Archive for December, 2009
Bank of America (BAC: 7.29 -0.14%) and JPMorgan Chase (JPM: 37.21 -0.75%) are suspending foreclosures for the holiday, joining Citigroup (C: 30.87 +1.61%) and the government-sponsored enterprises (GSEs), Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A).
From Dec. 21, 2009 through Jan. 3, 2010, Chase and BofA will postpone foreclosure evictions, according to HousingWire sources. Decisions to suspend foreclosure are common this time of year.
This week, BofA's executive of credit loss mitigation strategies, Jack Shakett, said that it needs to create a "sense of urgency" in its customers to get documents in for the Home Affordable Modification Program (HAMP). Through HAMP, the US Treasury Department provides capped incentives to servicers for the modification of loans on the verge of foreclosure.
Shakett said that the more than 1m loans in its HAMP-eligible portfolio has been reduced to 340,000 after talking with customers. BofA has started 156,864 three-month trial modifications under HAMP but has converted 98 into permanent status. Shakett said that 10,000 borrowers had all documentation in, all underwriting done and were in the final stages of permanent conversion.
Chase announced this week that it will open 24 additional homeownership centers during the next four months to assist distressed mortgage borrowers with modifications. Under the Home Affordable Modification Program (HAMP), Chase has started 143,027 three-month trial modifications of its 448,815 HAMP-eligible portfolio, according to the latest data from the US Treasury Department.
Chase converted 4,252 trials into permanent modifications. Active trials and permanent modifications make up 31% of its entire eligible portfolio.
Write to Jon Prior.
The author held no relevant investments.
The Department of Housing and Urban Development (HUD) released a letter to lenders regarding borrower eligibility for a new Federal Housing Administration (FHA) mortgage after pursuing a short sale.
According to the letter (available to download here) and effective immediately, borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement “to take advantage of declining market conditions” or to purchase another property at a reduced price.
Borrowers are cleared for a new FHA-insured mortgage if they were current on their previous mortgage and other debts at the time of the short sale and if the proceeds from the short sale serve as payment in full.
If a borrower executes a short sale while in default on their mortgage would not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Some lenders can make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner.
But, it means that anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage for three years. Under HAFA, the US Treasury Department provides incentives to servicers, banks and investors to pursue a short sale for seriously delinquent borrowers.
The FHA will insure the first mortgage where the existing not holder wrote off the debt that cannot be refinanced into the new mortgage because of a decline in property value or a reduction in income.
Write to Jon Prior.
The level of outstanding commercial and multifamily mortgage debt decreased $28bn from Q209 to Q309, according to the Mortgage Bankers Association’s (MBA) analysis of the Federal Reserve Board Flow of Funds data.
That decline represents only 0.8% of the $3.43trn of outstanding commercial and multifamily mortgage debt the Federal Reserve recorded in Q309. Multifamily mortgage debt outstanding dropped to $912bn, a decrease of $1bn, 0.1%, from Q209.
The Federal Reserve Flow of Funds data gauges the holding of loans or, if the loans are securitized, the form of the commercial mortgage-backed securitization (CMBS).
As an example, the MBA said, many life insurance companies invest both in whole loans for which they hold the mortgage note (included under Life Insurance Companies in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note.
Jamie Woodwell, MBA’s vice president of commercial real estate research, said a decline in construction loans contributed to the decline in loans.
“Excluding construction loans, however, banks and thrifts saw a $6bn increase in their holdings of loans backed by commercial and multifamily properties. Coupled with increases in the holdings of multifamily mortgages by Fannie Mae and Freddie Mac, and decreases in the balances backing commercial mortgage-backed securities, the overall amount of mortgage debt outstanding backed by commercial/multifamily properties remained relatively unchanged,” Woodwell said.
The association said commercial banks continue to hold the largest share of commercial and multifamily mortgages, $1.53trn, or 45% of the total. CMBS, CDO and other asset-backed securitization (ABS) issuers are the second largest holders of commercial/multifamily mortgages, holding $709bn, or 21% of the total.
