Archive for April, 2011
Problematic drywall may not be a byproduct of solely Chinese manufacturing. In fact, some defective product may also come from American manufacturers, a new study indicates.
The Consumer Product Safety Commission, in conjunction with Environmental Health & Engineering, recently released a report in which it tested 11 homes reportedly built with domestic drywall. According to the companies' findings, five homes showed results consistent with homes that contain problem drywall.
Nine of the 11 properties showed electrical corrosion including blackened copper wire and air conditioning evaporator coils. The five homes with problematic drywall exhibited "corroborating evidence," such as sulfur build up, hydrogen sulfide emissions and copper sulfide development, synonymous with problem drywall.
"The focus of this report was to evaluate homes reported to be constructed with domestically produced drywall," the CPSC report said. "EH&E concludes that five of the homes in this study have drywall that is consistent with problem drywall.
The CPSC compared the homes in its most recent study to homes it previously surveyed. All homes were reported to have domestically produced drywall by the owners. Neither the CPSC nor EH&H independently confirmed the drywall was made in the United States.
As of Jan. 7, there were 3,770 incidents reported of defective drywall, according to the CPSC. Florida has the most with 2,137 cases, followed by Louisiana with 704 cases and Alabama with 215.
China is often the source of this questionable drywall.
There are specific federal guidelines for dealing with problematic drywall on the remediation side. The Department of Housing and Urban Development released guidance with the CPSC in March. The National Association of Home Builders too released remediation directions to its members.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: Chinese drywall, Consumer Product Safety Commission, Department of Housing and Urban Development, Environmental Health & Engineering, National Association of Home Builders
Posted in Secondary Market/Investors, Top Stories | 2 Comments »
The Securities Industry and Financial Markets Association sent a letter to federal regulators Thursday asking to clarify how risk retention will be calculated under the proposed rule.
In March, major banking regulators including the Federal Deposit Insurance Corp., proposed a rule requiring lenders to retain 5% credit risk on a loan after securitization. Along with designating what loans will be exempted from the rule, regulators issued guidance for how the risk retention will be calculated.
Under the proposed rule, an originator-seller of the loan can take either a horizontal- or vertical-shaped risk retention. Under the horizontal option, the lender takes a first-loss position, where it would take a surbordinate interest in the issuer, thereby facing losses before any other class of investor.
Taking a vertical risk means the lender is exposed to 5% of the credit risk that each class of investors has to the underlying collateral on a pro-rata, or an equal portion, basis.
A third option allows the lender to take an "L-shaped" risk, combining both the horizontal and vertical forms. To qualify for this option, the lender must retain at least a 2.5% stake in the issuer (the horizontal option) and a 2.564% stake of the "par value" of all of the security's interests (the vertical option).
When securitizing other products such as commercial mortgages or other paper, lenders are required to fund a premium capture cash reserve. It would be equal to the difference between the "par value" of the ABS being issued and the proceeds from the sale.
SIFMA raised the question on how that slice, whether it's horizontal, vertical or otherwise, and the fund would be calculated. Specifically, the trade group wanted clarification on how the regulators define "par value."
"Par value" is generally understood to be the stated value or face amount of the security, but SIFMA doesn't believe that definition translates to the risk retention rule.
"It has come to our attention that the Agencies may have conceived of par value as somehow related to or involving a calculation of the market value of an issuing entity’s ABS interests," SIFMA said. "This is a crucial distinction which, we can assure you based on discussions with our members, is not well understood by those who have read the proposed rules and the accompanying commentary."
They requested the regulators publish an explanation of what "par value is intended to mean."
A spokesperson for the FDIC said the proposal is currently open for comment until June, and regulators will digest the comments before issuing a final rule.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: FDIC, mortgage, par value, risk retention, rule, SIFMA, slice
Posted in Secondary Market/Investors, Top Stories | No Comments »
Home prices remained relatively stable in February, according to FNC's Residential Price Index, which could be a positive sign for the home buying season yet to come.
The national price index decreased just 0.7% between January and February, but remain 5.3% below the same period of last year. FNC's 30-city composite index fell 0.3% compared to the previous month and 5.8% compared to the previous year.
