Archive for April, 2011
PNC Financial Services Group Inc. (PNC: 58.97 +0.12%) beat analysts' estimates Thursday, reporting a first-quarter profit of $832 million, or $1.57 a share, up from $671 million, or 66 cents per share, during the same quarter a year earlier.
The average analyst estimate pointed to a profit in the $1.37 per share range.
Revenue for the period fell from $3.9 billion to $3.63 billion. The company's outlook continued to improve with its credit quality. The financial services firm said provisions for credit losses held steady between the fourth quarter and first quarter.
Meanwhile, the residential banking division grew its earnings by $68 million as foreclosure-related expenses subsided. In the first quarter, the home mortgage division brought in $71 million, up from $3 million the previous quarter but lower than the $78 million recorded a year prior.
Home mortgage earnings over the previous year dropped somewhat because of the company's need for higher provisions to cover credit losses, lower servicing fees and lower net interest income coupled with higher non-interest expenses.
In terms of credit quality, PNC continues to see improvement. The company said "accruing loans past due of $1.9 billion were relatively unchanged from year end and significantly decreased from $3.3 billion at March 31, 2010."
Write to Kerri Panchuk.
Tags: mortgage, PNC Financial Services Group Inc., residential lending
Posted in Servicing/Default, Top Stories | No Comments »
It doesn't look like HSBC will offload U.S. mortgage business before the May 11 shakeup planned by the new CEO, Stuart Gulliver.
The fate of HSBC Mortgage Corp. is likely to continue to remain uncertain eight months after its parent company, HSBC Bank USA, announced a possible sale of the mortgage unit. Gulliver is said to be restructuring operations, according to British financial press outlets, and will unveil his new plans during Investor Day, scheduled on the above date.
In August, HSBC said it would evaluate all options for its mortgage unit, which operates mainly out of New York. The named options included a possible sale, merger or other business arrangement.
As of Thursday, the mortgage unit remains the subject of speculation, andno possible buyers have surfaced. The bank is still mum on what steps will be taken, if any.
Neil Brazil, a spokesman for HSBC Mortgage, said, "That review remains ongoing and there is nothing further to share at this point. All options are being considered but it is important to note that the review may not result in any action."
Brazil said HSBC Mortgage is considering "what is the best option for our customers and staff."
HSBC's mortgage operations employs roughly 1,500 in the US. In 2009, the division was the 11th largest mortgage servicer by volume.
Write to Kerri Panchuk.
Tags: HSBC Bank, HSBC Holdings, HSBC Holdings Plc, lender, mortgages
Posted in Origination/Lending, Servicing/Default, Top Stories | No Comments »
Morgan Stanley's (MS: 18.085 -0.36%) first quarter income fell almost 50% from a year earlier, as lower trading revenue hurt earnings.
The investment banking giant earned $736 million, or 50 cents a share, for the three months ended March 31 down from $1.41 billion, or 99 cents a share, last year. Results for the quarter include a tax gain of 30 cents a share and a loss of 26 cents a share from a joint venture in Japan.
The company said first quarter revenue fell about 16.5% to $7.64 billion, including a loss of $425 million from the Japanese venture, from $9.07 billion a year ago.
The institutional securities division reported first quarter pretax income from continuing operations of $397 million, which is down from $2.1 billion a year earlier. Revenue from fixed income and commodities sales and trading during the quarter decreased to $1.8 billion from $2.7 billion last year. Equity sales and trading revenue rose to $1.7 billion from $1.4 billion.
Morgan Stanley said its Tier 1 capital ratio was about 16.7% with a Tier 1 common ratio of about 11.8% at March 31.
"We continued to strengthen our client franchise and delivered solid results across many of our businesses," President and Chief Executive James P. Gorman said. "Our premier investment banking franchise remains a clear industry leader – maintaining our No. 1 ranking in global M&A in a robust deal market."
Gorman said the company also reported its best results in equities since the financial crisis, saw significant improvement in fixed income and commodities activity from the prior quarter, and had positive flows across wealth management and asset management.
Write to Jason Philyaw.
Tags: 1Q earnings, Morgan Stanley, Tier 1
Posted in Secondary Market/Investors, Top Stories | No Comments »
BB&T Corp. (BBT: 26.91 -0.48%) reported net income of $225 million, or 32 cents per share, for the first quarter, up 19% compared to a year ago as the bank reduced its nonperforming assets and saw banking deposits rise.