Life insurance companies hold $310bn, or 9% of the total, and savings institutions hold $190bn, or 6% of the total.
The government-sponsored enterprises (GSEs), agency-backed mortgage pools and GSE-backed mortgage pools hold $197bn in multifamily loans that support the MBS they issued and an additional $162bn in "whole" loans in their own portfolios. That represents 10% of all outstanding commercial and multifamily mortgages.
Write to Austin Kilgore.
The industry can expect to see either housing stabilization or "a renewed leg down" in the second half of 2010, depending on the success rate of foreclosure prevention efforts, global financial services firm Credit Suisse said in a research note this week (available to download here).
"We estimate that roughly 3.2m foreclosures must be prevented in 2010 for home prices to stabilize or potentially tick up," researchers said. "This is an uphill challenge, but a combination of current government programs and their future iterations offer a narrow path for success."
This projection comes as Deutsche Bank researchers say these predictions will likely become a reality, with the total peak-to-trough decline of US home prices hitting nearly 40%. In the current outlook, they say home prices will drop a further 10 to 12% from current levels.
Credit Suisse researchers add the mortgage market in 2010 looks likely to absorb the effects of the Federal Reserve's exit from its $1.25trn mortgage-backed securities (MBS) purchase program.
But despite the Fed's planned Q110 stop for purchases, the Fed will not entirely leave the MBS market to its own devices. Credit Suisse sees a likely backstop role for the Fed — possibly through liquidity efforts like outright and dollar roll sales — to diffuse the risks of a double dip in housing.
But with the Fed exiting its purchase program, the MBS market will be without a clear backstop for the first time since the mid-1990s, Credit Suisse noted. Reform of the government-sponsored enterprises (GSEs) is necessary to allow the GSEs to return to active roles of investors/backstops. Reform could also re-engage foreign investors, Credit Suisse said.
"The government (Fed/Treasury/GSEs) will likely be the largest owner of Agency MBS for the foreseeable future," researchers said. "We think attracting increased purchases by traditional investors such as money managers, banks, and foreign investors is key to long-term stability of the MBS market."
Write to Diana Golobay.
During a revision of Moody's Investors Service loss projections for U.S. prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008, the credit rating agency finds that the growth in new delinquency levels beyond the Q210 is expected to decline.
On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance.
As a result, Moody's placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade. Moody's estimated that the proportion of contractually current or 30-day delinquent Jumbo loans today that will become seriously delinquent by the second half of 2010 will be 3.7%, 7.0%, 8.4%, and 9.4% for the 2005, 2006, 2007 and 2008 vintages, respectively.
"Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months," says the report. Moody's expects home prices to decline an additional 9% to reach a peak-to-trough decline of approximately 37%. This is in line with the results of recent research from Deutsche Bank.
Growth in new delinquency levels beyond the second half of 2010 is expected to decline with improving economic and housing conditions, the agency said. To estimate delinquencies beyond 2010, Moody's decelerated the new delinquency rates by 15% for 2011, 25% for 2012, 35% for 2013 and 40% for 2014 and beyond. The deceleration rates reflect home price, unemployment and foreclosure projections beyond 2010.
Write to Jacob Gaffney.
The author holds no relevant investments.
The San Francisco Bay Area experienced a second month of year-over-year gains in home sales prices in November, MDA DataQuick reported.
The San Diego-based real estate information service provider said the increase is a sign of widening price stability for the Northern California market.
The median price paid for all new and resale houses and condos in the nine-county Bay Area was $387,000 in November. That’s a slight decrease of 0.8% from $390,000 in October, but a 10.6% increase from $350,000 in November 2008.
Year-over-year prices increased 4% in October, the first time since November 2007, when prices increased 1.5%. The November median was 33.4% higher than the 2009 low of $290,000 and 41.8%
Sales volume took a dip in November, but stayed above year-ago levels for the 15th straight month. A total of 6,878 new and resale houses and condos closed in November, down 13.3% from 7,933 sales in October but up 19.5% from 5,756 sales in November 2008. MDA DataQuick said a October to November decline is considered normal.
