Originations

A January poll of builders across the land shows the market for new homes is continuing to deteriorate. The survey, which was released at the National Association of Home Builders' convention in Las Vegas, found that sales are declining across all price ranges. But the random sample of 417 NAHB members from throughout the country shows that things are growing progressively worse as the price range increases. Half the builders said the market for houses priced under $150,000 is in either substantial or some decline, while 80 percent - four out of five - said the market for houses priced from $250,000 to $1 million - is in full retreat. "Things are getting worse," said Gopal Aluhwalia, NAHB's research guru. The main reason people aren't buying, the builders said, is that they can't sell their current homes. But a substantial number are worried about their jobs (88%) or think prices will decline further (75%). Nearly 70% of the builders said they cut prices in the fourth quarter to move inventory, and nearly three out of five reported making no profit during the period.

The home building slump has resulted in a loss of more than three million jobs, according to an analysis by economists at the National Association of Home Builders. Because production has dropped by more than one million units since starts hit their peak in 2005, 1.4 million construction workers have had to seek employment elsewhere, the NAHB said at its annual convention in Las Vegas. "But the loss doesn't stop there," according to the report, which says the slump also has resulted in the loss of nearly 562,000 jobs in the businesses which make building products and nearly 583,000 jobs in such service-related industries as architects, lawyers and engineers. That adds up to 3.05 million jobs that no longer exist, and $145 million in lost wages. Home building also is generating far less tax income for federal, state and local governments. "When one million single-family homes are not built, it means a loss of $89 billion in government revenue," the report said. Also lost is the $4.9 billion that is usually spent on appliances, home furnishings and property alterations in the first year after one million fewer families move from one house to another, the NAHB claimed.

If economics is the "dismal science," then Frank Nothaft is living up to his billing as the chief economist at Freddie Mac, at least in the short term. "The only good thing I have is that mortgage rates are at a record low," Mr. Nothaft told MortgageWire at the National Association of Home Builders' convention. But even that bit of good news is problematic, the economist said, because lenders' underwriting requirements are so stringent these days that it is far more difficult to qualify for financing. Still, he told a convention session that he expects a housing recovery to begin in the second half of 2009 and pick up a solid head of steam in 2010. Former Fannie Mae chief economist David Berson also expects sales to stabilize and grow stronger into next year. But Mr. Berson, who now is chief economist and strategist at PMI, Walnut Creek, Calif., also believes house prices will continue to fall. In 97% of the metropolitan statistical areas PMI follows, the probability is that prices will be lower in two years than they are now, he told the convention. "The risk has gone up almost everywhere, and there's a better than 50-50 chance of lower prices in slightly more than half the markets." At the same time, Mr. Berson assured the meeting that this too shall pass. "Eventually, the unsold inventory will get worked off," he said. "I don't want to minimize the problems we're going through now, but ultimately we will get through this period and get back to basic demographic trends."

Turmoil in the capital markets is leaving no segment of the housing business unscathed. Now feeling the pinch is the multifamily sector, where developers at the National Association of Home Builders' annual convention in Las Vegas say tight financing conditions have severely hampered their ability to produce both affordable and market-rate projects. Robert Greer of Michaels Development, Marlton, N.J., a big developer of low- and moderate-income apartments, said big investors - including Fannie Mae and Freddie Mac - are not actively seeking low-income housing tax credits because they have no profits to offset. Consequently, the firm, which has built more than 40,000 LIHTC units over the past 30 years, has had to scramble to find equity investors. So far, the firm has been successful, Mr. Michaels said, but assembling the capital needed to get projects off the ground is becoming more and more difficult, especially for firms that are smaller than his. The Lawson Cos., a market-rate apartment builder in Virginia Beach, also is feeling the pain. "We're struggling just like the rest of the housing industry," said president Steve Lawson. "The credit markets have turned upside down on us." When money is available, Mr. Lawson said, underwriting is so tight that he has to bring "twice as much equity" to the table as he used to. The Virginia builder fears that when members of the Generation Y start forming households, there won't be enough apartments to handle the onslaught. The NAHB is forecasting just 188,000 million multifamily starts for 2009, down more than 100,000 units from 2008. But it could ratchet its prediction down further if the credit markets don't thaw soon.