In the year ago period, Winston-Salem-based BB&T earned $188 million, or 27 cents per share.
Revenue was $2.04 billion, down from $2.19 billion in the comparable period. The decrease in total revenue included declines of $130 million in noninterest income and $26 million in fully taxable equivalent net interest income. The decline in noninterest income included $74 million in losses related to commercial loans held for sale in connection with management’s asset disposition strategy.
Mortgage banking income was $95 million, up from 6.7% from $89 million in the year-ago period. The increase in mortgage banking income was driven by a $13 million, or 162.5%, increase from commercial mortgage banking activities due to improving market conditions. The commercial improvement was offset by lower revenue from residential mortgage banking activities, the bank said.
“BB&T posted solid first quarter results as our credit costs continued to decline and economic conditions improved,” said Chairman and Chief Executive Officer Kelly S. King. “For the second consecutive quarter, we saw improvements in all measures of credit quality. In particular, we experienced significant declines in past due loans, to our lowest level in three years."
The bank has a positive outlook for continued reductions in its problem assets, having sold about $500 million of problem assets during the quarter with plans to exceed that in the second quarter, he said.
Its net interest margin was up 13 basis points compared to the first quarter of 2010 and down just slightly from last quarter as the bank benefited from a favorable funding mix, a lower cost of funds and wider credit spreads.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: bank, BB&T Corp., earnings, first quarter earnings, mortgage, nonperforming loans
Posted in Origination/Lending, Top Stories | No Comments »
Cincinnati-based Fifth Third Bancorp (FITB: 13.17 +0.69%) reported first quarter income of $88 million, or 10 cents per share, compared to a loss of $72 million, or 9 cents per share a year ago.
The residential mortgage loan portfolio of $9.3 billion was up 16% compared with the first quarter 2010. Residential mortgage average loan balances benefited from the continued retention of certain shorter-term fixed-rate residential mortgages, largely branch originated, Fifth Third said.
The regional bank also announced it repaid more than $3.4 billion of government bailout funds under the Troubled Asset Relief Program.
Excluding the TARP expense, Fifth Third earned $265 million, or 27 cents per share during the first three months of 2011.
Repaying TARP bailout funds dragged earnings lower. The accretion of bonds, sold below face value, accelerated in the quarter and reduced net income available to common shareholders by $153 million.
CEO Kevin Kabat of Fifth Third said, "we redeemed the preferred stock investment purchased by the U.S. Treasury under the TARP program, as well as the associated warrant."
"Fifth Third never issued debt guaranteed by the (Federal) Temporary Liquidity Guarantee Program and we have thus completely exited all crisis-era government programs," he added.
Follow him on Twitter @JacobGaffney.
Tags: Fifth Third, TARP
Posted in Secondary Market/Investors, Top Stories | No Comments »
A new way to predict the likelihood borrowers will default, even if they can afford their mortgage, just hit the marketplace.
FICO Labs, a unit of Fair Isaac Corp. (FICO: 36.13 -7.90%), is releasing new technology that helps lenders identify the probability of strategic default by looking at a borrower's credit score.
Strategic default is a rising trend where borrowers who can afford their monthly mortgage payment opt not to pay it. Often times borrowers strategically default because the value of their home has depleted to the point they are underwater, or owe more on the home than it is worth.
"Mortgage payment patterns have shifted, and some borrowers are intentionally defaulting on their mortgages because they believe it is in their best financial interest, and because they believe the consequences will be minimal," said Andrew Jennings, chief analytics officer at FICO. "Before mortgage servicers can work effectively with potential strategic defaulters, they must first be able to identify them."
The strategic default borrower, according to FICO Labs, is one with a reputable credit score, low levels of revolving credit, little retail balance and a short occupancy in their current residence. By these characteristics, the strategic borrower is money conscious, has a low probability of past defaults and has little attachment to their property.
FICO reports that borrowers whose homes lost the most value are only twice as likely to default as those who lost the least value. Through its custom analytics, FICO is able to identify the riskiest borrowers, who are 110 times more likely to default than the average homeowner.
The riskiest 20% of borrowers in FICO research included 67% of those who later committed strategic default, the research firm said.
"Our new research shows it is possible for servicers to find those at greatest risk of strategic default, both to prevent losses and to prevent borrowers from making a decision that will damage their credit future," Jennings said.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: FICO Labs, FICO Score, strategic default
Posted in Origination/Lending, Servicing/Default, Top Stories | 5 Comments »
Fitch Ratings downgraded twelve classes of commercial mortgage pass-through certificates held in the Wachovia Bank Commercial Mortgage Trust – Series 2007-C30 due to the possibility of higher loss expectations on underlying commercial loans.