“The latest stats show just how much the Bay Area market has changed in a year,” said MDA DataQuick president John Walsh. “Financial distress is still a problem with many borrowers, but for now cheap foreclosures have lost their leading role in this housing drama.”
“In the short run, we’ll be comparing the new data to some ridiculously low median sale prices a year earlier – medians severely skewed back then by so many inland foreclosures selling, and so few coastal high-end sales,” Walsh added.
MDA DataQuick said the market improvements came in part because of a decline in foreclosures. Lenders and servicers are increasingly pursuing short sales and loan modifications as an alternative to the foreclosure process. Foreclosure resales accounted for 32.5% of all resale activity, up from 31.3% in October but down from 46.8% in November 2008. Foreclosure resales peaked at 52% in February 2009.
Federal Housing Administration (FHA) loans accounted for 26.3% of purchase loans, an increase from 25.4% in October, 19.7% in November 2008 and less than 0.5% two years ago. Adjustable-rate mortgages (ARMs) accounted for 8% of loans, down from 8.3% in October but up from 5.9% a year ago. From January 2000 to August 2007, ARMs accounted for 61% of purchase loans.
Write to Austin Kilgore.
The government-sponsored enterprises (GSEs), Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) have suspended foreclosures for the holidays.
The suspension follows Citigroup’s (C: 30.87 +1.61%) gift to its borrowers, when it announced that there would be no foreclosures until Jan. 17.
Freddie Mac ordered its eviction attorneys to suspend all evictions involving single-family and two-to-four unit properties between Dec. 19, 2009 and Jan. 3, 2010.
“If the property is occupied, our attorneys will halt the eviction during this holiday moratorium,” said Freddie Mac CEO Ed Haldeman. “In these extraordinary times, we want to provide a greater measure of certainty to these families during the holidays.”
Fannie Mae will also suspend all foreclosure evictions from Dec. 19, 2009 through Jan. 3, 2010. Owner-occupants and tenants living in foreclosed properties will not be subject to evictions, and Fannie will work with its servicers that are taking similar actions.
"We're taking this step in support of struggling families who have unfortunately found themselves facing foreclosure," said Michael Williams, Fannie’s president and CEO. "No family should have to face the prospect of being evicted during the holiday season."
Write to Jon Prior.
Borrowers applied for more purchase mortgages than refinance loans, and the higher per-loan production costs meant declined profits for independent mortgage bankers and subsidiaries in Q309, the Mortgage Bankers Association (MBA) said.
The MBA’s quarterly mortgage bankers performance report put the average per-loan profit at $902 in Q309. That’s down from Q209, when the average profit was $1,358 per loan. The report is a survey of 306 independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds.
“Production profits were still healthy in the third quarter of 2009, although not at the same level that we saw in the second quarter,” said Marina Walsh, MBA's associate vice president of industry analysis.
Fewer mortgage firms posted pre-tax net financial profits in Q309; 82% of firms reported profits compared to 96% in Q209. Production volume was also down from $280.9m in Q209 to $189.6m in Q309.
“For lenders in our study, average production volume dropped 33% in the third quarter 2009, along with a drop in the refinancing share of total originations. The overall decline in production volume combined with a heavier purchase share resulted in higher per-loan production expenses, which pulled down production profits,” Walsh added.
Refinance mortgages accounted for 44% of activity in Q309, down from 62% in Q209. However, the share of refinance loans was still above Q308’s 32%.
As a result, the cost to originate, which includes production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread, increased. In Q309, the cost to originate was $1,950, compared to $1,295 in Q209. Operating expenses — commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations — was also up, $4,376 per loan in Q309 from $3,581 per loan in the Q209.
