Archive for October, 2011
Consumer spending in September fell to its lowest level in two years as falling home prices and plummeting wages kept purchasers on the sidelines, according to accounting giant Deloitte.
"Low mortgage rates are doing little to spur home sales as banks limit lending and foreclosures continue to increase," said Carl Steidtmann, Deloitte's chief economist and author of the monthly consumer spending index, which analyzes consumer cash flow to determine expectations for future spending. "The housing market appears to be contracting again despite record low mortgage rates and the Federal Reserve's efforts to push them even lower."
Deloitte analysts look at four economic indicators: tax burden, initial unemployment claims, real wages and real home prices. The index fell to 2.39 from 2.51% a month earlier, prompting analysts with Deloitte to project additional cutting back on the consumer's part.
Real wages fell sharply in September, dropping 2.3% from a year ago with higher energy prices absorbing a larger portion of employees' paychecks.
Write to Kerri Panchuk.
Tags: Deloitte, Federal Reserve, foreclosure, home sales, Lending, real home prices, real wages, unemployment
Posted in Origination/Lending, Top Stories | No Comments »
Home sales in the Detroit metro area rose in September for the third consecutive month as sale prices also jumped, a new report says. However, for the hardest hit areas of the city, opposite trends persist.
In the city's inner-ring suburbs, sales fell 6.8% compared to September 2010, but that decline was offset by gains in outer-ring suburbs, which pushed year-over-year sales in the greater Detroit metro area up 8.2% overall, according to a report from Realcomp.
"Prices are higher [in those areas] because inventory has dropped so dramatically from where we were a couple of years ago," said Karen Kage, CEO of Realcomp, the largest realtor-owned multiple listing service in Michigan.
The inventory of all MLS properties fell 18.1% in September from a year earlier, the report showed.
Meanwhile, prices surged 10.1% in the larger metro area, to $74,900 from $68,000 in September 2010. Sanilac, Tuscola, and Lapeer counties saw the biggest gains, with prices rising 44%, 31% and 29%, respectively.
The largest decline in the metro area was registered in Huron County, where prices fell 35% to $68,000 from $104,500 a year earlier.
Foreclosure sales in the greater metro area fell 11% but were offset by a 23% increase in non-foreclosure sales.
Foreclosure sales in Detroit dropped 15.8%, while non-foreclosure sales rose 12.5%.
Despite the drop in distressed sales, prices in the central Detroit area are being driven down by the ongoing glut of foreclosures.
Central Detroit median prices have plunged from about $49,000 in 2006 to just below $37,000 in January of 2007 and then $21,500 in September of that year. However, now prices are starting to bounce back after hitting a low of $5,737 in February 2009.
This year, about 13.5% of the 5,720 sales closed in September were identified as short sales, and 45.3% of properties sold were paid for in cash, according to Realcomp.
Write to Liz Enochs.
Tags: Detroit, foreclosures, home prices, home sales, karen kage, MLS, Realcomp
Posted in Origination/Lending, Top Stories | 1 Comment »
The Federal Reserve Board approved a final rule Monday that forces bank holding companies with $50 billion or more in assets and certain nonbank firms to submit resolution plans explaining how they would wind down their businesses in times of stress.
The rule, which is a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires applicable bank holding companies, as well as nonbank financial firms supervised by the Financial Stability Oversight Council, to submit bankruptcy resolution plans to the Federal Reserve and the Federal Deposit Insurance Corp.
The rule says firms should outline detailed plans explaining how they would implement a timely bankruptcy.
The Fed and FDIC plan to collect the outlines on a staggered basis. Companies with $250 billion or more in non-bank assets are expected to submit their resolution plans on or before July 1, 2012.
The second group – those with $100 billion or more in non-bank assets, but less than $250 billion – will have to submit their plans on or before July 1, 2013.
The remaining companies will have to submit their outlines on or before Dec. 31, 2013.
Write to Kerri Panchuk.
