by Calculated Risk on 12/21/2013 09:24:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for December 20, 2013.

Changes and comments from surferdude808:

As anticipated, the OCC released its update on enforcement action activity. Terminations by the OCC and merger activity led to the removal of eight institutions from the Unofficial Problem Bank List. After removal, the list holds 633 institutions with assets of $216.7 billion. A year ago, the list held 841 institutions with assets of $313.3 billion.

The OCC terminated actions against Tomatobank, National Association, Diamond Bar, CA ($409 million); Lincoln FSB of Nebraska, Lincoln, NE ($290 million); The First National Bank of Mercersburg, Mercersburg, PA ($174 million); and United Bank, Springdale, AR ($142 million). Four banks merged to find their way off the list including Citizens Financial Bank, Munster, IN ($1.1 billion Ticker: CITZ); Bank of Alameda, Alameda, CA ($272 million Ticker: NCLC); National Bank of Arkansas in North Little Rock, North Little Rock, AR ($183 million); and Colombo Bank, Rockville, MD ($140 million).

There could be a hiccup in the acquisition by Talmer Bancorp, Inc. of four banks controlled by Capitol Bancorp, Ltd. In a report by SNL Securities (Talmer threatens to walk on Capitol Bancorp deal if closing doesn't occur by New Year's Day), Talmer is not willing to waive its ability to terminate the purchase if the deal cannot close by New Year. Given the Wednesday holidays bisecting each of the next two weeks, the FDIC has likely shuttered its closing operations for the balance of the year. Should Talmer walk, the FDIC may have to deal with the banks controlled by Capitol Bancorp.

Next week, we anticipate the FDIC to release its enforcement action activity through November 2013. Along with those changes, we should be able to update the transition matrix for the fourth quarter. Until then, we wish all a Merry Christmas.

by Calculated Risk on 12/20/2013 10:15:00 PM

From Nick Timiraos at the WSJ: FHFA to Delay Increase in Mortgage Fees By Fannie, Freddie

Rep. Mel Watt (D., N.C.), the incoming director of the regulatory agency that oversees Fannie Mae and Freddie Mac, said Friday night he would delay an increase in mortgage fees charged by the housing-finance giants, which was announced earlier this month by that agency.

Mr. Watt ... is set to be sworn in on Jan. 6 ... Upon being sworn in, "I intend to announce that the FHFA will delay implementation" of the loan-fee increases "until such time as I have had the opportunity to evaluate fully the rationale for the plan," he said in a statement.

Good news on a Friday night!

by Calculated Risk on 12/20/2013 05:23:00 PM

From mortgage broker Lou Barnes:

Concealed by all the taper twitter: the last acts of a modern Scrooge. Since 2009 Edward DeMarco has been in charge of the FHFA and its duties as conservator of Fannie and Freddie (the GSEs) after their failure in the credit panic of 2008. In DeMarco's defense: no hotter potato was ever handed to anybody, Congress has been contradictory and undermining, and the White House and Treasury AWOL. DeMarco correctly saw his job as protecting taxpayers, but like so many pinched denizens of counting houses thought the best policy was skinflint.

In a credit disaster, one sure way to make it worse: choke what little credit remains. DeMarco has for five years recalibrated GSE underwriting to strangulation. Evidence: the default rate on new production has fallen 90% below pre-bubble levels.

In the well-intended effort to pay back Treasury assistance, and to risk adjust loan pricing, DeMarco brought us the hated Loan Level Pricing Adjustments. The GSEs now run large profits and have rebated their bailout to the Treasury. But this week DeMarco announced another round of LLPA hikes and increased the GSEs' securitization guarantee fee, now triple its pre-bubble percentage. ... Now we waterboard everybody, including supremely qualified investors, and in Libertarian zeal surcharge to death low-down borrowers.

