Archive for October, 2009
The Federal Deposit Insurance Corp. (FDIC) adopted a policy statement stressing that performing commercial real estate (CRE) loans will not be subject to unfavorable classification for the sole purpose of declining values in underlying collateral.
Working in coordination with other member agencies and the Federal Financial Institutions Examination Council (FFIEC), the FDIC adopted the policy to provide guidance to examiners and financial institutions working with CRE borrowers.
Those borrowers experience a trickling cash flow, depreciated collateral values and delays in selling or renting commercial property.
The FFIEC is an interagency body created to unify principles, standards and reporting in the supervision of financial institutions.
The statement details risk-management practices for prudent loan workouts that are accurate and transparent. Financial institutions that implement these workout arrangements will escape FDIC criticism even if the loans have weaknesses that result in adverse credit classifications, according to the statement.
Write to Jon Prior.
[Update 1 adds LPS' announcement.]
Lender Processing Services, Inc. (LPS: 41.00 -1.18%) is set to enter the burgeoning REO auction business, numerous sources confirmed to HousingWire on Friday afternoon. The Jacksonville-based provider of technology and services to the mortgage and real estate industries on Monday officially announced the acquisition of Chicago-based Rising Tide Auctions. The auction company was originally formed as a partnership between NRC Realty Advisors, LLC, a Chicago-based auction company, and a group of REO industry experts.
Rumors about the potential acquisition had been circulating throughout the week.
The purchase was finalized Friday afternoon, sources said. Terms of the acquisition were not disclosed. The company operates the nation’s largest third-party REO outsourcer, according to proprietary data compiled by REO Insider, a sister publication to HousingWire.
Rising Tide Auctions is led by industry veteran Evan Gladstone, a founder at NRC; Gladstone is set to join LPS to run the auction business, along with other executives from Rising Tide, sources said.
A review of the Rising Tide website, which as of Friday afternoon was no longer available, showed that industry legal veterans Berry Laws and Gerald Shapiro were also part of the executive team at Rising Tide. Laws is a partner at the Kansas City-based law firm of Martin, Leigh, Laws & Fritzlen; Shapiro is co-founder of LOGS Network, a national network of law firms providing legal representation to mortgage lenders and servicers. Representatives at each firm said they could not comment on the transaction, but noted that each executive’s involvement was personal in nature.
“We’ve been hearing ideas about this sort of vertical integration in REO for some time,” said one servicing executive at a large bank, under condition of anonymity. “Auction is a volume business, after all. If you’ve got the volume, it makes sense to do something like this.”
Other executives told HW that the move by LPS wasn’t likely to be indicative of a larger industry trend. “We sure as heck aren’t looking at owning our own auction platform, because the technology requirements here can be large, and operating overhead can be prohibitive,” said another executive at a California-based servicing platform, who asked not to be identified. “But for the right firms, it can make sense.”
LPS is certainly entering a crowded field, which includes major competitors Williams & Williams — whose web site says the firm auctions more than $1 billion in real estate annually — and Texas-based Hudson & Marshall, which has long been a fixture in the bank-owned auction business. California-based REDC is also a major player in the REO auction market, having auctioned off $3.8 billion in residential real estate in 2008; other firms with presence in the REO market include California-based auctioneers Kennedy Wilson, and Great American Home Auctions. A number of other firms, including California-based LFC, operate online-only auction platforms for real estate and distressed mortgage notes.
But it’s likely that this type of high volume, and particularly the promise of more volume to come in the years ahead, is drawing more competitors into the auction space. As HW reported on October 19, analysts at Royal Bank of Scotland recently estimated that as many as 2.7m properties are 90 days or more delinquent and/or in the process of foreclosure.
Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine.
First-time buyers and investors dominating the market pushed Phoenix-area home sales to a rare increase in September, according to San Diego-based mortgage information provider MDA DataQuick.
A total of 8,886 new and resale houses and condos closed escrow in the Phoenix area for September, up 3.6% from August and a 12.9% increase from a year ago. For nine consecutive months, home sales have increased, but September’s jump was the lowest since February, according to the report.
The unusual hike in sales from August was seen across the West. Since 2000, September sales in Phoenix have only increased once – last year. According to DataQuick, September sales usually dip by an average 6.5% from August.
The median sales price continued a string of month-to-month gains since May, as foreclosure re-sales waned. The median price paid for all new and resale houses and condos in September was $137,000, up 1.5% from $135,000 in August, but still a 23.3% drop from $178,607 last year, according to the report.
“The median’s gradual ascent began shortly after the percentage of resales involving foreclosures started to decline this spring,” according to the report. “Even absent price appreciation, a decline in foreclosure resales puts upward pressure on the median sale price, just as the huge run-up in foreclosure resales over the past two years spurred dramatic declines in the median.”
