Archive for March, 2010
The House Committee on Financial Services (HCFS) held a meeting today to figure out how to reform the housing finance system and potentially wind down the mortgage giants Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A).
Testifying before the committee, Timothy Geithner, the secretary of the US Treasury Department said while conservatorship of the government-sponsored enterprises (GSEs) by the Federal Housing Finance Agency (FHFA) was necessary, there needs to be a process of fundamental reassessment and reform.
“Private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained,” Geithner said.
While Geithner said the Obama administration is committed to ensuring that the GSEs have enough capital to meet any of their debt obligations and perform under any guarantees issued in the future, he reported that a plan to phase out government involvement is in development.
“Government’s role in the housing finance system and level of direct involvement will change, however, and the Administration is committed to encouraging private capital to return to the housing finance market,” Geithner said. “The substantial direct support for the housing markets that has been put in place will be allowed to fade as the market recovers and fully stabilizes.”
The alleged mismanagement of the GSEs in the past raises questions of how regulators will separate responsibilities to oversee industry soundness and consumer protection.
Earlier in the month, Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, introduced a new bill to Congress that would establish the Consumer Financial Protection Agency (CFPA). Under the bill, the Federal Reserve, already in charge of looking after bank stability, would play a role in housing the CFPA.
Geithner urged the Committee that a separation of these two responsibilities is vital to a healthy housing financial system in the future.
“We are now living with the consequences of a system that for many, many decades gave bank supervisors the responsibility to write and enforce rules for consumer protection, and that system did a terrible job for the country. It did a terrible job of protecting consumers, and it did not do an adequate job of protecting the safety and soundness of the banks in our country,” Geithner said to the HCFS.
When pressed on the issue by Committee members, Geithner added: “You want bank supervisors worrying about risk management, about capital, about liquidity. You want them focused on those core things. You don’t want them having to spend a bunch of time also having to worry about consumer protection if that job can be better done by an independent agency,” Geithner said.
But the committee brought up the argument of conflict. What if the regulators of the industry and the GSEs conflict with rules of those governing consumer protection?
“If there is any risk of conflict, you can deal with that risk by making sure you have a body that looks at conflict and can pass judgement. But I think that it’s very unlikely that there would be any conflict,” Geithner answered.
Geithner testified that the Obama administration will develop a “comprehensive reform proposal” to be delivered to Congress. To ensure input from stakeholders, the Treasury and the US Department of Housing and Urban Development (HUD) will submit a list of questions to market participants by April 15, 2010.
Write to Jon Prior.
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Republicans in the House of Representatives, led by Financial Services Committee ranking member Rep. Spencer Bachus (R-AL), authored a list of principals they wish to see as part of "immediate" legislative efforts to plan for the future of the government-sponsored enterprises (GSEs).
"It is time to deal with bailed out companies, which were at the center of the mortgage market meltdown that caused the financial crisis, and have cost taxpayers hundreds of billions of dollars," Bachus said in a statement.
The Republican lawmakers are calling for a timed wind-down of operations at Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) within four years, "ending once and for all the disastrous government experiment in privatized profits and socialized losses," according to their list of 10 principals on GSE reform.
"For years we warned about the systemic risk posed by Fannie and Freddie," said Rep. Ed Royce (R-CA). "Unfortunately our calls for reform were largely ignored under the guise of promoting affordable housing."
The plan would reduce the mortgage portfolio holdings of Fannie and Freddie by 25% and phase-in capital requirements consistent with global standards for large and complex financial institutions over a four-year period.
The Republicans urged a phasing out of the elevated conforming loan limits in high-cost areas over two years, "thereby cutting off taxpayer subsidies of millionaires' mortgages." The plan would create a regulatory safe harbor for mortgages that meet underwriting standards consisted with the Federal Reserve Board's final HOEPA rule.
The plan would prevent Fannie and Freddie from funding long-term assets with short-term borrowing, which the House lawmakers said exposes taxpayers to interest rate risk. It would create an Inspector General for the Federal Housing Finance Agency (FHFA) that would report regularly to Congress as long as the FHFA oversees the GSEs in conservatorship.
"Taxpayers deserve to know where their dollars are going, what risks they are being exposed to, and how these institutions are being managed or mismanaged," said Rep. Judy Biggert (R-IL). "Our reforms will impose some common-sense accountability on these intuitions, end the bailouts, and take immediate steps to wind down the immense risks they pose to the long-term stability of our housing market."
