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TARP Watchdog: Treasury Should've Went BK with GMAC
March 11, 2010
A scathing report by a Congressional watchdog examining the bailout of GMAC Inc. found that the Treasury Department did not adequately protect taxpayer money. The government should have orchestrated a strategic bankruptcy of the auto finance and mortgage lender last year rather than invest $17.2 billion to save it, according to a draft of the report to be released Thursday by the Congressional Oversight Panel of the Troubled Asset Relief Program. GMAC is the parent company of Residential Capital Corp., an active residential funder and the nation's fifth largest servicer. "The rescue came at great public expense," the 152-page report says. The oversight panel also found that GMAC was treated more favorably than other companies in comparable circumstances, including both General Motors Corp. and Chrysler Group LLC, which were forced into bankruptcy. Last month, the report says, the oversight panel asked for "assurances from witnesses" that no third-party shareholder in GMAC would receive a return on its investment before taxpayers. The government currently owns 56.3% of the company. "The fact remains that the only way to ensure that result would have been through a bankruptcy," the report stated. "The panel remains unconvinced that in 2008 or very early 2009 bankruptcy or a similar restructuring, including a sale of the automotive financing business, was not a real possibility; nor has the panel been convinced that even now a GMAC or ResCap bankruptcy or sale of the automotive financing is impossible." In 2006 a consortium led by Cerberus Capital agreed to pay $14 billion for a 51% stake in GMAC. After the government takeover of the company, Cerberus' position in GMAC has been severely reduced with the value of its investment becoming almost worthless.
Index Finds Home Prices Drop with Less Micro Variation
March 11, 2010
Data from Integrated Asset Services LLC, Denver, Colo., show that national home prices fell 2.3% in January, when there was somewhat less variation than usual at micro-market levels. The IAS360 House Price Index said "severe winter weather" in large regions of the country likely lay behind the relatively widespread depressed home prices even in micro-markets. The default management and residential collateral valuations provider found that all four of the U.S. census regions fell in January. The Northeast was down another 0.5% and the South was down 2.2% due to double-digit declines in Georgia and Alabama. The West saw a 2.6% decline and Midwest prices dropped another 2.6% for the month, following a drop in December. The Midwest region, which includes hard-hit states like Illinois (-4.9%), Missouri (-4.4%), and Minnesota (-3.5%) has now given back all of its 2009 gains. In addition, national home prices saw their largest single-month decline in the index in over a year, down 30% from its high in mid-2007.
ICP to Transfer Businesses to PrinceRidge
March 10, 2010
ICP Capital has agreed to transfer its domestic and international capital markets businesses to PrinceRidge Holdings LP to create an international investment-banking boutique serving investors and issuers in the institutional fixed income markets. The combined firms will operate under the PrinceRidge Holdings name and ICAP will become a partner of PrinceRidge. ICP president and CEO Tom Priore will be advising on the combined firm's continuing international expansion as well as "strategic development initiatives" in the United States. The companies expect integration and closing to be completed in the second quarter, subject to regulatory approvals. PrinceRidge has been working on a capital markets effort targeting the underserved U.S. jumbo mortgage market.
Developers Closed on Most South Beach Condos Built Since '03
March 10, 2010
Condominium developers in South Florida's famed South Beach area have closed on some 4,150 new units since 2003, for an average price of $891,000 per unit. But that still leaves about 1,450 apartments that remain unsold, according to a report published by Condo Vultures, a Bal Harbour-based real estate consulting firm. The unsold inventory represents 26% of the units built since '03 in the 37 projects erected in the trendy, 24-block South Beach neighborhood. Meanwhile, Condo Vultures also reports that more single-family houses are on the market in Palm Beach than in any other county in South Florida, and the inventory isn't getting any smaller. More than 10,000 houses were for sale in the county at the beginning of March, an increase of almost 4% since Thanksgiving. By comparison, the inventory of unsold houses in Miami-Dade is down more than 6% to about 8,300 units, while in Broward, the inventory is relatively unchanged at some 8,100 houses. Consultant Peter Zalewski suggests that one reason for the increase in the number of homes up for grabs in Palm Beach County is that some owners who are under no pressure to sell believe that sales have begun to stabilize and have decided to test the market.
Purchases Drive Mortgage Bankers' Application Increase
March 10, 2010
Purchase mortgage application volume had a strong week and was the driver of the increase in the Mortgage Bankers Association's Market Composite Index for the week of Feb. 26. The MCI, a measure of mortgage loan application volume, increased 0.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1.2% compared with the previous week. The Refinance Index decreased 1.5% from the previous week and the seasonally adjusted Purchase Index increased 5.7% from one week earlier. The market share of refi applications reached its lowest level since October 2009, MBA said. This fell to 67.2% of total applications, down from 69.1% the previous week. On the other hand, the market share of adjustable-rate mortgage applications is at its highest level since November 2009. This was 5.1%, up from 4.8% for the previous week. After a single week below the 5% mark, the average contract interest rate for 30-year fixed-rate mortgages is 5.01%. This is up 6 basis points from the previous week's 4.95%, with points declining to 0.82 from 0.99 (including the origination fee) for loans with an 80% percent loan-to-value ratio. The average contract interest rate for 15-year FRMs increased by 5 bps to 4.32%. The average contract interest rate for one-year ARMs increased by 3 bps to 6.80% from 6.77%.
