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Who is Nat Hardwick?

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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
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Monday Morning Cup of Coffee: Fannie, Freddie investors speak out

Winter housing troubles persist into Spring buying season

March 2, 2014

Monday Morning Cup of Coffee takes a look at stories across the HousingWire news desk, with more coverage to come on bigger issues.

While there is only one month left of winter, the effects of the weather have definitely left the market questioning just how severe the impact really is. According to the recent Home Data Index February market report from Clear Capital, one month can have a significant amount of impact.

“Though it is not unusual to see rising distressed activity over the winter months, the current housing picture gives reason to be concerned. If we don’t see a correction come spring, the housing market may be in for a long year,” said Alex Villacorta, vice president of research and analytics at Clear Capital.

In February, national REO saturation increased 1.8 percentage points, moving from 20.9% to 22.7%: the largest gain since January 2012.

Meanwhile, national home price gains were lower over the quarter, falling to 1% from 2.5%, recording the largest drop since 2010, when gains were coming off the first-time-homebuyer tax credit.  

“Our early data shows national quarterly price gains are falling at a rapid pace and suggest overall prices could dip into negative territory soon if current conditions continue,” Villacorta said. “In light of expected waning investor demand, higher rates of distressed sale activity signal that the housing market still must withstand distressed sales, which account for nearly one in four transactions.”

And Clear Capital is not alone in its concern. Sterne Agee Chief Economist Lindsey Piegza noted that although new home sales are up, there are still weak spots in the economy.  

“While January’s outsized increase (in new home sales) suggests at least some underlying strength, optimism in the U.S. housing market remains subdued amid a slew of contradicting, lackluster reports that paint a much weaker picture,” Piegza said.

As new home sales rose, existing home sales fell 5.1% at the start of the year, dropping from 4.87 million to a 4.62 million unit pace. Plus, the pace of housing construction declined 16% in January to an 880k annualized pace: the largest decline since February 2011.

“With winter storms interrupting building and limiting consumer foot traffic, market participants are trying to differentiate between temporary weather effects and a decline in the momentum of the underlying trend in housing market activity,” she explained.

Private equity firm Blackstone bankrolled its CEO this weeked. According to Bloomberg, among many other press reports, Blackstone Group chief Steve Schwarzman received $374.5 million last year in pay and cash dividends, an increase of 76% from 2012, as the world’s biggest alternative-asset manager took advantage of rising equity markets to sell shares of companies.

IPO successes were given as the main reason: The firm’s heavy selling and IPO activity resulted in $3.5 billion in economic net income for the year, which is a combination of realized profits and paper profits reflected in fund holdings, a 76% increase from 2012, the article states.

Also worthy of note, though unmentioned in media reports but available in the company's 10-K filed Friday after market close: The single family rental business Invitation Homes also increased in value by $912 million.

Actually, $10 billion came from IPOs, but $14 billion came from real estate.

"$14.4 billion in our Real Estate segment driven by successful initial public offerings of Hilton ($5.5 billion), Extended Stay Hotels ($697.0 million) and Brixmor ($600.5 million), as well as valuation gains resulting from improving fundamentals of Equity Office Properties ($1.0 billion) and Invitation Homes ($911.7 million)."

Compared to:

"$10.5 billion in our Private Equity segment driven by successful initial public offerings in our BCP V fund totaling $3.7 billion (Hilton ($2.0 billion), Pinnacle Foods ($1.1 billion), SeaWorld Parks & Entertainment ($536.4 million)) and in our BCP IV fund of $1.0 billion (Merlin Entertainments); in total, public portfolio appreciation of 49.5% created $6.6 billion of value."

On the investments side, according to an article in The Wall Street Journal, a prominent mutual fund investor sent letters to Fannie Mae and Freddie Mac on Friday that scolded directors for not protecting the rights of shareholders.

Bruce Berkowitz was quoted saying he hopes to "wake up the boards" so they realize "that they have a fiduciary responsibility" to shareholders such as his Fairholme Funds, which last month disclosed that its position in the companies had grown to a combined amount of nearly $1.3 billion.

The letters fight for Fannie and Freddie's boards to assert their independence from the federal government, including relisting the companies' shares on the New York Stock Exchange, and called on the firms to establish special committees to enter negotiations with the government about restructuring themselves as private companies.

Berkowitz’s letter follows the company's and other shareholders' lawsuit challenging changes that the Treasury Department made to the 2008 bailout of Fannie and Freddie.

Zaio Corporation is acquiring Axis Appraisal Management Solutions after it announced it entered into a letter of intent with Axis.

The deal is still subject to due diligence, which will be completed by April 15.  

The company said the Axis’ leadership team will remain intact and continue to manage appraisal operations.

“The Axis client base has grown dramatically to include the largest lenders and servicers, and one benefit of this transaction will be Axis’s ability to provide a deeper suite of services and products to those clients, including home inspections, evaluations, AVMs and BPOs – all through enhanced technology,” said Kim Perotti, executive vice president of Axis.

The Federal Deposit Insurance Corp.reported two bank closings for the week ended Feb. 28. Vantage Point Bank in Horsham, Penn., was closed by the Pennsylvania Department of Banking and Securities, and the FDIC was named as the receiver. All deposits were transferred to First Choice Bank of Mercerville, N.J.

In addition, Millennium Bank, National Association, located in Sterling, Va., was closed by the Office of the Comptroller of the Currency and the FDIC was named Receiver. No advance notice is given to the public when a financial institution is closed, and all deposits were transferred to Washington First Bank.

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