Archive for January, 2011
JPMorgan Securities said existing home sales need to average about 5.5 million units a year to absorb a projected 2.25 million to 2.5 million in liquidations.
While analysts said the "recent run up in prices may mean we tread water here for a bit," and they await data on how the pace of liquidations relative to existing homes sales impacts home prices and severities, their target for private-label residential mortgage-backed securities remains.
"We think that our view from our 2011 outlook is still reasonable," analysts said. "Severities will ramp 5 to 10 points higher, and home prices still have another 4% to 6% decline to go."
The analysts provide a Securitized Products Weekly newsletter for clients of the investment bank. The researchers constantly update mortgage-collateral performance and movement in order to make secondary market-side predictions.
JPMorgan said on the back of its latest results, that there is room for gradual spread tightening of another 50 to 100 basis points in nonagency RMBS, despite heavy secondary supply.
As for mortgage-backed securities overall, JPMorgan Securities recommends remaining neutral due to a recent investor survey that shows overweights are now 51% of the market, the highest level since July 2009.
"We still have a basis toward Alt-A fixed-rate current loss takers where spreads are roughly 400bp over swaps," JPMorgan Securities said. "Senior option ARMs are 400-500bp over swaps and can still present select opportunity, but we think that spreads may have compressed in too close with Alt-A fixed-rate paper in the near-term."
Write to Jason Philyaw.
The consequences of Fannie Mae and Freddie Mac's bailout continue to get uglier and uglier. We already know taxpayers will be on the hook for at least $150 billion of losses that the mortgage companies have incurred. Now we learn of another messy outcome: Americans are also on the hook for Fannie and Freddie's still growing legal bills. And their cost is already in the hundreds of millions of dollars. The natural reaction to this is outrage, but how angry should we be?
Gretchen Morgenson of the New York Times provides the numbers. She says taxpayers are on the hook for around $160 million in legal bills so far. A large portion of this total went to pay for litigation surrounding accounting manipulation by Fannie Mae prior to the mortgage crisis taking hold. Millions of dollars have also been spent since, as suits continue to be brought against the companies.
Why Bailouts Are Bad
The first sort of glaringly obvious lesson here is that bailouts are bad. When the government took over Fannie and Freddie it agreed to also cover all of its legal expenses. That created a very strange circumstance in some cases. For example, some of the lawsuits regarding the accounting manipulation were brought by government oversight offices. So that means the government is paying for both sides of the litigation now, since it's covering the defendants' bills and obviously its own.
It is cheaper to buy a two-bedroom home than rent one in 72% of major metropolitan areas around the U.S., according to the Trulia rent vs. buy index released Monday.
The real estate data firm said increased demand for rental properties is driving the cost of homeownership down nationwide.
"Since the start of the Great Recession, many former homeowners have flooded the rental market," said Pete Flint, chief executive and co-founder of Trulia. "Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."
Trulia compared the median list price of a two-bedroom home with the median price paid for rent in 50 cities. The company then assigned a price-to-rent ratio to each city, with any number below 15 signifying a homebuyer's market and any number above 21 signifying a renter's market. Any market between those two numbers has more balanced rent versus buy costs.
The cost of homeownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and homeowner association dues. It excludes all maintenance, bills, and security costs. The cost of renting a unit includes rent and insurance.
Among the most affordable housing markets are Miami and Las Vegas, both of which have a price-to-rent ratio of 6 and where foreclosure rates have been the highest in recent years. Miami posted the highest number of foreclosures in the third quarter, according to RealtyTrac. Filings were up 9% from 2009 to about 58,600. RealtyTrac reported that Las Vegas had the highest rate of foreclosure in the third quarter, when one in every 25 housing units received a foreclosure filing.
Trulia reported that it is cheaper to buy than rent in several Texas cities, including Arlington, San Antonio and El Paso. The foreclosure rate in Texas dropped to 1.82% in the third quarter from 1.95%, according to the Texas Mortgage Bankers Association. During the third quarter, the national average home foreclosure rate was 4.39%.
The Trulia rent vs. buy index found that it is cheaper to rent than buy in only 8% of markets, including New York, Seattle, Kansas City, Mo.; and San Francisco. The price-to-rent ratios in these cities were 31, 24, 21, and 21, respectively.
In the remaining cities tracked by Trulia, the study found that buying may be a financially sound long-term option despite the affordability of renting in those markets.
"Oakland and Los Angeles, which are experiencing similar rates of unemployment or foreclosure filings as Phoenix, Miami and Sacramento, are still more affordable to renters," the report said. "Moreover, close proximity to economic centers with promising job growth projections has propped up both the demand for homes and costs of home homeownership in Oakland and Los Angeles."
For a complete list of housing markets in the order they rank in homebuyer affordability compared to renter affordability, click here.
Trulia is a San Francisco-based real estate data network with a searchable database of listed homes. The firm recently acquired Movity, a real estate data firm that specializes in geographical reporting.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.
The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.
Documents reviewed by The New York Times indicate that taxpayers have paid $24.2 million to law firms defending three of Fannie’s former top executives: Franklin D. Raines, its former chief executive; Timothy Howard, its former chief financial officer; and Leanne Spencer, the former controller.
The price of commercial property rose 0.6% in November, marking the third-consecutive month of gains following sharp declines for the previous three months, according to Moody's Investors Service.
The rating agency said its all property type aggregate index increased 6.4% over September, October and November after hitting a recession low in August. Still the gains of the fall did little to offset the drops that occurred over the summer, and the commercial property price index is down 4.3% since May.
"The CPPI is likely to exhibit further choppiness in the months ahead," Moody's said. "A clear positive trend is unlikely to develop until markets become convinced that the recovery of the broader global economy has real staying power. Consistent growth, lower unemployment and low, stable bond yields will lead to greater transaction volumes and rising prices."
Commercial property prices for November were 2.8% lower than a year earlier, 31.6% below two years ago and 41.6% off the peak, which occurred in October 2007, Moody's said.
Analysts said about 24% of repeat sales included in the index were distressed sales, down slightly from the year average of 26%.
"The overhang of distressed properties, the sale of which has comprised about one quarter of the transactions used to calculate the index for most of 2010, has also served to apply downward pressure on the index," Moody's said.
Since the middle of 2009, commercial real estate prices have floundered some 39% to 45% below the October 2007 peak.
Write to Jason Philyaw.
