Archive for October, 2011
Sales of new single-family homes increased 5.7% in September from the prior month, topping most analysts' estimates.
The Commerce Department said the seasonally adjusted rate of 313,000 units last month rose from 296,000 for August, which was revised upward 1,000. September new home sales were 0.9% lower than the rate of 316,000 a year earlier.
The seasonally adjusted estimate of new homes for sale at Sept. 30 was 163,000, representing a 6.2-month supply. A healthy housing market usually carries a six-month supply of single-family homes.
Analysts surveyed by Econoday expected the rate of new home sales to reach 302,000 in September with a range of estimates between 285,000 and 312,000.
The median sales price of new homes sold in September was $204,400 down 2.2% from $209,100 in August. The average sale price fell to $243,900 from $246,000 in August and is at the lowest level since early 2009.
Write to Jason Philyaw.
Follow him on Twitter: @jrphilyaw.
Tags: commerce department, home prices, new home sales, single-family homes
Posted in Origination/Lending, Top Stories | No Comments »
Fannie Mae, the largest provider of multifamily mortgage financing, issued $16.7 billion in multifamily mortgage-backed securities in the first nine months of 2011, bypassing total issuance for 2010.
To date, the government-sponsored enterprise is on pace to issue $20 billion multifamily MBS by year-end.
The GSE provides liquidity to the markets by securitizing multifamily loans creating cash flow through investors.
In the first nine months of 2011, Fannie re-securitized $4.1 billion of delegated underwriting and servicing MBS.
"Given the volatile market environment, agency CMBS is thriving. Fannie Mae’s total activity, including MBS issuance, GeMS issuance and portfolio sales was the highest of any quarter this year. Over the past two years, we have seen a significant increase in securities available for trading. Our multifamily MBS outstanding now exceeds $90 billion," said Kimberly Johnson, vice president of multifamily capital markets.
In just the third quarter of 2011, new multifamily MBS business volumes at Fannie grew to $6.4 billion.
Write to Kerri Panchuk.
Tags: CMBS, commercial mortgage-backed securities, Fannie Mae, MBS, multifamily mortgage financing
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
Mortgage applications rose 4.9% last week as refinancing activity and home purchases both increased, an industry trade group said.
The Mortgage Bankers Association said the refinance index climbed 4.4% from the previous week, while the seasonally adjusted purchase index jumped 6.4%.
Refinancing applications accounted for 77.3% of all mortgage applications, which is essentially unchanged from 77.6% a week earlier.
Activity related to the adjustable-rate mortgage increased to 5.9% of total applications, up from 5.8%.
Investors accounted for 6% of mortgage application activity in September, which is a 5.7% increase from August.
"This change was led by an increase in the Mountain region," the MBA wrote. "In addition, the share of purchase mortgages for second homes decreased to 5.8 percent in September from 6% in August."
The average 30-year, fixed-rate mortgage with a loan balance of $417,500 or less remained unchanged at 4.33%. Meanwhile, the average contract interest rate for the 30-year, FRM with jumbo loan balances increased to 4.68% from 4.64%.
The average interest rate on a 30-year, FRM backed by the FHA fell to 4.11% from 4.12%, while the 15-year, FRM increased to 3.62% from 3.61%.
In addition, the average contract interest rate for 5/1 ARMs increased to 3.11% from 3.08%.
Write to Kerri Panchuk.
Tags: MBA, mortgage applications, Mortgage Bankers Association, mortgages, Refinancing
Posted in Origination/Lending, Top Stories | 2 Comments »
New York Attorney General Eric Schneiderman said he expects to obtain "real meaningful relief" from his investigation of the nation's largest banks and mortgage servicers. Schneiderman, who said he wouldn't be surprised to see more investigations, was a guest Tuesday night on the "Rachel Maddow Show" on MSNBC.
The AG's rejection over the summer of a proposed 50-state settlement with the nation's major mortgage servicers over foreclosure misconduct — which became known as the robo-signing scandal — has thrust the low-key AG into the limelight in recent months but he has given few interviews.
In August, Iowa Attorney General Tom Miller, the lead negotiator in the robo-signing settlement talks with major mortgage servicers, removed Schneiderman from the executive committee for allegedly undermining its objectives.
The proposed AG settlement is said to be in the neighborhood of $20 billion to $25 billion. Attorneys general in Delaware, Nevada, California and Minnesota also have criticized the proposed settlement, citing concerns that it's too favorable to the big banks.
