Archive for December, 2011
Investors should expect modest returns in 2012 as a result of anemic global economic growth and weakening consumer spending, according to a Bank of America Merrill Lynch (BAC: 7.29 -0.14%) report released Thursday.
Considering a looming recession in Europe, a still-struggling U.S. economy, high oil prices and slower growth in China, BofA Merrill Lynch analysts forecast global economic growth of about 3.5% next year.
"The global economy can weather a normal size recession in Europe, in our opinion," said Ethan Harris, co-head of the bank's Global Economics Research. "The U.S. faces its own challenges, with gradual fiscal tightening and considerable uncertainty around policy after the election. As a result, while we expect solid 3% gross domestic product growth in the current quarter, we look for growth to slow to just 1% by the end of 2012."
Moody's Analytics expects U.S. GDP growth of 2.6% in 2012, an estimate they say is contingent on European debt concerns and domestic policy. They see American unemployment, which is currently stands at 8.9%, remaining high in 2012, while interest rates and inflation remain low.
BofA Merrill Lynch analysts expect Europe to see a mild recession, while emerging market economies will see growth of 5 to 6%. Asia should remain the most resilient with growth of 7.1% and Latin America should see growth of 3.3%.
Last month, a BofA Merrill Lynch survey found that global investors are turning to U.S. and emerging market equities to escape Eurozone troubles.
"The very real risk of policy mistakes causing a recession in the U.S. or a hard landing in China means that investors should conservatively allocate assets in 2012," said Michael Hartnett, the bank's chief global equity strategist.
Despite their short-term caution, analysts expect global equities to rally by 10% next year from current levels, aided by liquidity, modest earnings growth and cheap valuations. "In a bullish scenario, 2012 could represent the beginning of the end of the great bear market in equities," analysts said.
And once again, U.S. consumers will weaken. The bank's U.S. economics group expects the recent momentum from consumer spending to subside in coming quarters without stronger jobs creation or wage growth. Consumer de-leveraging will remain a drag on the U.S. economy in 2012.
Financial services firm Keefe, Bruyette & Woods said this week that even if home prices and household leverage stabilize next year, consumers' mortgage debt will continue to contract over the next several years because of high credit losses.
Write to Justin T. Hilley.
Follow him on Twitter @JustinHilley.
Tags: BofA, bofa merrill lynch, bonds, China, economy, emerging markets, equities, Europe, European debt, eurozone, GDP, gross domestic, growth, interest rates, investments, investors, KBW, Keefe Bruyette & Woods, Latin America, moody's analytics, unemployment
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
Christine Lagarde, managing director of the International Monetary Fund, hit the panic button Thursday, telling a crowd the European debt crisis cannot be solved by one group of countries and poses a real threat to the entire global financial system, according to Bloomberg.
Lagarde said no country will be immune from the reach of eurozone downturn, making it a necessity for economic policy leaders from various countries to work together, Bloomberg said.
Lagarde's report arrives at a time when U.S. economists are somewhat optimistic about the nation's economy in 2012.
Mark Zandi, chief economist for Moody's Analytics, said Thursday he expects U.S. gross domestic product growth of 2.6% in 2012. Still, Zandi warned European debt concerns remain a constant worry for economic policy makers.
Richard Bove with Rochdale Securities said he disagreed with the IMF director's conclusion. The banking analyst said the global economy is seeing capital flight from eurozone countries like Greece, Italy, Ireland, Portugal and Spain. However, the U.S. is seeing enormous capital in-flow as investors pull their money out of certain banks and turn those dollars toward the U.S. and other economies, he asserted.
"All of that money, which is coming out of these countries, is going into the U.S. banking system," Bove said. "We are not running into liquidity problems, we do not have a banking system that is starved for capital." He added that the U.S. banking system doesn't have a reserve problem or a loan problem.
He added that Europe, overall, is not a major trading partner for the U.S., so if Europe goes into recession, he doesn't expect a major impact.
"The numbers are really suggesting a recovery in the U.S. economy," Bove said. "Each quarter this year the economy was stronger in terms of growth than the prior quarter."
He added that "the housing industry has definitely reached bottom," and the number of homes in production has declined significantly these past three years, giving the market some room to reach a point of stability.
Write to Kerri Panchuk.
Tags: European debt crisis, eurozone, housing, IMF, International Monetary Fund, Mark Zandi, moody's analytics, Rochdale Securities
Posted in Origination/Lending, Top Stories | 1 Comment »
The National Association of Realtors is in the midst of revising its core home sales index. While the move may be a concern to some, fellow HPI service Zillow (Z: 29.35 +10.26%) said it isn't affected by the revisions.
