Archive for June, 2010
Prices of mortgage securities issued by government agencies—Fannie Mae, Freddie Mac and Ginnie Mae—climbed to 15-year highs amid a surge in demand for investments that are as safe as Treasurys but offer better returns.
These bonds, which are effectively guaranteed by the US government, now trade above their face value.
After the worst recession since the Great Depression, many real estate companies and developers that sought bankruptcy protection are selling properties through 363 sales, so named to refer to the section of the bankruptcy code that deals with this procedure. Such sales, typically processed quickly, hand the properties free of liens to the new owners and provide a way for real-estate investors to buy distressed debt.
The US Supreme Court limited foreign investors' ability to sue companies based abroad in American courts, throwing out a shareholder lawsuit against National Australia Bank Ltd.
The justices unanimously said federal securities laws don't reach allegations by three Australians who bought shares of Melbourne-based NAB in that country. The Australians argued that US courts could consider the case because it centered on alleged wrongdoing by a former US subsidiary of the bank.
When he bought a home last week with a 40 percent down payment, lawyer Kevin Fritz didn't see the transaction as particularly relevant to the debate over global financial stability.
"Canadians are debt-averse," said Fritz, an attitude that's part cultural and part shaped by banking practices and regulations designed to keep people out of homes unless they can clearly afford them. "People here don't leverage."
Roughly one-third of banking executives either are planning to raise capital through secondary market channels in the coming year or have already raised capital, according to a survey by US audit firm Grant Thornton LLP.
Of 230 respondents to a survey conducted in May, 22% indicated their bank was "very likely" to go to market to raise capital within the next 12 months. Another 11% indicated their bank had already successfully gone to the market to raise capital.
The survey results indicate that roughly one-third of banking executives see the market as supportive of capital-raising efforts.
"While some banks have to raise more capital for regulatory reasons, others are doing so to take advantage of this unique market situation," said John Ziegelbauer, national managing partner of Grant Thornton's financial institutions practice, in a statement. "They may want to use the extra capital to expand their bank's geographic footprint through [a Federal Deposit Insurance Corp.]-assisted transaction or possibly other acquisitions."
Although the remaining 67% of survey respondents indicated no likely plans to raise capital, none of the respondents reported having gone to the market in an unsuccessful attempt to raise capital:
The majority of bankers are optimistic about the US economy in the near term, with 45% expecting conditions to improve over the next six months, according to a separate survey by the firm. Eleven percent now expect economic conditions go get worse, compared with 20% in the same survey six months earlier.
"There is also a lot of uncertainty with regards to regulatory reform," said Ziegelbauer, "and banks could be raising capital now to ensure that they have a sufficient amount under any new rules that are created as part of the Wall Street reform effort."
Both branches of Congress are currently reconciling financial regulatory reform bills that could include a framework for covered bonds and an exemption for certain mortgages from the 5% credit risk retention that aims to encourage mortgage originators and securitizers to keep an interest in the financial products they create. But the industry has warned these regulations could make the cost of doing business prohibitive.
For a study of the new world of mortgage finance under the forthcoming regulatory landscape, subscribe here and catch the upcoming issue of HousingWire magazine.
Write to Diana Golobay.
The average mortgage rate for conventional mortgages remained unchanged in May, according to the latest monthly rate report by the Federal Housing Finance Agency (FHFA).
In its report (download here), the FHFA said the average interest rate for a conventional, 30-year fixed-rate purchase mortgage with a principal of $417,000 or less was 5.12% in May, even from last month's report.
As seen in the chart above, rates are nearly level with the November 2009 average.
The average rate for 15-year fixed-rate purchase mortgages of $417,000 or less was 4.58%, up from 4.52% in April.
The average rate for all mortgage types — fixed- and adjustable-rate — was 4.99% in May, down from 5.02% in April. The effective rate, which includes the amortization of initial fees and charges, was 5.1% in May, down from 5.12% in April.
The rates are calculated from the FHFA's monthly interest rate survey (MIRS) of purchase mortgages. It reflects loans that closed from May 24-31. Typically, interest rates are determined 30 to 45 days prior to closing, so the survey reports market rates in mid-to-late April.
FHFA said initial fees and charges were 0.72% of loan balances in May, up from .063% in April. The share of no-point purchase mortgages was 42% in May, down from 45% in April.
The average term for loans was 27.5 years in May down from 27.6 years in April. The average loan to value ratio was 74.1% in May, down 0.2% from 74.3% in April. The average mortgage principal was $218,600 in May, down $200 from $212,800 in April.
In a separate report, the FHFA said the average contract mortgage rate for the purchase of previously occupied homes by combined lenders was 4.99% based on loans that closed in May, down from 5.02% in April. This rate is commonly used as an index in ARM contracts.
Write to Austin Kilgore.
