Shares of the nation’s top residential mortgage lender slid more than 20 percent this week as warnings from analysts and investor jitters took their toll on the company.
Countrywide stock ended the week at just $4.76 a share, down 20.4 percent from its previous Friday closing price of $5.98 and well below its post-merger price in the $7 range.
The company took a hit Monday after Bank of America disclosed that it might not take on much of the lender’s debt, leading to an S&P downgrade and subsequent negative sentiment from analysts.
During the week, three analysts expressed their distaste over the proposed merger with Bank of America, calling for the Charlotte-based bank to lower their bid or walk away from the deal entirely.
FBR analyst Paul Miller also cut his rating on Countrywide to “underperform” from “market perform” and slashed his price target to $2 per share from a previous $7.
He cited rising delinquencies, which were revealed when Countrywide posted a near $900 million first quarter loss as the lender’s total servicing portfolio delinquency rate climbed to 9.27 percent.
Even Senator Charles Schumer took a swipe at the proposed merger, questioning why a bank in good standing would pursue a veritable train wreck.
Despite the concern, Bank of America has said that it vows to press on with the deal, although that doesn’t necessarily mean they’ll stick to the original terms.
In early January, Bank of America agreed to buy Countrywide Financial for $4.1 billion in stock, with Countrywide shareholders due to receive 0.1822 of a share of Bank of America stock in exchange for each share of the flagging lender’s.
While many are now speculating that BofA may lower their bid, let us not forget that Chase upped its rescue bid for Bear Stearns from $2 to $10.
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Late yesterday, private mortgage insurer MGIC announced another series of changes to its underwriting guidelines as a result of the continued uncertainty surrounding the mortgage market.
Effective June 1, the company said it will no longer insure any A-minus loans, reduced documentation loans, Alt-A loans, investment properties, cash-out refinances, 3-4 unit properties, loans with potential negative amortization, non-warrantable condos and condotels.
Additionally, purchase transactions will require a minimum of three percent verified borrower funds.
MGIC is also updating its definition of a “restricted market” to include loans identified as such by appraisers, mortgage lenders, or automated underwriting engines, along with loans secured by properties in MGIC specified markets.
The states of Kentucky, Michigan, and New Jersey will all be deemed restricted markets under the changes, along with a slew of new Core-Based Statistical Areas throughout the country, and previously designated states like California and Florida.
Restricted markets have lower loan-to-value maximums and higher Fico score requirements, as well as premium add-ons.
Effective July 1, the company will also add a .10% premium to all rate and term refinances, and 1-2 unit properties that exceed the conforming loan limit.
MGIC had previously made changes to both its underwriting guidelines and restricted markets in March to mitigate rising claims and losses after posting a net loss of $1.67 billion for all of 2007.
Shares of Milwaukee-based MGIC were down 30 cents, or 2.39%, to $12.26 in afternoon trading on Wall Street, well below their 52-week high of $67.05.
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Fremont General Corp., DBA Fremont Investment and Loan, said today that it has entered an agreement with Litton Loan Servicing to sell the remainder of its $12.2 billion loan portfolio.
“Pursuant to the Agreement, at closing, Litton will pay FIL for the MSR’s and will reimburse FIL for the unreimbursed delinquency and servicing advances made by FIL and FIL’s accrued and unpaid servicing fees,” Fremont said in a news release.
As a result of the deal, Fremont intends to wind down its remaining loan servicing operation in Ontario, California, but said the deal does not involve the sale of its servicing platform.
Fremont expects the deal to close in the second quarter of 2008 assuming it satisfies customary closing conditions.
Assuming this deal, along with a previous agreement to sell its retail bank branches and deposits to CapitalSource Inc. are completed, Fremont will have sold substantially all of its remaining assets.
The company also said it plans to provide an update on its status and future plans in the near future.
Fremont General had previously been one of the top subprime mortgage lenders in the country, but curtailed operations after it received a cease and desist order from the FDIC, which claimed the bank was operating without sufficient risk management policies and procedures in place.
Shares of Fremont stood unchanged at 17.5 cents in trading Thursday on the over-the-counter bulletin board.
Update: Fremont said today that it may file for Chapter 11 bankruptcy protection in absence of “another viable transaction.”
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Real estate search engine Trulia.com released the findings of a survey conducted last month that queried consumer sentiment regarding the purchase of foreclosed homes.
The survey found that 69 percent of U.S. adults feel that there are negative aspects associated with buying a foreclosed home, but more than half said they would be at least somewhat likely to consider such a transaction.
However, it’s clear that there is significant apprehension surrounding the purchase of foreclosed properties, as 69 percent noted that hidden costs were a drawback to buying such a property.
Another 35 percent said they considered them risky, while 33 percent fretted about a potential drop in value.
“What’s striking about these findings is that while U.S. consumers recognize the purchasing opportunity presented by foreclosed homes, there are definitely some reservations about the process,” said Pete Flint, co-founder and CEO of Trulia.
Interestingly, nearly 75 percent of U.S. adults aged 18-34 feel that there are negative aspects of purchasing a foreclosed home versus just two-thirds of those aged 35 and older.
