Archive for November, 2009
The president of a Louisiana mortgage company pleaded guilty to defrauding the bank that provided his warehouse line of credit out of $2.9m, according to Donald Washington, US attorney for the Western District of Louisiana.
William Nichols, 56, of Alexandria, La., is the president and sole shareholder of First Fidelity Mortgage. According to the US attorney, Nichols admitted to forging signatures of borrowers and notaries public to create fraudulent mortgage documents. Nichols then would use the documents as collateral so the Many, La.-based Sabine State Bank would deposit additional funds to his line of credit.
When the bank deposited the money into First Fidelity’s account to fund the mortgages, Nichols kept the money for himself, Washington said.
“Nichols helped himself to millions of dollars of other people’s money through his deceit and deception. Individuals who lie and steal money from banks insured by the American taxpayer should expect to be swiftly prosecuted and punished,” Washington said.
Nichols faces a maximum penalty of 30 years in prison, a $1m fine, or both and will be sentenced in February 2010. He remains detained without bond.
Write to Austin Kilgore.
The amount of single-family homes saddled with mortgages in negative equity dropped to 21% in Q309 from 23% in the previous quarter, according to online real estate service Zillow.
Zillow indicated that, although more underwater mortgages dropped into foreclosure, home values stabilized somewhat in the quarter.
For the 11th consecutive quarter, home values shrank, falling 6.9% compared to the same time period last year. But the rate of decline narrowed in Q309, meaning home values did not fall as dramatically year-over-year as they did in the second or first quarters, according to the report.
Zillow’s Home Value Index flattened in Q309, dropping 0.4% from the end of the second quarter. The Index measures home values in 156 metropolitan statistical areas (MSAs).
Real estate owned (REO) property sales remained high, accounting for 21.4% of all US home sales in September. REO sales took up 74.2% of sales in Merced, Calif., 69.3% of sales in Stockton, Calif. and 67.5% of activity in Las Vegas. The report also added that 26.9% of homes sold for less than what the seller originally paid.
Stan Humphries, Zillow’s chief economist, said that a combination of stabilizing home values and foreclosures spurred the decline of homeowners strapped with negative equity.
“The next several months will be critical to the housing market. Previously, we'd been expecting to see increasing foreclosure rates during the real estate market's slow winter season, a confluence of events that would likely drive inventory up and prices down,” Humphries said. “But now, with the extension of the $8,000 first-time homebuyer tax credit and a new $6,500 credit for some repeat homebuyers, we could see a bump in demand that could partially offset the increased supply of foreclosed homes on the market.”
President Barack Obama signed the “Worker, Homeownwership and Business Assistance Act of 2009" Friday, extending the homebuyer tax credit deadline to May 1, 2009.
Write to Jon Prior.
The data and document compliance software of Dallas-based MRG Document Technologies is now accessible through Bensalem, Pa.-based ISGN's loan origination software (LOS).
Mortgage lenders that use ISGN’s Diamond software can access the compliant loan closing document packages and electronic delivery tools in MRG’s CompliancePlus platform.
“As the regulatory environment continues to grow more complex, ISGN's Diamond users now have real-time regulatory updates accessible through their LOS. With CompliancePlus, ISGN's Diamond users have fully integrated data and document compliance from initial disclosures through closing documents,” said Mike O'Leary, senior mortgage consultant at MRG.
Write to Austin Kilgore.
Mortgage giant Freddie Mac (FRE: 0.00 N/A) on late Friday posted a $5bn net loss in Q309 and $10.4bn net worth in Q309.
Unlike sister government-sponsored enterprise (GSE) Fannie Mae (FNM: 0.00 N/A), Freddie said it would not require additional Treasury Department funds through the senior preferred stock purchase agreement.
Freddie said it enabled more than 78,000 borrowers in Q309 to modify under the Administration’s Home Affordable Modification Program (HAMP), through which the Treasury allocates capped incentives to servicers that pursue modifications for at-risk borrowers.
Freddie purchased or guaranteed $125bn in mortgage loans and mortgage-related securities, including $91bn in single-family refinancing, during the period.
“We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country,” said CEO Charles Haldeman. “However, we believe that factors like high unemployment, excess inventory and rising foreclosures will continue to impede a full recovery for some time and put further downward pressure on house prices. We expect to request additional funds from Treasury as this prolonged deterioration of market conditions continues to negatively impact our financial results.”
Freddie experienced $7.5bn of credit-related expenses including provision for credit losses and real estate-owned (REO) operations expense, compared with $5.2bn in Q209. The GSE increased its provision for credit losses to $7.6bn in Q309 from $5.2bn in Q209 on changed economic factors affecting borrower performance and delinquency trends. Freddie said it expects provisions for credit losses to remain high in Q409.
