Archive for August, 2010
Bank of America Corp. and JPMorgan Chase & Co. are among 11 lenders that could suffer $133.8 billion in combined losses as mortgage-bond investors and insurers demand refunds for soured loans, according to an analysis by Compass Point Research and Trading LLC.
Failed by her lender, her government and her own better judgment, Rosemary Lundgren is now standing in the middle of a mortgage crisis that's three years running with no end in sight.
The Federal Reserve last week announced that it would reinvest proceeds from its massive mortgage-bond portfolio, sustaining what Chairman Ben Bernanke had in February called its "extraordinary lending and monetary policies." But there must eventually be an exit from such policies. And if the chairman is to be taken at his word, the Fed's exit strategy will involve a sea change in the way it conducts and communicates its policies. In particular, it implies that the Fed will no longer be able to control the critically important fed-funds rate—or indeed any interest rate at all. That would have far-reaching implications for the future of monetary policy.
Big U.S. banks should be able to meet tighter global capital requirements without having to raise substantial amounts of new equity, according to calculations by Barclays Capital.
JPMorgan Chase & Co. plans to sell $1 billion of commercial mortgage-backed bonds, giving control of soured loans to a holder of the riskiest portion after another offering ceded power to investors in the safest pieces.
Despite absorbing significant layoffs in the past two years, additional job losses in the battered homebuilding sector are expected to continue, according to a report released by Deutsche Bank (DB: 44.44 +2.40%) on Tuesday.
The bank's economic research team, led by chief US economist Joseph LaVorgna, is estimating that roughly 1m construction and related workers will yet become unemployed. Roughly 1.4 million jobs have already been lost in the sector since peak employment in April of 2006.
Deutsche Bank's LaVorgna suggests that the ratio of workers to output (housing starts) remains unbalanced. Until housing output began to collapse in 2006, the worker-per-start ratio remained steady at about 1.57. As the housing bust began, this ratio became significantly elevated and many workers have since lost their jobs — but not enough yet to restore the ratio's balance.
The current worker-per-start ratio stands at 3.8 (see chart below). This means that for every 3.8 residential construction workers, there is roughly one housing start at the current pace of building. Housing starts for July missed market expectations earlier this week, posting at 546,000 annualized pace.
Residential homebuilding has lost an average of 10,000 jobs per month in 2010, an improvement compared to average monthly job losses of 43,000 in 2008 and 32,000 in 2009.
Despite imbalances, Deutsche researchers said they expect homebuilding activity to rebound from current levels, which may mitigate potential job losses. "We would not be surprised to see job losses continue in this sector given the imbalances highlighted in the chart," LaVorgna writes. "However, we expect the cumulative decline from current levels to be considerably smaller, because we do not expect home construction to remain at such depressed levels through yearend."
Deutsche Bank's assessment comes after a report by Capital Economics said last week that the US housing market faces an excess of market supply, into which homebuilders are adding. The economic analysis firm reported a 28% annualized jump in residential investment in the second quarter, alongside a 19% decline in housing starts from April to June.
Homebuilding industry observers, however, see the situation differently. One observer, an analyst that requested anonymity, told HousingWire that there are actually few builders large or small that have construction workers that are actual employees, and that almost all workers are third-party contractors. This means that they cannot be "laid off" or "lose their job." They will just simply stop their work within the industry.
On the other hand, full-time construction employees tend to be on the managerial level as supervisors and general contractors. If anyone in the construction industry were to lose their job, the source suggested, supervisors would be among the first let go.
"All building firms are looking to cut selling, general and administrative expenses, which have already been drastically cut in the past two years," said the analyst. "General contractors are now being outsourced and consolidated on the community level by third-parties to work for their original builder."
Consolidation is a trend that the homebuilding sector has seen gain momentum in recent years, as regional and large public builders look to merge with or be acquired by their competitors. A prime example is the PulteGroup (PHM: 7.79 -0.13%)/Centex merger in mid-2009.
Write to Christine Ricciardi.
Mortgage fraud risk decreased slightly in the second quarter of 2010, but is still substantially higher than it was a year ago, according to a quarterly Mortgage Fraud Risk Report released Tuesday by Interthinx. The risk research and analytics firm reported the National Mortgage Fraud Risk Index for Q210 at 145, down 3% from last quarter, but up 12% from the same period last year.
The index is calculated based on the frequency that indicators of fraudulent activity, such as property mis-valuation, employment misrepresentation or concurrent closing schemes, are detected in mortgage applications processed by Interthinx. A value of 100 on any given index represents the normal level of fraud risk. Lewis Ranieri of investment advisory firm Ranieri & Co said yesterday at the Future of Housing Fiance conference at the US Treasury that the inability to prevent mortgage fraud is a large source of investor trepidation in the current market.
Nevada and Arizona are currently the two states with the highest mortgage fraud risk at indices of 239 and 238, respectively. California (199), Rhode Island (196) and Florida (191) followed suit to round out the top five most risky states for mortgage fraud. The states with the lowest mortgage fraud risk indices are, in descending order, Mississippi, South Dakota, West Virginia, Kansas and Maine. The five lowest ranking states have an index less than half the national average.
Interthinx reported that most metropolitan statistical areas (MSAs) in California, Florida, Colorado, Michigan, Ohio and Nevada are of “very high risk.” The Washington D.C., Minneapolis-St. Paul, Atlanta and Memphis MSAs remained in the “very high risk” category quarter-over-quarter, while Bend, OR, which moved to a lower risk category in Q110, rejoined the category. The Trenton (NJ), Worcester (MA), Providence (RI), Medford (OR) and Nashville (TN) MSAs are recorded as “very high risk” for the first time.
Modesto, CA topped the MSA fraud risk index with a score of 285, down 11.9% from Q110 and up 16.5% from Q209. This is the third consecutive quarter that Modesto has had this ranking. Stockton, CA MSA came in second at 278, down 4.7% from last quarter and up 8.2% from last year. Both MSAs have been in the top three positions for the last five consecutive quarters.
Seven of the ten MSAs are located in California with Cape Coral-Ft. Myers, FL, Las Vegas-Paradise, NV and Phoenix-Mesa-Scottsdale, AZ joining them.
Six of Q210 top 10 MSAs with the highest mortgage fraud risk held a spot in the top 10 a year ago. All of them were in the top 20 a year ago.
The ten zip codes with the highest index of mortgage fraud risk reported by Interthinx, include tiny towns such as Los Banos, CA (second at an index of 498), Lehigh Acres, FL (fourth with an index of 490), and El Mirage, AZ (fifth at an index of 415). The first and third zip codes (indices of 500 and 498 respectively) are both in Chicago, IL where the overall index is less than the national value 140.
Interthinx tracks four type-specific fraud risk indices. The Property Valuation Fraud Index decreased 4.3% quarter-over-quarter, yet rose 20.5% year-over-year. The Modesto, CA MSA ranked first in this index with a score of 739, down 12% from Q110, but up 22.5% from Q209.
The Identity Fraud Risk Index increased to 180, up 9.9% from last quarter and 32.6% from last year. The Cleveland MSA topped out the index at 367, a 25.1% increase quarter-over-quarter and a 177.7% increase year-over-year.
The Occupancy Fraud Risk Index decreased to 71, down 9.3% from Q110 and down 6% from Q209. Miami-Fort Lauderdale lead the index at 143, down 2.6% from last quarter and up 14.5% from last year.
The Employment/Income Fraud Risk Index decreased slightly to 85, down 3.4% from Q110 and up 8% from the same time last year. The Santa Barbara MSA came in first in this index at 152, a 22.2% increase from last quarter and a 64.7% increase from a year ago.
Write to Christine Ricciardi.