Fitch has classified eight of the top 15 loans in the pool, approximately 40.4%, as loans of concern, including two specially serviced loans.
Among the 12 downgraded classes, Fitch slashed the ratings on two classes of mezzanine triple-A to triple-B. However, the firm did not downgrade any super senior classes, which are those identified as triple-A with 30% credit enhancement at issuance.
The most significant loan in the effected pool is tied to the Peter Cooper Village/Stuyvesant Town development apartment complex in Manhattan. That loan, which is still in servicing, represents about 19.2% of the pool. In January of last year, Tishman Speyer Properties and Blackrock missed a scheduled repayment to senior lenders on a bond that was previously used to finance debt from the joint venture purchase of the Stuyvesant Town and Peter Cooper Village. (The vast apartment complex is pictured above.)
According to Fitch Ratings, the collateral for Peter Cooper Village/Stuyvesant Town loan is 56 multi-story buildings with a total of 11,227 apartments. A special servicer has control of the property after acquiring the mezzanine debt of the borrower. The servicer is currently working with property manager Rose Associates to stabilize the buildings, Fitch said.
Part of the stabilization plan includes the $48 million renovation of 570 vacant units. Fitch said "property performance continues to be below what is needed to service the debt, but the securitized loan balance per unit of $267,213 is low relative to other New York City multifamily properties."
Write to Kerri Panchuk.
Tags: Fitch Ratings, multifamily properties, Peter Cooper, Stuy town, Wachovia bank
Posted in Secondary Market/Investors, Top Stories | No Comments »
Oklahoma Attorney General Scott Pruitt may break away from the other 49 state AGs to forge his own settlement with mortgage servicers targeted in a recent nationwide foreclosure investigation.
Last fall, nearly every major servicer had to hold up foreclosure proceedings to fix improperly signed affidavits and other loss-mitigation problems. Federal regulators and the 50 AGs launched investigations. The Office of the Comptroller of the Currency and the Federal Reserve settled with these companies last week, but the coalition of AGs and other regulators continue to negotiate.
Reports show the coalition is pushing for stricter penalties than the OCC and the Fed deal. Some of the coalition's terms include mandatory modifications, principal reduction and a potential fine of as much as $25 billion.
Not everyone in the coalition is on board, however.
"Attorney General Pruitt has instructed his public protection team to craft a settlement that is specific to Oklahoma's concerns of punishing bad actors while respecting the appropriate role of attorneys general," a spokesperson for Pruitt's office said in a statement.
At least a dozen AGs do not back the proposal. Four Republican AGs from Florida, Texas, Virginia and South Carolina wrote a letter in March to lead investigator Tom Miller, the Iowa AG , saying the talks go beyond the responsibilities of their offices.
Miller declined to comment on Pruitt's move to seek his own terms.
"This alternative to the current proposed term sheet could provide other states with a model to consider," according to Pruitt's statement.
Pruitt's office sent another statement Thursday clarifying the alternative proposal.
"He has instructed his staff to prepare an alternative agreement in the event the 50-state negotiations do not produce a compromise that does not include a cram down feature," his office said.
Bloomberg reported Pruitt's decision Wednesday.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: consent order, Fed, foreclosure, mortgage, OCC, Oklahoma AG, Pruitt, servicers
Posted in Servicing/Default, Top Stories | 1 Comment »
The fate of Elizabeth Warren, the Harvard Law professor whose ideas built the Consumer Financial Protection Bureau, remains in the lurch as news reports suggest possible director candidates for the CFPB have passed on the role.
Whoever becomes director of CFPB will play a significant role in the mortgage finance space as the agency writes rules to thwart abusive, unfair or deceptive lending practices, legal analysts say.
Several news reports suggest Warren may end up being the only candidate for the CFPB director slot with others walking away from the opportunity.
Possible candidates for the director role included former Sen. Ted Kaufman (D-Del.), former Michigan Gov. Jennifer Granholm (D-Mich.), and attorneys general from Iowa, Illinois and Massachusetts, according to The Wall Street Journal. Former Ohio Gov. Ted Strickland and Sarah Bloom Raskin, a member of the Federal Reserve board also were considered. Most of those fielded for the post turned it down, according to the Journal.
