Archive for October, 2009
US Bancorp (USB: 27.86 +0.25%) earned net income of $603m, or $0.30 per share, in Q309, up from $576m in Q308.
The company recorded net revenue of $4.3bn, driven by growth in net interest income and fee revenue. Revenue was impacted by three major items, the bank said — a $415m provision for credit losses in excess of net charge-offs, $76m of net securities losses and a $39m gain related to the company’s investment in credit card company Visa (V: 101.05 +0.19%), resulting in a $0.19 net per-share decline in quarter earnings.
The bank experienced a $215m increase in mortgage banking revenue compared to Q308 that it credited to loan production volume of $14.8bn and loan applications totaling $15.5bn. Residential mortgage lending increased 1.8% from Q209 to Q309.
The allowance for residential mortgage credit losses was $129m, up from $116m in Q209 and $71m inQ308.
“Both net interest income and noninterest income increased over the same quarter of 2008 and the prior quarter, as the company continued to experience a ‘flight to quality’ in its traditional balance sheet businesses, evidenced by the quarter’s significant growth in core deposits, as well as positive results from its fee-based business lines and recent growth initiatives,” US Bancorp president and CEO Richard Davis said in the company’s quarterly report.
During Q209, US Bancorp repaid its $6.6bn Troubled Asset Relief Program (TARP) loan, and in Q309, repurchased the 10-year warrant issued to the US Treasury at a cost of $139m, “effectively concluding our participation in TARP,” Davis said.
“We now move forward with the capacity to continue to invest, unencumbered, in our franchise and fee-based businesses, as we remain profitable during this difficult business cycle, generating capital for growth opportunities and our shareholders,” he added.
Write to Austin Kilgore.
Wells Fargo & Company (WFC: 29.60 +1.89%) posted a record net $3.2bn income in Q309, up 98% from Q308 despite lower mortgage originations over last quarter.
Year-to-date through Q3 income totals $9.45bn, an increase of 75% from the same period in 2008. Earnings per common share came to $0.56, up 14% from Q308’s $0.49 per share earnings.
Wells Fargo president and CEO John Stumpf attributed much of the company’s record results to its merger with Wachovia, which was finalized at the beginning of this year.
“The Wells Fargo-Wachovia merger, agreed to a year ago, is exceeding our expectations and already adding value for many of our 70 million customers across North America. Merger costs have been significantly less than originally expected,” Stumpf said the company’s quarterly report.
Revenue was $22.5bn, driven by annualized growth of 11% in checking and savings, 25% growth in wholesale banking core deposits and 10% in wealth management core deposits, Wells Fargo said.
Wells Fargo said loan demand remained soft during the quarter, but the bank funded $96bn in mortgage originations, down from $129bn in Q209. Mortgage banking income was $3.1bn, including $1.1bn in revenue from mortgage originations fees and sales activities. The bank’s total mortgage banking non-interest income represented less than 15% of consolidated company revenue.
Wells said its refinanced 987,000 customers’ mortgages using the Making Home Affordable Refinance Program (HARP) and other standard refinance programs through Q309. It also initiated an additional 62,989 trial and completed modifications through the Making Home Affordable Modification Program (HAMP) and 292,005 through the company’s modification programs bringing the year to Q309 total to 354,994.
Excluding mortgages insured by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and Wells’ servicing agreement with Ginnie Mae for mortgage pools, Wells had $693m in residential mortgages 90 or more day delinquent at the end of Q309, down from $702m at the end of Q209.
Mortgages 90 or more day delinquent in the pool of FHA and VA-backed loans and the Ginnie servicing agreement were $12.9bn in Q309, up from $10.7bn in Q209.
Write to Austin Kilgore.
Representatives from three real estate trade groups — the same trio that on Monday sent a letter to leaders in Washington calling for the extension and expansion of the first-time homebuyer tax credit — testified before the Senate Banking Committee on the status of the nation’s housing market and the need for the extended credit.
A year ago, subprime adjustable rate mortgage (ARM) loans accounted for 36% of foreclosures started, the largest share of any loan type, despite accounting for only 6% of the outstanding loans, said Jay Brinkmann, Mortgage Bankers Association (MBA) senior vice president and chief economist, in prepared testimony.
Now, prime fixed-rate loans represent the largest share of foreclosures initiated, and almost 40% of all prime fixed-rate foreclosures are in California, Florida, Arizona and Nevada, the states that account for the driving force behind increased delinquencies.
Brinkmann said housing recovery depends on the unemployment rate.
