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Freddie Losses Driven by Credit Issues
November 6, 2009
Freddie Mac had credit-related expenses of $7.5 billion for the third quarter, which was the leading driver of its $6.3 billion net loss to common stockholders. Without a $1.3 billion dividend payment to the U.S. Treasury, the loss would have been $5 billion. During the quarter, Freddie Mac had further deterioration in its single-family guarantee portfolio. The delinquency rate went from 2.78% at the end of the second quarter to 3.33% at the end of the third quarter. The company blamed the increase on weak economic conditions and, in part, to extended foreclosure timelines and to a high volume of seriously delinquent loans that are remaining in trial periods under the Home Affordable Modification Program that might have otherwise completed modification or proceeded to foreclosure. Single-family net charge-offs increased to $2.2 billion in the third quarter of 2009, compared with $1.9 billion in the second quarter of 2009, while nonperforming assets increased to $91.6 billion from $76.9 billion during the same period. Freddie Mac had positive net worth of $10.4 billion at Sept. 30. As a result of the positive net worth, no additional funding from Treasury was required for the third quarter. The positive net worth reflects an $8.5 billion gain in accumulated other comprehensive income primarily driven by improved values on the company's available-for-sale securities.
HUD Imposes Penalties on Two FHA-Approved Lenders
November 6, 2009
The Department of Housing and Urban Development's Mortgagee Review Board is imposing civil money penalties totaling $27,000 on two Federal Housing Administration-approved lenders in Wisconsin and Connecticut for a variety of violations of FHA lending and marketing standards. In the first action, HUD imposed $20,000 in penalties against Green Bay, Wis.-based 1st Rate Mortgage Corp. for allegedly violating HUD/FHA's third-party origination restrictions, making false certifications concerning the compliance with these restrictions and failing to maintain a quality control plan in accordance with HUD/FHA requirements. In the second action, HUD imposed $7,000 in penalties against New Haven, Conn.-based Access Mortgage Corp. for allegedly violating HUD/FHA requirements by improperly using the official FHA logo and failing to notify HUD of a change in its "doing business as" name. Each lender, neither of which responded to requests for comment, will have an opportunity to challenge the imposition of civil money penalties and seek a hearing before an administrative law judge. In addition, HUD reached tentative settlements with four other lenders — Irvine, Calif.-based Nations Direct Mortgage, Grand Rapids, Mich.-based VanDyk Mortgage Corp., Minneapolis-based U.S. Bank NA and Cerritos, Calif.-based Sun West Mortgage Co. — and issued a letter of reprimand to Community Lender Inc. of Boise, Idaho, for allegedly violating HUD regulations.
Fannie Regulator Clears Sale of Tax Credits
November 6, 2009
The Federal Housing Finance Agency has cleared Fannie Mae to sell roughly $2.6 billion in low-income housing tax credits to unidentified third-party investors believed to include Goldman Sachs & Co. and Berkshire Hathaway. In a new SEC filing, Fannie notes that it has a "nonbinding letter of intent" to transfer its equity interests in the LIHTCs for an undisclosed amount. Fannie says it will sell them for "a price that exceeds their current carrying value. Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time." Fannie says its regulator told it that it would not object to the sale. The FHFA is now asking for Treasury's approval on the deal. Fannie says that if it cannot sell the tax credits it will take an other-than-temporary impairment charge "to reduce" their carrying value to zero.
Fannie Loses $18.8 Billion in Quarter
November 6, 2009
Fannie Mae posted yet another stunning loss in the third quarter, $18.8 billion, noting that it now owns or guarantees close to $200 billion in nonperforming assets. The steep loss resulted in the government-controlled GSE having a net worth deficit of $15 billion at the end of September. In tandem with the loss, its regulator has asked the Treasury Department for $15 billion to bring the GSE's net worth above zero. Over the past five quarters Fannie has lost $85 billion. In a new filing with the Securities and Exchange Commission, Fannie offered a slight glimmer of hope for the future: its guarantee fee income rose 12% in the quarter to $1.9 billion (compared to the second quarter). It also predicts that "absent further economic deterioration" its credit-related expenses will be less in 2010 than this year. With 3Q under its belt, Fannie now has combined credit loss reserves of $65.9 billion. Its credit book of business now stands at $3.23 trillion. Fannie Mae and its sister company, Freddie Mac, were taken over by the government in September 2008 and placed into separate conservatorships.
PMI Posts Another Loss, but Sees Improvement
November 6, 2009
Driven by charges and adjustment expenses in its domestic mortgage insurance business, The PMI Group Inc., Walnut Creek, Calif., posted a net loss of $93 million for the third quarter, a marked improvement over the same period last year when it lost $229 million. The MI suffered $337 million of consolidated losses and loss-adjusted expenses in the quarter, compared to $383 million one year prior. Net premiums written came in at $167 million for the third quarter, down from $176 million during the same quarter last year. The decrease was from a lower volume of new insurance written and higher refunded premiums from rescissions of insurance previously written. PMI disclosed it is in negotiations with one state — which it did not name — over an interpretation it is in violation of that state's financially hazardous condition regulation. If the state prevails the company indicated it could be forced to stop underwriting policies in that state. PMI has a risk to capital ratio of 18.5-to-1. It took steps which resulted in an additional $139 million in surplus capital for the company. There are 14 states that have some form of risk-to-capital standard. In California and Arizona (where PMI is domiciled), as well as North Carolina, steps have been taken to relax the risk to capital ratio requirement of 25-to-1. Meanwhile, PMI is in discussions to write new insurance policies should it fail the risk to capital standard through a recapitalized existing subsidiary.
