by Calculated Risk on 6/02/2008 09:33:00 AM

From the WSJ: Wachovia Ousts Thompson, Smith Will Be Interim CEO

[Wachovia] said Monday that board members have forced [CEO G. Kennedy Thompson] to retire from the company he has run for eight years.
...
Wachovia posted bigger-than-expected losses in April, battered by sinking credit quality and the ill-timed acquisition in 2006 of Golden West Financial Corp., the Calabasas, Calif., mortgage lender.

It was the acquisition of Option ARM lender Golden West in 2006 that caused many of these problems. Most losses to come ...

by Anonymous on 6/02/2008 07:33:00 AM

The Chicago Tribune has a lengthy article out on HSBC's loan workout efforts. This is all rather confusing because HSBC uses the term "modification" the way everyone else I know uses the term "repayment plan," and then uses the term "restructuring" for what everybody else calls a "modification." With that in mind:

HSBC quickly stopped offering some of the riskiest loans, including stated-income mortgages, which require little documentation, and those generated by brokers, a channel where it had less control.

But trying to help homeowners stave off foreclosures through loan modifications or restructurings is taking longer than expected, McDonagh said.

A modification is generally temporary; after the end of a certain period, the loan resets to its original terms. A restructuring is a permanent redoing of the contract, including new terms and conditions.

"We typically would do six- to nine-month modifications" for troubled homeowners, he said. "Now we're looking out two to three years because, with the severity of the issues they've got, they need longer than six months to work things out."

The number of modifications and restructurings have been rising and represent 22 percent of its mortgage book, or about $18 billion.

Of that, $1.9 billion in modifications, in 11,900 loans, has occurred since late 2006 as part of a program to address the interest rate resets of adjustable-rate mortgages. . . .

HSBC Finance, which typically holds its mortgages on its books, ended 2007 with 9,627 foreclosed properties, up from 8,809 at the end of the third quarter, company records show. While the average number of days to sell a foreclosed property has dipped from 186 to 183 in the same time period, HSBC's losses on the sale of foreclosed real estate have climbed, losing 14 percent of their value in the fourth quarter, up from a 9 percent loss in the third quarter.

Every modification or restructuring is a full re-underwriting, with customers' latest financial situations reviewed.

"To make it work, they have to be upfront about their debts and sources of income," he said.

To a degree, HSBC relies on computerized analysis to decide whether a customer is suited to a mortgage modification.

But "at the end of the day, it's a personal negotiation because every customer's situation is different," he said. "It requires skilled" employees.

I periodically hear people wondering if servicers of securities are doing modifications they wouldn't do on their own mortgage portfolio. I have believed all along that in fact portfolio lenders are much more aggressive about working out loans. They are also, I suspect, much faster at offloading REO quickly and taking the loss.

The question becomes whether the securitization rules or trustees themselves are hindering servicer efforts to work out loans, or whether servicers prioritize their workload with their portfolio loans first, then the securitized loans. I would guess it's a combination in a lot of cases.

by Calculated Risk on 6/01/2008 07:35:00 PM

From the WSJ: Number of Foreclosed Homes Keeps Rising

Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic ... The April total works out to about one in seven previously occupied homes available for sale nationwide.

... By cutting prices, lenders have managed to increase sales of such homes sharply in recent months in some cities hit hard by foreclosures ... Mark Zandi, chief economist at Moody's Economy.com, forecasts that the inventory of REO homes won't peak before the end of 2009.
...
The REO glut is weighing on house prices in many areas, as banks tend to cut prices faster than other sellers.

The lenders were slow to reduce prices at first, apparently hoping for "better market conditions". Now some lenders are getting aggressive as they realize that holding REOs means even greater losses as prices continue to fall.

From anecdotal evidence, it appears the lenders are being aggressive on pricing at the low end, but are still reluctant to discount mid to higher priced homes. This will probably change as the REOs continue to pile up at the banks.

by Calculated Risk on 6/01/2008 03:26:00 PM

Once again Haloscan is having performance problems.

