Archive for October, 2009
Fitch Ratings increased its projections for housing starts and home sales for the first time in three and a half years, but warned even though recent statistical and anecdotal information points to a bottom for US housing market, recovery will be up and down.
“During the first 12-15 months off the bottom, the housing recovery may appear jaw-toothed as substantial foreclosures now in the pipeline surface as distressed sales, while meaningful new foreclosures arise from Alt-A and option adjustable-rate mortgage resets,” wrote managing director and lead US homebuilding analyst Bob Curran.
According to its latest “Chalk Line” report, Fitch projects total housing starts will fall 36.7% to 570,000 and single-family volume declining 30.6% to 430,000 in 2009. In addition, it expects new home sales to decrease 21% to 383,000 and a 1.1% increase in existing home sales to nearly 5m.
Previously, Fitch projected decreases of 43.3% for housing starts and 40.3% for single-family starts, as well as a 30% decline in new home sales and flat existing home sales.
Factors that contributed to the change in forecast include a pent-up demand for new homes, increased affordability, builder cancellation rates returning to normal levels, reduced builder inventories and increased builder and consumer confidence.
In addition, Fitch said stock prices for major public builders increased an industry average 7.7% from $43.17 on Dec. 31, 2008 to $46.51 on June 30, 2009.
But Fitch also said the threat of increased foreclosures and mortgage delinquency rates, home price decline and the eventual expiration of the first-time homebuyer tax credit perpetuate its negative outlook on the housing sector and a concern over housing inventory levels.
“However, it is not just an inventory problem ⎯ there is also a negative psychology that remains relatively pervasive. For many, the expectation or fear is that home prices are vulnerable to further declines and buying now might be a mistake,” Curran wrote. “This psychology applies to all types of buyers but especially applies to trade-up and second-home buyers.”
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Rick Seehausen is president and CEO of LenderLive Network, a company that provides domestic business process outsourcing and technology to the financial industry. LenderLive supports the single-family mortgage loan industry with private-label service solutions to originate, process, underwrite and close loans. LenderLive – through one of the top four servicers – has performed a significant portion of HAMP modifications and HARP refinances.
For this episode of In This Corner, Rick discusses the effect of loan modifications on the housing industry's recovery.
HW: How is LenderLive approaching the high volume of eligible borrowers for the Home Affordable Modification Program (HAMP)?
Rick: LenderLive has always relied heavily on its state-of-the-art technology platform to provide highly scalable solutions to our clients in all aspects of business. When HAMP was announced, our flexible technology systems allowed us to quickly respond. In just under three weeks from the initial HAMP announcement, LenderLive had adapted its technology and trained resources to support the HAMP processes. Since then (approximately six months ago) we have been involved in more than 200,000 HAMP modifications and have worked more than 600,000 unique loans on behalf of our servicer clients. This work is all being done domestically in our two facilities in Denver, Colo. and Troy, Mich.
We are also doing some imaging work out of a partner facility in Dallas. From these locations we have demonstrated an ability to hire and train a large staff of skilled human resources. It is the combination of strong management processes over the substantial labor component required to execute HAMP, and the multi-million dollar investment in technology we have made to automate a great deal of the process, that are the keys to our success.
HW: HAMP and Home Affordable Refinance Program (HARP) were designed to keep people in their homes, but are they delaying a true recovery?
Rick: HAMP and HARP require that a borrower to be re-underwritten into an affordable mortgage, which is the first wide-spread program to have this requirement. It is too early to assess the performance levels of these re-underwritten loans until at least six to nine months of experience has occurred. It is our view that, if done correctly, the newly modified loans should perform significantly better under these programs than the previous modification programs. There is a great deal of press about the high recidivism rates on loan modifications. It is very important to understand that these statistics are really applicable to the previous modification programs before HAMP. Most of these older modifications usually did not entail an underwriting of the borrowers’ financial situation to the mortgage obligation and furthermore, the modification itself typically resulted in higher payments for the borrower. HAMP requires the borrower to qualify and results in a lower payment to the borrower, which should yield substantially better results.
HW: Are HAMP and HARP here to stay, or are they just a temporary solution?
Rick: The short answer is, we don’t know. An argument could be made that this type of modification becomes a loss mitigation tool that servicers will use for a long time to come. As the market stabilizes the net present value test, which evaluates the cost of foreclosure against the cost of modification, it should provide proper checks and balances in the utilization of modifications versus foreclosure. However, the greater risk in continuing the modification program long term is moral hazard. None of us wants to create a society where the consequences of being unable to make payments are made into an easy ability to take advantage of a program to lower the payments. Loans need to be made to consumers under the expectation of repayment. Making it too easy to change the underlying repayment assumptions will increase the cost to obtain a loan for all consumers substantially. Higher financing costs will not be good for the economy either.
HW: How is LenderLive helping servicers adjust to the current foreclosure crisis?
Rick: The current environment has placed a tremendous strain on servicers to expand their physical capacity and infrastructure, as well as required servicers to develop specialized technology solutions to support many new processes. Outsourcing specialty servicing functions to a specialty servicer has been common among lenders for years. In this environment, servicers really need a “specialty originator,” since HAMP and HARP require qualification, underwriting and significant documentation to complete. LenderLive has made these areas of the mortgage business its core competency for more than 10 years. We have advanced technology to support the HAMP and HARP processes, and the trained, experienced resources at the ready to support these initiatives.
