Archive for June, 2011
U.S. securities regulators are weighing civil fraud charges against some credit-rating companies for their role in developing the mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter.
The Securities and Exchange Commission's long-running probe into the deals has widened to the major credit-rating firms, including Standard & Poor's, the people said.
The leading ratings companies have been criticized by lawmakers as "key enablers" of the financial meltdown, helping to fuel the $1 trillion Wall Street mortgage-securities machine before the boom ended.
A slide in the quality of new U.S. commercial mortgage-backed securities has accelerated in recent months, and may be unstoppable even if some investors balk at deals, a key investor and major rating firm warned.
The theme resounded at an industry conference at New York's Waldorf-Astoria this week, where some money managers and rating companies said they are bracing for a decline in underwriting standards to those seen in 2007, when easy money fueled a record $234 billion in CMBS volume.
A rise in underwriting based on assumptions about future, rather than on present, revenue has alarmed investors who worry the market is being made vulnerable to new woes just as it begins to recover from past excesses and the credit crunch. Indeed, the CMBS delinquency rate is hovering around its high-water mark of 9%, a reminder of the consequences of aggressive underwriting.
The median home listing price in May dipped 1.6% compared to April, down to $188,900, according to one real estate listing website.
According to the official website for the National Association of Realtors, May's median price was about 2.1% below a year earlier when government tax incentives were still driving consumer demand. The drop in price could be attributable to seller uncertainty of a double-dip in home prices.
"The modest pull-back that occurred in May 2011 could signal seller concerns over widespread reports of a 'double-dip' in the housing market based on sales results for the first quarter of 2011," according to the website Realtor.com. "However, unless there is further retrenchment, the results for the past three months could be viewed as a positive indicator of future home pricing trends."
Median listing prices fell in 126 out of 146 markets covered by Realtor.com. Twenty-three markets experienced a more than 5% decline in home price, 14 of which were in Florida. Chattanooga, Tenn. witnessed the largest price drop, down 17.8% between April and May to a median $145,000. That price is down 16.9% compared to May 2010.
As prices fell, sale inventory grew. Realtor.com reported a 3.5% growth in inventory to a total 2.3 million listed properties in May. That figure is down 14.3% compared to one year earlier, however.
The average number of days a home spent on the market decreased to 92 days in May from April. The age of market inventory has been gradually decreasing since the beginning of 2011 and is now roughly equal to the age seen last summer.
Write to Christine Ricciardi.
It will take about of 6.5 million new household formations over the next five years to clear the excess housing inventory.
Brendan Lowney, macroeconomist with Forest Economic Advisors, said Thursday an oversupply of about 2.5 million homes on the market is putting downward pressure on home prices as well as consumer demand.
Analytics firm RealtyTrac said while the inventory of foreclosed properties declined over the last six months, the inventory of unsold REO increased in both April and May.
According to Lowney's calculations, it would take an average 1.3 million household formations per year for five years to clear "a significant portion" of the current supply of housing. Lowney told HousingWire it is plausible this scenario will pan out, as there are on average more than 1 million household formations per year. But ultimately, he said, formations will be influenced by employment.
"The main driver of demand is household formation, and household formation is driven by employment and separation," Lowney said.
Lowney will discuss his analysis on June 23 in a teleconference sponsored by Industry Intelligence, an industry data company based out of Los Angeles.
Write to Christine Ricciardi.