In a few weeks, President Barack Obama will lay out a comprehensive plan to stabilize the banks, revive credit markets and address the housing crisis, according to Timothy Geithner, the president's nominee to be Treasury secretary. The president of the New York Federal Reserve Bank told a Senate panel that the plan will include a bankruptcy provision to help struggling homeowners and possibly a proposal to move toxic assets off bank balance sheets into a "bad bank." Mr. Geithner stressed the comprehensive plan is still under development and he did not want to provide specific details. But he noted the administration wants to craft the bankruptcy proposal so it does not harm the mortgage market and drive capital away. "We are supportive of doing that in the most careful possible way," he said during his confirmation hearing. He also noted it's "enormously complicated" to draw up a bad bank plan that is cost effective. A team is looking at it today, he testified. "It is possible it will be part of the solution going forward." In stabilizing the banks, the administration wants to get the credit markets going again, including commercial and residential mortgage markets. "We also have to provide much more substantial direct support for credit markets," Mr. Geithner said.

New home sales in the Golden State were anything but golden in November, according to the latest figures released by the California Building Industry Association. Sales for the month were 63% below November 2008, "which was an extremely bad month," says CBIA President Robert Rivinius. "And it's looking like December wasn't any better." A mere 1,336 new homes and condominiums were sold in November in the subdivisions tracked by Costa Mesa-based Hanley Wood Market Intelligence, compared to 3,592 a year earlier. Single-family sales were down by 62%, while townhouse and condo sales were off 71%. The decline is a result of the usual slowdown in sales around the holidays plus the continued difficulty in securing financing. The median base price of homes sold during the 12-month period fell 13.5%. CBIA's Mr. Rivinius continued to hammer on lawmakers in both Sacramento and Washington to deal with the foreclosure situation and enact a stimulus package that has housing at the top of the list.

The Federal Home Loan Bank of Pittsburgh expects to take additional writedowns on its $2.73 billion portfolio of private label mortgage-backed securities in the fourth quarter, a move that could make the GSE undercapitalized and endanger its shareholders - banks and thrifts primarily. In a new filing with the Securities and Exchange Commission, the government sponsored enterprise admits that it will not complete an analysis of its private label holdings until late in the first quarter. At December 31 the Pittsburgh bank held $2.43 billion in alt-A bonds with an "unrealized" loss of $847 million. Its $20 billion subprime portfolio is now valued at $15 billion. The bank says that at the time it bought into these bonds all were rated AAA. About 10 days ago the FHLB-Seattle told members it may not meet its risk-based capital requirement for the period ending December 31, blaming accounting rules that affect the value of its investment in private label mortgage-backed securities. Seattle holds roughly $4.52 billion in alt-A private label securities that have declined in value steadily since the second-half of 2007. One executive, who works for a depository, told MortgageWire that if banks and thrifts are forced to write down the value of their FHLB stock investments similar to the way they wrote down their Fannie Mae/Freddie Mac stock, "we're going to need the second half of that TARP money fast."

The Supreme Court has decided to review a decision by the Second Circuit Court of Appeals that essentially frees national banks from all state scrutiny and pits 50 state attorneys general against the Comptroller of the Currency. The appeals court ruled that four national banks did not have to respond to former New York AG Eliot Spitzer's request for information about their mortgage lending practices. Mr. Spitzer wanted information to determine if they unfairly placed minorities into higher cost mortgages. The circuit judges ruled 2-1 that the AG's action represented an "unlawful exercise of visitorial powers" as defined by the Comptroller and previous court decisions. The circuit judges reaffirmed that state officials are not allowed to investigate or interfere with the business or conduct of national banks. But current New York AG Andrew Cuomo and 49 other AGs contend it is inappropriate to defer to the Comptroller's interpretation of visitorial powers when "sensitive issues of federalism are at stake" involving possible discrimination against citizens of New York. The appeals court also erred by failing to consider the Comptroller's "agency bias and a self-serving preemption agenda," the 49 AGs argue in their filing. The Supreme Court will probably hear arguments in Cuomo v. Clearing House Association this spring. The association represents the four national banks.

Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be "underwater" soon, according to a former Fannie Mae executive who served as the GSE's chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008. Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cramdowns, the government will be "cramming down the loans they are responsible for," Mr. Pinto said.

Merrill Lynch & Co. - now the property of Bank of America - has agreed to pay $450 million to settle a subprime collateralized debt obligation lawsuit brought by lead plaintiff the Ohio State Teachers Retirement System. According to the complaint, Merrill Lynch artificially inflated the value of CDOs and other assets backed by subprime mortgages by issuing false and misleading statements about the bonds. In a public filing, Merrill says it settled the case but did not admit any wrongdoing. During the height of the subprime crisis, Merrill financed several non-bank subprime funders, bought their loans and packaged them into ABS and CDO investments, selling them worldwide. Merrill also settled a similar, $75 million case brought against it by employees. In a new SEC filing, the Wall Street firm says that even though a settlement has been reached there is no assurance that a "final" deal will be concluded and gain court approval. According to the law firm of Page, Perry LLC of Atlanta, "This development confirms that even larger, more sophisticated investors can recoup damages when they are misled into purchasing complex investments such as CDOs that are virtually incomprehensible for normal people." It adds that the settlement "may be the first in what is likely to become a trend."

Speakers at the National Association of Home Builders' annual convention are not very optimistic about the sagging housing market turning around any time soon. "At some point, new household formations will drive what we all need and we are going to get back to a run rate of over one million new home sales," Stuart Tyrie of Wells Fargo Home Mortgage told the NAHB's single-family finance subcommittee. But that won't be until 2014 at the earliest, he ventured. Mr. Tyrie, who runs Wells Fargo's National Builder Division, said the fallout from the subprime debacle is "behind us," but failures among borrowers who hold option ARMs will run "well into 2012." Mike Sivage, a builder-developer from Albuquerque who chairs the group's Financial Institutions and Capital Markets Subcommittee, said the New Mexico market is continuing to decline. "It's not getting any better where I am," he said. Even Texas, one of the lone bright spots, is starting to fade, according to Kent Conine, a past NAHB president who chairs the group's AD&C Financing panel. "We did fine until the oil prices tanked," the Dallas builder said. People are still visiting model homes, but now, like in other parts of the country, they are waiting for prices to hit bottom, he said. Daniel Finnegan, a Florida-based consultant who advises builders on construction financing, said it could be two years before lenders have enough liquidity to weather regulatory scrutiny. Until then, he said, money to buy and develop land will be hard to come by. Bill Rothman of IndyMac Bank, Irvine, Calif., agreed. "We have a lot more pain to endure," he said.

A National Association of Home Builder task force on housing finance has recommended that the politically powerful organization adopt a policy blueprint that calls for a sharing of the interest rate and credit risk by the private sector institutions which benefit from the government's secondary market support. The task force, which was established by the NAHB's senior officers last fall, also recommends that Fannie Mae and Freddie Mac retain their federal backing but be limited primarily to providing credit enhancements for mortgage-backed securities. The sharing concept would be a "cooperative structure" loosely based on the Federal Home Loan Bank model, according to Chellie Hamecs, assistant staff vice president for housing finance. Under the proposal, lenders would be liable for a "significant portion of the risk" in direct proportion to the volume of loans they sell to the government-sponsored enterprises. As envisioned by the task force, Fannie and Freddie would be given only limited portfolio capacity and then only to accommodate mortgages and housing-related investments that have no other secondary market outlet. The report, which is being discussed at the NAHB's annual convention in Las Vegas, noted "serious structural problems" with the nation's housing finance system, including what it called "the inherent conflict" in the current Fannie-Freddie business model in which the companies are required to pursue a public mission while providing competitive returns to private stockholders. These and several other policy recommendations must pass through several committees before they are voted on by the NAHB's board.

