RSS Twitter

Archive for March, 2011

« Older Entries
Newer Entries »
Wednesday, March 30th, 2011

While the economy gained 201,000 private sector jobs last month, those additions are not enough to set the pace for a rapid economic or housing recovery, analysts say.

ADP and Macroeconomic Advisors reported those job gains in ADP's latest National Employment Report Wednesday. Analysts blame high unemployment for stifling the nation's housing recovery in the past.

"Admittedly, that 201,000 increase was slightly lower than the 208,000 gain in February," said Paul Ashworth, chief economist for Capital Economics. "The more notable point, however, is that over the past four months the monthly gains have averaged more than 200,000, compared with less than 100,000 in the four months before that."

He added, "Nevertheless, assuming the labor force starts to rebound again, employment gains of 200,000 a month will lower the unemployment rate only gradually. Another way of looking at this is that at this pace of job creation it would take almost another four years before employment got back to its pre-recession level"

Of the 201,000 jobs added by the private sector in March, ADP says the service sector gained the most positions: 164,000 to be exact.

"Today’s ADP National Employment Report confirms that U.S. private-sector employment growth has averaged about 175,000 jobs over the last six months," said Gary Butler, CEO of ADP. "Based on real-time information across all markets and industries, the ADP Report continues to estimate solid job growth that is now being reflected in other indicators of employment."

TrimTabs Investment Research slightly contradicted the ADP report Wednesday, saying the economy actually created 293,000 new jobs in March, beating out early estimates.

Madeline Schnapp, director of macroeconomic research for TrimTabs, said other employment forecasts are falling behind the actual numbers since they do not utilize real-time data.

Write to Kerri Panchuk.

Tags: , , ,
Posted in Origination/Lending, Top Stories | 1 Comment »

Wednesday, March 30th, 2011

Real estate data provider CoreLogic (CLGX: 14.57 +0.69%) said 1.8 million properties make up the shadow inventory of foreclosures, down 11% from one year ago.

Analysts consider the shadow inventory as the major force against a recovery in the U.S. housing market. It is made up of mortgages in at least 90-days delinquency, in foreclosure or already repossessed by the lender as REO. These properties continue to drag down home prices, forcing more borrowers underwater and ultimately into default. Standard & Poor's recently put the principal balance remaining on the shadow inventory at $450 billion.

The 1.8 million homes represent a nine-month supply of inventory. Healthy real estate markets usually hold a six-month supply. Of the shadow inventory, nearly half are in some stage of serious delinquency. The rest is split almost evenly between properties in foreclosure or REO. (Click on charts to expand.)

CoreLogic said while some portion of the shadow inventory can be carved away through modification or short sale, "only a small share can be effectively remediated from the shadow supply," leaving the rest for liquidation through REO.

For the first time, CoreLogic studied net present value, or NPV, calculations, and expected severity and redefault rates for modifications and short sales. Analysts came to the conclusion that these loss-mitigation efforts could cut the shadow inventory in half. But communication difficulties between the borrower and the servicer could make that prediction too optimistic.

CoreLogic found in addition to the shadow inventory, there are nearly 2 million mortgages that are current but underwater.

The highest levels of the shadow inventory remain in New Jersey, Illinois and Maryland. While mostly lower-population states such as North Dakota, Alaska and Wyoming hold the least amount of the inventory, Texas had a notably small portion.

CoreLogic Chief Economist Mark Fleming said despite the decline over the last year, the shadow inventory will linger for some time.

"While the trend of the shadow inventory is improving somewhat, the current level and distressed months’ supply remain very high," Fleming said. "The short-term weakness in prices and longer-term weakness in the drivers that affect the housing market imply that excess supply will remain high for an extended period of time."

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Tags: , , , , ,
Posted in Servicing/Default, Top Stories | 2 Comments »

Wednesday, March 30th, 2011

The discussion over whether private mortgage insurance should be included in the definition of a qualified residential mortgage,  and therefore exempt from Dodd-Frank risk retention requirements, continues to keep mortgage insurers in the dark about their future.

The PMI Group Inc. (PMI: 0.00 N/A), a private mortgage insurer, stepped forward asking for more discussion after regulators proposed guidelines saying lenders and securitizers will be exempt from the 5% risk-retention rule on mortgages that meet QRM standards — mortgages with 20% down payments, among other guidelines. The presence of private mortgage insurance as some type of alternative to a 20% down payment is not included in the current proposal.