California foreclosure filings in September flattened from the previous month but remain well above the levels from a year earlier, according to ForeclosureRadar’s monthly foreclosure report.
From August, filings in California increased only 1.08% in September, but the volume has grown by 123% from last year. The report attributes the spike to the dramatic drop in filings in September 2008 after CA Senate Bill 1137 went into effect, requiring lenders to contact borrowers before filing a Notice of Default.
Since government intervention began in September 2008, foreclosure sales remain stunted, dropping 8.6% from the previous month and 40.6% from a year ago. But the percentage of foreclosures sold to third parties, who are usually investors, grew by 215% from last year and 3.27% from August, according to the report.
As California experiences a flattened foreclosure rate, Arizona leads all states with an increase of filings by 36.1% in September, according to data from ForeclosureListings.com.
Following Arizona’s lead was Florida’s 29.6% jump; Texas’ 24.3% increase; and Michigan’s 18.22% climb.
Urban areas were hit hardest and spurred the increases. In Arizona, the statewide increase was fueled by a massive 81.3% increase in Phoenix foreclosures.
Other major markets saw spikes as well. Foreclosures in Las Vegas jumped 47.4%; Atlanta had a 39.9% increase; Chicago’s rates climbed 36.2%; and Houston had a 33.2% spike in foreclosures, according to ForeclosureListings.com
Foreclosure sale prices in Arizona increased by 113.6% in September, leaping from $101,000 to $215,826. Georgia followed with a 45.4% jump in prices as the average price went from $129,187 to $187,906. The only state to see a price decrease was Vermont with a drop of 2.4%.
“These statistics show that the foreclosure markets are still volatile but that houses are gaining rapidly in value. For the savvy investor who can afford risk, now is a great time to get involved,” according to the ForeclosureListings.com report.
Foreclosure filings in Q309 increased to a level unseen since RealtyTrac began reporting the figures in January of 2005.
Write to Jon Prior.
Gregory McManus joins Ventras Capital Advisors as principal in the firm’s Philadelphia office and will lead the company’s growth in the commercial real estate asset management.
McManus is a 21-year veteran of commercial real estate, specializing in capital markets, asset management and resolution of distressed assets. He joins from Capmark Financial Group, where he served as chief financial officer, where he was responsible for restructuring the firm’s Affordable Housing Equity Group.
Capmark's woes first came to light early last month as the commercial real estate financier announced it would restructure to avoid bankruptcy.
This summer, Ventras acquired the management contracts relating to $5.2bn in real estate assets from Capmark Investments.
“With Greg on board, Ventras is poised to aggressively expand into the commercial real estate asset management arena,” said Scott Roth, a Ventras co-founder and a manager of the new portfolio. “This is an ideal time for us to be integrating and expanding our presence in the marketplace.”
Ventras is the real estate investment subsidiary of MBH Enterprises and was founded by co-founders and former Capmark veterans Roth, Patti Unti and Jimmy Parsley. Denver-based MBH acquires controlling interests in service sector businesses with a portfolio of 12 companies with 1,700 employees, and currently generates more than $300m in revenue.
Write to Austin Kilgore.
It may not be close to a $8,000 tax credit, but Nationwide Building Society will begin a series of initiatives to reduce the cost of buying a mortgage in the UK.
The UK government is engaged in myriad stimulus packages, but a first-time home buyer incentive is not one of them.
Effective tomorrow, Nationwide will up the discount currently offered on its mortgage reservation fee for first-time home buyers from £250 ($406) to £500, or customers can choose to pay the former £250 reservation fee discount and get free legal fees instead. The offer applies to three-, four-, and five-year fixed-rate mortgages.
The building society is also offering a reservation and legal fee free option to borrowers looking to move to a different home and additional fee and rate discounts to existing customers.
“The combination of rate cuts of up to 0.84%, and fee offers we are announcing today should really help first-time buyers and seasoned homeowners,” said Nationwide mortgage director Andy McQueen. “We are reducing the amount that they need to pay upfront and so hope we've removed a barrier which may have prevented people from buying a home.”
UK building societies are similar to the savings and loan financial institutions of the US in the mid-20th century, in that they are member-owned and focus on mortgage lending. Swindon, England-based Nationwide is the world’s largest building society and one of the largest mortgage lenders in the UK.
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Mortgage rates increased in two weekly surveys this week, ending a nearly six-week run of steady or declining rates in the Freddie Mac (FRE: 0.00 N/A) weekly survey.
Freddie Mac’s weekly survey of agency-purchased loans put the 30-year fixed-rate mortgage (FRM) stayed below 5% but increased 5bps to 4.92% with a 0.7 point for the week ending October 15. Last year, the 30-year FRM was 6.46%.
Bankrate.com’s index, which tracks large US banks and thrifts, put the 30-year FRM at 5.32% with a 0.34 point, up 10bps from the week prior.
