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Jul. 20, 2011: Post Office scaling back real estate; more on BofA, Wells, US Bank earnings; ECOA update; Chase winding down (home equity?)
Rob Chrisman
"If
I owned Texas and Hell, I would rent out Texas and live in
Hell." So spoke Civil War General Philip Sheridan, who was the
military governor of Texas and Louisiana afterwards.
Interestingly, currently Texas is doing very well economically,
has a robust jobs market, and its muni bonds carry an Aaa
rating. Which reminds me…
Investors
in
fixed income securities have a wide range of instruments in
which to invest. This commentary focuses on mortgages and MBS's,
but other securities include Treasury securities, corporate
debt, foreign debt, and so forth - and they, in some way, compete
with each other for fixed-income investment dollars. For
example, although we don't have a Treasury auction this week,
The Financial Times reports that the US municipal bond market
"is braced for what could be its biggest week this year with
nearly $10 billion of new issuance expected. Over the last few
months, new bond sales
have been rising...fears of widespread defaults in the
aftermath of the US recession have begun to ease and buyers
have returned to the market.” For the whole of June, new
muni issuance was $41bn, about double the level of May’s
issuance. Deals this week are expected from the states of Oregon
and Maryland as well as the cities of Chicago and New York." In
addition, The Council of Development Finance Agencies released a
survey this week showing that 47 states and the District of
Columbia issued $14.6 billion worth of private-activity bonds
in 2010, 22.2% more than the previous year. It was the first
increase in three years.
Analysts continue to analyze (isn't that what analysts do?) and
compare the recent
performance of Bank of America and Wells Fargo. It
provides an interesting study, and is much more than an $8.8
billion loss compared to a $3.95 billion gain. The latest can be
found at http://www.latimes.com/business/la-fi-banks-earnings-mortgages-20110720,0,1341872.story.
Speaking of losses, in an effort to stop its red ink at the US Post Office (with
letters and other forms of standard mail going extinct) it is
looking to downsize its real-estate portfolio. "The agency has
tapped real-estate firm CB Richard Ellis Group Inc. to advise
the agency on the 300 million square feet of property that it
owns or leases. ‘We're looking at the whole portfolio across the
country and how much we need and where,' said Tom Samra, vice
president for facilities at the postal service. ‘We'll be putting
buildings on the market and terminating leases, where
possible.' Over the next six months, Mr. Samra said, the
agency and CBRE are looking to craft a plan on how to curtail
the portfolio in line with the lower mail volumes seen by the
agency. The postal service owns about 8,600 properties and has
about 24,500 leases. Already, the agency has said it is starting
to close hundreds of post offices. With the rise of email, the
postal service has been taking its lumps in recent years. The Post Office reported a
loss of $8.5 billion for fiscal 2010."
Bank of America
“trimmed roughly 151,000 loans from its portfolio of delinquent
and discontinued mortgages in the second quarter through
foreclosure or short sales. However, there are still millions of
these loans to go” through its Legacy Asset Servicing unit.
According to Housing Wire, at the end of the second quarter,
BofA reported more than 4.3 million loans in this portfolio,
down 3.3% from the previous quarter. The amount of mortgages in
60-day delinquency or worse declined 5% to 1.2 million.”
More
mortgage-related
earnings came out with the release of U.S. Bancorp’s 2nd
quarter numbers: a net income of $1.2 billion, up 57% from one
year ago. Total revenue at the bank remained flat at roughly
$4.6 billion. But it cut the provision for credit losses more
than half, totaling $572 million in the second quarter, down
from $1.1 billion one year ago and $755 million in the previous
quarter. Mortgage banking revenue at U.S. Bank was also flat at
$239 million, down slightly from $243 million one year ago but
up from $199 million in the previous quarter. The bank wrote $8
billion in new mortgages, down from more than $10.5 billion in
the same quarter last year and $12.1 billion in the first three
months of 2011.
Many
small lenders around the nation sell to Chase. In fact, it was
the #3 lender in the first quarter with an 11% market share. So
last week's Bloomberg story caught many by surprise: "JPMorgan Chase & Co.
(JPM) is winding down its $154 billion mortgage portfolio to
“close to zero” as the bank works through mortgage losses
and litigation over loan- servicing and foreclosure practices.
