Archive for October, 2009
Servicers of residential mortgage-backed securities (RMBS) continue to increase loss mitigation resolutions, including a significant push in the number of loan modifications, according to a report from Fitch Ratings.
As of September 2009, roughly 10% of all RMBS loans and 25% of all subprime loans received at least one modification. A year ago, servicers modified only 3% of all loans, and 7% of subprime loans, according to the report.
Fitch estimated a "conservative" projection of 65% to 75% of subprime delinquencies of 60 days or more that will re-default after 12 months post-modification.
“As in prior statements, market pressures to allow more aggressive [modifications], continued home price declines, and the economy’s effect on job losses factor into this projection,” according to Fitch analysts.
The projection includes re-defaults on loans that received a second and third modification after the first one failed. Roughly 11% of all modified RMBS loans received a second modification, and of the modifications done in Q308, 17% were re-modified, according to the report.
The monthly modification volume dropped from the peak in the middle of 2009, because loan modifications under the Home Affordable Modification Program (HAMP) are not considered complete until a three-month trial finishes.
Through HAMP, the US Treasury Department allocates capped incentives to servicers for the modification of loans on the verge of foreclosure.
HAMP’s first modifications did not begin to complete the trial period until early July and are not included in the January through June 2009 results, according to the report. But cumulative modifications increased during the first half of 2009 as servicers continued non-HAMP modifications.
“Initial indications suggest the conversion from trial mod under HAMP to actual finalized
modification status has been disappointing,” according to Fitch analysts.
Through September 2009, there has been no “pick-up” in modification activity stemming from the completion of HAMP trial modifications.
According to a report from the Congressional Oversight Panel (COP), which reviews actions taken by the Treasury, only 1,711 of the 360,000 trial modifications started passed out of the HAMP trial period and into permanence as of September 1.
Write to Jon Prior.
The annualized rate of housing starts continued their relatively level pace for the third straight month, according to US Census Bureau data.
Privately owned housing starts in September came in at a seasonally adjusted annual rate of 590,000 in September, the Census reported, up 0.5% from August’s rate of 587,000. The rate of homes has hovered at this point since increasing 7% to 590,000 in June, but the September 2009 rate is 28.2% below the September 2008 rate of 822,000.
Royal Bank of Scotland analyst Omair Sharif said the three-month run of stable levels suggests the pace of construction activity is leveling off, however, much of this cooling is due to a downtrend in the multi-family sector.
“Groundbreaking activity on apartment buildings has fluctuated wildly this year, but the September level stood 59% below the February reading, and both the three-month and six-month averages point to a sharp slowdown in multifamily construction,” Sharif wrote.
Single-family housing starts were at a rate of 501,000 in September, a 3.9% increase from August’s rate of 482,000. Starts for buildings with five or more units were at a September rate of 78,000, down from the August rate of 115,000.
“The bounce in the single-family sector is encouraging, because we had expected some weakness given the impending expiration of the first-time homebuyers tax credit, which boosted home sales and homebuilding this summer,” Sharif wrote.
The seasonally adjusted annualized rate of housing permits issued was 573,000 in September, down 1.2% from August’s rate of 580,000 and 28.9% below the September 2008 rate of 806,000. Single-family building permits were at a rate of 450,000, down 3% from August’s 464,000. The September rate of permits for buildings with five or more units was 104,000, up from 98,000 in August.
Housing starts fell in the Northeast (-5.5%), Midwest (-1.8%), and West (-8.8%), but increased in the South (+7.1%) during September.
On Monday, research firm Metrostudy projected 2009 housing starts to come in at 562,000 for the year, down 37.9% from 2008.
Write to Austin Kilgore.
As servicers of residential mortgages are experiencing a delay in processing delinquent loans into foreclosure, servicers of commercial mortgage-backed securities (CMBS) are also requiring more time to resolve delinquent loans, according to Fitch Ratings.
The delay for servicers, combined with continued market value declines, indicates loss severities are likely to increase "markedly" for US CMBS well into 2010, according to an annual study by the rating agency.
Multifamily loans in particular, which represent an average cumulative loss severity of 38.6% in 2008, will see a significant increase in loss severity as many markets suffer rising unemployment and oversupply.
Although 78% of commercial mortgage resolutions resulted in no losses to the trust last year, commercial real estate debt capital remains scarce, Fitch noted. Disposition times are likely to increase to between 24 and 36 months as special servicers work through a record backlog of loans, which is up more than 300% since the beginning of the year, Fitch said.
"Special servicers may have to hold certain properties until liquidity returns to the market," said senior director Britt Johnson. "Though recent REMIC reforms may help mitigate loss severities, defaulted loans will take more time to be resolved and losses often will be deferred until maturity."
Adding to the stress in US CMBS is a continued decline in commercial real estate prices. A report by Moody's Investors Service found commercial property prices continued to decline in August, though at a slower pace than in previous months.
The index of all commercial property types measured by Moody's declined 3% from July after a 5.1% decline from June. The index covered 377 sales in August, slightly recovered from 300 sales in July.