Tags: FDIC, Federal Deposit Insurance Corp., Federal Reserve Board, Financial Stability Oversight Council
Posted in Secondary Market/Investors, Top Stories | No Comments »
Citigroup (C: 30.49 +0.36%) Chief Executive Vikram Pandit says the housing market and uncertainties plaguing residential mortgage portfolios remain the biggest threat to U.S. banks and the overall economy.
"We remain concerned about the housing market in the U.S.," Pandit said, "and residential mortgage portfolios of U.S. banks remain the biggest risk."
The banking giant reported Monday net income of $3.77 billion for the third quarter, or $1.23 a share, up 74% from about $2.17 billion, or 72 cents a share, one year ago.
Citi's delinquency rate for residential first-lien mortgages more than 90 days in arrears fell 18% from a year ago, the company said during a conference call discussing results.
Executives attributed a decline in first-lien mortgage delinquencies to recent sales of mortgage assets. This trend resulted in a smaller pool of delinquent loans under the bank's umbrella. Yet, the Chief Financial Officer John Gerspach said early bucket delinquencies — or delinquencies on already modified mortgages — are showing signs of possible re-default.
Still, the company said risks stemming from these loans are already accounted for in current loan loss reserves. Home equity delinquencies also slowed, Gerspach said, but the company continues to watch them adn other mortgage loans closely.
"We ended the quarter with $10 billion in loan loss reserves allocated to the U.S. residential sector," Gerspach said.
Citi said it previously issued $25 billion in private label RMBS. Since then, that amount has been reduced by roughly $13 billion of repayments and recoveries and $1 billion of cumulative losses
To date, the remaining $11 billion in RMBS issuance has a 90-plus day delinquency rate of 12.5%, the company said.
Citi noted a significant reduction in FHA loan originations in the past 3 years. In the period stretching from 2005 to 2008, the company originated 7% of the industry's FHA loan volume. That volume was cut to 3% in 2009 and now stands at less than 1%, according to data from Citi.
Write to Kerri Panchuk.
Tags: Citi, first-lien mortgage delinquencies, loss reserves, VIkram Pandit
Posted in Origination/Lending, Slider, Top Stories | 1 Comment »
The economics and mortgage market think tank within Fannie Mae estimates a 50% chance the country will slide back into a recession by the end of the year.
On the bright side, there is an equal chance the economic recovery will continue unabated, according to the group's October 2011 Economic Outlook.
“Home prices are a key factor for any positive movement in the housing market, and the large inventory of distressed homes working their way through the market is putting downward pressure on prices," said Fannie Mae Chief Economist Doug Duncan.
"Now that we are entering a traditionally weak seasonal sales period, we expect home prices to show renewed declines after firming for several months," Duncan added.
Other dragging factors outside of housing include the Greek debt crises spreading to other economies in Europe. Closer to home, fiscal austerity measures including the scheduled expiration of various tax cuts and unemployment benefits will likely dampen monetary spirits. Continuing financial reform is also stifling business growth.
The estimations are largely in line with other predictions.
Moody's Analytics Chief Economist Mark Zandi said in September there is a 40% chance the economy will slide back into recession within the next year.
He listed the same reasons as Fannie for drawing his conclusion.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: debt crises, Doug Duncan, economic outlook, Fannie Mae, financial reform, GDP, housing, Mark Zandi, Moody's, mortgage, October 2011 Economic Outlook, recession, unemployment benefits
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
CoreLogic (CLGX: 14.56 +0.62%) and Amherst Holdings will begin forecasting future loan prepayments underlying mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
CoreLogic will provide the numbers from its database of more than 40 million active mortgages, and Amherst will conduct the analysis and predictions. Amherst will look at repay risks due to refinances, home sales and defaults.
The Obama administration is working on a plan to refinance more underwater Fannie and Freddie loans. The likely outcome would be a retooling of the Home Affordable Refinance Program that has helped more than 838,000 borrowers refi into a new mortgage.
Agency MBS prepayments spiked in September as mortgage rates continued to fall.
Investors, particularly in the higher coupon stacks, are watching the development carefully, and now analytics firms are finding opportunity amidst the uncertainty. Amherst chief analyst Laurie Goodman will provide ongoing commentary as part of the offering.