The House Republicans are also calling to move the operations of Fannie and Freddie onto the federal budget and subject the debt issued by the GSEs to the national debt limit. Their plan would suspend compensation packages already approved for senior executives at Fannie and Freddie and would instead establish a compensation system equal to that paid to executive- and senior-level employees of the US government.
The plan would also establish a regulatory framework for a US covered bond market — an effort championed by Rep. Scott Garrett (R-NJ) with the introduction of the highly-anticipated United States Covered Bond Act.
The push by House Republicans to reform the GSEs comes as efforts move forward by Senate Democrats to reform the financial regulatory system.
Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, last week unveiled details of a new bill to Congress that aims to overhaul the financial regulatory system and establish the Consumer Financial Protection Agency (CFPA). Some of the language in the 1,300+ page bill is already earning the criticism of industry professionals that say requirements for credit risk retention could make origination and securitization prohibitively expensive.
The Senate Banking Committee on Monday approved the bill to move to a vote on the full Senate floor.
Write to Diana Golobay.
Disclosure: The author holds no relevant investment positions.
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Existing home sales dipped in February, continuing a three-month-long run of declining sales activity, according to the National Association of Realtors (NAR).
The seasonally adjusted annual rate of finalized transactions for existing single-family, townhomes, condominiums and co-ops was 5.02m in February, down 0.6% from 5.03m in January, which started the year off down 7.2% from December. February’s rate was 7% higher than a year ago, when the annual rate for existing sales was 4.69m in February 2009.
The national median existing-home price for all housing types was $165,100 in February, down 1.8% from February 2009. Distressed properties accounted for 35% of sales last month.
NAR said modest gains in the Northeast and Midwest were offset by softer sales in the South and West.
Regionally, the annual rate of existing-home sales in the Midwest was 1.11m, up 2.8% from January and up 8.8% from February 2009. The median price in the Midwest was $128,000, down 2% from a year ago.
The annual rate in the Northeast was 840,000 in February, up 2.4% from January and up 12% over last year. The median price in the Northeast was $254,700, up 7.5% from February 2009.
In the South, the rate of existing home sales was 1.85m, down 1.1% from January, but 6.9% from February 2009. The median price in the South was $139,600, down 4.2% from February 2009.
In the West, existing home sales decreased 4.7% from January to an annual rate of 1.22m, which is 3.4% higher than February 2009. The median price in the West was $207,900, down 9.8% from a year ago.
NAR chief economist Lawrence Yun said existing sales have been higher than year-ago levels for eight straight months and home prices are stabilizing, but added the housing recovery is fragile. Yun added the widespread winter storms in February may be masking underlying demand.
“Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said.
The nation’s existing home inventory was 3.59m in February, up 9.5% from January. That’s an 8.6-month supply, up from a 7.8-month supply in January.
“The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,” Yun said. “If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization.”
First-time homebuyers continue to dominate the market, accounting for 42% of all home sales in February, NAR said. Investors accounted for 19% of existing sales, while the remaining 39% were repeat buyers.
Sales in the single-family home segment of the existing home market were at an annual rate of 4.37m in February, down 1.4% from January’s rate of 4.43m, but up 4.3% from the rate of 4.19m in February 2009. The median existing single-family home price was $164,300 in February, down 2.1% from February 2009.
Existing condominium and co-op sales were at a rate of 650,000 in February, up 4.8% from the rate of 620,000 in January and up 30.3% from 499,000 in February 2009. The median existing condo price was $170,200 in February, down 0.2% from a year ago.
Write to Austin Kilgore.
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Government-sponsored enterprise (GSE) Freddie Mac (FRE: 0.00 N/A) approved PMI Mortgage Assurance Co. (PMAC) as a direct issuer of mortgage guaranty insurance.
PMAC is a newly formed subsidiary of PMI Mortgage Insurance Co. (MIC), the principal operating subsidiary The PMI Group (PMI: 0.00 N/A).
The approval means PMAC can write new mortgage insurance business in certain states in the event MIC fails to meet capital requirements and is ordered to cease writing new insurance in those states. PMI said PMAC holds around $28m in capital.
At least in Arizona, the company can continue to write new insurance through MIC, rather than the PMAC unit. MIC in February received approval from the Arizona Department of Insurance to continue writing new mortgage insurance business even if PMI falls below state capital requirements.
Freddie's approval of PMAC will remain in effect until Dec. 31, 2011. It arrives after sister GSE Fannie Mae (FNM: 0.00 N/A) in February granted similar approval.
Shares of PMI shot up 14% in early morning trading following Freddie's announcement.
PMI in February reported losses of $228.2m – or $2.76 per share – in Q409 as mortgage defaults continue to put financial pressure on the company’s mortgage insurance business.
