Archive for October, 2009
In an attempt to streamline the Home Affordable Modification Program (HAMP) process, the Internal Revenue Service is making available a quick form version of the familiar 4506T form, often used for income verification.
When refinancing or modifying an existing mortgage, taxpayers need copies of their tax return information. Form 4506T-EZ is used to order a Form 1040 series tax return transcript free of charge, according a release from the IRS.
The new form is only for individuals who filed a Form 1040 series. Those who need transcript information from other forms must still use the Form 4506T.
Exact copies of tax returns are available, but each one costs $57 and may take 60 days to process.
HousingWire previously reported on the anticipated release of the 4506T-EZ form when the Treasury announced plans to launch a new short sale program.
Write to Jon Prior.
Sue Allon is the founder and CEO of Allonhill, a leading financial services firm providing disclosure-quality mortgage due diligence services, credit risk management and consulting. The company offers extensive mortgage capabilities and experience, leading-edge analytics and an independent, investor-oriented approach, to clients including hedge funds, mutual funds, private investors, government agencies, ratings agencies and mortgage originators and service providers.
For this installment of In This Corner, Sue sheds some light on the shadow inventory of foreclosures and the future of securitization.
HW: Is there a "shadow inventory" of foreclosures, and how big is it?
Sue: The overhang of REO [real-estate-owned] properties is very real. I’ve seen some fascinating numbers lately that show that although active defaults are significantly on the rise, REO inventory has declined. The conclusion that has been drawn is that there isn’t a lot of risk from REOs hitting the market now, or that foreclosures are stalling before the properties go to REO. This is true – defaults are increasing, and these loans aren’t moving into foreclosure or out of foreclosure and into REO. That means that there is an increasingly large inventory of loans that will be foreclosed and properties that will hit the market. When those loans do default, we will see hundreds of billions of dollars of residential properties come onto the market. This will obviously have a dampening effect on housing prices.
HW: What's causing the "shadow inventory"? Moratoria, government programs, or the banks themselves?
Sue: Government programs, including HAMP [Home Affordable Modification Program] and various state moratoriums, and private modification programs are having a positive effect. Most large banks and servicers have a fallback program that allows homeowners to get relief if they fail to qualify for a government program. Those programs have kept homes from foreclosing. But for many homeowners who simply took on more house than they can afford, they are only delaying the inevitable. The delay in these foreclosures has been very important to the market’s ability to sustain real estate prices. I believe the delay might be what helps us get houses moving again, with loans to finance them, before those properties reach the market.
HW: Going forward, what due diligence should be done prior to securitization?
Sue: I believe investors should expect to have an independent third-party review firm perform a due diligence review of the loans that go into a securitization. That third party should attest, in writing, to the loans that were reviewed, what factors were reviewed and exactly what was done to resolve discrepancies noted in the review. The investor should receive a complete disclosure of the loans in the pool, their characteristics and the third-party review firm’s findings related to them. Anything short of that fails to bring credibility and transparency to the transaction and merely repeats the mistakes that brought this market down.
HW: How has Allonhill helped its clients bear the winds of the current foreclosure crisis?
Sue: We’ve stepped in and helped servicers dig their way out from under an overwhelming number of modifications. We’ve helped develop parameters for some modification programs and have helped resolve some of the gray areas around the rules, such as what qualifies to be included as income when evaluating a modification application. Our system brings a level of calm to organizations faced with too much work to bear, because it can process millions of loans and is configured to test modifications to make sure that they’ve been properly accepted or declined.
The 10-City Composite Index of house prices declined 0.5% in September and 1.1% during the third quarter, according to real estate market data provider Altos Research.
The index is a measure of home prices based on summaries of metrics associated with active residential property listings. After bottoming out at $470,017 in January, it gradually increased to $509,030 in July before again declining and was $503,401 in September.
Of the 26 markets Altos Research examines, asking prices increased in only five, including Los Angeles, which experienced a 1.5% increase, the largest of the 26 markets. Phoenix had the largest monthly decrease of 3.7%.
Inventory also declined in 23 of 26 markets. All of the 26 markets except San Francisco had a median days-on-market of 100 or more in September. Miami had the slowest inventory turnover rate at 251 days.
Prices are likely to continue showing modest declines throughout the seasonally weak fall and winter months of 2009, Altos said, adding this year’s downturn would likely have been worse were it not for historically low mortgage rates and the first-time home buyer tax credit.
