Archive for November, 2009
The sellers of more than 25% of homes currently on the market in the US reduced the asking price of their home at least once in the past 12 months, according to San Francisco-based real estate search firm Trulia.
The national average price reduction was 10%, but more than 40% of the top 50 major metro areas Trulia studied saw average price reductions above 30%.
The Northeast was the region with the highest rate of price reductions, with 29% of homeowners reducing their asking price. The Midwest ranked second, with 28% of homeowners reducing prices, followed by the West (25%) and the South (24%).
“With mortgage rates still low and the expansion of the tax credit to trade-up buyers, we could see significant inventory — both new and shadow inventory — hit the market during the next four to six months," said Pete Flint, Trulia co-founder and CEO. “Inventory levels this quarter are poised to be atypical of a normal real estate market, which could create tremendous pressure on sellers to price their homes competitively and move their property before the tax credit expires on April 30th.”
Individual markets that experienced noticeable rates of price reduction include Kansas City, Mo., which saw 59% of homes with reduced prices, Colorado Springs, Colo. (43%), Omaha, Neb. (39%), Louisville, Ky. (37%), and Milwaukee, Wis. (30%).
Markets that experienced the greatest asking price declines include Las Vegas (34%), San Jose, Calif. (25%), San Antonio, Texas (18%), Los Angeles (16%) and Oakland, Calif. (16%).
Luxury homes — those listed at $2m or above — represent less than 2% of market listings, but with an average 14% price reduction, represent $28.1bn in price declines, or about 25% of all home price reductions.
Write to Austin Kilgore.
The PMI Group (PMI: 0.00 N/A) contributed all issued and outstanding common capital shares of its subsidiary PMI Insurance Co. (PIC) to PMI Mortgage Insurance (MIC), boosting MIC’s capital by $92.2m.
PMI Mortgage Insurance offers residential mortgage insurance and credit enhancement products. The adjustment comes after PMI reported a $2.7bn loss in its US mortgage insurance operations for Q309.
The diversion of funds decreases MIC’s risk-to-capital ratio to 16.9 to 1, from its 18.5 to 1 capital ratio in Q309.
During the quarter, Arizona and California passed legislation granting regulators the discretion to decide if a mortgage insurer can continue writing new business if it does no meet a required minimum risk-to-capital minimum level – which is generally 25 to 1.
Also, the move increases MIC’s excess minimum policyholders’ position to $307.7m from $215.2m in Q309.
Write to Jon Prior.
After posting profits of nearly $2.2bn in Q309, bond insurer Ambac Financial Group (ABK: 0.00 N/A) warned in a regulatory filing that it may need to file for bankruptcy protection.
In the Securities and Exchange Commission (SEC) filing, Ambac said the $164.7m it holds in cash, short-term investments and bonds is sufficient liquidity to last it until Q211, but acknowledged that it was not a guarantee and it might run out before then.
The company said its primary subsidiary, public finance and structured finance obligations guarantor Ambac Assurance, has been unable to pay dividends in 2009 and will likely be unable to pay dividends in 2010, without the approval of its regulator, the Office of the Commissioner of Insurance (OCI) in Wisconsin. Without the dividend payments, Ambac will be unable to pay operating expenses and cover debt.
“Ambac is developing strategies to address its liquidity needs; such strategies may include a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding,” the company said. “No assurances can be given that Ambac will be successful in executing any or all of its strategies. If Ambac is unable to execute these strategies, it will consider seeking bankruptcy protection without agreement concerning a plan of reorganization with major creditor groups.”
Rival monoline MBIA (MBI: 12.18 +1.50%) posted a $727.8m loss in Q309. The two firms have struggled under the weight of mounting collateralized debt obligation (CDO) payouts stemming from the burst of the housing bubble.
Ambac said its continued struggles led to increased oversight by the OCI, which is evaluating Ambac Assurance’s ability to pay all claims in its insured portfolio.
“While no proceeding is currently pending, following such evaluation and depending on the result of such review, OCI could decide to initiate delinquency proceedings with respect to Ambac Assurance to protect the interests of policyholders,” the filing said. “A number of adverse consequences could result from the initiation of delinquency proceedings, including the occurrence of an event of default with respect to Ambac’s debt, which could result in acceleration of principal in the amount of [$1.64bn], termination of credit default swap.”
Write to Austin Kilgore.
The Senate Banking Committee unveiled a new bill to reform regulations for the US financial system.
The bill, drafted by committee chairman Chris Dodd (D-Conn.), would create the Consumer Financial Protection Agency, which provides consumers information when they shop for mortgages, credit cards and other products. The agency would prohibit hidden fees, abusive terms and deceptive practices.
The bill also provides a safe way to shut down large or complex financial companies if they fail. It imposes new capital and leverage requirements and forces the institutions to draft their own “funeral plans.”
Dodd made room for the Agency for Financial Stability, an independent agency with a board of regulators, who would identify systemic risks posed by the “too big to fail” companies, products and activities. If the agency finds that a company threatens the economy, it could require that company to divest some of its holdings.
