International Mortgage News

Genworth Financial Inc., Richmond, Va., has priced the initial public offering of its Canadian mortgage insurance subsidiary, revealing that it hopes to raise up to $730 million (U.S.) The IPO has been priced at $19 per share, Canadian, which translates into $16.45. U.S. Genworth hopes to complete the IPO by July 7. The stock will trade on the Toronto Stock Exchange under the symbol MIC. "This IPO reinforces our already sound financial foundation and provides additional capital flexibility to Genworth," said Michael D. Fraizer, chairman and chief executive of Genworth Financial. "At the same time, we will continue to benefit from the earnings associated with our majority position in Genworth MI Canada as it plays an important role in providing solutions to the housing finance market in Canada." The Canadian business had first quarter 2009 net operating income of $66 million, compared with $75 million for the same period one year prior. The unit had $2.4 billion of flow insurance sales and $0.4 billion of bulk sales for the first quarter 2009.

UBS has greatly mitigated its exposure to problem mortgage assets through an arrangement with the Swiss National Bank and said its second quarter will look better than its first, but it still is anticipating a loss for the period. "The operating result for the quarter is expected to represent an improvement compared with the first quarter of 2009, largely attributable to better market conditions affecting the investment bank and a reduction in losses and writedowns on legacy risk positions," UBS said. However it also noted that, "Based upon preliminary results for April and May and estimated results for June, UBS expects to incur a net loss for its second quarter 2009." The company said the majority of the expected loss "is attributable to own credit and the restructuring charges that have already been announced."

Canadian investment in U.S. real estate has more than doubled in one year to 23.5% from 11%, according to real estate investor Westward Fund, Scottsdale, Ariz. The fund said exchange rates between the Canadian dollar and the U.S. dollar in addition to falling property values in the United States have been catalysts for the increase. Arizona in particular, where values have fallen in many instances, has drawn foreign investors, said E. Patrick LaVoie, manager for the fund. The fund said investors from the United Kingdom, China, Indian and Germany also have shown strong interest in U.S. real estate.

A majority of respondents to the first-ever mid-year version of an annual survey of foreign investors in real estate indicated they plan to invest some debt or equity in U.S. real estate before 2009 ends, even though many have not made any such investments so far. "Three quarters of the survey respondents had not yet invested in 2009; however, more than two-thirds of them plan to invest some debt or equity in U.S. real estate before the end of the year," the Association of Foreign Investors in Real Estate, Washington, said. Thirty-one percent of the respondents to the survey conducted by the University of Wisconsin-Madison's James A. Graaskamp Center for Real Estate said they were more optimistic than at the beginning of the year, while 16% said they were more pessimistic and 53% said their expectations had not changed.

Lending volumes appear to be stabilizing in the United Kingdom, according to the Council of Mortgage Lenders, London. Gross U.K. mortgage lending totaled an estimated 10.3 billion pounds ($16.8 billion) in May, down slightly from 10.5 billion pounds ($17.1 billion) in April and down 58% from the same month a year ago. "Lending volumes appear to have stabilized at extremely low levels, but the weak labor market and lenders' limited access to funding will constrain activity for some time yet," said CML economist Paul Samter. He said it is likely that there was a "moderate improvement" in purchase lending during May but that the total gross lending figure declined because this was offset by "very low" refinance volumes.

Mortgage market players and other securitization market participants say they largely agree with the Obama Administration plan's aims but have some concerns about the way in which it plans to realign incentives and its global context. "While we support policy initiatives to align economic incentives among securitization market participants and to achieve greater risk transparency, we believe that mandated retention of risk by asset originators and securitization sponsors may not be the most effective way to achieve this goal," said American Securitization Forum executive director George Miller in response to the regulatory reform proposal. "To the extent risk retention is required, we believe provisions must be designed carefully to avoid undue restrictions on the ability to fund consumer and business lending via securitization, which could impair broader economic recovery." He also noted that "international consistency on this topic is critically important" given the global nature of the capital markets and the fact that European policymakers also have been working on risk retention policies. "We acknowledge that there were misuses of securitization that need to be corrected," Mr. Miller said. "However securitization is a central means of delivering affordable credit to consumers and businesses that has produced ... benefits over the past 40 years [that] include increased availability and reduced cost of financing for mortgage loans."

Performance deterioration seen in commercial mortgage-backed securities and multifamily transactions in Europe, the Middle East and Africa during the first quarter is expected to continue, Moody's Investors Service said in a report Wednesday, citing upcoming refinancing risks. "While the refinancing exposure of EMEA CMBS in 2009 and 2010 is still remote, one has to look further ahead," said Deniz Yegenaga, a Moody's associate analyst and co-author of the report. "Given the most recent commercial property market performance and the anticipation of further property value declines, also loans that mature after 2010 will be highly levered on their refinancing date and will most likely experience difficulties to repay. In addition, the significantly declining property values increase the loss upon default of commercial real estate loans." During the first quarter, the number of loans "subject to an event of default" came close to doubling, Moody's said. The rating agency downgraded 13 classes of notes in nine transactions and placed 23 classes of notes in six transactions on review for possible downgrade during the period. It also upgraded three classes of notes in two transactions during the quarter.

Freddie Mac plans to purchase any and all of a targeted group of about 8.1 billion euros ($11.2 billion) of its euro Reference Notes securities the week of June 15. The government-sponsored enterprise is planning to buy from investors for cash the securities through Goldman Sachs International, the designated lead dealer for the offers. Barclays Bank PLC and Deutsche Bank AG, London branch, are the designated deal managers for the offers. Each series of target securities will be purchased at a fixed spread over the applicable reference swap rate for the series.

The seasonally adjusted annual rate of Canadian housing starts increased to 128,400 units in May from 117,600 units in April, in line with expectations that the market will see gradual improvement going forward. "Housing starts are expected to improve through 2009 and over the next several years to gradually become more closely aligned to demographic demand," the CMHC said. The corporation added that it currently estimates demographic demand to be at about 175,000 units per year. Bob Dugan, CMHC's chief economist, said the overall increase seen during May was "broadly based" and consisted of increases within both the single-family and multifamily markets. In urban areas, both multifamily and single-family starts increased by 11.1% on a seasonally adjusted basis during the month. Regionally, the seasonally adjusted annual rate of growth was greatest in Ontario, where it was 22.0%. It was slowest in Quebec, where starts increased only 3.3%.

Weighted-average delinquencies and cumulative losses in the United Kingdom's securitized residential mortgages have doubled since the first quarter of last year, according to Moody's Investors Service's index. These had reached 18.0% and 0.78%, respectively, by the end of the first quarter of this year. "While a number of forward looking indicators point towards the pace of the economic decline abating, consensus forecasts look for 3.8% contraction in [gross domestic product] over 2009 as a whole, which will be the worst yearly growth rate since modern records began in 1949," said Nitesh Shah, a Moody's economist and co-author of a report on the index. "The U.K. unemployment rate was 7.1% in the three months [leading up] to March, up from 5.2% a year ago. As the economy contracts, more jobs are expected to be removed from the market." In addition, Moody's noted that home price declines also contributed. The downward slide in housing values will likely continue even though the monthly pace of the decrease has been slowing, Moody's said.