Friday, April 18, 2014

Basel Spurs Big-Bank Borrowing From U.S. Home Loan Banks

Basel Spurs Big-Bank Borrowing From U.S. Home Loan Banks
Four of the nation’s largest banks, led by JPMorgan Chase & Co. (JPM), are driving a surge in borrowing from the Federal Home Loan Bank system as they raise funds to buy assets that meet new liquidity requirements.

Lending at the 12 regional Home Loan Banks rose 30 percent to $492 billion between March of 2013 and December 2013, largely the result of advances made to JPMorgan, Bank of America Corp., Wells Fargo & Co. (WFC) and Citigroup Inc., according to a report released today by the Federal Housing Finance Agency Office of the Inspector General.

The concentration of Home Loan Bank lending in four large institutions could present safety and soundness risks, the report said. In addition, auditors questioned whether lenders created to support housing finance should be providing funds so banks can meet standards set under the international Basel III accord.

“The increasing use of advances by members to meet Basel III’s liquidity requirements could raise public concerns about the system’s commitment to its housing obligations,” the report said.

The Federal Home Loan Banks, established by the government in 1932 to support mortgage credit, have an implicit government guarantee, meaning that investors expect they won’t be allowed to fail. They make advances to their 7,500 member financial institutions that can be used to originate home loans or for other purposes.

Citigroup (CITI), JPMorgan, Bank of America and Wells Fargo accounted for 27 percent of total advances from the Home Loan Banks at the end of 2013, up from 14 percent the year before, the report said. Lending to JPMorgan increased the most, to $61.8 billion in December 2013 from $13.3 billion in March 2012.

Basel Requirements

Basel III, approved by U.S. regulators in July, included standards for how much capital banks must have against investments in specific financial products. A related effort still under way in the U.S. would require banks to hold easy-to-sell assets and get a minimum amount of funding from sources unlikely to dry up in a crisis.

The FHFA, which regulates the Home Loan Banks, should publicly release more information on advances to big banks, the report said.


Wednesday, April 16, 2014

Trending: real estate investors key on schools, experts say

Trending: real estate investors key on schools
The adage in real estate goes, "location, location, location", but for Chinese investors looking for US property, it might change to "location, education, and luxury", said real estate marketer Nick Antonicello.

While location is important, wealthy Chinese are now looking for a combination of factors to spot real estate opportunities, one of the primary ones being proximity to quality education, said Antonicello, director of new business at Unique Homes, a luxury housing publication.

Antonicello made his comments on Monday in a panel discussion to at the Waldorf Astoria hotel in New York, part of the 2014 Asian Real Estate Association of America Global and Luxury Summit.
Elizabeth Harrington, North American publisher of the Hurun Report, a Shanghai-based publishing group best known for its annual "China Rich List," said that the Hurun Report now releases a school guide series for its clients as well because of the demand for education information.

"We had wealthy individuals asking us about advice on schools - where to apply to, how to get in, what the process is - and that eventually led us to the School Guide Series," she said. The series compiles listings of top preparatory, secondary, undergraduate and post-graduate schools, and features articles from famous alumni and leading figures at big-name schools.

The West Coast of the US has always had the highest concentration of Chinese and Chinese Americans, and about 50 percent of Chinese real estate buyers focus on California because of the schooling opportunities.

Real estate investors key on schools, experts say
"It is the education. Why is that important? We know that statistically, between 30 and 40 percent of specifically the Chinese students, mom and dad are buying them a house," said Antonicello.

Los Angeles, San Francisco, Pasadena, San Marino, and Arcadia all make up popular destinations in California for Chinese investors, Antonicello said, because of proximity to schools like Stanford University, the University of California at Los Angeles (UCLA), the University of California at Berkeley (UC Berkeley), California Institute of Technology (Caltech), and others. Many California colleges and high schools place highly on US News &World Report's school rankings.

International students make up a $24 billion industry in the US and real estate agents should realize the potential for even more education-fueled real estate investments, said Bill Hunt, international business consultant at Keller Williams Worldwide. "As the world becomes a global economy, the United States and China play the key role in developing education," he said.

Harrington said that realtors should consider the secondary and tertiary markets that Chinese business people can bring, secondary being the children who they want to invest for, and also the employees they may have working for them, who are likely to want to invest in homes themselves.

