Archive for November, 2009
The US securitization industry is looking for a pick-up in commercial mortgage-backed securities (CMBS) activity with a possible wave of new issuance made possible by a federal lending program, while the European CMBS market remains pressured.
The deals would appear later this month through the Federal Reserve's CMBS-eligible Term Asset-Backed Securities Loan Facility (TALF) for new issuance.
Industry reports indicate a number of firms are gearing up to sell the first round of debt under the Fed's CMBS TALF program for new issuance. The firms include Developers Diversified Realty Corp. (DDR: 14.08 -1.26%), which in October said it obtained new first mortgage financing of $400m from Goldman Sachs Commercial Mortgage Capital, an affiliate of Goldman Sachs & Co. (GS: 111.77 +2.96%).
"The Company and Goldman Sachs are continuing to work with the Federal Reserve to make the newly-originated loan eligible for the TALF program," DDR said at the time.
Another major firm discussed in industry reports, Fortress Investment Group (FIG: 3.56 +2.30%), may have as much as $650m in commercial mortgages to package into one of the first new-issue CMBS eligible for TALF funding.
Despite the positive signs of potential new CMBS issuance in the US, existing European CMBS continues to work through weak performance and troubled credit.
The London arm of Standard & Poor's Ratings Services said it continues to downgrade European CMBS over ongoing credit problems. Downgrades continued Wednesday with 11 ratings actions and news that S&P is reviewing its European CMBS criteria.
S&P said said it anticipates refinancing problems mostly beginning 2011, and indicated European commercial property markets could experience 20 to 50% peak-to-trough market value declines.
"It also appears likely, in our view, that over the coming years the amount of debt available to borrowers to refinance their loans may be materially lower than the debt outstanding in the sector," S&P said. "New credit in the sector has contracted markedly, financing from the capital markets is limited, and some banks have either withdrawn from non-domestic commercial real estate lending or been required to reduce their debt burden."
S&P has a smaller market share of ratings in the UK than other credit-rating agencies.
Write to Diana Golobay.
While many are crediting the first-time homebuyer tax credit as a boon for the US housing market, a moratorium on UK mortgage tax is getting similar praise across the pond.
The land stamp duty is a tax imposed on UK mortgagees and varies depending on the purchase price of the home. In 2008, the minimum purchase price threshold for a 0% tax rate was temporarily raised from £125,000 (US$206,840) to £175,000. The tax rate for homes purchased for more than £500,000 was capped at a maximum 4%.
According to the Council of Mortgage Lenders (CML), 14,000 of the 19,700 first-time homebuyers purchased homes below the £175,000 threshold in September, avoiding paying the tax. Of those purchasers, 6,200 of them bought homes between the old £125,000 threshold and the new £175,000 limit.
There were 7,300 loans originated for previous homeowners who purchased properties between £125,000 and £175,000, representing abou24% of the 31,000 loans originated for previous homeowners in September.
The stamp tax moratorium was set to expire in September, but like the US homebuyer tax credit, was extended. The moratorium will now expire at the end of 2009. CML estimates since the increased threshold was created in September 2008, 132,500 house purchase mortgage transactions avoided paying the stamp duty, about 27% of all home purchase loans originated during that time.
“The stamp duty concession has played a modest role in underpinning confidence in the housing market,” CML economist Paul Samter said. “As the end date for the stamp duty concession approaches, we may see sustained levels of activity at the lower end of the market in a traditionally quiet time.”
But, Samter warned, the corollary will be lower activity in early 2010 as transactions are "bunched" in 2009.
Gross mortgage lending totaled £12.9bn, 7% higher than August, but 25% lower than September 2008. Home purchase mortgage originations totaled 50,600 in September, up 2% from August and 43% from September 2008. The results mark the third consecutive month of year-over-year increases in home purchase mortgage origination.
CML’s results come on the heels of recently released results from the Bank of England, that showed mortgage approvals and total lending to individuals climbed in September.
But, CML said, refinance mortgage activity continues its annualized decline. There were 33,000 mortgages originated for refinancing, a 10% increase from August, but 38% lower than September 2008.
Write to Austin Kilgore.
Wolters Kluwer Financial Services added new preventative features to its Wiz Sentri: Anti-Fraud software.
The update will help financial institutions prevent financial crimes by detecting the actual precursors to a fraudulent attack via continuous, real-time monitoring of both activity and behavior, Wolters Kluwer said. The new function analyzes correlations and activity patterns between customers and their accounts and an institution’s employees.
“The mere detection of suspicious activity does not mitigate fraud or its associated monetary losses within a financial institution,” said Todd Cooper, vice president and general manager of Wolters Kluwer Financial Services’ Financial Intelligence Unit.
Cooper added: “Identifying suspicious relationships and behavior prior to an actual loss is a key strategy of effective anti-fraud programs. The enhancements we’ve made to our Wiz Sentri: Anti-Fraud solution will help fraud investigators move from detecting fraud to preventing fraud.
Write to Austin Kilgore.
Mortgage loan loss severities may have leveled off in recent months, although the latest mortgage insight study from Amherst Securities Group expects a modest increase in severity in coming months.
