Archive for November, 2009
GMAC Financial Services (GJM: 22.57 0.00%) lost $767m in Q309, compared to a net loss of $2.5bn in Q308.
The Q309 loss was due primarily to legacy assets in GMAC’s mortgage operations. The unit experienced a pre-tax loss from continuing operations of $747m during the quarter. The loss is an improvement from Q308’s $1.9bn pre-tax loss from continuing operations.
“We continue to work through solutions for certain legacy assets and that is still weighing on GMAC's financial performance,” said CEO Alvaro de Molina. “Progress is being made toward the transformation of the company as we shed non-strategic operations while at the same time invest in structuring the company to be more competitive for the long term.”
GMAC said credit provisions are moderating, but its mortgage business increased repurchase reserves in Q309, at an expense of $515m.
Mortgage origination was $15.9bn in Q309, down from $18.8bn in Q209, but up from $11.9bn in Q309.
GMAC said it initiated 31,720 trial modifications through the Making Home Affordable Modification Program (HAMP).
Write to Austin Kilgore.
A Chicago-based asset management firm postponed its initial public offering (IPO) that would have made the health care facility firm a real estate investment trust (REIT).
It's a shift from recent trends that have seen a number of investment firms join the REIT ranks in the second half of 2009, looking to raise capital and take advantage of the declining commercial real estate market.
Aviv Asset Management was set to offer 16.6m shares of common stock it hoped to sell for $17 to $19 per share, according to a regulatory filing. Once the IPO was complete, the 25-year old company would have completed its process of converting to a REIT, and the company planned to change its name to Aviv REIT, trading under the symbol AVI. But that IPO has since been postponed, according to numerous press reports.
The Chicago-based firm acquires and develops health care facilities, primarily skilled nursing facilities (SNFs). The firm’s portfolio consisted of 172 properties with 16,866 licensed beds in 21 states leased to 32 operators.
With the proceeds from the IPO, Aviv said it would pay down $145.6m in debt and redeem units of an operating partnership it has with Aviv’s co-founder and CEO Craig Bernfield and the estate of co-founder Zev Karkom, who passed away in September.
Bank of America’s (BAC: 7.29 -0.14%) Merrill Lynch unit, Citigroup (C: 30.87 +1.61%) and Morgan Stanley (MS: 18.56 +2.26%) are Aviv’s underwriters in the IPO.
Representatives from Aviv did not immediately return calls seeking comment.
Write to Austin Kilgore.
The apartment market shows signs of increased sales activity and relaxing credit availability compared to three months ago, according to a quarterly survey from the National Multi Housing Council (NMHC),
The survey measures its indices and assigns a number representing that part of the market’s condition. For the Q309 report, 53 CEOs and other senior executives of apartment-related firms serving on NMHC’s board of directors responded.
The Sales Volume Index reached its highest level in four years, and the Equity and Debt Financing Indices hit a three-year peak. However, the survey showed that market tightness – or the measurement of vacancies and rent levels – continued to indicate worsening conditions.
Surveyors assigned market tightness a 31, an increase from 20 in the previous quarter. All other indices reached levels above 50. Index numbers below 50 indicate distressed conditions.
“The broad improvements in sales volume and debt and equity financing suggest the transactions market may finally be thawing,” noted NMHC Chief Economist Mark Obrinsky. “Nearly half (45%) of respondents indicated that the gap between what sellers are asking for and what buyers are offering—the bid-ask spread—has narrowed.”
Obrinsky added that economic headwinds remain strong as unemployment remains high, decreasing demand for apartment residences.
“Though this quarter’s Market Tightness Index is improved compared to last quarter, it still indicates higher vacancies and lower rents,” Obrinsky says.
The commercial property market is beginning to post improvement in other metrics. A study from the MIT Center for Real Estate showed transaction prices rose 4.4% on commercial real estate properties sold in Q309 as the price buyers are willing to pay rises and the price sellers are willing to take decreases.
Write to Jon Prior.
The public release of an independent actuarial study of the Federal Housing Administration (FHA) was delayed late Tuesday as the firm conducting the review completes additional tests. The supplemental tests come after FHA questioned the accuracy of the actuary's modeling.
The audit of FHA's fiscal year 2009 — which ended in September — was scheduled for release today in conjunction with a press conference addressing the FHA's fiscal health and financial outlook.
A US Department of Housing and Urban Development (HUD) spokeswoman indicated hours before the scheduled release that the report would not be completed in time, and FHA commissioner David Stevens later issued a statement on the cause of the delay.
