Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/23/2008 ) MBA Staff
The National Oceanic and Atmospheric Administration anticipates a “slightly busier” than average Atlantic storm season this summer, citing a “good chance” of six to nine hurricanes forming and possibly 12 to 16 named storms.
“The main factors influencing this year’s seasonal outlook are the continuing multi-decadal signal—the combination of ocean and atmospheric conditions that have spawned increased hurricane activity since 1995—and the anticipated lingering effects of La Niña,” said Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center. “One of the expected oceanic conditions is a continuation since 1995 of warmer-than-normal temperatures in the eastern tropical Atlantic.”
However, NOAA officials took pains this week to stress that its forecast has a wide range of probability, citing a “60 to 70 percent” chance its prediction would actually come true. This comes on the heels of criticism of the forecast, which has occasionally been wildly inaccurate.
For example, while 2007’s forecast came in fairly accurately—NOAA predicted 13 to 17 storms (there were 15) and seven to 10 hurricanes (there were six, of which two were major); in 2005—the year of the devastating Hurricanes Katrina and Rita—NOAA predicted 12 to 15 named storms, but a record 28 formed.
“The outlook is a general guide to the overall seasonal hurricane activity,” said NOAA Administrator Conrad Lautenbacher. “It does not predict whether, where or when any of these storms may hit land.”
An “average” season has 11 named storms of which six become hurricanes (two of which become major), NOAA said.
Another forecaster, Colorado State University researcher William Gray, predicted 15 storms this season, including eight hurricanes of which four could be major (winds in excess of 110 miles per hour).
“We foresee a well above-average Atlantic basin tropical cyclone season in 2008,” Gray said. “We have increased our seasonal forecast from our initial early December prediction. We anticipate an above-average probability of United States major hurricane landfall.”
The Atlantic storm season begins June 1 and runs through November 30.
Saturday, May 31, 2008
Lenders Seek Quality, Efficiency through Outsourcing
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/23/2008 ) Palaparty, Vijay
Lenders continue to outsource business processes to vendors in search of quality and efficiency. Technology companies such as Guardian Mortgage Documents Inc., Denver, see an opportunity in the market to help lenders improve processes and ultimately increase profit margins.
“The mix of business has really changed though the industry is flat,” said Tim Anschutz, vice president of marketing and channel sales at GMD. “Companies however are working more with vendors and outsourcing for a mix of services and even consulting. They are especially pushing for integrating efficiencies in order to focus on leveraging return on investment. They are focused on increasing profit margins and they can achieve that with more effective interfaces with their partners.”
Anschutz said vendors also establish partnerships with other vendors to round out their offerings. GMD, a document preparation provider with outsourced products and services, interfaces with Mavent Inc., Irvine, Calif., for compliance and quality assurance review.
“All the data runs through Mavent and if there is any question on any aspect of the loan data, it puts a hard stop because of quality assurance rules,” Anschutz said. “Drawing the hard line refines the process and allows lenders to go higher up the value chain by identifying potential problems early on.”
Guardian Mortgage Services, a division of GMD, offers closing and post-closing services as well. Anschutz said outsourcing of back-office operations is most beneficial to lenders because maintaining in house processing when volumes are low results in wastage. “It comes at 100 percent variable cost and reduces burden for lenders,” he said. “Evaluate the right-sizing aspect of it—it makse sense.”
GMD maintains all of its outsourcing operations onshore in the U.S. Anschutz said that document preparation and related due diligence require having the entire operation onshore. “What we do is involves real-time and logistically it requires an onshore presence,” he said. “We even list that as an advantage and find our clients look for it."
Increasingly, lenders looking for an entirely onshore presence be because of security concerns, efficiency and functionality, Anschutz said. He said that offshore operations are better suited for software development and related activities that require a larger span of time and usually don’t have immediate implications and requirements.
Core Mortgage Group LLC, Scottsdale, Ariz., recently selected GMS to provide outsource fulfillment services for back office operations. “With the state of the mortgage industry, we wanted to minimize our amount of risk while keeping costs down,” said Matt Trainor, secondary marketing director at Core Mortgage Group. "We decided to develop relationships with companies in helping us meet our long-term strategic objectives. We structure business around solid relationships with vendors.”
“Quality is achieving consistency in process,” Anschutz said. “It’s a balance of efficiency in processes and is often situational. Quality doesn’t necessarily drive efficiency but achieving higher return on investment requires both.”
GMD reported most activity in loan modifications. “Loan modifications have been an increasing trend, increasing well over 100 percent,” Anschutz said. "It’s a healthy sign that fits with industry efforts to stabilize homeownership.”
MBA (5/23/2008 ) Palaparty, Vijay
Lenders continue to outsource business processes to vendors in search of quality and efficiency. Technology companies such as Guardian Mortgage Documents Inc., Denver, see an opportunity in the market to help lenders improve processes and ultimately increase profit margins.
“The mix of business has really changed though the industry is flat,” said Tim Anschutz, vice president of marketing and channel sales at GMD. “Companies however are working more with vendors and outsourcing for a mix of services and even consulting. They are especially pushing for integrating efficiencies in order to focus on leveraging return on investment. They are focused on increasing profit margins and they can achieve that with more effective interfaces with their partners.”
Anschutz said vendors also establish partnerships with other vendors to round out their offerings. GMD, a document preparation provider with outsourced products and services, interfaces with Mavent Inc., Irvine, Calif., for compliance and quality assurance review.
“All the data runs through Mavent and if there is any question on any aspect of the loan data, it puts a hard stop because of quality assurance rules,” Anschutz said. “Drawing the hard line refines the process and allows lenders to go higher up the value chain by identifying potential problems early on.”
Guardian Mortgage Services, a division of GMD, offers closing and post-closing services as well. Anschutz said outsourcing of back-office operations is most beneficial to lenders because maintaining in house processing when volumes are low results in wastage. “It comes at 100 percent variable cost and reduces burden for lenders,” he said. “Evaluate the right-sizing aspect of it—it makse sense.”
GMD maintains all of its outsourcing operations onshore in the U.S. Anschutz said that document preparation and related due diligence require having the entire operation onshore. “What we do is involves real-time and logistically it requires an onshore presence,” he said. “We even list that as an advantage and find our clients look for it."
Increasingly, lenders looking for an entirely onshore presence be because of security concerns, efficiency and functionality, Anschutz said. He said that offshore operations are better suited for software development and related activities that require a larger span of time and usually don’t have immediate implications and requirements.
Core Mortgage Group LLC, Scottsdale, Ariz., recently selected GMS to provide outsource fulfillment services for back office operations. “With the state of the mortgage industry, we wanted to minimize our amount of risk while keeping costs down,” said Matt Trainor, secondary marketing director at Core Mortgage Group. "We decided to develop relationships with companies in helping us meet our long-term strategic objectives. We structure business around solid relationships with vendors.”
“Quality is achieving consistency in process,” Anschutz said. “It’s a balance of efficiency in processes and is often situational. Quality doesn’t necessarily drive efficiency but achieving higher return on investment requires both.”
GMD reported most activity in loan modifications. “Loan modifications have been an increasing trend, increasing well over 100 percent,” Anschutz said. "It’s a healthy sign that fits with industry efforts to stabilize homeownership.”
Home Price Declines Deepen
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/23/2008 ) Velz, Orawin
Home prices continued to deteriorate in the first quarter, according to the House Price Index (HPI) from the Office of Federal Housing Enterprise Oversight (OFHEO).
The HPI controls for the mix of sales by focusing on transactions on the same properties over time. It is based on repeat sales of homes financed through Fannie Mae and Freddie Mac; thus it excludes properties financed with jumbo loans and government-insured loans and under-represents subprime loans and loans financed with adjustable rate mortgages.
The all-transactions HPI, which includes refinance transactions, was flat in the first quarter from a year ago. The index excluding refinance transactions (i.e. the purchase-only index) showed a year-over-year decline of 3.07 percent after a 0.5 percent year-over-year drop in the fourth quarter of 2007.
Fifteen states posted year-over-year declines in home prices, with California, Nevada and Florida seeing more than an 8 percent drop in prices. In the fourth quarter of 2007, 11 states saw drops in home prices from a year ago. Of the 292 metropolitan areas covered in the report, 128 posted quarterly declines in the overall HPI, up from 99 in the fourth quarter.
A separate report showed that initial claims for unemployment insurance fell by 9,000 to 365,000 for the week ending May 17. This latest decline in initial claims provided further evidence that layoffs have stabilized in recent weeks and suggest another modest decline in nonfarm payroll employment in May.
Stock markets rallied and Treasuries declined on the news of an unexpected drop in initial unemployment claims. The yield on 10-year Treasuries was up 11 basis points and stayed around 3.91 percent by mid-Thursday afternoon.
MBA (5/23/2008 ) Velz, Orawin
Home prices continued to deteriorate in the first quarter, according to the House Price Index (HPI) from the Office of Federal Housing Enterprise Oversight (OFHEO).
The HPI controls for the mix of sales by focusing on transactions on the same properties over time. It is based on repeat sales of homes financed through Fannie Mae and Freddie Mac; thus it excludes properties financed with jumbo loans and government-insured loans and under-represents subprime loans and loans financed with adjustable rate mortgages.
The all-transactions HPI, which includes refinance transactions, was flat in the first quarter from a year ago. The index excluding refinance transactions (i.e. the purchase-only index) showed a year-over-year decline of 3.07 percent after a 0.5 percent year-over-year drop in the fourth quarter of 2007.
Fifteen states posted year-over-year declines in home prices, with California, Nevada and Florida seeing more than an 8 percent drop in prices. In the fourth quarter of 2007, 11 states saw drops in home prices from a year ago. Of the 292 metropolitan areas covered in the report, 128 posted quarterly declines in the overall HPI, up from 99 in the fourth quarter.
A separate report showed that initial claims for unemployment insurance fell by 9,000 to 365,000 for the week ending May 17. This latest decline in initial claims provided further evidence that layoffs have stabilized in recent weeks and suggest another modest decline in nonfarm payroll employment in May.
Stock markets rallied and Treasuries declined on the news of an unexpected drop in initial unemployment claims. The yield on 10-year Treasuries was up 11 basis points and stayed around 3.91 percent by mid-Thursday afternoon.
National City to Pay $4.6 Million Settlement
Submitted by Ronald Tennant with Metrocities Mortgage:
Toledo Blade (OH) (05/23/08)
National City Mortgage Co.--the home lending division of National City Corp.--has reached a settlement in a civil case that accused it of defrauding a HUD program. The company is said to have deceived the government agency about the status of several dozen loans for which it was seeking HUD insurance. National City allegedly claimed that the loans, part of a HUD effort targeting low- and moderate-income families, were not past due when they actually were more than 30 days late. The mortgage subsidiary did not admit any wrongdoing, but it agreed to pay $4.6 million to settle the charges
Toledo Blade (OH) (05/23/08)
National City Mortgage Co.--the home lending division of National City Corp.--has reached a settlement in a civil case that accused it of defrauding a HUD program. The company is said to have deceived the government agency about the status of several dozen loans for which it was seeking HUD insurance. National City allegedly claimed that the loans, part of a HUD effort targeting low- and moderate-income families, were not past due when they actually were more than 30 days late. The mortgage subsidiary did not admit any wrongdoing, but it agreed to pay $4.6 million to settle the charges
Ranieri Plans $1 Bln Fund to Buy Home Loans--Report
Submitted by Ronald Tennant with Metrocities Mortgage:
Reuters (UK) (05/23/08); Singh, Neha
Mortgage bond pioneer and former Salomon Brothers Inc. executive Lewis Ranieri is seeking $1 billion for a venture that will purchase home loans. According to a regulatory filing, Selene Residential Mortgage Opportunity Fund LP has already raised $151 million from investors in three states--New York, Ohio and Pennsylvania--as of mid-April. Ranieri is one of the fund's managing partners. Another Selene managing partner, David Creamer, states, "Our plan is to raise $1 billion and buy delinquent mortgages that we will recast and refinance and try to keep the borrower in the house without a foreclosure."
Reuters (UK) (05/23/08); Singh, Neha
Mortgage bond pioneer and former Salomon Brothers Inc. executive Lewis Ranieri is seeking $1 billion for a venture that will purchase home loans. According to a regulatory filing, Selene Residential Mortgage Opportunity Fund LP has already raised $151 million from investors in three states--New York, Ohio and Pennsylvania--as of mid-April. Ranieri is one of the fund's managing partners. Another Selene managing partner, David Creamer, states, "Our plan is to raise $1 billion and buy delinquent mortgages that we will recast and refinance and try to keep the borrower in the house without a foreclosure."
Wells Fargo Tightens Home Loan Policies
Submitted by Ronald Tennant with Metrocities Mortgage:
Los Angeles Times (05/23/08)
In response to rising defaults and changes in mortgage insurers' requirements and pricing, Wells Fargo & Co. is requiring higher credit scores on mortgages for 95 percent or more of the property value. Additionally, it will no longer permit cash-out refinancings for loans for 80 percent or more of the home value. In order to take advantage of current pricing, Wells Fargo says loans must be locked in by the evening of May 23 and close by June 30. Despite an 11-percent decline in net income in the first quarter, Wells Fargo still posted a profit.
Los Angeles Times (05/23/08)
In response to rising defaults and changes in mortgage insurers' requirements and pricing, Wells Fargo & Co. is requiring higher credit scores on mortgages for 95 percent or more of the property value. Additionally, it will no longer permit cash-out refinancings for loans for 80 percent or more of the home value. In order to take advantage of current pricing, Wells Fargo says loans must be locked in by the evening of May 23 and close by June 30. Despite an 11-percent decline in net income in the first quarter, Wells Fargo still posted a profit.
30-Year Mortgage Rates Drop
Submitted by Ronald Tennant with Metrocities Mortgage:
Chicago Sun-Times (05/23/08)
After four weeks in an upward trajectory, Freddie Mac reports that long-term mortgage rates are falling again. The average interest on a 30-year fixed loan settled at 5.98 percent this week, down 0.03 percent from the prior week. Rates on 15-year fixed mortgages, meanwhile, slipped 0.5 percent for the week to an average of 5.55 percent. Borrowing costs drifted slightly higher, however, on adjustable-rate products. Five-year ARMs bumped up 0.04 percent to 5.61 percent, while one-year ARMs moved up 0.06 percent to 5.24 percent.
Chicago Sun-Times (05/23/08)
After four weeks in an upward trajectory, Freddie Mac reports that long-term mortgage rates are falling again. The average interest on a 30-year fixed loan settled at 5.98 percent this week, down 0.03 percent from the prior week. Rates on 15-year fixed mortgages, meanwhile, slipped 0.5 percent for the week to an average of 5.55 percent. Borrowing costs drifted slightly higher, however, on adjustable-rate products. Five-year ARMs bumped up 0.04 percent to 5.61 percent, while one-year ARMs moved up 0.06 percent to 5.24 percent.
Mortgage Fraud Cases Surge, Convictions Rise, FBI Reports
Submitted by Ronald Tennant with Metrocities Mortgage:
Washington Post (05/23/08) P. D8; Gordon, Marcy
Federal agents took on 1,204 mortgage fraud cases in the 2007 fiscal year that ended on Sept. 30, winning 206 convictions and recovering close to $22 million, according to a new FBI report. The mortgage fraud cases led to 321 indictments and court orders for $595.9 million in restitution. During the previous fiscal year, the agency took action against 818 mortgage fraud cases--which resulted in 263 indictments, 204 convictions, court orders for $388.9 million in restitution and $1.4 million recovered. The FBI continues to work with the Securities and Exchange Commission on more than 1,300 investigations into mortgage fraud and 19 corporate investigations involving the subprime lending crisis.
Washington Post (05/23/08) P. D8; Gordon, Marcy
Federal agents took on 1,204 mortgage fraud cases in the 2007 fiscal year that ended on Sept. 30, winning 206 convictions and recovering close to $22 million, according to a new FBI report. The mortgage fraud cases led to 321 indictments and court orders for $595.9 million in restitution. During the previous fiscal year, the agency took action against 818 mortgage fraud cases--which resulted in 263 indictments, 204 convictions, court orders for $388.9 million in restitution and $1.4 million recovered. The FBI continues to work with the Securities and Exchange Commission on more than 1,300 investigations into mortgage fraud and 19 corporate investigations involving the subprime lending crisis.
Private Mortgage Insurers Appear Unwilling to Follow the Leaders
Submitted by Ronald Tennant with Metrocities Mortgage:
Chicago Daily Herald (05/23/08); Harney, Ken
Fannie Mae and Freddie Mac both have eliminated policies requiring mortgage borrowers in declining markets to boost their down payments by 5 percent in response to claims from the National Association of Realtors and other groups that the practice held down home values and sales and did not take into account submarkets where prices are holding up. Fannie Mae will permit minimum down payments of 3 percent for all borrowers whose loans are underwritten with its automated software and 5 percent for those whose loans are manually underwritten, noting that upgrades in its automated underwriting system have improved loan assessments and made it possible for the declining markets policy to be scrapped. Observers hope private mortgage insurers will follow in the footsteps of the government-sponsored enterprises by getting rid of policies that single out certain markets or ZIP codes; but MGIC, for one, has no plans to alter its policies. The nation's biggest private mortgage insurer has broadened its list of distressed markets, turned away from cash-out refinancings and mortgages on investment properties and will stop insuring condominiums in Florida as of July 1. Experts believe more borrowers will resort to FHA loans to take advantage of the 3-percent minimum down payment if private mortgage insurers do not change their policies.
Chicago Daily Herald (05/23/08); Harney, Ken
Fannie Mae and Freddie Mac both have eliminated policies requiring mortgage borrowers in declining markets to boost their down payments by 5 percent in response to claims from the National Association of Realtors and other groups that the practice held down home values and sales and did not take into account submarkets where prices are holding up. Fannie Mae will permit minimum down payments of 3 percent for all borrowers whose loans are underwritten with its automated software and 5 percent for those whose loans are manually underwritten, noting that upgrades in its automated underwriting system have improved loan assessments and made it possible for the declining markets policy to be scrapped. Observers hope private mortgage insurers will follow in the footsteps of the government-sponsored enterprises by getting rid of policies that single out certain markets or ZIP codes; but MGIC, for one, has no plans to alter its policies. The nation's biggest private mortgage insurer has broadened its list of distressed markets, turned away from cash-out refinancings and mortgages on investment properties and will stop insuring condominiums in Florida as of July 1. Experts believe more borrowers will resort to FHA loans to take advantage of the 3-percent minimum down payment if private mortgage insurers do not change their policies.
OCC Chief Urges a Tightening Up on Home Equity Loans
Submitted by Ronald Tennant with Metrocities Mortgage:
American Banker (05/23/08) P. 3; Hopkins, Cheyenne
Comptroller of the Currency John Dugan took aim at home equity lending during a May 22 speech sponsored by the Financial Services Roundtable's housing policy council. Dugan said that the practice of using such loans to finance down payments should be ended, that the use of tools to value collateral and verify income should be improved, that interest-only loans should be avoided and that banks' reserves against home equity loans should be increased. "In particular, we need to revisit the problems that landed lenders where we are today--particularly some of the 'shortcuts' established in reaction to aggressive competition," he remarked. Home equity volume more than doubled since 2002 to $1.1 trillion, but loose underwriting and declining property values have now led to losses, including $2.7 billion in the first quarter, which represents a ninefold increase from a year ago.
American Banker (05/23/08) P. 3; Hopkins, Cheyenne
Comptroller of the Currency John Dugan took aim at home equity lending during a May 22 speech sponsored by the Financial Services Roundtable's housing policy council. Dugan said that the practice of using such loans to finance down payments should be ended, that the use of tools to value collateral and verify income should be improved, that interest-only loans should be avoided and that banks' reserves against home equity loans should be increased. "In particular, we need to revisit the problems that landed lenders where we are today--particularly some of the 'shortcuts' established in reaction to aggressive competition," he remarked. Home equity volume more than doubled since 2002 to $1.1 trillion, but loose underwriting and declining property values have now led to losses, including $2.7 billion in the first quarter, which represents a ninefold increase from a year ago.
Mortgage Delinquencies Rising
Submitted by Ronald Tennant with Metrocities Mortgage:
Investor's Business Daily (05/23/08) P. A1
Standard & Poor's reports a 17-percent delinquency rate for Alt-A mortgages rated from 2005 to 2007. With regard to subprime loans, the report reveals a 37-percent delinquency rate for 2006 loans and a nearly 26-percent delinquency rate for loans written last year. Prime mortgages and commercial real estate loans also are recording higher delinquency rates.
Investor's Business Daily (05/23/08) P. A1
Standard & Poor's reports a 17-percent delinquency rate for Alt-A mortgages rated from 2005 to 2007. With regard to subprime loans, the report reveals a 37-percent delinquency rate for 2006 loans and a nearly 26-percent delinquency rate for loans written last year. Prime mortgages and commercial real estate loans also are recording higher delinquency rates.
Fannie, Freddie Report Progress in Cutting Some Mortgage Rates
Submitted by Ronald Tennant with Metrocities Mortgage:
Wall Street Journal (05/23/08) P. A5; Hagerty, James R.
In testimony before the House Financial Services Committee on May 22, Fannie Mae and Freddie Mac executives said "more aggressive" jumbo loan purchases have helped to reduce interest rates on these loans. Congress boosted the conforming loan limit to $729,750 until the end of the year to help bolster the housing market, but rates on big mortgages remained high because investors worried about the likelihood of such loans being refinanced once interest rates decline. HSH Associates reports an average jumbo loan rate of 6.61 percent last week, versus an average of 6.17 percent on 30-year fixed mortgages for $417,000 or less.
Wall Street Journal (05/23/08) P. A5; Hagerty, James R.
In testimony before the House Financial Services Committee on May 22, Fannie Mae and Freddie Mac executives said "more aggressive" jumbo loan purchases have helped to reduce interest rates on these loans. Congress boosted the conforming loan limit to $729,750 until the end of the year to help bolster the housing market, but rates on big mortgages remained high because investors worried about the likelihood of such loans being refinanced once interest rates decline. HSH Associates reports an average jumbo loan rate of 6.61 percent last week, versus an average of 6.17 percent on 30-year fixed mortgages for $417,000 or less.
Home Prices Drop Most in 17 Years
Submitted by Ronald Tennant with Metrocities Mortgage:
Washington Post (05/23/08) P. D1; Zibel, Alan
The Office of Federal Housing Enterprise Oversight (OFHEO) confirms that residential prices declined 3.1 percent nationally in this year's first quarter compared with the first three months of 2007. It was the sharpest decline in the index's 17-year history and only the second quarter in which prices had declined since the index began in 1991. Officials point out that rapidly falling home prices in three big states--California, Florida and Nevada--skewed the national results. The OFHEO index provides a comprehensive reading of the country's housing market. This is especially true for Midwestern states, where housing prices never shot up to stratospheric heights and have been less impacted by the real estate downturn.
Washington Post (05/23/08) P. D1; Zibel, Alan
The Office of Federal Housing Enterprise Oversight (OFHEO) confirms that residential prices declined 3.1 percent nationally in this year's first quarter compared with the first three months of 2007. It was the sharpest decline in the index's 17-year history and only the second quarter in which prices had declined since the index began in 1991. Officials point out that rapidly falling home prices in three big states--California, Florida and Nevada--skewed the national results. The OFHEO index provides a comprehensive reading of the country's housing market. This is especially true for Midwestern states, where housing prices never shot up to stratospheric heights and have been less impacted by the real estate downturn.
Credit Crunch Creeps into Multifamily Housing
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/22/2008 ) Murray, Michael
CHICAGO—The credit crunch has not been a major factor in multifamily housing at this point, but it could pose a problem if trends continues, industry analysts said at the recent Mortgage Bankers Association’s Commercial/Multifamily Servicing & Technology Conference.
Analysts said business from Fannie Mae and Freddie Mac “flatlined.” However, Tony Perez, senior vice president at Capmark Services, Horsham, Pa., said the credit crunch has been positive for HUD properties as FHA defaults declined while the commercial mortgage-backed securities (CMBS) market dried up.
Kevin Donahue, senior vice president of the special servicing group at Midland Loan Services Inc./PNC, Overland Park, Kan., said reasons for some maturity defaults included problems with the asset or borrowers underestimating market difficulties and the amount of time it would take to refinance or sell the property.
“It’s a problem in that if the capital markets don’t get back to some equilibrium and whether or not we have the same kind of excess capital that we had—but at least some more than we have today—it’s going to be a challenge for lenders and servicers who will need to know how to deal with it,” Donahue said. “So far, I don’t think anyone has seen a major increase in maturity defaults in their portfolios.”
Bruce Schiff, managing principal at Reznick Group PC, Bethesda, Md., said the equity market is nearly non-existent. Freddie Mac and Fannie Mae left the equity market and low income housing tax credits (LIHTCs) have not been applicable for debt. Schiff said Congress is trying to fix the problem and it could bring Fannie Mae and Freddie Mac “back to the fast track” if legislation will pass the White House.
“I’ve never seen a situation like this with the equity markets,” Schiff said.
Donahue noted that Midland’s portfolio in agency and CMBS shows less than a 1 percent default rate for a LIBOR portfolio.
“We did see some warning signs on the horizon. We have seen watchlist assets increasing…but in our portfolio, multifamily continues to be the most active sector of the special servicing side of the business, probably 65 percent of the 300 or so assets we have in special servicing today are multifamily,” Donahue said. “Those numbers have skewed a little bit.”
“Generally, we see an uptick. I would not say it is a deluge at this point, but it certainly is going up and we expect it to continue because commercial cycles—most real estate cycles—have always lagged general economic turns…so I don’t believe we have seen the bottom yet,” Donahue said.
Donahue noted significant problems in the upper Midwest and rustbelt areas with significant trends in Ohio and Michigan, parts of Indiana and some concerns in Pennsylvania. He said locations with major subprime concerns—Florida, Las Vegas, southern California —have not shown major distress in multifamily.
“We have not seen any real effect from the subprime crisis. In my mind, the bulk of it was really in five major markets,” Donahue said.
Multifamily occupancy trends held up well in most major markets despite some industry analysts saying multifamily would suffer because of the subprime market and single family homes bringing in renters.
Vin McMaster, vice president at Wachovia Multifamily Capital Inc., Charlotte, N.C., said Texas, California, Georgia, Florida and Ohio have the largest property concentration on the watchlist for assets.
For Perez, Colorado and Georgia have the largest concentration of assets on the watchlist. Texas, Ohio, Michigan and Florida represent higher multifamily delinquencies or default rates—not surprising from an economic perspective, Donahue said.
“Texas has always been a challenge,” Donahue said. “There is a lot of older inventory there.”
MBA (5/22/2008 ) Murray, Michael
CHICAGO—The credit crunch has not been a major factor in multifamily housing at this point, but it could pose a problem if trends continues, industry analysts said at the recent Mortgage Bankers Association’s Commercial/Multifamily Servicing & Technology Conference.
Analysts said business from Fannie Mae and Freddie Mac “flatlined.” However, Tony Perez, senior vice president at Capmark Services, Horsham, Pa., said the credit crunch has been positive for HUD properties as FHA defaults declined while the commercial mortgage-backed securities (CMBS) market dried up.
Kevin Donahue, senior vice president of the special servicing group at Midland Loan Services Inc./PNC, Overland Park, Kan., said reasons for some maturity defaults included problems with the asset or borrowers underestimating market difficulties and the amount of time it would take to refinance or sell the property.
“It’s a problem in that if the capital markets don’t get back to some equilibrium and whether or not we have the same kind of excess capital that we had—but at least some more than we have today—it’s going to be a challenge for lenders and servicers who will need to know how to deal with it,” Donahue said. “So far, I don’t think anyone has seen a major increase in maturity defaults in their portfolios.”
Bruce Schiff, managing principal at Reznick Group PC, Bethesda, Md., said the equity market is nearly non-existent. Freddie Mac and Fannie Mae left the equity market and low income housing tax credits (LIHTCs) have not been applicable for debt. Schiff said Congress is trying to fix the problem and it could bring Fannie Mae and Freddie Mac “back to the fast track” if legislation will pass the White House.
“I’ve never seen a situation like this with the equity markets,” Schiff said.
Donahue noted that Midland’s portfolio in agency and CMBS shows less than a 1 percent default rate for a LIBOR portfolio.
“We did see some warning signs on the horizon. We have seen watchlist assets increasing…but in our portfolio, multifamily continues to be the most active sector of the special servicing side of the business, probably 65 percent of the 300 or so assets we have in special servicing today are multifamily,” Donahue said. “Those numbers have skewed a little bit.”
“Generally, we see an uptick. I would not say it is a deluge at this point, but it certainly is going up and we expect it to continue because commercial cycles—most real estate cycles—have always lagged general economic turns…so I don’t believe we have seen the bottom yet,” Donahue said.
Donahue noted significant problems in the upper Midwest and rustbelt areas with significant trends in Ohio and Michigan, parts of Indiana and some concerns in Pennsylvania. He said locations with major subprime concerns—Florida, Las Vegas, southern California —have not shown major distress in multifamily.
“We have not seen any real effect from the subprime crisis. In my mind, the bulk of it was really in five major markets,” Donahue said.
Multifamily occupancy trends held up well in most major markets despite some industry analysts saying multifamily would suffer because of the subprime market and single family homes bringing in renters.
Vin McMaster, vice president at Wachovia Multifamily Capital Inc., Charlotte, N.C., said Texas, California, Georgia, Florida and Ohio have the largest property concentration on the watchlist for assets.
For Perez, Colorado and Georgia have the largest concentration of assets on the watchlist. Texas, Ohio, Michigan and Florida represent higher multifamily delinquencies or default rates—not surprising from an economic perspective, Donahue said.
“Texas has always been a challenge,” Donahue said. “There is a lot of older inventory there.”
MBA Releases New Commercial/Multifamily Property Inspection Form
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/22/2008 ) Vasquez, Jason
The Mortgage Bankers Association announced completion and implementation of a new commercial/multifamily real estate property inspection form for various property types, including office, retail, multifamily, healthcare, lodging and industrial.
The updated inspection form already has industry-wide adoption by servicers for all funding sources, including Fannie Mae and Freddie Mac. The form will not be used by the Federal Housing Administration (FHA).
“The new property inspection form is a major step forward for the commercial/multifamily industry as it will result in a more streamlined, accurate, and standardized inspection process while also reinforcing the importance of timely maintenance which is key to preserving property value,” said Jan Sternin, senior vice president of MBA’s commercial and multifamily group.
In June 2000, MBA released the first industry-accepted commercial real estate property inspection form. For eight years the original form has served as an industry tool to ensure accurate and effective inspections of the property. Introduction of the new form reinforces the same standards while expanding industry adoption to include Fannie Mae and Freddie Mac. Additionally, this 2008 form takes advantage of electronic data management and is MISMO-compliant.
This enhanced form has been released recognizing the increasing importance of monitoring commercial/multifamily real estate and what the servicers and investors need for property performance information.
MBA spearheaded an industry committee tasked with enhancing the original inspection form. The committee reviewed more than 300 suggestions and proposed changes. MBA obtained feedback from its members, the Commercial Mortgage Securities Association, industry constituents and Fannie Mae and Freddie Mac. A MISMO working group representative also participated on the committee to ensure that the MISMO data directory was incorporated in the current inspection form.
“I enjoyed working with a diverse, very experienced working group,” said Clare Dooley, senior vice president of Capmark Financing Inc., Horsham, Pa., co-chair of the working group. “We believe the new inspection form and reference guide will allow for standardized use and compliance across the industry. In fact, Capmark has already started to use the form for some of its clients.”
MBA (5/22/2008 ) Vasquez, Jason
The Mortgage Bankers Association announced completion and implementation of a new commercial/multifamily real estate property inspection form for various property types, including office, retail, multifamily, healthcare, lodging and industrial.
The updated inspection form already has industry-wide adoption by servicers for all funding sources, including Fannie Mae and Freddie Mac. The form will not be used by the Federal Housing Administration (FHA).
“The new property inspection form is a major step forward for the commercial/multifamily industry as it will result in a more streamlined, accurate, and standardized inspection process while also reinforcing the importance of timely maintenance which is key to preserving property value,” said Jan Sternin, senior vice president of MBA’s commercial and multifamily group.
In June 2000, MBA released the first industry-accepted commercial real estate property inspection form. For eight years the original form has served as an industry tool to ensure accurate and effective inspections of the property. Introduction of the new form reinforces the same standards while expanding industry adoption to include Fannie Mae and Freddie Mac. Additionally, this 2008 form takes advantage of electronic data management and is MISMO-compliant.
This enhanced form has been released recognizing the increasing importance of monitoring commercial/multifamily real estate and what the servicers and investors need for property performance information.
MBA spearheaded an industry committee tasked with enhancing the original inspection form. The committee reviewed more than 300 suggestions and proposed changes. MBA obtained feedback from its members, the Commercial Mortgage Securities Association, industry constituents and Fannie Mae and Freddie Mac. A MISMO working group representative also participated on the committee to ensure that the MISMO data directory was incorporated in the current inspection form.
“I enjoyed working with a diverse, very experienced working group,” said Clare Dooley, senior vice president of Capmark Financing Inc., Horsham, Pa., co-chair of the working group. “We believe the new inspection form and reference guide will allow for standardized use and compliance across the industry. In fact, Capmark has already started to use the form for some of its clients.”
Bucking Trend, Lenders Seek In-House Technology
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/22/2008 ) Palaparty, Vijay
While technology trends tout cost and time efficiencies of outsourced offerings such as software-as-a-service, Motivity Solutions, Denver, has a different outlook.
The company has concentrated on building lending and business management technology in collaboration with mortgage bankers—focusing on the flexibility aspect of in-house systems. Through its LenderBuilt initiative, Motivity Solutions partnered with Assurity Financial Services LLC, Englewood, Colo., to co-develop its Movation system.
In December, Motivity Solutions launched LenderBuilt to identify lender partners to collaborate in building an enterprise mortgage system. Recently, the first module of the system, business intelligence and reporting, was released to executives at Assurity Financial.
“In choosing technology, SaaS was a consideration and the decision depends on resources and strategic objectives of a company,” said Calvin Hamler, managing partner at Assurity Financial. “Companies certainly have the option of adopting hosted solutions. However, what we wanted was a higher level of access and control of data. We felt the hosted option was not congruent with our company. It’s all about flexibility and we wanted the ability to control data, its manipulation and drive the reporting and overall applications.”
Tyler Sherman, CEO of Motivity Solutions, said business intelligence of in house systems is greater than in outsourced technology. He also said companies, depending on their size and resources available, might not have the IT staff or expertise to host an enterprise system and that SaaS would be a good option for those types of companies.
The business intelligence and reporting module integrates Assurity Financial’s existing systems and rolls data into one data warehouse. “Assurity had four to five disparate systems and the first goal was to integrate them to get one version of the truth and have data in one place,” Sherman said. “We added business intelligence to the data for analysis and reporting, taking it one step further.”
Motivity Solution’s database is built on MISMO standards and Sherman said that lenders who follow these standards do not pose as many challenges in the data integration phase. “But most systems are legacy systems and require exporting data to MISMO first. Mapping to different systems is one of the biggest challenges. They first have to be mapped into the MISMO data warehouse. One version of the truth has to exist and that’s a given.”
Sherman said integrating data also poses major challenges due to variances in the security measures of the different systems. “They all have security but not field-level security,” he said. “For example, a loan officer could change the loan amount field even after the loan is closed and funded. Integrating data requires creating a master of record where one system takes precedence over all of the others.”
Assurity Financial said the modular approach in development has been beneficial, not disrupting current business and also not shocking the functionality of its business. “We will slowly retire various pieces of the current systems,” Hamler said. “We don’t expect much disruption.”
From a business versus technology perspective, Hamler said Assurity Financial’s IT side integrates into its business side. “It has taken a while, but we have been able to build on core competencies to promote understanding of the business at all levels. It’s important not to be myopic in pursuits. It’s critical to see business objectives and use human capital. Software and other IT efforts are to support business objectives.”
MBA (5/22/2008 ) Palaparty, Vijay
While technology trends tout cost and time efficiencies of outsourced offerings such as software-as-a-service, Motivity Solutions, Denver, has a different outlook.
The company has concentrated on building lending and business management technology in collaboration with mortgage bankers—focusing on the flexibility aspect of in-house systems. Through its LenderBuilt initiative, Motivity Solutions partnered with Assurity Financial Services LLC, Englewood, Colo., to co-develop its Movation system.
In December, Motivity Solutions launched LenderBuilt to identify lender partners to collaborate in building an enterprise mortgage system. Recently, the first module of the system, business intelligence and reporting, was released to executives at Assurity Financial.
“In choosing technology, SaaS was a consideration and the decision depends on resources and strategic objectives of a company,” said Calvin Hamler, managing partner at Assurity Financial. “Companies certainly have the option of adopting hosted solutions. However, what we wanted was a higher level of access and control of data. We felt the hosted option was not congruent with our company. It’s all about flexibility and we wanted the ability to control data, its manipulation and drive the reporting and overall applications.”
Tyler Sherman, CEO of Motivity Solutions, said business intelligence of in house systems is greater than in outsourced technology. He also said companies, depending on their size and resources available, might not have the IT staff or expertise to host an enterprise system and that SaaS would be a good option for those types of companies.
The business intelligence and reporting module integrates Assurity Financial’s existing systems and rolls data into one data warehouse. “Assurity had four to five disparate systems and the first goal was to integrate them to get one version of the truth and have data in one place,” Sherman said. “We added business intelligence to the data for analysis and reporting, taking it one step further.”
Motivity Solution’s database is built on MISMO standards and Sherman said that lenders who follow these standards do not pose as many challenges in the data integration phase. “But most systems are legacy systems and require exporting data to MISMO first. Mapping to different systems is one of the biggest challenges. They first have to be mapped into the MISMO data warehouse. One version of the truth has to exist and that’s a given.”
Sherman said integrating data also poses major challenges due to variances in the security measures of the different systems. “They all have security but not field-level security,” he said. “For example, a loan officer could change the loan amount field even after the loan is closed and funded. Integrating data requires creating a master of record where one system takes precedence over all of the others.”
Assurity Financial said the modular approach in development has been beneficial, not disrupting current business and also not shocking the functionality of its business. “We will slowly retire various pieces of the current systems,” Hamler said. “We don’t expect much disruption.”
From a business versus technology perspective, Hamler said Assurity Financial’s IT side integrates into its business side. “It has taken a while, but we have been able to build on core competencies to promote understanding of the business at all levels. It’s important not to be myopic in pursuits. It’s critical to see business objectives and use human capital. Software and other IT efforts are to support business objectives.”
FOMC Minutes Signal Fed Done Easing
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/22/2008 ) Velz, Orawin
Yesterday’s release of minutes from the April 29-30 Federal Open Market Committee meeting showed that inflation was a concern for FOMC members despite a downbeat outlook on economic growth. The minutes provided some insights into the members’ thinking on the post-meeting statement.
In the statement following the April meeting, the FOMC removed the sentence that said “downside risks to growth remain” from the March statement. According to the minutes released yesterday, members noted that the language emphasizing the downside risk to growth was no longer appropriate because they felt that the risks to weaker growth were more closely balanced to the risks to inflation.
While the FOMC reduced the federal funds target by 25 basis points to 2 percent, the minutes showed that most participants viewed it as a “close call.” Participants were bearish about economic outlook but noted that conditions in financial markets showed some improvement prior to the meeting. The Fed’s forecast, prepared for the April meeting, showed a decline in economic growth in the first half of 2008, followed by a modest rebound in the second half of the year.
While members were concerned about growth outlook, they were also concerned about inflation outlook, given rising oil and commodity prices. Members noted that measures of inflation expectations had risen in recent months, and they viewed the risk of increased inflation expectations as “a key upside risk to the inflation outlook."
The minutes were released as the front-month crude oil contract surpassed $133 a barrel for the first time. Overall, the minutes confirmed the view that the Fed will likely hold interest rates steady for an extended period. Several members noted that future rate cuts are unlikely even if the economy contracts.
Stocks declined while Treasury yields rose slightly. The yield on the 10-year Treasury note was up three basis points and stayed around 3.81 percent by mid-Wednesday afternoon. Fed funds futures showed a 90 percent chance that the Fed will keep the target rate at 2 percent at the June 24-25 FOMC meeting.
MBA (5/22/2008 ) Velz, Orawin
Yesterday’s release of minutes from the April 29-30 Federal Open Market Committee meeting showed that inflation was a concern for FOMC members despite a downbeat outlook on economic growth. The minutes provided some insights into the members’ thinking on the post-meeting statement.
In the statement following the April meeting, the FOMC removed the sentence that said “downside risks to growth remain” from the March statement. According to the minutes released yesterday, members noted that the language emphasizing the downside risk to growth was no longer appropriate because they felt that the risks to weaker growth were more closely balanced to the risks to inflation.
While the FOMC reduced the federal funds target by 25 basis points to 2 percent, the minutes showed that most participants viewed it as a “close call.” Participants were bearish about economic outlook but noted that conditions in financial markets showed some improvement prior to the meeting. The Fed’s forecast, prepared for the April meeting, showed a decline in economic growth in the first half of 2008, followed by a modest rebound in the second half of the year.
While members were concerned about growth outlook, they were also concerned about inflation outlook, given rising oil and commodity prices. Members noted that measures of inflation expectations had risen in recent months, and they viewed the risk of increased inflation expectations as “a key upside risk to the inflation outlook."
The minutes were released as the front-month crude oil contract surpassed $133 a barrel for the first time. Overall, the minutes confirmed the view that the Fed will likely hold interest rates steady for an extended period. Several members noted that future rate cuts are unlikely even if the economy contracts.
Stocks declined while Treasury yields rose slightly. The yield on the 10-year Treasury note was up three basis points and stayed around 3.81 percent by mid-Wednesday afternoon. Fed funds futures showed a 90 percent chance that the Fed will keep the target rate at 2 percent at the June 24-25 FOMC meeting.
UBS Sells Off Distressed Funds
Submitted by Ronald Tennant with Metrocities Mortgage:
Wall Street Journal (05/22/08) P. C2
UBS AG has sold $22 billion in subprime and Alt-A mortgage-backed securities for $15 billion to BlackRock Inc., a U.S. asset fund that is 49-percent owned by Merrill Lynch & Co. BlackRock will purchase the securities using an $11.25 billion, multiyear collateralized term loan from UBS. The transaction shows that the Swiss bank is eager to unload its riskier assets.
Wall Street Journal (05/22/08) P. C2
UBS AG has sold $22 billion in subprime and Alt-A mortgage-backed securities for $15 billion to BlackRock Inc., a U.S. asset fund that is 49-percent owned by Merrill Lynch & Co. BlackRock will purchase the securities using an $11.25 billion, multiyear collateralized term loan from UBS. The transaction shows that the Swiss bank is eager to unload its riskier assets.
GMAC's ResCap Says $9.5 Bln Bonds Tendered
Submitted by Ronald Tennant with Metrocities Mortgage:
Reuters (05/22/08); Stempel, Jonathan
Residential Capital LLC in Minneapolis reports that investors tendered about $9.5 billion of bonds late on May 21. The GMAC mortgage unit wants to restructure or buy back $14 billion worth of bonds to avoid a shortfall on cash. ResCap, the second-largest independent mortgage lender in the United States after Countrywide Financial, says the exchange will help it reduce its debt burden after losing $5.3 billion over the past six quarters on rising delinquencies and declining volumes. The tender involved $2.65 billion, or 80 percent of applicable notes maturing in 2008 and 2009, and $5.99 billion, or 63 percent of applicable notes maturing between 2010 and 201. ResCap adds that $853.4 million of floating-rate notes maturing on June 9 were tendered for cash.
Reuters (05/22/08); Stempel, Jonathan
Residential Capital LLC in Minneapolis reports that investors tendered about $9.5 billion of bonds late on May 21. The GMAC mortgage unit wants to restructure or buy back $14 billion worth of bonds to avoid a shortfall on cash. ResCap, the second-largest independent mortgage lender in the United States after Countrywide Financial, says the exchange will help it reduce its debt burden after losing $5.3 billion over the past six quarters on rising delinquencies and declining volumes. The tender involved $2.65 billion, or 80 percent of applicable notes maturing in 2008 and 2009, and $5.99 billion, or 63 percent of applicable notes maturing between 2010 and 201. ResCap adds that $853.4 million of floating-rate notes maturing on June 9 were tendered for cash.
Commercial Real Estate Declines
Submitted by Ronald Tennant with Metrocities Mortgage:
Investor's Business Daily (05/22/08) P. A2
The National Association of Realtors (NAR) reports that U.S. commercial real estate activity declined 0.7 percent in the first quarter, marking the third consecutive three-month decline. Cooling is now expected to continue for the remainder of 2008. The NAR index is a gauge of future commercial real estate activity that is compiled from 13 variables. Among them are: REIT prices and returns, industrial output and employment gains.
Investor's Business Daily (05/22/08) P. A2
The National Association of Realtors (NAR) reports that U.S. commercial real estate activity declined 0.7 percent in the first quarter, marking the third consecutive three-month decline. Cooling is now expected to continue for the remainder of 2008. The NAR index is a gauge of future commercial real estate activity that is compiled from 13 variables. Among them are: REIT prices and returns, industrial output and employment gains.
Fed Lowers Growth Forecast
Submitted by Ronald Tennant with Metrocities Mortgage:
Montreal Gazette (05/22/08)
Further interest rate cuts are unlikely due to growing concerns about inflation, according to the Federal Reserve. "Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term," the central bank says in the minutes of its April 29-30, 2008, monetary policy-setting session. Moreover, lowering benchmark interbank lending rates by one-quarter of a percentage point to 2 percent was considered "a close call." On May 21, the Fed revised its U.S. economic growth forecast downward to a range of 0.3 percent to 1.2 percent for 2008, compared with growth of 1.3 percent to 2 percent that it projected three months ago.
Montreal Gazette (05/22/08)
Further interest rate cuts are unlikely due to growing concerns about inflation, according to the Federal Reserve. "Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term," the central bank says in the minutes of its April 29-30, 2008, monetary policy-setting session. Moreover, lowering benchmark interbank lending rates by one-quarter of a percentage point to 2 percent was considered "a close call." On May 21, the Fed revised its U.S. economic growth forecast downward to a range of 0.3 percent to 1.2 percent for 2008, compared with growth of 1.3 percent to 2 percent that it projected three months ago.
Fannie Mae-Freddie Mac Changes Might Salvage Residential Market
Submitted by Ronald Tennant with Metrocities Mortgage:
Mlive.com (05/22/2008); Stevens, Lynn
Two Michigan-based lenders--Bank of Holland's Mike Townsend and National City Bank's Shirley Morford--this week predicted that banks will firmly support the changes Fannie Mae and Freddie Mac recently proposed to home mortgage loans. Townsend states, "From a global perspective, anything they will do to calm the markets, provide liquidity for banks and mortgage companies to sell their loans into the secondary market, will at some point in time create a benefit to our clients." The two government-sponsored enterprises have proposed four changes: the first would enable borrowers to refinance up to 120 percent of their property value if they are current on mortgage payments; the second establishes a program to help people rent-to-own foreclosed homes; the third provides $10 billion to state housing authorities for qualified first-time buyers; and the fourth would price jumbo conforming loans on par with conforming loans through the remainder of this year. Morford comments, "Under these new proposals, the banks will be able to help people that are under water or allow some of the foreclosed properties to be occupied by renters."
Mlive.com (05/22/2008); Stevens, Lynn
Two Michigan-based lenders--Bank of Holland's Mike Townsend and National City Bank's Shirley Morford--this week predicted that banks will firmly support the changes Fannie Mae and Freddie Mac recently proposed to home mortgage loans. Townsend states, "From a global perspective, anything they will do to calm the markets, provide liquidity for banks and mortgage companies to sell their loans into the secondary market, will at some point in time create a benefit to our clients." The two government-sponsored enterprises have proposed four changes: the first would enable borrowers to refinance up to 120 percent of their property value if they are current on mortgage payments; the second establishes a program to help people rent-to-own foreclosed homes; the third provides $10 billion to state housing authorities for qualified first-time buyers; and the fourth would price jumbo conforming loans on par with conforming loans through the remainder of this year. Morford comments, "Under these new proposals, the banks will be able to help people that are under water or allow some of the foreclosed properties to be occupied by renters."
Pipeline: GSEs
Submitted by Ronald Tennant with Metrocities Mortgage:
American Banker (05/22/08) P. 13; Colter, Allison Bisbey
Freddie Mac has announced that it is following Fannie Mae's lead in eliminating a policy mandating higher down payments in housing markets experiencing declines. As of July 1, lenders will not be required to reduce the maximum loan-to-value (LTV) under 95 percent in declining markets, regardless of whether manual underwriting or Freddie Mac's automated underwriting system is used. Instead, occupancy and transaction type and the number of units will determine maximum LTV. Low- and moderate-income borrowers in these markets will continue to have access to 100 percent mortgages through Freddie Mac's Home Possible program. Fannie Mae's new policy, announced on May 16, dictates that, beginning on June 1, the maximum LTV will be 97 percent for loans underwritten using automated software or 95 percent for those underwritten manually.
American Banker (05/22/08) P. 13; Colter, Allison Bisbey
Freddie Mac has announced that it is following Fannie Mae's lead in eliminating a policy mandating higher down payments in housing markets experiencing declines. As of July 1, lenders will not be required to reduce the maximum loan-to-value (LTV) under 95 percent in declining markets, regardless of whether manual underwriting or Freddie Mac's automated underwriting system is used. Instead, occupancy and transaction type and the number of units will determine maximum LTV. Low- and moderate-income borrowers in these markets will continue to have access to 100 percent mortgages through Freddie Mac's Home Possible program. Fannie Mae's new policy, announced on May 16, dictates that, beginning on June 1, the maximum LTV will be 97 percent for loans underwritten using automated software or 95 percent for those underwritten manually.
Senate Bill Would Cut Size of Fannie, Freddie Loans
Submitted by Ronald Tennant with Metrocities Mortgage:
San Francisco Chronicle (05/22/08)
Legislation approved by the Senate Banking Committee would reduce the conforming loan limit to $550,000 from the $729,750 temporary ceiling slated to expire at the end of the year. If passed by the full Senate, the new permanent cap would still be higher than the previous limit of $417,000. Lawmakers are hammering away at a comprehensive housing bill, and they continue debate over permanent loan limits and whether Fannie Mae and Freddie Mac should be permitted to buy jumbo loans as investments rather than unload them as securities.
San Francisco Chronicle (05/22/08)
Legislation approved by the Senate Banking Committee would reduce the conforming loan limit to $550,000 from the $729,750 temporary ceiling slated to expire at the end of the year. If passed by the full Senate, the new permanent cap would still be higher than the previous limit of $417,000. Lawmakers are hammering away at a comprehensive housing bill, and they continue debate over permanent loan limits and whether Fannie Mae and Freddie Mac should be permitted to buy jumbo loans as investments rather than unload them as securities.
Fitch: U.S. CMBS Delinquencies 'Stable'
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/20/2008 ) MBA Staff
U.S. commercial mortgage-backed securities delinquencies stabilized in April, rising by just two basis points to 0.35 percent, according to the most recent Loan Delinquency Index from the Chicago office of Fitch Ratings.
Fitch Managing Director Susan Merrick said the increase in the index came from one large newly delinquent $127 million multifamily condominium loan, which she said is expected to be brought current.
“The index would have remained flat at 0.33 percent if not for this loan,” Merrick said. “CMBS delinquencies remain low with only 360 delinquent loans out of approximately 42,000 loans in Fitch rated transactions.”
Given existing macroeconomic conditions, Merrick said Fitch remains concerned about the hotel and retail sectors. However, in the past month, delinquencies in these sectors decreased marginally, she said. At the end of April, hotel delinquencies declined by $20.5 million and retail by $13.3 million.
Three sectors ended April with higher delinquencies, including multifamily and manufactured housing, which increased by $160 million and $8.4 million, respectively. The number and balance of non-performing matured loans declined marginally during April 2008 to 26 loans, or $181.7 million, compared to 44 loans, or $213.2 million in March.
The seasoned delinquency index, which omits transactions with less than one year of seasoning, also rose by two basis points in April, ending the month at 0.41 percent. Five transactions totaling $8.6 billion became newly seasoned, Merrick said, and none of them had delinquent loans.
The Index tracks 60+ delinquencies in 474 Fitch-rated transactions totaling $556 billion.
MBA (5/20/2008 ) MBA Staff
U.S. commercial mortgage-backed securities delinquencies stabilized in April, rising by just two basis points to 0.35 percent, according to the most recent Loan Delinquency Index from the Chicago office of Fitch Ratings.
Fitch Managing Director Susan Merrick said the increase in the index came from one large newly delinquent $127 million multifamily condominium loan, which she said is expected to be brought current.
“The index would have remained flat at 0.33 percent if not for this loan,” Merrick said. “CMBS delinquencies remain low with only 360 delinquent loans out of approximately 42,000 loans in Fitch rated transactions.”
Given existing macroeconomic conditions, Merrick said Fitch remains concerned about the hotel and retail sectors. However, in the past month, delinquencies in these sectors decreased marginally, she said. At the end of April, hotel delinquencies declined by $20.5 million and retail by $13.3 million.
Three sectors ended April with higher delinquencies, including multifamily and manufactured housing, which increased by $160 million and $8.4 million, respectively. The number and balance of non-performing matured loans declined marginally during April 2008 to 26 loans, or $181.7 million, compared to 44 loans, or $213.2 million in March.
The seasoned delinquency index, which omits transactions with less than one year of seasoning, also rose by two basis points in April, ending the month at 0.41 percent. Five transactions totaling $8.6 billion became newly seasoned, Merrick said, and none of them had delinquent loans.
The Index tracks 60+ delinquencies in 474 Fitch-rated transactions totaling $556 billion.
Residential Briefs
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/20/2008 ) Palaparty, Vijay
Wolters Kluwer Partners with NBT Bank
Wolters Kluwer Financial Services, Waltham, Mass., through its PCi line of compliance analytics products and services, worked with NBT Bank, Norwich, N.Y, to help the bank comply with the Community Reinvestment Act and related Home Mortgage Disclosure Act requirements.
Wolters Kluwer’s PCi Professional Services team helped the bank use its existing CRA software tool, CRA Wiz, a Wolters Kluwer product. The team also provided the bank’s compliance staff with on-site training on HMDA data collection and reporting. CRA Wiz creates customized HMDA data reports for management and regulators. The reports inform management and regulators of how data was validated and details processes and procedures.
eLynx Forms Partnership with Interlink Electronics
eLynx, Cincinnati, a provider of electronic document communications network for the financial services industry, entered into a partnership with Interlink Electronics, Camarillo, Calif., a provider of electronic signature technology. The combination of the two companies’ offerings will provide financial services organizations with eSignature products and services.
Calyx Network Adds New Mortgage Service Provider
Calyx Software, San Jose, a provider of loan marketing, originating and processing software, expanded the Calyx Network with a network interface update. The May Calyx Network Interface update contains a connection to an additional mortgage service provider, First Integrity Title Agency LLC, Denver.
The Calyx Network allows users of Calyx Software’s Point loan origination software to connect directly with lenders and mortgage service providers, automating data exchange and streamlining the loan origination process. Updates are automatically installed into Calyx Point and new providers are added to the application on a bi-monthly basis. The Calyx Network Interface update is automatically installed into Point versions 5.2 and higher when users open their software and connect to the Internet.
NorthMarq Capital Eliminates Paper Statements with FICS
NorthMarq Capital Inc., Minneapolis will use Commercial Servicer, a commercial mortgage loan servicing system from Financial Industry Computer Systems Inc., Dallas. In addition, Northmarq will use FICS' electronic imaging and document management system, Radstar, and its consumer based web application system, LoanStat, to eliminate paper-based monthly statements to its borrowers.
Commercial Servicer enables NorthMarq to electronically notify borrowers that their monthly statements are available to view and download in the LoanStat system. Borrowers can access their loan data online and receive electronic copies of items including amortization schedules, escrow analysis, billing statements, escrow activity report, loan activity report and year-end statements, providing time and cost efficiencies for both lenders and borrowers.
Cogent Road Launches AVAIL with Select Lenders
Cogent Road, San Diego, a provider of internet-based applications for the mortgage industry, announced that AVAIL, a fully automated educational program for potential borrowers to improve credit health with the assistance of a broker, is currently in beta status with select clients of Cogent Road’s Funding Suite. AVAIL will be available to all Funding Suite mortgage originators in the third quarter at no additional cost.
The consumer-focused program incorporates Funding Suite’s automated credit proofreading tools to identify and resolve potential data errors that may work against customers’ credit scores. The program also provides customized, step-by-step credit usage suggestions for consumers that improve their overall credit health. Throughout the yearlong process, credit usage strategies are modified based on the consumer’s previous actions. AVAIL detects when positive steps have been made and provides encouragement when needed.
Consumers enroll in the AVAIL program through a professional mortgage originator who then serves as the consumer’s credit coaching advisor. The AVAIL program is branded with the originator’s logo, photo, name and contact information to further strengthen interaction with the mortgage originator. The advisor can view the consumer’s AVAIL account to provide guidance if questions arise. The mortgage originator is also automatically notified when a consumer achieves predefined credit scoring targets.
ISGN Re-Brands Acquired Companies
ISGN Technologies Ltd., Bensalem, Pa., a provider of end-to-end technology solutions and services to the mortgage industry, is re-branding all its subsidiary companies. Mortgage software products providers MortgageHub and Dynatek will be known as ISGN; onDemand service provider Inuva and document preparation/fulfillment services provider Tradewinds Mortgage Document Preparation Co., will be known as ISGN Fulfillment Services; and provider of cost analysis/risk mitigation services Cocamar will be known as ISGN Inspection Services.
All of the individual company websites will be redirected to www.ISGN.com, which will display select information from each division’s website. Collateral material has also been revised to reflect the unification of the divisions under one name. All products and eServices will maintain their name with the ISGN name attached, including MORvision, an ISGN product. The company does not plan to make any location or personnel changes at this time.
OpenClose to Purchase Assets of LION
OpenClose, West Palm Beach, Fla., developers of web-based, end-to-end mortgage software, agreed to purchase the assets of LION Inc., Seattle, and will continue to operate its Precision LPX suite of mortgage software and retail web site services.
The acquisition expands OpenClose’s existing offerings, which include an end-to-end loan origination software and product-pricing engine for mortgage bankers, to include direct consumer and broker lending software. The Precision LPX suite consists of web-enabled tools designed to help brokers originate, price and lock loans. The services, combined with OpenClose’s existing LOS, gives lenders and brokers a tool to handle tasks in the loan life cycle from consumer to secondary market.
First Houston Adds Global Financial Services as New Division
First Houston Mortgage, Houston, announced that Global Financial Services, Bethesda Md., a mortgage lending and financial services firm, will join its network of branches. The division will integrate First Houston’s products and services, including a paperless lending platform, in-house underwriting system, electronic signature capability and paperless file management system. Global Financial Services also receives access to First Houston’s offshore operations facility in India for loan processing support. First Houston began growing its affiliated network of branches in 2006 and now has 20 branches nationwide with more than 250 employees
MBA (5/20/2008 ) Palaparty, Vijay
Wolters Kluwer Partners with NBT Bank
Wolters Kluwer Financial Services, Waltham, Mass., through its PCi line of compliance analytics products and services, worked with NBT Bank, Norwich, N.Y, to help the bank comply with the Community Reinvestment Act and related Home Mortgage Disclosure Act requirements.
Wolters Kluwer’s PCi Professional Services team helped the bank use its existing CRA software tool, CRA Wiz, a Wolters Kluwer product. The team also provided the bank’s compliance staff with on-site training on HMDA data collection and reporting. CRA Wiz creates customized HMDA data reports for management and regulators. The reports inform management and regulators of how data was validated and details processes and procedures.
eLynx Forms Partnership with Interlink Electronics
eLynx, Cincinnati, a provider of electronic document communications network for the financial services industry, entered into a partnership with Interlink Electronics, Camarillo, Calif., a provider of electronic signature technology. The combination of the two companies’ offerings will provide financial services organizations with eSignature products and services.
Calyx Network Adds New Mortgage Service Provider
Calyx Software, San Jose, a provider of loan marketing, originating and processing software, expanded the Calyx Network with a network interface update. The May Calyx Network Interface update contains a connection to an additional mortgage service provider, First Integrity Title Agency LLC, Denver.
The Calyx Network allows users of Calyx Software’s Point loan origination software to connect directly with lenders and mortgage service providers, automating data exchange and streamlining the loan origination process. Updates are automatically installed into Calyx Point and new providers are added to the application on a bi-monthly basis. The Calyx Network Interface update is automatically installed into Point versions 5.2 and higher when users open their software and connect to the Internet.
NorthMarq Capital Eliminates Paper Statements with FICS
NorthMarq Capital Inc., Minneapolis will use Commercial Servicer, a commercial mortgage loan servicing system from Financial Industry Computer Systems Inc., Dallas. In addition, Northmarq will use FICS' electronic imaging and document management system, Radstar, and its consumer based web application system, LoanStat, to eliminate paper-based monthly statements to its borrowers.
Commercial Servicer enables NorthMarq to electronically notify borrowers that their monthly statements are available to view and download in the LoanStat system. Borrowers can access their loan data online and receive electronic copies of items including amortization schedules, escrow analysis, billing statements, escrow activity report, loan activity report and year-end statements, providing time and cost efficiencies for both lenders and borrowers.
Cogent Road Launches AVAIL with Select Lenders
Cogent Road, San Diego, a provider of internet-based applications for the mortgage industry, announced that AVAIL, a fully automated educational program for potential borrowers to improve credit health with the assistance of a broker, is currently in beta status with select clients of Cogent Road’s Funding Suite. AVAIL will be available to all Funding Suite mortgage originators in the third quarter at no additional cost.
The consumer-focused program incorporates Funding Suite’s automated credit proofreading tools to identify and resolve potential data errors that may work against customers’ credit scores. The program also provides customized, step-by-step credit usage suggestions for consumers that improve their overall credit health. Throughout the yearlong process, credit usage strategies are modified based on the consumer’s previous actions. AVAIL detects when positive steps have been made and provides encouragement when needed.
Consumers enroll in the AVAIL program through a professional mortgage originator who then serves as the consumer’s credit coaching advisor. The AVAIL program is branded with the originator’s logo, photo, name and contact information to further strengthen interaction with the mortgage originator. The advisor can view the consumer’s AVAIL account to provide guidance if questions arise. The mortgage originator is also automatically notified when a consumer achieves predefined credit scoring targets.
ISGN Re-Brands Acquired Companies
ISGN Technologies Ltd., Bensalem, Pa., a provider of end-to-end technology solutions and services to the mortgage industry, is re-branding all its subsidiary companies. Mortgage software products providers MortgageHub and Dynatek will be known as ISGN; onDemand service provider Inuva and document preparation/fulfillment services provider Tradewinds Mortgage Document Preparation Co., will be known as ISGN Fulfillment Services; and provider of cost analysis/risk mitigation services Cocamar will be known as ISGN Inspection Services.
All of the individual company websites will be redirected to www.ISGN.com, which will display select information from each division’s website. Collateral material has also been revised to reflect the unification of the divisions under one name. All products and eServices will maintain their name with the ISGN name attached, including MORvision, an ISGN product. The company does not plan to make any location or personnel changes at this time.
OpenClose to Purchase Assets of LION
OpenClose, West Palm Beach, Fla., developers of web-based, end-to-end mortgage software, agreed to purchase the assets of LION Inc., Seattle, and will continue to operate its Precision LPX suite of mortgage software and retail web site services.
The acquisition expands OpenClose’s existing offerings, which include an end-to-end loan origination software and product-pricing engine for mortgage bankers, to include direct consumer and broker lending software. The Precision LPX suite consists of web-enabled tools designed to help brokers originate, price and lock loans. The services, combined with OpenClose’s existing LOS, gives lenders and brokers a tool to handle tasks in the loan life cycle from consumer to secondary market.
First Houston Adds Global Financial Services as New Division
First Houston Mortgage, Houston, announced that Global Financial Services, Bethesda Md., a mortgage lending and financial services firm, will join its network of branches. The division will integrate First Houston’s products and services, including a paperless lending platform, in-house underwriting system, electronic signature capability and paperless file management system. Global Financial Services also receives access to First Houston’s offshore operations facility in India for loan processing support. First Houston began growing its affiliated network of branches in 2006 and now has 20 branches nationwide with more than 250 employees
Sarbanes-Oxley Reporting Continues to Challenge
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/20/2008 ) Palaparty, Vijay
Financial organizations primarily suffered a lack of time in completing Sarbanes-Oxley Act 2007 year-end close reports, resulting in late filings, according to a study by Deloitte & Touch LLP, New York. The shortened February 29 reporting deadline pressured organizations, increasing late filings.
“In 2007, 1,500 organizations in the study reported late filings, of which 12 percent said they were unable to obtain key information to complete reports on time, said Beth Kaplan, director at Deloitte. “Twenty-seven percent had insufficient time to prepare the report and 30 percent reported ‘insufficient time without undue hardship.’ Tighter deadlines and increasing complexity has increased risk in financial restatements which impact public perception and add workload to typically understaffed financial organizations.”
Deloitte reported 1,700 financial statement restatements in 2006, decreasing to 1,300 in 2007. “Most restatements can be traced back to infrastructure issues,” Kaplan said. “It results from a lack of GAAP [generally accepted accounting principles] knowledge, poor information, inadequate controls and manual, non-standard processes.”
In terms of material weakness in financial close and reporting, which are misstatements, study participants cited inadequate documentation of accounting policies and procedures as top reasons. Year-end adjustments also contributed to material weakness.
Eric Capron, senior manager at Deloitte, said a transformed closing process is optimal for organizations, reducing risk and time to close. “The transformed closing process is highly automated and tightly coordinated across participants,” he said. “It heavily uses preventative controls and is focused on high-risk areas. Additionally, it is supported with sophisticated analytics and involves a continuous monitoring of controls.”
“The closing process is part of a broader transformation,” Capron added. “Improvements to the closing process don’t happen independently. Organizations should think about overall efficiency perspectives including systems and organizational components. The closing process is really a jumpstart for transformation in other areas such as financial planning, reporting and even forecasting. The struggles of the closing process can help other areas.”
Capron saidclose improvement methods, which include sub-processes, are part of an effective methodology that includes interplay of different technologies, controls and processes.
“There is flow in how we look at the close process and sub-processes,” Capron said. “It involves data coming in and feeding into ledger close and then into management reporting. Once that is complete, all the information is consolidated at the corporate level. On this continuum, there are things organizations should think about and make happen to avoid risk. Activities should focus on high-risk areas and non-essential risk activities should be moved out of the close process flow. Those secondary activities should happen outside the close process.”
From a risk perspective, Kaplan said financial organizations have opportunities to achieve transparency by first identifying priorities and target areas.
“Understand your data—both where it is coming from and what you are doing with it," Kaplan said. "Establish a governance structure to align close process improvement opportunities with necessary core controls to help address process risks and control deficiencies to better enable sustained long-term compliance.”
Kaplan said organizations should focus outside of the controller’s group by engaging external stakeholders from the beginning of the process, adding that gains could be achieved by changes upstream. She also said that organizational needs should drive technology and not the other way around.
“Leverage technology to help enable process efficiencies," Kaplan said. "Eliminate spreadsheets and replace disparate systems versus designing new processes within the limitations of existing technology.”
MBA (5/20/2008 ) Palaparty, Vijay
Financial organizations primarily suffered a lack of time in completing Sarbanes-Oxley Act 2007 year-end close reports, resulting in late filings, according to a study by Deloitte & Touch LLP, New York. The shortened February 29 reporting deadline pressured organizations, increasing late filings.
“In 2007, 1,500 organizations in the study reported late filings, of which 12 percent said they were unable to obtain key information to complete reports on time, said Beth Kaplan, director at Deloitte. “Twenty-seven percent had insufficient time to prepare the report and 30 percent reported ‘insufficient time without undue hardship.’ Tighter deadlines and increasing complexity has increased risk in financial restatements which impact public perception and add workload to typically understaffed financial organizations.”
Deloitte reported 1,700 financial statement restatements in 2006, decreasing to 1,300 in 2007. “Most restatements can be traced back to infrastructure issues,” Kaplan said. “It results from a lack of GAAP [generally accepted accounting principles] knowledge, poor information, inadequate controls and manual, non-standard processes.”
In terms of material weakness in financial close and reporting, which are misstatements, study participants cited inadequate documentation of accounting policies and procedures as top reasons. Year-end adjustments also contributed to material weakness.
Eric Capron, senior manager at Deloitte, said a transformed closing process is optimal for organizations, reducing risk and time to close. “The transformed closing process is highly automated and tightly coordinated across participants,” he said. “It heavily uses preventative controls and is focused on high-risk areas. Additionally, it is supported with sophisticated analytics and involves a continuous monitoring of controls.”
“The closing process is part of a broader transformation,” Capron added. “Improvements to the closing process don’t happen independently. Organizations should think about overall efficiency perspectives including systems and organizational components. The closing process is really a jumpstart for transformation in other areas such as financial planning, reporting and even forecasting. The struggles of the closing process can help other areas.”
Capron saidclose improvement methods, which include sub-processes, are part of an effective methodology that includes interplay of different technologies, controls and processes.
“There is flow in how we look at the close process and sub-processes,” Capron said. “It involves data coming in and feeding into ledger close and then into management reporting. Once that is complete, all the information is consolidated at the corporate level. On this continuum, there are things organizations should think about and make happen to avoid risk. Activities should focus on high-risk areas and non-essential risk activities should be moved out of the close process flow. Those secondary activities should happen outside the close process.”
From a risk perspective, Kaplan said financial organizations have opportunities to achieve transparency by first identifying priorities and target areas.
“Understand your data—both where it is coming from and what you are doing with it," Kaplan said. "Establish a governance structure to align close process improvement opportunities with necessary core controls to help address process risks and control deficiencies to better enable sustained long-term compliance.”
Kaplan said organizations should focus outside of the controller’s group by engaging external stakeholders from the beginning of the process, adding that gains could be achieved by changes upstream. She also said that organizational needs should drive technology and not the other way around.
“Leverage technology to help enable process efficiencies," Kaplan said. "Eliminate spreadsheets and replace disparate systems versus designing new processes within the limitations of existing technology.”
Leading Indicator Index Improves Again
Submitted by Ronald Tennant with Metrocities Mortgage:
MBA (5/20/2008 ) Velz, Orawin
The Conference Board Index of Leading Indicators—a gauge of future business activity three to six months ahead—rose by 0.1 percent in April, following the same increase in March. This is the first time the index has risen for two consecutive months since September and October 2006.
Since its peak in January 2006, the index has declined more than 2 percent. According to The Conference Board, the index is consistent with a weak economy “but not one in recession.”
Six of the 10 components of the leading economic indicators increased during the month. These included a surprise increase in residential building permits and higher stock prices. Weaker consumer confidence and a decline in the manufacturing average weekly hours were the biggest drags in the index.
The Conference Board’s index is designed to forecast economic activity and turning points in the business cycle based on 10 economic components. However, the arbiter of the business cycle is the National Bureau of Economic Research. Its Business Cycle Dating Committee uses a different set of variables to decide when the economy slips into a recession. Overall, the index supported other recent economic reports showing reduced risks that the economy will weaken further.
MBA (5/20/2008 ) Velz, Orawin
The Conference Board Index of Leading Indicators—a gauge of future business activity three to six months ahead—rose by 0.1 percent in April, following the same increase in March. This is the first time the index has risen for two consecutive months since September and October 2006.
Since its peak in January 2006, the index has declined more than 2 percent. According to The Conference Board, the index is consistent with a weak economy “but not one in recession.”
Six of the 10 components of the leading economic indicators increased during the month. These included a surprise increase in residential building permits and higher stock prices. Weaker consumer confidence and a decline in the manufacturing average weekly hours were the biggest drags in the index.
The Conference Board’s index is designed to forecast economic activity and turning points in the business cycle based on 10 economic components. However, the arbiter of the business cycle is the National Bureau of Economic Research. Its Business Cycle Dating Committee uses a different set of variables to decide when the economy slips into a recession. Overall, the index supported other recent economic reports showing reduced risks that the economy will weaken further.
Home Prices Get New Index
Submitted by Ronald Tennant with Metrocities Mortgage:
National Mortgage News (05/19/08) Vol. 32, No. 33, P. 7; Sichelman, Lew
Denver-based Integrated Asset Services (IAS) will roll out its new home price gauge, the Intelligent Market Volatility Index (iMVI), in June. Unlike the Office of Federal Housing Enterprise Oversight's regional and state home price index and the S&P/Case-Shiller Home Price Index that covers several metropolitan statistical areas (MSAs), iMVI measures mean residential prices on a street-by-street basis. The company points out that one section of a neighborhood in Denver posted an 8-percent jump in home prices, while the next block over registered a 7.5-percent decline; at the same time, national home prices fell 6.1 percent, the Denver MSA experienced a 9.79-percent drop and Clear Creek County posted a decrease of 21.5 percent. "For the first time ever, iMVI allows the mortgage banking industry to have near-perfect analysis of their residential holdings down to the neighborhood level instead of settling for MSA-level data," says IAS Chief Financial Officer Ryan Tomazin. "If you send us a street address, we can show you exactly what's going on in that neighborhood so you can act more intelligently with regards to your loss-mitigation strategy, foreclosure or whatever." The monthly index takes into account more than 15,000 homogenous geographical segments and 400 unique features that affect property values; and while it does not cover refinancings, it does include new and existing sales, condominiums, homes of all values and all mortgage products.
National Mortgage News (05/19/08) Vol. 32, No. 33, P. 7; Sichelman, Lew
Denver-based Integrated Asset Services (IAS) will roll out its new home price gauge, the Intelligent Market Volatility Index (iMVI), in June. Unlike the Office of Federal Housing Enterprise Oversight's regional and state home price index and the S&P/Case-Shiller Home Price Index that covers several metropolitan statistical areas (MSAs), iMVI measures mean residential prices on a street-by-street basis. The company points out that one section of a neighborhood in Denver posted an 8-percent jump in home prices, while the next block over registered a 7.5-percent decline; at the same time, national home prices fell 6.1 percent, the Denver MSA experienced a 9.79-percent drop and Clear Creek County posted a decrease of 21.5 percent. "For the first time ever, iMVI allows the mortgage banking industry to have near-perfect analysis of their residential holdings down to the neighborhood level instead of settling for MSA-level data," says IAS Chief Financial Officer Ryan Tomazin. "If you send us a street address, we can show you exactly what's going on in that neighborhood so you can act more intelligently with regards to your loss-mitigation strategy, foreclosure or whatever." The monthly index takes into account more than 15,000 homogenous geographical segments and 400 unique features that affect property values; and while it does not cover refinancings, it does include new and existing sales, condominiums, homes of all values and all mortgage products.
