Trending Thursday is a roundup of the stories shaping the week and what’s yet to come through the weekend — also taking into account social media reaction. Think of it as a midweek Monday Morning Cup of Coffee, but with extra caffeine.
Mortgage applications are down overall and cash sales are at the lowest since mid-2008, but existing home sales have risen for three months in a row, according to the National Association of Realtors.
By the miracle of NAR extrapolation and seasonal adjustment, the SAAR Existing Home Sales data just printed 5.59mm units - the highest since Feb 2007. Sales were dominated by increases in The West and The South with The Northeast falling. We have two questions for NAR - where are the buyers coming from... and how long is this sustainable?
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Ocwen Financial (OCN) did it again. Certificate holders for three residential mortgage-backed security trusts did not garner the votes to terminate Ocwen as their servicer in deals worth $223 million unpaid principal balance. In fact, it was fewer than 7% of holders who voted to terminate in all three.
This follows the results of votes issued last week, which showed certificate holders from 12 other RMBS deals totaling $1.9B in UPB failed to remove Ocwen. In Ocwen’s recent 10-Q filing, the company disclosed that 644 of their servicing agreements representing $36.9B UPB had triggered termination rights, so the vote results which have come in over the past few weeks make up about 6% of the potential votes to terminate. So far, they’re batting 1.000.
Also notable in Ocwen’s favor, unlike the vote results last week, the results for the three yesterday showed a much lower percentage of certificate holders supporting termination.
Compass Point Research & Trading is big on Bluerock Residential Growth REIT (BRG).
We reiterate our Buy rating and $15.50 price target on shares of BRG. We recently hosted a number of investor calls with BRG management and below we detail a few of the takeaways from the call. In summary, we view (1) the specific structure of the LTIP units management received in lieu of the 2Q15 management fee (and ostensibly future quarters' fees as well) as a strong signal from management that the stock is cheap, (2) preferred equity or non-core asset sales as a nice alternative to common equity if the stock price remains at current levels, and (3) management's willingness to sell the company outright if the stock price is not rewarded for their consistent accretive execution as another positive selling point for the stock given the steep discount at which the stock currently trades to our $16.27 NAV.
Another lawsuit has been filed against the federal government by two GSE shareholders alleging that the Treasury profit sweep is illegal under Delaware and Virginia corporate law. Though they are federal entities, or quasi-sorta-federal entities, Fannie Mae is charted in Delaware and Freddie Mac in Virginia.
According to the complaint:
Under Delaware and Virginia corporate law, preferred stock of a corporation cannot be given a cumulative dividend right equal to all the net worth of the corporation in perpetuity. The Net Worth Sweep represents an unlawful confiscation of the entire economic value of the Companies and their other classes and series of stock. The Net Worth Sweep is an illegal term for any preferred stock instrument, whether or not held by the federal government.
As Treasury foes in Investors Unite have repeatedly pointed out, the controversial Third Amendment sweep was undertaken after the companies returned to profitability in 2012 when Fannie reported $84 billion in profits and Freddie $51.6 billion.
In August of that year, the Sweep magically came into being and starting siphoning out every dollar, preventing them from maintaining a capital buffer or "distribute dividends or otherwise deliver any value to Plaintiffs or the other members of the Classes holding stock in the Companies," the complaint says.
Speaking of FannieGate, discovery in the Perry case has yielded some, shall we say, interesting irregularities in the testimony of some former Federal Housing Finance Agency folks.
No matter where you fall on the GSE and conservatorship question, it's hard to deny something smells fishy in Denmark.
On Wednesday, the Federal Housing Finance Agency released its final set of housing goals for 2015-2017. The finalized rule is largely in-line with the previously proposed standard.
Analysts at Compass Point Research & Trading say that the single-family goals were largely consistent with the proposal and will not represent a market shift, while the FHFA increased its multifamily low-income goal for the GSEs with the aggregate target for 2015-2017 set at 1.8 million units versus 1.41 million units.
Also notable, the FHFA lowered its affordability goal for 5-50 unit properties from 105,000 units to 48,000 units citing “ample liquidity” in that market.
“In the weeks ahead, expect additional FHFA policy announcements including a slight increase to the GSE conforming loan limit, additional changes to Rep & Warranty framework, and the release of the 2016 conservatorship scorecard,” Compass Point analysts say in a client note.
What’s happening in California housing? A cooling.
Here’s some additional detail on what’s happening in California, from PropertyRadar.
Cash sales fell 6.4% in July to 8,120 and represented 19.9% of total sales. Cash sales as a percentage of total sales remain high but have been steadily declining since reaching a peak of 40% of total sales in August 2011. Since then, cash sales are down 42.7%, according to PropertyRadar.
Also notable, foreclosure notices and sales increased in July. For the month, notices of default and trustee sales were up 2.7% and 2.1%, respectively. Despite the increases, foreclosure notices are near their lowest levels in our records dating back to 2007. Foreclosure inventories fell 1.3% for the month and are down 8.3% year-over-year.
The number of homeowners in a negative equity position extended its downward trend in July. Approximately 6.8% of homeowners, or 600,000, owed more than their home was worth, down 0.9% for the month and 43.7% from July 2014. To put the current negative equity level in perspective, in January 2015 there were just over one million California homeowners underwater.
Institutional Investor purchases in July totaled 1,336, down 1.2% for the month but up 1.3% from July 2014. Since reaching a peak in December 2012, institutional investor demand has declined 42.2% due to the lower return on investment and dwindling supply of distressed properties for sale.
Seasonality notwithstanding, since April 2014 monthly purchases have remained more or less constant at 1,350. Similarly, trustee sale purchases by LLC and LPs were down 83.9% from their October 2012 peak but have trended mostly sideways since May 2014.