And 20 percent of U.S. adults said that having a “personal connection” with someone who lost their home by way of foreclosure is a negative aspect of purchasing a foreclosed home.
Trulia said searches for foreclosure listings on its site have more than tripled in the first quarter of 2008, rising by a whopping 214 percent.
The survey was conducted online within the United States by Harris Interactive between April 23 and 25, among 2,033 U.S. adults aged 18 years and older.
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Mortgage rates continued to show little sign of movement for the week ending May 8, according to the latest weekly survey from mortgage financier Freddie Mac.
“Despite a weak housing market, mortgage rates remained almost unchanged this week based on better-than-expected economic data releases that indicated the economy still has some staying power,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
“The housing market is still struggling amid falling house prices and stricter lending standards. Coupled with higher delinquency and foreclosure rates, a smaller share of families own their homes this year,” he added.
The traditional 30-year fixed-rate mortgage averaged 6.05 percent, down from 6.06 percent a week earlier, while the 15-year edged up to 5.60 percent from 5.59.
Adjustable-rate mortgages weren’t much different, with the average one-year ARM unchanged from last week and the 5/1 ARM down to 5.67 percent from 5.73 percent.
A year ago, the 30-year averaged 6.15 percent, the 15-year 5.87 percent, the one-year 5.48 percent, and the 5/1 ARM 5.89 percent.
On a bright note, lender fees dipped to 0.3 percent on fixed-rate mortgages, down from a half-point last week, and fees of 0.5 percent on 5/1 ARMs and 0.6 percent on one-year ARMs remained unchanged.
The weekly survey, conducted since 1971, is based on first-lien prime conventional conforming mortgages with a loan-to-value of 80 percent.
See more data in Freddie Mac’s Weekly Primary Mortgage Market Survey archives.
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The New York State Assembly today passed a rather robust legislative package aimed at addressing the “national sub-prime lending crisis.”
The four-bill bundle contains legislation that, if enacted, would offer assistance to homeowners in default or facing foreclosure, establish requirements on all home loans, provide consumer info to all residential mortgage applicants, and most notably, create a one-year foreclosure moratorium for New York residents.
“The federal government was quick to bail out big businesses like Bear Stearns from near-collapse, but seems to have all but forgotten the everyday common household victims of this national crisis,” said Assembly Speaker Sheldon Silver.
“We in the Assembly Majority want to see New York’s families stay in their homes and our communities to remain intact. Our package is not a bail out. It’s an assistance program to help homeowners in our state keep the American dream from turning into a nightmare.”
The first bit of the legislation would provide assistance payments up to an amount equal to three months of mortgage payments and provide legal services and counseling to help select homeowners in default or facing foreclosure.
The second part of the package would establish the duties of mortgage brokers and remedies for violations, ensure that lenders verify borrower income and the ability to repay loans, and prohibit practices such as balloon payments, negative amortization and prepayment penalties.
The third bill would permit the courts to delay foreclosure up to one year for subprime borrowers who meet specific conditions, allowing at-risk homeowners to work with their respective lenders to avoid losing their homes.
“This encourages lenders and homeowners to settle cases out of court through modification, refinancing or other means to avoid the devastation of losing a home,” said Assemblyman James Brennan (D-Brooklyn), sponsor of the foreclosure moratorium legislation.
The final piece of the legislative package would create a “Mortgage Applicant’s Bill of Rights,” which requires mortgage lenders and brokers to provide consumers with a pamphlet that must be read and signed by the borrower prior to applying for a mortgage.
“Our goal in the Assembly is to provide resources to the people who have been victims of the predatory loan companies and prevent New Yorkers from falling into this trap in the future. With proper assistance and education, we can continue to protect our neighborhoods and enjoy our communities,” concluded Silver.
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Steve Bailey, Senior Managing Director of Loan Administration for Countrywide Financial, testified before the Senate yesterday, calling the recent allegations regarding its bankruptcy cases “unfounded” while claiming that the mortgage lender was committed to helping its borrowers avoid foreclosure.
“There have been a number of allegations made in the media recently relating systemic errors in bankruptcy servicing practices,” he said before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts in Washington.
“Bankruptcy servicing is a complex process involving legal proceedings and rules that can vary significantly across bankruptcy jurisdictions and each borrower’s circumstances are unique.”
“While mistakes may sometimes occur, Countrywide believes its bankruptcy servicing processes are best in class and result in minimal instances of error.”
A series of internal reviews conducted by Countrywide indicate an error rate below one percent for mistakes that “adversely impact a borrower.”
Bailey went on to say that Countrywide’s policies and practices are designed to avoid unnecessary fees, especially in bankruptcy cases, citing the fact that the lender doesn’t charge late fees on post-petition (after BK is filed) delinquencies or collect prepayment penalties on payoffs tied to a BK.
He added that Countrywide typically waits 45 to 60 days into a post-petition delinquency before referring the account to attorneys to file motions for relief from the bankruptcy stay (foreclose).