“The number of people receiving paychecks will drive the demand for houses and apartments and the recovery will begin when unemployment stops rising,” he said.
National Association of Home Builders (NAHB) chief economist David Crowe testified builders are already experiencing a slowdown in new home sales because time is running out to close on a home before the tax credit’s Nov. 30 expiration.
“Not only will builders soon be losing one of their most effective selling tools when the $8,000 federal housing tax credit expires on Nov. 30, they are also facing significant challenges that threaten to derail the fragile housing recovery before it even has time to take root,” said Crowe. “Strict mortgage underwriting and low appraisals are making it difficult for a willing buyer to complete the sale, and terms and credit availability for builder acquisition, development and construction (AD&C) loans are extremely tight."
Crowe added: "The bottom line is that housing and the economy are at a critical crossroads.”
Proponents of the tax credit’s extension say the economic impact of the $8,000 credit goes beyond the housing sector because homebuyers typically spend thousands in additional purchases.
“We estimate this would increase home purchases by 383,000 and create nearly 350,000 jobs in the coming year,” said Crowe, adding that it would also generate $16.1bn in wages and salaries; $12.1bn in business income and tax income of $11.6bn for federal, state and local governments.
The NAHB is also calling on lenders to provide more liquidity to fund homebuilder loans and new Federal Housing Administration (FHA), Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) appraisal guidelines for new homes sold in markets flooded with distressed properties.
“You just cannot compare a well-constructed new home with a foreclosed home that has been vacant for months and was probably neglected for a long time before it was vacated,” Crowe said. “They simply are not comparable, and the standards need to be adjusted to reflect that reality.”
National Association of Realtors (NAR) vice president Ron Phipps estimates extending the tax credit through the middle of 2010 would cost $10bn, a “modest price” compared to the $700bn spent in the Troubled Asset Relief Program (TARP).
“Moreover, the $10 billion cost is a static measure that does not take into account job creation and increased tax revenue from rising economic activity,” said Phipps in his prepared testimony. “Actually, if all of the economic dynamic responses are taken into consideration, the homebuyer tax credit can be argued as a net positive revenue generator for the federal government.”
The House Ways and Means Committee oversight subcommittee is scheduled to hold a hearing Thursday investigating alleged fraud related to the first-time homebuyer tax credit.
Write to Austin Kilgore.
Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications, according to a new report from the National Consumer Law Center.
The report points out servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.
“In the majority of cases, servicers have nothing to do with what’s in the best interest of those investors,” said Diane Thompson, the author of the report and attorney at the NCLC. “We figured this out by following the money, by following who plays what role in all of these business transactions and who gets paid what for doing what.”
Financial incentives encourage servicers to pursue a foreclosure in lieu of a modification, which costs the servicer upfront money in fixed overhead costs, and out-of-pocket expenses such as property valuations and credit reports, according to the report.
“A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed,” according to the report.
The report details servicing fees, such as markups in broker-priced opinions (BPOs), that provide incentives to delay a foreclosure and even partly explain a servicer’s reluctance to enter into a short sale, according to the report.
A servicer would profit from a short sale only if the servicer’s financing costs outweigh the foreclosure fees charged and if the short sale processes faster than foreclosure, according the report.
“If you read these servicing agreements and prospectuses, you can see that there are a bunch of different people who own the loans, and you can see that the servicer doesn’t hold much if any interest in what happens to the loan as a whole,” Thompson said. “And the way that a servicer gets paid entirely pushes the servicer to proceed with a foreclosure and not to do a loan modification.”
Write to Jon Prior.
[Update 1: Adds Ideal Mortgage Bankers statement]
The Department of Housing and Urban Development’s (HUD) Mortgagee Review Board issued a notice of violation against Ideal Mortgage Bankers, parent company of Lend America and Lending Key.
HUD notified the company Tuesday of violations of the Federal Housing Administration’s (FHA) origination and underwriting requirements it said it uncovered.
The 12 alleged violations the HUD board said Ideal Mortgage Bankers made against FHA range from submitting false certifications and failing to document the borrower’s income and creditworthiness, to approving loans that did not meet the FHA's minimum credit requirements and closing a loan with an excessive mortgage broker fee paid to an approved FHA loan correspondent.
In addition, HUD notified four of the company’s underwriters of plans to suspend or propose debarments for their alleged actions in connection to the violations. HUD alleges these underwriters falsely certified that the loans in question were originated in compliance with FHA requirements and were eligible for FHA mortgage insurance.
Separately, HUD issued pre-penalty notices to the underwriters advising them the department is considering imposing civil money penalties against them as well.