Schneiderman referenced his probe of mortgage securitization during the MSNBC segment, noting that he has jurisdiction as many of the mortgage securities were issued out of New York-based trusts.
Delaware AG Beau Biden recently joined Schneiderman's intervention into the proposed $8.5 billion settlement over troubled mortgage securities between Bank of America (BAC: 7.225 -1.03%) and Bank of New York Mellon (BK: 20.11 +0.55%). Schneiderman mentioned Biden several times during the segment. Biden expressed reservations about the national AG settlement in late August and more recently expressed interest in Schneiderman's RMBS investigations.
"This was a manmade crisis," Schneiderman said, referencing the housing crash. "It was created by regulatory neglect and greed, and I assure you, without telling you anything about the secrets of our investigation, we haven't found a trace of evidence that a cop, firefighter, teacher or sanitation worker contributed to blowing up the American economy."
Schneiderman said he thought New York needed to "dig in a little deeper" into what caused the bubble and the crash in the housing market.
A Democrat, Schneiderman also criticized Republican presidential candidate Mitt Romney's recent comments that the nation should let foreclosures run their course so that the housing market can hit bottom and recover faster.
"This is the same sort of deregulatory mania that they were dishing out in 2005 and 2006. That didn't work so well for the economy," Schneiderman said.
While Schneiderman said safety mechanisms were dismantled which contributed to the housing crisis, he also said he's looking at the conduct of individual financial institutions and individuals to see if misrepresentations were made and whether criminal acts were committed.
"There's a sense that equal justice under the law is no longer the rule for this country," Schneiderman said. "We've got to get that back."
The sense of accountability is a key motivator in his investigations, the AG said, adding "I think there will be quite a few investigations before this is over."
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: Bank of America, Beau Biden, Eric Schneiderman, foreclosure, housing, housing crisis, mortgage, New York Attorney General, RMBS, Romney
Posted in Secondary Market/Investors, Top Stories | 4 Comments »
Flagstar Bancorp (FBC: 0.6796 +2.97%) narrowed its third quarter loss 54% to $14.2 million, or 3 cents a share, from $22.6 million the year before.
While it is the 13th straight quarter of losses for the Troy, Mich.-based bank, it is the smallest loss since it last reported a gain in the second quarter of 2008. In August of that year, one month after the last time Flagstar reported a profitable quarter, the bank announced it was going to present at a global financial services conference hosted by Lehman Bros.
At the beginning of 2009, the Treasury Department put $266.6 million in Troubled Asset Relief Program funds into the bank, which has yet to be paid back.
The widest loss came in the third quarter of 2009, when Flagstar reported more than $298 million in losses.
Over the previous four years, the bank routinely landed in the top 20 mortgage originators in the country, but has unloaded more than $500 million in troubled loans since the crisis. It sold its 27 branches in Georgia to PNC Finance Services (PNC: 58.95 +0.08%) and its 22 branches in Indiana to First Financial Bancorp.
The New York Stock Exchange warned the bank in August of a possible delisting. It must push shares of its common stock above $1 by February 2012 in order to avoid action.
Flagstar continues to work through its troubled legacy portfolio. It increased its loan-loss provision by 46% to $36.7 million from $25 million the previous quarter, but that's still down from more than $51 million in provisions held one year ago.
Its reserve held for possibly buying back troubled mortgages from Fannie Mae and Freddie Mac totaled $85 million in the third quarter, up from $79.4 million at the end of the second quarter and $77.5 million held one year ago.
Flagstar also had to pay $34.5 million in foreclosed property expenses, including claims from Ginnie Mae. That's up from $23.3 million in the previous three months.
But Flagstar did increase its mortgage production in the quarter. The bank wrote nearly $7 billion in new mortgages, a 50% increase from the second quarter but still down 9.2% from one year ago.
Since the end of last year, the bank added 28 loan officers and executives.
"Overall, we were pleased with the improvement in fundamentals on our core revenue drivers, even though such fundamentals continue to be offset by legacy credit costs," said Flagstar CEO Joseph Campanelli. "Macroeconomic conditions and home prices remain challenging, however, we are confident we have the resources, including the capital, liquidity and leadership, necessary to support our business plan and continue our planned growth strategies."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: delinquencies, Fannie Mae, Flagstar, freddie mac, Ginnie Mae, lehman, loan loss reserve, mortgage, NYSE, Origination/Lending
Posted in Origination/Lending, Top Stories | No Comments »
Rep. Randy Neugebauer (R-Texas) said the Obama administration should be focused on helping the private market move through the backlog of foreclosures instead of merely shifting wealth from investors to borrowers in the new refinancing changes announced this week.