Write to Diana Golobay.
Disclosure: The author holds no relevant investment positions.
Posted in Secondary Market/Investors, Servicing/Default, Top Stories | 1 Comment »
Principia Partners, the New York-based software provider for management and administration of structured finance portfolios, will provide a greater level of transparency of asset-backed securities (ABS) to its investor clients.
Principia announced today it partnered with Lewtan, an ABS performance data and analytics provider for the global securitization industry, to add ABSNet performance data via the Principia Structured Finance Platform (Principia SFP). The partnership integrates Lewtan’s performance data covering more than 20,000 global structured finance deals into Principia’s operational platform.
Access to this combination of asset performance data within Principia’s infrastructure allows organizations to model their portfolio of structured finance and fixed income assets, along with their associated derivatives and funding products, according to a press release from Principia.
“The provision of detailed deal structure information, ongoing analytics and performance data has always been the focus of the ABSNet solution,” said Ned Myers, chief marketing officer of Lewtan. "We can now see the regulatory and investor community in the securitization market recognizing the need for this level of independent deal analysis. This combined solution delivers the transparency to drill-down into individual deals, within a system that encompasses overall market and credit risk analysis."
Lewtan’s current and historical deal performance statistics are fully incorporated into Principia SFPs standard portfolio composition reports, deal reports and compliance engine. Principia said this allows investors to track the more than 100 performance variables monitored by Lewtan from within the system.
These measurements are augmented with the ability to track standard performance metrics and other asset information available through Principia SFP. Limits can then be set to maintain compliance, perform rigorous stress tests and deliver timely reports regarding asset performance at the portfolio, deal, tranche or collateral level, Principia said.
Write to Diana Golobay.
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With the Home Affordable Foreclosure Alternatives (HAFA) program kicking off in two weeks, servicers are making their final preparations for the oncoming wave of short sale requests. While boosting technology is key to the build-up, getting the right people in place could be more of a priority to handle the load.
The US Treasury Department will launch HAFA on April 5, 2010. The program will provide incentives to servicers that provide short sales and deeds-in-lieu of foreclosure for borrowers who failed a modification through the Home Affordable Modification Program (HAMP).
GMAC (GJM: 22.57 0.00%) is considered the leading servicer in the Home Affordable Modification Program by providing active and permanent modifications on 53% of the more than 66,000 eligible loans in its portfolio.
GMAC began its build-up for the HAFA demand a month after HousingWire broke the HAFA story in October. In November 2009, GMAC formed a liquidation advisor unit to proactively contact borrowers who are not eligible for loan modifications to discuss some alternatives such as short sales.
“We don’t currently have a backlog of short sale requests as many servicers do. We typically acknowledge a short sale offer within three days of receipt,” said James Olecki, a spokesperson for GMAC.
GMAC also revamped its technology platform in December, when the company implemented a customized short sale workflow portal to streamline the approval process. The system permits borrowers and real estate agents to electronically submit short sale offers, similar to a platform launched last month by Equator, the largest vendor management platform used by real estate owned (REO) departments across the country.
While GMAC is making strides in its technology department, Sanjeev Dahiwadkar, founder and CEO of IndiSoft, a technology developer specializing in the default services industry, said the right people in place can play a vital role.
“While technology has its critical place in the short sale process, we believe because of the high emotions involved in the decision making process, that there is a still a small portion that is subjective and requires human intervention,” Dahidwadkar said. “It is equally important for technology to provide a transparent and secure communication channel between all participants to help in the decision making process about how much losses to take or what they can live with.”
Scott Gillen, senior vice president of strategic initiatives at Stewart Lending Services, an REO asset management provider, is seeing two different approaches.
“We’re seeing two things, a build up internally just for the review of what’s coming in. What we’re also seeing though is a lot of outreach to vendors such as Stewart to support a lot of the heavy lifting, and when I say that, you’ve got all of the HAMP denials that are theoretically eligible,” he said.
Most of the companies, according to Gillen, are looking for bandwidth support primarily in the solicitation stage and the follow up with the borrower to determine their interest in pursuing a possible short sale or deed-in-lieu.
According to Olecki at GMAC, the servicer acknowledges a short sale request within three days of receiving one, and he has seen a reduction in the overall short sale timeline. A short sale agreement between the borrower and the servicer under HAFA expires after 120 days.
Write to Jon Prior.
The author holds no relevant investments.
Posted in Servicing/Default, Slider, Top Stories | 1 Comment »
The Association of Community Organizers for Reform Now (ACORN) will no longer be offering its services nationally, after a meeting of the board over the weekend.