A pair of short-term, targeted incentives aimed at enticing would-be home buyers back into the market could result in as many as a million more sales this year, the new chief economist of the National Association of Home Builders said at the group's convention in Las Vegas. An enhanced home-buyer tax credit, coupled with an with a deep and permanent interest-rate buy down, would also result in some 200,000 more housing starts, David Crowe told Mortgage Wire. NAHB has been pushing the incentives on Capital Hill as part of its Fix Housing First campaign. Without them, Mr. Crowe told the convention, new home sales will continue to fall to an annual rate of 380,000 by the end of the first quarter. The last time the sales rate was that low was in the second quarter of 1982, when the annual pace was pegged at 364,000 units. At the same time, Mr. Crowe also is forecasting a gradual increase in sales beginning in the second quarter and a "modest" uptick in housing starts some months later after most of the 1.5 million in excess inventory is sold off. But he warned that the recovery will be a "rolling" one with those markets where prices were not out of line and inventories were not out of kilter being the first to turn upward. The recovery won't reach the "headline states" - California, Nevada, Florida and Arizona - for some time, he said. While some NAHB members believe his forecast is too optimistic, the economist defended it, saying it is "not out of line" with what others are predicting. "If anything, I try to be more pessimistic so I don't get builders to do something they shouldn't," he said. The NAHB says more than 3 million jobs in residential construction and related businesses have been lost since the housing sector tanked.

Congressman Al Green has introduced H.R. 600, a bill that would reinstate the controversial seller-funded down payment assistance banned last October despite being credited with helping over one million families become homeowners. Scott Syphax, president and CEO of the Nehemiah Corp. of America, Sacramento, CA, a DPA pioneer and supporter, applauded the bill that helps broaden homeownership opportunities for borrowers who qualify for Federal Housing Association-insured loans without using government or taxpayer dollars. "With foreclosures on the rise and banks maintaining their stranglehold on credit, we commend Congressman Green for recognizing the important role down payment assistance can play in the market's recovery," he said in a release. "Through H.R. 600, DPA offers a simple solution that can empower thousands of worthy families to take advantage of depressed home prices therefore reducing the glut of homes on the market. Further, it does so without spending a single government or taxpayer dime, according to the Congressional Budget Office." Mr. Syphax said DPA is a source of opportunity for responsible, sustainable homeownership in times when the housing market is crumbling. DPA supporters hope President Obama's Administration will help reinstate the program.

A January poll of builders across the land shows the market for new homes is continuing to deteriorate. The survey, which was released at the National Association of Home Builders' convention in Las Vegas, found that sales are declining across all price ranges. But the random sample of 417 NAHB members from throughout the country shows that things are growing progressively worse as the price range increases. Half the builders said the market for houses priced under $150,000 is in either substantial or some decline, while 80 percent - four out of five - said the market for houses priced from $250,000 to $1 million - is in full retreat. "Things are getting worse," said Gopal Aluhwalia, NAHB's research guru. The main reason people aren't buying, the builders said, is that they can't sell their current homes. But a substantial number are worried about their jobs (88%) or think prices will decline further (75%). Nearly 70% of the builders said they cut prices in the fourth quarter to move inventory, and nearly three out of five reported making no profit during the period.

