A Rush Into Refinancing as Mortgage Rates Fall
A Rush Into Refinancing as Mortgage Rates Fall (full article)The housing market may finally be getting some relief, with lower mortgage rates already encouraging refinancing and Treasury officials considering ways to entice new buyers.
Last week, the Federal Reserve announced that it would buy $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage rates immediately dropped, and that led to a surge in mortgage refinancing activity for the week — even with the Thanksgiving holiday.
On Wednesday, people close to the discussions said that the Treasury had been talking with Fannie Mae and Freddie Mac about ways to drive down mortgage rates to as low as 4.5 percent. That rate is about a percentage point lower than the going rates for such loans.
(full article)NY Times Labels: mortgages, real estate, refinance
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Bernanke Urges Banks to Forgive Portion of Mortgage Debt
Bernanke Urges Banks to Forgive Portion of Mortgage DebtAssessment: The Fed's remarks predicts further distress in residential real estate and mortgage markets. The Fed's recommendations will negatively impact mortgage backed securities and derivatives markets. Expect credit markets to be tighten and become increasingly illiquid. Long term interest rates will have higher risk premiums. Long term borrowing costs will increase even as the Fed reduces the Fed Funds and/or Discount Rate.[
full article]
Federal Reserve Chairman Ben S. Bernanke, battling the worst housing recession in a quarter century, urged lenders to forgive portions of mortgages held by homeowners at risk of defaulting.
``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech in Orlando, Florida today. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''
Bernanke's call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank's Feb. 27 report to Congress called for lenders to ``pursue prudent loan workouts'' through means such as modifying mortgage terms and deferring payments.
The Fed chief highlighted the threat posed by home values falling below mortgage balances, something Treasury Secretary Henry Paulson played down yesterday. Bernanke said the ``recent surge'' in delinquencies has been ``closely linked'' to the slide of home equity.
Paulson said in an interview with Bloomberg Television yesterday that ``almost too much'' has been made out of concerns about homeowners whose house prices have dropped below their mortgages. He also said the administration's strategy of encouraging lenders to modify loans is ``the right approach and we are making substantial progress.''
Democrats' Push Democrats in Congress, by contrast, have said relying on lenders to alter loan terms hasn't yielded enough progress and are pushing for a stronger government response. Bernanke warned today that the housing crisis may deepen.
``Delinquencies and foreclosures likely will continue to rise for a while longer,'' Bernanke said in the comments to the Independent Community Bankers of America. A surfeit of homes for sale indicates ``further declines in house prices are likely,'' he said.
Subprime borrowers are about to see their mortgage rates increase more than 1 percentage point, he said. ``Declines in short-term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest-rate resets will nevertheless impose stress on many households.''
In the past, homeowners could refinance, though that option is now ``largely'' gone because sales of bonds backed by subprime mortgages ``have virtually halted,'' Bernanke said. ``This situation calls for a vigorous response.''
Interest Rates Bernanke didn't comment in his speech text on the outlook for the economy or interest rates. Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by or at the panel's next meeting on March 18, based on futures prices.
``Lenders tell us that they are reluctant to write down principal,'' Bernanke said. ``They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.''
The Fed chairman countered that by reducing the amount of the loan, this ``may increase the expected payoff by reducing the risk of default and foreclosure.''
Bernanke also urged investors in mortgage bonds to accept ``short payoffs'' of loans by allowing borrowers to refinance at a lower principal.
OTS PlanFor investors, a reduction in principal that's ``sufficient to make borrowers eligible for a new loan would remove the downside risk'' of further writedowns or defaults, Bernanke said. Investors may be able to share in future gains in home prices under some plans, he said, citing a proposal by the Office of Thrift Supervision.
Paulson, by contrast, has declined to endorse the OTS plan. John Reich, director of the OTS, last month proposed a program where borrowers would refinance mortgages at current home values. The lender would receive a ``negative equity'' certificate that could be redeemed if the house is sold.
The number of U.S. homeowners entering foreclosure rose 75 percent in 2007, with more than 1 percent in some stage of foreclosure during the year, according to RealtyTrac Inc. of Irvine, California. For the year, more than 2.2 million default notices, auction notices and bank repossessions were reported on about 1.3 million properties.
Yesterday, the Fed and other regulators sent letters to institutions they supervise, encouraging the banks to report on their efforts to modify mortgages at risk of default.
``This will make it easier for regulators, the mortgage industry, lawmakers and homeowners to assess the effectiveness of these efforts,'' Fed Governor Randall Kroszner said in a statement yesterday.
Bernanke spoke in a state that's among the worst affected by the housing collapse. Miami home prices have dropped 17.5 percent in the past year, the most of 20 large U.S. cities, according to the S&P/Case-Shiller index. Foreclosures in Florida jumped at more than double the nationwide pace, rising 158 percent in the past year, according to RealtyTrac.
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Labels: credit derivatives, FED, federal reserve, mortgage backed securities, mortgage derivatives, real estate
Fannie, Freddie Agree to New Appraisal Standards
Fannie, Freddie Agree to New Appraisal StandardsAssessment: Starting in 2009, new appraisal standards may increase downward pressures on market values for US residential, mixed use and small commercial properties.[
Full Article]
The two largest sources of U.S. mortgage financing agreed on Monday to sponsor a new home appraisal watchdog to prevent inflated home values.