"Start to think not just in terms of what cities the customers want, but start thinking in terms of a segmented market. It's all interrelated," she said. "It's a pyramid, with the high net-worth people at the top, their children in the middle, and their business employees - who have different price points and different needs - at the bottom."


Home Loans In Medford James Beard of North Pacific Financial has been offering reliable service for mortgage loans to customers for many years. These loans include first time home loans, refinancing home loans and more in Medford Oregon, Jackson County, Siskiyou County and all of Southern Oregon.

Tuesday, April 15, 2014

Lending Plunges to 17-Year Low as Rates Curtail Borrowing

home loans and mortgage rates
U.S. mortgage lending is contracting to levels not seen since 1997 -- the year Tiger Woods won his first of four Masters championships -- as rising interest rates and home prices drive away borrowers.

Wells Fargo (WFC) & Co. and JPMorgan Chase & Co., the two largest U.S. mortgage lenders, reported a first-quarter plunge in loan volumes that’s part of an industry-wide drop off. Lenders made $226 billion of mortgages in the period, the smallest quarterly amount since 1997 and less than one-third of the 2006 average, according to the Mortgage Bankers Association in Washington.

Lending has been tumbling since mid-2013 when mortgage rates jumped about a percentage point after the Federal Reserve said it might taper stimulus spending. A surge in all-cash purchases to more than 40 percent has kept housing prices rising, squeezing more Americans out of the market. That will help push lending down further this year, according to the association.

“Banks large and small are going to have to adapt to a new reality because mortgage origination volumes going forward aren’t going to support the big businesses they’ve had in place for the last few years,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “They’re going to have smaller, leaner operations, and we’re seeing them make that shift.”

At Wells Fargo, home-loan originations exceeded $100 billion for seven straight quarters, ending in June 2013. The figure plunged to $36 billion in the three months through March, the San Francisco-based bank said April 11.

Rising Rates

Wells Fargo’s results show the shift in the housing market away from refinancings as interest rates climb. Just 34 percent of its originations went to customers refinancing loans, compared with 69 percent in the same period of 2013.

Timothy Sloan, Wells Fargo’s chief financial officer, said a combination of forces, including tougher standards following the housing crash, account for the falloff in lending.

“It’s too early to call it a secular shift,” Sloan said in an interview. “This recovery has just been more complicated because of the impact of rates being low, and now they are backing up a little bit. We’ve had a lot of regulatory changes, we’ve had a change in underwriting standards that the market is getting used to.”

The average interest rate for a 30-year fixed mortgage was 4.34 percent last week, up from 3.54 percent a year ago, according to a statement from Freddie Mac.

Cutting Staff

Lenders also are tightening credit standards, requiring higher FICO scores. More than 40 percent of borrowers in 2013 had scores above 760, compared with about 25 percent in 2001, according to a Feb. 20 report by Goldman Sachs Group Inc. analysts Hui Shan and Eli Hackel.

JPMorgan originated $17 billion of home loans in the first quarter of 2014, lower than at any time during the housing crash. The New York-based bank made $52.7 billion of mortgages a year earlier. Marianne Lake, JPMorgan’s CFO, cited severe winter weather as among the reasons for the first-quarter drop.

“We view JPM and WFC’s mortgage banking results as lower than expected,” Keefe, Bruyette & Woods analysts led by Frederick Cannon said Friday in a research note, referring to the bank’s stock symbols. “Mortgage volumes and applications were down materially.”

The lenders are cutting staff in the slump. JPMorgan said it reduced the number of jobs at its mortgage unit by 30 percent, or 14,000 positions, since the start of last year. That includes 3,000 reductions in the first quarter. Wells Fargo said it got rid of 1,100 jobs in its residential mortgage business in the first period.

Cash Deals

JPMorgan projected on April 11 that it will lose money on mortgage production this year because of the drop in demand.

All-cash purchases, dominated by investors, are surging as lending drops. Deals in cash accounted for more than 43 percent of U.S. residential sales in February, up from 20 percent a year earlier, with the most in Florida, New York and Nevada, according to data firm RealtyTrac.

Wells Fargo said last week that it’s seeing more cash buyers in the housing market.

“Some of those cash buyers were investors, both individuals and private equity firms and the like, and that had an impact on home prices,” Wells Fargo’s Sloan said. “If you look at the year-over-year increase in home prices being in the low teens, our folks think probably a third of that increase was due to the impact of investors as buyers.”