Write to Austin Kilgore.
While residential real estate and manufacturing sectors of the economy are reporting positive improvements, commercial real estate remains one of the weakest sectors. According to the Federal Reserve Beige Book, any evidence of a recovery in the sector is unlikely for at least nine more months.
The Beige Book is an economic indicator published eight times a year by the US central banking regulator.
In the current release, commercial real estate conditions were described as either weak or deteriorating across all of the 12 districts measured in the report. The inability to obtain credit was cited as a problem for businesses wanting to purchase or build commercial space, leading to increasingly low demand and high vacancy rates.
Leasing velocity also remains slow, but improved over the summer as tenants seek to upgrade space at bargain prices. Tenants are also demanding significant concessions along with lower rents.
However, public, nonresidential construction activity funded by federal stimulus projects provided a bright spot in the Cleveland, Chicago, Minneapolis, and Dallas districts, but gains were often offset by state and local government cutbacks, the book said.
On the residential side, the first-time homebuyer tax credit is providing a boost in home sales in most districts, but real estate agents told the districts they are concerned about the future of the sector after the tax credit’s expiration.
Home prices were down 3% to 14%, year-over-year in August, however a contact of Boston’s district said the tax credit is creating growth in entry-level home sales, which cost less and is a factor in bringing down the median price.
Construction activity in the residential sector remained weak. While banking declined in several districts, one bright spot to the sector was an increase in lending to homebuyers, in response to the first-time homebuyers tax credit.
Write to Austin Kilgore.
Loan-Score Decisioning Systems, an Irvine, Calif. mortgage decision software developer, launched a new Web site for mortgage bankers, community banks, credit unions, lenders and originators to connect to the Federal Housing Administration’s (FHA) Technology Open to Approved Lenders (TOTAL) Scorecard loan approval platform.
Users create a Loanscorecard.com account to upload loan files into the TOTAL Scorecard Web interface to determine if a loan meets FHA criteria for underwriting.
The new site follows the interfacing Loan-Score’s automated underwriting system (AUS) with TOTAL Scorecard earlier this year.
“Loanscorecard.com serves the gamut of mortgage bankers, community banks, credit unions, lenders and originators to conveniently and cost effectively decision FHA deals using our portal’s interface with Scorecard,” said Joe Bowerbank, senior vice president of marketing at Loan-Score.
Write to Austin Kilgore.
Mortgage application volume decreased by double digits in two weekly surveys.
Mortgage Maxx’s survey, a measure of mortgage applications adjusted to reflect the number of households applied for loans, declined 10.7% for the week ending Oct. 16.
The Mortgage Bankers Association’s (MBA) weekly survey, a measure of gross mortgage applications, was down 13.7% on a seasonally adjusted basis for the same week.
MBA adjusted its survey for the Columbus Day holiday; Mortgage Maxx did not. However, Mortgage Maxx said not adjusting for the holiday understated activity by less than two percentage points.
MBA’s refinance index was down 16.8% from the week prior and the purchase index decreased 7.6%. Refinance applications took a 65% share of total application, down from 67.4% the previous week. Adjustable-rate mortgages took a 6.4% share of volume, up from 6.2%.
The seasonal slowdown in organic home sales, the cessation of further declines in rates, and the last call for the first time homebuyer credit will cause rates to decline in the coming weeks, Mortgage Maxx said. If the tax credit expires, Mortgage Maxx indicated the result may be a plunge in sales volume similar to the decrease experienced at the sunset of the Cash for Clunkers automobile credit.
Write to Austin Kilgore.
PMI Mortgage Insurance Co. approved 93% of its requests for a mortgage workout through the Home Affordable Refinance Program (HARP).
HARP allows nearly 5m homeowners with loans owned or guaranteed by Fannie Mae (FNM: 0.00 N/A) or Freddie Mac (FRE: 0.00 N/A) the opportunity to refinance into more affordable monthly payments.
PMI, the private mortgage insurance company and subsidiary of The PMI Group (PMI: 0.00 N/A), anticipates a growing support for the program as more servicers complete the complex systems changes needed to implement the program, according to a PMI report. Only current loans qualify for HARP, which represents a transfer of existing mortgage insurance coverage to the refinanced loan.
