Refinance Free Credit

Fannie Mae (FNM: 30.16, +6.61%) said Tuesday morning that it lost $2.2 billion, or $2.57 per share, during a first quarter that saw credit quality continue to deteriorate at the GSE; the loss compares to a $3.6 billion loss posted one quarter earlier. Significant widening of credit spreads, and higher-than-expected home price declines and loan loss severity led to the losses, Fannie said in a press statement.

The GSE also said it will seek $6 billion in fresh capital, with $4 billion in an immediate offering of common stock, and another $2 billion in preferred stock to be issued at a later date. It also cut its dividend to 25 cents from a previous thirty cents, after cutting from 50 cents earlier this year.

Credit and derivative losses rose to $7.6 billion during Q1, up from $6.4 billion one year earlier, offsetting a $700 million jump in quarterly revenue to $3.8 billion.

“During the first quarter we saw heightened volatility in the secondary mortgage market, credit spreads that widened out to 22-year highs, and home prices that fell faster than expected,” Fannie CEO Daniel Mudd.

Once $6 billion in additional capital has been raised, Fannie will see restrictions on its capital levels loosened further from 20 percent to 15 percent above statutory minimums, the Office of Federal Housing Enterprise Oversight said in a separate statement Monday. The GSE regulator may further reduce its requirement to 10 percent in September, Fannie said, should it continue to remain above the capital surplus requirement; OFHEO first loosened its capital surplus charge in the middle of March from an originally-imposed 30 percent level.

A look at credit quality
Fannie Mae said that credit losses ballooned to 12.6 basis points relative to its average guaranty book of business in Q1, up from Q4’s reported 8.1 basis points. Driving a totla of $3.2 billion in total credit losses for the quarter was $2.3 billion in provisioning for expected losses on loans guaranteed by the mortgage giant.

Michigan and California alone accounted for 38.2 percent of credit losses during the quarter, underscoring that some of the nation’s most troubled housing markets are perhaps more deeply troubled than many press pundits currently think. And Alt-A loans — so-called “liar’s loans” that offered mortgage credit with little or no borrower documentation or lender verification — drove 42.7 percent of Fannie’s first quarter credit costs, it said.

The quickening pace of losses led the GSE to yet again up its estimates of the severity of the housing price downturn and its resultant effect of credit losses. Fannie Mae said Tuesday that it now expects its credit loss ratio for 2008 to range from 13 to 17 basis points, and that home prices will fall 7 to 9 percent during the year. At the end of February, the GSE had said it expected to see losses range from 11 to 15 basis points and that it expected prices to fall 5 to 7 percent.

Fannie said that the single-family serious delinquency rate — borrowers more than 90+ days in arrears — reached above the one percent threshold by the end of Q1, hitting 1.15 percent of the company’s portfolio. Serious DQs represented 0.62 percent in the year ago period, and were 0.98 percent one quarter earlier.

Charge-offs jumped significantly, as well, with Fannie reporting that it had charged off $630 million, or 9 basis points, during the first quarter; that compares to charge-off activity totaling $779 million in all of last year.

Analysts that spoke with HW are perhaps the most concerned about Fannie Mae’s exposure to Alt-A mortgages. The GSE held $310.5 billion (UPB) in Alt-A mortgages at the end of the first quarter, and $170.2 billion of that amount is within the 2006 and 2007 vintages.

Fannie also holds $30.6 billion in private-label Alt-A securities and $30.4 billion private-label subprime RMBS; while all of the GSE’s Alt-A holdings are currently rated AAA, it said that 15 percent of its holdings were on negative ratings watch by the end of the quarter. $6.4 billion of its subprime private-label securities were on negative ratings watch at the end of Q1, as well, the GSE said.

Fannie Mae also listed $56.1 billion in so-called Level 3 assets, an accounting category signifying assets that are deemed extremely illiquid, and for which no observable input exist to determine market price. This is the first quarter Fannie Mae has been required to disclose such assets under new accounting regulations FAS 157 and FAS 159.

For more information, visit http://www.fanniemae.com.

Disclosure: The author held no positions FNM when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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I'm seeing a pattern lately of people waiting and waiting and waiting until things get to the point where they are forced into defaulting on their loans and in many cases entering the foreclosure. Come on people, sticking your head in the sand is not going to fix anything for you. I strongly encourage everyone to go back to their loan documents and look at what the terms are. If you have a rate reset coming and you cannot afford the payment when that happens CALL THE LENDER IMMEDIATELY and try to get some assistance. Dont waste time with all the scammer "save your house from foreclosure now!" gimmicks. Its way too hard to know if any of these people have your best interest in mind and in most cases THEY DONT. Just contact your original lender and see what they can do to help. There have been many stories about how people have been able to get the terms of their loans reworked. Lenders would rather see you continue to live in the home and make payments then foreclose on you. NOBODY wins in foreclosure. I am your neighbour so yes I have a vested interest in you keeping your home. We all do as residents. Eastvale is a great community and we all want to see it continue into the future and weather the current storm.