The home building slump has resulted in a loss of more than three million jobs, according to an analysis by economists at the National Association of Home Builders. Because production has dropped by more than one million units since starts hit their peak in 2005, 1.4 million construction workers have had to seek employment elsewhere, the NAHB said at its annual convention in Las Vegas. "But the loss doesn't stop there," according to the report, which says the slump also has resulted in the loss of nearly 562,000 jobs in the businesses which make building products and nearly 583,000 jobs in such service-related industries as architects, lawyers and engineers. That adds up to 3.05 million jobs that no longer exist, and $145 million in lost wages. Home building also is generating far less tax income for federal, state and local governments. "When one million single-family homes are not built, it means a loss of $89 billion in government revenue," the report said. Also lost is the $4.9 billion that is usually spent on appliances, home furnishings and property alterations in the first year after one million fewer families move from one house to another, the NAHB claimed.

The Federal Home Loan Bank of Pittsburgh expects to take additional writedowns on its $2.73 billion portfolio of private label mortgage-backed securities in the fourth quarter, a move that could make the GSE under capitalized and endanger its shareholders -- banks and thrifts primarily. In a new filing with the Securities and Exchange Commission, the government sponsored enterprise admits that it will not complete an analysis of its private label holdings until late in the first quarter. At December 31 the Pittsburgh bank held $2.43 billion in alt-A bonds with an "unrealized" loss of $847 million. Its $20 billion subprime portfolio is now valued at $15 billion. The bank says that at the time it bought into these bonds all were rated AAA. About 10 days ago the FHLB-Seattle told members it may not meet its risk-based capital requirement for the period ending December 31, blaming accounting rules that affect the value of its investment in private label mortgage-backed securities. Seattle holds roughly $4.52 billion in alt-A private label securities which have declined in value steadily since the second-half of 2007. One executive, who works for a depository, told MortgageWire that if banks and thrifts are forced to write down the value of their FHLB stock investments similar to the way they wrote down their Fannie Mae/Freddie Mac stock, "we're going to need the second half of that TARP money fast."

The Supreme Court has decided to review a decision by the Second Circuit Court of Appeals that essentially frees national banks from all state scrutiny and pits 50 state attorneys general against the Comptroller of the Currency. The appeals court ruled that four national banks did not have to respond to former New York AG Eliot Spitzer's request for information about their mortgage lending practices. Mr. Spitzer wanted information to determine if they unfairly placed minorities into higher cost mortgages. The circuit judges ruled 2-1 that the AG's action represented an "unlawful exercise of visitorial powers" as defined by the Comptroller and previous court decisions. The circuit judges reaffirmed that state officials are not allowed to investigate or interfere with the business or conduct of national banks. But current New York AG Andrew Cuomo and 49 other AGs contend it is inappropriate to defer to Comptroller's interpretation of visitorial powers when "sensitive issues of federalism are at stake" involving possible discrimination against citizens of New York. The appeals court also erred by failing to consider the Comptroller's "agency bias and a self-serving preemption agenda," the 49 AGs argue in their filing. The Supreme Court will probably hear arguments in Cuomo v. Clearing House Association this spring. The association represents the four national banks.

Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be "underwater" soon, according to a former Fannie Mae executive who served as the GSE's chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008. Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cramdowns, the government will be "cramming down the loans they are responsible for," Mr. Pinto said.

Merrill Lynch & Co. -- now the property of Bank of America -- has agreed to pay $450 million to settle a subprime collateralized debt obligation lawsuit brought by lead plaintiff the Ohio State Teachers Retirement System. According to the complaint, Merrill Lynch artificially inflated the value of CDOs and other assets backed by subprime mortgages by issuing false and misleading statements about the bonds. In a public filing, Merrill says it settled the case but did not admit any wrongdoing. During the height of the subprime crisis, Merrill financed several non-bank subprime funders, bought their loans and packaged them into ABS and CDO investments, selling them worldwide. Merrill also settled a similar, $75 million case brought against it by employees. In a new SEC filing, the Wall Street firm says that even though a settlement has been reached there is no assurance that a "final" deal will be concluded and gain court approval. According to the law firm of Page, Perry LLC of Atlanta, "This development confirms that even larger, more sophisticated investors can recoup damages when they are misled into purchasing complex investments such as CDOs that are virtually incomprehensible for normal people." It adds that the settlement "may be the first in what is likely to become a trend."