"While we are disappointed that the regulators chose a very narrow and restrictive definition of QRM, we are encouraged that they are seeking comment on an alternative QRM definition that would involve a 10% down payment and more reliance on private mortgage insurance," said David Katkov, PMI's executive vice president and chief business officer. "Additionally, we believe that prudentially underwritten mortgages with less than a 10% down payment and private mortgage insurance should also be included in the definition."

The PMI Group said regulators are accepting public comment on the guidelines for 60 days. The company said it intends "to actively engage in the rulemaking" process and will provide regulators and policymakers with feedback.

Broadly, reaction is mixed to the QRM proposal from Tuesday. In a note to clients Wednesday morning, analyst Jim Vogel of FTN Financial said policy makers turn to skin-in-the-game as one broad cure for housing finance ills.

"That's a dangerous myth," he writes. "Dozens of large housing-related failures occurred despite 100% commitment of capital and personal wealth to single-family real estate. It didn't work before but it will in the future? No. Magical transformations only happen after reality tv editors get done with the raw footage."

The additional question of whether mortgage insurers should be included in the QRM exception has stirred much debate.

Analysts with Institutional Risk Analytics suggested last week that private mortgage insurance should never take the place of a prudent 20% down payment in the future.

However, an association representing private mortgage insurers pushed back last week, saying a clear role for private mortgage insurers "would enable financial markets to originate 1.3 million insured, low down payment loans annually for the next three years."

Write to Kerri Panchuk.

Tags: , , , ,
Posted in Origination/Lending, Slider, Top Stories | 1 Comment »

Wednesday, March 30th, 2011

Morgan Stanley Real Estate Investing, an arm of Morgan Stanley bank, acquired a $196 million loan portfolio consisting of performing, subperforming and nonperforming loans backed by residential condos, apartments, offices, industrial space and residential land, the company said Wednesday.

Most of the collateral on the loans is linked to properties in California, Nevada, Washington, New Jersey and New York.

MSREI bought the portfolio in partnership with Kearny Real Estate Co.

Neither party disclosed terms of the transaction.

“We are delighted to complete the acquisition of another portfolio of loans with Kearny Real Estate Co., one of the longest-standing operating partners of MSREI,” said John Klopp, co-chief executive officer and co-chief investment officer of MSREI. “We believe our firms’ combined expertise in portfolio acquisitions and loan resolutions make us well-positioned to maximize the value of these assets."

MSREI has acquired more than $175 billion in assets over the course of the past two decades.

Write to Kerri Panchuk.

Tags: , , , , , , ,
Posted in Secondary Market/Investors, Top Stories | No Comments »

Wednesday, March 30th, 2011

Mortgage applications fell 7.5% this past week in response to the market's slight calming in the wake of major geopolitical events and fewer refinancings after rate increases in prior weeks, the Mortgage Bankers Association said.

The market composite index — a measure of loan volume — declined 7.5% after experiencing a 2.7% increase on a seasonally adjusted basis last week. On an unadjusted basis, the index decreased 7.2%.

The four-week moving average for the seasonally adjusted market index is up 2%, while the four-week moving averages for the purchase index and refinance index are up 2.1% and 2%, respectively.

The unadjusted purchase index fell 1.5% over last week and is now down 21.9% when compared to the same week a year earlier.

Refinancing activity during the period decreased to 64.3% of total applications, the second lowest refinance share since May of last year.

Meanwhile, the average interest rate for a 30-year, fixed mortgage increased to 4.92% from 4.80% a week ago. In addition, the average rate for a 15-year, fixed-rate mortgage increased to 4.16% from 4.02%.

Write to Kerri Panchuk.

Tags: , , ,
Posted in Secondary Market/Investors, Top Stories | 5 Comments »

Tuesday, March 29th, 2011

The House of Representatives voted Tuesday 252-170 to terminate the Home Affordable Modification Program roughly two years early.

Rep. Patrick McHenry (R-N.C.) introduced H.R. 839 as part of a wide effort by Republicans to shut down programs designed by the Obama administration to aid borrowers and localities in the middle of a foreclosure crisis. The Treasury set aside $30 billion for HAMP but has spent roughly $1.2 billion so far.

The House already voted to cut the last $1 billion from the Neighborhood Stabilization Program, the yet-to-begin $1 billion Emergency Homeowner Loan Program from the Department of Housing and Urban Development and the recently started Federal Housing Administration Short Refi program.

But the Obama administration reiterated its threat to veto the HAMP-termination bill late Monday. And the Democratic-controlled Senate is unlikely to pass the legislation.