Appraisers Warn About BPOs and Property 'Flopping'
March 10, 2010
Appraisers are raising alarms that the Treasury Department's decision to use broker price opinions (BPOs) for its new short sales program will exacerbate mortgage fraud and property "flopping." Three appraiser groups are urging Treasury to review the Home Affordable Foreclosure Alternatives program guidelines and prohibit the use of BPOs for property valuations on short sales. Their letter to Treasury secretary Timothy Geithner points to a new trend in sales of distressed properties: "flopping," whereby the value of a home is artificially deflated using a BPO and sold to a related party of the real estate agent who quickly sells that property for a profit. "Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists. They have an inherent bias toward quick results which produce a fee for themselves, irrespective of whether the lender/servicer/property owner/borrower gets a fair return on a short sale," the March 8 letter says. The Appraisal Institute, American Society of Appraisers and National Association of Independent Fee Appraisers signed the letter. Property "flipping" (as opposed to "flopping") usually involves the quick sale of real estate using straw borrowers (and payoffs to these borrowers) to artificially inflate a home for quick profit or some type of equity stripping scheme. Inflated appraisals play a key role in flipping schemes.
Moody's: Good and Bad News on Essent
March 9, 2010
The entrance of a new firm, Essent Guaranty, into the mortgage insurance space is a positive for the sector as a whole, but could spell bad news for some existing players, according to a report from Moody's Investor Service. A new player, the report says, "expands the origination capacity, currently constrained, and, therefore the relevance, of the sector. The new player will, however, adversely affect the weakest mortgage insurers by bringing in alternative origination capacity." Moody's explained that supporting the continued relevance of mortgage insurance is key during this period when the government is deciding the future role of Fannie Mae and Freddie Mac. Even though a decision is not expected to be made until 2011, "We cannot rule out the possibility that narrower GSE charter modifications will be imposed that are intended to increase funding for the high LTV segment of the market ahead of such reform. Such modifications could hurt the mortgage insurers if they support an alternative to, or reduce the need for, mortgage insurance," says the report, written by Arlene Isaacs-Lowe, a senior vice president at Moody's. New capacity reduces the likelihood of that kind of charter modification taking place. But Moody's thinks weaker MI players could be hurt by the entrance of new capital because originators and the GSEs could reevaluate their relationships with those firms and limit the amount of new business they get.
Fairway Sees Volume Explode in New England
March 9, 2010
Fairway Independent Mortgage Corp., Sun Prairie, Wisc., funded $720 million in residential loans in the New England area last year, a 244% jump from 2009. The 14-year old company said it now ranks among the top 30 lenders in Massachusetts (the most populous state in the region) compared to 76th a year earlier. Company CEO Steve Jacobson credited Fairway's branch managers for the strong showing. "It's back to selling mortgages like we did ten years ago when everybody had to be extremely detailed," he said. "Our local branch managers are proof that it's possible to thrive in a challenging market if you're a strong leader." FIMC has 80 branches and 900 employees nationwide.
NABE Survey: Banks Won't be Hurt by CFPA
March 9, 2010
The creation of an independent Consumer Financial Protection Agency would not impair safety and soundness regulation of banks, according to a majority of business economists. A survey by the National Association of Business Economics found 54% of economists are dismissive of claims by the banking industry (and their supporters in Congress) that a CFPA would undermine S&S regulation. A quarter (25%) of the 203 economists surveyed believe passage of CFPA legislation would be detrimental to safety and soundness. The House passed a bill that would create a stand-alone agency with rulemaking and enforcement powers to stop abusive mortgage lending and credit card practices. Such a strong consumer protection agency has run in to fierce opposition in the Senate where banking committee members are trying to wrap up negotiations on a massive financial regulatory reform bill. House Financial Services Committee chairman Barney Frank told a meeting of minority real estate professionals that CFPA opponents seem to be arguing that consumer protection will hurt banks. "There are people who believe if the banks aren't able to treat consumers unfairly they can't survive," Rep. Frank said.
Government Bans Lend America and Ashley
March 9, 2010
Defunct FHA lender Lend America and its "chief business strategist," Michael Ashley -- who controlled the company -- have effectively been barred from the mortgage industry, according to newly released court documents. The ban springs from a civil suit brought by the Justice Department on behalf of the FHA against the Melville, N.Y.-based nonbank and Mr. Ashley. Amid investigations against the company, LendAmerica closed its doors in early December. FHA found that the company had violated numerous underwriting guidelines and according to interviews conducted by NMN the company was refinancing some loans without paying off the prior liens. In agreeing to a ban from mortgage banking, Mr. Ashley, 44, did not admit liability, according to the agreement filed recently in federal court in Central Islip. In return, anything tied to federal-related loans is off limits -- from appraising properties and marketing mortgages to working as a consultant or housing counselor, Newsday reported. "I'm beyond thrilled to be done with the mortgage business," Mr. Ashley said. "I've had it with the mortgage business. I'm done with everybody chasing me around."