The Federal Housing Finance Agency announced new changes to the Home Affordable Refinance Program designed to make it easier for some 4 million underwater borrowers, who are current on their payments, refinance into a lower-rate loan. Most Republicans remained silent on the changes so far as they wait for how much the shift will cost Fannie Mae and Freddie Mac, which already owe taxpayers $142 billion in bailouts.
"This is not a housing initiative. This is more of a stimulus plan," Neugebauer said in an interview with HousingWire Tuesday. "They're using Fannie and Freddie to stimulate the economy and what we've learned is that is not working."
House Republicans sent a letter to FHFA Acting Director Edward DeMarco last week, asking for the taxpayer cost for HARP 2.0, but his office is still working on that. Fannie and Freddie are working too on the specific guidance for the revamped program, due out by Nov. 15, but already many are doubting how effective the stimulus – as Neugebauer calls it – will be.
The Mortgage Bankers Association, JPMorgan Chase (JPM: 37.295 -0.52%) and the Mortgage Insurance Companies of America welcomed the changes and pledged a more competitive participation in the program than before.
But one of the most enticing changes – the waiver of some representation and warranty risk for banks – may end up being more watered down than previously thought.
Fannie Mae, for instance already relieves the mortgage servicer of rep and warranty risk in on the old loan file through its Refi Plus program, as long as the servicer is the same as the old loan and the borrower meets certain payment thresholds. The HARP changes also waive putback risk for lenders on new appraisals, because lenders could use the automated valuation model. According to Barclays Capital analysts, between 20% and 30% of Fannie's mortgages carry an AVM, but Freddie's coverage spans across 80% of its loans.
"From what has been stated so far, the new HARP employment and income verification process appears to be very similar to the existing one," analysts said in a note Tuesday. "As such, it is not clear whether refis will increase much, if at all, unless some other changes are made to this rep and warranty waiver related to income."
Neugebauer said the foreclosure process simply takes too long. According to Lender Processing Services (LPS: 16.87 +1.93%), the mortgages currently entering the foreclosure process have been delinquent an average 611 days.
"We've got a lot of inventory in limbo here, and it continues to freeze the market place and compress prices," Neugebauer said.
The Obama administration is working on a plan to better liquidate foreclosed properties held by the government through the Department of Housing and Urban Development, Fannie Mae and Freddie Mac. Some, the president said Monday, would be converted into rentals.
Neugebauer supported the idea so long as the government doesn't dictate to private investors what should be rented, what should be sold and when.
Outside of new government cuts and calls to repeal certain provisions under the Dodd-Frank Act, ideas to fix the housing market and spur on a recovery have been scarce. But Rep. Scott Garrett (R-N.J.) will unveil a plan Thursday to ensure a return of private financing for future mortgages without government support.
Neugebauer held several talks with Garrett when developing the plan. While Neugebauer wouldn't give specifics on the plan just yet, he promised it would provide a concrete plan, something the markets have gone without since the crisis.
"I think a lot of the ideas are going to be common sense ideas," Neugebauer said. "It will give the market some certainty."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Dodd-Frank, Fannie Mae, FHFA, foreclosure, freddie mac, Garrett, HARP, HARP 2.0, House, HUD, mortgage, Neugebauer, obama, refinance, REO, Republicans
Posted in Servicing/Default, Slider, Top Stories | No Comments »
Lender Processing Services (LPS: 16.87 +1.93%) earned $40.5 million, or 48 cents a share, in the third quarter, down 48% from $78.7 million a year ago.
Revenue at the Jacksonville, Fla. technology and mortgage services firm declined nearly 14% to $532.1 million in the third quarter. A 23% decline in mortgage originations and elevated expenses led to lower revenue.
The company's loan transaction services department reported revenue of $340.2 million for the quarter, a 21% drop from $431.1 million last year. Slower foreclosure proceedings pushed revenue in the LPS default services group down 25% to $199.1 million in the third quarter.
Meanwhile, corporate expenses climbed 71% to $34 million from $19.8 million last year due to higher legal and compliance costs, some related to the consent orders signed with federal regulators earlier in April to fix foreclosure missteps discovered in October of last year.