Servicers participating in HAMP have started 600,000 permanent modifications since the program launched in March 2009, but at its current pace the program will not reach the 3 million to 4 million originally estimated.

Rep. Spencer Bachus (R-Ala.) said HAMP has caused more harm than good, and that taxpayers should no longer fund bailouts for the banks through a program that promotes strategic default.

"We should not waste taxpayer dollars on failed government programs that do not work and actually make things worse for struggling homeowners," Bachus said. "These programs may have been well-intentioned, but they’re doing more harm than good."

House Democrats sent a letter to Treasury Secretary Timothy Geithner Monday night outlining changes to HAMP they would like to see, most notably fines for underperforming servicers. On Tuesday, the Treasury said it would begin grading the top servicers in the program.

"I certainly believe that HAMP can be improved – and I call on the administration to make immediate improvements – but the legislation before us today makes no effort to strengthen this program," Rep. Elijah Cummings (D-Md.) said. "Instead, it simply abandons families on the brink of losing their homes, it harms investors, and it threatens our nation’s entire economic recovery."

Acting Treasury Secretary Tim Massad denounced ending the program in a statement released Tuesday night.

"This program has helped hundreds of thousands of families across the country avoid foreclosure, and each month it continues to help tens of thousands of additional homeowners. Moreover, it has helped establish better standards for the mortgage industry that have resulted in millions more being able to stay in their homes," Massad said. "If we end this program now, we will simply make it harder to prevent unnecessary foreclosures and for our country to recover from this housing crisis."

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Tags: , , , , , , ,
Posted in Servicing/Default, Slider, Top Stories | 8 Comments »

Tuesday, March 29th, 2011

Republicans on the House Financial Services Committee unveiled their plans to reform the government-sponsored enterprises Fannie Mae and Freddie Mac Tuesday with eight bills aimed at ending taxpayer bailouts, adding transparency and reducing costs.

"Today marks the start of a process — a process to begin winding down Fannie Mae and Freddie Mac," said Rep. Scott Garrett (R-N.J.), who serves as chairman of a House Financial Services subcommittee.

"Beginning today, and over the course of the next few months, my colleagues and I on the Financial Services Committee will introduce multiple rounds of very specific, very targeted bills to end the bailouts, protect the taxpayers and get private capital off the sidelines."

Tuesday's proposed legislation is as follows:

The Equity in Government Compensation Act suspends the current compensation packages for all employees at Fannie Mae and Freddie Mac, and establishes a compensation system that is consistent with other senior executives in the federal government.

"The failures of Fannie Mae and Freddie Mac helped precipitate the deepest economic decline since World War II," the bill reads. It then lists all the financial bailouts the GSEs received from the government.

"The director shall suspend the compensation packages approved for 2011 for the executive officers of an enterprise," it continues.

Rep. Spencer Bachus (R-Ala.), chairman of the House Financial Services Committee, sponsored the bill.

The GSE Mission Improvement Act, introduced by Rep. Ed Royce (R-Cali.), aims to end all affordable housing goals set by Fannie Mae and Freddie Mac.

"The passage of legislation in the early '90s required the government-sponsored enterprises to devote a significant portion of their business to specific affordable housing goals," Royce said. "To meet these goals, the GSEs purchased more than $1 trillion in junk loans. These loans accounted for a large portion of the mortgage giants’ losses – losses that were later loaded onto the backs of American taxpayers."

This bill would essentially repeal The Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act, formally known H.R. 31, further regulates Fannie and Freddie by requiring the GSE Inspector General to report to Congress on a regular basis.

Reports will include the dollar amount of current liabilities with a detailed breakdown of potential risk level, a compensation breakdown for GSE executives including bonuses, details on GSE foreclosure mitigation efforts, mortgage fraud prevention activities, a description of investments and holdings and an analysis of capital levels and portfolio size of each agency, among other things.

The first reporting period would cover from the time Fannie Mae and Freddie Mac went into conservatorship until the bill is implemented. After that, reports would be done on a quarterly basis.

Rep. Judy Biggert (R-Ill.) introduced the act. She is chairman of a House Financial Services subcommittee.

Under the GSE Subsidy Elimination Act, the guarantee fee or g-fee would steadily increase over the course of two years in order to "to eliminate (Fannie and Freddie's) embedded subsidies" and "finally bring pricing parity between the private market and the GSEs," said Rep. Randy Neugebauer (R-Texas). He is the lead sponsor of this bill.

Rep. Jeb Hensarling (R-Texas), vice chairman of the House Financial Services Committee, is sponsoring a bill called the GSE Portfolio Risk Reduction Act, to cap the current portfolios of Fannie Mae and Freddie Mac and increase their annual attrition rate.