The company's single-family guarantee portfolio continued to deteriorate in the quarter. The total single-family delinquency rate climbed to 3.33% as of September 30, from 2.78% at June 30 as foreclosure timelines increased and a high volume of seriously delinquent loans were kept in trial modification periods in HAMP.
Single-family net charge-offs rose to $2.2bn in Q309, from $1.9bn in Q209. Single-family non-performing assets — including REO properties and delinquent loans underlying Freddie's structured securities — soared to $91.6bn at the end of the quarter, from $76.9bn as of June 30.
Income from Freddie's REO operations came in at $96m, compared with the $9m expense seen in Q209. The GSE indicated lower disposition losses as well as recoveries of property write-downs due to the stabilization of REO fair values drove the quarterly income.
Write to Diana Golobay.
A look at the stories on HousingWire’s weekend desk…with more coverage to come on bigger issues:
The industry buzzed this weekend over news of continued heavy losses at the government-sponsored enterprises (GSEs).
Mortgage giant Freddie Mac (FRE: 0.00 N/A) posted a $5bn net loss in Q309 at $10.4bn net worth as of September 30. Unlike sister GSE Fannie Mae (FNM: 0.00 N/A), Freddie said it would not require additional Treasury Department funds through the senior preferred stock purchase agreement.
Freddie said it enabled more than 78,000 borrowers in Q309 to modify under the Administration's Home Affordable Modification Program (HAMP), through which the Treasury allocates capped incentives to servicers that pursue modifications for at-risk borrowers.
Freddie purchased or guaranteed $125bn in mortgage loans and mortgage-related securities, including $91bn in single-family refinancing, during the period.
"We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country," said CEO Charles Haldeman. "However, we believe that factors like high unemployment, excess inventory and rising foreclosures will continue to impede a full recovery for some time and put further downward pressure on house prices. We expect to request additional funds from Treasury as this prolonged deterioration of market conditions continues to negatively impact our financial results."
Government support is piling up elsewhere, guaranteeing or insuring as much as $4.3trn of financial assets at the height of three major guarantee programs, according to the latest report out of the Congressional Oversight Panel (COP).
A significant recipient of this aid, Citigroup (C: 30.87 +1.61%), saw a pool of assets worth approximately $301bn guaranteed by the Treasury, the Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC), COP said Friday in its report. From the report (available to download here):
"Measuring the value of the federal financial guarantee programs means looking beyond the costs and benefits of assisting individual financial institutions or individual sectors of the financial market. These guarantee initiatives were part of the larger effort to restore financial stability and to renew access to credit. Improved credit conditions and restoration of markets for commercial paper and other short-term debt suggest that guarantee programs have helped achieve their objectives and can now be withdrawn.
Treasury interest rates dropped sharply during this period as investors engaged in a 'flight to quality.' Rates have subsequently rebounded as the markets have stabilized and as guarantee programs have provided nervous investors with assurance that other debt instruments are as safe as Treasuries. Guarantees are now being phased out in an orderly manner without a renewed flight to Treasuries or a spike in interest rates."
Regulators shut down another five banks Friday: United Commercial Bank in California, Gateway Bank of St. Louis, Prosperan Bank of Minnesota, Michigan-based Home Federal Savings Bank and United Security Bank in Georgia. The closures bring the list of failed banks to 120 so far in 2009.
East West Bank assumed all $7.5bn of deposits and $10.2bn of the $11.2bn of assets of United Commercial Bank and reopened its 63 branches, including the Hong Kong branch. Alerus Financial assumed all $175.6m of Prosperan's deposits. Ameris Bank assumed all $150m of United Security Bank's deposits. Central Bank of Kansas City assumed all $27.9m of deposits of Gateway Bank. Liberty Bank and Trust Co. assumed all $12.8m of Home Federal Savings Bank's deposits.
As insurance regulators move forward with plans to modify risk-based capital requirements, leaning on loss estimates provided by third-party consultants rather than ratings, Moody's Investors Service said it does not advocate over-reliance on credit ratings for the purpose of assessing regulatory capital
Moody's said it "strongly disagrees" with the claim it has over-estimated losses in the US residential mortgage-backed securities (RMBS) area. The ratings agency said its ratings incorporate expected recoveries in the event of default. It is also revising its loss estimates for RMBS upward in light of worsening delinquency trends.
"Our research shows that the recoveries implied by our ratings are no lower than those indicated by market prices on the ABX index," said Moody's senior vice president Debash Chatterjee."As to ignoring recoveries, we have repeatedly stated that Moody's rates to expected loss–the product of default probability and loss given default. For example, if two securities are both likely to default, the security that is expected to have the lower severity of loss will be assigned the higher rating."