If you don't understand the terms of your current loan or don't know what a rate reset will do to your monthly payment or even if you will be subject to one then CALL YOUR LENDER. Ignorance is NEVER an excuse. It is your responsibility to ensure your financial health. Dont wait for congress or the state or whoever you think may want to "help" you to do so. Most of these plans require you to already be in dire straits before doing anything to try to help and often times it will be too late by then. It is up to YOU to help yourself. Your lender might not be any help but this link will give you all the information you need to get started getting help:

Foreclosure help

Now on my soapbox: Please stop spending on things you dont absolutely need! I dont care what you hear on the news or what the government says. Ignore all the "bring your stimulus check here and we'll add 10% to it" junk. This is free and "found" money and that should never be blown on small luxuries that have no impact on your long-term financial health! Take your stimulus check and any refund you have and use that to get right on your debts whether it be credit cards, a HELOC or your principal mortgage. If you dont have any bad debts then great! Store away that stimulus check/refund in your SAVINGS account. Remember those? When stormy times come, a chunk of cash stocked away in savings can save you.

A proposed bill that would allow the Federal Housing Administration to refinance risky loans by requiring voluntary principal write-downs is the mortgage industry’s last chance to solve the mortgage crisis on its own, a key lawmaker said Monday.

In remarks made at the Mortgage Bankers Association’s Secondary Market conference in Boston, House of Representatives Financial Services Committee Chairman Barney Frank (D-MA) said that his proposal to allow the government to guarantee up to $300 billion in refinancing activity tied to distressed mortgages was the last stop before much tougher legislation.

“If this approach … doesn’t make much difference, I must tell you that much tougher, more intrusive regulation will be on the way,” he said.

Characterizing his proposal — H.R. 5830, the FHA Housing and Homeowner Retention Act — as a “cooperative approach” to solving the housing mess, Frank said strong-arming both lenders and servicers would become “politically irresistible” should the bill pass and servicers fail to push troubled borrowers the FHA’s way.

“This is our last chance to make things work,” he told an audience of industry professionals in what could best be characterized as a tense, awkward general session. Many attendees peppered Frank with questions, and the Massachusetts Democrat alternated between defensive and reflective over the housing proposals now circulating through Congress.

“Isn’t the Fed to blame?” asked one attendee. “If they hadn’t made money so cheap, a lot of this never would have happened.”

“I reject that,” Frank replied. “It’s like saying ’stop me before I lend again.’”

Via Reuters’ Al Yoon, some additional insight:

Many Wall Street analysts doubt that the plan [Frank’s FHA proposal] will have large-scale success because of its voluntary nature. Servicers would have to forfeit portions of their streams of income, which they would likely recover in event of default since they are typically the first to get paid after foreclosure.

Still, servicers that must advance payments to investors in the event of borrower default are increasingly stressed as they are thinly capitalized, analysts at Citigroup Inc. said in a research note last week. These servicers may be better off participating in such a program, they said.

Questions on conforming jumbos
Seperately, Frank said that he “was disappointed” in recent economic stimulus legislation that raised conforming and FHA lending limits temporarily in key local markets. So-called jumbo conforming loans have yet to begin flowing into the secondary market, while the FHA has begun pushing some of the higher balance product out to investors.

Frank said his Committee will hold a hearing on May 21 to figure out “why we haven’t gotten more bang for our buck” with the boosted conforming and FHA lending limits.

“We need to try to unstick that market,” he said. “There is a chain of people blaming each other, and we’re going to call everybody in there into the hearing and find out why.”

In mid-April, both Fannie Mae (FNM: 28.29, 0.00%) and Freddie Mac (FRE: 25.52, 0.00%) announced pricing commitments designed to alleviate uncertainty among investors. It’s unclear as of yet whether these commitments have led to any uptick in activity, but it’s clear that so far the legislation signed by President Bush in February has yet to provide the lift that many originally expected.

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Home prices posted their worst quarterly performance in over a decade during the first quarter, according to a report released Tuesday morning by real estate information Web site Zillow.com. More than half of those who purchased a home in 2006 now owe more on their mortgage than their home is worth, the company said — surely ominous news for mortgage execs fretting over the potential for so-called borrower “walk-aways.”