Hensarling’s bill accelerates and formalizes the reductions in the size of the GSEs’ portfolios by setting annual limits on the maximum size of each GSE’s retained portfolio. In the first year, the GSEs would have their portfolios capped at no more than $700 billion, declining to $600 billion for year two, $475 billion for year three, $350 billion for year four, and finally $250 billion in year five.

Rep. David Schweikert (R-Ariz.), vice chairman of a House Financial Servicess subcommittee, is sponsoring the GSE Risk and Activities Limitation Act to prohibit Fannie Mae and Freddie Mac from engaging in any new activities or businesses.

“This bill will put restrictions on where GSEs can invest their money and thus protect American taxpayers from future failed bailouts, unsuccessful government programs, and wasteful spending," he said.

The GSE Debt Issuance Approval Act sponsored by Rep. Steve Pearce (R-N.M.) requires formal approval by the Treasury for any new debt issuance by the GSEs.

Rep. Scott Garrett (R-NJ), chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, is sponsoring the GSE Credit Risk Equitable Treatment Act of 2011 to prohibit the exemption of GSE securities from the risk-retention requirements of Dodd-Frank.

Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants. Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the qualified residential mortgage  definition and issue asset-backed securities backed by non-QRM assets.

Garrett’s bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets. If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.

Write to Christine Ricciardi and Kerry Curry.

Follow them on Twitter @HWnewbieCR and @CommunicatorKLC.

Tags: , , , , , , ,
Posted in Secondary Market/Investors, Top Stories | 10 Comments »

Tuesday, March 29th, 2011

Loan originators may be able to fund six to seven times as many loans with the same amount of available credit simply by adopting an eMortgage platform, according to a panel at the Mortgage Bankers Association's technology conference in Fort Lauderdale, Fla., Tuesday.

Stanley Street, founder and president Street Resource Group Inc. in Atlanta, said shifting to a fully electronic system for mortgage warehouse lending cuts the time of a traditional transaction from roughly 20 days to one or two days. Loan originators also lower the cost per transaction by eliminating the costs of shipping the paper documents between lenders and investors, while expediting the processing and approval of funding requests.

Street said an all-electronic system provides benefits to the warehouse lender by reducing costs and operating risks, increasing fraud protections and improving data integrity. Warehouse lenders also stand to make six to seven times as much per file fee income from migrating away from paper.

Paul Anselmo, chief executive of SigniaDocs Inc., said transitioning to a fully electronic system could help lenders leverage capital to increase production. He said the shift is necessary to move the industry forward, adding that the increased transparency and velocity of the system will be embraced by the secondary mortgage investor.

"eNote is the change the industry has been clamoring for," according to Christopher George, president and chief executive of CMG Mortgage Inc. "And we are starting to see a lot of new technology coming now that the landscape has been wiped clean."

George added the move to a system that uses electronic signatures in lieu of ink on paper "must make me money or save me money" to eventually gain a foot hold within the industry and ultimately allow consumers to save money. In addition to eliminating lost notes, the shift to an electronic platform improves cash flow speeds, lowers financing costs and provides for better execution by selling faster and with better quality documents.

George said eWarehouse lending enables companies to settle loans every day, which is something the traditional business model doesn't allow for. Using the electronic system also provides for savings of up to 20 basis points, or about $400 per loan, excluding potential interest savings. George said his firm currently sells all of its eNotes to Fannie Mae because other investors don't have the ability to accept the mortgage notes electronically.

Peter Crouchley, principal at Vantage Capital, said eWarehouse lending is beneficial for all parties involved, providing the loan originator more efficient use of capital, mitigating risk for the warehouse lender, improving data quality for the investor and giving the borrower a faster, easier way to close the loan.

"This is some very exciting, cutting-edge stuff and we can't wait to see what the future holds" for this type of loan origination and securitization, Crouchley said. "It maximizes originations per capital, which allows originators to use the free capital to invest in (mortgage servicing rights) or additional business aspects."

Christos Bettios, senior product manager for paperless initiatives at Fannie Mae, said today's loan origination process already includes the electronic generation of loan documents. But those documents are then shipped, rekeyed and rechecked, producing unnecessary duplicative functions.

Moving to an all-electronic system mitigates risk and chances for fraud while increasing transparency and loan quality and supporting faster selling to the secondary market. This enables all parties involved to "make more money with less risk," he said.