“FHA asked the independent actuary, IFE [Integrated Financial Engineering], to run additional economic scenario testing above and beyond what was going to be included in the actuarial study to better understand a broader range of risk scenarios," Stevens said. "Based on these results, we raised questions about the accuracy of IFE’s modeling and IFE therefore advised us that we should not treat the report as final. IFE is now running additional tests to ensure that the final report is accurate."
Stevens added, "We will only release a report that we are confident is accurate and fully reflects the health of the FHA.”
FHA, which insures lenders against default-related losses on qualifying mortgages, is congressionally mandated to maintain a 2% capital reserve ratio. Stevens in a mid-September statement indicated the forthcoming actuarial review would show the FHA's reserve ratio dipping below that required level.
Write to Diana Golobay.
Fannie Mae’s (FNM: 0.00 N/A) book of business grew at an annualized rate of 5.2% in September to $3.24trn at the end of the month, according to its monthly summary.
Even though Fannie’s issuance fell for the third straight month and the delinquency rate continued to climb, its total mortgage portfolio increased in September.
Fannie, which purchases and securitizes mortgage loans, registered $59.2bn in issuance during September, a 4.6% drop from $62.1bn in August but almost double $38.3bn in September 2008.
The gross mortgage portfolio grew 22.4% in September, up to $792.6bn from $779.6bn in August. It’s also a 0.9% increase fro $761.3bn in September of last year.
The rate of seriously delinquent conventional single-family mortgages jumped 28bps in August to 4.45%, compared to 1.57% in August 2008. Multifamily delinquencies held steady in August, matching July’s 0.56% rate.
Write to Jon Prior.
Recent changes among ratings criteria at Standard & Poor's represent "significant" repercussions for collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBS), according to the ratings agency.
The changes will make high ratings on securities in sectors troubled by poor credit performance "more difficult" to receive, S&P said. The changes aim to enhance the comparability of ratings on these securities with ratings on credits in other sectors.
"More than any other kind of institutional change, changes to criteria directly affect our credit analysis and our ratings that result from that analysis," S&P said. "Indeed, criteria is the exact spot where the rubber meets the road for a rating agency. By reading our criteria, investors can gain a deep understanding of the nature and levels of risk expressed in our rating opinions."
The ratings agency recently adopted stress scenarios for use as a tool to calibrate criteria, meaning assigned ratings ought to be able to withstand higher levels of economic stress without defaulting. The recent weak performance of CDOs and RMBS prompted S&P to revise its criteria in order to improve rating performance and comparability.
The new US RMBS criteria establish a 7.5% credit enhancement level for a security backed by an "archetypical" prime mortgage pool in the triple-A rating category, a "substantially higher" level than previously established. The ratings agency said some RMBS risk features like low borrower credit scores or slim home equity not accounted for in the "archetypical" scenario could trigger adjustment mechanisms in the criteria to allow for higher credit enhancement levels.
S&P indicated the implementation of the new RMBS criteria resulted in few downgrades, since many outstanding RMBS deals already faced downgrades over poor performance.
The ratings agency also updated the corporate CDO criteria to add both qualitative and quantitative tests to a default simulation model already in place. The model addresses the loans or bonds backing a CDO from a mathematical framework, calculating probably behaviors and statistics. The tests added to the model addresses the "model risk" inherent in a probability-based model, S&P said.
"In addition, we recalibrated the simulation model to achieve stresses based on Depression-era experience," S&P added. "The calibration method that we used makes it easier and more transparent for investors to understand our ratings and to relate them to their investment objectives."
Write to Diana Golobay.
Jay Lown joins NewOak Capital as managing director and senior member of the Financial Institutions Group.
In his new role, Lown will be responsible for coordinating all activities relating to Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A), and Federal Housing Administration (FHA) mortgage origination and sales, as well as developing the bank advisory and recapitalization efforts at the New York City-based advisory, asset management and capital markets firm.
Lown most recently served as a fellow at the Office of Thrift Supervision (OTS), advising the senior deputy director’s office on mortgage origination and securitization, and participated in the creation of the Making Home Affordable modification and refinance programs. Before that, he spent six years at UBS as a mortgage trader.
“We are glad to have Jay joining our team of financial industry leaders at NewOak Capital,” said CEO Ron D’Vari. “Jay has lived all aspects of the mortgage market from origination, operation, and trading. He also brings in an informed view of the government perspective that is very valuable to realistic solutions.”
Write to Austin Kilgore.
