http://seekingalpha.com/article/81135-ofheo-gse-s-loan-loss-capital-reserve-requirements-to-change-housing-tracker
OFHEO: GSE's Loan Loss/Capital Reserve Requirements To Change
Quote of the Day
“This is the investment of a lifetime.” - Jun Han, author of an extensive study of the CMBS market for the Commercial Mortgage Securities Association. Han attributed CMBS’ poor performance, among other things, to the unfortunate effect of having the word “mortgage” in its name—causing investors to automatically extend fears about the residential market’s troubles to the commercial market. (Commercial Property News, June 10th)
Subprime Fallout
A Cold Market For Jumbo Loans Shows Signs Of A Thaw; Borrowers Seeking Up To $729,750 See Rates Ease. “Rates on conforming jumbos began declining in May after Fannie said it would buy the loans for its own portfolio -- instead of trying to sell them to investors. It also said it would buy them at interest rates that were on par with smaller conforming loans... Rates on 30-year fixed-rate conforming jumbos averaged 6.39% last week, just 0.14% above the 6.25% for conforming loans of less than $417,000... Also, Fannie and Freddie have loosened their underwriting criteria a bit… The February stimulus package also raised the Federal Housing Administration's maximum loan amount to $729,750.” (LA Times, June 12th)
Lewis Remains Committed To Buying Countrywide. “Bank of America Corp. (BAC) CEO Ken Lewis said Wednesday that there are no plans to call off its $4 billion deal to acquire Countrywide Financial Corp. and that he believes charge-offs and delinquencies in the U.S. will peak in Q3. Lewis also affirmed his commitment to his company's investment banking unit and said this quarter may be among its most profitable. In the home loan market, Lewis pointed out that the Charlotte bank will control a 20 percent to 25 percent market share once the Countrywide deal is completed, and that will boost business once the housing crisis comes to an end.” (Charlotte Observer, June 12th)
Financials Resist Plan On Rating Reforms. “Proposals being considered by US regulators to force credit ratings agencies to brand structured products with special symbols are facing opposition from financial industry participants. The idea of differentiating the ratings of complex debt and mortgage-related products - which are at the heart of the credit crisis - from other traditional debt is likely to be addressed as part of a new rules for rating agencies to be proposed today by the US SEC. Ratings agencies, which are paid by the issuers whose securities they rate, have been criticized for failing to act quickly enough to warn investors about complex debt products.” (Financial Times, June 11th)
Higher Week-To-Week Mortgage Applications: MBA. “Mortgage Bankers Association: Mortgage applications filed in the week ended June 6 rose 10.9% on a seasonally adjusted basis compared to the [previous] week. The increased filings for both mortgages to buy homes and re-financings of existing mortgages coincided with higher interest rates on fixed- and adjustable-rate mortgages… Total application volumes were down an unadjusted 16.5% compared with the same week in 2007. Refinancing applications increased 8.4% week-to-week. Filings for mortgages to purchase homes rose a seasonally adjusted 12.8%... Refinance applications made up 39.8% of all MBA mortgage activity… ARMs accounted for 10.3% of all applications, up from 8.7%.” (MarketWatch, June 11th)
Is BofA-Countrywide Deal Bad News for FIS? “Fidelity National Information Services (FIS), Inc. could be facing a loss in business when Bank of America (BAC) and Countrywide Financial Corp. (CFC) complete their merger later this year. SEC filing: FIS said its subsidiary Lender Processing Services Inc. stands to lose business with BofA announcing the possibility that it will consider no longer using the mortgage processing and appraisal services now provided by LPS after its merger with Countrywide. FIS says BofA is leaning towards handling those particular functions in-house. FIS added, “These services together generated approximately 1.4% of FIS consolidated and 4% of LPS revenue in 2007.” (Default Servicing News, June 11th)