The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and maintain operations.
In an e-mail sent to reporters, ACORN said: "[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation."
ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles.
In November, the group sued to get restricted federal funding flowing again.
Write to Jacob Gaffney.
The author holds no relevant investments.
Posted in Servicing/Default, Top Stories | No Comments »
The Federal Home Loan Bank (FHLB) of San Francisco filed complaints last week in the Superior Court of California against nine securities dealers it claims made misleading statements about mortgage loans underlying securities.
The complaints involve investments the San Francisco FHLB said it made in private-label residential mortgage-backed securities (RMBS), rated triple-A at the time of purchase, "based on the information provided by the securities dealers."
The FHLB is seeking to rescind or annul its purchases of 134 securities in 113 securitization trusts, for which the bank originally paid $19.1bn. According to public information on the court Web site, Deutsche Bank Securities and Credit Suisse Securities are among the firms named in the complaints.
The FHLB's complaints allege the securities dealers made misleading or untrue statements regarding the characteristics of the underlying mortgage loans.
"In filing these complaints, the Bank seeks to continue supporting its mission and to protect the interests of its member shareholders, which include over 400 community banks, credit unions, and savings institutions headquartered in Arizona, California, and Nevada that serve millions of consumers," the FHLB said in a statement.
A case management conference is scheduled for Aug. 13, 2010, according to the court's Web site.
Write to Diana Golobay.
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Commercial real estate services firm Cushman & Wakefield’s new president and CEO resigned Friday from his position on the General Growth Properties (GGP: 15.96 +0.19%) board of directors.
Glenn Rufrano stepped down from the GGP board to avoid a conflict of interest because Cushman & Wakefield is providing appraisal services to GGP as part of its ongoing bankruptcy restructuring. Today is Rufrano’s first day at the new position.
“We can't thank Glenn enough for the expertise, experience and tremendous insight he has brought to our board of directors as we continue our efforts to emerge GGP expeditiously from Chapter 11 in a manner that provides a good result for all our stakeholders,” said GGP CEO Adam Metz in a statement Friday.
Rufrano joined the GGP board in 2009. In 1983, Rufrano co-founded the O’Connor Group, now called O’Connor Capital Partners, where he worked until 2000. Since 2007, he was CEO of the Australian-based Centro Properties Group. From 2000 to 2007, he was CEO of New Plan Realty Trust.
Rufrano replaces outgoing Cushman & Wakefield president and CEO Bruce Mosler, who became co-chairman of the board on January 1, 2010.
In early March, Pershing Square Capital Management CEO William Ackman also stepped down from the GGP board. The activist investor became a director nearly a year ago, shortly before the shopping mall real estate investment trust (REIT) filed for bankruptcy.
Ackman stepped down to avoid a conflict after Pershing Square and Fairholme Capital Management offered to inject nearly $4bn into GGP to help it emerge from bankruptcy and avoid a takeover by rival REIT Simon Property Group (SPG: 136.69 +0.12%).
Write to Austin Kilgore.
The author held no relevant investments.
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The First American Corporation (FAF: 14.98 +0.07%) is granting Dorado, the provider of Internet-based cloud computing, exclusive global rights to its Web services and mortgage e-lending technology.
The transition to cloud computing, across parts of its network, is expected to be seamless, according to Dorado, even in handling the multitudinous changes on the horizon for the Real Estate Settlement Procedures Act (RESPA), the Housing and Economic Recovery Act (HERA) and the Home Valuation Code of Conduct (HVCC) and other home-lending initiatives.
"One way to think about this new offering is to compare it to what electronic resource processing (ERP) systems did for manufacturing operations," said Rob Carpenter, Dorado's chief technology offer. "Dorado's new offering is an ERP-like solution for enabling financial institutions to orchestrate all of the electronic data pieces coming into the manufacture of a loan product."
Dorado claims that using cloud computing is a more cost-effective way to originate, fund and underwrite mortgages, although some market participants question the feasibility of these systems in general. Cloud computing, itself, is simply meant to be a tool for streamlining operations in any business.
As part of the agreement Dorado can also develop First American's technology further. The software assets being covered include: eClosing, eMortgage, Decisioning Engine, eDisclosures, eVault and the Vendor Management Platform.
Dorado will also integrate its own ChannelMaster web-based origination platform into First American's operations. First American is a leading provider of consumer and commercial mortgage origination settlement services.
Write to Jacob Gaffney.
The author holds no relevant investments.
Posted in Origination/Lending, Top Stories | No Comments »