Fannie Mae and Freddie Mac will uphold a new code of conduct meant to keep mortgage lenders at arm's length from home appraisers and will also spend $24 million to jump-start the new oversight body in a deal to prevent lawsuits from New York Attorney General Andrew Cuomo.
Starting Jan. 1, 2009, the government-sponsored enterprises will buy home loans only from lenders that endorse an appraiser code of conduct that Cuomo said he hopes will become an industry standard.
"This is one of the greatest, most dramatic reforms of the housing industry in the last 20 years," Cuomo said at a press event in New York announcing the deal. "We believe as a group that this will be a significant and dramatically positive reform."
Since Wall Street gladly bought and bundled home loans for investors during the housing boom, lenders may have felt more comfortable inflating loan amounts. Cuomo filed subpoenas against Fannie Mae and Freddie Mac to determine whether the companies stood by as that happened.
The new code will prohibit mortgage brokers from selecting a home appraiser, while lenders may not use in-house assessors for initial reports on the value of homes. In another provision of the settlement, Fannie Mae and Freddie Mac will each provide $12 million over the next five years to help establish an appraisal oversight body.
The companies' federal regulator, the Office of Federal Housing Enterprise Oversight, will host the new watchdog group, which will maintain a consumer hotline and promote appraiser independence.
The new standards will help break long-standing business practices under which lenders often had close ties to home appraisers, said David Berenbaum, an executive with the National Community Reinvestment Coalition.
"Many lenders have had business interests in appraisers," he said. "Unless you have independent appraisers, you are losing consumer protections."
Sheila Bair, chair of the Federal Deposit Insurance Corp., said the public was served by honest appraisals and that the mortgage industry would have time to comment on the proposal before it was implemented.
"The integrity of the appraisal process is fundamentally necessary to the effective functioning of the primary and secondary mortgage markets," Bair said in a statement.
In a joint letter to Cuomo, several appraisal trade groups wrote that they would use the comment period to "provide input to you on the development and completion of your plan."
But one regulator expressed disappointment that the accord with Fannie Mae and Freddie Mac did not have broader input.
"We are concerned that the closed-door fashion in which (the deal) was reached could result in negative unintended consequences," the Office of Thrift Supervision said in a statement. "The proposal should be discussed among the bank regulatory agencies and go out for public comment before being adopted."
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Full Article]
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Labels: appraisal, Fannie Mae, Freddie Mac, mortgage backed securities, real estate
ISDA Property Index Derivative Transactions and ISDA Documentation
ISDA Symposium: Property Index Derivative Transactions and ISDA Documentation
Thursday, July 12, 2007
Global Financial Markets Conference Center, New York
The application of derivative products to the residential and property market has begun to develop in markets around the globe. The housing and residential real estate market is estimated to be a multi-trillion pound asset class.
Until recently, investors could not effectively participate in this asset class. With the publication of the 2007 ISDA Property Index Derivatives Definitions, investors can achieve portfolio diversification and diversify their exposure to local property markets through industry-developed standardized documentation. The development of various property indices globally has contributed to the development of standardized ISDA documentation to facilitate property index transactions.
At this symposium, traders and attorneys will share their views on end user demand, geographical diversification and continued product innovation in the property derivatives space. A discussion of the different methodologies of leading indices will be offered as well. With regard to the documentation, a comprehensive examination of the ISDA definitions booklet, focusing on key issues such as delays between measuring an index, revisions to that measurement and consequent publications of index values, adjustments such as rebasing and errors in publications, and disruption events affecting indices will be discussed.
The forward and total return swap forms of confirmation will also be discussed. As with other Symposia hosted by ISDA, audience members will be able to engage in a Q&A with panelists and receive the set of ISDA documentation. Property Index Derivative Transactions and ISDA Documentation.
The application of derivative products to the commercial and residential property market has begun to develop in markets around the globe. In the United States alone, the housing and residential real estate market is estimated to be a $21 trillion asset class. Until recently, investors could not effectively participate in this asset class. With the publication of the 2007 ISDA Property Index Derivatives Definitions, investors can achieve portfolio diversification and diversify their exposure to local property markets through industry-developed standardized documentation.
The development of various property indices globally has contributed to the development of standardized ISDA documentation to facilitate property index transactions.
At this symposium, traders and attorneys will share their views on end user demand, geographical diversification and continued product innovation in the property derivatives space. A discussion of the different methodologies of leading indices will be offered as well. With regard to the documentation, a comprehensive examination of the ISDA definitions booklet, focusing on key issues such as delays between measuring an index, revisions to that measurement and consequent publications of index values, adjustments such as rebasing and errors in publications, and disruption events affecting indices will be discussed. The forward and total return swap forms of confirmation will also be discussed. As with other Symposia hosted by ISDA, audience members will be able to engage in a Q&A with panelists and receive the set of ISDA documentation.
Welcoming Remarks: Kimberly A. Summe, General Counsel, ISDA
Panelists: David M. Blitzer, Managing Director and Chairman of the Index Committee, Standard & Poor'sDavid Felsenthal, Partner, Clifford Chance US LLP Rajiv Kamilla, Head of New Products Trading, Structured Products, Goldman SachsTodd Kushman, Managing Director, Bear Stearns
Register for this event.ISDA, real estate, property, real estate securities, mortgaged backed sderivatives, derivatives, real estate derivativesLabels: derivatives, ISDA, mortgaged backed sderivatives, property, real estate, real estate derivatives, real estate securities