Institutional Landlords

Private-equity firms, hedge funds, real estate investment trusts and other institutional landlords have spent more than $20 billion to buy as many as 200,000 rental homes in the last two years. They snapped up properties after prices fell as much as 35 percent from the 2006 peak and rental demand rose from the almost 5 million owners who went through foreclosure since 2008.

Investors focused on the markets hardest hit by the real estate crash, including Phoenix, Las Vegas and Atlanta, and have helped push prices higher in those areas.

“This is an investor-heavy market recovery,” said Daren Blomquist, vice president of RealtyTrac in Irvine, California. “We’ve seen a relatively high percentage of institutional investors as one segment, and regular mom-and-pop investors as another, jumping back in as they see the market hit bottom and start to rise.”

Home prices have surged 23 percent since a post-bubble low in March 2012, according to the S&P/Case-Shiller index. The gains have slowed as climbing values in the past two years started to reduce affordability.


Saturday, April 12, 2014

Wells Fargo, JPMorgan: Low Mortgage Demand Even On Low Rates

Low Mortgage Demand Even On Low Rates
Slack demand for home loans continued to drag on earnings at Wells Fargo & Co. (WFC:US) and JPMorgan Chase & Co. (JPM:US) as the two largest U.S. mortgage lenders grappled for pieces of a shrunken market.

Even as interest rates hovered near historically low levels, new home loans tumbled 67 percent to $36 billion in the first quarter at San Francisco-based Wells Fargo, the biggest originator. JPMorgan posted a 68 percent drop to $17 billion, and the bank predicted it would lose money on mortgage production for the full year.

Both lenders are paring staff to keep expenses in line with demand for loans, which has waned as investors and cash buyers dominate some sales. New York-based JPMorgan said jobs at its mortgage business declined 14,000, or 30 percent, since the start of last year. Wells Fargo set plans to cut 1,100 positions in the most recent three months, which ranked as its worst first quarter for mortgage revenue since 2008.

“The market got off to a slow start,” JPMorgan Chief Financial Officer Marianne Lake said yesterday on a conference call with analysts to discuss quarterly results. “We’re seeing tight housing inventory in some markets, and the purchase market was affected adversely by the severe weather.”

JPMorgan’s first-quarter net income (JPM:US) dropped 19 percent to $5.27 billion, or $1.28 a share, the bank said in a statement. Mortgage revenue plunged 42 percent to $1.57 billion as higher interest rates curtailed refinancing.

Mortgage banking income, which includes originations and servicing, fell 46 percent to $1.51 billion at Wells Fargo. The bank still posted a 14 percent increase in first-quarter earnings, to $5.89 billion, as fewer customers missed payments.

‘Down Materially’

“We view JPM and WFC’s mortgage banking results as lower than expected,” Keefe, Bruyette & Woods analysts led by Frederick Cannon said yesterday in a research note, referring to the banks’ stock symbols. “Mortgage volumes and applications were down materially.”

Wells Fargo ceded market share in 2013 to rivals, dropping to 19 percent of residential mortgage originations from 25 percent, according to data from Bloomberg Industries. JPMorgan rose to 9.5 percent from 9 percent, while Bank of America Corp. advanced to 4.8 percent from 3.7 percent.

Potential customers are finding they’re sometimes bidding for homes against buyers who don’t need debt. All-cash sales made up 35 percent of sales in February and 33 percent in January, according to data from the National Association of Realtors.

Market Shift

“There’s frankly a lot more cash buyers today,” Wells Fargo Chief Executive Officer John Stumpf, 60, said during a conference call with analysts to discuss results. Wells Fargo is optimistic about prospects for the rest of this year because rates are still low, homes are affordable, consumer debt is dropping and employment is rising, the bank told analysts.

Wells Fargo’s results show the shift in the housing market away from refinancings as interest rates rose from last year’s trough. Just 34 percent of its originations went to customers refinancing loans, compared with 69 percent in the same period of 2013. The average interest rate for a 30-year fixed mortgage was 4.34 percent this week, up from 3.54 percent a year ago, according to a statement from Freddie Mac.

JPMorgan fell 3.7 percent to $55.30 yesterday in New York trading, the worst performance in the Dow Jones Industrial Average. (INDU) Wells Fargo gained 0.8 percent to $48.08.