For the third straight month, foreclosures in the area dropped as lenders and servicers channeled distressed mortgages into short sales and loan modifications. In September, 4,141 single-family houses and condos foreclosed, down 6.2% from August and a 14.3% drop from last year, according to DataQuick.
Write to Jon Prior.
The rental vacancy rate was 11.1% in Q309, an increase from 9.9% in Q309 and 10.6% in Q209, according to the latest data released by the Census Bureau.
The homeowner vacancy rate held steady at 2.5% from Q209 to Q309, which is lower than Q308’s 2.8%. The homeownership rate was 67.6%, nearly even with the 67.9% in Q309 and 67.4% in Q209.
Rental vacancy was higher inside principal cities and in the suburbs in Q309 than in Q209, but rates outside metropolitan statistical areas (MSAs) remained level year-over-year.
Homeowner vacancy rates were higher in principal cities than in suburbs and outside MSAs during the quarter. Vacancy rates in principal cities and in the suburbs were lower than their respective rates a year ago, while the rate outside MSA’s was not statistically different from last year’s rate, the Census said.
Approximately 85.5% of the housing units in the US during Q309 were occupied and 14.5% were vacant.
Write to Austin Kilgore.
The Federal Reserve’s gross purchases of mortgage-backed securities (MBS) from government-sponsored enterprises (GSEs) reached $18bn for the week ending Oct. 29, according to a report from Barclay’s Capital.
The Fed uses its agency MBS-purchases program to provide credit to the securities market.
The weekly purchases include $11.4bn from Fannie Mae (FNM: 1.15 +5.50%), $5.2bn from Freddie Mac (FRE: 1.32 0.00%) and $1.3bn from Ginnie Mae.
The Fed’s total net purchases rose to $977.1bn – on track for the $1.25trn in agency MBS the Fed plans to purchase, according to the Federal Open Market Committee’s report. The Fed intends to slow the purchasing program before its anticipated conclusion at the end of Q110.
Of the $977.1bn, the Fed purchased $325.6bn from Freddie, $569.3bn from Fannie and $82.1bn from Ginnie.
Write to Jon Prior.
Louisville, Ky.-based Conexxus, an integrated automation, compliance and monitoring software developer, launched a new product to pair buyers and investors to banks and lenders that sell non-performing assets.
Conexxus Buyer Group lets select pre-qualified buyers search bank clients’ databases and view properties, key data and related files with no service charge. Buyers range from Wall Street hedge funds to individual local buyers looking to buy development properties, the company said.
During the summer, Conexxus released a software product that automates the process of procuring documents in real-estate-owned (REO) transactions. By pairing the two products, Conexxus said banks can dispose of distressed assets faster.
“At Conexxus, our end goal is to help banks navigate today’s tough economy and eliminate the distressed properties that are impacting their operations and their ability to serve existing and prospective customers,” said CEO Jeff Reibel.
Write to Austin Kilgore.
Foreclosures are beginning to flare up in suburban and secondary metro markets for Q309, according to a report from RealtyTrac.
Dramatic increases in foreclosures from a year ago came in suburban areas previously believed to be more stable, such as Boise, Idaho, up nearly 22% from Q209. Another area, Provo, Utah, is located a distance of 45 miles outside Salt Lake City and rose nearly 11% in the same period. RealtyTrac provides an online marketplace for foreclosure properties with more than 1.5m default, auction and REO listings.
In several states, foreclosure activities drifted toward new focal points, such as smaller towns with previously self-sustaining industries. Chico, California in Sacramento Valley, and agricultural hub, had a 98% increase in foreclosures from Q308, according to the report.
The Las Vegas metro area had the highest percentage of foreclosures among its housing units with 5.13% in Q309. Merced, Calif. – west of San Jose – had a 3.72% foreclosure rate, and Cape Coral – Fort Meyers, Fla. came in third with 3.67% of homes sliding into foreclosures, according to the report.
“You’re moving from Phoenix to Prescott, you’re moving from Las Vegas to Reno,” Rick Sharga, the vice president of marketing at RealtyTrac, told HousingWire. “You are seeing that migration into secondary markets. You’re also seeing a migration into formerly stable areas and areas that have been wracked by unemployment.”
Cities in California, Florida and Nevada accounted for the 10 highest foreclosure rates in Q309 among metro areas with more than 200,000 people. However, five of those cities reported decreasing foreclosure activity from Q308, offset by many other markets reporting spikes in foreclosures, according to the report.
Sharga sees the foreclosure crisis coming in three waves, and with this new data, the market is showing signs of the second one.
“That first wave of foreclosures cratered the economy, which created job losses, which created the second wave. Now, we’re seeing prime rate loans affected by unemployment. And the third wave will be really a repeat of wave one, except this time we’re going to see a switch of Option ARM and Alt-A loans out for the subprime loans. It will probably be as big but somewhat shorter lived,” Sharga said.
Sharga said that he expects a peak in foreclosures in 2010, only a marginal improvement in 2011 and a return to normal monthly foreclosure activity sometime in 2012.