"This is not rocket science, but a way for everyone to be strategically thinking about the future," Bettios said. "I'd advise (lenders) work with C-level executives on this shift and get ready by having operations, IT and capital markets involved and educating everyone in the chain."

Write to Jason Philyaw.

Tags: , , , , , , , ,
Posted in Origination/Lending, Top Stories | 1 Comment »

Tuesday, March 29th, 2011

Hours after federal regulators released the new proposal on what mortgages will be exempt from risk retention rules, the industry began to push back.

Under the Dodd-Frank Act, regulators were required to write guidelines for qualified residential mortgages. Lenders and securitizers would not have to retain 5% of the risk on these loans. But industry trade groups said these guidelines are "too narrow" and will not only price out many homebuyers from the market but muddy the waters on Fannie Mae and Freddie Mac reform.

Bob Davis, the executive vice president for the American Bankers Association, told HousingWire in an interview Tuesday that if the QRM rule went into effect today, it would not change the status quo because loans backed by the government, including Fannie Mae, Freddie Mac and the Federal Housing Administration, were exempted from risk retention.

Because these three entities already back most mortgages being written in the U.S., 95% of the market would be exempt from risk retention rules.

"It has no immediate impact because there is no nongovernment-sponsored market right now," Davis said. "That's going to remain the case for some period of time."

Leaders at the American Securitization Forum and the Securities Industry and Financial Markets Association agreed earlier Tuesday.

Mortgage Bankers Association CEO John Courson said the 20% down payment requirement for a QRM would dampen already lagging housing demand.

"We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans," Courson said.

National Association of Realtors President Ron Phipps used the word "narrow" as well, and said the new rules will cost consumers more, further restrict mortgage credit and housing recovery overall.

"Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home," Phipps said.

Davis at the ABA said the industry has two avenues to push back: one, through the 60-day commentary window and through statutory adjustments to Dodd-Frank. The latter would obviously have to go through Congress, but House Republicans have already pushed reform repeals.

"Perhaps this requirement should be removed in its entirety and we leave it to other safety and soundness criteria," Davis said, adding that this sort of rule would be better served under the governance of the upcoming Consumer Financial Protection Bureau.

Courson said that while aspects of a loan such as the down payment, debt-to-income ratio and past-payment history are accurate predictors of loan performance, he suggested a different route for determining what loans should be considered QRM or not.

"The rule should allow for consideration of a borrowers entire credit profile before determining whether risk retention is necessary on a given loan," Courson said. "For example, we believe that a lower down payment loan could be less risky if a borrower has a strong history of making payments on time and if the borrower's debt-to-income ratio is on the lower end of the scale. The rule should provide more flexibility in this regard."

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Tags: , , , , , , , ,
Posted in Secondary Market/Investors, Slider, Top Stories | 1 Comment »

Tuesday, March 29th, 2011

James Bullard, president of the Federal Reserve Bank of St. Louis, said the Federal Reserve System is likely to resurrect its controversial discussion on 'how and when' to make a clean exit from the Fed's expansionary monetary policies by the end of this year.

The monetary tools in the Fed's toolbox so far have included a willingness to keep the federal funds rate close to zero and quantitative easing, a policy that allowed the Fed to buy up Treasury securities late last year and in the first six months of 2011.

"The process of normalizing policy, even once it begins, will still leave unprecedented policy accommodation on the table," Bullard said while speaking to the 19th European Banking and Financial Forum in Prague on Tuesday. "The FOMC may not be willing or able to wait until all global uncertainties are resolved to begin normalizing policy."

Factors that could stall a return to normal monetary policies include turmoil in the Middle East and Africa, troubles in Japan from natural disasters, a possible shutdown of the federal government and continued uncertainty over the European sovereign debt crisis, Bullard said.

But either way, Bullard believes at some point, the Fed will need to discuss it's escape from QE2 — a Fed program that allowed the system to purchase $75 billion Treasury securities per month through the first half of 2011.

"Exit strategy was widely discussed in 2010, and that debate will likely revive during 2011," Bullard added.

In terms of how the Fed will make its return to a normal policy state, Bullard said that will eventually involve a raising of rates and a return to a smaller Fed balance sheet.

Write to Kerri Panchuk.

Tags: , , , , ,
Posted in Top Stories | No Comments »

« Older Entries
Newer Entries »


Origination/Lending
Consumer sentiment climbed to an index level of 75 in January, the best reading of the Thomson Reuters/University of Michigan...

Read More »

Secondary Markets/Investors
The new federal task force led by New York Attorney General Eric Schneiderman sent subpoenas to the 11 largest financial...

Read More »