by Calculated Risk on 8/04/2009 07:21:00 PM

From HUD: FHA Suspends Taylor, Bean & Whitaker Mortgage Corp. and Proposes to Sanction Two Top Officials

The Federal Housing Administration (FHA) today suspended Taylor, Bean and Whitaker Mortgage Corporation (TBW) of Ocala, Florida, thereby preventing the Company from originating and underwriting new FHA-insured mortgages. The Government National Mortgage Association (Ginnie Mae) is also defaulting and terminating TBW as an issuer in its Mortgage-Backed Securities (MBS) program and is ending TBW's ability to continue to service Ginnie Mae securities. This means that, effective immediately, TBW will not be able to issue Ginnie Mae securities, and Ginnie Mae will take control of TBW's nearly $25 billion Ginnie Mae portfolio.

FHA and Ginnie Mae are imposing these actions because TBW failed to submit a required annual financial report and misrepresented that there were no unresolved issues with its independent auditor even though the auditor ceased its financial examination after discovering certain irregular transactions that raised concerns of fraud. FHA's suspension is also based on TBW's failure to disclose, and its false certifications concealing, that it was the subject of two examinations into its business practices in the past year.

"Today, we suspend one company but there is a very clear message that should be heard throughout the FHA lending world - operate within our standards or we won't do business with you," said HUD Secretary Shaun Donovan.

FHA Commissioner David Stevens said, "TBW failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream. We were also troubled that the Company not only failed to disclose it was a target of a multi-state examination and a separate action by the Commonwealth of Kentucky, but then falsely certified that it had not been sanctioned by any state. FHA won't tolerate irresponsible lending practices."

Taylor Bean is a major FHA lender, from the WSJ:

Taylor Bean was the 12th largest U.S. mortgage lender in the first six months of this year, according to Inside Mortgage Finance, a trade publication. Among originators of FHA loans, Taylor Bean was the third largest in May, with a market share of 4%, according to the publication. Only Bank of America Corp. and Wells Fargo & Co. were larger.

Taylor Bean was raided yesterday along with Colonial Bank by TARP inspectors. There is no indication if these actions are related.

by Calculated Risk on 8/04/2009 06:32:00 PM

Mostly CRE here ...

by Calculated Risk on 8/04/2009 05:14:00 PM

Dr. Brad Setser, author of the blog "Follow the Money", has taken a new job with the National Economic Council. Unfortunately this means no more blogging for Brad.

Here is an excerpt from Brad's farewell post: All great things have to end

Fundamentally this blog was about an issue – the United States’ trade deficit, the offsetting trade surpluses in other parts of the world and the capital flows that made this sustained “imbalance” possible. Most of my early blog posts argued, in one way or another, that taking on external debt to finance a housing and consumption boom wasn’t the best of ideas. Even if (or especially if) the deficit was financed by governments rather than private markets.

Brad and I have had a number of great discussions over the years, and his blog always provided great information and insight. Brad's work really helped clarify the relationship between the U.S. current account deficit (trade deficit) and the housing bubble.

Brad, congratulations! Thanks for everything, and I wish you all the best at your new job!

by Calculated Risk on 8/04/2009 04:11:00 PM

Brian sent me these comments from Multi-Color Corp. (this company makes labels mostly for consumer product companies: P&G was 19% of Q1 sales and Miller Beer was 13%.)

Multi-Color: “While there is increasing evidence that the worst of the recession may be over, we remain cautious about sales volume for the remainder of the year. While you would expect inventories to be replenished as the economy stabilizes, we have not seen a trend of increasing orders to date.”

Analyst: Just a few questions. The first would be can you talk about the phasing of order flow by month over the course of the quarter? And can you provide any color on how July trended?

Frank Gerace, Multi-Color CEO: Yes, order flow actually was pretty decent during the month of June, better than May, and then as July came in, July began looking more like May, so there was an improvement during June and then it kind of went back to the way it was looking in May. And what we're seeing now is just steady, stable, steady orders, no increases that we can speak of to date.
emphasis added

The end of cliff diving is not the same as green shoots!

by Calculated Risk on 8/04/2009 03:15:00 PM

From D.R. Horton:

D.R. Horton ... today reported a net loss for its third fiscal quarter ended June 30, 2009 of $142.3 million ... The quarterly results included $110.8 million in pre-tax charges to cost of sales for inventory impairments and write-offs of deposits and pre-acquisition costs related to land option contracts that the Company does not intend to pursue. The net loss for the same quarter of fiscal 2008 was $399.3 million ... Homebuilding revenue for the third quarter of fiscal 2009 totaled $914.1 million, compared to $1.4 billion in the same quarter of fiscal 2008. Homes closed totaled 4,240 homes, compared to 6,167 homes in the year ago quarter.
...
Donald R. Horton, Chairman of the Board, said, “Our net sales orders in the June quarter reflected a 22% sequential increase from our March quarter which was stronger than our usual seasonal trend. However, market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence."
...
The Company’s cancellation rate (cancelled sales orders divided by gross sales orders) for the third quarter of fiscal 2009 was 26%.
emphasis added

Horton is the largest homebuilder in the U.S.

The bad news is they are still losing money and sales are way off from last year.

The good news is sales in calendar Q2 (fiscal Q3) were "stronger than [the] usual seasonal trend", and also cancellations are back to early 2006 levels.

The surge in cancellation rates was an important story after the bubble burst because the Census Bureau doesn't correct inventory levels if contracts are cancelled. Now it appears cancellation rates might be returning to more normal levels.

Note: What matters for inventory is the change in cancellation rate from a couple of quarters earlier, not the absolute level. For those interested in how the Census Bureau handles cancellations, see here.

Click on graph for larger image in new window.

This graph shows the cancellation rate for Horton since the top of the housing bubble.

There appears to be a seasonal pattern (fewer cancellations in Q1), so this decline in calendar Q2 is definitely significant.

The cancellation rate could rise again if mortgage rates move higher, but this is a little bit of good news for the builders. These cancellation rates are still above normal (Note: "Normal" for Horton is in the 16% to 20% range, so 26% is still high.), but most of the home builders are reporting the lowest cancellation rates since late 2005 or early 2006.

The really bad news for Horton - and all homebuilders - is that sales will not rebound for the reasons outlined by Mr. Horton above, especially because of the huge overhang of excess inventory. In the low priced areas where inventory is currently low and activity high, most of the homes are selling below replacement cost and the builders can't compete. The big question for the builders is: Can they make money at these sales levels? I think the answer for many of them is no.