Archive for November, 2009
Industry sources indicated Thursday that financial firm Morgan Stanley (MS: 18.56 +2.26%) is pitching some $1.22bn of Dutch, non-conforming residential mortgage-backed securities (RMBS) bonds.
HousingWire's sources, from Morgan Stanley in London, confirmed a letter concerning a securitization investment opportunity was sent to their investors base. However, they declined to provide details citing the proprietary nature of the letter.
The European Central Bank (ECB) acquired the bonds through repo from branches of Lehman Brothers, the sources said. Sources remain split over whether the ECB will profit — or break even, at the least — from the sale of the bonds, which may attract interest due to the large size. ECB may have taken a haircut of as much as 12% at the time of repossession, sources said, and considering the improbability the market value will come in over 88%, it seems likely ECB will take a hit on the sale.
The news of the $1.22bn pitch comes at a time when the Dutch RMBS market continues to show signs of stabilization in September, according to Moody's Investors Service.
Sources could not say whether the Dutch RMBS offering comes from the new wealth management joint venture from Morgan Stanley, although that unit is showing a pick-up in personnel as investment opportunities grow.
In late October, Morgan Stanley Smith Barney said it would begin to add 500 private wealth advisors to specialize in ultra-high net worth clients following its successful launch as a joint venture. The firm said this effort would be branded under the name Morgan Stanley Private Wealth Management.
"The combination of Morgan Stanley's well established Private Wealth Management division and Smith Barney's leading Citi Family Office capabilities creates a strong platform for individuals and families of significant means," said James Gorman, co-president of Morgan Stanley and chairman of Morgan Stanley Smith Barney, in a statement at that time. "These clients have highly specialized wealth management and private banking requirements which we are uniquely positioned to fulfill."
Morgan Stanley Smith Barney was formed by a spin-off of Citigroup's (C: 30.87 +1.61%) retail brokerage business, Smith Barney, and the wealth management business operated by Morgan Stanley.
Write to Diana Golobay.
The strength of the UK housing market has surprised the Council of Mortgage Lenders.
The CML is a trade association for the residential mortgage lending industry in the UK. Analysts there reported that recovering house prices reflect low volumes of new-build properties, a drop in willing sellers and a high level of cash and overseas buyers. But it’s not certain that the good signs would be around in 2010.
CML analysts reported that their initial forecast for 2009 was far too pessimistic. Low mortgage rates in the UK have kept fewer households from falling behind on their mortgages. Rising unemployment will mean that more borrowers will fall behind, but the lower rates, the analysts anticipate, will off set the increase.
Foreclosure levels have dropped below what the analysts earlier feared, and analysts have cut their foreclosure forecast to 48,000 for 2009 from the anticipated 75,000 prediction from last year. But that doesn’t mean foreclosures are not on the rise. CML analysts predict that foreclosures will increase from 48,000 in 2009 to 53,000 in 2010.
The analysts forecasts that those behind by more than 2.5% or more of their mortgage will reach 195,000 at the end of the year and creep up to 205,000 by the end of 2010.
CML also found that gross lending in the buy-to-let mortgage market – where investors buy a property to resell at a profit – increase 10% to £2.1bn ($3.4bn) in Q309. It’s the first increase in two years, but the recovery in buy-to-let lending is climbing from the basement. Even with the increase, current lending volumes are still significantly lower the peak in 2007, according to CML.
“At this stage, the recovery is modest – but the figures show that buy-to-let is here to stay. Buy-to-let lenders are among those facing some of the biggest challenges in raising mortgage funding, so the improved figures are all the more welcome,” said Michael Coogan, director general of CML.
<strong>Write to</strong> <a href="mailto:jon.prior@housingwire.com" target="_blank">Jon Prior</a>.
Both prime and non-conforming UK residential mortgage-backed securities (RMBS) posted continued signs of stabilization in September, although overall European RMBS performance remains uneven.
UK prime residential mortgage-backed security (RMBS) performance continued to stabilize in September, according to indices compiled by Moody's Investors Service.
The UK Prime RMBS repossession trend remained at 0.07% since August. The rate of 90+ day delinquencies also kept its August level, remaining at 1.9% — 0.7% above the year-ago level.
The cumulative UK Prime RMBS loss trend stood at 0.11%, only slightly higher than the August level, according to Moody's. The ratings agency's outlook for UK Prime RMBS is negative.
