suggests in its bulletin that consumers consider other options — like standard mortgages and home equity lines of credit — that might not pose as large a risk.
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