Ideal Mortgage Bankers and the individual underwriters have 30 days to respond to the notices. The US Attorney for the Eastern District of New York is seeking a temporary restraining order against Ideal to prevent it from originating any new FHA-insured mortgages while federal prosecutors pursue a Civil Fraud Injunction against the Company, HUD said.
“Any FHA-approved lender that seeks to do business with us must follow our standards, it’s just that simple,” said FHA commissioner David Stevens. “If we determine that our partners are not playing by the rules, they’ll cease being our partners. It’s not just about protecting the financial health of the FHA insurance fund — this is about protecting each and every family that looks to the FHA for safe and secure mortgage financing.”
In a prepared statement, Ideal said, “The company was taken by surprise, expects to continue in business and will respond more completely once all allegations are reviewed.”
Write to Austin Kilgore.
MDA DataQuick added a new software product to its line of loss mitigation tools that provides up-to-date collateral risk information and notifies the loan holder when post-closing changes occur.
Collateral Monitor enables lenders and servicers to identify loans in imminent risk of default, by compiling a number data sources and monitoring risk characteristics like occupancy and additional liens, MDA DataQuick said.
The software is designed to work with MDA DataQuick’s Collateral Validation product, which was updated to granular targeting of problem valuations, improved transparency and simplified management of sophisticated analysis, the company said.
“Lenders and servicers are dealing with a tremendous influx of defaults and foreclosures, but it is those loans on the verge of default that are most insidious and potentially harmful to already battered portfolios, “ said MDA DataQuick president John Walsh. “Our loss mitigation solutions, such as Collateral Monitor, leverage data and risk characteristics to keep companies ahead of defaults.”
MDA DataQuick is a division of San Diego-based MDA Lending Solutions, and an independent provider of property data to real estate and mortgage professionals.
Write to Austin Kilgore.
Gross mortgage lending in the UK rose 2% from August to £12.5bn (US$20.5bn) in September, according to the Council of Mortgage Lenders (CML), a trade association for the UK mortgage lending industry.
September's lending figures bring the third-quarter gross total to £38.9bn, an 18% increase from the second quarter although the figure is 36% below the same time last year.
“House buying activity is running at considerably higher levels than around the turn of the year," said CML economist Paul Samter in market commentary Tuesday. "However, it remains weak on any historic comparison and is unlikely to rise much further given the constraints the lending community faces and a still difficult economic backdrop."
The Financial Services Authority (FSA) on Monday proposed significant changes to the types of mortgage products sold in the UK and the way UK mortgage lenders conduct business in a housing market that shows signs of recovery as average prices increase.
UK mortgage lending tends to be more conservative compared with recent lending practices in the US — including the UK's historic requirement of at least 20% down for purchases. These comparatively conservative practices tend to provide more adequate support for securitization of loans within residential mortgage-backed securities (RMBS).
Unlike US conservatorship of mortgage investor and securitizer giants Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) currently and the significant presence of Federal Housing Administration (FHA)-insured loans in the market, UK loans do not carry government guarantees. Securitization, therefore, bears much less government involvement and is generally seen in a more positive light.
And while the UK's share of mortgage stress paints an "overwhelmingly negative" view of securitization among some structured finance investors, US servicers indicate the situation for securitized loans might be better than investors think, according to a report Tuesday by Standard & Poor's Ratings Services (S&P).
"At an October conference, a panel of UK servicers for loans securitized in commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS) transactions suggested that their situation is not as bleak as some investors might think," said Beverley Dunne, head of European servicer evaluations.
Dunne added: "The panel at our Investor Hot Topic event cited as an example that some loans are actually benefiting from an upturn in property prices, although this is highly dependent on the type and quality of the property."
Residential servicers are taking advantage of a shortage of available housing inventory by picking up the turnover rate at which a servicer resells a foreclosed home. Commercial servicers are having a harder time of securing finance on poorer quality stock with short leases and vacancy issues, according to S&P's panel.
Although the commercial real estate sector remains mixed, British Land recently closed a £40.25m deal to purchase a 76,000 square-foot office building in London's West End. The offices — located in central London near the performing arts district known as "Theatreland" — are currently leased to Bank of America until July 2012.
Opportunities to re-let the offices in 2013 after refurbishment look promising, as property will likely be even more scarce at that time.
"The lease expiry sits comfortably in our portfolio which benefits from long and strong income," said Tim Roberts, head of offices with British Land. "We plan to refurbish, but also we have the option to work with the existing strong line up of occupiers to renew their leases."
