Archive for March, 2010
Former Federal Reserve chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates.
Higher yields reflect investor concerns over “this huge overhang of federal debt which we have never seen before,” Greenspan said in an interview today.
“I’m very much concerned about the fiscal situation,” said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates “will make the housing recovery very difficult to implement and put a dampening on capital investment as well.”
The yield on 10-year Treasury notes was 3.86% at 11:02 a.m. in New York, little changed from late yesterday. That’s up from 3.69% at the end of last week.
US interest-rate swap spreads declined to the lowest levels on record this week, reflecting investor concerns about the ability of nations to finance rising fiscal deficits.
Toll Brothers Inc, which dominates the market for large, expensive houses known as McMansions, is shrinking its square footage as the worst housing market downturn since the Great Depression grinds on.
Toll's newer offerings in Las Vegas include some of the company's smallest and cheapest single-family detached homes.
"It's no secret that Las Vegas leads the nation in foreclosures," said Nevada division head Gary Mayo. "The dramatic decrease in home prices dictates where we need to go with pricing and product."
The impact of a federal homebuyer tax credit and stabilizing unemployment numbers has fueled talk of a housing recovery, but uncertainty lingers. Sales of both new and existing homes fell in February.
In Las Vegas, Toll has responded by including stucco, tile-roof houses measuring 1,673 square feet and costing in the low-$200,000s in a community called Traccia.
That is less than half the average size and price of Toll's single-family, detached homes.
Preet Bharara, the United States Attorney for the Southern District of New York, announced that Marina Dubin, a real estate paralegal, was sentenced yesterday to two concurrent three-year prison sentences in connection with her involvement in a multimillion-dollar, sub-prime mortgage fraud scheme and another foreclosure rescue scheme. Dubin, 33, of Brooklyn, New York, pleaded guilty to two counts of conspiracy to commit mail, wire and bank fraud on June 12, 2008, before United States District Judge Richard J. Holwell, who also imposed the sentence yesterday in Manhattan federal court.
Continental Bank said Friday that it has acquired Vision Mortgage Capital from First National Bank of Chester County.
Terms of the deal were not disclosed.
Vision of Blue Bell, Pa., was formed in 2007 by former Mortgage Bankers Association President Regina Lowrie as a division of Lancaster, Pa.-based American Home Bank, which was acquired by First Chester County Corp. in January 2009. First Chester agreed to be sold in December to Harrisburg’s Tower Bancorp, but the merger agreement was recently amended to allow for the sale of American Home before the merger is completed.
CitiFinancial, the Balitmore-based consumer mortgage arm of Citigroup, has agreed to pay $1.25m to 35-states — including New Jersey — for failure to report 91,127 residential mortgage loans to regulators from 2004 to 2007, according to a release.
The New Jersey Department of Banking and Insurance will take about a $47,000 cut of the settlement. CitiFinancial failed to disclose information about 2,700 mortgages in the state.
"Today's voluntary agreement will ensure that CitiFinancial puts in place the systems, training, oversight, and controls necessary to avoid a similar occurrence in the future," said Tom Considine, the Department of Banking and Insurance Commissioner, in a statement.
Mortgage insurers rallied Friday on an Obama administration plan to expand a multibillion dollar mortgage-modification program to help jobless homeowners. Shares of PMI Group Inc. rose 8.6% to $4.53, Radian Group shares grew 9% to $14.27, MGIC Investment Corp. shares increased 6.8% to $9.53, and Genworth Financial Inc. shares advanced 3.6% to $17.49 in recent trading.
Arizona Attorney General Eric Holder announced Thursday in downtown Phoenix that the state will receive $1.7m this spring to combat mortgage fraud – a prolific problem during the real estate boom that grew following the crash and ensuing recession.
The sum is more than 20% of the federal funds allocated by President Barack Obama to investigate and prosecute white collar criminals who continue to rip off uneducated consumers, costing the state millions in losses in the private sector, while fueling the foreclosure crises in one of the hardest hit cities in the country.
“I’m confident that these new investments will allow us to build on the recent success we’ve seen across the country and the progress that’s been made here in Arizona,” said Holder, who was among the many high profile representatives of the Financial Fraud Enforcement Task Force, which met in Phoenix for the second of a series of Mortgage Fraud Summits.
The New York Federal Reserve Bank bought another $8bn of agency mortgage-backed securities (MBS) in the week ending March 24. The purchasing program, now 99.5% complete, will wind by the end of the month.
The Fed bought a total $8.26bn of MBS this week — $3.6bn of Freddie Mac (FRE: 0.00 N/A) MBS, $4.1bn of Fannie Mae (FNM: 0.00 N/A) MBS and $560m of Ginnie Mae MBS. The Fed also reported $260m of MBS sales in the same week, bringing net purchases to $8bn.
It marks a slow-down from $10bn last week.
The latest week of reporting brings the Fed's net purchases to date up to more than $1.24trn, or 99.5% of the program's $1.25trn purchasing power, according to weekly research by the JPMorgan (JPM: 37.21 -0.75%) MBS strategy team.
The weekly purchases have for months represented a significant demand for the gross amount of agency MBS purchases:
The Fed has $6.07bn left to spend under the program.
The Federal Reserve last week decided to exit the program at the end of March, despite earlier consideration of a possible expansion and extension of government-led initiatives to buy MBS.
The Fed’s exit from agency MBS has sparked investor fears MBS bond yield spreads to Treasurys may blow out again from recent historic tights, when the government withdraws its significant demand for securities.
Write to Diana Golobay.
Disclosure: The author holds no relevant investment positions.
In a speech on the Federal Reserve exit strategy to the House of Representatives Committee on Financial Services, chairman Ben Bernanke noted that the government-led credit provision, the Term Asset-Backed Securities Loan Facility (TALF) is reaching its end this month.
The exception to this deadline, however is newly issued commercial mortgage-backed securities (CMBS), and loans backed by newly issued CMBS. These will get an extra three months.
In a footnote accompanying the published transcript of the speech, the chairman's comments are given justification:
According to Robert O'Brien, US Real Estate Leader at consultancy firm Deloitte, this approach mirrors the current "pretend and extend" strategy surrounding the larger commercial real estate industry.
There appears to be no better option for the moment, O'Brien adds, as "many commercial real estate (CRE) owners will likely continue to struggle with debt maturity in 2010 and beyond."
In an environment of low interest rates, it makes sense to extend a loan for three or four more years in order to give enough time for the capital markets and investor appetite to return, along with a more robust job market, he adds.
In the case of CMBS, the assets remain off-books for issuers, who remain cautious about bringing such real estate back into the mix considering many of the properties aren't making rental money and require servicing attention.
O'Brien, in his 2010 Industry Outlook, states that the Federal Deposit Insurance Corp. (FDIC) received guidance from the government on how to work with borrowers to avoid commercial foreclosures.
Nonetheless, foreclosures in CRE will see an uptick in 2010, the report adds, as investors continue to wait on the sidelines until a bottom to the market is definitively reached.
Write to Jacob Gaffney.
Posted in Commentary, Secondary Market/Investors, Top Stories | 3 Comments »