Home values in the first quarter of 2008 fell 1.6 percent from the fourth quarter and 7.7 percent from the year-ago quarter, marking the most significant year-over-year decline in the past 12 years, Zillow said.

The company’s own index of median housing values fell to $213,000 during the quarter, the lowest median price estimate recorded by the firm since the second quarter of 2005. Zillow’s home value report is based on data from 160 metropolitan statistical areas.

With the exception of Dallas, which returned a one percent year-over-year gain, 30 major markets tracked by Zillow declined from a year ago, with the majority falling back to the median values of three to four years ago. For example, first quarter home values in the Boston area were the equivalent to levels last seen in the second quarter of 2003, down 16 percent from the peak, which occurred in the third quarter of 2005. Values in the Los Angeles MSA have declined to 2004 levels, down 19 percent from the market high recorded in the second quarter of 2006. The Detroit area has been hardest hit, retreating to value levels of 1998, down 24 percent from the market peak in the fourth quarter of 2005.

Stunning numbers, but perhaps more troublesome is what these sort of price declines in key housing markets mean for millions of borrowers.

Of homeowners nationwide who purchased when U.S. home values peaked in 2006, one out of every two (51.6%) now owes more on their mortgage than their home is currently worth, Zillow said. For those who purchased in 2005 and 2007, the situation is only modestly better with nearly 42 percent and 45 percent, respectively, facing negative equity. By comparison, 16 percent of those who purchased in 2004 have negative equity, as do 7 percent of those who purchased in 2003.

“While the high rate of negative equity has little consequence to owners staying in their homes, it can be devastating to those who need to sell immediately or refinance to avoid ARM resets,” said Dr. Stan Humphries, Zillow’s vice president of data and analytics. “The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country.”

For homeowners who purchased in some of the most volatile markets, such as many parts of California and Florida, as well as Phoenix and Las Vegas, rates of negative equity can be twice the national median and, in some cases, as high as 95 percent. For example, in the first quarter, Zillow said that Las Vegas home values fell 25 percent year-over-year and nine out of 10 (89.9%) homeowners who purchased in 2006, when the median down payment was 2 percent, now owe more than their home is worth.

Despite the incredible price drops in many key markets, Zillow also said Tuesday that nearly 3 in 4 borrowers believe their home has increased in value over the past 12 months — yes, really — which means that many homeowners clearly have not yet come to terms with market reality.

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While housing-related legislation remains stalled and hotly debated on Capitol Hill, Connecticut’s House of Representatives on Monday joined a growing list of states enacting their own more locla legislation targeting the ongoing housing mess, passing a wide-ranging bill that lawmakers in the state say will help struggling homeowners.

The bill, H.B. 5577, passed on a wide 124-24 vote Monday night, and now moves to the state Senate for consideration.

At the core of the Connecticut mortgage bill are measures that widely expand the reach and scope of the Connecticut Housing Finance Authority. Under the bill’s various terms, the CFHA will receive $70 million for refinancing troubled mortgages, and would see the statutory limit on uninsured mortgages that CHFA can hold raised from $1.0 billion to $1.5 billion.

The state’s Office of Fiscal Analysis noted in its analysis of the bill that the expansion of the CHFA’s purchase authority “could potentially affect the agency’s ability to meet its debt service liability,” if enough of the uninsured mortgages it held went into default. The CHFA is currently rated AAA by major rating agencies, which the Connecticut OFA said made it “unlikely” that such a shortfall would occur.

The bill also creates a right for borrowers to appeal to the Banking Commissioner for a six-month moratorium on foreclosures, and establishes a program that allows the CHFA to buy foreclosed property and use it for affordable housing.

The bill relaxes some underwriting standards for loan provided by the CHFA, as well, per a Newsday report:

Gov. M. Jodi Rell worked with CHFA in November to create the CT FAMILIES assistance program. But lawmakers said the underwriting rules were so strict that only 250 families have qualified. This bill aims to help at least 1,500 more families.

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UBS posted a $11 billion first quarter loss after taking a whopping $19 billion in mortgage-related losses. The company will cut 5,500 jobs in a restructuring effort to save the banking giant. Ironically, UBS was praised as being conservative as the credit crunch got underway with it’s first $3 billion write down at the end of last year. Now the bank stands as the poster-child for mortgage-related beatings with write downs totaling $37 billion, and is downsizing and pulling out of several higher-risk banking enterprises in an attempt to save itself as a going concern.

From Market Watch on the UBS mortgage losses:

the Swiss investment-banking giant, swung to a first-quarter net loss of 11.54 billion Swiss francs ($11 billion) after posting some $19 billion of losses tied to U.S. mortgages and related securities as well as other structured products.