Information solution provider Equifax acquired Rapid Reporting, a Fort Worth, Texas-based national provider of third-party income, identity and employment verification services.
Equifax pays $72.5m for the company, which will help the firm provide lenders with more services to control fraud.
"More than ever, today's lenders need better tools to determine creditworthiness before qualifying a loan," said Trey Loughran, Equifax's senior vice president of corporate development. "Rapid Reporting's capabilities will allow us to offer lenders new and improved products, as well as more advanced fraud management services."
Through a secure Web-based portal, Rapid Reporting offers products that provide Internal Revenue Service (IRS) verification of income tax information and Social Security Administration verification of social security numbers.
"This transaction is a logical next step for our company," said Jay Meadows, president and CEO of Rapid Reporting. "The combination of Rapid Reporting's assets with Equifax's mortgage-related and employment verification services will enable us to effectively mitigate fraud and offer more advanced products for mortgage lenders."
Write to Diana Golobay.
Flagstar Bancorp (FBC: 0.68 +3.03%) lost $298.5m, or $0.64 per share, in Q309, compared with losses of $76.6m in Q209 and $62.1m in Q308.
For the first nine months of 2009, the Troy, Mich.-based bank lost $442.2m. In an attempt to improve Flagstar’s situation, the bank’s board of directors appointed Salvatore Rinaldi to executive vice president and chief of staff and moved Marshall Soura into the roles of executive vice president and director of corporate services.
Along with the appointments, Flagstar president and CEO Joseph Campanelli will assume the role of chairman, replacing the retired Thomas Hammond.
Rinaldi was formerly executive vice president and chief of staff of Sovereign Bancorp. In Soura’s 40 years in the banking industry, he’s held executive positions at Sovereign Bank, Bank of America and BankOne.
Other initiatives include efforts to “better align expenses with revenues and appropriately right size the Flagstar enterprise,” and a renewed emphasis in mortgage origination across the bank’s network of 176 branch locations.
Mortgage origination volume was $6.6bn in Q309, down from $9.3bn in Q209 and $6.7bn in Q308. However year-to-date origination through September was up 11.3% to $25.5bn from the same period in 2008.
Non-performing loans, excluding Federal Housing Administration (FHA)-insured assets, totaled $1.2bn, up from $1.1bn in Q209 and $500m in Q308. Non-performing residential first mortgages increased to $606.3m from $588.2m in Q209 and from $304.8m in Q308.
A net loss of $8.6m in loan administration income included a decline in the value of mortgage servicing rights sold during quarter. The servicing rights Flagstar sold were for $12.3bn in agency residential mortgages identified as having higher risks of default, the bank said.
Write to Austin Kilgore.
Bernie Madoff's accountant pleaded guilty today regarding his involvement in the multi-billion dollar Ponzi scheme. Bloomberg has the scoop on the guilty plea from David Friehling, who indicated he failed to execute the required independent investigation into Bernard Madoff Investment Securities.
HousingWire magazine reviews an account of the Madoff debacle, Too Good to be True: the Rise and Fall of Bernie Madoff, in the November issue. Book author Erin Arvedlund indicates Madoff's auditor operated out of a small office with a minimal staff, including Friehling. The operation's accountants, Arvedlund said, were not peer-reviewed.
The latest news around the investment scheme comes in the months after the scandal began to unwind in large financial settlements.
Spanish lender Banco Santander earlier this year paid out a $235m legal settlement, just one of the multi-million-dollar settlements paid to Madoff's customers. Reuters, which had the details, indicated the legal claim was against Santander's Geneva-based hedge fund Optimal Investment Securities.
In the months following the financial fallout from Madoff, regulators and market observers are on the look-out for the next big Ponzi scheme. So intense is the hunt for fraudulent schemes that courts are beginning to freeze assets where Ponzi-like schemes are suspected.
A recent emergency court order, for example, froze assets held by defendants in an ongoing case by the US Commodity Futures Trading Commission (CFTC) against Raleigh Capital Management of Chicago and its sole principal, Richmond Hamilton Jr. The CFTC's complaint alleges RCM and Hamilton misappropriated more than $1m from commodity pool the Raleigh Fund, according to industry reports.
The background leading up to the Madoff debacle, as authored by Arvedlund, are now available to HW subscribers, but book reviewer Jacob Gaffney ends his piece with a reflection on one of the most significant fraudulent schemes ever pulled off.
HW's Gaffney notes: "[W]hile [Madoff] may have been the first to reach such heights with his Ponzi scheme, it is unlikely he will be the record holder forever."
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