December 28, 2017

The Lack Of Capital To Absorb A Big Loss

A report from Mortgage News Daily. “The Wall Street Journal reports that the Republican tax plan could trigger a roughly $14 billion accounting loss at Fannie Mae and Freddie Mac, leading to the first taxpayer-funded infusion since they became profitable firms in 2012. ‘At issue is an accounting change tied to lower corporate tax rates in the legislation, which requires the companies to recognize losses on around $45 billion in tax-deferred assets they hold. The decline in the tax rate to 21% from 35% will require the companies to write down the value of those assets, resulting in losses to the companies. Since they have little capital and must sweep their profits to the Treasury, they will likely need a new, one-time infusion from government coffers.’”

“Analysts estimate Fannie could require about $10 billion from Treasury and Freddie $4 billion. It is also possible Freddie, the smaller of the two companies, will have enough cash on hand to meet the added liability without a cash infusion. Company officials have said such a Treasury infusion wouldn’t reflect the quality of their business, but rather the lack of capital to absorb a big loss.”

From National Mortgage Professional. “Mortgage lenders are forecasting a negative profit margin outlook for the next three months, according to Fannie Mae’s Fourth Quarter Mortgage Lender Sentiment Survey. On net, more lenders reported declining demand over the prior three months, continuing the trend that started in the first quarter of this year. For the next three months, the net share of lenders expecting growth in demand for refinance mortgages dropped from the third quarter across all loan types, which Fannie Mae dubbed the worst outlook in a year.”

“Furthermore, Fannie Mae stated that the net share of lenders reporting easing of credit standards over the prior three months has continued its upward trend since the fourth quarter of last year, reaching new survey highs for the second consecutive quarter. ‘Key trends have persisted throughout this year,’ said Doug Duncan, chief economist at Fannie Mae. ‘Lenders who see declining profits outweighed those noting improvements in the bottom line for the fifth consecutive quarter. Three-fourths of those seeing deteriorating profits cite competition as the most important reason—a survey high—compared with only about one-third two years ago. This is not surprising given that refinance volume continues to shrink.’”

The Hartford Courant. “A Boston-based community development lender focused on low-income neighborhoods is now aiming to help struggling Connecticut borrowers who are in danger of losing their homes to foreclosure. Boston Community Capital has already started working with its first dozen homeowners in Connecticut and touts its track record of keeping nearly 900 families in their homes in Illinois, Maryland, Massachusetts, New Jersey and Rhode Island since 2009.”

“Boston Community’s ‘Stabilizing Urban Neighborhoods,’ or SUN, program typically works with borrowers whose homes are ‘underwater’ where more is owed than the property is worth. SUN negotiates to purchase occupied homes from lenders at what they are now worth and then sells them back to the original homeowners on the same day on terms the borrower can afford, said Elyse Cherry, Boston Community’s chief executive.”

“The option can be more attractive to a lender than say, a loan modification where the principal is reduced, or the expense of taking over a property and then trying to sell it, Cherry said. ‘There are still a lot of people who were able to survive the last few years but are teetering on the edge, a bad event away from a foreclosure,’ said Jeff Gentes, a staff attorney who manages foreclosure prevention at the Connecticut Fair Housing Center.”

From The Acorn in California. “Home foreclosures aren’t as common as they were at the height of the banking crisis in 2010, but they haven’t gone away entirely. Zillow shows eight foreclosed homes in Agoura Hills, Westlake Village, Calabasas and Oak Park. In the same four cities, however, there are 75 homes in pre-foreclosure, meaning notices have been issued to the owners that if payments are not made the lender will foreclose on the property.”

“The process can be drawn out, with families still living in homes they don’t own while legal notices shuffle between banks and courts. In the meantime, homes and properties can fall into disrepair. And with no clear owner to keep up on maintenance, some homes become neighborhood eyesores. One foreclosed home in Agoura Hills remains a problem child. Ken Handler, who lives on Vista del Arroyo, has spent two years trying to get city and county officials to do something about the deteriorating condition of a single-family home three doors down from him.”

“Handler said the house was occupied by a family that didn’t pay its mortgage and was eventually evicted by the sheriff. ‘I was inside the house a few months ago, just to see what was going on. It was just horrible. You have a terribly rotting house, inside and out. It’s weed-infested,’ Handler said. ‘The trees are overgrown, but the main problem as I see it is we’re in the middle of a huge fire hazard area. We’re in kind of a high-end area; the homes are $2 (million) to $3 million, so there’s a lot at stake, that’s why I’m upset.’”