Tom Schilling, LPS executive vice president and chief financial officer, expects fourth-quarter revenue to slip further to between $510 million and $520 million.
"While the origination market did improve during the quarter, we remain concerned about broader macro-economic conditions and ongoing industry-specific pressures," Schilling said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: earnings, foreclosure, Lender Processing Services, LPS, market, mortgage, mortgage originations, profit, third quarter
Posted in Origination/Lending, Top Stories | No Comments »
The Federal Housing Finance Agency plan to revamp the Home Affordable Refinance Program will result in just 17% of Fannie Mae and Freddie Mac 30-year loans qualifying for refinancing, according to one Royal Bank of Scotland (RBS: 8.67 +0.70%) analyst.
Sarah Hu said there are some benefits of HARP 2.0, which is how bond investors refer to the plan, but also believes hurdles remain.
"Apart from the usual capacity constraints, the lenders' voluntary participation in the new HARP may be relatively ineffective," she said. "Additionally, the FHFA is also encouraging refinancing into a short-term mortgage, which we don't think borrowers will consider without a significant payment reduction."
Overall, the changes could expose 1.9 million new borrowers to HARP, Hu said.
In addition, with the reps and warrants issue taken care of, it is likely mortgages will face "more exposures to conventional rate-refi risk," according to Hu.
Mortgages interest rates of 5.5% and higher are likely to see increased prepayment speeds under the plan, resulting in a conditional prepayment rate of 5% to 7%, RBS said.
Hu expects this change will mostly impact loans with 5.5% to 6.5% interest rates originated in 2006 to 2008.
Terminating the 125% loan-to-value ratio cap will likely cause mortgages with 6% interest rates and higher to see only a slight 2% increase in the conditional prepayment rate.
"We don't expect HARP 2.0 to have an immediate impact on short-term speeds, given the timetable for working out the details and implementing groundwork," Hu said.
Amherst Securities said the clear intent of HARP 2.0 is to encourage borrowers to move into shorter loans and thereby reduce the risk to the GSEs.
The firm cited an FHFA example of a borrower who has a $200,000 mortgage at an interest rate of 6.5% and a monthly payment of $1264. If the property is now worth $160,000, the borrower's LTV is 125%. The borrower can either refinance into a 4.5%, 30-year mortgage with a monthly payment of $1013, making it so he will not reach his balance of $160,000 for 10 years, or he can refinance into a 20-year loan at an interest rate of 4.25%, paying $1238 per month.
In that situation, the borrowers balance reaches $160,000 in 5.5 years. The final scenario is a 15-year loan at an interest rate of 3.75%, with monthly payments of $1454 and the balance reaching $160,000 in 2.5 years.
However, there are some other mortgage products that may see an uptick in originations from HARP 2.0.
"Again, at the margin, if there is limited relief on the loan level pricing adjustments for 30-year loans, we would expect to see more 20-year origination as a result of this change," Amherst said.
Write to Kerri Panchuk.
Tags: Fannie Mae, Federal Housing Finance Agency, FHFA, freddie mac, GSE, HARP, HARP 2.0, Home Affordable Refinance Program, interest rates, mortgages, prepayment speeds, RBS, refi risk, Royal Bank of Scotland
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
It is one day after the acquisition of Saxon Mortgage Services from Morgan Stanley (MS: 18.16 +0.06%) was announced, and the largest subprime mortgage servicer in the country continues to look for more ways to expand.
"We are looking at other transactions as we speak," said Ocwen Financial (OCN: 13.805 +0.40%) CEO Ron Faris in a conference call with investors Tuesday.
The Saxon deal is complicated but is expected to boost revenue. Ocwen is already the subservicer for $10.9 billion of the $26.6 billion in mortgage servicing rights it acquired from Saxon. Ocwen was getting a base servicing fee of around 9 basis points of the $10.9 billion of mortgages. Faris said the fee will now go up to 50 bps.
The firm expects a 25% return on capital it used to purchase the remaining $16 billion in mortgage servicing rights from Saxon.
Ocwen also assumed more than $12.9 billion of loans Saxon serviced for Morgan Stanley and other banks.
"We anticipate that some or all of that will transfer away from the platform if not before the deal closes soon after," Faris said, adding that the Saxon deal includes roughly 125,000 mortgages.