Despite the decline in profits, the pull-through rate, which gauges how many loans close compared to applications filed, only slightly declined from 73% in Q209 to 72% in Q309. Retail outlets had closings per sales employee per month of 6.7 in Q309, down from 11 in Q209.
Write to Austin Kilgore.
In Charles Dickens' A Christmas Carol, the shrewd and penny-pinching money lender, Ebeneezer Scrooge, faces the reality of his life's legacy as he watches his possessions sold off after his death.
Similarly, now-bankrupt Thornburg Mortgage left behind significantly more valuable assets months after the credit crisis took its toll on the ultra-prime jumbo mortgage lender. One of these assets — a $11.1bn of residential loan servicing rights portfolio — is going up for sale by Interactive Mortgage Advisers (IMA) as part of the sale of assets under Thornburg's bankruptcy.
The portfolio is made perhaps more valuable because of the high underwriting standards used by the ultra-prime jumbo lender.
“Without question, this is one of the more attractive offerings available to the market for some time,” said Tom Piercy, managing member of IMA. “Thornburg maintained quality underwriting standards throughout their history as evidenced by the performance of this portfolio and its corresponding vintage. In an industry sector overwhelmed by Agency repurchase demands, the risk of servicing this asset is far less than any other portfolio offered.”
The portfolio consists of nearly 17,000 loans with an unpaid principal balance of $11.1bn, which bear a weighted average note rate of 5.87% with a seasoning of 43 months and weighted average service fee of 24.03bps. The loans in the portfolio is 3.79% delinquent while another 2.87% of loans are in foreclosure and/or bankruptcy. Bid procedures on the portfolio's sale will be released Dec. 21, IMA said.
The sale is procedural, but a grim reminder of Thornburg's long year of troubles.
Thornburg filed for bankruptcy protection in May. The company had warned in April of the possible bankruptcy after finding itself in violation of numerous covenants on various credit facilities with the likes of UBS AG (UBS: 14.05 +0.50%) and JP Morgan Chase (JPM: 37.21 -0.75%).
Thornburg said at the time that its creditors had agreed to forbear demanding payment under deficiency claims, but said that its various creditors would begin to seize collateral ahead of any bankruptcy filing by the company. Thornburg said it would begin the transfer mortgage servicing rights back to respective creditors.
Write to Diana Golobay.
Executives at the Federal Reserve Bank of New York believe the increase in excess reserves held by banks that received Troubled Asset Relief Program (TARP) funds is a by-product of the program’s extraordinary measures to recapitalize the nation’s financial institutions and provide stability to the sector.
Todd Keister is an assistant vice president and James McAndrews is a senior vice president in the monetary and payment studies function of the Federal Reserve Bank of New York’s research and statistics group. In a recent article, “Why Are Banks Holding So Many Excess Reserves?” they wrote:
In the article (download here), the authors explain how a infusion such as TARP’s Capital Purchase Program (CPP) can have a double impact in helping small lenders maintain lending capacity and larger lenders that lend to the small banks increase excess reserves.
Nearly every week this year, the Federal Deposit Insurance Corp. (FDIC) shells out millions to cover the losses of failed banks. To date, more than 130 US banks have failed in 2009, creating the greatest strain the FDIC’s deposit insurance fund has ever experienced. Given that, it’s not necessarily a bad thing for a large bank to boost its reserves, if for only a psychology reassurance that the nation’s biggest lenders won’t fail and further compromise the FDIC fund.
Moody’s economist Mark Zandi said he believes the banks are “overcapitalized.” Proponents of this theory believe the lenders should be lending more.
Last week, President Obama met with the CEOs of the nation’s 12 largest banks and called on them to increase lending. But just because a bank has money to lend, that doesn’t mean businesses and individuals want to take out loans. The banks can’t make people borrow money.
Conversely, the argument could be made that the $700bn TARP infusion was too great. After all, former TARP director Neel Kashkari recently admitted to the Washington Post the $700bn was a number that came out of thin air.
Write to Austin Kilgore.
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