New plans of a single federal bank regulator are in the new bill, which would attempt to eliminate overlap and “charter shopping,” where financial institutions choose the easiest regulator. The bill would end fee-funded regulators from “going easy on those they regulate to keep their business,” according to a summary of the bill.
“The financial crisis exposed a financial regulatory structure that was the product of historic accident, created piece by piece over decades with little thought given to how it would function as a whole, and unable to prevent threats to our economic security,” Dodd said.
Dodd added: “This proposal will create a new architecture to make our financial institutions more transparent, more responsible, and more accountable to the American people. It will address the problems of the past, and look forward to the needs of the future.”
The House Financial Services Committee chairman Barney Frank (D-Mass.) congratulated Senator Dodd on the Senate's version of banking regulatory reform.
“Obviously the bills aren’t going to be identical, but it confirms that we are moving in the same direction and reaffirms my confidence that we are going to be able to get an appropriate, effective reform package passed very soon,” Frank said.
However, the American Bankers Association (ABA), which represents banks of all sizes and charters, released a statement saying that they even though they had supported extensive regulatory reform, this draft “would tear apart the existing regulatory structure only to create a new one that would produce conflicts among regulators, undermine the state-chartered banking system, and impose extensive new regulatory burdens on those banks that had nothing to do with creating the financial crisis.”
The ABA added: “Many experts have correctly said that we need to return home again, focusing on more traditional banking that is based on sound practices and effective regulation. However, Sen. Dodd’s proposal would make this traditional banking home increasingly unlivable."
Write to Jon Prior.
Chase, the personal banking unit of JP Morgan Chase (JPM: 37.21 -0.75%) announced plans to hire an additional 1,200 mortgage loan officers by the end of 2010, a 60% increase in its origination and refinance officer work force.
The bank’s mortgage operation serves customers in 23 states, including California, Florida and Texas and metro areas like New York and Chicago.
“We have made a number of strategic investments in our organization,” said Dave Lowman, head of home lending at Chase. “We have invested in new systems, aggressively grown our capacity and now are looking to increase our sales force”
Chase is the nation's third-largest lender, originating $37.1bn in mortgages in Q309. The bank touted a banking branch near 43% of US households and near 55% of the nation's real estate offices.
“With nearly 5,200 bank branches — one of the largest networks in the country — we need to ensure each branch has seasoned mortgage professionals to help meet the needs of their communities and is well positioned when the housing market fully recovers,” said Lowman.
Write to Austin Kilgore.
Despite the positives of the extended first-time homebuyer tax credit, the lasting effects of the policy look to be uneven, according to several investment banks (IBs).
The Royal Bank of Scotland (RBS) economists said in market commentary a fall in housing demand kept high through the tax credit may only have been delayed with the credit's extension. RBS acknowledged the continued rebounding house prices and home sales in August and September remain positive signs the increased demand may be helping to work down inventory and bring stabilization to prices.
"To be sure, the homebuyers’ tax credit is providing some support to the sector, but an $8,000 tax credit in the context of buying a house is not exactly on par with a $5,000 check when purchasing a car or truck," RBS said. "In any case, with Congress passing an extension in the credit until next spring (in fact, the eligibility was expanded significantly), the fears of a hangover (a la Cash for Clunkers) can be put off for at least six more months."
Economists added: "RBS continues to believe that the levels of home sales and construction were so egregiously and unsustainably low early this year that a vigorous rebound is in the cards for 2010."
Deutsche Bank Securities sees potential in the tax credit to put a floor on house prices in areas with less severe fundamental problems like distressed inventory and affordability. But in some of these areas, Deutsche said it is difficult to expect a related increase in demand sufficient to counteract the overwhelming supply wave represented by foreclosures. The effect of the extended and expanded tax credit — which researchers called "a blunt instrument" — is likely to remain uneven across differing markets.
"However, for the U.S. market as a whole, extension of the tax credit certainly can only help market psychology, and we believe this takes a worst-case scenario for home prices off the table, at least over the next six months or so," researchers said. "Home prices have a significant amount of serial auto-correlation not shared by most other asset classes, and, over the short run, momentum plays a significant role."
Deutsche researchers added: "However, this psychological impact will also be more meaningful in regions not plagued by significant fundamental issues such as foreclosures, affordability, and unemployment."
Write to Diana Golobay.
State representative Dennis Murray (D-Sandusky) introduced House Bill (HB) 323 to Ohio’s House of Representatives, which would require banks to move foreclosures to auction within a certain timeline or forfeit its mortgage liens and any proceeds from the sale of the property.
The bill requires that a written document accompany foreclosure filings. The document would include the name of the note holder, whether the note has been securitized, the identity of the mortgage-backed-security (MBS) that holds the loan and the name of the MBS trustee. The document must also include a statement detailing if the residential property is occupied or vacant, according to the bill.
If the borrower answers the foreclosure complaint made by the bank, the bank must file a series of reports with the court within 45 days. The report must include the most recent value of the property, an estimate from the bank on the property’s current condition or an appraisal conducted by a licensed appraiser.