I've switched to JS-kit until Haloscan starts working again.

JS-kit has a number of new features (that I haven't tried), and allows for threading (replies to individual comments).

Let me know what you think. I'm open to suggestions - Haloscan's reliability is a major issue.

Best to all

by Calculated Risk on 6/01/2008 09:37:00 AM

From the LA Times: Sales of foreclosures are on the rise

THE MARKET may be down, but sales of bank-owned properties are picking up, with multiple offers being made in many cases as lenders drop their prices to move foreclosed homes off the books.
...
"A $650,000 to $700,000 appraisal a year ago in some areas is now worth about $350,000. It took a while for the banks to adjust their mentality to that." [said Earl Bonawitz, general manager for Century 21 Wright in Temecula]
...
John Karevoll, an analyst with DataQuick Information Systems, also is seeing that REO prices have come down and more homes are closing escrow than a few months ago.

"The big question is whether we're in a recession," he said. "If we are, we're in for some more downturn. If we're not in a recession, it's likely that prices have found their bottom and that most of the declines are behind us. That's true for REOs and the market as a whole."

Yes, some REO lenders are finally getting realistic with their pricing, and in areas with significant REO activity (and aggressive lenders) prices may be close to the eventual nominal bottom. This is one of the key points I made in House Price Mosaic.

But this article misses a far more important point: house price changes vary widely by area, not just by state, but even within cities. Over time the equilibrium between different price ranges will return, but the price dynamics will be different. Areas with a large number of REOs have seen much faster price declines - and are probably closer to the price bottom. Areas with fewer REOs will exhibit "sticky prices" and the prices will probably decline for some time.

by Calculated Risk on 5/31/2008 10:32:00 PM

From The Times: Bradford & Bingley to issue profit warning

BRITAIN’s biggest lender of buy-to-let mortgages, Bradford & Bingley ... will stun the City this week with a profit warning and the departure of its embattled chief executive, Steven Crawshaw.

The announcement will trigger widespread concern that British banks are sitting on a time-bomb of rising mortgage arrears and mounting bad debt. It will also reignite fears about the viability of some of our top financial institutions.
...
Profits for this financial year will be significantly lower than analysts’ forecasts. The bank has been hit hard by mounting arrears from borrowers and squeezed margins.

"Buy-to-let" is lending to investors for the purpose of renting the property. Some of these investors were really speculators buying for appreciation.

In some areas - like London - investors accounted for a majority of new home purchases in recent years (from a 2007 article):

According to London Development Research, two-thirds of all new homes built in the capital are being bought by investors.

Now, with house prices falling in the U.K., the speculators (and their lenders) will be hit hard just like in the U.S.

by Calculated Risk on 5/31/2008 03:36:00 PM

On Friday, the FDIC announced the 4th bank failure of 2008, and the 2nd failure in May. The FDIC estimates that the failure of First Integrity of Staples, Minnesota will only cost the FDIC Insurance Fund $2.3 million. This is a small amount compared to the estimated cost to the fund of $214 million - announced earlier in May - associated with ANB Financial in Bentonville, Arkansas.

It appears bank failures are starting to become more frequent, and some analysts are estimating between 150 and 300 banks will fail over the next couple of years.

Click on graph for larger image in new window.

To put these failures into perspective, here is a graph of bank failures since the FDIC was created in 1934. There were 3 bank failures in 2007, and 4 already in 2008. This hardly shows up on the graph.

The huge spike in the '80s was due to the S&L crisis.

Note: thousands of banks failed during the Depression, and bank failures were very common even before the Depression, with about 600 banks failing every year during the Roaring '20s.

I suspect bank failures will become much more common (although nothing like the late '80s), and we will be on Bank Failure watch every Friday afternoon.

by Anonymous on 5/31/2008 07:46:00 AM

Our colleague P.J. at Housing Wire is being a shill for Countrywide again. I intend to pile on before Gretchen Morgenson gets on the case.