Delinquencies among UK non-conforming RMBS also remain stable since June, Moody's said. The weighted-average delinquency trend was 20%, up from 11.6% one year earlier.
The non-conforming UK RMBS repossessions trend was 1.4% lower in September than its 3.5% peak in the beginning of 2009. The decline in outstanding repossessions was driven by the volume of sales of repossessed properties, which caused further losses, Moody's said.
""While it is good news that the rise in delinquencies has abated, the levels remain very high," said senior associate Georgij Ludmirskij. "There are currently 20 transactions that account over 30% of their portfolios as 90+ days delinquent."
In European RMBS, performance remains mixed among conservative and more bullish markets. For example Dutch RMBS remains stable, as the housing market in the Netherlands did not see as much of a pop in housing before the recession. At the same time, Spanish RMBS continues to struggle under the effects of the inventory of luxury properties in areas like Costa del Sol and Costa Brava, which buyers shunned as the recession worsened.
The Dutch RMBS market continued to show signs of stabilization in September. The 60+ day delinquency trend remained at 0.6%, where it's held since March. The weighted average cumulative foreclosure rate increased at only a "very moderate rate," rising to 0.48% in September from 0.45% at the same time last year.
The constant prepayment rate for Dutch RMBS continued to decrease, falling to 6.6%. The outstanding pool balance in the Dutch RMBS market stands at €184.3bn (US$273.74bn) as of September.
Industrial production and retail sales data indicate the Netherlands likely emerged from recession in Q309, Moody's said. Exports are likely to lead economic recovery in 2010, the ratings agency said, although recovery will be modest as most of the Netherlands' trading partners are recovering slowly.
Dutch unemployment, although relatively low for a European country, rose sharply to 6% from 3.8% in Q308. Moody's anticipates the Dutch unemployment rate will continue to rise, topping 8% by Q310.
Dutch house prices stabilized in recent quarters after falling in the second half of 2008.
Moody's outlook on Dutch RMBS remains negative over generally higher loan-to-value ratios that make Dutch loans more sensitive to changes in house prices.
At the same time, Spanish RMBS continued to deteriorate in performance during September. The cumulative default rate reached 1.31% — more than four times the level one year earlier. The 90+ day delinquency trend increased by 0.84% over the previous year and now stands at 2.02% in September.
The constant prepayment rate among Spanish RMBS has decreased since mid-2006 and now stands at 6.8%. The total outstanding pool balance in the Spanish RMBS market was €147.8bn.
Moody's outlook for Spanish RMBS remains negative, as unemployment continues to hamper borrower performance.
The Spanish market recently saw an upturn in the number of property acquisitions as the securitized mortgage pools deteriorated rapidly and the real estate market remained illiquid, adding uncertainty to recovery and loss severity, according to Moody's. The Spanish economy is not likely to begin growth again until Q110, Moody's said, marking the 8th consecutive month of recession and one of the longest recessions in the Euro area.
Write to Diana Golobay.
Mortgage rates hovered slightly above record lows, but as the debate on the extension of the first-time homebuyer tax credit raged, borrowers stayed away from the application process last week.
The average rate of the 30-year fixed-rate mortgage (FRM) was 4.91% with a 0.7 point for the week ending Nov. 12, according to Freddie Mac’s (FRE: 0.00 N/A) weekly survey of mortgage rates.
But the Mortgage Banker Association’s (MBA) index of home purchase mortgages decreased 11.7% in the week ending Nov. 6, compared to the week prior and was at its lowest level since December 2000.
Freddie Mac’s rate was down from the previous week, when the 30-year FRM was 4.98% and one year ago, when it was 6.14%.
“Mortgage rates eased further over the week, helping to promote an affordable home-purchase market and stimulate refinance,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This comes at a time when house price declines are moderating and consumer demand for prime mortgages at commercial banks has picked up.”
MBA’s index of total market activity was up 3.2%. The refinance application index increased 11.3%, making up for the decline in purchase application volume. Refinance applications took a 71.5% share of total application volume, up from 66.1% in the previous week.
Bankrate.com put the average 30-year FRM rate at 5.19%, down 16bps from the previous week. Freddie Mac’s survey of 15-year FRM put the average rate at 4.36% with an average 0.6 point. Bankrate.com’s survey put the 15-year FRM at 4.61%, down 11bps.