"NAR's rebenchmarking is not impacting Zillow at all," said Zillow Chief Economist Stan Humphries. "We look at closed sales from public records. NAR is a survey. We've never used NAR's numbers for our analytics."
NAR is currently revising downward its index in what it labels a normal rebenchmarking process. Humphries said Zillow requires no such revisions and stands by his firm's numbers.
The economist also denies the Zillow numbers, what it calls Zestimates, look at housing through rose-tinted glasses. Zillow calls May 2007 the peak of the housing boom. Since then prices collapsed 23.7%.
Other home price indices are more severe than Zillow's. CoreLogic (CLGX: 14.56 +0.62%) calls the peak in April 2006 and accounts for a 32% decline. Lender Processing Services (LPS: 16.78 +1.39%) calls the peak in June 2006, with a 30.2% decline.
Zillow's numbers follow 83 million homes in about 2,500 counties nationwide, Humphries said, but aren't as harsh as other HPIs for one simple reason: they don't include distressed properties.
"Case-Shiller and similar HPIs were originally designed as a way for banks to understand their portfolios better," Humphries said. "The purpose of what Zillow does is to give consumers a better look at home prices and what's happening in the nondistressed market. Including foreclosures gives a more pessimistic view than is warranted, assuming buyers or sellers are going to engage in conventional sales."
Stephen Kim, a housing analyst at Barclays Capital, said he expects minimal market reaction to the NAR revisions.
"We have long suspected that the NAR's data was severely flawed, particularly with regard to its handling of foreclosure sales," he said, and even though the NAR revision "while jarring, is a backward-looking event, and has little bearing on prospects for future home sales."
Kim said Barclays finds other economic indices more useful for the needs of his investment clients. Data on job growth, mortgage purchase applications, housing starts, consumer sentiment and homebuyer traffic point to improvements in housing more so than following national price levels.
"Our view that a housing recovery is likely to emerge in 2012 has never been predicated upon the level of existing home sales, but rather has focused on the growing divergence between distressed and nondistressed home prices, as reported by CoreLogic," said Kim.
"We continue to believe the fact that nondistressed home prices have been flat to up all year is a precursor to improving home buying sentiment in 2012," he added.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: Barclays, Case-Shiller, CoreLogic, LPS, Zillow
Posted in Origination/Lending, Slider, Top Stories | 2 Comments »
Median list prices on single-family homes, condos, town homes and co-ops rose 4.05% to $189,900 in November over a year earlier, the National Association of Realtors reported Thursday.
The final report suggests some signs of recovery and price stabilization are moving through parts of the nation's housing market. The data was provided on NAR's consumer website, Realtor.com.
The report emphasized the distinct differences between markets across the country. The study, which analyzed the pricing patterns of 146 metropolitan statistical areas, found that a larger percentage of markets registered price gains year-over-year in the past few months and fewer markets reported declines.
The median list price edged down by 1% or more year-over-year in 30 markets, while nine markets reported price declines of 5% or more. Twenty-one markets saw no significant change in their median list prices from a year ago.
Markets with the largest year-over-year increases in median list prices include Miami, which experienced a 29.5% year-over-year increase in November; Naples, Fla., which experienced a 23% increase; Fort Myers-Cape Coral, Fla., which saw a 21.63% jump; Punta Gorda, Fla., which grew 17.34%; and Sarasota-Bradenton, Fla., which saw its median sales price jump 16.56%.
While Florida is noticing declines in for-sale inventories and jumps in median prices, Realtor.com was careful to note that risks remain in the foreclosure-ridden market. Specifically, the report took note of a recent uptick in the state's foreclosure inventory size, suggesting a recovery in the state is fragile.
Meanwhile, median list prices in California and Las Vegas — two other areas racked by foreclosures — continue to lag behind, Realtor.com said. Other areas like Chicago and Detroit are noticing steep declines in their median list prices as the weak economy continues to pressure the housing market.
Write to Kerri Panchuk.
Tags: home prices, median list prices, price recovery, Realtor.com
Posted in Origination/Lending, Top Stories | No Comments »
The Securities and Exchange Commission appealed a previous court rejection of its settlement with Citigroup (C: 30.87 +1.61%) over an allegedly faulty collateralized debt obligation tied to risky mortgages.