PennyMac Vulture Fund Posts Loss, Considering a Conduit
November 6, 2009
PennyMac Mortgage Investment Trust, a mortgage vulture fund created by a former Countrywide executive to profit from the mortgage crisis, posted a $730,000 loss for the period ending Sept. 30. Meanwhile, the company confirmed recent market rumors that it is working on a conduit to provide small mortgage lenders "an outlet for their newly originated mortgage loans." PennyMac founder and CEO Stanford Kurland said in a statement that the company has reviewed $6.9 billion in potential acquisitions of nonperforming mortgage assets but refuses to overpay for product. "While some market participants have been willing to accept lower yields and bid more aggressively, we still believe that it is in the best interest of our shareholders over the long term to remain patient in order to maximize the returns from our long-term investment opportunities," Mr. Kurland said in a statement. A publicly traded REIT, PennyMac manages and services about $324 million in assets. Since going public in August, its stock has been thinly traded. On Friday its shares were trading just above their 52-week low of $17.72. Its high is $20.
Obama Signs Extension, Expansion of Homebuyer Tax Credit
November 6, 2009
With the nation's unemployment rate busting through the 10% mark in October, President Obama on Friday signed legislation extending the $8,000 first-time homebuyer tax credit and giving additional tax breaks to certain homeowners trading up. Passed overwhelmingly by Congress, the bill would provide a $6,500 tax credit to homeowners who are buying a new primary residence beginning Dec. 1. The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous eight. But there are caps on the tax credits. They only apply to individual buyers who make no more than $125,000 and $250,000 for couples. There is also an anti-flipping provision: Any homeowner who collects the credit and sells within three years must return the money. The FTHB was extended to cover consumers signing a contract by April 30 and closing by June 30. Meanwhile, the Department of Labor reported Friday that the nation's unemployment rate rose above 10% for the first time since 1983 in October, a much worse jump than expected. The increase in joblessness will lead to an upswing in residential mortgage delinquencies. In October the unemployment rate spiked to 10.2%, compared to 9.8% in September. Economists had forecast an increase to 9.9%.
Despite Strong Originations, Lenders Continue to Shed Jobs
November 6, 2009
Even though residential originations swelled in the third quarter, the mortgage banking and brokerage sectors continued to shed jobs in September, according to new government figures. The mortgage banking industry employed 192,400 full-timers during the period, a loss of 1,800 positions from the previous month. (The mortgage numbers trail the national figures by one month.) Broker-related positions dropped 1% to 66,900 positions. (The numbers are exclusive of each other.) According to figures compiled by National Mortgage News and the Quarterly Data Report, residential lenders are on track to fund $2.1 trillion in loans this year, compared to $1.6 trillion last year. The Mortgage Bankers Association believes lenders will fund just $1.5 trillion in 2010, setting the stage for layoffs. Jay Brinkmann, chief economist for MBA, said lenders are holding off on making any personnel decisions until they have a clearer picture of what next year will look like in terms of production. If MBA's forecast proves correct, fundings will fall by 29% next year. However, firms are increasing their staff levels in servicing, loan modifications and compliance, which could buffer the layoff picture for mortgage professionals. During the height of the origination boom three years ago bankers and brokers employed more than 500,000 full time workers.
FBR Cuts Radian EPS
November 5, 2009
FBR Capital Markets increased its projected net loss for this year at The Radian Group, Philadelphia, as it believes credit losses will have a more significant near-term impact on the mortgage insurer. "While we expect Radian to benefit from the same loss mitigation efforts (rescissions, denials and modifications) that will also benefit MGIC, the outlook for credit losses and the associated capital relief coming from the financial guaranty subsidiary remains an open question for us," said analysts Steve Stelmach and Amy DeBone. FBR maintained its "outperform" rating on MGIC even after the large loss it reported. It rates Radian at "market perform." FBR increased its projected loss estimate for this year at Radian from $1 per share to $1.87 per share and its 2010 EPS estimate from a profit of $0.50 to a loss of $0.52. It is the financial guaranty business at Radian that concerns the analysts, who said their view of Radian's MI business is fairly consistent with the positive outlook they have for MGIC. Radian's fourth-quarter results will be negatively impacted by losses associated with trust preferred CDO exposure at the company's financial guaranty unit. "Until we gain some comfort that the financial guaranty book has avoided significant losses, we'll likely remain on the sidelines. Debt maturities are also a near-term hurdle," FBR added.
Freddie Survey Finds Rates Under 5%
November 5, 2009
A slight drop in the average weekly rate for 30-year conforming mortgages to a point slightly below the key 5% level could spur more interest in housing loans. During the week ended Nov. 5 the rate inched down to 4.98% from 5.03% the previous week, according to Freddie Mac's Primary Mortgage Market Survey. A year ago the 30-year rate averaged 6.20%. The average rate for a15-year fixed-rate mortgage fell to 4.4% from 4.46% a week ago and from 5.88% a year ago. The average rate for a five-year Treasury indexed hybrid adjustable-rate mortgage slid to 4.35% from 4.42% a week ago and from 6.19% a year ago. The average one-year Treasury ARM rate declined to 4.47% from 4.57% the previous week and 5.25% a year ago. Average points were 0.7 for 30-year mortgages, 0.6 for 15-year mortgages and five-year Treasury hybrids and 0.5 for one-year Treasury ARMs.