The increase may arrive due to further drops in house prices, continued increases in liquidation lags and less favorable geographic distribution of liquidations, Amherst said in mortgage-backed security (MBS) market commentary Tuesday.
But the firm sees "temporary" stabilization of house prices, as 7.5m units or 13.5% of US homeowners are in non-payment status. Amherst previously explained its reasoning for calculating 7m of those are "destined" to liquidate, which hangs a shadow of distressed inventory over the positive signs seen in the US housing market.
House prices may decline as much as another 8 to 10%, Amherst said, indicating loss severity will increase further.
Although lower interest rates have made for lower annual costs of principal and interest advances, which facilitated faster liquidation timelines. But interest rates are unlikely to drop any farther, Amherst said, and any increase would drag on the time to liquidation.
The geographic differences in liquidation time also threaten to increase loss severity.
For example, "Florida loans, which have very high severities, take a long time to liquidate," said Amherst strategist Laurie Goodman. "Thus the liquidation rate on these loans has been low to date. These loans will liquidate in the next wave, pushing up severities."
Write to Diana Golobay.
Lenders Asset Management Corp. (LAMCO) formalized its system that manages and liquidates real estate-owned (REO) properties.
LAMCO is a nationwide default management company that offers REO services.
Designers have been developing the LAMCO REO Liquidation Management Process since 1989 to enable lending institutions, servicers, investment firms and insurance entities to scale operations and liquidate REO assets. Companies can turn around REO properties in half the time of the industry standard.
LAMCOnetwork is the key to the process, connecting buyers and suppliers of REO services across the nation via the Internet. It also links lenders and servicers with real estate agents, lawyers, brokers, contractors and other vendors in a single database.
The lenders and servicers use the network at no charge to identify vendors and manage their REO portfolio.
The process also offers a quality management system for securing and reselling REO properties while following local and federal regulations.
Write to Jon Prior.
The rate of mortgage applications initiated increased in two weekly surveys.
The Mortgage Bankers Association (MBA) index of gross mortgage applications increased 8.2% on a seasonally adjusted basis for the week ending Oct. 30.
MBA’s refinance index increased 14.5% from the previous week. The association’s purchase index decreased 1.8%. Refinance applications took a 66.1% share of all applications, up from 62.3% in the previous week. The adjustable-rate mortgage (ARM) share of all applications decreased to 6.1% from 6.9%.
Mortgage Maxx’s survey of applications — which adjusts gross applications to reflect the number of households initiating applications — increased 1.6% for the same period.
“The Max temporarily abates its twenty percent decline since early October; however the downward flight path through the end of 2009 will resume both in real and nominal terms as the holiday effect begins in two short weeks,” Mortgage Maxx said in its report.
Write to Austin Kilgore.
Atlanta-based homebuilder Beazer Homes USA (BZH: 3.25 +0.62%) returned to profitability in its fiscal year fourth quarter, posting income from continuing operations of $35.3m, or $0.87 per diluted share.
The profits from Beazer’s FYQ409, which ended Sept. 30, compare to losses of $27.9m in FYQ309 and $453.8m in FYQ408.
The results were impacted by a non-cash pre-tax charge of $29.9m for inventory impairments and abandonment of land option contracts, and a pre-tax gain on early extinguishment of debt of $89.3m. Gross profit margin was 6.6%.
Total revenue of $376.3m was less than the $649.8m in FYQ408 and home closings decreased 24.3% to 1,685 homes. But new home orders totaled 1,012, an increase of 2.4%, and Beazer’s cancellation rate was 34.7%, down from 46.3% in FYQ409.
Also during the quarter, Beazer repurchased $269.3m of senior notes for an aggregate purchase price of $189.5m, resulting in a pre-tax gain on early extinguishment of debt of $75m. Beazer also negotiated a reduced payoff of one of its secured notes, which resulted in a pre-tax gain on early extinguishment of debt of $14.3 million.
“Following difficult market conditions throughout fiscal 2009, we were pleased to finish the year with a fourth quarter year-over-year increase in net new home orders from continuing operations, improved gross margins and a significant cash balance,” said Beazer president and CEO Ian McCarthy. “During the quarter, we experienced some moderation in negative market trends, with attractive interest rates, historically high housing affordability and the federal tax credit attracting more prospective buyers to purchase a new home.”
The profitable fourth quarter helped ease Beazer’s fiscal year-end results, which include a $178m, or $4.60 per share, loss, compared to a loss of $800m in the 2008 fiscal year. For the year, home closings decreased 35.3%, new orders decreased 22.2% and total revenue was down from $1.81bn in 2008 to $1.01bn in 2009. Gross profit margin was 2.1%, compared to a loss of 12.9% in 2008.
Another positive sign for the building sector arrived in preliminary quarterly results from Horsham, Pa.-based builder Toll Brothers (TOL: 22.47 +1.81%).
The luxury homebuilder said its FYQ409 net signed contracts increased 42% in units and 62% in dollar amount compared to the prior fiscal year’s fourth quarter. The increases came despite having fewer selling communities, Toll Brothers said.