Freddie’s survey of the five-year, Treasury-indexed adjustable rate mortgage (ARM) put the average rate at 4.29% with an average 0.6 point, down from the previous week when it was 4.35%. The one-year, Treasury-indexed ARM average 4.46% with an average 0.6 point, Freddie said. Bankrate.com put the five-year ARM at 4.58%.
Write to Austin Kilgore.
CredStar, a credit information provider for the lending industry, launched its ENCORE report to its credit union and mortgage lending customer base.
CredStar is part of the First Advantage Corporation, a subsidiary of the First American Corporation (FAF: 14.98 +0.07%).
The report provides risk analysis compliant to the Fair Credit Reporting Act for all critical elements of the mortgage application and servicing process.
The ENCORE report features applicant credit risk, identify verification, applicant income and employment verification, subject property and market data.
According to CredStar, estimated fraud losses could reach $25bn in the current economic environment.
“As part of the First American family of companies, we’re able to leverage our vast data resources and natural synergies with CredStar to expand ENCORE’s reach to their markets,” said John Bauer, executive vice president of business development for First American CREDCO.
Write to Jon Prior.
Foreclosure filings decreased 3% in October but remains 19% higher from a year ago, according to a report from RealtyTrac.
RealtyTrac is an online market place of foreclosure properties, holding more than 1.5m listings.
During October, 332,292 properties received a foreclosure filing, or one in every 385 homes. Foreclosures, however, decreased for the third consecutive month.
The three states leading the way in foreclosures are the usual suspects. Despite, Nevada’s 26% decline in foreclosure activity from the previous month, the sand sate still holds the nation’s highest foreclosure rate. One in every 80 homes in Nevada forecloses, totaling 13,842 properties in October. But it's a 4% decrease from October 2008 – the first ever year-over-year decline in Nevada since RealtyTrac began calculating the change in January 2006.
California came in second for the second month in a row. One in every 156 homes received a foreclosure filing in October. A total of 85,420 properties foreclosed during the month, a 1% drop from September but still nearly 50% above the level seen in October 2008.
Florida had the third highest foreclosure rate with one in every 168 homes foreclosing. For October, 51,911 properties foreclosed, a 6% decrease from the month before and a 4% drop from a year ago. It marked the first year-over-year decrease for Florida since July 2006, according to the report.
“Three consecutive monthly declines is unprecedented for our report, and on first blush an indication that the foreclosure tide may be turning,” said James J. Saccacio, chief executive officer of RealtyTrac.
However, Saccacio added, high-risk mortgages, negative equity and unemployment continue to fuel foreclosure activity.
“And despite all the efforts and resources directed at helping homeowners avoid foreclosure, we continue to see foreclosure activity levels that are substantially higher than a year ago in most states,” Saccacio said.
The Home Affordable Modification Program (HAMP) is one effort. Through HAMP, the US Treasury allocates capped incentives to participating servicers for the modification of loans on the verge of foreclosure. Housingwire reported that servicers have started 650,000 trial modifications since the program’s launch in March 2009 through October.
Write to Jon Prior.
Low prices and foreclosure bargains motivate buyers to purchase a home more than any other reason, according to a survey from Move.com.
Of consumers wanting to buy a home, 25.3% of them want to purchase a foreclosure. Roughly 12% of homebuyers, or one out of eight, today plan to purchase a home as an investment property, up from 5.6% seven months ago.
The buyers split roughly down the middle on investing and residing in their real estate owned (REO) purchase. While 57.6% plan to live in the foreclosed home themselves, 42% of the buyers regard their acquisition as an investment, according to the survey. Roughly 13% of them plan to convert the foreclosure into a rental property, 11.3% of the buyers will fix them up for re-sale and 17.4% said that they would house a family member in the purchased REO until it can be sold for a profit.
Steve Bancroft, of the Detroit Office of Foreclosure, recently spoke at Safeguard’s National Property Preservation Conference in Washington, D.C. He addressed the consumer demand of foreclosed property – if occupied.
Brokers selling a real estate owned (REO) property could expect to get $8,000 for an empty foreclosed home in Detroit. If it’s owner-occupied, the brokers can expect $80,000 for a foreclosed property.
He suggestes that brokers keep the family in the home while trying to sell it, even rent it out if possible. The practice could increase the property value by 10 times.