Enterprise Acquisition Corp. (EST: 0.00 N/A) merged with ARMOUR Residential REIT, which can immediately begin conducting business as a real estate investment trust (REIT). The firm plans to invest in hybrid adjustable-rate, adjustable-rate and fixed-rate residential agency mortgage-backed securities (RMBS) issued or guaranteed by a government-chartered entity.
ARMOUR projects a $9.25 book value for each of the approximately 2.3m shares of common stock outstanding at the time the merger closed.
"On behalf of the stockholders of ARMOUR, we look forward to pursuing opportunities in the residential mortgage-backed securities markets," said Scott Ulm, co-CEO, chief investment officer, head of risk management and vice chairman of ARMOUR.
A $3bn note securing the Peter Cooper Village/Stuyvesant Town properties — a sprawling multifamily complex in Manhattan — transfered to special servicer CWCapital Friday. Fitch Ratings indicated it did not expect to take any negative rating actions at the time of the news.
The move into special servicing came as no surprise to the ratings agency, which expected the transfer when cash flow generated by the property remained insufficient to satisfy the debt. Fitch in late August and October downgraded US commercial mortgage-backed security (CMBS) transactions containing portions of the Stuy Town loan, based upon the expected default.
Fitch expects debt service reserves to be exhausted by the end of 2009.
Barclays Capital saw a difficult start in November for CMBS, despite strong corporate credit and equity market performance. CMBS spreads widened with recent vintage last cash flow triple-As approximately 30 to 50bps wider and similar moves among second- and third-pay classes. BarCap also noted significant tiering by vintage, with recent non-TALF (Term Asset-Backed Securities Loan Facility)-eligible bonds under-performing.
Write to Diana Golobay.
The PMI Group (PMI: 0.00 N/A) reported an $87.9m net loss, or $1.06 per share, in Q309, compared to a loss of $149.3m for the same period last year.
In PMI's US Mortgage Insurance Operations segment, reserves for losses increased by $134m to $2.7bn through Q309. The losses were primarily due to additional defaults and a higher average rate of claims, offset by a lower average in primary claim sizes and the continued effect from rescission activity.
Consolidated net premiums written in Q309 totaled $167.4m, compared to $176.5m in the year-ago quarter. Through the first nine months of 2009, PMI wrote $521.9m in consolidated net premiums, dropping from $591.4m in the same period last year.
The PMI Group had $3.7bn in available funds, consisting of cash, cash equivalents and investments of $3.7bn and a total shareholders’ equity of $1bn. PMI Mortgage Insurance had $3.4bn in available funds.
During Q309, Arizona and California adopted 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.
In the event that MIC is unable to write new mortgage insurance in a imited number of states, the Company is working on a plan to enable the writing of new mortgage insurance in those states through the existing subsidiary, currently known as Commercial Loan Insurance Corporation (CLIC), to be renamed PMI Mortgage Assurance Co. (PMAC).
Write to Jon Prior.
The National Association of Insurance Commissioners (NAIC) on Thursday approved a proposal to establish a new model for determining ratings of residential mortgage-backed securities (RMBS).
The new model will establish ratings designations for approximately 18,000 RMBS owned by US insurers by the end of 2009. It will by extension help to determine the risk-based capital requirements of these RMBS.
“Compared to the rest of financial services, the insurance industry has weathered the impact of the credit crisis extremely well,” said NAIC president and New Hampshire Insurance Commissioner Roger Sevigny. “However, if these last two years have taught us anything, it is that we can never have too many tools with which to measure and improve our view of our industry and the effect of these complex securities.”
NAIC's support of the proposal indicates declining confidence in RMBS ratings produced by nationally recognized statistical ratings organizations (NRSROs), according to a NAIC statement. These ratings are commonly used by regulators to score securities for solvency regulation — a problem, according to NAIC, since problematic MBS issued in 2005 did not begin displaying issues until late 2007.
NAIC indicated current ratings systems are seen by some regulators as insufficient in their treatment of RMBS losses in terms of determining risk-based capital. The approval of the proposal this week should establish a set of NAIC designations insurers can use to calculate the risk-based capital (RBC) charges for the specific RMBS they own.
Life insurers, for example, invest mostly in triple-A-rated bonds, according to Whit Cornman, spokesperson for the American Council of Life Insurers (ACLI), the group that offered the proposal approved by the NAIC this week.
"However, the rating agency models require a downgrade to single B or below if any loss is projected to occur at any time during the life of the security, regardless of the severity of the loss," Cornman said in a statement Friday. "The new methodology will align better with the NAIC’s model for determining RBC, which accounts for probability as well as severity of loss."
The news of NAIC's new methodology is significant, considering the different RMBS landscape seen in Europe.