“Rising unemployment and a new variety of mortgage resets continued to gradually shift the nation’s foreclosure epicenters in the third quarter away from the hot spots of the last two years and toward some metro areas that had avoided the brunt of the first foreclosure wave,” said James J. Saccacio, chief executive officer of RealtyTrac. “While toxic subprime mortgages drove much of that first wave of foreclosures, high unemployment and exotic Alt-A Option ARMs are spreading the foreclosure flood to more metro areas in 2009.”
Write to Jon Prior.
The Securities and Exchange Commission (SEC) awarded a contract to Institutional Risk Analytics (IRA) to supply commercially available financial ratings of banks, thrifts and holding companies.
The Torrance, Calif.-based IRA is a unit of the Lord, Whalen LLC and provides ratings of US banks and public companies. The ratings it will provide to the SEC come from the IRA Bank Monitor, the firm’s performance and risk model of Federal Deposit Insurance Corp. (FDIC)-insured financial institutions. The model includes a variety of financial tests, Basel II benchmarks, stress ratings and risk metrics.
The contract award was made pursuant to solicitation SECHQ1-09-Q-9006 and is valued at $50,000 for the base year with four additional option years, each at $50,000. If the SEC decides to exercise all options on the contract, the total cost will be $250,000.
IRA co-founder and managing director, Christopher Whalen, is a monthly contributor to HousingWire magazine.
Write to Austin Kilgore.
The latest covered bond out of Canada was not short of investor interest. The Royal Bank of Canada (RBC) is issuing the third series of C$750m ($695.7m), five-year fixed-rate bonds of its self-titled covered bond program with expected success.
The deal is under the same terms of its €15bn ($22.2bn) global covered bond program, and market reports suggest that third-party interest in such structured products is growing in strength.
Moody’s Investor Services assigned a provisional long-term rating of triple-A to the deal. The covered bond program has a cover pool comprised of prime-quality, seasoned mortgages secured by Canadian residential properties with an average weighted loan to value (LTV) of 66.2%. It has a minimum overcollateralization of 3%, which RBC is contractually obligated to maintain at all times.
In assigning the rating, Moody’s said bond investors will benefit from RBC’s credit strength, and hedging arrangements with respect to interest rates between the assets in the cover pool and the covered bonds.
Moody’s added investors are exposed to a number sources of risk, including refinancing, market conditions, liquidity, set-off, credit and substitution, but noted all are partially offset by the transaction’s structural enhancements. These risk would only materialize in the event of RBC’s default, so “there is a degree of linkage between the rating of the issuer and the rating of the covered bonds,” Moody’s said.
According to the Wall Street Journal, bonds priced at 50 basis points above benchmark, with a 3.27% coupon. There is no word on subscription rates yet.
Covered bonds are rare in North America, compared to Europe. To date, Bank of America and Washington Mutual are the only two existing domestic issuers of covered bonds in the US – but Citi, JPMorgan and Wells Fargo all expressed interest last year in starting covered bond portfolios. However, the bonds are expensive, considering the dual recourse structure that leaves banks liable for losses. A typical bullet repayment also tends to appeal to a separate investor base than securitization.
Write to Austin Kilgore.
Mortgage insurer Genworth Financial (GNW: 15.78 -3.78%) reported a net income of $45m in Q309, compared to a net loss of $258m in Q308.
Despite the overall earnings, Genworth registered $116m in net operating losses of its US Mortgage Insurance (US MI) segment, compared to $121m in losses in Q308.
According to the earnings report, Genworth changed its underwriting guidelines to produce future growth. In 199 metropolitan statistical areas (MSAs), Genworth had been restricting coverage to 90% loan-to-value (LTV) mortgages based on the housing markets’ conditions. But in Q309, Genworth reopened coverage to 95% loan-to-value mortgages.
However, guidelines remained constricted in California, Florida, Arizona, Nevada and Michigan – hotbeds of the foreclosure crisis.
For the third consecutive quarter, Genworth’s US MI segment increased loss mitigation savings and decreased losses. In Q309, Genworth saved $224m, totaling $557m for the year. With additional execution, resources and rising intensity loan modifications, Genworth expects to save between $775m and $825m in loss mitigation, according to the report.
The savings should come as HAMP servicers increase modifications. At the beginning of October, HAMP servicers reached the 500,000 trial modification target – one month ahead of schedule. Based upon reports from government-sponsored enterprises (GSEs) and certain servicers, Genworth estimates 11,500 delinquent loans within the Home Affordable Modification Program (HAMP). Through the program, the US Treasury Department allocates capped incentives to participating servicers for the modification of loans on the verge of foreclosure.
“We are encouraged by the multiple signs of stabilization and improvement in our served markets which combined with our focused growth strategies, engaged distribution relationships and risk reduction efforts position us well for improved results as we move ahead,” said Michael Fraizer, CEO of Genworth.
Write to Jon Prior.