Wednesday, April 9, 2014

Mortgage Rates: rising slightly - still seeing historic lows

Mortgage Rates: rising slightly - still seeing historic lowsAverage U.S. rates on fixed mortgages rose slightly this week but remained near historically low levels.

Mortgage buyer Freddie Mac said Thursday the average rate for the 30-year loan ticked up to 4.41% from 4.40% last week. The average for the 15-year mortgage increased to 3.47% from 3.42%.

Mortgage rates have risen about a full percentage point since hitting record lows about a year ago.

A report released Tuesday by real estate data provider CoreLogic showed U.S. home prices rose in February from a year earlier at a solid pace, suggesting that a tight supply of available homes is boosting prices despite slowing sales.

Most economists expect home sales to rebound as the weather improves and the spring buying season begins.

The increase in mortgage rates over the year was driven by speculation that the Federal Reserve would reduce its $85 billion-a-month bond purchases, which have helped keep long-term interest rates low. Indeed, the Fed has announced three $10 billion declines in its monthly bond purchases since December. The latest plan is to cut its monthly long-term bond purchases to $55 billion because it thinks the economy is steadily healing.

The Fed also said after its two-day policy meeting last month that even after it raises short-term interest rates, the job market strengthens and inflation rises, the central bank expects its benchmark short-term rate to stay unusually low.

Federal Reserve Chair Janet Yellen made clear this week that she thinks the still-subpar U.S. job market will continue to need the help of low interest rates "for some time." Her remarks signaled that even after the Fed phases out its monthly bond purchases, it has no plans to raise a key short-term rate anytime soon.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for a 30-year mortgage rose to 0.7 point from 0.6 point. The fee for a 15-year loan was unchanged at 0.6 point.

The average rate on a one-year adjustable-rate mortgage edged up to 2.45% from 2.44%. The average fee held steady at 0.4 point.

The average rate on a five-year adjustable mortgage increased to 3.12% from 3.10%. The fee remained at 0.5 point.


Monday, April 7, 2014

UK: Alternative lenders ramp up risky home loans

Alternative lenders ramp up risky home loans
Our professional auto detailing methods include ceramic clear coats, electronic microscope services to enhance the finish of your vehicle, professional car care products, reconditioning auto care services, plastic restoration, and headlight restoration. We make your car new again and help your maintain your vehicle.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights.

Hedge funds, private equity houses and other alternative lenders are making big bets on the UK housing market by backing home purchasers and developers with relatively risky short-term finance.
Banks have scaled back property lending in the face of increasingly onerous regulation. But as the housing market bounces back, unregulated lenders are stepping in to fill the gap.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights.

This month additional restrictions on regulated lenders will come into force as a result of the Financial Conduct Authority’s mortgage market review.

Alternative lenders such as hedge funds and private equity say this broadens their scope for short-term lending because they are not regulated. In particular they are focusing on backing the riskiest categories, such as bridging finance and development funding.

Omni Partners, a London-based hedge fund, is raising a $100m fund for secured short-term UK property lending, to market to pension funds and other institutional investors that are struggling to achieve above-inflation returns on their cash.

“Banks can’t do this business,” said Steven Clark, a co-founder of Omni Partners who is running the property lending fund. “Deals either need to be completed too quickly for regular lenders, or the borrower has a blip in their credit history, or the property is in the wrong geography.”

The world’s biggest real estate investor, Blackstone, last week backed Pluto Finance, a UK residential development lender, in a £100m fundraising.

Pluto lends short-term development finance of up to 90 per cent of total costs on average term lengths of two or three years to developers in London and the South East.

It is Blackstone’s first step into residential lending. Clearbell Capital, formerly Mountgrange, has also backed the fund.

Chad Pike, senior managing director at Blackstone, said: “We clearly see the difficulty that homebuilders, small and large alike, are facing in getting full funding for quality schemes with planning consents.”

Chris Philp, Pluto chief executive, said: “We are filling the gap left by the large number of banks that have withdrawn from the residential property development finance market in the past five years.”

With demand surging in prime central London, alternative lenders are looking outside the capital. “There is a lot of competition in central London,” said Mr Clark. “We can achieve better lending rates in other parts of the country, such as the North and Scotland.”