Thornburg Says to Post 'Substantial' Qtrly Loss
Submitted by Ronald Tennant with Metrocities Mortgage:
Reuters (05/20/08); Anantharaman, Muralikumar
Thornburg Mortgage Inc. expects to report a "substantial net loss" for the quarter when the Santa Fe, New Mexico-based jumbo lender announces its results by June 2. "A substantial portion of the loss is unrealized resulting primarily from the declines in the fair value of its mortgage-backed securities portfolio," Thornburg indicated in a statement. A year ago, the mortgage lender posted net income of $75 million, but the credit markets have tightened and investors have cut back on purchasing jumbo loans. The company was facing bankruptcy, but was able to raise $1.35 billion from investors in March.
Reuters (05/20/08); Anantharaman, Muralikumar
Thornburg Mortgage Inc. expects to report a "substantial net loss" for the quarter when the Santa Fe, New Mexico-based jumbo lender announces its results by June 2. "A substantial portion of the loss is unrealized resulting primarily from the declines in the fair value of its mortgage-backed securities portfolio," Thornburg indicated in a statement. A year ago, the mortgage lender posted net income of $75 million, but the credit markets have tightened and investors have cut back on purchasing jumbo loans. The company was facing bankruptcy, but was able to raise $1.35 billion from investors in March.
S&P Cuts Fannie Mae Rating
Submitted by Ronald Tennant with Metrocities Mortgage:
Washington Post (05/20/08) P. D4
Fannie Mae's "risk-to-the-government" rating was downgraded to A+ from AA- by Standard & Poor's Ratings Services. The rating gauges the strength of the government-sponsored enterprise in the absence of government support. After three consecutive quarterly losses, Fannie Mae has been forced to unload stocks and bonds to generate $7.2 billion in capital.
Washington Post (05/20/08) P. D4
Fannie Mae's "risk-to-the-government" rating was downgraded to A+ from AA- by Standard & Poor's Ratings Services. The rating gauges the strength of the government-sponsored enterprise in the absence of government support. After three consecutive quarterly losses, Fannie Mae has been forced to unload stocks and bonds to generate $7.2 billion in capital.
Freddie Mac to Sell $8 Billion of Debt
Submitted by Ronald Tennant with Metrocities Mortgage:
Arkansas Democrat-Gazette (05/20/08)
Freddie Mac plans to sell $8 billion of debt by May 21. The sale will include $4 billion of two-year reference notes due June 28, 2010, and an equal amount of five-year reference notes maturing June 28, 2013. Credit Suisse, Deutsche Bank and Merrill Lynch will manage the sale of two-year debt; and Bank of America, JPMorgan Chase and Royal Bank of Scotland will handle the five-year sale. Freddie Mac also raised $1 billion in a reopening of three-year, 3.25 percent reference notes maturing Feb. 25, 2011, bringing the total size of the Credit Suisse private placement to $4 billion.
Arkansas Democrat-Gazette (05/20/08)
Freddie Mac plans to sell $8 billion of debt by May 21. The sale will include $4 billion of two-year reference notes due June 28, 2010, and an equal amount of five-year reference notes maturing June 28, 2013. Credit Suisse, Deutsche Bank and Merrill Lynch will manage the sale of two-year debt; and Bank of America, JPMorgan Chase and Royal Bank of Scotland will handle the five-year sale. Freddie Mac also raised $1 billion in a reopening of three-year, 3.25 percent reference notes maturing Feb. 25, 2011, bringing the total size of the Credit Suisse private placement to $4 billion.
New Effort to Block GSE Appraisal Pact
Submitted by Ronald Tennant with Metrocities Mortgage:
American Banker (05/20/08) P. 3; Kaper, Stacy
The banking industry is pushing for the inclusion of an amendment from Sen. Elizabeth Dole, R-N.C., that would require federal regulators to set new appraisal standards as part of legislation to beef up oversight of Fannie Mae and Freddie Mac and permit the FHA to insure mortgages with balances exceeding home values. The amendment would eliminate an appraisal agreement that New York Attorney General Andrew Cuomo forged with Fannie Mae and Freddie Mac compelling lenders and brokers to use outside appraisers if they want to sell loans to the government-sponsored enterprises (GSEs). According to Stephen O'Connor, senior vice president for government affairs at the Mortgage Bankers Association, "[The Cuomo agreement, and others like it,] pose serious procedural and substantive concerns that present safety and soundness risk to the GSEs and financial institutions generally." The banking industry insists that the Office of Federal Housing Enterprise Oversight failed to comply with the Administrative Procedures Act by not issuing the agreement as a proposal for public comment. The Senate Banking Committee will vote on the legislation May 20; and observers say the amendment faces opposition from Sen. Charles Schumer, D-N.Y., who believes it would derail efforts to stamp out predatory lending.
American Banker (05/20/08) P. 3; Kaper, Stacy
The banking industry is pushing for the inclusion of an amendment from Sen. Elizabeth Dole, R-N.C., that would require federal regulators to set new appraisal standards as part of legislation to beef up oversight of Fannie Mae and Freddie Mac and permit the FHA to insure mortgages with balances exceeding home values. The amendment would eliminate an appraisal agreement that New York Attorney General Andrew Cuomo forged with Fannie Mae and Freddie Mac compelling lenders and brokers to use outside appraisers if they want to sell loans to the government-sponsored enterprises (GSEs). According to Stephen O'Connor, senior vice president for government affairs at the Mortgage Bankers Association, "[The Cuomo agreement, and others like it,] pose serious procedural and substantive concerns that present safety and soundness risk to the GSEs and financial institutions generally." The banking industry insists that the Office of Federal Housing Enterprise Oversight failed to comply with the Administrative Procedures Act by not issuing the agreement as a proposal for public comment. The Senate Banking Committee will vote on the legislation May 20; and observers say the amendment faces opposition from Sen. Charles Schumer, D-N.Y., who believes it would derail efforts to stamp out predatory lending.
Senate Strikes Housing Rescue Deal
Submitted by Ronald Tennant with Metrocities Mortgage:
Wall Street Journal (05/20/08) P. A1; Paletta, Damian; Hagerty, James R.
Democrats and Republicans in the Senate have ended weeks of negotiations with a plan that would allow the federal government to insure up to $300 billion in refinanced loans for at-risk homeowners. The bipartisan accord, which represents the clearest sign yet that Congress is ready to pass sweeping legislation on housing, also seeks to tighten up oversight of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Republicans had been concerned that taxpayers would be responsible for what amounts to a bailout, but a provision calls for initial losses on defaulted loans to be covered by fees charged to the two GSEs. Even President Bush has recognized the Senate's efforts in recent days, easing off earlier veto threats.
Wall Street Journal (05/20/08) P. A1; Paletta, Damian; Hagerty, James R.
Democrats and Republicans in the Senate have ended weeks of negotiations with a plan that would allow the federal government to insure up to $300 billion in refinanced loans for at-risk homeowners. The bipartisan accord, which represents the clearest sign yet that Congress is ready to pass sweeping legislation on housing, also seeks to tighten up oversight of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Republicans had been concerned that taxpayers would be responsible for what amounts to a bailout, but a provision calls for initial losses on defaulted loans to be covered by fees charged to the two GSEs. Even President Bush has recognized the Senate's efforts in recent days, easing off earlier veto threats.
Housing rescue on the rise; so are foreclosures
The foreclosure prevention coalition Hope Now arranged workouts for 183,000 at-risk borrowers last month. Still, more families than ever are losing their homes.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 30, 2008: 2:54 PM EDT
NEW YORK (CNNMoney.com) -- Hope Now helped 183,000 at-risk borrowers stay in their homes during the month of April, according to numbers released by the coalition on Friday.
The alliance of mortgage lenders, servicers, investors and community advocacy groups also said it has arranged a total of nearly 1.6 million loan workouts since the program began in July, 2007.
The April figure represents 23,000 more workouts than were completed in March, or a 7.6% increase, and is the highest monthly total since Hope Now got started.
"These numbers clearly demonstrate that Hope Now is succeeding at helping homeowners avoid foreclosure and stay in their homes," said the organization's executive director, Faith Schwartz.
But foreclosure filings are accelerating also. RealtyTrac, an online marketer of foreclosed properties, recently reported that 243,353 households received a foreclosure filing in April, up 65% from that month last year.
And a total of 80,926 families lost their homes to foreclosure in April, according to Hope Now, up 12% from 72,024 in March. That puts the country on pace to see more than a million families lose their homes this year.
Mortgage relief
Most of the workouts that Hope Now did in April - 105,000 - were repayment plans in which delinquent borrowers were simply given extra time to make up missed payments.
But the proportion of actual mortgage modifications, which permanently lower a struggling homeowner's monthly payments by cutting a loan's balance or interest rate, is on the rise. In April, about 77,000 of the total workouts, or 42%, were modifications. That's up from March, when 36% of the Hope Now workouts were modifications.
Modifications are usually considered more effective, long-term solutions for delinquent borrowers than repayment plans.
"It's helpful that these folks are getting modifications," said Jared Bernstein an economist with the Economic Policy Institute. "There are, however, lots of people in trouble who need more help than Hope Now is giving them."
Many homeowners who face severe problems that require more complicated workouts are still not getting enough help, according to Bernstein, which is one reason why foreclosure rates continue to rise.
"I still regard this as low-hanging fruit," he added, "but it is helping a non-trivial number of people."
Meanwhile, the housing markets continue to deteriorate. On Monday Standard & Poor's/Case-Shiller said its national home price index fell 14.1% in the first quarter compared with a year earlier, to its lowest level since its began tracking prices in 1988.
Falling home prices put even more pressure on homeowners who can't make their payments, by making it difficult for them to refinance or to sell at a price that will enable them to pay off their mortgage. Areas with declining home values, like parts of California and Florida, are seeing the largest volume of homes go into foreclosure.
But no one wants that to happen, according to Hope Now's Schwartz.
"Foreclosure benefits no one: the borrower, community, lender and investor all lose," she said.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 30, 2008: 2:54 PM EDT
NEW YORK (CNNMoney.com) -- Hope Now helped 183,000 at-risk borrowers stay in their homes during the month of April, according to numbers released by the coalition on Friday.
The alliance of mortgage lenders, servicers, investors and community advocacy groups also said it has arranged a total of nearly 1.6 million loan workouts since the program began in July, 2007.
The April figure represents 23,000 more workouts than were completed in March, or a 7.6% increase, and is the highest monthly total since Hope Now got started.
"These numbers clearly demonstrate that Hope Now is succeeding at helping homeowners avoid foreclosure and stay in their homes," said the organization's executive director, Faith Schwartz.
But foreclosure filings are accelerating also. RealtyTrac, an online marketer of foreclosed properties, recently reported that 243,353 households received a foreclosure filing in April, up 65% from that month last year.
And a total of 80,926 families lost their homes to foreclosure in April, according to Hope Now, up 12% from 72,024 in March. That puts the country on pace to see more than a million families lose their homes this year.
Mortgage relief
Most of the workouts that Hope Now did in April - 105,000 - were repayment plans in which delinquent borrowers were simply given extra time to make up missed payments.
But the proportion of actual mortgage modifications, which permanently lower a struggling homeowner's monthly payments by cutting a loan's balance or interest rate, is on the rise. In April, about 77,000 of the total workouts, or 42%, were modifications. That's up from March, when 36% of the Hope Now workouts were modifications.
Modifications are usually considered more effective, long-term solutions for delinquent borrowers than repayment plans.
"It's helpful that these folks are getting modifications," said Jared Bernstein an economist with the Economic Policy Institute. "There are, however, lots of people in trouble who need more help than Hope Now is giving them."
Many homeowners who face severe problems that require more complicated workouts are still not getting enough help, according to Bernstein, which is one reason why foreclosure rates continue to rise.
"I still regard this as low-hanging fruit," he added, "but it is helping a non-trivial number of people."
Meanwhile, the housing markets continue to deteriorate. On Monday Standard & Poor's/Case-Shiller said its national home price index fell 14.1% in the first quarter compared with a year earlier, to its lowest level since its began tracking prices in 1988.
Falling home prices put even more pressure on homeowners who can't make their payments, by making it difficult for them to refinance or to sell at a price that will enable them to pay off their mortgage. Areas with declining home values, like parts of California and Florida, are seeing the largest volume of homes go into foreclosure.
But no one wants that to happen, according to Hope Now's Schwartz.
"Foreclosure benefits no one: the borrower, community, lender and investor all lose," she said.
Banks miss an easy housing fix
Lenders say they want to help troubled homeowners, but they are delaying deals that could save everyone - including the lenders themselves - a lot of time and money.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 28, 2008: 11:16 AM EDT
NEW YORK (CNNMoney.com) -- Banks say they want to help troubled homeowners, but they are delaying deals that could save everyone - including the lenders themselves - a lot of time and money.
Lenders are taking much longer than necessary to approve short sales, according to Duane LeGate, of House Buyers Network, a short sale specialist.
In a short sale, a homeowner who cannot keep up with their loan asks the lender to take a dollar amount less than what is owed on a home's mortgage, and forgive the remainder of the unpaid debt.
So if a borrower has a mortgage balance of $100,000 and finds a buyer who will pay $95,000 for the house, the lender agrees to accept that $95,000 and close out the loan.
"There was a much greater chance of success with these in the past," said LeGate
Ideally in a short sale, everyone wins. Borrowers avoid the ugly foreclosure process that destroys their credit, while lenders recoup more of their costs than they would by spending the time and money it takes to kick an owner out and resell the property.
Lenders typically lose about 19% of a mortgage's value in a short sale, according to Clayton Holdings, a Conn.-based, provider of loan analytics, while they lose an average of 40% on loans that go into foreclosure.
Coldwell Banker CEO Jim Gillespie agrees that short sales are taking too long to complete. And he speaks from firsthand experience; a short-sale offer he made on a house in Marin County, Calif. in late fall didn't win approval until April.
But most buyers can't, or won't, wait that long."That's been our biggest challenge - keeping the buyers interested long enough as we wait and wait for an answer," said Jeff Morrell, a Colorado Springs real estate agent who specializes in short sales.
Running out the clock
John Fitzmorris, a short-sale expediter in East Stroudsburg, Pa., was working with Robson and Laura Pereira, who were behind on their mortgage.
"She worked, but he had a construction business that went defunct," said Fitzmorris. "That put them in trouble."
Falling home prices in the area made a normal sale impossible; the couple was upside-down in their mortgage, owing more on the property than it was worth on the current market.
After they fell behind on their payments, Laura Pereira said, her bank, HSBC (HBC), sent her a letter asking her to call for help. "I called them four or five times and they never got back to me," she said. "We had three [short sale] offers on the house at the time." Later, the loan was sold to First American.
Fitzmorris, who has been doing short sales for more than 20 years, contacted First American (FAF, Fortune 500) about a short sale well before the foreclosure date.
But after three months, the bank still hadn't approved the short sale, and the Pereira's property went to sheriff's sale. (First American declined to comment on specific cases.)
"The offer we sent to the bank was $129,500," said Fitzmorris. "But another investor, TM Builders, bought the property at the sheriff's sale for $100,265."
In the end, the bank lost $60,000 on the loan, when it could have lost $30,000 by doing a short sale.
Ironically, TM Builders flipped the home to Fitzmorris's buyer for the $129,500 short-sale price, money the bank would have gotten had it acted more quickly.
"The sellers did what they could to mitigate the problem but the bank didn't respond, which hurt both the sellers - with an unnecessary foreclosure permanently impacting their credit - and the bank," said Fitzmorris.
Usual suspect
The difficulty in getting short sales approved stems from the same hurdles facing all the other foreclosure prevention efforts. The fact that the majority of mortgages are pooled and securitized makes it hard to get approval to change the terms of the mortgages.
"It has to do with who owns the loan," said LeGate. "If a mortgage is stuck in a pool somewhere, when something goes wrong, no one knows who the actual owner of the note is."
Additionally, the volume of troubled borrowers makes it hard for lenders to keep up. The housing crisis has put an enormous burden on mortgage servicers, the companies that manage loans for securities investors.
At many servicers, said LeGate, "There's no one really skilled at loss mitigation, and these guys have more work than they were prepared to do."
And with foreclosure filings breaking new records each month, there's no sign that this problem will ease any time soon.
Says Laura Pereira, "I feel the bank really let us down."
By Les Christie, CNNMoney.com staff writer
Last Updated: May 28, 2008: 11:16 AM EDT
NEW YORK (CNNMoney.com) -- Banks say they want to help troubled homeowners, but they are delaying deals that could save everyone - including the lenders themselves - a lot of time and money.
Lenders are taking much longer than necessary to approve short sales, according to Duane LeGate, of House Buyers Network, a short sale specialist.
In a short sale, a homeowner who cannot keep up with their loan asks the lender to take a dollar amount less than what is owed on a home's mortgage, and forgive the remainder of the unpaid debt.
So if a borrower has a mortgage balance of $100,000 and finds a buyer who will pay $95,000 for the house, the lender agrees to accept that $95,000 and close out the loan.
"There was a much greater chance of success with these in the past," said LeGate
Ideally in a short sale, everyone wins. Borrowers avoid the ugly foreclosure process that destroys their credit, while lenders recoup more of their costs than they would by spending the time and money it takes to kick an owner out and resell the property.
Lenders typically lose about 19% of a mortgage's value in a short sale, according to Clayton Holdings, a Conn.-based, provider of loan analytics, while they lose an average of 40% on loans that go into foreclosure.
Coldwell Banker CEO Jim Gillespie agrees that short sales are taking too long to complete. And he speaks from firsthand experience; a short-sale offer he made on a house in Marin County, Calif. in late fall didn't win approval until April.
But most buyers can't, or won't, wait that long."That's been our biggest challenge - keeping the buyers interested long enough as we wait and wait for an answer," said Jeff Morrell, a Colorado Springs real estate agent who specializes in short sales.
Running out the clock
John Fitzmorris, a short-sale expediter in East Stroudsburg, Pa., was working with Robson and Laura Pereira, who were behind on their mortgage.
"She worked, but he had a construction business that went defunct," said Fitzmorris. "That put them in trouble."
Falling home prices in the area made a normal sale impossible; the couple was upside-down in their mortgage, owing more on the property than it was worth on the current market.
After they fell behind on their payments, Laura Pereira said, her bank, HSBC (HBC), sent her a letter asking her to call for help. "I called them four or five times and they never got back to me," she said. "We had three [short sale] offers on the house at the time." Later, the loan was sold to First American.
Fitzmorris, who has been doing short sales for more than 20 years, contacted First American (FAF, Fortune 500) about a short sale well before the foreclosure date.
But after three months, the bank still hadn't approved the short sale, and the Pereira's property went to sheriff's sale. (First American declined to comment on specific cases.)
"The offer we sent to the bank was $129,500," said Fitzmorris. "But another investor, TM Builders, bought the property at the sheriff's sale for $100,265."
In the end, the bank lost $60,000 on the loan, when it could have lost $30,000 by doing a short sale.
Ironically, TM Builders flipped the home to Fitzmorris's buyer for the $129,500 short-sale price, money the bank would have gotten had it acted more quickly.
"The sellers did what they could to mitigate the problem but the bank didn't respond, which hurt both the sellers - with an unnecessary foreclosure permanently impacting their credit - and the bank," said Fitzmorris.
Usual suspect
The difficulty in getting short sales approved stems from the same hurdles facing all the other foreclosure prevention efforts. The fact that the majority of mortgages are pooled and securitized makes it hard to get approval to change the terms of the mortgages.
"It has to do with who owns the loan," said LeGate. "If a mortgage is stuck in a pool somewhere, when something goes wrong, no one knows who the actual owner of the note is."
Additionally, the volume of troubled borrowers makes it hard for lenders to keep up. The housing crisis has put an enormous burden on mortgage servicers, the companies that manage loans for securities investors.
At many servicers, said LeGate, "There's no one really skilled at loss mitigation, and these guys have more work than they were prepared to do."
And with foreclosure filings breaking new records each month, there's no sign that this problem will ease any time soon.
Says Laura Pereira, "I feel the bank really let us down."
Mortgage rates rise, topping 6%
Freddie Mac says that rates on 30 year fixed mortgages are up on growing concerns about inflation.
Last Updated: May 29, 2008: 12:26 PM EDT
(CNNMoney.com) -- Rates on 30-year mortgages were pushed up this week above 6 percent amid growing concerns about inflation, mortgage backer Freddie Mac said Thursday.
Freddie Mac said 30-year fixed-rate mortgages averaged 6.08% with an average of 0.6 points, up from 5.98% last week. Last year at this time, the 30-year loan averaged 6.42%.
"Mortgage rates drifted up this week over market concerns that the Federal Reserve Board may raise short-term rates later this year," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
"Indeed," Nothaft added, "market inflation expectations increased over the last few weeks and the federal funds futures market now has a 25 basis point rate hike priced in by the end of the year."
Rising prices
Fanning the concerns about inflation are skyrocketing food and energy prices. On Thursday the average price for a gallon of gas passed $4 per gallon in 11 states, while oil prices rebounded to about $130 a barrel as supplies fell sharply. Also on Thursday, a report from the Labor Department showed that new applications for unemployment insurance rose last week.
And the housing market continues to deteriorate. A report on Tuesday showed that US home prices fell 14.1% in the first quarter, the sharpest decline in 20 years. Additionally, a Census Bureau report out this week found that new home sales remain near a 17-year low.
Rates on five-year adjustable-rate mortgages (ARMs) averaged 5.62 percent this week, with an average 0.5 point, up slightly from last week when it averaged 5.61 percent. A year ago, the 5-year ARM averaged 6.19 percent.
The rate for one-year ARMs averaged 5.22 percent this week with an average 0.6 point, down slightly from last week when it was 5.24 percent. At this time last year, the 1-year ARM averaged 5.57 percent.
Last Updated: May 29, 2008: 12:26 PM EDT
(CNNMoney.com) -- Rates on 30-year mortgages were pushed up this week above 6 percent amid growing concerns about inflation, mortgage backer Freddie Mac said Thursday.
Freddie Mac said 30-year fixed-rate mortgages averaged 6.08% with an average of 0.6 points, up from 5.98% last week. Last year at this time, the 30-year loan averaged 6.42%.
"Mortgage rates drifted up this week over market concerns that the Federal Reserve Board may raise short-term rates later this year," said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
"Indeed," Nothaft added, "market inflation expectations increased over the last few weeks and the federal funds futures market now has a 25 basis point rate hike priced in by the end of the year."
Rising prices
Fanning the concerns about inflation are skyrocketing food and energy prices. On Thursday the average price for a gallon of gas passed $4 per gallon in 11 states, while oil prices rebounded to about $130 a barrel as supplies fell sharply. Also on Thursday, a report from the Labor Department showed that new applications for unemployment insurance rose last week.
And the housing market continues to deteriorate. A report on Tuesday showed that US home prices fell 14.1% in the first quarter, the sharpest decline in 20 years. Additionally, a Census Bureau report out this week found that new home sales remain near a 17-year low.
Rates on five-year adjustable-rate mortgages (ARMs) averaged 5.62 percent this week, with an average 0.5 point, up slightly from last week when it averaged 5.61 percent. A year ago, the 5-year ARM averaged 6.19 percent.
The rate for one-year ARMs averaged 5.22 percent this week with an average 0.6 point, down slightly from last week when it was 5.24 percent. At this time last year, the 1-year ARM averaged 5.57 percent.
Home prices plunge 14.1% in first quarter
Standard & Poor's/Case-Shiller study shows record decline for housing prices in first three months of 2008.
Last Updated: May 27, 2008: 9:36 AM EDT
NEW YORK (AP) -- U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday. It's a somber indication that the housing slump continues to deepen.
Standard & Poor's/Case-Shiller said its national home price index fell 14.1% in the first quarter compared with a year earlier, to its lowest level since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.
The narrower indices also set record declines. The 20-city index tumbled 14.4% during the quarter, the lowest since that index was started in 2001. The 10-city index plunged 15.3%, a record in its 20-year history.
"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," said David Blitzer, chairman of S&P's index committee.
Nineteen of the 20 metro areas surveyed reported annual declines, with 15 of them posting record lows. Six metro areas lost more than 20%.
Las Vegas had the worst quarterly performance, falling 25.9%, followed by Miami and Phoenix. Only Charlotte, N.C., stayed above water, gaining less than 1% over the previous year.
Last Updated: May 27, 2008: 9:36 AM EDT
NEW YORK (AP) -- U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday. It's a somber indication that the housing slump continues to deepen.
Standard & Poor's/Case-Shiller said its national home price index fell 14.1% in the first quarter compared with a year earlier, to its lowest level since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.
The narrower indices also set record declines. The 20-city index tumbled 14.4% during the quarter, the lowest since that index was started in 2001. The 10-city index plunged 15.3%, a record in its 20-year history.
"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," said David Blitzer, chairman of S&P's index committee.
Nineteen of the 20 metro areas surveyed reported annual declines, with 15 of them posting record lows. Six metro areas lost more than 20%.
Las Vegas had the worst quarterly performance, falling 25.9%, followed by Miami and Phoenix. Only Charlotte, N.C., stayed above water, gaining less than 1% over the previous year.
Mortgage applications fall as rates rise
According to the Mortgage Bankers Association's weekly application survey, volume fell 4.6% during the week ended May 23.
May 28, 2008: 7:30 AM EDT
WASHINGTON (AP) -- Mortgage application volume fell 4.6% during the week ended May 23, according to the trade group Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 593.3 during the week, from 621.6 the previous week.
Refinance volume declined 8.9%, pushing total volume lower. Refinance applications accounted for 46.1% of total applications, down from 48.2% a week earlier.
Purchase volume rose 0.1%.
The index peaked at 1,856.7 during the week ended May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 593.3 means mortgage application activity is 5.933 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume declined as interest rates climbed. The average interest rate for traditional, 30-year fixed-rate mortgages increased to 5.96% from 5.90% a week earlier.
Rates for 15-year fixed-rate mortgages -- a popular option for refinancing a home -- averaged 5.49% during the week ended May 23, compared with 5.42% the previous week.
The average interest rate for one-year adjustable-rate mortgages rose to 6.92% from 6.71%.
May 28, 2008: 7:30 AM EDT
WASHINGTON (AP) -- Mortgage application volume fell 4.6% during the week ended May 23, according to the trade group Mortgage Bankers Association's weekly application survey.
The MBA's application index fell to 593.3 during the week, from 621.6 the previous week.
Refinance volume declined 8.9%, pushing total volume lower. Refinance applications accounted for 46.1% of total applications, down from 48.2% a week earlier.
Purchase volume rose 0.1%.
The index peaked at 1,856.7 during the week ended May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 593.3 means mortgage application activity is 5.933 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume declined as interest rates climbed. The average interest rate for traditional, 30-year fixed-rate mortgages increased to 5.96% from 5.90% a week earlier.
Rates for 15-year fixed-rate mortgages -- a popular option for refinancing a home -- averaged 5.49% during the week ended May 23, compared with 5.42% the previous week.
The average interest rate for one-year adjustable-rate mortgages rose to 6.92% from 6.71%.
Friday, May 30, 2008
Home prices continue sharp descent
Steep drops in West. Heartland prices stabilize. Bottom line: 7.7% decline in first quarter.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 14, 2008: 3:10 PM EDT
NEW YORK (CNNMoney.com) -- Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.
The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007.
Lawrence Yun, the chief economist of NAR, attributed much of the record decline to liquidity problems dragging down high-priced markets.
"These are highly unusual results because there were very few jumbo loan originations in the latest quarter," he said. "So sales are much slower in high-cost areas."
Jumbo mortgages skew results
That sales slowdown changed the mix of houses sold.
In California, according to Yun, homes bought with jumbo mortgages - more than $417,000 - accounted for 40% of all sales before liquidity for these loans dried up during the summer of 2007. Since then only 10% of sales in California involved jumbo loans.
In February, Freddie Mac and Fannie Mae, the government sponsored enterprises that guarantee a market for conforming loans, have raised the $417,000 cap to include mortgages of up to $729,750, but lenders were still charging much higher rates for these "conforming jumbos," between 1% and 1.5% more than ordinary conforming loans. The higher rates are discouraging sales in higher price ranges and so skewed NAR's median price results.
Many of these same markets were also among the hardest hit by the subprime implosion, which forced many lower priced homes back on the markets, again dragging down NAR's results.
That helped put many California and other Sun Belt cities, with their toxic combinations of both high prices and heavy proportions of subprime mortgages, among the biggest losers.
In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.
Some Midwestern cities, hard hit by factory closings, also suffered huge losses with Lansing, Mich., prices falling 26.9%. Saginaw, Mich., had the lowest median prices of any of the 150 markets studied; a median house in Saginaw sold for just $65,400.
"You have two themes: the weak industrial economies under increasing pressure by struggles of the Big Three automakers and the deflating of what were once the most prominent bubble markets," said Michael Youngblood, an analyst with FBR Investment Management.
About of a third of the markets did show gains. The best performer in the nation was Binghamton, N.Y., where prices rose 11.8% to $109,700. Then came Peoria, Ill., up 10.4% to $119,000 and Spartanburg, S.C., where prices rose 10.2% to $130,300.
Regionally, in the Northeast, single-family home prices rose slightly, 3.2% to $280,000. But prices in the South dropped 7.5% to $164,200, in the Midwest they fell 7.9% to $142,700 and in the West they plunged 12.3% to $296,300.
Foreclosures put more homes in play
Hurting home prices were big rises in foreclosure rates over the past 12 months, which threaten to get even worse. Delinquencies more than doubled over that time and more than 155,000 lost their homes in bank repossessions during the first three months of the year. With many adjustable rate mortgages (ARMs) poised to reset this year to higher interest rates, defaults could go even higher.
"Yes, but I hasten to say it's not merely the ARMs," said Youngblood. "Fixed rate loans are performing poorly as well."
All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.
The big inventory has led to aggressive price slashing and increased incentives by builders looking to sell homes. They've also cut way back on housing starts, which are at a 17-year low.
The pace of existing home sales, at about 492,000 a month, is about a third less than its peak during the summer of 2005.
Condo prices fared a bit better than single-family homes. The median price fell just 3% since early 2007. The worst hit market was the Sarasota area, where condos dropped 35% over the past 12 months to $268,500. Sacramento condo price cratered 33.4% to $147,200. In Miami, prices fell 26.4% to $176,100.
The best performing condo market was about as far from the madding crowds of South Beach as one can get: Bismarck, N.D., condo prices soared 36.4% compared with 12 months ago, to $124,900.
The price declines in falling markets may not have run their course. Some analysts point to low home prices in many Midwestern cities and assert there's not much room for prices to fall but Youngblood disagrees.
"If we'd had this discussion a year ago, we would have said the same thing - how much further can they fall?" he said. "But jobs are declining and people are moving out and you're getting sharper home price declines than you ordinarily would."
Also, according to Youngblood, the sheer volume of foreclosures takes a toll. "Recent studies report that foreclosed properties sell for an average of 20% less than comparable properties that have not been foreclosed on," he said.
As for the bubble markets that have already lost 30% of their values, Youngblood thinks their declines are not over. He expects some to drop another 20% or so through February 2009.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 14, 2008: 3:10 PM EDT
NEW YORK (CNNMoney.com) -- Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.
The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007.
Lawrence Yun, the chief economist of NAR, attributed much of the record decline to liquidity problems dragging down high-priced markets.
"These are highly unusual results because there were very few jumbo loan originations in the latest quarter," he said. "So sales are much slower in high-cost areas."
Jumbo mortgages skew results
That sales slowdown changed the mix of houses sold.
In California, according to Yun, homes bought with jumbo mortgages - more than $417,000 - accounted for 40% of all sales before liquidity for these loans dried up during the summer of 2007. Since then only 10% of sales in California involved jumbo loans.
In February, Freddie Mac and Fannie Mae, the government sponsored enterprises that guarantee a market for conforming loans, have raised the $417,000 cap to include mortgages of up to $729,750, but lenders were still charging much higher rates for these "conforming jumbos," between 1% and 1.5% more than ordinary conforming loans. The higher rates are discouraging sales in higher price ranges and so skewed NAR's median price results.
Many of these same markets were also among the hardest hit by the subprime implosion, which forced many lower priced homes back on the markets, again dragging down NAR's results.
That helped put many California and other Sun Belt cities, with their toxic combinations of both high prices and heavy proportions of subprime mortgages, among the biggest losers.
In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.
Some Midwestern cities, hard hit by factory closings, also suffered huge losses with Lansing, Mich., prices falling 26.9%. Saginaw, Mich., had the lowest median prices of any of the 150 markets studied; a median house in Saginaw sold for just $65,400.
"You have two themes: the weak industrial economies under increasing pressure by struggles of the Big Three automakers and the deflating of what were once the most prominent bubble markets," said Michael Youngblood, an analyst with FBR Investment Management.
About of a third of the markets did show gains. The best performer in the nation was Binghamton, N.Y., where prices rose 11.8% to $109,700. Then came Peoria, Ill., up 10.4% to $119,000 and Spartanburg, S.C., where prices rose 10.2% to $130,300.
Regionally, in the Northeast, single-family home prices rose slightly, 3.2% to $280,000. But prices in the South dropped 7.5% to $164,200, in the Midwest they fell 7.9% to $142,700 and in the West they plunged 12.3% to $296,300.
Foreclosures put more homes in play
Hurting home prices were big rises in foreclosure rates over the past 12 months, which threaten to get even worse. Delinquencies more than doubled over that time and more than 155,000 lost their homes in bank repossessions during the first three months of the year. With many adjustable rate mortgages (ARMs) poised to reset this year to higher interest rates, defaults could go even higher.
"Yes, but I hasten to say it's not merely the ARMs," said Youngblood. "Fixed rate loans are performing poorly as well."
All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.
The big inventory has led to aggressive price slashing and increased incentives by builders looking to sell homes. They've also cut way back on housing starts, which are at a 17-year low.
The pace of existing home sales, at about 492,000 a month, is about a third less than its peak during the summer of 2005.
Condo prices fared a bit better than single-family homes. The median price fell just 3% since early 2007. The worst hit market was the Sarasota area, where condos dropped 35% over the past 12 months to $268,500. Sacramento condo price cratered 33.4% to $147,200. In Miami, prices fell 26.4% to $176,100.
The best performing condo market was about as far from the madding crowds of South Beach as one can get: Bismarck, N.D., condo prices soared 36.4% compared with 12 months ago, to $124,900.
The price declines in falling markets may not have run their course. Some analysts point to low home prices in many Midwestern cities and assert there's not much room for prices to fall but Youngblood disagrees.
"If we'd had this discussion a year ago, we would have said the same thing - how much further can they fall?" he said. "But jobs are declining and people are moving out and you're getting sharper home price declines than you ordinarily would."
Also, according to Youngblood, the sheer volume of foreclosures takes a toll. "Recent studies report that foreclosed properties sell for an average of 20% less than comparable properties that have not been foreclosed on," he said.
As for the bubble markets that have already lost 30% of their values, Youngblood thinks their declines are not over. He expects some to drop another 20% or so through February 2009.
Where home prices are headed next
Want to know what your home will be worth this time next year? Check out these home price forecasts for the 100 largest U.S. markets, from Money Magazine.
Last Updated: May 8, 2008: 5:56 PM EDT
(Money Magazine) -- The housing implosion is nowhere near over. In 75 of the 100 top U.S. cities, prices are expected to fall in the next 12 months according to Fiserv Lending Solutions.
The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.
Meanwhile, foreclosure filings more than doubled in the first three months of 2008, spiking 112%. So far this year 156,463 families have lost their homes to repossessions. Many markets won't hit bottom till late 2009 or even 2010.
Pity the residents of Stockton, Calif., whose homes are likely to lose more than half of their 2006 value. But if you happen to live in Texas, congratulations: The housing tornado passed you by.
Last Updated: May 8, 2008: 5:56 PM EDT
(Money Magazine) -- The housing implosion is nowhere near over. In 75 of the 100 top U.S. cities, prices are expected to fall in the next 12 months according to Fiserv Lending Solutions.
The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.
Meanwhile, foreclosure filings more than doubled in the first three months of 2008, spiking 112%. So far this year 156,463 families have lost their homes to repossessions. Many markets won't hit bottom till late 2009 or even 2010.
Pity the residents of Stockton, Calif., whose homes are likely to lose more than half of their 2006 value. But if you happen to live in Texas, congratulations: The housing tornado passed you by.
Home sales rise - still near 17-year low
Sales of new homes in April were up slightly from March, but are down 42% from 2007.
By David Goldman, CNNMoney.com staff writer
Last Updated: May 27, 2008: 2:12 PM EDT
NEW YORK (CNNMoney.com) -- New home sales rose unexpectedly in April but remained near historically low levels, according to a key government report on the battered housing market.
April sales came in at a seasonally adjusted annual rate of 526,000, a Census Bureau report showed, up 3.3% from March. The reading was above the consensus forecast of 520,000, according to economists surveyed by Briefing.com.
But home sales were down 42% from a year earlier. April's reading was the second-lowest annual rate since October 1991, behind March of this year. A preliminary report had March's new home sales level at 526,000 - the same as April's - but March's number was revised down to 509,000 in Tuesday's report.
"The momentum is still downward, and that April number is still weak," said National Association of Home Builders chief economist David Seiders. "April marks only a partial reversal of that steep March decline."
Home prices still unsettled
The median price of a new home sold in April was $246,100, up 1.5% from $242,500 a year earlier, according to the report.
This slight bump probably doesn't accurately capture the weakness in prices for new homes, since about three out of four builders have reported having to pay buyers' closing costs or offer other incentives such as expensive features for free in order to maintain sales.
"The price data in this report is notoriously unreliable," said Seiders. "The Case-Schiller number is a much better gauge."
The Standard & Poor's/Case-Shiller national home price index,also released Tuesday, fell 14.1% in the first quarter of 2008 compared with a year earlier. That marked the index's lowest reading since its inception in 1988.
Prices have been driven down recently by the glut of new homes on the market.
The new homes report showed 181,000 completed new homes available at the end of the month, bringing total inventory - including new homes under construction and not yet started - to 456,000, equal to a seasonally adjusted 10.6-month supply.
Seiders noted that continued price declines and lower building rates will help move the market back to equilibrium and help heal a slumping U.S. economy. But with prices still declining, potential buyers are still shying away.
"Price declines do help restore affordability, but the other side of the price sword is that falling prices increase [buyer] expectations of further declines," he said.
The report is the latest sign of trouble in the overall housing market.
Friday, the National Realtors Association reported existing home sales fell to near-record lows in April, and an Office of Federal Housing Enterprise Oversight report said Thursday the prices of homes sold in the first quarter of 2008 posted a record decline.
"The pattern of numbers that are coming out have been very disappointing," Seiders said.
By David Goldman, CNNMoney.com staff writer
Last Updated: May 27, 2008: 2:12 PM EDT
NEW YORK (CNNMoney.com) -- New home sales rose unexpectedly in April but remained near historically low levels, according to a key government report on the battered housing market.
April sales came in at a seasonally adjusted annual rate of 526,000, a Census Bureau report showed, up 3.3% from March. The reading was above the consensus forecast of 520,000, according to economists surveyed by Briefing.com.
But home sales were down 42% from a year earlier. April's reading was the second-lowest annual rate since October 1991, behind March of this year. A preliminary report had March's new home sales level at 526,000 - the same as April's - but March's number was revised down to 509,000 in Tuesday's report.
"The momentum is still downward, and that April number is still weak," said National Association of Home Builders chief economist David Seiders. "April marks only a partial reversal of that steep March decline."
Home prices still unsettled
The median price of a new home sold in April was $246,100, up 1.5% from $242,500 a year earlier, according to the report.
This slight bump probably doesn't accurately capture the weakness in prices for new homes, since about three out of four builders have reported having to pay buyers' closing costs or offer other incentives such as expensive features for free in order to maintain sales.
"The price data in this report is notoriously unreliable," said Seiders. "The Case-Schiller number is a much better gauge."
The Standard & Poor's/Case-Shiller national home price index,also released Tuesday, fell 14.1% in the first quarter of 2008 compared with a year earlier. That marked the index's lowest reading since its inception in 1988.
Prices have been driven down recently by the glut of new homes on the market.
The new homes report showed 181,000 completed new homes available at the end of the month, bringing total inventory - including new homes under construction and not yet started - to 456,000, equal to a seasonally adjusted 10.6-month supply.
Seiders noted that continued price declines and lower building rates will help move the market back to equilibrium and help heal a slumping U.S. economy. But with prices still declining, potential buyers are still shying away.
"Price declines do help restore affordability, but the other side of the price sword is that falling prices increase [buyer] expectations of further declines," he said.
The report is the latest sign of trouble in the overall housing market.
Friday, the National Realtors Association reported existing home sales fell to near-record lows in April, and an Office of Federal Housing Enterprise Oversight report said Thursday the prices of homes sold in the first quarter of 2008 posted a record decline.
"The pattern of numbers that are coming out have been very disappointing," Seiders said.
Trump sells casino for $316 million
Real estate magnate unloads weakest performing of three casinos in the city. New owners plan 'Jimmy Buffett-style' renovation.
May 29, 2008: 12:02 PM EDT
ATLANTIC CITY, N.J. (AP) -- Atlantic City's Trump Marina Hotel Casino is being sold for $316 million to a New York company that plans to rename it "Margaritaville."
Coastal Marina LLC, an affiliate of Coastal Development LLC, said Thursday it is buying the casino from Trump Entertainment Resorts Inc., the casino company founded by real estate magnate Donald Trump.
After the sale, Trump Entertainment will have two remaining casinos in Atlantic City: The Trump Taj Mahal Casino Resort, and Trump Plaza Hotel and Casino.
"They are buying a wonderful building in a great location," Trump said in a statement. "It has been an important part of our company with a loyal customer base and a dedicated team."
Richard T. Fields, chairman of Coastal Marina, said the casino will take on a new identity once the sale closes. No timetable was given.
"Together with Jimmy Buffett's team at Margaritaville, our plans are to create an exciting new property that we believe will tap its full potential and make it one of the most successful destination gaming resorts in Atlantic City," Fields said.
Fields is the co-developer of the Seminole Hard Rock Hotel and Casino in Florida, and also owns a ranching company, Jackson Land and Cattle in Jackson Hole, Wyoming.
Trump Marina was the lowest performing of Trump's three Atlantic City properties. Located in the city's marina district, it was dwarfed by market leaders - and marina neighbors - the Borgata Hotel Casino & Spa, and Harrah's Atlantic City.
In the first quarter of this year, Trump Marina reported a 48% drop in gross operating profits to $4.8 million.
The sale marks the conclusion of an on-again, off-again courtship that Trump Entertainment Resorts has been conducting with potential suitors for the past year. At least two prior deals to sell all or part of the company fell through.
The company reported a wider quarterly loss in the first quarter of this year, blaming a general economic slowdown, competition from out-of-state slots parlors, and promotional costs associated with its new player loyalty program, TrumpONE, which tracks play and awards comps at all three Trump casinos. Each casino used to have its own player card.
The company reported a net loss of $18.6 million, or 59 cents per share, compared with a loss of $8.1 million, or 26 cents per share in the same period a year ago.
Mark Juliano, Trump Entertainment's chief executive officer, said cash from the sale will help it improve its two remaining properties, as well as look at potential opportunities outside Atlantic City.
"The execution of this transaction will provide us with additional financial flexibility to effectively master-plan the future path of our company in the midst of an overall transformation which has already been marked by many successes," he said.
The company's largest project is a new 782 room hotel tower at the Taj Mahal due to open in September.
Trump Marina covers 14 acres and includes a 27-story hotel with 728 guest rooms, including 153 suites. It has 79,000 square feet of casino floor space and approximately 58,000 square feet of convention, ballroom and meeting space.
It also has an 11-bay bus terminal and a roof-top helipad, as well as a nine story parking garage capable of accommodating approximately 3,000 cars. The property also includes the lease for the Senator Frank S. Farley State Marina.
Trump Entertainment Resorts (TRMP) shares rose 47 cents, or 16.3%, to $3.36 in morning trading Thursday.
May 29, 2008: 12:02 PM EDT
ATLANTIC CITY, N.J. (AP) -- Atlantic City's Trump Marina Hotel Casino is being sold for $316 million to a New York company that plans to rename it "Margaritaville."
Coastal Marina LLC, an affiliate of Coastal Development LLC, said Thursday it is buying the casino from Trump Entertainment Resorts Inc., the casino company founded by real estate magnate Donald Trump.
After the sale, Trump Entertainment will have two remaining casinos in Atlantic City: The Trump Taj Mahal Casino Resort, and Trump Plaza Hotel and Casino.
"They are buying a wonderful building in a great location," Trump said in a statement. "It has been an important part of our company with a loyal customer base and a dedicated team."
Richard T. Fields, chairman of Coastal Marina, said the casino will take on a new identity once the sale closes. No timetable was given.
"Together with Jimmy Buffett's team at Margaritaville, our plans are to create an exciting new property that we believe will tap its full potential and make it one of the most successful destination gaming resorts in Atlantic City," Fields said.
Fields is the co-developer of the Seminole Hard Rock Hotel and Casino in Florida, and also owns a ranching company, Jackson Land and Cattle in Jackson Hole, Wyoming.
Trump Marina was the lowest performing of Trump's three Atlantic City properties. Located in the city's marina district, it was dwarfed by market leaders - and marina neighbors - the Borgata Hotel Casino & Spa, and Harrah's Atlantic City.
In the first quarter of this year, Trump Marina reported a 48% drop in gross operating profits to $4.8 million.
The sale marks the conclusion of an on-again, off-again courtship that Trump Entertainment Resorts has been conducting with potential suitors for the past year. At least two prior deals to sell all or part of the company fell through.
The company reported a wider quarterly loss in the first quarter of this year, blaming a general economic slowdown, competition from out-of-state slots parlors, and promotional costs associated with its new player loyalty program, TrumpONE, which tracks play and awards comps at all three Trump casinos. Each casino used to have its own player card.
The company reported a net loss of $18.6 million, or 59 cents per share, compared with a loss of $8.1 million, or 26 cents per share in the same period a year ago.
Mark Juliano, Trump Entertainment's chief executive officer, said cash from the sale will help it improve its two remaining properties, as well as look at potential opportunities outside Atlantic City.
"The execution of this transaction will provide us with additional financial flexibility to effectively master-plan the future path of our company in the midst of an overall transformation which has already been marked by many successes," he said.
The company's largest project is a new 782 room hotel tower at the Taj Mahal due to open in September.
Trump Marina covers 14 acres and includes a 27-story hotel with 728 guest rooms, including 153 suites. It has 79,000 square feet of casino floor space and approximately 58,000 square feet of convention, ballroom and meeting space.
It also has an 11-bay bus terminal and a roof-top helipad, as well as a nine story parking garage capable of accommodating approximately 3,000 cars. The property also includes the lease for the Senator Frank S. Farley State Marina.
Trump Entertainment Resorts (TRMP) shares rose 47 cents, or 16.3%, to $3.36 in morning trading Thursday.
Housing relief: Help, but for how many?
Sponsors of the Senate's bipartisan mortgage bill say it will help 500,000 people. But an Oct. 1 start date means many homeowners could be out of luck.
By Jeanne Sahadi, CNNMoney.com senior writer
May 23, 2008: 10:39 AM EDT
NEW YORK (CNNMoney.com) -- When the Senate Banking Committee passed a housing bill intended to limit foreclosures, panel Chairman Christopher Dodd, D-Conn., said he expected the measure could help 500,000 borrowers stay in their homes.
While the bill could help a lot of people, it's unlikely to help 500,000.
The bill's key provision would allow the Federal Housing Administration (FHA) to insure up to $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.
The Congressional Budget Office has not yet released its official estimates of the bill's FHA proposal.
But in analyzing the potential costs and reach of a similar proposal passed by the House in May, the CBO estimated that 500,000 borrowers may enter the program - and that 35% of them could still default. So the best estimate of the net number of borrowers who will stay in their homes under the program is 325,000.
That would reduce anticipated foreclosure filings by 8% over the next few years, according to an estimate from Goldman Sachs analyst Alec Phillips.
That's not the only factor that could reduce the number of homeowners helped by the Senate bill. In making its estimates, the CBO assumed a June 1 start date for the FHA program. But the Senate version of the legislation - considered more politically viable than the House bill - would start the program on Oct. 1.
That four-month difference is likely to flush from consideration a segment of the bill's immediate target group: the 1.5 million subprime borrowers with adjustable-rate mortgages (ARM) whose loans are scheduled to reset in 2008.
Come Oct. 1, many of those whose ARMs reset between January and May might have already had their homes repossessed or left them during the foreclosure process.
Typically foreclosure proceedings begin after a mortgage payment is 90 days past due. Homeowners who are unable to reach deals with their lenders for more affordable loans may lose their homes within three or four months after the 90-day delinquency period, said Rick Sharga, vice president of marketing for Realty Trac, which publishes foreclosure data.
So those whose rate reset on Jan. 1 could lose their home by June or July. Likewise, anyone whose rate reset in February, March, and April could lose their homes before the new FHA program would go into effect. Some portion of those whose rates reset in May - one of the peak months for subprime ARM resets - could be in the same boat.
"The people the bill will most likely help are those resetting in the third quarter and beyond." Sharga said. "The people who reset in the first quarter will almost certainly be beyond help."
In some states, however, it takes as long as a year to go through the whole foreclosure process, giving some borrowers whose loans reset early in the year a potential chance to use the Senate-proposed version of the FHA program should it become law.
A congressional plan to limit foreclosures would have been most effective if it caught more subprime borrowers before their rates reset. That's because the repossession rate on homes of borrowers with subprime ARMs rises dramatically after reset, according to First American CoreLogic LoanPerformance data from the past decade. The same holds true when considering foreclosure filings and repossessions combined.
Of course, choosing a start date for the FHA program isn't just a matter of figuring out how to limit the maximum number of foreclosures. "There's upfront planning that needs to occur for this to be successful," said Jaret Seiberg, an analyst with the Stanford Group, a Washington policy research firm.
And then there's the political calculus. The bill has been the source of heated wrangling between Democrats and Republicans, which has delayed its path to enactment.
"At the end of the day you compromise to get legislation enacted. But it's better to start the program later than have it lie dead in the Senate."
By Jeanne Sahadi, CNNMoney.com senior writer
May 23, 2008: 10:39 AM EDT
NEW YORK (CNNMoney.com) -- When the Senate Banking Committee passed a housing bill intended to limit foreclosures, panel Chairman Christopher Dodd, D-Conn., said he expected the measure could help 500,000 borrowers stay in their homes.
While the bill could help a lot of people, it's unlikely to help 500,000.
The bill's key provision would allow the Federal Housing Administration (FHA) to insure up to $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.
The Congressional Budget Office has not yet released its official estimates of the bill's FHA proposal.
But in analyzing the potential costs and reach of a similar proposal passed by the House in May, the CBO estimated that 500,000 borrowers may enter the program - and that 35% of them could still default. So the best estimate of the net number of borrowers who will stay in their homes under the program is 325,000.
That would reduce anticipated foreclosure filings by 8% over the next few years, according to an estimate from Goldman Sachs analyst Alec Phillips.
That's not the only factor that could reduce the number of homeowners helped by the Senate bill. In making its estimates, the CBO assumed a June 1 start date for the FHA program. But the Senate version of the legislation - considered more politically viable than the House bill - would start the program on Oct. 1.
That four-month difference is likely to flush from consideration a segment of the bill's immediate target group: the 1.5 million subprime borrowers with adjustable-rate mortgages (ARM) whose loans are scheduled to reset in 2008.
Come Oct. 1, many of those whose ARMs reset between January and May might have already had their homes repossessed or left them during the foreclosure process.
Typically foreclosure proceedings begin after a mortgage payment is 90 days past due. Homeowners who are unable to reach deals with their lenders for more affordable loans may lose their homes within three or four months after the 90-day delinquency period, said Rick Sharga, vice president of marketing for Realty Trac, which publishes foreclosure data.
So those whose rate reset on Jan. 1 could lose their home by June or July. Likewise, anyone whose rate reset in February, March, and April could lose their homes before the new FHA program would go into effect. Some portion of those whose rates reset in May - one of the peak months for subprime ARM resets - could be in the same boat.
"The people the bill will most likely help are those resetting in the third quarter and beyond." Sharga said. "The people who reset in the first quarter will almost certainly be beyond help."
In some states, however, it takes as long as a year to go through the whole foreclosure process, giving some borrowers whose loans reset early in the year a potential chance to use the Senate-proposed version of the FHA program should it become law.
A congressional plan to limit foreclosures would have been most effective if it caught more subprime borrowers before their rates reset. That's because the repossession rate on homes of borrowers with subprime ARMs rises dramatically after reset, according to First American CoreLogic LoanPerformance data from the past decade. The same holds true when considering foreclosure filings and repossessions combined.
Of course, choosing a start date for the FHA program isn't just a matter of figuring out how to limit the maximum number of foreclosures. "There's upfront planning that needs to occur for this to be successful," said Jaret Seiberg, an analyst with the Stanford Group, a Washington policy research firm.
And then there's the political calculus. The bill has been the source of heated wrangling between Democrats and Republicans, which has delayed its path to enactment.
"At the end of the day you compromise to get legislation enacted. But it's better to start the program later than have it lie dead in the Senate."
Realtors settle case with U.S.
Real estate agents were accused of illegally blocking posting of home listings and limiting competition from online brokers.
Last Updated: May 27, 2008: 3:44 PM EDT
WASHINGTON (AP) -- The Justice Department gave a boost Tuesday to online real estate brokers - and potentially their clients - by forcing new industry policies to give Internet-based agents access to home listings they were previously denied.
The tentative settlement, which still requires court approval, could save consumers thousands of dollars when buying a home.
Online real estate agents often charge discounted commission fees and allow buyers to review listings at their own pace.
For years, however, Internet-based brokers were blocked from accessing more than 800 multiple listing services nationwide affiliated with the National Association of Realtors. An MLS is a database of properties for sale.
In a September 2005 lawsuit, government lawyers said such policies discriminated against online brokers. The settlement, filed in U.S. District Court in Chicago, opens the MLS databases to online and traditional residential property agents.
"It really does free brokers generally to engage in whatever they feel is the most efficient and effective way to compete," Deputy Assistant Attorney General Deborah A. Garza of the Justice Department's antitrust division told reporters.
She said the settlement "should lower the cost of the transaction for buying a house."
In 2006, for example, consumers saved up to 1% on the price of a home by using an online broker, Garza said. That year, the median home price amounted to over $225,000, with median commissions of more than $11,000.
Real estate agents earned $93 billion in commissions in 2006, she said.
In a report last year, the Justice Department and Federal Trade Commission found that limits on discount brokers' access to Web listings of for-sale properties have prevented consumers from receiving the cost savings and other benefits that online competition has brought to other industries.
The report found that more consumers use the Web when house hunting than rely on "For Sale" yard signs.
Even so, online brokers who were locked out of the MLS databases were unable to compete with real estate agents, government attorneys said. In at least one case, in Emporia, Kan., an Internet-based agent was forced out of business after the local MLS denied his access to any property listings in the local market.
Tuesday's settlement will not take effect until late summer at the earliest, or 60 days after it wins court approval. It would be in place for 10 years.
It neither imposes a fine on the National Association of Realtors, nor does it force the group to acknowledge any liability.
The group represents 1.2 million real estate agents and other members in more than 250,000 active office locations and branches nationwide.
In a statement, Realtors President Richard F. Gaylord said the Chicago-based association is "focused on what matters most to consumers - re-energizing the housing market."
"Competition is alive and well in the real estate industry," Gaylord said. "In fact, the competitive nature of our industry is even more apparent in times of market turmoil like those we are currently experiencing."
Last Updated: May 27, 2008: 3:44 PM EDT
WASHINGTON (AP) -- The Justice Department gave a boost Tuesday to online real estate brokers - and potentially their clients - by forcing new industry policies to give Internet-based agents access to home listings they were previously denied.
The tentative settlement, which still requires court approval, could save consumers thousands of dollars when buying a home.
Online real estate agents often charge discounted commission fees and allow buyers to review listings at their own pace.
For years, however, Internet-based brokers were blocked from accessing more than 800 multiple listing services nationwide affiliated with the National Association of Realtors. An MLS is a database of properties for sale.
In a September 2005 lawsuit, government lawyers said such policies discriminated against online brokers. The settlement, filed in U.S. District Court in Chicago, opens the MLS databases to online and traditional residential property agents.
"It really does free brokers generally to engage in whatever they feel is the most efficient and effective way to compete," Deputy Assistant Attorney General Deborah A. Garza of the Justice Department's antitrust division told reporters.
She said the settlement "should lower the cost of the transaction for buying a house."
In 2006, for example, consumers saved up to 1% on the price of a home by using an online broker, Garza said. That year, the median home price amounted to over $225,000, with median commissions of more than $11,000.
Real estate agents earned $93 billion in commissions in 2006, she said.
In a report last year, the Justice Department and Federal Trade Commission found that limits on discount brokers' access to Web listings of for-sale properties have prevented consumers from receiving the cost savings and other benefits that online competition has brought to other industries.
The report found that more consumers use the Web when house hunting than rely on "For Sale" yard signs.
Even so, online brokers who were locked out of the MLS databases were unable to compete with real estate agents, government attorneys said. In at least one case, in Emporia, Kan., an Internet-based agent was forced out of business after the local MLS denied his access to any property listings in the local market.
Tuesday's settlement will not take effect until late summer at the earliest, or 60 days after it wins court approval. It would be in place for 10 years.
It neither imposes a fine on the National Association of Realtors, nor does it force the group to acknowledge any liability.
The group represents 1.2 million real estate agents and other members in more than 250,000 active office locations and branches nationwide.
In a statement, Realtors President Richard F. Gaylord said the Chicago-based association is "focused on what matters most to consumers - re-energizing the housing market."
"Competition is alive and well in the real estate industry," Gaylord said. "In fact, the competitive nature of our industry is even more apparent in times of market turmoil like those we are currently experiencing."
Homes sales dip; prices fall sharply
Realtors' group says April sales by homeowners declined by 1%, while inventory jumped 10% and home prices tumbled another 8%.
By Catherine Clifford, CNNMoney.com staff writer
Last Updated: May 23, 2008: 12:01 PM EDT
NEW YORK (CNNMoney.com) -- Sales of existing homes slowed in April while inventory soared, according to a reading of the sagging housing market released Friday.
The National Association of Realtors reported that sales by homeowners dipped in April to an annual pace of 4.89 million, down 1% from the revised March reading of 4.94 million.
The existing home sales rate - including single-family, townhomes, condominiums and co-ops - is 17.5% below the 5.93 million units sold in April 2007.
The 4.89 million sales figure came in slightly ahead of the 4.85 million estimate forecast by economists surveyed by Briefing.com.
The median price of a home sold during the month fell to $202,300, down 8% from $219,900 a year ago. Prices are being pushed down by the growing number of existing homes on the market.
Homes available for sale at the end of April rose 10.5% to 4.55 million, which represents an 11.2-month supply at the current sales pace, up from a 10.0-month supply in March.
"This was the latest in the long string of disappointing results," said Mike Larson, real estate analyst for Weiss Research. He said he expected "relatively disappointing numbers for the next couple months."
What a difference a few years make
Larson put the April existing sales number of 4.89 million in context: in September 2005, the annualized pace was 7.2 million units. That means the current rate is more than 30% down from the peak - the housing market is not booming.
Before the start of the current housing slump, it had been 11 years since prices had fallen compared to a year earlier.
"Some markets like San Diego, Calif., and Fort Myers, Fla., are experiencing rising sales after sudden double-digit drops in local home prices, so lower prices and low interest rates are starting to generate results," said Lawrence Yun, NAR chief economist in a report.
Larson also said that in some markets, bargain hunters are starting to nibble where prices are down nearly 50% from their peak. "But what the national averages are telling us is that we have not reached that tipping point for the nation as a whole," he said.
Single-family home sales slipped 0.5% to a seasonally adjusted annual rate of 4.34 million in April, which is 16.1% below the 5.17 million-unit level from one year ago.
The median existing single-family home price was $200,700 in April, down 8.5% from April 2007.
Regionally, existing home sales in the West actually rose 6.4% in April from March to a level of 1 million, propping up the national average. However, while sales in the West were up, they are still 15.3% below a year ago. The median price in the West was $285,700, which is 16.7% lower than April 2007.
Sales in the Northeast fell 4.4% to an annual pace of 870,000 in April, 14.7% below a year ago. The median price in the Northeast was $262,000, which is 7.7% below April 2007.
In the Midwest, existing home sales were at an annual rate of 1.1 million in April, which is 6.0% below March and 19.7% lower than April 2007. The median price in the Midwest was $159,100, down 2.9% from April 2007.
By Catherine Clifford, CNNMoney.com staff writer
Last Updated: May 23, 2008: 12:01 PM EDT
NEW YORK (CNNMoney.com) -- Sales of existing homes slowed in April while inventory soared, according to a reading of the sagging housing market released Friday.
The National Association of Realtors reported that sales by homeowners dipped in April to an annual pace of 4.89 million, down 1% from the revised March reading of 4.94 million.
The existing home sales rate - including single-family, townhomes, condominiums and co-ops - is 17.5% below the 5.93 million units sold in April 2007.
The 4.89 million sales figure came in slightly ahead of the 4.85 million estimate forecast by economists surveyed by Briefing.com.
The median price of a home sold during the month fell to $202,300, down 8% from $219,900 a year ago. Prices are being pushed down by the growing number of existing homes on the market.
Homes available for sale at the end of April rose 10.5% to 4.55 million, which represents an 11.2-month supply at the current sales pace, up from a 10.0-month supply in March.
"This was the latest in the long string of disappointing results," said Mike Larson, real estate analyst for Weiss Research. He said he expected "relatively disappointing numbers for the next couple months."
What a difference a few years make
Larson put the April existing sales number of 4.89 million in context: in September 2005, the annualized pace was 7.2 million units. That means the current rate is more than 30% down from the peak - the housing market is not booming.
Before the start of the current housing slump, it had been 11 years since prices had fallen compared to a year earlier.
"Some markets like San Diego, Calif., and Fort Myers, Fla., are experiencing rising sales after sudden double-digit drops in local home prices, so lower prices and low interest rates are starting to generate results," said Lawrence Yun, NAR chief economist in a report.
Larson also said that in some markets, bargain hunters are starting to nibble where prices are down nearly 50% from their peak. "But what the national averages are telling us is that we have not reached that tipping point for the nation as a whole," he said.
Single-family home sales slipped 0.5% to a seasonally adjusted annual rate of 4.34 million in April, which is 16.1% below the 5.17 million-unit level from one year ago.
The median existing single-family home price was $200,700 in April, down 8.5% from April 2007.
Regionally, existing home sales in the West actually rose 6.4% in April from March to a level of 1 million, propping up the national average. However, while sales in the West were up, they are still 15.3% below a year ago. The median price in the West was $285,700, which is 16.7% lower than April 2007.
Sales in the Northeast fell 4.4% to an annual pace of 870,000 in April, 14.7% below a year ago. The median price in the Northeast was $262,000, which is 7.7% below April 2007.
In the Midwest, existing home sales were at an annual rate of 1.1 million in April, which is 6.0% below March and 19.7% lower than April 2007. The median price in the Midwest was $159,100, down 2.9% from April 2007.
In search of a fix for jumbo loans
The new jumbo loans that were supposed to get the real estate market moving haven't done the trick. A congressional hearing on Thursday examines why.
By Les Christie, CNNMoney.com staff writer
Last Updated: May 23, 2008: 3:09 PM EDT
NEW YORK (CNNMoney.com) -- When the housing crisis hit last summer, it became very hard for borrowers to land the jumbo loans they needed to buy homes in high-priced areas, like California and New York.
So as part of the Economic Stimulus Act, Congress tried to get funds for jumbo loans flowing again by temporarily raising the dollar limits for mortgages that Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) can buy. The two government-sponsored entities (GSE) had previously only been permitted to buy so-called conforming loans of up to $417,000 and then resell them on the secondary market.
The new limits raised that conforming loan cap to as much as $729,750 in some high-priced metro areas through Dec. 31, in order to make home loans more readily available to help stabilize falling markets.
But the move hasn't juiced the market, and so the House Financial Services Committee is holding a hearing Thursday to examine why.
"The liquidity crisis in mortgages has given added impetus to expanding the conforming loan limit in high-cost areas. As the correction took hold last fall and winter, jumbo and other non-conforming lending all but ground to a halt in many markets," said Thomas Lund, executive vice president for Fannie Mae in his testimony.
Higher prices persist
Despite the increased caps, these new "conforming jumbo" loans - between $417,000 and $729,750 - are still more expensive than the conforming loans below $417,000.
For months after the conforming jumbos were introduced, interest rates for them ranged between a point and a point and a half higher than on regular conforming loans. That made jumbo loans much more expensive; for a $600,000 mortgage, a borrower paid an extra $400 to $600 a month.
In the past, the spread between jumbo and conforming loans was much smaller, a quarter point or so.
"[The raised caps] produced less activity than I thought they would," said Rep. Barney Frank, D-Mass., in opening remarks at the hearing.
"Beneficial effects have be slow to materialize," added Spencer Bachus, R-Ala., ranking member on the committee.
The problem: The investors who buy mortgages on the secondary market still consider these new conforming jumbo loans riskier than the original conforming loans, and put a higher risk premium on them.
"The ultimate investor was not comfortable with the prices of the new jumbos," said Rob McDonald, director with the global business advisory firm FTI Consulting. "The secondary market participants needed to accept the prices Fannie and Freddie were offering."
That reluctance comes despite the fact that buyers who use jumbo mortgages tend to be better credit risks and often put more money down, McDonald said.
Part of the problem is simply that fear is contagious.
"If there's a credit squeeze, despite the higher credit profiles of jumbo loans, there's hesitancy on the part of mortgage backed securities buyers," he said. "This gets to the correlation between subprime secondary mortgage markets and conforming secondary markets."
A different kind of security
Indeed, Fannie and Freddie don't actually package conforming jumbos for sale to investors in the same way they treat sub-$417,000 conforming loans. They are not what's called "TBA-eligible." These are "to-be-announced" transactions where the purchase price is settled at some future date.
The Securities Industry and Financial Markets Association decided in February to exclude jumbo conforming loans from TBA-eligible pools. But the TBA market is well established and understood by investors, according to Jay Brinkman, an economist with the Mortgage Bankers Association.
"Buyers of securities feel very secure about this market," he said. "They're accustomed to the pricing and they know how the securities perform."
The exclusion of conforming jumbos from that market makes them a somewhat unknown security. "No one is sure what their performance will be, so no one is sure how to price them," said Keith Gumbinger of HSH Associates, a publisher of mortgage market information.
The Mortgage Bankers Association argued that the new conforming jumbos should be issued as TBA products, but there was resistance to this. Others were hesitant to introduce any new element that might harm the conforming loan market.
"They said, 'The conforming market is the only one really functioning. Don't mess it up by adding jumbos to it,'" said Brinkman. Indeed, jumbos perform differently for investors than conforming loans.
Jumbo borrowers are more likely to pay off their loans early, which cuts off the revenue stream of their interest payments for investors, while those with $100,000 mortgages tend to keep making the same monthly payment year after year.
If jumbos were packaged with these in the same mortgage-backed securities, investors would require higher interest rates to purchase them. Borrowers of conforming loans would have to pony up the increased interest, in effect subsidizing more affluent, jumbo loan borrowers.
There are other risk factors that makes investors wary. Jumbos are, by definition, less diverse geographically; they're only available in about 70 metro areas - many of the most challenging markets in the nation.
"Look at the markets where these are offered," said Gumbinger. "It's where home prices are falling. An investor will say, 'I'll buy them but I have to get more yield out of them.'"
In early May, Fannie changed in the way these loans are handled; instead of packaging them for sale on the open market, they are keeping them in their portfolios. Fannie can set the price itself and is doing so as if the loans were TBA-eligible.
And weekly mortgage application statistics show that the pipeline for the loans has opened up during the last couple of weeks.
In March 2007, 12.1% of all mortgage loans requests were for jumbos. A year later, only 4.4% were. During the past couple of weeks, jumbos have accounted for 5.8% of all applications.
According to Freddie Mac Vice President Patricia Cook, interest rates for conforming jumbos are now a full point below regular jumbos and only two-tenths of a percentage point higher than conforming loans.
Gumbinger confirms that spreads between conforming and jumbo conforming have narrowed down to below half a point, good news for home buyers in high-priced areas.
Meanwhile, however, interest rates for non-conforming jumbo loans have not improved much, according to Gene Choi, president of Commodore Mortgage Group. "In that market, the pricing is still much higher," he said.
"In January, I had a guy buying a $1.4 million home in New Jersey whose loan was going to be in the upper sevens, 7.875% or so," said Choi. "He was very surprised."
By Les Christie, CNNMoney.com staff writer
Last Updated: May 23, 2008: 3:09 PM EDT
NEW YORK (CNNMoney.com) -- When the housing crisis hit last summer, it became very hard for borrowers to land the jumbo loans they needed to buy homes in high-priced areas, like California and New York.
So as part of the Economic Stimulus Act, Congress tried to get funds for jumbo loans flowing again by temporarily raising the dollar limits for mortgages that Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) can buy. The two government-sponsored entities (GSE) had previously only been permitted to buy so-called conforming loans of up to $417,000 and then resell them on the secondary market.
The new limits raised that conforming loan cap to as much as $729,750 in some high-priced metro areas through Dec. 31, in order to make home loans more readily available to help stabilize falling markets.
But the move hasn't juiced the market, and so the House Financial Services Committee is holding a hearing Thursday to examine why.
"The liquidity crisis in mortgages has given added impetus to expanding the conforming loan limit in high-cost areas. As the correction took hold last fall and winter, jumbo and other non-conforming lending all but ground to a halt in many markets," said Thomas Lund, executive vice president for Fannie Mae in his testimony.
Higher prices persist
Despite the increased caps, these new "conforming jumbo" loans - between $417,000 and $729,750 - are still more expensive than the conforming loans below $417,000.
For months after the conforming jumbos were introduced, interest rates for them ranged between a point and a point and a half higher than on regular conforming loans. That made jumbo loans much more expensive; for a $600,000 mortgage, a borrower paid an extra $400 to $600 a month.
In the past, the spread between jumbo and conforming loans was much smaller, a quarter point or so.
"[The raised caps] produced less activity than I thought they would," said Rep. Barney Frank, D-Mass., in opening remarks at the hearing.
"Beneficial effects have be slow to materialize," added Spencer Bachus, R-Ala., ranking member on the committee.
The problem: The investors who buy mortgages on the secondary market still consider these new conforming jumbo loans riskier than the original conforming loans, and put a higher risk premium on them.
"The ultimate investor was not comfortable with the prices of the new jumbos," said Rob McDonald, director with the global business advisory firm FTI Consulting. "The secondary market participants needed to accept the prices Fannie and Freddie were offering."
That reluctance comes despite the fact that buyers who use jumbo mortgages tend to be better credit risks and often put more money down, McDonald said.
Part of the problem is simply that fear is contagious.
"If there's a credit squeeze, despite the higher credit profiles of jumbo loans, there's hesitancy on the part of mortgage backed securities buyers," he said. "This gets to the correlation between subprime secondary mortgage markets and conforming secondary markets."
A different kind of security
Indeed, Fannie and Freddie don't actually package conforming jumbos for sale to investors in the same way they treat sub-$417,000 conforming loans. They are not what's called "TBA-eligible." These are "to-be-announced" transactions where the purchase price is settled at some future date.
The Securities Industry and Financial Markets Association decided in February to exclude jumbo conforming loans from TBA-eligible pools. But the TBA market is well established and understood by investors, according to Jay Brinkman, an economist with the Mortgage Bankers Association.
"Buyers of securities feel very secure about this market," he said. "They're accustomed to the pricing and they know how the securities perform."
The exclusion of conforming jumbos from that market makes them a somewhat unknown security. "No one is sure what their performance will be, so no one is sure how to price them," said Keith Gumbinger of HSH Associates, a publisher of mortgage market information.
The Mortgage Bankers Association argued that the new conforming jumbos should be issued as TBA products, but there was resistance to this. Others were hesitant to introduce any new element that might harm the conforming loan market.
"They said, 'The conforming market is the only one really functioning. Don't mess it up by adding jumbos to it,'" said Brinkman. Indeed, jumbos perform differently for investors than conforming loans.
Jumbo borrowers are more likely to pay off their loans early, which cuts off the revenue stream of their interest payments for investors, while those with $100,000 mortgages tend to keep making the same monthly payment year after year.
If jumbos were packaged with these in the same mortgage-backed securities, investors would require higher interest rates to purchase them. Borrowers of conforming loans would have to pony up the increased interest, in effect subsidizing more affluent, jumbo loan borrowers.
There are other risk factors that makes investors wary. Jumbos are, by definition, less diverse geographically; they're only available in about 70 metro areas - many of the most challenging markets in the nation.
"Look at the markets where these are offered," said Gumbinger. "It's where home prices are falling. An investor will say, 'I'll buy them but I have to get more yield out of them.'"
In early May, Fannie changed in the way these loans are handled; instead of packaging them for sale on the open market, they are keeping them in their portfolios. Fannie can set the price itself and is doing so as if the loans were TBA-eligible.
And weekly mortgage application statistics show that the pipeline for the loans has opened up during the last couple of weeks.
In March 2007, 12.1% of all mortgage loans requests were for jumbos. A year later, only 4.4% were. During the past couple of weeks, jumbos have accounted for 5.8% of all applications.
According to Freddie Mac Vice President Patricia Cook, interest rates for conforming jumbos are now a full point below regular jumbos and only two-tenths of a percentage point higher than conforming loans.
Gumbinger confirms that spreads between conforming and jumbo conforming have narrowed down to below half a point, good news for home buyers in high-priced areas.
Meanwhile, however, interest rates for non-conforming jumbo loans have not improved much, according to Gene Choi, president of Commodore Mortgage Group. "In that market, the pricing is still much higher," he said.
"In January, I had a guy buying a $1.4 million home in New Jersey whose loan was going to be in the upper sevens, 7.875% or so," said Choi. "He was very surprised."
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