OFHEO’s Updated Rule Could Change GSEs’ Loss Severity Calculations. “New Office of Federal Housing Enterprise and Oversight proposed guidelines… will change the core risk-based capital requirements that Fannie Mae and Freddie Mac are required to carry to ensure the platforms are protected when credit-risk conditions or interest rates worsen… “Unaltered, the loss severity equations overestimate Enterprise recoveries for defaulted government-guaranteed and low loan-to-value mortgages. Those results are not consistent with the Risk-Based Capital regulation and result in significant reductions to the risk-based capital requirements of the Enterprises.” The second change will correct the GSEs’ “prior treatment of FHA insurance associated with single-family mortgages with an LTV below 78%,” which is currently non-compliant with current laws.” (Default Servicing News, June 11th)
Mortgage-Related Credit 'Stable' At Big Banks. “The overall mortgage-servicing portfolio of the nation's nine largest firms in the industry shows credit quality that is "relatively satisfactory and relatively stable" over the last two quarters, the federal Office of the Comptroller of the Currency said Wednesday.” (MarketWatch, June 11th)
MBIA Letter to Shareholders. “MBIA announced it won't make a planned $900 million capital contribution to MBIA Insurance Corporation. I also found [MBIA’s press release] interesting: “[B]ased on our discussions with the rating agencies and in trying to think about their challenges, what I believe has really changed in the past three months is that both Moody’s and S&P have far less comfort in forecasting a worst case housing-related stress case loss scenario.” CR: I'm not surprised that Moody's and S&P feel less comfortable forecasting a worst case for housing - every time they've made a forecast, the housing market has surprised to the downside.” (Calculated Risk, June 11th)
Mortgages No Longer a Stigma in Retirement; Many Will Never Pay Off Home Loans. “Third annual Affluent-Boomers-at-60 survey from Bell Investment Advisors: [While] the prior generation’s [retirement goal] was to “burn the mortgage,” more than 55% of boomers surveyed who currently hold mortgages do not plan to pay their mortgages off until their 70s, if ever. This trend was most pronounced in the Western US, where 31% of those with mortgages do not ever intend to pay them off, compared with 25% in the South, 18% in the Midwest and 11% in the Northeast. Of the 500 boomers surveyed approximately two-thirds currently have mortgages on their residences. The remaining third either rent or do not have a mortgage.” (Originator Times, June 11th)
Growing Lender Announces Plan to Hire 75-100 Mortgage Professionals. “Residential Finance Corporation (RFC), a nationwide mortgage lender, announced its continued expansion plans to hire between 75-100 people in Q3’08. The majority of job openings will fill mortgage banking positions in the company's Columbus, OH headquarters and Tampa, FL location. RFC President, Michael Isaacs: What sets us apart and helps drive our growth in today’s market is our continual investment in technology, training and marketing.” (Originator Times, June 11th)
HUD Still Trying To End Seller-Funded Loans. “The Bush administration is again moving forward with a proposal to ban seller-funded down-payment assistance for FHA-backed loans, reopening the public comment period on the plan for 60 days. The Department of Housing and Urban Development was forced to reopen an administrative proceeding on the rule change after a judge ruled it did not adequately explain its reasons for reversing past policy on seller-funded loans -- a practice it defended as recently as 2005… Now HUD argues that the loans artificially inflate home prices and are three times more likely to end up in foreclosure.” (Inman News, June 10th)
More Stress is Forecast for Banks. “Bank lending to real estate developers [is] an emerging threat and more failures [are expected]… Donald Kohn, vice chairman of the Federal Reserve: "We expect bank holding companies to continue to report weak earnings and further asset valuation write-downs and/or significant credit costs in coming quarters… Coverage of nonperforming loans by loan loss reserves has not kept pace with growth in problem assets and bank holding companies may likely… need to further bolster loan loss reserves." Sheila Bair, chairman of the Federal Deposit Insurance Corporation: "Banks continue to experience increased [earnings] pressure resulting from a deterioration in credit quality… particularly pronounced in construction and development lending." (Int’l Herald Tribune, June 10th)
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