***************

Says Housing Wire:

Last week’s Investor’s Business Daily painted a pretty rough picture of everyone’s favorite industry whipping post Countrywide Financial Corp., after getting wind of a servicing policy that requires some delinquent borrowers to pay 30 percent of arrearages before the lender will begin discussing loan modification options — fees that the reporter, Kathleen Doler, called “a steep entrance fee.” . . .

It’s not a blanket policy, as Doler notes, but some borrowers are seeing this policy while others are not. And, of course, Doler finds a few consumer advocates more than willing to demonize the policy, and Countrywide as well. Not hard to do these days.

For its part, Countrywide told IBD that the policy was intended to be a good-faith demonstration, and suggested that the 30 percent policy is only applicable to borrowers staring down a scheduled foreclosure auction. . . .

Allow us to paraphrase what we think the nicely-worded press statement really says: look, if we’ve tried and wasted our resources trying to contact a borrower anywhere from the past 8 to 12 months and they don’t bother to return any of our calls, read any of their mail, or answer the door when we send countless loss mit specialists out there in person, you’ll have to forgive us for calling bullshit when they decide to call asking for a loan mod the day before the foreclosure sale.

I'm pretty sure Angelo was in favor of using "bullshit" in the statement but his PR people told him he's already in enough trouble over "disgusting."

As far as the policy itself, of dealing with eleventh-hour workout requests from borrowers who have been blowing you off until the week before the trustee's sale? I have two words to respond to that: Laura Richardson. You will recall that the good Congresswoman let three homes go into the foreclosure process--and she has admitted that she made no attempts to work with the servicer until all three foreclosures were well advanced and the legal fees had started piling up--and then got all righteous with WaMu because her request for a modification the week before the scheduled sale didn't magically make everything go away. I am not suggesting that Richardson is a "typical American borrower," but she suggested that, so there. Would I make her put cash down on the table before bothering to start a last-minute workout with her? You bet your sweet eclair I would.

What really frustrates me about the criticisms of this specific policy is the complaint that it's "inconsistent": it is exactly a policy that is applied only in certain circumstances. On a case-by-case basis. When appropriate. (I am not affirming excessive faith in Countrywide's ability to determine what is and is not "appropriate" in all situations. But saying they need to do better at that is not to say the policy is wrong.) But as I have argued since the "Hope Now" thing first emerged last year, one-size-fits-all paint-by-numbers workout strategies are doomed to fail.

The fact of the matter is that not all borrowers are the same, and not all circumstances are the same. I am reminded of this article from the Washington Post we looked at several weeks ago, which contained some pretty level-headed advice from Diane Cipollone, of the Sustainable Homeownership Project:

Then, said Cipollone, contact a nonprofit housing counseling agency or an attorney. Avoid any unsolicited offers from people who say they can save your house. Do not avoid mail or phone calls from your lender. And if your lender stops accepting payments because it is moving toward foreclosure, save that money for a contribution toward the loan workout. "If you've missed eight mortgage payments and have spent all that money because the lender stopped accepting payments, that is not a good outcome [nor] a good way to start negotiations," said Cipollone.

The article then describes the successful modification workout that a couple named Ramsey received, after having made a $3000 "down payment" to the servicer.

The fact of the matter is that no one is going to modify your mortgage payments down to zero in any scenario. If you have made no payments for months on end, and have made no attempt to contact your servicer to request a repayment plan or anything else during those months, and at the last minute before foreclosure you do not have any money in savings--the equivalent of several months' worth of a reasonably modified payment--why should the lender bother with you? You can try telling the lender that for the last six months or more your other expenses were so high that you could not set aside even two or three hundred dollars a month that would otherwise have gone toward the mortgage payment, but in that case, how will you afford the modified payments? If you can document a "temporary" financial hardship, why haven't you contacted the servicer until now?

