Archive for July, 2010
Chicago voters could soon get to decide whether to strip banks and mortgage companies — key players in the foreclosure epidemic — of their long-standing exemption from the city’s real-estate transfer tax.
By a vote of 8-to-2, the City Council’s Finance Committee agreed today to put that resolution on the ballot, either on Nov. 2 or Feb. 22. Only after voters approve a referendum could the City Council vote to end the tax break.
Wells Fargo CEO John Stumpf said customers, not just the bank, will bear the financial burden for US regulations that cover services ranging from home loans to credit cards.
"I can't guarantee that we won't pass on some of those costs," said Stumpf. "We'll try to tighten our belt and absorb some of the costs of compliance, but some costs may change and customers might pay for their financial services in new ways."
Have the European stress tests been a game-changer?
Before the assessment, the view at PIMCO was that there was a set of criteria to use in judging the stress test. These included the question of whether the scenarios and loan loss assumptions used to stress bank balance sheets would be severe enough to make the exercise worthwhile, whether there would be plans to deal with failing banks and whether there would be sufficient information disclosure to allow the private sector to do its own tests.
Looking at each of these factors in turn, the stress tests were not very credible in terms of the scenarios and assumptions. Rather, the tests look to have been designed to ensure that as few banks as possible fail (as it was, 7 out of 91). As a result, the results were not accompanied by a plan for recapitalization or consolidation, beyond what some countries had already announced. And there was no mention of potential cross-border support for banks, if needed, or how that might be achieved.
For an in-depth look at the state of the European market, subscribe to receive the upcoming edition of HousingWire magazine.
House price inflation in the UK continued to ease off in July, the Nationwide building society has said.
Its latest monthly survey shows that prices fell by 0.5% this month, taking the annual rate of house price inflation down from 8.7% to 6.6%.
Santander UK, a unit of Spain's Banco Santander, said it plans to hire over 600 new workers in the second half as the bank increases mortgage lending.
The new jobs will include additional employees for branches and administration roles, the bank said today in a statement.
Recent record-low mortgage rates are spurring investor fears that a government-sponsored refinance wave could push mortgage prepayment speeds within securitization back to 2003 levels.
Despite several options for facilitating a government-driven refinance wave — and the obvious benefit to homeowners — "excessive optimism or fear are both misplaced," as such a policy would face significant logistical challenges, according to commentary from the Credit Suisse (CS: 26.78 +0.26%) fixed-income research team led by senior strategist Mahesh Swaminathan.
A government-sponsored refinance program would have to overcome the current market's "numerous bottlenecks" to refinancing, which include debt-to-income, documentation and cash constraints, as well as servicer capacity constraints, Swaminathan's team said. Such barriers have already blocked the Home Affordable Refinance Program (HARP) program from having much success, they noted.
According to the Federal Housing Finance Agency's February/March foreclosure prevention and refinance report, Fannie Mae and Freddie Mac refinanced nearly 291,600 loans through HARP as of March 2010 — out of a target of 4m — at speeds that remain largely stable:
A number of options for a new government-sponsored refinance wave include a national interest rate and a reclassification of refis as modifications, both of which may ultimately raise the cost of borrowing, according to commentary from the JP Morgan Securities (JPM: 37.21 -0.75%) fixed-income strategy group, led by Matthew Jozoff.
"A refi wave is difficult to achieve, but if successful, it could reprice mortgages by several points, as base speeds surge, option costs rise, refi costs decline and spreads widen on supply concerns," Jozoff and his team wrote. "Longer-term mortgage rates could be nudged higher as investors demand wider spreads in compensation for greater refi risk."
Although the 2009-2010 refi "wavelet" so far falls short of the 2003 wave, Jozoff's team warned a 2003-style wave could materialize. Prepayments have been less than half the 2003 level, with the one-time exception of a buyout surge:
While a government-sponsored refinance wave could aid existing borrowers, Jozoff's team estimates it could push mortgage rates 25-50 basis points higher.
A national mortgage rate (say 4%) set by the government as a "nuclear option" would not go over well with the private sector and would be tantamount to the nationalization of the mortgage industry, Jozoff's team said. Although this option may have been discussed more heavily in the worst of the post-bubble recession, market conditions no longer warrant such a drastic measure.
Another option to encourage a refinance wave — the reclassification of refis as mods — would likely entail a government-sponsored incentive for each modification. Aside from proving to be a costly option, it would create a "deluge of new mortgages" that could push mortgage rates higher for new borrowers, Jozoff and his team noted.
Swaminathan's team at Credit Suisse suggested the Federal Reserve's balance sheet could be called in to absorb the surge of new mortgages in such a scenario, but this option is unlikely as it "faces huge opposition from policy makers and would complicate an exit strategy."
Write to Diana Golobay.
Disclosure: the author holds no relevant investments.
