Archive for November, 2009
Pending home sales based on signed contracts rose for the eighth consecutive month in September, according to the National Association of Realtors (NAR).
The association’s pending sales index increased 6.1% from September to August and is 21.2% higher than September 2008. That’s the largest year-over-year increase and the longest streak of consecutive month-over-month increases since NAR began the index in 2001.
“What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” said NAR chief economist Lawrence Yun. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”
Regionally, the index declined 2% in the Northeast, but increased in the South (4.9%), Midwest (8.1%) and West (10.2%).
Homebuilding analysts at JP Morgan Securities, noting the index is up 34% Q109 and 19% above Q209, said the first-time homebuyer tax credit, which is set to expire on Nov. 30, could be a reason for the continued increase in demand, but the results continues to point to stabilization, if not slowly improving trends in the housing market
Pending sales data is a typical leading indicator of existing home sales, the analysts wrote, and they expect October existing sales to increase at a rate near 6.1%.
Write to Austin Kilgore.
Saizen Real Estate Investment Trust (REIT) defaulted on a ¥8bn (US$88.5m) commercial mortgage-backed securitization (CMBS) loan this week, the Singapore-based firm’s manager announced.
YK Shintoku, one of Saizen REIT’s nine tokumei kumiai (TK), or silent partnership operators, held the now-defaulted CMBS loan. While based in Singapore, Saizen REIT’s investments are comprised solely of regional residential properties in Japan totaling 161 properties located in 13 Japanese cities.
Saizen REIT said the maturity default will not affect the trust’s ability to operate, nor impair its ability to obtain further financing. The REIT added it believes YK Shintoku will not immediately foreclose on the properties underlying the loans and that it is possible the CMBS loan could be refinanced.
“The default of this loan is not indicative of the overall financial health of Saizen REIT,” said Chang Sean Pey, CEO of the REIT’s manager, Japan Residential Assets Manager Limited. “We will work closely with our asset manager and the lender of the YK Shintoku Loan to devise a viable solution and efforts to refinance the YK Shintoku Loan will continue.”
The primary implication of the default is an increase in the interest rate on the outstanding amount of the loan from 3.07% to 7.07%, creating an interest expense increase of ¥290.1m per year.
The Tokyo branch of Credit Suisse Principal Investments Limited initially provided the loan financing to YK Shintoku.
Japanese banks have remained relatively liquid during the global crisis. While not immune to the global economic conditions, some analysts believe the Japanese CMBS market will remain viable, despite large-scale pullbacks by foreign investment banks. This is because a number of large investment banks hold significant market share of CMBS activity in the country and any movement by an individual institution can cause significant changes to the overall market.
Write to Austin Kilgore.
Titanium Holdings appointed Cary Sternberg as president of its newly formed real estate-owned (REO) subsidiary Excellen REO.
The full service REO asset management company offers services to mortgage companies across the nation. Sternberg will manage the strategic direction of the company.
In November, Sternberg will begin hiring asset managers to start servicing in January 2010. The new recruits will develop a national network of real estate agents, which may expand to as many as 1,200 agents.
Many will come from Titanium Solutions' housing retention consultants with past REO experience. Others will be required to pass two courses and will use the RES.NET software system.
Sternberg was formerly the senior vice president of the REO department for American Home Loan Servicing, where he managed more than 200 employees and 33,000 assets.
The expansion continues for Titanium Solutions, which at the end of September contracted with Freddie Mac (FRE: 0.00 N/A) to travel from door to door of delinquent borrowers. The doorknockers were sent out to get missing information and documents necessary for the Home Affordable Modification Program.
Write to Jon Prior.
The Federal Housing Finance Agency (FHFA) will adjust its target goals for facilitating mortgage origination for low- and moderate-income individuals after the government-sponsored enterprises (GSEs) missed a key loan-purchase goal for originations to low- and moderate-income borrowers.
FHFA said it plans to lower recommended loan purchase goals for Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A), according to FHFA’s annual housing report.
Fannie Mae and Freddie Mac have a mandate to purchase mortgages originated to three groups of disadvantaged borrowers.
Low- and moderate-income borrowers are households with incomes less than or equal to area median income (AMI). Underserved areas include dwelling units in metropolitan census tracts with tract median family income less than or equal to 90% of AMI, or minority population of at least 30% and tract median family income less than or equal to 120% of AMI. Special affordable households are those with income less than or equal to 60% of AMI or less than or equal to 80% of AMI and living in low-income areas.
According to the report, neither government-sponsored enterprises (GSEs) met the 2008 goals for purchasing loans originated to low- and moderate- income borrowers. Fannie Mae exceeded its goal of purchases of loans originated to borrowers in underserved areas by 0.4%, but Freddie missed its goal by 1.3%. Both GSEs missed the goal for special affordable mortgage purchases.
“The goal-qualifying share of home purchase mortgages on properties in metropolitan areas in the primary mortgage market was well below the corresponding home purchase subgoal in 2008,” the annual report said. “This is consistent with FHFA’s determination to declare the three home purchase subgoals for 2008 infeasible.”