JPMorgan, which has reduced mortgage holdings by $19.3 billion
in the past year, will continue shedding assets by about as much
as 15 percent a year “forever,” Chief Executive Officer Jamie
Dimon told analysts on a conference call after the New
York-based company reported a 13 percent increase in net income
for the second quarter." An educated guess suggests that this is
Chase’s home equity
business, although it is vague. http://www.bloomberg.com/news/2011-07-14/jpmorgan-to-phase-out-mortgage-holdings.html
Chase
is one of the big correspondent lenders, but its 1st
quarter business of purchasing loans through its correspondent
channel dropped 24%, according to Quarterly Data Report. Bank of
America’s was down 18%. But as has been mentioned several times
in this commentary, several
smaller lenders/investors are starting up competing
correspondent channels, mostly targeting small banks and
credit unions. They view it as a less risky way to obtain
residential loans since small banks and credit unions are viewed
as a better credit risk than brokers when it comes to buybacks
and reps & warrants. Companies include Guild, Stearns, Florida
Capital Bank, American Home Mortgage Servicing, PennyMac,
Total Mortgage Services, and Union Bank (in the planning
stages). By most accounts wholesale/broker originations
accounted less than 10% industry-wide production, retail was
north of 50%, and correspondent made up the difference. (But
remember that these numbers are confusing, especially since
“correspondent” buys loans from retail and wholesale channels.)
Some
people really enjoy compliance issues while for others ECOA makes their
heads spin. Recently the Federal Reserve Board and the Federal
Trade Commission jointly issued final rules to implement the
credit score disclosure requirements of the Dodd-Frank Wall
Street Reform and Consumer Protection Act. “The Rules amend
certain model notices in Regulation B (Equal Credit
Opportunity), which combine the adverse action notice
requirements for Regulation B and the FCRA, to reflect the new
credit score disclosure requirements. If a credit score is used
in setting material terms of credit or in taking adverse action,
the statute requires creditors to disclose credit scores and
related information to consumers in notices under the Fair
Credit Reporting Act (FCRA).” For more information go to http://www.lenderscomplianceblog.com/2011/07/frb-and-ftc-adverse-action-and-risk.html.
The
Housing Starts and Building Permits numbers sure turned some
heads yesterday. Most
economists don’t see the start of a housing rebound until 2014,
but there will be occasional blips in the data. 30-yr MBS prices
ended the day better by .250-.375, resulting in a few lender
rate improvements on the way up since we started down on the
day, and the 10-yr closed around 2.89%. Mortgage banker selling
totaled over $1 billion which was easily absorbed, or as one
trader put it, “The longer view in MBS continues to be positive
with demand - especially from REITs - expected to outweigh
supply, while prepayments remain benign.”
This
morning
we learned what lock desks already knew: applications for U.S.
home mortgages surged last week, racking up the biggest increase
in four months. The MBA reported that apps were up over 15%,
with refi’s up over 23%. (Apps for purchases were roughly
unchanged.) Refi biz currently accounts for over 70% of new
applications. Later, at 10AM EST we’ll have Existing Home Sales
for June, which for May were down 3.8% and for the first five
months of 2011 have been going at a 5 million unit pace. Stocks are pointing to an
early rally, the 10-yr is nearly unchanged at 2.90%, and MBS
prices are quiet relative to Tuesday’s close.
Family
Tree of Vincent Van Gogh:
His dizzy aunt Verti Gogh
The brother who ate prunes Gotta Gogh
The brother who worked at a convenience store Stop N Gogh
The grandfather from Yugoslavia U Gogh
His magician uncle Where-diddy Gogh
His Mexican cousin A Mee Gogh
The Mexican cousin's American half-brother Gring Gogh
The nephew who drove a stage coach Wells-far Gogh
The constipated uncle Can't Gogh
The diarrhea cousin Got to Gogh!!
The ballroom dancing aunt Tang Gogh
The bird lover uncle Flamin Gogh
The fruit-loving cousin Man Gogh
An aunt who taught positive thinking Way-to-Gogh
The little bouncy nephew Poe Gogh
A sister who loved disco Go Gogh
And his niece who travels the country in an RV Winnie Bay Gogh
If
you're
interested, visit my twice-a-month blog at the STRATMOR Group
web site located at
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