Archive for October, 2010
Southern California's housing market remained weak in September, with sales dropping for the third consecutive month — but the region's median home price ticked up slightly.
Sales of newly built and previously owned houses, town homes and condominiums fell 2.4% from August and 16% from the same month one year earlier, according to real estate research firm MDA DataQuick of San Diego. A total of 18,091 homes sold last month.
It was the slowest sales pace for a September since 2007, DataQuick reported Tuesday. Sales have fallen for three straight months beginning in July, when the boost from federal and state tax credits on the market evaporated.
Prices remained relatively steady as sales continued to move from more affordable areas to pricier neighborhoods. The Southland's median home price was $295,000, up 2.6% from the month prior and 7.5% from September 2009, DataQuick said.
The big mortgage market mess has caused a big press coverage mess. Many people, including me, have been blending together the couple of major problems occurring with mortgages and labeling it all "foreclosure-gate." Yet, there are actually two separate issues here, both of which affect the mortgage market.
Bad Foreclosure Process
The first problem came to light in late September. Banks discovered that some foreclosures had been signed off on without being properly reviewed. This could be a problem for a number of reasons. The loan file might be incorrect or incomplete. This caused banks to halt foreclosures to figure out if mistakes were made and to correct the process.
Bad Mortgage Bond Process
The other problem occurred much earlier in the process — shortly after the time of loan origination. It turns out that banks may not have transferred loans properly into trusts for securitization. As a result, covenants may have been broken, so investors who bought bonds backed by mortgages might have reason to file suit against banks. This doesn't actually affect foreclosures directly, though title problems could also further complicate the process.
I happened to catch a few seconds of a game show while playing with the television remote (clicker to most of you) the other night. It was fascinating to see how engaged the television audience was as they watched a man they didn't know make a gamble that could, according to the show's producers, make him or cost him thousands of dollars. Should he make an attempt to answer the next question or just take the money and run? What would he do? The pregnant pause seemed to last forever.
I don't know what he did; I was busy starting this column. But the point is, a man was faced with a million dollar question and the rest of us were on the edge of our seats waiting for the answer. I suspect that's how the Financial Crisis Inquiry Commission is—right on the edge of their seats—every time they ask the question: "Why didn't anyone see this coming?"
Or maybe not. I suspect they know why nobody saw the crisis coming. I think it's pretty clear that if it's not your problem it's not really a crisis, now is it? And as long as you can keep dodging bullets, as Countrywide did this week on a procedural mis-step by investors intent on taking the company to task for loan modifications (something the government cannot allow to happen if it hopes to keep servicers modifying those loans for troubled borrowers), then it won't be your problem.
But it is a problem.
For all of the millions the industry has spent on risk mitigation and forecasting, we can still get blindsided by a sudden downturn that acts like a depression. It's really like no one saw it coming. Either that or the people we employ to use these expensive forecasting tools spend their days staring at them in wonder as if they were the monolith in 2001: A Space Odyssey, which I find unlikely.
I guess I can understand it on the origination side. When people are paying you for originating a product and threatening to fire you if you don't sell it, then you sell it. And if you're a farmer who suddenly finds a huge garden center willing to pay top dollar for your manure, then you load that crap up. That's just business.
I find it harder to believe on the servicing side of the business. Delinquency is to a servicer what a grand opening sale is to a retailer: a huge jump in business activity with a corresponding increase in profit. You would think they they would have been watching vigilantly for signs of distress in their portfolios, looking forward to helping those delinquent borrowers pay the extra fees associated with being late on their payments.
In fact, I would think that this would be such an important part of their business that they would plan in advance for how they would handle a landslide of defaults. Instead, we heard tales of loading docs filled with unopened cases filled with documents from borrowers in trouble that were never opened. Deals that eventually slid so far into default that the borrower just threw them the keys and walked away.
Or am I getting this story wrong? I'm currently working on a column for the print edition of HousingWire where I hope to get deeper into it. Did the mortgage loan servicing industry get blindsided along with the rest of us? Did they fail to invest in the tools and people necessary to deal with the crisis? Feel free to contact me with your thoughts.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
The national foreclosure crisis has resulted in loan closings being scuttled in some regions, and fears are mounting that, if the situation is not soon rectified, it could damage the one area where lenders are reaping stellar profits: originations.
John Walsh, the chief executive of Total Mortgage Services LLC in Milford, Conn., said Connecticut's recently adopted 60-day, voluntary moratorium on foreclosure sales caused his firm to scrap REO-related closings during the past two weeks and that more cancellations are in store this week.
"The unintended consequence of this is that some people won't get to buy houses," he said. "This is not a good situation."
If Connecticut Attorney General Richard Blumenthal obtains a binding 60-day moratorium on foreclosures in the state, further delays in closing REO transactions could be the consequence.
Bankers are set to launch the biggest commercial-real-estate debt deal since the financial crisis began, people familiar with the matter said. The offering will allow two Wall Street firms to sell loans tied to the boom-time buyout of Hilton Worldwide and signals a thawing in one of the most troubled financial markets.
The $3 billion offering is expected to be followed by a $2 billion deal involving the Extended Stay Inc. hotel chain that recently exited bankruptcy, people familiar with the transactions said. Together, the deals would be by far the largest issuance of commercial mortgage-backed securities, or CMBS, since the downturn and the most vivid sign to date of a resurgent CMBS market.
The Hilton deal stems from Blackstone Group LP's $26 billion purchase of the hotel chain in October 2007. Banks, including Goldman Sachs Group Inc. and Bank of America Corp., provided $20 billion in financing but were stuck holding the loans when debt markets froze. The sale, expected in the next two weeks, will allow the two banks to sell the $3 billion in senior debt they still hold.
The offering likely will leave the banks whole on their investments, which few would have predicted during the crisis when the loans were trading as low as 70 cents on the dollar, people familiar with the matter said.