Friday, April 4, 2014

Fannie, Freddie Overhaul Will Translate Into Higher Mortgage Rates

Fannie, Freddie Overhaul Will Translate Into Higher Mortgage Rates
Mortgage rates could rise by as much as 1.5 percentage points for homeowners with weaker credit or smaller down payments under various legislative proposals to overhaul Fannie MaeFNMA -7.21% and Freddie MacFMCC -6.95%, according to a study prepared for an industry group.

The study, by Kent Colton and Michael Carliner of the Harvard Joint Center for Housing Studies, was produced for the Leading Builders of America, a trade group representing large U.S. home builders. The study found that earlier estimates of mortgage-rate increases from an overhaul of the mortgage-finance giants understate the potential impact to average American borrowers.

“We wanted to make sure people knew that there’s a range of potential costs. It’s not just the ‘best-case scenario’ cost,” said Ken Gear, executive director of the trade group. Mr. Colton is a former chief executive of the National Association of Home Builders.

The Colton-Carliner paper examined the potential cost to borrowers under the housing-finance overhaul envisioned in a bill introduced last year by Sens. Bob Corker (R., Tenn.) and Mark Warner (D., Va.). They estimate that rates could rise between 0.25 and 1.5 percentage points as a result of higher capital requirements and other fees imposed by the overhaul.

The worst-case estimates are most likely to hit borrowers with credit scores of between 650 and 750 and down payments of around 5% to 15%. (Under a system devised by Fair Isaac Corp., credit scores run on a scale from 300 to 850.) The paper worked off of earlier models from Andrew Davidson, an industry consultant, and Mark Zandi, chief economist of Moody’s Analytics.

Mortgage rates are likely to rise under any plan to overhaul Fannie and Freddie because most proposals call for the firms or any successors to hold more capital than the mortgage-finance giants did. There’s little dispute that Fannie and Freddie failed because they held too little capital for the risks they were taking.

Fannie and Freddie don’t make loans; instead, they buy them from banks and other lenders. They package those loans into securities that are sold to other investors, and they provide guarantees to make investors whole when loans default. That has created deep, liquid markets for mortgages that help lower borrowing costs for American households.

The mechanics of how any new system is designed and how much capital is required will play a significant role in determining just how much more borrowers could pay for mortgages.

The leaders of the Senate Banking Committee, Sens. Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho) last month introduced their own bill, which was modeled off of the Corker-Warner proposal, and the committee will meet April 29 to consider amendments and to vote.

Mr. Gear said he supported the approach taken by the Johnson-Crapo bill, but said he hoped to see “more clarity” around the impact of any overhaul on borrowing costs. “You’d hate to go through all this reform and realize, this is going to add three percentage points to mortgage rates,” he said.

A separate study published last month from Mr.  Zandi and Cristian DeRitis of Moody’s Analytics estimated that the Johnson-Crapo bill would increase rates by around 0.4 percentage point for borrowers with a 750 credit score and a 20% down payment, bringing the today’s mortgage rate of around 4.5% for a 30-year, fixed-rate loan to around 4.9%. On a median priced home, the increase translates into a monthly payment that is around $40 higher.

Such an increase would have a “measurable but very modest impact on the housing market,” wrote Messrs. Zandi and DeRitis. They estimate that the higher financing costs could reduce home sales by around 250,000 units and housing starts by 100,000 units over three years.

At a 5.5% interest rate, the monthly payment on the median priced home is around $100 higher than current levels, while a 6% rate would boost payments by $150 per month. Messrs. Colton and Carliner estimated that could knock out between 6% and 9% of qualified borrowers, reducing housing starts by as much as 155,000 per year.

Meanwhile, analysts at Barclays Capital last month estimated that the Johnson-Crapo bill, meanwhile, could boost rates by around 0.2 percentage points for the best borrowers. Those with good credit but small down payments could see rates rise by 0.4 percentage points. For borrowers with lower credit scores, rates could rise by 0.8 percentage points.

UPDATE: Some industry economists say the paper exaggerates the effect that any housing-finance overhaul would have on mortgage rates. Already, Fannie and Freddie use risk-based pricing that charges higher fees to riskier borrowers, which are often passed along in the form of higher rates. By failing to account for those higher costs that already exist, “the paper significantly overstates the impact” of any overhaul on mortgage rates for weaker borrowers, said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute.