Archive for June, 2010
The amount of distressed real estate backing commercial mortgage-backed securities (CMBS) spiked 41% in April, adding $12.8bn of troubled loans to the more than $184bn total, according to a report from Real Capital Analytics.
The April increase is the highest in 2010, and the rate is increasing. The amount of new, distressed commercial loans being measured by the firm for May is already approaching $10bn. Office and hotel sectors drove the increase in April, particularly the Morgan Stanley (MS: 18.56 +2.26%) default on its $2bn Revel casino and hotel development in Atlantic City, according to Real Capital.
The April numbers also reflect the “emerging effects” of changes put in place by the IRS in September 2009, which allowed special servicers more flexibility when restructuring loans in imminent default.
“Since borrowers and special servicers can restructure assets that are not yet troubled, more borrowers have been moving to secure modifications before losing control of an asset,” according to the report. “The restructuring pipeline is al- most certain to increase across almost all property types going forward.”
As many servicers put more efforts behind restructuring, lenders are repossessing properties into REO status at a slower rate. Lenders conducted $1.3bn of resolutions, or sales out of distress, in April. It’s the lowest level since October 2009.
Despite the increase in troubled commercial loans, prices on the origination side increased 1.7% in April, the first monthly increase since January, according to the credit rating agency Moody’s Investors Service:
Though there was a gain in April, national prices remain 41.15 beneath the peak in October 2007 but have bounced back 4.7% from the low in October 2009. There was a drop in sales, however. There were 114 repeat sales in April with a total balance of $800m, compared to 127 in March.
“Prices have remained choppy since October,” said Moody’s managing director Nick Levidy. “While prices have moved as one would expect at a market bottom, transaction volume has been extremely low, making it difficult to conclude prices have stabilized.”
Write to Jon Prior.
The majority of bankers are optimistic about the US economy in coming months, with 45% expecting conditions to improve over the next six months, according to a survey by US audit firm Grant Thornton LLP.
It marks a significant improvement over the same survey six months earlier, which found 24% of respondents expected conditions to improve.
The survey found that 44% of respondents expect conditions to remain the same over six months, compared with 56% in the December 2009 survey. Eleven percent now expect economic conditions go get worse, compared with 20% in December:
"Bankers across the country are starting to become more optimistic about both the US economy and their own local economy," noted John Ziegelbauer, national managing partner of Grant Thornton's financial institutions practice.
"Their optimism about the economy is spilling over into their own banks, with bankers reporting that they are also cautiously optimistic about the number of people they expect to hire in the coming months," Ziegelbauer added. "Overall, it appears that bankers believe that the economy has finally turned a corner."
More than one-third, or 35%, of respondents expect their local economy to improve in the next six months, up from 22% in December. Meanwhile, the share of respondents expecting their local economy has halved to 9% from 18% in December.
One-quarter of respondents said their bank would increase hiring in the next six months, up from 18% in December, while the number of bankers indicating plans to decrease the staff fell slightly to 16% from 18%.
Grant Thornton, the US member firm of audit, tax and advisory firm Grant Thornton International, conducted the survey of 230 banking respondents during May. Of the responding bankers, 59% were from small banks, with remaining 41% working for large banks.
The change in sentiment for the US economy among bankers arrives as international investors are predicting a double dip recession in Europe and naming pockets of property investment on the continent.
Write to Diana Golobay.
The Basel Committee of central bankers and supervisors agreed to delay its tough new capital requirements on bank trading books by one year, it said on Friday.
"The Committee agreed to a coordinated start-date of not later than Dec. 31, 2011 for all elements of the July 2009 trading book package," it said in a statement.
The U.S. household sector bought $147 billion of Treasury securities in the first quarter, the Federal Reserve said in its quarterly flow of funds report. That pushes Americans' holdings of Treasury debt to $796 billion, the highest level since 1999.
It also vaults U.S. households past Japan to the No. 2 position among holders of full faith and credit federal government debt, according to the flow of funds data and Treasury's own figures.
Economists are more nervous about the chances of another recession. And one of biggest fears is that the Federal Reserve may have run out of bullets to fight another downturn.
"They do have some ammunition left, but it's not going to pack a lot of punch," said Mark Zandi, chief economist with Moody's Economy.
U.S. commercial property companies are likely to try to go public in greater numbers in coming months as they look to refinance billions of dollars of mortgage debt left over from the boom years of 2005-2007.
About $1.24 trillion of U.S. commercial real estate loans — $1.02 trillion held by banks and $221.5 billion bundled into bonds known as commercial mortgage-backed securities — will need to be refinanced over the next four years, according to Deutsche Bank.
Middle-class Americans–not the rich or the poor–pay the majority of annual tax revenues taken in by the federal government, according to data released in a new Congressional Budget Office study. Households earning less than $34,300 per year, meanwhile, actually pay a negative average federal income tax rate.
Middle-class households that earned between $34,300 and $141,900 paid 50.5 percent of all federal tax revenues in 2007 (the most recent year analyzed), according to the CBO study released Thursday, and households that earned between $34,300 and $352,900 paid 66.7 percent of all federal taxes.
As Congress moves to finalize new financial regulations, the mortgage industry is working to soften a series of provisions that reshape how most Americans obtain home loans.
The provisions in the legislation seek to eliminate questionable practices that proliferated during the housing boom by outlining clear underwriting standards, holding lenders more responsible for loans, and changing the way loan originators are paid. In addition, consumers would get new rights to seek damages when the mortgage process goes awry.