The Move.com survey showed that, on the sell side, 73% of the buyers believe their properties will appreciate 10% or more in five years, while 28% expect a 20% appreciation during the same amount of time.
According to the survey, 23.6% of all prospective homebuyers and investors believe that prices are as low as they can go, and 18.7% want to take advantage of foreclosure bargains. Also, 21.2% want to take advantage of the great selection of homes for sale in their community, while 14.2% are concerned that interest rates are on the rise.
“This latest Homeownership Survey validates what many had hoped to see in the housing markets – affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market,” said Errol Samuelson, the CEO of Move. “In today’s environment, regardless of whether you’re an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years.”
Write to Jon Prior.
New accounting rules set to take force on January 1, 2010 will result in a reduction in securitization, according to recently released research by a Deutsche Bank analyst.
The new rules — Financial Accounting Standards (FAS) 166 and 167 — intend to increase bank capital requirements.
But Deutsche and others believe the new rules will make securitization — once the primary financial tools for mortgage lending liquidity — more expensive.
“Barring any significant changes to the regulatory capital framework, this will make securitization a vastly less economic proposition for would-be issuers, as beneficial capital treatment is lost,” Deutsche analyst Katie Reeves wrote.
However, securitization won’t completely go away, Reeves wrote. “[O]verall we expect a reduction in securitization as a result of FAS 166/167 and the related regulatory capital impact, we do still expect to see some issuance, in situations where securitization offers a lower funding cost alternative than unsecured debt.”
Further complicating the matter are the myriad regulations that vary from country to country. While US institutions will adapt FAS 166/167, other global markets are implementing new International Accounting Standard (IAS) regulations, including IAS39, which establishes regulations for determining fair value of financial assets whose prices fluctuate.
The Group of 20 (G20) is trying to solve the discrepancy under the auspices of the G20’s financial stability board. The goal is for this board to serve as an umbrella organization to unify accounting principals. The industry has begun to respond positively to the G20’s efforts, as highlighted in a joint statement from the Securities Industry and Financial Markets Association (SIFMA), Association for Financial Markets in Europe (AFME) and Asia Securities Industry and Financial Markets Association (ASIFMA).
“As countries accelerate the pace of regulatory and legislative reforms and encourage renewed, sustainable growth, it remains vital to seek a well-balanced and well-coordinated regulatory framework and guard against the potential for barriers to market entry, distortions to competition, or regulatory arbitrage," the statement said.
This crucial issue will be discussed in earnest at HousingWire’s inaugural Distressed Servicing conference, Nov. 16 and 17 in Austin, Texas, where American Securitization Forum (ASF) director George Miller is slated to speak, among other industry leaders.
Write to Austin Kilgore.
[Update 1 includes details on the HECM study and FHA's capital resources.]
Due to "significant losses" on mortgages closed before this year, the Federal Housing Administration's (FHA) capital reserve ratio plummeted below the congressionally mandated 2% threshold, according to an actuarial study of FHA's fiscal strength.
Under "most" economic conditions modeled in the actuarial study, the capital reserve ratio would remain above zero, FHA said.
The capital reserve ratio, which measures the reserves held in excess of what is needed to cover projected default-related losses over the next 30 years, now stands at 0.53% of total insurance-in-force as of September, compared with 3% in fall of 2008. These funds, held in the FHA's Capital Reserve Account, are in excess of the funds held in the Financing Account to cover the "base case " projection of capital needed to cover default-related losses on existing loans over the next 30 years.
Combined, these accounts hold $31bn — more than 4.5% of FHA's total insurance-in-force.
The decline this year in the capital reserve ratio is partially due to the need to reserve more funds for anticipated claim costs on the current portfolio — essentially accounting for more funds in the Financing Account and less in the Capital Reserve Account, according to a report to Congress by US Department of Housing and Urban Development (HUD) secretary Shaun Donovan.
FHA's capital resources grew from $27.2bn at the start of the fiscal year to $30.7bn at the end of the year. HUD attributed the growth to premium revenues collected on new insurance in fiscal year 2009 — a record year of new insurance commitments.
But despite the growth in capital resources, FHA's recent books-of-business continue to experience elevated levels of stress due to house price declines, income loss and climbing unemployment, according to HUD's report. For example, the '08 year of single-family insurance — representing 15.7% of total insurance — saw a 12.13% seriously delinquent rate as of the latest actuarial study. But the '07 year of insurance — representing only 5.7% of total insurance — saw an 18.53% serious delinquency rate.
The '09 year of insurance performed relatively well as of the most recent data, experiencing only 1.6% serious delinquencies although the loans insured in fiscal year 2009 account for more than 31% of all loans insured by FHA.
FHA insures approved lenders against default-related losses on qualifying mortgages. As HousingWire previously reported in the May 2009 magazine issue, the volume of mortgages the FHA insures swelled in recent years. FHA made significant changes to its underwriting criteria, increased oversight of FHA lenders and put an end to the controversial seller-funded downpayment assistance program.
As a result of efforts to reduce risk, the quality of new loans insured by FHA improved on several metrics including average borrower FICO score, which is up to 693 compared with 633 two years ago, FHA said in a statement Thursday.
“There are real risks to the FHA and we are aggressively addressing those real risks with real reforms,” said FHA commissioner David Stevens. “FHA will not tolerate fraudulent or predatory lending practices and we have enforced tighter standards and taken action against lenders who violate FHA origination and underwriting requirements, starting with the suspension of Taylor, Bean and Whitaker and most recently, actions against Lend America. The FHA has also implemented several reforms to strengthen its credit policies, which will ultimately help shore up the reserves and reduce risk.”
The findings come as part of FHA's annual actuarial study and reflect FHA's status at the end of its fiscal year 2009, which concluded in September. The study was scheduled for public release last week but delayed over FHA's concerns regarding the accuracy of the actuary's modeling.
The fiscal review process this year included a study of FHA's Home Equity Conversion Mortgage (HECM) program, which insures qualifying reverse mortgages made to senior homeowners. The HECM program in fiscal year 2009 boasted $29bn in endorsements in fiscal year 2009.
Stevens and Donovan appointed Robert Ryan as the agency's new chief risk officer — the first appointment under this role in the FHA's history. Ryan oversees the coordination of risk management efforts under a single division devoted to mitigating risk to the insurance fund across all lending programs.
Among credit policy changes to take effect Jan. 1, 2010 at FHA are the requirement that supervised mortgagees submit audited financial statements and an effort to modify streamlined refinance procedures. FHA will also on January 1 require appraiser independence in origination, enable appraiser portability and modify the appraisal validity period.
Among changes being pursued by a rule-making process are a modification of mortgagee approval and participation in FHA loan origination and an increase in the net worth requirements for mortgagees, FHA said.
Write to Diana Golobay.
Branch Banking & Trust (BBT: 26.95 -0.33%) took the top spot in JD Power and Associates’ mortgage origination customer satisfaction study.
BB&T earned a score of 783 in the study, the top-ranking lender of the 23 surveyed. Wells Fargo (WFC: 29.60 +1.89%) subsidiary Wachovia ranked second, with a 781 score, followed by National City Mortgage and Sun Trust Mortgage, tied with scores of 769 each. Wells Fargo rounded out the top five with a score of 754.
The industry average score was 739, JD Power and Associates said. Bank of America (BAC: 7.29 -0.14%) ranked slightly above the average, with a 741. BofA unit Countrywide, however, was below average, with a 720 score. Chase (CCF: 13.38 +0.68%) and CitiMortgage/CitiBank (C: 30.87 +1.61%) earned scores of 720 and 711, respectively.
The rankings are derived from a panel of respondents who obtained mortgages within the past 12 months, which helps explain why Wachovia and Countrywide have separate entries.
“But we base our responses on customer perception. They select who their lender is from a list and they selected Countrywide or Wachovia in those cases,” David Lo, the study’s director, told HousingWire.
Lo added the survey showed that it’s taking longer for lenders to close mortgages, both because of increased standards and because institutions are inundated by the volume of applications for both purchase and refinance loans. The survey also shows average borrower credit scores are increasing, indicating potential borrowers with lower credit aren’t getting loans.
Banks that had certain customer service practices in place fared better in the survey, even when obtaining the loan took longer.
“It’s certainly justified that lenders are being more cautious,” Lo said. “But to mitigate dissatisfaction with a lengthier process, the data’s telling us when lenders are proactively giving updates, providing a roadmap or time line and meeting those goals, those customers are more satisfied with their experience, even when it the process takes longer.”
JP Power and Associates is a market information services provider that conducts surveys on a number of customer service sectors.
Write to Austin Kilgore.