"Although prices have declined steadily over the past year, the rate of decline has slowed in recent months after falling by about 8% in both April and May," said Moody's managing director Nick Levidy.
The continued stress in the commercial real estate sector is playing a significant factor in real estate investment decisions, according to a survey conducted by research and education organization Urban Land Institute (ULI).
The commercial real estate market downturn is even outweighing the importance of climate change and alternative energy sources for financial industry leaders , ULI said in its report on the survey. But investor interest should pick up again when the market rallies.
“For now, the global downturn has trumped emerging attempts to realize benefits from green development,” ULI said. “For investors, thinking green today refers to dollars. Environmental issues play a factor only when they produce an immediate return or mitigate an investment risk.”
Write to Diana Golobay.
The House Ways and Means Oversight Subcommittee will hold a hearing Thursday on the administration of the first-time homebuyer tax credit.
Specifically, the subcommittee will review the circumstances surrounding the Internal Revenue Service (IRS)'s more than 100,000 civil examinations of potential fraud related to the credit. The subcommittee will also consider opportunities to enhance the administration of the tax credit during the 2010 tax filing season.
“I am pleased that more than one million taxpayers claimed the first-time homebuyer credit,” said subcommittee chairman Rep. John Lewis (D-GA). “However, I am concerned about recent reports that there have been fraudulent schemes involving the credit.”
The IRS completed its first successful prosecution of a first-time homebuyer tax credit fraud-related case in late July. As of September 30, the IRS identified 167 criminal schemes involving the credit.
“This hearing will allow the Subcommittee to hear what, if any, additional steps should be taken to allow the IRS to strike a balance between issuing timely refunds of the homebuyer tax credit and protecting federal revenue,” Lewis said.
On Monday, a trio of real estate trade associations submitted a letter to government leaders calling for the extension and expansion of the tax credit.
Write to Austin Kilgore.
Trial loan modifications under the Making Home Affordable Modification Program (HAMP) were up 41% in September compared to August, the Federal Housing Finance Agency (FHFA) said.
Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) had a combined 286,000 mortgages in the three-month trial stage of a HAMP modification. In August, that figure was 202,200.
Completed loan modifications declined for the fourth consecutive month to 7,100 in July, according to the latest data available.
Short sales increased by 24% in July from June to 5,500. Delinquencies were also on the rise and approximately 74,200 new loans became 60 or more days delinquent. There are now 1.4m mortgages 60 or more days delinquent, but not yet to foreclosure proceedings.
Foreclosure starts decreased 30% in July compared to June to nearly 85,300. Foreclosure and third-party sales increased slightly to 25,000 in July up from 24,700 in June, the FHFA said.
Write to Austin Kilgore.
Congressman Glenn Nye (D-Va.) introduced a concurrent resolution in the House of Representatives calling for banks and mortgage servicers to assist homeowners struggling with toxic drywall, according to a release from his office.
HousingWire recently reported a series of lawsuits filed against domestic home builders claiming the drywall imported from China emits sulfur gases that causes health problems and damages air conditioning coils, electrical plumbing components and other materials.
The noxious gases released from the drywall affect the upper respiratory tract, causing bloody noses, rashes, sore throats and burning eyes, according to the resolution.
The fumes force many families from their homes and into rental housing, which they have to pay for in addition to their mortgage, according to the release.
The legislation urges mortgage servicers and banks to provide temporary forbearance on their mortgage payments to help families afford the costs of additional residency.
“Recognizing this issue in Congress and formally asking lenders to be a part of the solution will give families more leverage when working with banks or mortgage holders who may be unfamiliar with the seriousness of this problem,” Nye said. “While we work to get families back in their homes, I’m going to try every possible avenue to offer them some relief.”
Since January 2009, over 1,300 cases of contaminated drywall were reported across 26 states, according to the resolution.
Write to Jon Prior.
[Update 1: Clarifies relationship between AMC and S&P]
Credit rating agency Standard and Poor’s (S&P) will add Libertyville, Ill.-based American Mortgage Consultants (AMC) to its upcoming list of firms that meets its criteria for third party due diligence reviews of US residential mortgage-backed securitizations (RMBS).
S&P conducted a review of AMC’s background, systems, capacity, personnel, policies and procedures in approving the firm for the reviews. The ratings agency’s analyses of mortgage pools include due-diligence reviews to increase data integrity and transparency and to improve the process of rating RMBS.
“We are pleased that Standard & Poor’s has recognized AMC as a mortgage due-diligence firm with the expertise and infrastructure needed to provide high-quality loan level reviews which are essential in today’s marketplace,” said AMC president Peter Kempf.
Write to Austin Kilgore.
Recent months of "nascent" housing recovery remain overshadowed by the delinquency pipeline that threatens to put as many as 2.7m distressed sales on the market, according to weekly commentary on US economics by Royal Bank of Scotland (RBS) economists.