Write to Diana Golobay.
UnitedTech Lender Services (UTLS) purchased the assets of LandAmerica OneStop, which are now re-branded as UTLS subsidiaries.
UnitedTech Lender Services is an Orange County, Calif.-based provider of Web-based business solutions for the mortgage servicing industry. The LandAmerica subsidiaries assumed by the transaction are the default services and BackInTheBlack default servicing technology platform.
The former LandAmerica business units are now known as UTLS Default Services and UTLS BackInTheBlack.
“Our default management clients are increasingly challenged with delinquencies and foreclosures, as well as the increased focus on regulatory compliance and loss mitigation. Blending the service capabilities with the BackInTheBlack technology enables UTLS to offer the mortgage industry the best and most integrated default and technology servicing solutions in the marketplace,” said Tim Walsh, UTLS president.
Write to Austin Kilgore.
The Bank of New York Mellon Corp. (BK: 20.23 +1.15%) lost a net $2.44bn, or $2.04 per common share, in Q309, compared with a net profit of $267m in the previous quarter and $303m in the year-ago quarter.
The heavy losses are due to an investment debt restructuring effort this quarter. The bank sold or restructured $12bn in high-risk investment securities, including the sale of $3.6bn of the “lowest quality securities.”
The bank also restructured $8.5bn of securities, and said there may be an opportunity to recover a portion of the loss over time. The impact of the sale and restructuring was a $4.8bn pre-tax charge ($3bn after tax) during the quarter.
“Consistent with our ongoing strategy to reduce balance sheet risk, we took advantage of the recent strength in the fixed income markets by selling or recognizing losses on a significant portion of our investment securities portfolio,” said BNY Mellon chairman and CEO Robert Kelly. “This restructuring does not materially impact capital, is expected to benefit net interest revenue by $125-$175m in 2010, and significantly reduces the risk of future securities losses.”
BNY Mellon’s investment securities portfolio, which includes residential and commercial mortgage-backed securities (MBS), home equity lines of credit, credit cards and European floating-rate notes, improved $1.5bn from Q209, prompting the sale and restructuring. Before the restructure, the investment securities portfolio had a combined unrealized loss of $6.3bn, which narrowed through restructuring efforts to to $1.4bn.
The provision for credit losses was $147m in Q309, up from $61m in Q209, due primarily to downgrades in the bank’s insurance and media portfolios. BNY Mellon said the provision is expected to decline in Q409.
Total revenue declined 14% and total assets under management were $966bn, up 4% from Q209 but down 9% from a year earlier.
Write to Austin Kilgore.
On the heels of Mortgage Guaranty Insurance Corp.’s (MGIC) Q309 weak earnings results, Standard & Poor’s lowered MGIC’s financial strength rating to single-B plus from double-B.
Private mortgage insurer MGIC posted a $517.8m net loss for the quarter as delinquencies continued to increase.
"The company reported a loss ratio of 331%, compared with a loss ratio of 222% in the second quarter of 2009. A sharp increase in the delinquent loan inventory resulted, in part, from a transition of delinquencies into prime loans," said Ron Joas, S&P’s credit analyst.
Subprime delinquencies continued to rise, which combined with prime loan delinquencies for $971m in incurred losses for MGIC – compared to $778m in Q308, according to S&P.
“Claims payments remain below our expectations, which is reflective of the backlog of foreclosures and the moratoria that had been implemented earlier in the year,” according to S&P.
The rating cut also comes as S&P anticipates the high probability of MGIC breaching the risk-to-capital regulatory requirement. As of Sept. 30, 2009, MGIC’s risk-to-capital increased from its reported ratio in June. If MGIC breeches the risk-to-capital level, regulators can prevent the company from writing new business, and the firm will be placed into runoff – which means added stress on the firm’s existing capital, according to S&P.
S&P revised its outlook on MGIC’s parent company, MGIC Investment Corp. (MTG: 4.14 +6.98%), to negative from stable.
MGIC Investment Corp. proposed a restructuring plan for MGIC to contribute $200m of capital to MGIC Indemnity Co., a subsidiary of MGIC. S&P stated that the downstreaming of capital wouldn’t affect the risk-to-capital ratio, but it will reduce the liquid claims-paying resources available at MGIC.
“We continue to believe there would be both benefits and drawbacks to the restructuring plan,” according to S&P.
But, S&P stated that it does not believe MGIC Investment Corp.will be able to repay the outstanding balance of senior notes that mature in September 2011 unless conditions in the capital markets improve.
Write to Jon Prior.