The regulator sued the financial service giant in October, alleging that in early 2007, Citi financiers created the Class V Funding III, allowing the firm to dump weakening mortgage-backed securities. According to the SEC, Citi allegedly misrepresented investors in the CDO and took a short position on the very assets it selected for the offering.
In November, U.S. District Court Judge Jed Rakoff rejected the settlement that would have returned $285 million to investors of the $1 billion CDO. Citi netted $160 million on the deal, while investors lost more than $700 million, according to the original SEC lawsuit. The bank would not have to admit to any wrongdoing as part of the deal.
"The proposed consent judgment is neither fair, nor reasonable, nor adequate, nor in the public interest," Rakoff said in his order.
Robert Khuzami, director of the division of enforcement at the SEC, said in a statement released Thursday that Rakoff "committed legal error" by holding the two sides to what he called an "unprecedented standard." The SEC filed papers in New York Thursday with the U.S. Court of Appeals with the Second Circuit.
Citi released a statement Thursday: "As we said at the time, we respectfully disagree with the court's ruling and believe the settlement fully complies with long-established legal standards. In the event the case is tried, we would present substantial factual and legal defenses to the charges."
Rakoff said in his written order that during the hearing, neither Citi nor the SEC provided enough facts, which he said are required if he was to approve a settlement the agency submits to a public court.
"The court's new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country," Khuzami said Thursday. "In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide."
Rakoff grew weary of the "routinely approved settlements" earlier in the year. He begrudgingly gave in to a settlement between the SEC and Bank of America (BAC: 7.29 -0.14%) in March when the bank allegedly lied to investors when it failed to disclose $5.8 billion in bonuses to Merrill Lynch employees. The SEC and BofA had to come back with a larger settlement to satisfy Rakoff.
In the Citi case, Khuzami stressed the SEC was handcuffed by securities laws that restricts any penalty to what the bank profited from an allegedly misleading deal. He said the agency was prepared for trial, but he said the $285 million figure "represents most of the total monetary recovery that the SEC itself could have sought at trial."
President Obama said in a recent speech that the wanted to see legislation passed that would toughen securities laws to keep SEC actions from being thought as "just the cost of doing business."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: appeal, Bank of America, CDO, Citigroup, collateralized debt obligation, federal court, MBS, Merrill Lynch, mortgage, mortgage-backed securities, Rakoff, rejected, SEC, Securities and Exchange Commission, settlement
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Mark Zandi, chief economist for Moody's Analytics, expects U.S. gross domestic product growth of 2.6% in 2012, although this estimate is contingent on European debt concerns and domestic policy.
Zandi sees American unemployment remaining high in 2012, while interest rates and inflation remain low.
At the same time, he sounded an alarm for policymakers, declaring that without action on their part, federal fiscal policy could pull real GDP down 1.7 percentage points, as tax and spending policies expire. What remains on the table is the reduced payroll tax rate and unemployment insurance benefits, Zandi said.
The European debt crisis is another looming threat.
Zandi points out that U.S. stock prices have not moved since the economic crisis in Europe erupted. He added that threats to Europe's financial system are an ongoing concern when it comes to the availability of credit on both sides of the Atlantic.
"The Europeans are fighting to keep the euro area together, while U.S. policymakers are struggling to find an appropriate degree of fiscal austerity. While we believe these issues will be resolved in a reasonable way, there is a significant degree of uncertainty associated with this assumption," Zandi said in his report.
Moody's Analytics believes core consumer price inflation will remain under the 2% target of the Federal Reserve. Zandi expects long-term interest rates will move higher by Dec. 31, 2012. Yet, he warned a rapid rise in long-term interest rates could spark another round of quantitative easing.
Write to Kerri Panchuk.
Tags: European debt crisis, Federal Reserve, GDP, Gross Domestic Product, moody's analytics, U.S. federal policy, U.S. gross domestic product
Posted in Secondary Market/Investors, Top Stories | 1 Comment »
Wells Fargo (WFC: 29.60 +1.89%) and Citigroup (C: 30.87 +1.61%) continue on pace to score high marks for foreclosure prevention in 2011, according to Fannie Mae.
The government-sponsored enterprise released its third-quarter list of top servicers Thursday. Ally Financial (GJM: 22.57 0.00%) and Everhome Mortgage joined Wells Fargo and Citi among the largest servicers on track to perform at or above a median level.