FHFA said the goals are infeasible because the quantity of mortgages that qualify for the programs is below the 2008 goal levels. In April, then FHFA director James Lockhart proposed the reduced goals.
For 2009, FHFA will lower the existing low- and moderate-income goal from 56% of each GSE's total loan purchases to 43%, the existing underserved areas goal from 39% to 32% and the existing special affordable goal from 27% to 18%.
The agency said it expects to issue a proposed rule on the GSEs duty to serve underserved markets by Q409. It also expects next year to evaluate and rate their compliance, which it will then report to Congress.
In a second report FHFA submitted to Congress Friday, “Default Risk Evaluation in the Single-Family Mortgage Market,” the agency evaluated recent research related to mortgage risk.
The report summarizes seven papers analyzing the microeconomic conditions that contribute to the housing market, including underwriting standards, collateral valuation, loan securitization, mortgage modifications, and the effects of foreclosures on home values.
The papers, FHFA said, are “a first step toward understanding microeconomic behavior and its consequences during the crisis of the past several years, can inform discussion of options for improving US mortgage markets going forward.”
Write to Austin Kilgore.
Risk analysis and loss mitigation service provider Clayton Holdings added industry veteran Thomas Gere as senior managing director.
Gere joins Clayton with more than 25 years of experience, including senior sales positions at financial services firm Lehman Brothers and investment bank Cohane Rafferty within the fixed-income and whole-loan channels.
Gere will head up expansion efforts in Clayton's relationships with commercial banks, thrifts and mortgage banks. He will focus on business development and marketing of Clayton's services including commercial and residential due diligence, surveillance and asset pricing.
“As the economy recovers and the mortgage and secondary markets begins to regain traction, financial institutions will be looking for reliable, scalable partners, like Clayton, who can deliver value added, quality outsourced information and services that are necessary to regain investor confidence,” said Clayton CEO Paul Bossidy.
The now-failed Lehman Brothers acquired Cohane Rafferty several years before it went bankrupt in 2008 on the heels of financial fallout related to its mortgage-related holdings.
Write to Diana Golobay.
Fannie Mae (FNM: 0.00 N/A) updated its eligibility requirements for lenders wanting to sell and service residential first mortgages, according to the new selling guide released Friday.
To do business with Fannie Mae, lenders must now have a net worth of at least $2.5m — 10 times the previous required net worth — plus a dollar amount equal to 0.25% of the outstanding principal balance of any Fannie Mae portfolio it services.
In the April 2009 version of the guidelines, lenders needed a net worth of at least $250,000 and an additional dollar amount equal to 0.20% of the portfolio.
The announcements also include updates from reverse mortgage lender letters Fannie Mae and announcements incorporated into the Selling Guide.
Fannie said most of the information was unintentionally omitted from the April 2009 Selling Guide, but was added to the October issue.
Within the next two months, Fannie Mae plans to issue another update to the Selling Guide that incorporates any outstanding announcements and those made between now and the time of the update.
Write to Jon Prior.
Transaction prices rose 4.4% on commercial real estate properties sold in Q309 by major institutional investors, according to the MIT Center for Real Estate (MIT/CRE).
The gain marked the first positive price change in more than a year for the Center's transactions-based index (TBI). It is also the largest increase since before the market downturn began in mid-2007, according to MIT/CRE.
The findings indicate the US commercial property market may have reached bottom in terms of pricing, the Center said, with the price index narrowing the deficit from its '07 peak to -36.5% in Q309 from -39% in Q209.
The TBI, based on prices of closed deals, also tracks separate movements on the demand and supply side of the institutional property market.
“The big news this quarter is not just that the price index increased, but that transaction volume substantially increased for the second quarter in a row, reflecting the first increase in market sentiment in two years,” said professor David Geltner, director of research at MIT/CRE. “Our demand index, which tracks the prices that potential buyers are willing to pay, posted its first increase after eight consecutive quarters of decline, and it was a robust 12% jump.”
The demand-side index is now only 42% below its mid-2007 peak, from 48% below in Q209, according to Geltner.
The supply-side index, which measures the price sellers are willing to accept, continued its fall in Q309, dipping a "modest" 2.5% to a level 30% below its peak, according to MIT/CRE research technician Holly Horrigan.
“The combination of the upsurge in demand and the continued drop in sellers’ prices led to the strong increase in transaction volume and the beginnings of a reliquification of the market,” said Horrigan.
Geltner added: “One quarter does not a trend make, and we are still well below normal trading volume. Nevertheless, this is the strongest sign of a bottom that we’ve had in two years."
Write to Diana Golobay.
Real estate investment trust (REIT) Parkway Properties (PKY: 9.72 +0.73%) lost nearly $2.8m, or $0.13 per share, in Q309, compared to profit of $18.5m, $1.23 per diluted share, in Q308.
The Jackson, Miss.-based REIT specializes in acquiring, owning, operating and leasing office space, primarily in the Southeastern and Southwestern United States and Chicago. Parkway owns or has an interest in 65 office properties in 11 states, totaling about 13.4m square feet of leasable space.