The Oxford, Miss.-based firm also releases a 10-city index every month, which increased 0.3% in February over January and came in 4.6% below the price in February 2010.
"Normally, home prices in February tend to exhibit relatively large seasonal price movement," the mortgage technology provider said. "The better-than-expected February price seasonality could likely send early signals that the housing market is ready for a gradual rebound as a seasonal uptrend in spring home buying typically occurs."
Freddie Mac too is anticipating a strong buying season. According to the agency's most recent economic outlook, collective 2011 home will rise 5% with respect to 2010. However, many are warning that sale inventory must be burned through first.
Housing inventory grew 2.3% in March, according Realtor.com, which is powered by the National Association of Realtors. The online marketplace reported that inventory currently sits 9.8% above the level in March 2010. At the same time, the number of households searching for housing is growing, it said.
FNC reported that home prices in hardest hit areas are diminishing by the double-digits. In February, Phoenix home sale prices crashed 15.7%, Atlanta prices dipped 14.1% and Orlando prices fell 13.5%. These are areas where RE/MAX is reporting a higher volume of sales.
"If sales continue at this pace into the traditional spring and summer buying season, we would expect to see prices follow as well," commented Margaret Kelly, RE/MAX CEO.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: FNC, freddie mac, NAR, RE/MAX, Residential Price Index
Posted in Origination/Lending, Top Stories | 4 Comments »
Moody's Investors Service revised the ratings outlook for PulteGroup Inc. (PHM: 7.73 -0.90%) from positive to stable this week over concerns the homebuilder's operating performance and the industry's return to a more stable environment will take more than a year.
The ratings agency affirmed all other existing ratings, including Pulte's B1 corporate family rating, B1 probability of default rating, B1 rating on senior unsecured notes and its speculative grade liquidity rating of SGL-2.
Moody's suggested a ratings upgrade doesn't look possible for Pulte in the near future considering all of the factors currently weighing down the home building industry.
Moody's said, "The B1 corporate family rating balances Pulte's large cash position and track record of positive cash flow generation against Moody's expectations that 2011 may be the first year in five years that the company will be cash flow negative at the same time as it continues to be unprofitable on a bottom line basis."
Moody's also noted that the company's gross margins, which are improving, still fall behind the builder's peer group. In addition, debt leverage at the firm is expected to remain elevated in the near future, the ratings agency suggested.
The good news is Pulte's liquidity position provides them with enough flexibility to continue investing in the business and to focus on improving the company's margins, Moody's said. The company's merger with Centex more than two years ago also created a platform that will provide the firm with enough diversification to reap rewards when the home building industry returns, Moody's said.
Moody's said the homebuilding debt of PulteGroup and the remaining debt of Centex is guaranteed by the principal operating subsidiaries of both divisions. The ratings could turn profitable if the company's debt leverage and gross margins improve and the company maintains its liquidity, Moody's said. However, the rating could also be lowered if PulteGroup loses its liquidity position, experiences a material erosion to its operating performance or allows its debt leverage to remain above 60% for a long period of time, the ratings agency asserted.
Write to Kerri Panchuk.
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Tags: Centex, homebuilder, homes, Moody's Investors Service, PulteGroup
Posted in Origination/Lending, Top Stories | 1 Comment »
Home prices nationwide appear to have reached a seasonal trough in February, after falling to the lowest level since March 2003.
The RadarLogic RPX Composite index, which tracks home prices in 25 metropolitan areas, fell to $178.12 per square foot, down 4.3% compared to February 2010 and down 36% from the index's all time high in June 2007.
RadarLogic said that both supply and demand factors in the housing market are contributing to price depreciation.
"The foreclosure process remains bogged down after investigations launched late last year prompted temporary halts by some mortgage servicers and created a bottleneck as paperwork was re-filed," the report said. "Housing demand is also constrained."
March existing home sales posted 3.7% above February sales, yet 6.3% below sales in March 2010, according to the National Association of Realtors.
On a regional basis, the largest declines in home price occurred in the South, according to RadarLogic, down 4.3% compared to January and down 9.7% compared to the year ago period.