The 15-year FRM rate was 4.37% with a 0.7 point in the Freddie Mac survey, up from 4.33% last week, but down from a year ago when it was 6.14%.
Bankrate.com put the 15-year FRM at 4.7%, up 10bps.
The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) averaged 4.38% with an average 0.6 point, up from last week when it was 4.35%. A year ago, it was 6.14%. The one-year ARM averaged 4.6% with an average 0.5 point, up from 4.53% last week.
Bankrate.com put the five-year ARM at 4.76%, up 10bps from last week.
“Mortgage rates rose slightly over the week, but rates on 30-year fixed mortgages remained below 5% for the third consecutive week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Homeowners are taking advantage of these low rates to refinance their current balances. Over the past five weeks ending October 9, more than 3 out 5 mortgage applications were for refinancing, according the Mortgage Bankers Association.”
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Fairway Independent Mortgage Corp., a Sun Prairie, Wis.-based mortgage banker, announced originated $2.55bn in mortgages in 2009 through September, its highest annual volume in the company’s 14-year history and up 67% from the year through September 2008.
“Our growth is attributed to several factors, including recent interest rate drops, lower home prices, the Federal Housing Tax Credit for first-time buyers, and a very professional sales team,” CEO Steve Jacobson said. “In addition, our decisions to stay clear of risky loans when they were popular and to get early FHA approval helped paved the way for us to reach this milestone.”
The company said it will hire additional branch managers and loan officers and conduct more business in person, rather than over the phone or on the Web to capitalize on the momentum of the increased business.
“Meeting borrowers in person is essential in earning their trust,” Jacobson said. “It provides not only comfort for our customers, but a sense of value in knowing they are working with professionals. Lending has returned to the basics, and we feel that in-person consultations are essential – along with providing loan documents early to our title companies, and attending closings in person.”
Write to Austin Kilgore.
According to RealtyTrac, one in every 136 homes in the US received a foreclosure filing during Q309, the highest reported quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.
Foreclosure filings increased 5% from the previous quarter and climbed 23% from Q308, according to the report. Nearly 938,000 homeowners received a foreclosure filing in Q309.
Filings in September dipped 4% from the month before but jumped 29% from September 2008. Despite the monthly decrease, September registered the third highest monthly total since RealtyTrac began reporting – trailing only July and August of 2009.
Real estate owned (REO) sales rose 21% from the second quarter to the third quarter, which mirrors increases in defaults and scheduled auctions in the first two quarters of 2009, said James Saccacio, chief executive officer of RealtyTrac.
“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties,” Saccacio said.
When HousingWire reported on the recent housing price decline in August, Dave McCarthy, the president and CEO of Integrated Asset Services (IAS) said that a “shadow inventory” of foreclosed homes that aren’t listed on the market and remain unsold could potentially arrest the housing recovery.
“When the shadow supply hits the market, home prices will be pressured, particularly in markets with large numbers of foreclosures,” McCarthy said.
Write to Jon Prior.
ProLogis (PLD: 32.52 -0.09%) closed on $123m in secured financing for two of its property funds backed by industrial properties in California and Sweden.
The California loan is a seven-year $52.5m financing funded by a “major life insurance company” on behalf of the ProLogis California Fund with a 6.6% interest rate and a 50% loan to value (LTV) for 11 industrial properties in the Los Angeles basin. The funds will refinance outstanding debt.
The European loan is a five-year, €48m ($70.5m) loan financed by a German landesbank secured by four Swedish properties. The funds will refinance outstanding debt.
“We continue to aggressively address fund debt maturities. So far this year, we have successfully addressed, refinanced or paid off $2.2bn of 2009 and 2010 fund debt maturities, including virtually one hundred percent of $1.4bn of 2009 maturities,” said ProLogis chief financial officer William Sullivan.
The Denver-based provider of distribution facilities in North America, Europe and Asia leases its industrial facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, and third-party logistics providers.
Write to Austin Kilgore.
Goldman Sachs (GS: 111.77 +2.96%) earned $3.19bn, or $5.25 per share, during Q309, up from profits of $1.81 per share in Q308 and $4.93 per share in Q209.
Goldman said it repurchased the outstanding US Treasury warrant from its participation in the Troubled Asset Relief Program (TARP) for $1.1bn on July 22, resulting in a 23% return on investment to the federal money lent to Goldman.
Revenue from fixed income, currency and commodities (FICC) was $5.99bn, “significantly” higher than Q308, but down from $6.8bn in Q209 and $6.5bn in Q109. Goldman said the improvement over 2008 reflected better performance in credit products and mortgages.
Net revenues in investment banking were $899 million, down 31% from Q308 and 38% lower than the Q209. Net revenue in financial advisory was $325m, down 47% from Q308, reflecting a decline in industry-wide completed mergers and acquisitions.
“Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors,” said Goldman Sachs chairman and CEO Lloyd Blankfein.
“Our client franchise businesses — advisory, financing, market making and asset management — contribute to and benefit from the overall improvement in conditions. Because the job market, and growth more generally, remain under stress, we continue to be focused on actively helping our clients in order to promote greater economic activity,” he added.
Write to Austin Kilgore.
