Homebuilder PulteGroup (PHM: 7.73 -0.90%) reported a second-quarter loss of $55.4 million, or 15 cents a share, as it took significant organizational restructuring and debt repurchase charges for the quarter.
That compares to net income of $76 million, or 20 cents per share, in the prior year.
The Bloomfield Hills, Mich.-based company said its 2Q reorganization actions should reduce overhead by $50 million annually, and said it remains on track to be profitable in the second half of 2011.
The company missed analysts' estimates of a loss of 4 cents per share for the quarter.
Results included $41 million, 11 cents per share, of land, mortgage, organizational restructuring and debt repurchase charges. The prior year results included $48 million, or 13 cents per share, one-time charge, but that was offset by a net benefit from income taxes of $82 million.
"The 2011 U.S. housing market continues to operate within the range of expectations we projected at the beginning of the year," said Richard Dugas Jr., chairman, president and CEO. "It is a positive sign that buyer demand appears to have stabilized following expiration of the homebuyer tax credit last spring, but residential construction volumes are at historically low levels and market conditions remain highly competitive."
Total revenue was $927.2 million, down from $1.3 billion in the year-ago period.
Revenue from home sales in the second quarter decreased 29% from the prior year to $900 million. Lower revenue for the period was driven by a 28% decrease in closings, combined with a 1% decrease in average selling price to $248,000. Prior year results benefited from increased demand stimulated by the federal first-time homebuyer tax credit, which expired in June 2010.
For the quarter, homebuilding operations generated a pre-tax loss of $28 million, compared with pre-tax income of $12 million for the same period last year.
Net new home orders for the second quarter were 4,222, consistent with the prior year's second quarter but down 3% compared with the first quarter of 2011.
Pulte's financial operations segment's loss widened with a pre-tax loss of $17 million, compared to a prior year pre-tax loss of $9 million.
Loan originations for the quarter were down 32% to 2,217 loans, due to lower closing volumes in the company's homebuilding operations.
Current and prior year results for the financial services operations included charges of $19 million and $17 million, respectively, related to potential loan repurchase obligations. Pulte said it has not experienced a material change in repurchase trends, but recorded the current year adjustment primarily to reflect current expectations that repurchase activity will now extend through 2012 rather than being substantially complete by the end of 2011.
During the second quarter, Pulte repurchased $53 million of senior debt, resulting in a charge of approximately $3 million.
For the six months ended June 30, PulteGroup reported a net loss of $95 million, or 25 cents per share, compared with net income of $64 million, or 17 cents per share, in the prior year period.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
The Federal Deposit Insurance Corp. is moving ahead with a residential mortgage-backed securitization of failed bank assets despite uncertainty about the implied credit ratings.
Normally, such a deal would carry the equivalent of a triple-A rating as the federal government backs the bond guarantee, as did a similar deal last year.
However, if the U.S. sovereign rating is downgraded, the country cannot carry debt at a higher rating. This means the FDIC deals, and others before it, instantly get downgraded as well.
And so do Ginnie Mae, Fannie Mae and Freddie Mac bonds. The markets are responding to the possibility.
"Several articles in the past few days have noted the slowdown in bond issuance related to uncertainty over the resolution of the U.S. government debt ceiling," said Standard & Poor's in a note Wednesday. "With the uncertain timing of a possible debt agreement, we could start to see effects on structured finance with a lag."
There also remains the potential of a downgrade even if a deal on the debt ceiling is reached. Credit ratings agencies may take note of the lengthy time it took for such a deal to be consummated — considering the impact to short-term debt as well — and downgrade based on slow reaction times.
So considering the market conditions, why would the FDIC look to price the RMBS?
One source likened it to buying a used car, where the collateral immediately decreases in value once the ink is dry on the deal.
Well, to be sure, someone has to do something here.
The FDIC and the arranger, the Royal Bank of Scotland, can't comment on the record, with the latter citing Securities and Exchange Commission regulations. But it looks to be less than $400 million and made up mainly of Colonial Bank mortgages. I'm told this report from International Financing Review is an accurate summation.
But with Federal Reserve's Maiden Lane II offerings sidelined, the message cannot be that America's bond markets are closing for business in the shadow of potential downgrades.
America needs to show that it is not beholden to credit ratings agencies. There is a need the CRAs fill, but it can no longer be at the expense of the nation's ability to effectively operate secondary markets.
From this perspective, it is not a question of default and the ripple effect. This is a question of unnecessarily stifling liquidity. That is the political end game for the markets. And the FDIC is right not to kowtow.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: 144a, credit ratings, debt rating, default, failed bank, Fannie Mae, FDIC, Federal Reserve, freddie mac, Ginnie Mae, Maiden Lane, RBS, RMBS, Securities and Exchange Commission, Standard & Poor's
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