Single-family housing starts jumped 38% from February to July, while new home sales jumped by 28% from March to July and existing home sales rose 15% over the same time frame, RBS said. The heavy use of the first-time homebuyer tax credit in summer ahead of its November 30th deadline may have contributed to the rise in sales.
"Given the lag time between a start and a completion, homebuilders and new home buyers probably had to act by July in order to feel confident that they would be able to claim the credit," said RBS economists, led by chief economist Stephen Stanley. "So, a portion of the increase in both starts and sales in recent months likely reflected activity being pulled forward into the summer."
Resales are likely to be soft in coming months if the credit expires and is not extended as some industry groups are calling for Congress to do, according to the report.
New home inventory stood at 262,000 units in August, a 26-year low, RBS said. This slide in inventory is mainly due to a cutback in housing starts.
"[B]uilders have also done a decent job working down the completed home inventory," economists said. "In fact, the months’ supply of new homes stood at 7.3 months, not far off from the six months builders equate with a balanced market."
The inventory of existing homes held at 3.622m in August, 21% below the 4.575m peak in July '08. The dip may be due to various foreclosure moratoria as well as a delay in the process of foreclosed properties to reaching the market, RBS said. The typical foreclosure timeline is doubled in some cases from 12 months to 24 months.
Reasons for this delay in include banks struggling with the volume of cases, state legislation that allows some borrowers to stay in their homes for an additional three months, borrowers filing for bankruptcy and increased modification efforts, according to RBS.
The economists noted an estimated 1.2m loans are 90 plus days delinquent and another 1.5m homes in the foreclosure process but not yet possessed by the bank. While much of this 2.7m-unit overhang in potential foreclosure inventory looks likely to enter the market at some point, the timing of these foreclosures hitting the market will play a key role in continued recovery.
"A housing market that is just beginning to climb from the ashes would be unable to handle influx of nearly 3 million additional homes for sale all at once," RBS economists said. "However, if the rise in foreclosures extends well into 2010 and beyond, which seems a distinct possibility given the lengthened foreclosure timeline, then the additional supply might be more easily absorbed, particularly if the economy and jobs are growing relatively robustly."
Write to Diana Golobay.
The Mortgage Bankers Association (MBA), and the National Associations of Realtors (NAR) and Home Builders (NAHB) issued a joint letter encouraging the federal government to extend the first-time homebuyer tax credit.
Noting Internal Revenue Service (IRS) data that shows as of August 2009, more than 1.4m taxpayers have taken advantage of the tax credit, the trio of trade groups called for a 12-month extension of the tax credit. They also urged an expansion of the credit to include all purchasers of principal residences, increase the amount of the credit and provide funds for closing costs.
“Our fragile economy is just beginning to show signs of recovery. We should not jeopardize that recovery by letting this tax credit expire,” said the letter, sent to the White House and the secretaries of the departments of Treasury and Housing and Urban Development (HUD). “Problems in the housing industry led us into a global recession, and housing incentives can help lead us out of the recession.”
The trade groups said the tax credit contributed to a decline in the volume of new homes on the market and brought a better balance to the nation’s inventory, which is currently at a seven-month supply, down from 12.4 months in January 2009. The supply of existing homes on the market is now at 8.5 months, down from 10.6 in November 2008. A balanced market, the groups said, is a six-month supply.
The groups also pointed to a NAHB study that indicates buyers of newly constructed homes spend an average $12,332 on additional goods and services after the purchase. Buyers of existing homes spend $8,927. Money is spent in three primary categories — property repairs and alterations, appliances, and furnishings — and NAHB estimates this spending associated with home purchases has led to the creation of 187,000 jobs since the tax credit was introduced.
The trade groups said extending the tax credit would provide additional stimulus to other sectors of the economy.
Write to Austin Kilgore.
It sounds like the next federal incentive program — instead of offering taxpayer funds for new car purchases in exchange for that old gas guzzler, this one promises cash for those inefficient, outdated and nonperforming mortgage loans.
There's only one, small difference: This cash is not from the government. And neither is the program.
American Homeowner Preservation (AHP) is coining a phrase from recent federal stimulus efforts with its “Cash for Clunkers Mortgages” promotion.
Cincinnati-based AHP began as a non-profit in 2007, pairing distressed borrowers with investors. It became a for-profit in 2009 and facilitates residential property short sales and leases the home with the option to sell back to the previous owner of the property.
In the mortgage "Cash for Clunkers" program, AHP will purchase non-performing mortgages secured by single-family and two- to four-unit multifamily properties from lenders, in single and bulk quantities.
The promotion began Monday, and AHP said it is targeting charge off mortgages, those secured by low-value homes and mortgages owned by borrowers in bankruptcy or litigation. AHP said it will make bids on solicited mortgages within 48 hours and can close deals within three to four weeks.
It may sound like the latest federally-backed incentive program, but the "Cash for Clunkers Mortgages" promotion is one of a myriad of programs that take their names from government initiatives with similar titles. The names invoke a sense of comfort in an implied government backing but are instead privately offered goods or services in no way connected with their namesake programs.
Write to Austin Kilgore.
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