The CFPB director will play a significant role in the mortgage finance space as the agency writes rules to thwart abusive, unfair or deceptive lending practices, legal analysts say.
"I think there are a lot of open issues about what the Consumer Financial Protection Act means," said Jim Hawkins, a University of Houston Law Professor who has studied the new federal bureau. "The CFPB has been granted three powers to deal with unfair, deceptive and abusive conduct. But 'unfair' and 'deceptive' are concepts included in other laws written by federal agencies. But, there are not many laws allowing regulators to stop abusive conduct. We don't know from the statute what 'abusive conduct' means, so the director will really shape how effective the bureau is in response to the abusiveness prong."
The Senate will have to approve the CFPB director — a process many skeptics believe is too difficult for Warren to pass with Republican opposition stacked against her, according to Hawkins.
Hawkins believes possible candidates are shying away because there's a notion Warren's shoes are too big to fill.
"My thought is that it would be crazy if anyone other than Elizabeth Warren is the director," he said. "She created the idea, she worked it through the legislative process. She hired the first key personnel. It is sort of a disconnect to have someone take over what she clearly originated."
When asked about Warren's future – including rumors that she might consider a Senate run in Massachusetts – a spokesperson for Warren said, "Professor Warren is 100% focused on doing the job of building the agency."
Warren's appointment as a special assistant to President Obama and Treasury Secretary Geithner and her role in forming the CFPB has been criticized by lawmakers, who allege the bureau lacks appropriate oversight, given its relative power in the mortgage and credit finance sectors.
Warren's role in advising attorneys general on what type of settlement amount would be best to propose to mortgage servicers also drew criticism earlier this year.
Write to Kerri Panchuk.
Tags: CFPB, Consumer Financial Protection Bureau, Elizabeth Warren, mortgage, Treasury, Treasury Secretary Timothy Geithner
Posted in Origination/Lending, Top Stories | 3 Comments »
Considering the state of flux of the economy, jobs in particular, it's hard to find succinct wisdom in the Federal Reserve's proposal to modify mortgage origination under Regulation Z.
In fact, it's hard to believe it will have a meaningful impact on mortgage originations, though the Fed obviously sees it the other way around.
The most glaring flaw with the whole concept is that the ability-to-repay proposal doesn't achieve anything not already happening in the mortgage origination market.
In fact, if anything, it takes a step backward.
The amendment, for one, would make sense only if a borrower's profile is not going to greatly change over the life a 30-year loan. Many modern Americans are unlikely to stay put in one place for three years much less three decades without some key aspect of their lives changing. An ability-to-repay does not protect a borrower from sudden unemployment and subsequent mortgage modification or, worse, foreclosure.
The proposal also relies on lenders repeating the underwriting mistakes of the past — an instant disqualification for the secondary market — and not even a reality today.
What the regulation fails to address is that underwriting instead should be modified to reflect real time changes, in a way that is constantly updated.
Reg Z does not prevent homeowners from getting approval for a mortgage and then immediately taking on too much additional debt, be it car loans, credit cards, etc.
There are several vendors who already offer services that project a borrower's ability to repay. Equifax's Undisclosed Debt Monitoring, for one, immediately comes to mind. Lenders can, and will, elect to use these services in order to avoid writing bad loans.
Advances such as these will make the largest impact in preventing foreclosures going forward. However, any positive statistical developments will likely be jumped on by the Federal Reserve, which will look to credit these changes to Reg Z as the primary reason for decreased delinquencies.
But the Fed rule, to be clear, remains a largely ornamental change.
The Fed wants lenders to be sure that borrowers can repay their debts. The central bank is creating a rule and will enforce it.
However, the rule disregards some amazing advances in the tech sector that largely trumps this risk.
Today, the use of income verification and updated FICO scores is only the first step in underwriting.
Yet, the new Reg Z can be satisfied with these simple steps. But it falls woefully short of mortgage lenders current underwriting standards.
As a benefit, the new Reg Z will help with refinancing of poorly structured mortgages into safer products.
A creditor can refinance a "nonstandard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment, according to the Fed.
Does this mean, as mortgage modification numbers continue to grow, the Fed will be able to take credit for that as well?
Write to Jacob Gaffney.
Follow him on Twitter @JacobGaffney.
Tags: ability-to-repay, Equifax, Federal Reserve, Regualtion Z
Posted in Commentary, Jacob Gaffney, Voices | No Comments »