On the 5,500 job cuts at UBS by 2009:

UBS said Tuesday it plans to cut 5,500 jobs by the middle of next year, an effort meant to restructure the Swiss giant’s troubled investment bank. The Zurich-based bank will axe the jobs after massive write-downs on dud mortgage securities, totaling over $37 billion thus far.

It’s no wonder the bank is under investigation for improperly valuing its assets. $3 billion was touted as a purging of the system when UBS first came forward. Now with losses at 10x it looks more like fraud.

Back as the credit crunch was picking up steam wholesale account reps would parade in to our offices touting the saving grace of our brokerage - reverse mortgages. As a FHA-approved lender we were eligible to write reverse mortgages for seniors who had lots of equity, little cash, and no other assets to live off of (for the most part). These wholesale reps were excited because their banks had just opened up a new wave of products called “jumbo reverse mortgages” which went far beyond the lending limits of the FHA-insured Home Equity Conversion Mortgage (HECM) for high-value areas such as California.

The siren call was the same - these loans were expensive and property-owners strapped for cash had little opportunity to extract equity in any other way. The jumbo reverse mortgages were the best solution and represented a hefty payday in times that were clearly becoming more lean and more mean as the credit crunch got into high gear. Jumbo reverse mortgages allowed homeowners who lived in expensive homes to tap large amounts of equity to support their retirement by either pulling out a lump sum of cash, taking a monthly stipend or opening up a line of credit. Without a monthly payment these loans are attractive to retirees looking for additional income.

Jumbo Reverse Mortgages Disappear Rather Quietly

But as the credit crunch has accelerated and the market for residential loan products dried up reverse mortgages became less attractive to investors. With property values declining and inflation increasing the risk profile of a “jumbo” reverse mortgage became too severe for banks. Specialists in reverse mortgages such as Financial Freedom quietly pulled the plug on their jumbo reverse mortgages back in March to little fanfare at the time. More recently Bank of America, UBS and Credit Suisse did the same.

The elimination of these products makes complete sense from a lender’s perspective. With housing prices dropping like a rock in water in the most highly-priced areas (such as California) the jumbo reverse mortgage were no longer a good bet. Lenders were more likely to end up with an undervalued asset at the maturation of the loan.

Unfortunately it has crippled retirees who were banking on home equity to make it through retirement.

Seniors banking on their house find themselves stuck

Seniors in California and other high-value areas who held on to their home as their primary retirement vehicle have been completely upended by the declining housing market, tightening underwriting guidelines and the elimination of jumbo reverse mortgage products. Many who were banking on their home and a reverse mortgage loan have found their borrowing capacity with the reverse mortgage to has been filleted - and those looking for the biggest loans are staring at the prospect of a very small reverse mortgage with very little cash as a result.

To add insult to injury retired seniors have seen traditional financing options dry up as loan availability to retired persons has reverted to fully-documented income loans which with large property and loan amounts in California are unrealistic, nay unattainable, financing options. Further, in this market they may be unable to sell their home for anywhere near the value it held just a few short months ago completely eliminating all access to equity in their home.

Seniors are Victims Here?

It’s hard to say that seniors who put all of their eggs in one basket are the victims in this case. Just as one who owns all their stock in one company - these seniors either bet wrong or didn’t pay attention to the fact that they weren’t diversified. It does pain me though to see seniors who are house poor not able to convert asset they are sitting on in to capital in any way, shape or form.

An instructive lesson?

The inability of seniors to obtain these jumbo reverse mortgages does go to show that equity in your home is not anything you really ever own. It is simply a measure of the current market and nothing more. Products are ephemeral, guidelines and value too. It will be interesting to track what happens to these seniors suddenly shut out from their retirement capital. These years suddenly don’t look so golden.

Morgan Stanley (MS: 48.72, -3.16%) execs are planning another round of layoffs at the Wall Street firm, this time hitting 1,500 employees, according to a report Monday by CNBC. Citing senior sources inside the company, CNBC said that the cuts will span all business units.

Morgan Stanley delivered better-than-expected earnings during the first quarter despite absorbing $2.3 billion in write-downs tied to mortgage and related assets; which makes the expected cuts somewhat of a surprise, according to various sources Housing Wire spoke with.

“I suppose Mack meant that after the ninth inning, it’s game over for at least some of his team,” said one source, an MBS trader who asked not to be identified by name, referring to CEO John Mack’s earlier remarks that the credit crunch was nearing its end.