If the borrower does not answer the complaint within 60 days, the bank must file a motion for default judgment during the next 60 days. The filing must include an affidavit showing that the bank inspected the property, attempted to reach the borrower via telephone and sent letters to the borrower. The bank must also attest that the property is not occupied.
If no motion is filed within 60 days, the foreclosure complaint will be dismissed, and the bank will forfeit rights to the property and any proceeds from the sale.
Write to Jon Prior.
A market composite of housing prices compiled by Altos Research was down 0.4% from September to October and down 0.9% from August.
The composite of 10 major housing markets put home sales prices at $501,377 in October, down from $503,401 in September and $506,180 in August.
After dipping to $470,017 in January, the composite steadily increased through a July peak of $509,030, but declined every month since. Altos Research projects prices will continue to decline until the end of 2009 due to seasonal trends.
Prices fell in 23 of the 26 markets surveyed during October. The greatest decline was in the Salt Lake City market, where prices were down 3.3% in October. Prices increased in the San Francisco (1.1%) and San Jose (1%) markets and prices stayed even in Miami.
Prices also fell 2.1% in Phoenix and 2% in Los Angeles. In Las Vegas, site of the greatest decline since the housing downturn, the pace of declines has slowed, but the market still experienced a 1.2% decline from September to October. Altos said the Las Vegas median asking price was $354,347 in October 2007, but has since fallen 52% to $169,958 in October 2009
Inventories also declined in 23 of 26 markets. The 10-city composite put inventory down 3.4%. San Jose (7.4%) and San Francisco (5.6%) saw the greatest inventory declines and nine other markets experienced declines of at least 4% in October.
Write to Austin Kilgore.
Performance of '04-vintage subprime residential mortgage-backed securities (RMBS) worsened as prepays increased in a review by Fitch Solutions, despite signs of stabilization among more recent subprime RMBS vintages.
Fitch's '04 vintage subprime RMBS price index dropped 16.7% in the most recent month of data, while the overall subprime RMBS price index showed only a "marginal" monthly fall. The '04 vintage loss erased the small monthly gains among '05, '06 and '07 vintages.
The constant prepayment rate (CPR) and constant default rate (CDR) of '04 vintage subprime RMBS drove the fall, according to Fitch Solutions — advisory firm to the financial industry separate from the credit-rating firm known as Fitch Ratings.
The six-month CPR showed an uptick from June toward the 7% mark. The increase is mainly due to higher quality of loans in '04 vintage subprime RMBS, which makes refinancing more attainable. The six-month CPR among '05-'07 vintages held steady in the 3 to 4% range as higher loan-to-value (LTV) ratios kept many loans from refinancing, Fitch said.
At the same time, the six-month CDR for '05-'07 subprime RMBS vintages improved somewhat from peaks in May, Fitch sees no significant improvement in the six-month CDR in the '04 vintage.
"As the good quality loans are refinanced, the remaining pools are on average of lower credit quality, a factor that largely caused the drop in price for the 2004 Subprime Price Index," said report author and managing director Thomas Aubrey. "Credit quality among the pools will continue to converge over time as better quality borrowers take advantage of refinancing opportunities, thus leaving the remaining pool with more consistent weaker borrowers."
Write to Diana Golobay.
PennyMac Mortgage Investment Trust is planning to buy up newly issued loans and package them into bonds. A posting at Bloomberg has the scoop today.
The conduit arm of PennyMac would buy the mortgage loans as short-term investments.
It sounds promising in terms of short-term funding, but the question remains whether this conduit vehicle will last: Has the industry already forgotten the short-lived MLEC dreams?
Master Liquidity Enhancement Conduits, sometimes called Super SIVs (structured investment vehicles), were the solution to the credit crunch, developed in 2007 by the private equity market. MLECs were meant to encourage short-term funding, but plans were short-lived.
The conduit vehicle raises a question of liquidity, both then and now. Total US asset-backed commercial paper (ABCP) oustandings fell by $8.6bn in the week ending November 4 to $454.7bn — from a $1.2trn peak, according to Credit Suisse Securities commentary. The outstandings have slipped back to their early-2000 level.
As the conduit market is essentially an off-balance-sheet vehicle, liquidity challenges might arise with upcoming changes in accountancy guidelines for off-balance-sheet transactions. Changes to accountancy guidelines set to take place Jan. 1, 2010 revamps accountancy standards for off-balance-sheet transactions.
The changed rules require assets and liabilities of special purpose entities (SPEs) to come onto the balance sheet of the issuer, servicer or special servicer. Forcing banks to account for these assets and liabilities essentially overnight on January 1 would present a significant financial burden if capital requirements are not loosened.
And financial firms with off-balance-sheet transactions are increasingly being scrutinized by regulators.
Federal Deposit Insurance Corp. (FDIC) chairman Sheila Bair, in comments Tuesday, indicated large financial holding companies should be subject to tougher prompt corrective action standards under US law. She also said they should be subject to holding company capital requirements that are no less stringent than those for insured banks.
"Off-balance-sheet assets and conduits, which turned out to be not-so-remote from their parent organizations in the recent crisis, should be counted and capitalized as on-balance-sheet risks," Bair said.
Write to Diana Golobay.
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