Revenue for FYQ409 decreased 30% from FYQ408, and the builder said it will provide full quarterly and year-end results in the coming weeks.
“We have definitely progressed from one year ago,” said Robert Toll, chairman and CEO said. “The shock to the financial system in mid-September 2008 that shut down the capital markets appears to be mostly behind us.”
“The improvement in consumer confidence over the past year, the increasing stabilization of home prices, the decline in unsold home inventories and the reduction in buyer cancellation rates suggest that the new home market should be improving; we sense that it is, though slowly and through choppy waters,” Toll added.
Write to Austin Kilgore.
The average driving distance for an appraiser completing a job for an appraisal management company (AMC) was 13 miles in urban and suburban areas this year, according to a new study conducted by an AMC trade group, the Title Appraisal Vendor Management Association (TAVMA).
TAVMA’s membership, which includes some of the nation’s largest AMCs, tracks a number of metrics; including the distance appraisers travel to evaluate properties. The association polled its membership on travel distance for the first of what it said will be quarterly travel distance reports.
TAVMA said AMCs provide about 60% of all appraisal services in the country, after the May implementation of the Home Valuation Code of Conduct (HVCC). The code creates barriers between real estate agents and lenders and the appraisers as a measure to ensure accurate appraisals. One method of establishing that arms' length distance is to order appraisals through AMCs, although it's not a requirement of the Code.
Many real estate professionals are critical of the Code, claiming out-of-market AMC appraisers — sometimes driving as far as 50 miles to conduct an appraisal — and are unfamiliar with the local conditions, creating faulty appraisals and hurting business.
“We polled our AMC members in light of unsubstantiated statements that AMCs send out-of-market appraisers great distances to value properties,” said TAVMA executive director Jeff Schurman. “Based on what our members are reporting to us that’s simply not the case.”
TAVMA said AMCs generally use one of three methods to control appraiser travel — geo-coding, zip code to zip code mapping, or order form directions not to exceed specific distance parameters.
Steve Haslam, CEO of the StreetLinks National Appraisal Services AMC said distance isn’t the only factor in evaluating an appraiser’s performance, adding many appraisers in large markets are limited to smaller, specific zones in a region.
“That an appraiser services a particular area, how often, and how recently are three critical selection criteria that AMCs use in selecting the most appropriate appraiser for an assignment,” he said. “Does this mean that in Montana or Wyoming, some appraisers aren’t driving further than 13 miles? Of course not…The nature of the business is that appraisers sometimes travel outside of their own neighborhood — but that doesn’t mean outside of their sphere of professional expertise.”
Write to Austin Kilgore.
Ralph Cioffi and Matthew Tannin, hedge fund managers at investment bank Bear Stearns, were acquitted of charges relating to alleged securities fraud.
in June 2008, Cioffi and Tannin were arrested and processed at Federal Bureau of Investigation (FBI) headquarters in Manhattan.
As HousingWire previously reported, the two Bear Stearns funds managed by both men — the High-Grade Structured Credit Strategies Fund and High-Grade Structured Credit Strategies Enhanced Leverage Fund — were the first two major hedge funds to implode at the onset of the mortgage crisis still being worked through.
The Enhanced Leverage Fund, for example, borrowed as much as $10 for every $1 held in cash or collateral, according to Street Fighters, an investigative look into the fall of Bear Stearns, authored by Kate Kelly and reviewed by HousingWire in the August magazine issue.
Kelly indicates that, when lending firms, including JP Morgan Chase (JPM: 37.21 -0.75%), made margin calls on the funds, the liquidity troubles were revealed and the managers went into default. Cioffi and Tannin then pursued a fire sale of at least $8bn of bonds. But it was not enough to keep the funds solvent.
The mortgage-related funds’ trouble in June 2007 were the first in a series of difficulties that helped push Bear Stearns to the brink of insolvency, leading to its arranged bailout negotiated by JP Morgan and the Federal Reserve in May 2008.
But a jury this week affirmed Cioffi's and Tannin's innocence of alleged securities fraud that was said to contribute to the funds' difficulties and — ultimately — Bear Stearns' downfall.
A statement from US attorney Benton Campbell iterated the Department of Justice's disappointment in the outcome of the long case.
"Honesty and integrity are the principles upon which our financial markets function," Benton said. "Enforcing and protecting those principles will continue to be one of the principal efforts of this Office."
Write to Diana Golobay.
Standard & Poor's Ratings Services slashed some 26,300+ mortgage-related securities bonds in Q309. Bloomberg has the scoop on the downgrades in a posting today.
It marks a record quarter of mortgage bond downgrades for the credit-rating agency — an achievement not lost on industry players, one of whom thinks that a contest for a slogan for S&P is now in order. The ratings agency does not widely use a slogan currently.
After all, it's not every quarter a credit rating agency takes so many ratings actions. Or at least, let's hope not.
This particular source figured S&P's new slogan should reflect that achievement.
These are a few suggestions from source on a trading desk somewhere in the vicinity of Manhattan:
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