Additionally, Countrywide has or will in the near future implement changes to its bankruptcy servicing system to improve the transparency and accuracy of the process.
These changes include an independent review of a random sample of loans in bankruptcy by an outside auditor, the establishment of the Bankruptcy Ombudsman’s Office, and the adopting of best practices which are expected to be recommended shortly by the National Association of Chapter 13 Trustees.
“A successful Chapter 13 plan is in the interest of the borrower, the investor and the mortgage servicer,” said Bailey. “Countrywide recognizes and appreciates the goal of a Chapter 13 bankruptcy to provide borrowers with a fresh start and the opportunity to retain their most valued asset, their home.”
Countrywide is currently involved in tens of thousands of bankruptcy cases throughout the country.
Shares of the Calabasas, CA-based home loan lender were down 32 cents, or 5.99%, to $5.02 in afternoon trading on Wall Street.
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The National Association of Realtor’s (NAR) Pending Home Sales Index dipped 1.0 percent to 83.0 in March, down from a revised 83.8 in February, and was off 20.1 percent from March 2007.
The real estate group launched the PHSI in 2001, and a reading of 100 is equal to the sales rate seen during that year.
NAR chief economist Lawrence Yun said that home sales activity will likely continue to be flat in the coming months, but should improve during the summer.
“Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas,” he said.
“As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available.”
Along those same times, NAR President Richard F. Gaylord noted that many potential homeowners are interested, but waiting on the sidelines as credit conditions continue to restrict purchases.
“Our members are telling us that more buyers are looking at homes but are slow in signing contracts, and that’s contributing to the weakness in pending home sales,” he said.
“In many cases buyers are waiting for greater access to affordable credit, especially in higher cost areas, but some are disappointed with what appears to be unnecessarily restrictive lending requirements. The good news this week is there is some discussion toward relaxing some of the burdensome lending practices.”
NAR said the average 30-year fixed-rate mortgage is expected to rise gradually to 6.2 percent by year-end, and then climb to 6.3 percent in 2009.
The group expects existing home sales to rise from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter, with a total of 5.39 million sales in 2008 and 5.72 million next year.
“Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4 percent in 2008, driven by a relatively few markets that are very oversupplied,” Yun said.
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Mortgage application volume increased 15.6 percent on a seasonally adjusted basis for the week ending May 2 after hitting its 2008 low one week earlier, the Mortgage Bankers Association said today.
On an unadjusted basis, the application index was up 15.9 percent compared with the previous week but still remained 4.4 percent lower than the same week a year earlier.
The increase in application volume was led by a 19.3 percent spike in refinance applications, a 13.2 percent surge in FHA apps, and a 12.1 percent jump in purchase activity.
The refinance share of activity increased to 47.1 percent of total applications from 45.7 percent a week earlier, but still stands far below recent highs of around 70 percent.
Interest Rates Improve
Rates saw mild improvement across the board, with the traditional 30-year fixed-rate mortgage averaging 5.91 percent last week, down from 6.01 percent a week earlier.
The average 15-year fixed-rate mortgage dipped to 5.49 percent from 5.53 percent, and the average one-year adjustable-rate mortgage fell to 6.77 percent from 6.86 percent.
Lender fees also improved on all the aforementioned products, with points (including origination fee) averaging 1.12 for 30-year loans, down from 1.26 a week earlier.
Points decreased to 1.07 from 1.24 on 15-year loans, and fell to 1.35 from 1.40 on one-year ARMs.
The MBA’s weekly survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage applications.
Despite the generally decent numbers, it should be noted that the index only covers retail originations, which surely have increased as a result of wholesale’s demise.
It also doesn’t address the perceived rise in denied applications as tighter credit conditions and falling property values have surely made an impact.
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Despite the ongoing housing crisis, commercial/multifamily loan originations climbed 19 percent in 2007, according to the Mortgage Bankers Association’s annual summation.
Increases were seen across virtually all property types and investor groups as mortgage bankers closed $507.7 billion in commercial/multifamily loans.
“Even with the credit crunch hitting mid-year, 2007 still set a record for commercial/multifamily mortgage originations,” said Jamie Woodwell, MBA’s Senior Director of Commercial/Multifamily Research.
“The 2007 numbers show both the importance of the commercial mortgage-backed securities (CMBS) market to commercial real estate finance and the depth of other funding sources, such as banks and thrifts, life companies, Fannie Mae, Freddie Mac and others.”
Lending for office properties led the way, surging 36 percent between 2006 and 2007, followed by multifamily, health care, and hotel/motel increases.
Office building represented $140.7 billion, or 28 percent of the lending total, while retail and industrial properties experienced slight declines from 2006.
Conduits were the single largest investor group, responsible for $225.2 billion, or 44 percent of the closed loan volume.
Among the investors, Freddie Mac saw the greatest percentage increase in volume between 2006 and 2007, followed by sister Fannie Mae.
It’s important to note that the commercial/multifamily lending tapered off in the second half of 2007 after running 38 percent ahead of 2006 levels in the first half of the year.
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