In Atlanta prices plummeted 16.3% compared to 2010. Prices fell 13.6% in Jacksonville, Fla. and 13.1% in Miami.
RadarLogic mentioned that more home purchases are being made by corporate investors and all-cash buyers. Recent data suggest this trend will continue, the research firm said, as these purchases "have tended to be at large discounts."
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: National Association of Realtors, RadarLogic, RPX Composite index
Posted in Origination/Lending, Slider, Top Stories | 1 Comment »
Freddie Mac is offering a $1,000 bonus to selling agents in the Las Vegas area who promptly sell homes through Freddie Mac's HomeSteps branch.
HomeSteps is Freddie Mac's real estate sales unit, which acquires distressed properties and resells them to homeowners and investors.
Freddie is offering the bonus, plus payment covering up to 3.5% of buyer closing costs, to selling agents who turn in offers for homes in the Las Vegas metro before May 16. The rewards are also available for deals with escrow closed by July 1.
This offer is only valid on HomeSteps homes sold to owner-occupants, Freddie Mac noted.
Real estate brokers around the area will be hosting open houses for HomeSteps properties on Saturday April 30, between 12 p.m. and 4 p.m.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: freddie mac, HomeSteps
Posted in Origination/Lending, Top Stories | No Comments »
The Department of Housing and Urban Development launched a two-year pilot program for borrowers to apply for up to $25,000 in loans to make homes more energy-efficient.
The Federal Housing Administration will back the loans made by 18 national, regional and local lenders through the PowerSaver program. The improvements can include installing insulation, duct sealing, replacement doors and windows, heating, venting and air conditioning systems, water heaters, solar panels and even geothermal systems. Only owner-occupants can apply.
"We believe the market is right for a low-cost financing option for families who want energy-saving technologies in their home," said HUD Secretary Shaun Donovan. "PowerSaver hits on all cylinders by helping credit-worthy homeowners finance these upgrades, cut their energy bills and boost the local job market in the process. While FHA and these lenders are jumpstarting this pilot, we hope its success will lead to a growing private sector interest in making these types of loans."
Lenders will keep "skin in the game" on these loans. The FHA will cover up to 90% of the amount in case of default. Lenders will retain the remaining risk on each loan.
The loans can only go to borrowers with at least 660 credit scores and at least some equity in their home. A maximum loan-to-value ratio was set at 100%.
Interest rates will be set between 5% and 7%, and term limits can be as long as 20 years.
The loans will generally be secured by a subordinate lien on the an existing first mortgage.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: energy saving, FHA, HUD, HVAC, interest, mortgage
Posted in Origination/Lending, Top Stories | 1 Comment »
Banking regulators lifted a cease and desist order against CIT Bank, a subsidiary of CIT this week, allowing the banking platform to refocus on providing funding to small and middle-market businesses.
The Utah Department of Financial Institutions and the Federal Deposit Insurance Corp. issued the cease and desist orders against CIT Bank in July 2009, forbidding the lender from paying dividends and from extending credit to its parent company or any affiliate of the bank. It also was prevented from engaging in "any covered transaction" with its parent company. The premise behind those orders was to prevent the bank from buoying its troubled corporate parent, CIT.
In late 2009, CIT voluntary submitted a prepackaged bankruptcy plan for CIT Group and CIT Group Funding Co. in the U.S. Bankruptcy Court for the Southern District of New York.
John Thain, CEO and chairman of CIT, said "We are pleased with this decision, which serves as another example of the progress we have made in CIT’s restructuring efforts. CIT remains focused on supporting the small business and middle market sectors that are vital to job growth and the recovery of the U.S. economy."
The termination of the cease and desist order does not immediately impact CIT's ratings, Standard & Poor's Ratings Services said Thursday.
"We believe the removal of the cease-and-desist order will help CIT's efforts to conduct more of its commercial businesses through CIT Bank and diversify the bank's brokered deposit base," S&P said. "In fourth-quarter 2010, more than 50% of CIT's U.S.-funded volume was originated by CIT Bank, including new corporate finance loans and leases. CIT continues to benefit from its reorganization through higher capital, reduced credit costs, and limited near-term maturities."
In late December, CIT had $4.5 billion in deposits and $7.1 billion in assets.
Write to Kerri Panchuk.
Tags: CIT, CIT Bank, Federal Deposit Insurance Corp., Standard & Poor's, Utah Department of Financial Institutions
Posted in Origination/Lending, Top Stories | No Comments »
The Federal Home Loan Bank of Boston sued several entities in the securitization chain this week, seeking relief for $5.8 billion in soured private-label mortgage-backed securities.
The bank filed the lawsuit in the Superior Court Department Business Litigation Session of the Commonwealth of Massachusetts. It named securities dealers, underwriters, control persons, issuers, depositors, and credit-rating agencies. The MBS were issued by 115 securitization trusts.
FHLB Boston alleged it was given untrue or misleading statements in the sale of the securities. Securities documents allegedly contained misrepresentations, omissions and unfair or deceptive trade practices. The bank also claimed fraud on the part of the ratings agencies.
"The Bank is seeking various forms of relief including rescission, recovery of damages, recovery of purchase consideration plus interest (less income received to date) and recovery of reasonable attorneys' fees and costs of suit," the FHLB of Boston said.
The lawsuit names several Wall Street investment firms, and the traders who arranged the deals by name, as defendants. Several foreign banks and their fixed-income employees are also named in the filings. Former employees of Lehman Brothers are also named.
Write to Jon Prior.
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Tags: FHLB Boston, investments, Lehman Brothers, MBS, mortgage, securities, securitization
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
The big four banks originated a combined $186 billion in mortgages during the first quarter, down 33% from the $281 billion home loans written in the previous quarter, according to their financial statements.
Bank of America (BAC: 7.23 -0.96%), Wells Fargo (WFC: 29.354 +1.05%), JPMorgan Chase (JPM: 37.26 -0.61%) and Citigroup (C: 30.38 0.00%) each reported billions in earnings for the quarter. Their collective mortgage departments, however, did not fare as well. Servicing costs were up, each bank still has hundreds of millions of dollars in reserves for buybacks on defaulted loans, and originations fell so low that thousands of jobs were shed.
The big four collectively originate and service roughly 65% of the nation's mortgages. A dip in their rate of business may be indicative of major declines in the housing market overall, and not necessarily due to giving up marketplace dominance.
Wells wrote $84 billion in new mortgages for the quarter, down from $128 billion in the previous quarter. BofA originated $52 billion in new home loans, down from $81.2 billion.
JPMorgan Chase totaled $36.2 billion in new mortgages in the first quarter, down from $50.8 billion. And Citi saw its originations totals drop to $14.1 billion from $21.8 billion in the fourth quarter.
Real estate is seasonal, and three of the big four saw gains in origination volume from the same quarter a year earlier. Only BofA saw new loans slip from $66.9 billion originated in the first quarter of 2010.
But those numbers were skewed from the homebuyer tax credit, which expired in April 2010. As volume slipped since, at least two of these banks announced layoffs in the mortgage department.
BofA and Wells cut a combined 6,000 jobs. BofA laid off 1,500 and Wells shed 4,500. Some employees, at least at BofA, went to a new department where they work to clean-up delinquent loans and sort through buyback claims. Since the financial collapse, the entire mortgage industry has cut its work force in half.
While the rest of the economy seems to be recovering – the unemployment rate dropped to 8.8% in March – housing continues to lag behind. More problems remain ahead. Some analysts believe new rule proposals from regulators such as risk retention and determining a borrower's ability to repay on a mortgage, could slow these operations even further.
Even the banks expressed frustration when trying to handle the weight these once profitable machines have on their business.
"Residential mortgage origination is one of the largest variable cost businesses at Wells Fargo," the bank said in its financial supplement.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bank of America, banks, buybacks, Citigroup, first quarter, jobs, JPMorgan Chase, mortgage, Servicing/Default, unemployment, Wells Fargo
Posted in Origination/Lending, Slider, Top Stories | 8 Comments »