Probabilities of a workout on PMI-insured loans vary across the country, according to the report. For example, delinquencies in North Carolina are twice as likely to achieve a retention workout than delinquent loans in Florida.
The report also states that by the end of 2009 PMI will have participated in 30 events nationwide to supplement the efforts of its servicers to help families find alternatives to foreclosure. PMI pointed out that more than half of the people who slip into foreclosure never contact their lender to discuss options or ask for help, according to a 2008 study from Freddie Mac.
For the events, PMI seeks out borrowers who have not contacted their lender and navigates them through the loan modification process, according to the report.
In year-to-date 2009 through August, PMI reached out to more than 33,000 distressed borrowers with its initiatives.
Write to Jon Prior.
Morgan Stanley (MS: 18.56 +2.26%) posted a net $757m profit, or $0.38 per share, in Q309 — its first quarterly profit in a year — as a 74% increase in investment banking profit neutralized $400m in real estate-related losses.
Net revenue was $8.7bn in Q309, up from $5.4bn in Q209. Year-to-date through Q309 income was $412m.
Within its institutional securities unit, reduced losses on real estate-related investments contributed to investment gains of $37m, compared with losses of $390m in Q308.
Morgan Stanley repurchased its US Treasury warrant related to the Troubled Asset Relief Program (TARP) for $950m, providing US taxpayers a 20% annualized return on their investment in Morgan Stanley, the company said.
“We also saw improvements from the prior quarter in fixed income sales and trading, commodities, prime brokerage and our wealth management business,” outgoing chairman and CEO John Mack said. “Although we still have work to do in sales and trading, it offers our single biggest opportunity for growth as we build out our client flow business and pursue disciplined risk-taking.”
Net revenue in the Morgan Stanley Smith Barney wealth management business unit was $3bn, up 91% from a year ago. Pre-tax income was $280m. Morgan Stanley completed the transaction acquiring a majority stake in Smith Barney from Citigroup during Q209.
Write to Austin Kilgore.
KeyCorp (KEY: 8.01 +1.65%), parent company of Key Bank, recorded a net loss of $438m in Q309, compared to a $48m loss in Q308, as the bank increased its provision for loan losses, write-downs of certain real estate related investments, higher costs associated with other real estate owned (REO) assets, and the write-off of certain intangible assets.
The bank took a $733m provision for loan losses, which exceeded net charge-offs by $146m. As of the end of Q309, Key Bank’s allowance for loan losses was $2.5bn, 4% of all loans, an increase from $1.4bn, or 1.9%, for the same time last year.
“While our results continue to be impacted by the difficult operating environment, we believe the aggressive actions we’ve taken to address credit quality, strengthen capital and liquidity, and reshape our business mix position us to meet the challenges posed by the current environment and to emerge as a more competitive company when the economy rebounds,” CEO Henry Meyer III said in the company’s quarterly report.
The $438m loss included $422m in operational losses and $16m in net losses from discontinued operations of government-guaranteed education loans.
Loan losses for residential mortgages were $4m in Q309, steady from Q209 and up from $2m in Q308. Nonperforming residential mortgage assets were valued at $68m, up from $46m at the end of Q209 and $35m at Q308’s end. Non-interest income was impacted by $31m of realized and unrealized losses from the residential properties segment of the construction loan portfolio.
Write to Austin Kilgore.
After a 30% climb over the last four years, foreclosures will decline in 2010, according to research from University Financial Associates (UFA), a risk management firm based in Ann Arbor, Mich.
Dennis Capozza, the professor finance with the Ross School of Business at the University of Michigan and founding principal of UFA, points to a combination of a slowing of house price depreciation, a reviving economy, tighter underwriting of recent loans and the “burnout” of poor-performing vintages from three to five years ago.
“Working against the welcome decline in foreclosures is the steep increase in unemployment, which will interact with the large numbers of homeowners who are underwater to prevent even greater declines in foreclosures that could have been expected without high unemployment,” Capozza said.
Every quarter UFA analyzes representative mortgage loans in the serviced portfolio of all outstanding mortgages and estimates the probability of prepayment and default in every month of the loan’s future life, according to the report.
Analysts input loan-to-value ratios, credit scores and UFA’s own zip code level economic scores into the quarterly assessment. UFA collects zip code level analysis to extrapolate a national forecast.
Write to Jon Prior.