In 2010, Ocwen was the fourth largest subprime servicer in the U.S. Then, it bought HomEq Servicing from Barclays Capital (BCS: 14.03 +0.72%) for $1.3 billion in September 2010 and acquired Litton Loan Servicing from Goldman Sachs (GS: 110.18 +1.49%) in June for $263.7 million.
Ocwen services more than $106 billion worth of mortgages as of Sept. 30, up 40% from the $76 billion it serviced the same time last year.
The servicing giant boasts an efficiency — less than 24 bps per loan in operating expenses — that is roughly 70% below the industry average. And the company is cutting down the bloated operating expenses at Litton.
In September, it cost Ocwen $9.7 million to board and service the loans acquired from Litton, but it expects that to drop to below $7 million per month as servicing advances drop and the amount of delinquent borrowers shrinks.
But with efficiency comes questions. The company is widely known for replacing U.S. employees with cheaper overseas staff. Ocwen cut more than 1,000 workers at HomEq after the acquisition. It's a grim reputation to manage when unemployment is still high, but it isn't one Ocwen is about to apologize for.
"We can put our servicing platform anywhere on the planet," Faris told investors Tuesday. "Clients start off saying they want a purely domestic operation but when they see the trade-off, they make a number of different decisions."
Ocwen does keep a domestic force for lenders and agencies, but as Faris said, "We don't like to make a big deal out of it. We'll put it anywhere they want it."
Beyond servicing, the company is looking to move into the securitization business. Ocwen and its former Altisource subsidiary each acquired a 50% stake in a new entity called Correspondent One, which will securitize Lenders One mortgages.
The new firm bought its first mortgage in the third quarter, but Faris said Ocwen is being cautious, and the project shouldn't be a major revenue driver in 2011 or even 2012 — that is unless another fortuitous bounce comes Ocwen's way.
Faris said if the Federal Housing Finance Agency can finalize its recently proposed servicing fee changes for Fannie Mae and Freddie Mac mortgages, the project could be accelerated.
"That could be a sea change for the origination side," Faris said. "That change would be very positive for Correspondent One."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Altisource, bps, Correspondent One, delinquency, Fannie Mae, FHFA, foreclosure, freddie mac, Morgan Stanley, mortgage, mortgage servicing rights, Ocwen, Saxon, Servicing/Default, subprime
Posted in Servicing/Default, Top Stories | No Comments »
Inside the thought-process of global bank stabilizer, the Bank of International Settlements, many things change over the years. The consortium of central banks is charged with setting the standard that provides a measure of a financial institution's core strength and tends to adopt new standards yearly. Mandates to maintain these traits are packed in the continually evolving Basel accords.
However, one thing remains the same — the definition of Tier 1 capital as the greatest measure of a bank's health. Tier 1 is essentially a bank's assets, free of liabilities, balanced with the assets that are still encumbered by future liabilities, also known as risk-weighted assets.
Basel is meant to give banks a blueprint to avoid failure, and current events show this measure of stability is largely ineffective and also fails to properly predict the scope of trouble at Europe's largest financial institutes.
Banks in the United States are falling behind European counterparts in adopting the latest Basel manifesto.
But, this is no reason to hit the panic button. Recent events show us Tier 1 capital levels offer no comfort against the potential for a bank to become insolvent.
On July 15, Franco-Belgian bank Dexia said it held adequate Tier 1 capital to prevent going under. And it seemed so, as it passed European stress test and met Basel standards for Tier 1.
But the EU was wrong, and Dexia crumbled and went into conservatorship.
The largest failure on the part of the Basel accords, therefore, is the inability to adequately factor in exposure risks outside of liquidity requirements.
Swiss-bank UBS Group (UBS: 14.01 +0.21%) said its Tier 1 capital ratio at Sept. 30 is 18.4%, which led the bank to make the highly questionable claim that it is one of the world's best capitalized banks.
This claim is made despite the third-quarter earnings report also showing $49 million in exposure to the near-defaulted Icelandic government and $132 million in exposure to the likely to default Greek government.
However, the UBS exposure to Italian sovereign debt, central bank and other semi-government firms is a whopping $3.6 billion.
Considering the Italian government narrowly avoided a collapse Tuesday, the Basel committee may wish to reconsider what is uses to determine a bank's overall health; one outside of capital requirements.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: Basel, Tier 1, UBS
Posted in Commentary, Jacob Gaffney, Voices | No Comments »