The REIT’s loss from continued operations was $3.6m. Funds from operations (FFO) totaled $16.2m, $0.76 per share, in Q309, compared to $14m, $0.92 per share, in Q308.
“While the US is beginning its economic recovery, office leasing trends will continue to lag the overall economic recovery,” said president and CEO Steven Rogers. “We will continue to play good defensive ball while positioning our balance sheet for future growth.”
Year-to-date FFO through Q309 was $48.9m, $2.59 per diluted share, compared to $43.9m, $2.90 per diluted share, for the same period of 2008.
The REIT said it experienced an “unusual” gain of $742,000 on the partial recognition of an involuntary conversion resulting from Hurricane Ike.
Write to Austin Kilgore.
Half of all borrowers that refinanced their conventional loans in Q309 saw their annual mortgage interest rate drop by at least 17%, according to a quarterly report by mortgage giant Freddie Mac (FRE: 0.00 N/A).
Although the new interest rate was only about 1.1 percentage points below the old rate, in aggregate the interest rate reduction adds up to around $3bn in savings for these borrowers over the first 12 months of the new loan, according to a survey of a sample of properties on which Feddie funded at least two successive loans.
During the first nine months of the year, 30-year fixed mortgage interest rates averaged 5.1%, the lowest average over that time frame ever recorded in 38 years of Freddie's mortgage rate survey, according to vice president and chief economist Frank Nothaft.
"At the beginning of the year, only borrowers who still had a solid equity cushion could take advantage of the low mortgage rates, but through the Homeownership Affordability Refinance Program (HARP) that got underway in April, borrowers who have a loan owned by Freddie Mac or Fannie Mae can refinance that loan even if they have no home equity," Nothaft said, adding the Federal Housing Finance Agency (FHFA) indicates that as of August 31, more than 93,000 borrowers refinanced under these terms.
FHFA in July announced the extension of HARP to borrowers with loan-to-value (LTV) ratios up to 125%, effectively broadening the reach of refinance to deeply underwater borrowers.
Of prime borrowers that refinanced a conventional, first-lien mortgage, 64% (the highest share in 6 years) either kept the same principal balance or reduced it, according to Freddie. Cash-out refinancing, where the new loan amount through comes in at least 5% higher than the paid-off first-lien mortgage balance, slipped to a six-year low of 36% in the quarter. Through Q309, borrowers cashed out a total $60bn in 2009.
"Adjusting for inflation, this was the smallest volume of equity extraction over the first three quarters of a year since 2000,” said deputy chief economist Amy Crews Cutts. “The principle cause of the decline in cash-out refinance is that homeowners have a smaller equity cushion. The median property refinanced in the third quarter had no net appreciation over the time since the previous mortgage was taken out, which was three and a half years ago."
Freddie, together with sister government-sponsored enterprise (GSE) Fannie Mae (FNM: 0.00 N/A), refinanced more than 3.5m mortgage loans in 2009 as of September, according to the GSEs' conservator, the FHFA. The GSEs refinanced 262,000 mortgages in September alone — a slight drop from August as mortgage rates are edging higher than in spring.
Write to Diana Golobay.
The Mortgage Bankers Association (MBA) joined the call against risk retention requirements in a recent financial regulatory reform legislation draft.
In a letter Monday signed by MBA president and CEO John Courson, the group urged House Financial Services Committee chairman Barney Frank (D-Mass.) and ranking member Spencer Bachus (R-Ala.) to ensure reforms aimed at the securitized credit markets are customized to avoid unintended consequences.
In particular, the 10% credit risk retention requirement may be inappropriately applied to all loan sale transactions regardless of whether the loan purchaser intends to permanently hold the loan, according to Courson. Independent mortgage bankers may also be forced out of business by the retention requirements.
The Financial Stability Improvement Act (FSIA) would broadly require additional risk retention for residential and commercial mortgage financing and securitization, when creditors and securitizers are already subject to risk retention under provisions of HR 1728, which passed the House earlier in the year, Courson said.
MBA recommended FSIA be changed to exclude risk retention requirements for creditors and securitizers of residential loans, so these entities will be subject only to the provisions of HR 1728, which call for 5% risk retention for certain mortgages. The MBA is also pushing for the exclusion of commercial loans altogether from FSIA.
"Coverage of all residential loans under FSIA would unnecessarily stem competition, reducing choices and increasing the costs of credit for consumers," Courson said. "In contrast, the more targeted provisions under HR 1728 would require risk retention only on higher-risk loans where these requirements may be warranted."
The MBA is not alone in its call against the risk retention language.
The Community Mortgage Banking Project (CMBP) and the Community Mortgage Lenders of America (CMLA), two recently formed community bank lobbying groups, issued a joint statement claiming the “broad risk retention provisions in the draft” could jeopardize affordable mortgages for consumers because the provisions would hamper community-based lenders’ abilities to tap the secondary mortgage market for funding.
The risk retention may force independent mortgage bankers to close and may increase liquidity pressure on already cash-strapped commercial banks, the groups said.
Write to Diana Golobay.