I am personally willing to bet that if Countrywide asked you for 30% of back payments, late fees, and legal charges, and you were only able to scrape up 20%, they'd probably play ball with you, assuming you have a good story about why there is reason to believe that you can and will make the modified payments. Workouts are a process of negotiation; that's the point. And I'll eat my blog if it turns out that Countrywide is the only servicer with a policy similar to this for late-stage modification requests. My sense is that the animus here is against Countrywide, not any coherent objection to a policy of asking borrowers to put down some "earnest money" before being given a deal that may be in everyone's financial best interest, but which is inevitably beset by moral hazard.

I Want To Know How CFC Is Screwing Borrowers This Time.

by Calculated Risk on 5/30/2008 10:47:00 PM

OK, really just one city - but three different house price ranges.

Click on graph for larger image in new window.

This graph show the real Case-Shiller prices for homes in Los Angeles.

The low price range is less than $417,721 (current dollars). Prices in this range have fallen 34.9% from the peak in real terms.

The mid-range is $417,721 to $627,381. Prices have fallen 30.7% in real terms.

The high price range is above $627,381. Prices have fallen 22.8% in real terms.

In the recent bubble, the areas that saw the most appreciation are seeing the fastest price declines.

This seems to fit with some new research from David Stiff, Chief Economist, Fiserv Lending Solutions: Housing Bubbles Collapse Inward

During the housing bubble, as home prices appreciated at record rates in many metro areas, housing market activity was pushed outward to distant suburbs and ex-urban areas. Many homebuyers, who could no longer afford to purchase homes close to urban centers, were forced to “drive until you qualify” – trading longer commutes for lower mortgage payments.
...
Because of the reversal in trends that boosted demand for housing in outlying suburbs, since they peaked in 2005 and 2006, home prices have generally fallen more in towns and neighborhoods located farther away from urban centers.

[Figure] shows the change in single-family home prices from their peak until the second half of 2007 ... for the Los Angeles and Oxnard, CA metro areas ... for 330 zip codes. Between September 2006 and the second half of 2007, single-family home prices in the Los Angeles metro area dropped by 8.9%, according to the S&P/Case-Shiller index. ... the decline in home prices from their peak has had a very distinct geographic pattern. In Los Angeles, this pattern is more complex because instead of having a single “downtown”, the metro area has more than one large concentration of workplaces. Home prices have fallen less in neighborhoods near Los Angeles’ two largest employment centers – West Los Angeles and downtown. ... During market downturns, home prices fall the least in the most desirable areas of a metropolitan region.

But look at the first graph - all three price ranges saw similar appreciation and price declines during the previous bubble. This suggests this bubble was different than the earlier bubble - this time the extremely loose underwriting for subprime loans, boosted appreciation more in the least desirable areas than in the more desirable areas.

So Stiff's conclusion: "During market downturns, home prices fall the least in the most desirable areas of a metropolitan region." will be true in this housing bust, but was probably not true in previous busts. Also looking at the first graph, it appears all three price ranges are close to the same level, and they will probably now start to decline at about the same pace.

by Anonymous on 5/30/2008 06:38:00 PM

The fourth this year:

First Integrity, National Association, Staples, Minnesota, with $54.7 million in total assets and $50.3 million in total deposits as of March 31, 2008, was closed today by the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation was named receiver.

The FDIC Board of Directors today approved the assumption of all the deposits of First Integrity by First International Bank and Trust, Watford City, North Dakota. . . .

In addition to assuming all of the deposits of the failed bank, First International will purchase approximately $35.8 million of First Integrity's assets for a total premium of $2.03 million. The FDIC will retain approximately $18.9 million in assets for later disposition. . . .

The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is approximately $2.3 million. First Integrity is the fourth FDIC-insured bank to fail this year, and the first in Minnesota since Town & Country Bank of Almelund, on July 14, 2000. Last year, three FDIC-insured institutions failed.

(hat tip, cd)