Bank of America (BAC: 7.29 -0.14%), JPMorgan Chase (JPM: 37.21 -0.75%) and PHH Corp. (PHH: 11.73 +0.51%) did not make the projected year-end list, but Fannie said JPMorgan and PHH made progress in the third quarter.
The mortgage finance giant launched its total achievement and rewards program in February to measure mortgage servicer performance. Fannie said year-end results, expected in early 2012, would be tied to servicer compensation.
Tara Clayton, Fannie's vice president of servicer review and measurement, said the program holds servicers "accountable for preventing foreclosures and protecting the interests of American taxpayers."
"STAR is making a difference when it comes to increasing servicers' focus on areas of critical importance to homeowners, Fannie Mae and the market," Clayton said.
Five of the nine in the second-largest group of servicers scored high marks so far this year. Aurora Bank, Central Mortgage Co., Fifth Third Bank (FITB: 13.23 +1.15%), The Huntington National Bank (HBAN: 5.70 +1.06%) and Regions Bank (RF: 5.31 +2.71%) maintained their spots on the list, while Fannie dropped HSBC (HBC: 42.59 +0.97%) as a high performer.
U.S. Bank (USB: 27.86 +0.25%) didn't make the list, but Fannie said its servicing improved in the third quarter.
Nine of the 13 in the group of smallest servicers made the list. Branch Banking and Trust Co. and Sovereign Bank fell off the list.
Fannie also dropped USAA, a bank for U.S. military members, from qualified servicers for the program. A Fannie spokesman said the bank doesn't retain servicing rights for a high enough volume of mortgages.
Write to Andrew Scoggin.
Follow him on Twitter @ascoggin.
Tags: American Home Mortgage Servicing, Arvest Home Mortgage Servicing, Associated Bank, Aurora Bank, Bank of America, Branch Bank and Trust Co., Capital One, Central Mortgage Co., Citi, Citigroup, Colonial Savings, Doral Bank, Fifth Third Bank, foreclosure, government-sponsored enterprise, GSE, HSBC, JPMorgan Chase, Manufacturers and Traders Trust, Nationwide Advantgage Mortgage Co., Navy Federal Credit Union, PHH, Regions Bank, Servicer Total Achievement and Rewards, Servicing/Default, Sovereign Bank, Tara Clayton, The Huntington National Bank, U.S. Bank, USAA, Wells Fargo
Posted in Servicing/Default, Slider, Top Stories | 1 Comment »
A House subcommittee passed a proposal from Rep. Scott Garrett, R-N.J., late Wednesday night, which would require the Federal Housing Finance Agency to establish rules for a privately funded mortgage finance system.
"When the history books are written, today’s vote will mark the beginning of the end for the era of crony capitalism that has defined our country's housing finance system for the past three decades," Garrett said after the vote.
The subcommittee, chaired by Garrett, approved the proposal 18-15, after debate lasted much of the day. Work remains before the full House Financial Services Committee will have a chance to move it through.
The Garrett proposal would repeal the risk-retention rule under the Dodd-Frank Act, moves mortgage servicing standards to the FHFA, and prohibits any regulator from requiring servicers to commit principal reductions.
These were sticking points for Democrats, who attempted amendments abolishing this language from Garrett’s proposal. Other attempts were made to include the Consumer Financial Protection Bureau in some of the rule making, particularly for servicing standards.
Each was rejected. Garrett said clearer representation and warranty procedures would replace risk retention, principal write downs were not being supported by the FHFA, and the CFPB did not currently have the oversight Republicans are comfortable with.
Other nuances will be addressed, including language in Garrett's bill that prohibits the servicer from owning any investor interest in a mortgage it was attempting to modify or foreclose on. Lawmakers on both sides of the aisle said they would work to address second-lien conflicts of interest as well.
Both sides continued to argue over when to address Fannie Mae and Freddie Mac. Rep. Stephen Lynch, D-Mass., attempted an amendment Wednesday that would delay the Garrett proposal until something was done with the government-sponsored enterprises. It was rejected as Garrett said the private-label market needed some rule of law first.
Republicans also attempted to move a series a bills that addressed the wind down of Fannie and Freddie earlier in the year, but FHFA Acting Director Edward DeMarco called some of them duplicative of conservatorship guidelines already in place.
Five proposals have been introduced in both the House and Senate that would assemble a future housing finance system and replace the GSEs at the same time.
