Archive for December, 2011
The issuance of agency mortgage-backed securities in 2012 will fall slightly from 2011 levels due to credit tightening and further home value decline, according to the Royal Bank of Scotland (RBS: 8.71 +1.16%). Still, demand for agency MBS will remain strong.
Fannie Mae and Freddie Mac will likely take a hit as more property investors are expected pay cash, as opposed to taking out mortgages, to purchase foreclosed homes. As a result, RBS analysts expect issuance of securities from properties purchased out of real estate owned pools to decrease.
The refinancing of mortgages from non-agency (private) to agency (Fannie, Freddie) will continue next year, but to a lesser extent than 2011 because of increased emphasis on winding down the government sponsored enterprises and returning capital to private market lending.
GSE temporary loan limits for high cost areas expired — the max loan size is now $625,500, from $729,750 — leaving Ginnie Mae and the private market as the only sources of origination for loans exceeding the new limits, RBS said.
Fannie Mae and Freddie Mac also remain subject to portfolio limits as dictated by their conservatorship agreement. Each agency's portfolio must be less than $729 billion at the end of 2011 and $656.1 billion at the end of 2012.
"While we expect net runoff will suffice, we think selling and securitizing loans on balance sheet is a way they could reduce their portfolio sizes further," the analysts said.
On the upside, RBS analysts said demand from the Federal Reserve, domestic banks, real estate investment trusts and foreign investors should remain healthy.
Similarly, a Deutche Bank (DB: 44.44 +2.40%) analyst said Thursday that Fannie Mae and Freddie Mac may struggle to keep up with investor demand for mortgage bonds in 2012, potentially due to dwindling decline.
RBS estimates $960 billion in agency MBS issuance for 2012, 18% lower than 2011's total of $1.165 trillion.
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Investors with cash who want to boost stakes in real estate are taking advantage of tighter lending policies at mortgage lenders by demanding a closer relationship with their fund manager, according to a report by financial services provider State Street (STT: 39.06 +0.72%).
Demands by pension funds, sovereign wealth funds, insurance companies and other high-net-worth investors include greater flexibility in their real estate investments as a consequence of their experiences during the financial crisis when investors found themselves locked into funds they could not exit quickly enough.
"Real estate fund managers are finding that potential and current investors are looking for more one-on-one conversation, both at the outset of their investment and during the life cycle of the fund," according to the State Street report.
Some fund managers are having to consult with investors on fee levels and strategy prior to set-up. And large institutional investors providing seed capital to a fund are likely able to negotiate lower fees than subsequent investors.
Additionally, standard periodic reporting is not satisfying some investors' demands for improved insight into the fund and the performance of underlying assets in which they are invested.
"At the same time, investors are seeking greater comfort by looking to negotiate terms," the report states.
However, the details of fund managers' strategies, which could be passed to competing funds or to competing property owner and investors, could adversely affect the fund and its other investors.
Therefore, one challenge for fund managers is striking a balance between meeting these demands while protecting commercially sensitive information, State Street concluded.
Write to Justin T. Hilley.
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A settlement among the nation’s five largest mortgage servicers and almost all the states should be complete before Christmas, whether or not California participates, Iowa Attorney General Tom Miller said Thursday.
The deal, which Miller has been trying to negotiate since March, would release the five servicers — Ally Financial, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo — from legal claims on past home loan servicing and foreclosures. The deal would not prohibit individuals from suing the banks, or government prosecutors from suing banks over issues related to the packaging of home loans into mortgage-backed securities.
In return, the banks would agree to pay for what Miller calls “substantial principal reductions” for homeowners who owe more money than their homes are worth, and agree to a set of mortgage servicing standards, interest rate reductions, and cash payments to some homeowners who have already gone through foreclosure.
Former Countrywide Financial CEO Angelo Mozilo is selling his Thousand Oaks, Calif. home for $3.4 million.
Mozilo was Countrywide Financial's CEO until July 1, 2008, when Bank of America Corp. took over the company and he was forced to step down. Condé Nast Portfolio once ranked Mozilo second on their list of "Worst American CEOs of All Time."