RMBS deals in Europe are beginning to move forward without any formal rating, market sources tell HousingWire. The sources expressed some hesitance on how the deals will be tranched, as no deal has yet come to market with this design.
Write to Diana Golobay.
The Government National Mortgage Association, Ginnie Mae, guaranteed more than $38.6bn in mortgage-backed securities (MBS) in October.
In September, Ginnie reported that 3.48% of the single-family loans in its guaranteed securities were 90-plus days delinquent, down from 3.7% in August and 3.59% in December 2008.
For 2009, Ginnie has provided nearly $376bn of liquidity to the secondary market, a 71.6% increase from $219bn for the same time period in 2008.
Thomas Weakland, Ginnie’s executive vice president, said that Ginnie has been quick to modify and create securitization products that provide liquidity, aiding the recovery of the housing market.
“And for the past 11 months we've consistently shown — with industry-wide low Single-Family delinquency rates — that our conservative approach to risk-taking is working for US taxpayers,” Weakland said.
Ginnie’s multi-family MBS issuance totaled $828m in October.
Write to Jon Prior.
President Barack Obama signed the “Worker, Homeownership and Business Assistance Act of 2009” into law on Friday, extending the first-time homebuyer tax credit as well as certain jobless benefits at a time when the US unemployment rate has officially reached 10.2%.
With the first-time homebuyer tax credit originally scheduled to expire on Dec. 1, 2009, HR 3548 now allows first-time buyers to claim 10% of the purchase price of their home, up to $8,000 for single or married taxpayers filing jointly, if they close on the purchase by midnight June 30, 2010. Taxpayers must purchase or be locked into a contract to close before midnight on April 30, 2010.
The credit has provided more than 1.4m to taxpayers as of September 2009, according to the Internal Revenue Service.
New provisions accompany the extension. The credit is allowed for those with incomes up to $125,000 or $225,000 for taxpayers filing jointly. The credit reduces for those with incomes between $125,000 and $145,000 – or $225,000 and $245,000 if filing jointly. Anyone with an income higher than $145,000, $245,000 if filing jointly, cannot not receive credit.
Taxpayers who have lived in their home for five consecutive years during the eight years before closing on a new home may qualify for a reduced credit – $6,500 joint filers and $3,250 for those who file jointly.
The bill passed the House of Representatives on September 22, 2009, with 331 votes for and 83 votes against. When the bill landed in the Senate, it passed with 98 votes for and 0 votes against.
Write to Jon Prior.
Although a new foreclosure alternative program announced Thursday by Fannie Mae (FNM: 0.00 N/A) presents a new step in mitigating foreclosure risk among distressed borrowers, it looks to have only a "marginal" effect on prepayments within Fannie residential mortgage-backed securities (RMBS), according to market commentary by Barclays Capital (BarCap).
The Deed-for-Lease (D4L) program allows qualified borrowers to voluntarily deed the property back to Fannie and remain in the home on lease for up to 12 months. It targets borrowers that do not qualify for other workout alternatives like the Home Affordable Modification Program (HAMP), which allocates federal incentives to servicers that pursue modifications before foreclosure.
In Fannie's D4L program, servicers must offer the borrowers the market rent on the property, within 31% of gross income. BarCap researchers indicated the D4L initiative is likely to "see limited use," as it targets the same debt-to-income (DTI) ratio as a HAMP modification.
The D4L program applies only to borrowers that qualify for a deed-in-lieu (DIL) of foreclosure, which BarCap researchers pointed out is at the bottom of Fanie's workout heirarcy. Even more important than the program's limited use is the fact that only DIL transactions — not D4L transactions — trigger prepayment within RMBS, where loans are are considered prepayed in full and are removed from securitization.
"So the D4L has no direct bearing on buyout or prepayment," researchers said. "To the extent that this initiative helps alleviate homeowner pain and leads to better borrower cooperation with DIL proceedings, it should marginally expedite buyout timelines by increasing the share of DILs at the expense of foreclosure sales."
Researchers went on to suggest the D4L program is likely a component of the Administration's Foreclosure Alternative Program, which HousingWire sources indicated would include an incentive program for deeds-in-lieu of foreclosure.
Sources close to the Administration's deeds-in-lieu plans told HousingWire Fannie's D4L program is separate from the Treasury Department's foreclosure alternative plan.
Other aspects of the D4L program, including some strategy and lease structure details, continue to develop following Fannie's announcement.
At the Safeguard Properties National Property Preservation Conference in Washington DC, a Fannie source told HousingWire the GSE has no set exit strategy for the D4L program and plans to handle that on a case-by-case basis.
The source says Fannie also hopes to resell back to the occupants at some point. But the GSE will not move to one-year leases from the month-to-month lease structure currently employed in its rental portfolio management.
Write to Diana Golobay.
Jacob Gaffney contributed to this report.