There is one from Reps. Gary Peters, D-Mich., and John Campbell, R-Calif. Another came from Reps. Carolyn McCarthy, D-N.Y., and Gary Miller, R-Calif. The third from the House came from Rep. Jeb Hensarling, R-Texas. Two more came from the Senate, including a recent one from Sen. Johnny Isakson, R-Ga. and a previous one from Sen. Bob Corker, R-Tenn.
The Garrett proposal is the first major piece of legislation to move anywhere in either chamber of Congress, though the market isn't lawmakers to complete a new system before the November elections break up the current gridlock in Washington.
"By facilitating continued standardization and uniformity, ensuring rule of law and legal certainty, and providing investors with additional transparency and disclosure, the Private Mortgage Market Investment Act will set the rules of the road so that a deep and liquid secondary mortgage market develops in the absence of Fannie Mae and Freddie Mac," Garrett said Wednesday.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: CFPB, DeMarco, Democrats, Fannie Mae, FHFA, finance, foreclosure, freddie mac, GSE, mortgage, Republicans, Scott Garrett, securitization
Posted in Secondary Market/Investors, Top Stories | No Comments »
Home sales in the San Francisco area edged up in November over year-ago figures, although they dipped from October. Statewide, sales across California also declined month-over-month, but showed an increase from year-ago figures, DataQuick said.
A total of 6,317 new and resale houses and condos sold in the nine-county Bay Area last month. That was down 2% from 6,444 in October, and up 3.4% from 6,111 in November 2010, according to San Diego-based DataQuick.
Overall, California had an estimated 32,669 home sales statewide last month, down 4.2% from 34,087 in October, but up 4% from 31,403 in November 2010.
DataQuick President John Walsh said buyers remain hesitant to jump back into the market.
"These days, buyers and sellers have to contend with two sets of problems, which sometimes play into each other and sometimes conflict with each other," Walsh said. "The first is the lousy economy and the opportunities it presents, for better or worse. The second is the dysfunctional mortgage finance system. Interest rates may be at record lows, but the types of mortgages that are available have been drastically reduced and qualifying is a true grind."
The median sales price on all Bay Area homes in November fell to $363,000 from the prior month, buy increased 3.9% from $350,000 last year.
Statewide the median price for a California home was $244,000, up 1.7% from $240,000 in October and down 4.3% from $255,000 a year ago.
Write to Kerri Panchuk.
Tags: DataQuick, foreclosures, home sales, mortgage finance system
Posted in Origination/Lending, Top Stories | No Comments »
[Update 1: Clarifies the deadline as it relates to borrowers not to appraisals]
The Federal Housing Finance Agency extended the deadline for changes to how lenders will submit mortgages to Fannie Mae and Freddie Mac.
In May 2010, the FHFA said the government-sponsored enterprises would establish new standards for delivering data on mortgages sold to the GSEs as part of their Uniform Mortgage Data Program. It is a big shift for lenders, considering that along with the Federal Housing Administration, the government insures or guarantees roughly 95% of the current mortgage market since taking the GSEs into conservatorship in 2008.
Originally, lenders had until March 19, 2012 to comply with the new Uniform Loan Delivery Dataset requirements for new loans sold to the GSEs, which includes credit scores, loan-to-value ratios and other data points in an XML format. On Wednesday, the FHFA extended this deadline to July 23.
The FHFA said the extension will "allow additional time and support a successful transition for the industry."
"The extension was driven by the complexities of the ULDD implementation and the importance of ensuring that lender, vendor, and GSE systems continue to work together successfully throughout this industry-wide initiative," Freddie said in an alert to lenders.
While the ULDD governs loan data points, a separate initiative covering appraisals under UMDP remains on schedule.
This Uniform Appraisal Dataset includes all the fields and specific forms needed to be filled out when submitting appraisals to the GSEs. This went into effect Sept. 1. Appraisers had until Dec. 1 to ready these submissions in XML format. Lenders delivering loans to either GSE must submit the appraisal data file to the Uniform Collateral Data Portal (UCDP) for deliveries on or after March 19, 2012. This date also remains unchanged.
The mortgage industry has hit all of these dates for UAD, Fannie said in a statement Thursday.
The FHFA extended the deadline only for loan data under ULDD.
"Many key milestones have been reached this year," Fannie said. "As we move toward the final key implementation dates, continued liquidity and access to loan funding is a top priority for Fannie Mae."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: appraisal, Fannie Mae, FHFA, freddie mac, GSE, lender, loan data, mortgage, seller, servicer, ULDD
Posted in Origination/Lending, Top Stories | No Comments »