From CNBC:

Mack’s plan, these people say, is to slash 10 percent of the firm’s workforce during 2008, though he is leaving his options open to cut more if business conditions don’t improve. “Hopefully this is it for 2008, but you never know,” a Morgan executive told CNBC.

CNBC also reported that Lehman Brothers (LEH: 45.80, -2.59%) is set to add to the 4,900 it has already laid off as it looks to “right size” amid continuing market trouble. The news station did not specify the size of timing of the alleged cuts, citing a source close to the company.

The cuts at both Lehman and Morgan Stanley come as JPMorgan Chase & Co. (JPM: 48.00, -1.36%) digest the operations and personnel tied to the Bear Stearns (BSC: 10.70, -1.83%) bailout. Sources have said JPMorgan is trimming existing staff as it preps for the arrival of Bear Stearns expats in the months ahead.

Firms have been looking to snap up some of the sloughed-off talent pool, including bond-market giant PIMCO, which was reported by the Financial Times last week as actively reaching out to Wall Street’s i-banks to let affected employees know about hiring interest and available positions at the world’s biggest bond fund.

Disclosure: The author held no positions in the publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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In the wake of an analyst report that sent Countrywide Financial Corp. (CFC: 5.36, -10.37%) shares on a wild ride Monday afternoon, Bank of America Corp. (BAC: 38.97, -2.06%) has confirmed that its plan to acquire Countrywide by the end of the third quarter of this year is moving ahead as planned.

Bloomberg News reported on comments made by BofA spokesperson Robert Stickler, who said that “the transaction is on track.”

The Wall Street Journal reported that while Countrywide is focusing in on some of Countrywide’s loans — fraud is a large concern, the Journal said, citing a party familiar with the due diligence process — it isn’t attempting to renegotiate its purchase price.

Countrywide had plunged in earlier trading, based off of a report from Friedman, Billings, Ramsey analyst Paul Miller that had suggested that losses in Countrywide’s loan portfolio had grown larger than BofA’s original expectations when it first penned the deal in January. Miller reduced his target price for shares of the Calabasses-based lender to between $0 and $2 per share, relative to the $7 per share price implied by the current deal.

Shares at Countrywide fell as low as $5.00 in active trading Monday — 16.4 percent off their $5.98 per share closing price on Friday — before recovering slightly to close off roughly 10 percent at $5.36.

Bank of America shares lost 2 percent to close at $38.97 on Monday.

Disclosure: The author was long CFC and held no other positions of relevance when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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Private equity titan BlackRock Inc. (BLK: 215.40, -0.39%) is in early-stage negotiations with UBS AG (UBS: 34.31, -1.41%), Switzerland’s largest bank, to take over and manage its remaining U.S. mortgage assets, Bloomberg News reported Monday. UBS has been sent reeling by more than $38 billion in subprime and mortgage-related write-downs in the past 12 months, and is expected to post another hefty loss in first quarter earnings scheduled for release Tuesday morning.

Via Bloomberg’s coverage:

BlackRock, the manager of almost $1.4 trillion of assets, is seeking cash from investors to create a new entity that would hold and eventually sell the mortgage assets of Zurich-based UBS as the markets recover. New York-based BlackRock is targeting returns of more than 15 percent, said the people, who asked not to be identified because they aren’t authorized to disclose the information. The talks may not lead to an agreement, they said.

“It’s tremendous news for the economy once the banks are willing to seriously start shedding these assets,” said Roger Kormendi, a principal at Washington-based investment bank Kormendi\Gardner Partners, who helped the U.S. design the partnerships that liquidated bad loans during the savings and loan crisis in the early 1990s. “This is the right thing to do.”

It’s worth noting that BlackRock recently helped bankroll PennyMac, a distressed asset servicer headed up by Countrywide expat Stanford Kurland. Sources tell HW that the negotiations with UBS would likely involve the use of the newly-funded PennyMac platform to manage the assets until they could later be sold at a profit.

Bloomberg reports that BlackRock is holding similar negotiations with other financial institutions, essentially exploring the formation of a “bad bank” that would take chunks of distressed mortgages and assets tied to them off of the balance sheet of affected banks, and hold them until they could be disposed of at a profit.

News of BlackRock’s move towards UBS comes as numerous other private equity and hedge fund players are saddling up to ride back into what’s left of a decimated mortgage market, in an attempt to recover value from assets — either whole loans or the securitized paper tied to them — that some say have been pushed below their intrinsic value by current market conditions.

UBS is expected to report roughly $11.4 billion in additional write-downs when it releases first quarter earnings Tuesday morning, as well as possible layoffs amounting to 10 percent of the more than 80,000 employees at the firm.

Disclosure: The author held no positions in BLK or UBS when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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