"Agency securities are among the most liquid and widely held fixed-income investments because they offer attractive yields and are implicitly backed by the U.S. Government," Goodman said. "But the combination of historically low interest rates and unprecedentedly high default rates, which drive buyouts, create significant prepayment exposure."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Amherst, analytics, CoreLogic, default, Fannie Mae, freddie mac, GSE, Laurie Goodman, mortgage, obama, refinance
Posted in Servicing/Default, Top Stories | No Comments »
Both fixed-rate and adjustable-rate mortgages are susceptible to default, though at different times when the right amount of economic volatility shakes the financial markets, according to a new report from the National Bureau of Economic Research.
However, the factors that end up leading each type of mortgage into default are often quite different.
The NBER is a private, non-profit research organization known for using its economic data and analysis to predict the start and end dates of recessions and recoveries in the national economy. The latest research report, written by John Campbell an economics professor at Harvard University and João Cocco an economics researcher at London Business School, looks to create a housing model that predicts when a borrower is more likely to default on their mortgage.
The study finds that fixed-rate mortgages default the most when inflation and interest rates are low.
On the flip side, adjustable-rate mortgages perform the best when interest rates are down. The risk factor for ARMs rise when interest rates increase, as these loans are more susceptible to shocks that directly impact borrower income levels.
The study from NBER also found high loan-to-value ratios increase the probability of default by tightening borrowing constraints.
By way of comparison, interest-only mortgages have the highest probability of experiencing a default, the NBER found. The default rates for balloon mortgages, such as IOs, are less sensitive to drops in house prices in the early years of the loan, but more sensitive to the longer-term evolution of house prices.
"We find that the relaxation of borrowing constraints dominates early in the life of the mortgage," the authors wrote. "But default rates become larger than for principal-repayment mortgages late in the life of the mortgage due to the considerably higher probability of negative home equity."
Defaults tend to occur when a home enters a negative equity state, which is usually caused by several factors, including home price declines in a low inflation environment and large mortgage balances with little money down at the time of origination. However, after looking at mortgage default trends in other countries as well, Campbell and Cocco found that there is a variable lag time to when negative equity hits and the borrower stops making payments.
In that regard, they find the strength of a household's survival generally depends on whether the homeowners are borrowing constrained and their current savings level.
Putting little down at the time of origination greatly increases the probability of default, the report concluded, with that probability increasing even more for loans with LTV ratios in excess of 90%.
Write to Kerri Panchuk.
Tags: adjustable-rate mortgage, ARM, fixed-rate, FRM, inflation, interest rates, National Bureau of Economic Research, NBER
Posted in Servicing/Default, Top Stories | 2 Comments »
Rep. Spencer Bachus (R-Ala.) urged the recently formed super committee to raise more revenue from the government-sponsored enterprises and slash spending to an array of foreclosure prevention programs in order to reduce the national debt.
The super committee was formed by Congress earlier this year to find at least $1.2 trillion in long-term government savings, to ease the nation's debt burden. In a letter sent last week, Bachus and other lawmakers on the House Financial Services Committee, proposed Fannie Mae and Freddie Mac raise the guarantee fee they charge lenders even higher than the 10 basis point increase the Obama administration planned.
The planned raise would cut costs to the government by $28 billion over 10 years, but Bachus said this wasn't enough.
"Even if this increase were adopted, g-fees would still remain significantly lower than fees typically charged by private-label securitizers of residential mortgages," Bachus wrote.
He asked the super committee to consider a bill introduced by Rep. Randy Neugebauer (R-Texas) earlier in the year that would gradually increase the g-fees to a fair market value over the next two years.
Bachus also recommended the committee cut funding for a variety of foreclosure prevention programs. He proposed ending the Home Affordable Modification Program early, which is set to expire at the end of 2012. Under HAMP, more than 816,000 borrowers received a permanent modification, which will still fall short of the 3 million to 4 million originally estimated.
The proposals also included cuts to the struggling Federal Housing Administration Short Refi program, the remaining unspent money for the Neighborhood Stabilization Program, various public housing operations under the Department of Housing and Urban Development and appropriations for the housing counselor organization NeighborWorks.
Bachus ended the letter with another call to repeal several provisions under the Dodd-Frank Act, pointing to faulty government housing policies rather than out-of-control Wall Street leveraging as the cause of the real estate bubble and the resulting financial crisis.
"The most significant impediment to economic growth that falls within the Financial Services Committee's jurisdiction is the Dodd-Frank Act," Bachus said.
In a briefing with journalists Monday, White House Press Secretary Jay Carney said the Obama administration would not support any efforts from Republicans to scale back Dodd-Frank reforms.
"It's just inconceivable to us that an economic plan for the future would contain within it the elimination of reforms that would prevent the kind of financial sector collapse that we saw that created the greatest recession since the Great Depression," Carney said. "Just doesn’t make sense to us. Doesn’t make sense to the president."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bachus, Dodd-Frank, Fannie Mae, FHA Short Refi, financial crisis, foreclosure, freddie mac, HUD, mortgage, NeighborWorks, Wall Street
Posted in Secondary Market/Investors, Top Stories | 3 Comments »
Annual San Diego home sales hit a four-year low in September, Fidelity Pacific Real Estate said Monday.
Sales declined 4.6% year-over-year for the month and were also down 5% from August. That's somewhat typical of a slowed demand moving into winter, though a larger increase than expected according to the report.
Home prices continued to decline, down 4.5% year-over-year.
Distress sales, which include foreclosures and short sales, made up about 44% of total sales in the area, and will likely cause prices to remain stagnant.
Housing inventory declined 9%, also relatively normal for the season, though this could be attributed to homeowners reacting to current price trends. Distress sales make up about 35% of active inventory.
Southern California home sales went up a slight 0.3% year-over-year in September, according to a report Thursday from DataQuick.
Write to Andrew Scoggin.
Follow him on Twitter @ascoggin.
Tags: DataQuick, Fidelity Pacific Real Estate, foreclosure, home sales, housing inventory, housing sales, San Diego, short sales
Posted in Origination/Lending, Top Stories | No Comments »
Wells Fargo (WFC: 29.355 +1.05%), the largest mortgage lender in the U.S., originated $89 billion new new home loans during the third quarter, up 39% from the previous three months.
Income at the bank increased 21% during the quarter on a better performance from its mortgage department. Applications surged too at the end of the traditional buying season, climbing 55% from the second quarter.
But activity was still slow compared to last year. Originations dropped 12% from the third quarter of last year, while applications were down 13%.
The slowdown has been felt industry wide as unemployment remains elevated, lenders tighten underwriting standards, new regulations such as risk retention remain uncertain and the economy overall continues to drag.
The Mortgage Bankers Association lowered its origination estimate for next year as well because of the difficulties. The trade group expects new loans to total $900 billion in 2012, the lowest level since the late 1990s.
Wells Chief Financial Officer Timothy Sloan said the growth seen in the third quarter could spill over into the last period of the year as $84 million in applications remain in the pipeline.
"Loan growth didn't come until later in the quarter," Sloan said in a conference call with investors Monday. "A lot of what's happening in mortgages has yet to come through."
The bank also cut outstanding claims to repurchase soured mortgages by more than half from its peak just over one year ago.
Total outstanding representation and warranty claims at Wells shrank to $2.02 billion in the third quarter, down nearly 10% from the previous quarter. Outstanding claims declined every quarter since the $4.31 billion peak in the middle of 2010.
The bank is also working through its inventory of foreclosures and delinquencies. Roughly 7.4% of its servicing portfolio is in foreclosure or delinquency. Sloan said the average time it takes to foreclose on a property is 16 months.
"And for primary residences, 25% have already abandoned the property," Sloan said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Bachus, claims, delinquencies, Fannie Mae, foreclosure, freddie mac, MBA, mortgage, originations, repurchase and warranty, third quarter, Wells Fargo
Posted in Origination/Lending, Top Stories | No Comments »