DeMarco's replacement, Mel Watt, has already been confirmed by Congress. The Fed even post-taper, trying to keep rates low, is still buying nearly all net-new GSE production. Yet this week DeMarco, sitting in his chair as it is wheeled out to thankless retirement, gave orders to raise the cost of mortgages on the theory that if Fannie loans become expensive enough, private markets will take over. Total private-market securitization this year: about $13 billion, roughly one week of GSE-based production. The big housing question in 2014: will Mel Watt begin to reverse DeMarco's damage?
emphasis added

And from economist Tom Lawler:

On December 9 the FHFA announced that it was directing Fannie Mae and Freddie Mac to raise guarantee fees in three components:

• The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points;
• The up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and
• The up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.

This week Fannie Mae announced that, per FHFA’s direction, it was increasing all ongoing single-family guarantee fees by 10 basis points, and was removing its 25 bp upfront “adverse market delivery charge” for all SF deliveries save for mortgages in Connecticut, Florida, New Jersey, and New York. It also released upcoming changes in its “loan-level price adjustments” (what FHFA referred to as the “up-front g-fee grid) that for 30-year mortgages produces additional fee hikes for many potential borrowers.
...
So what does this mean? Well, for a borrower with a 720 credit score who plans to put down 20%, and get a 30-year fixed-rate loan, Fannie’s new pricing for that loan would include (1) a 10 bp/annum higher g-fee; (2) a net 50 bp higher up-front fee (+ 75 bp LLPA less elimination of 25 bp ADMC, provided the property is not in CT/FL/NJ/NY). If one “converted” this up-front fee hike to a per annum charge, this would mean that Fannie would be increasing the per annum cost to this borrower (if the loan were delivered to Fannie) by about 20 bp! Stated another way, the INCREASE in the fee for such a loan scheduled for next year is about what the TOTAL fee Fannie used to charge for such a loan many years ago.

It should be noted that (1) the decision to raise fees in this manner was NOT the decision of the GSEs, but instead was directed by its regulator; and (2) the fee hikes are designed NOT to ensure that the GSEs/taxpayers earn a “fair” return, but rather to encourage a “further return of private capital to the mortgage market.”

CR note: These fees are scheduled to take effect on April 1st. I expect the decision to be reviewed - and hopefully reversed.

by Calculated Risk on 12/20/2013 02:47:00 PM

From housing economist Tom Lawler:

Lennar Corporation reported that net home orders in the quarter ended November 30, 2013 totaled 4,498, up 12.9% from the comparable quarter of 2012. Home deliveries totaled 5,650 last quarter, up 27.2% from the comparable quarter of 2012, at an average sales price of $307,000, up 17.6% from a year ago. The company’s order backlog at the end of November was 4,806, up 18.6% from last November.

Lennar noted in its press release that “the political and interest rate environment and our previously initiated price increases tempered new sales orders,” though the company was “still pleased” with its overall performance last quarter, as the company appeared to continue to gain market share – a “strategic goal” of the company. In its quarterly conference call, officials said that orders “improved sequentially” in October and November from the weak orders seen in September, and officials noted that sales in late summer had been weaker than expected.

Lennar’s average sales concession as a % of sales price last quarter was 6.3%, down from 9.0% in the comparable quarter of 2012 but up from 6.0% in the previous quarter.

Lennar continued its aggressive land/lot acquisitions, and in its conference call the company said it owned/controlled about 154,000 lots at the end of November, up about 20% from a year ago.

Lennar noted that while its “aggressive” pricing strategies led to significant margin improvements, labor and construction material costs last quarter were up about 12% from a year ago, and that labor costs were up by “more” than material costs. Several home builders have cited “supply-chain” issues (including labor “shortages) as contributing to the slower-than-desired pace of developing communities (and starting homes!), though some of these issues have apparently eased a bit very recently (if one believes the November surge in SF housing starts).

KB Home reported that net home orders in the quarter ended November 30, 2013 totaled 1,556, down 0.7% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, s 36% last quarter, up from 35% a year ago. Home deliveries last quarter totaled 2,038, down 4.0% from the comparable quarter of 2012, at an average sales price of $301,100, up 11.2% from a year ago. The company’s order backlog at the end of November was 2,557, 0.8% from last November.

KB officials noted that the combination of higher interest rates, higher home prices, and a dip in consumer confidence had significantly dampened home buyer demand, but officials said they believed this “pause” was temporary. Officials also noted that they expected slower home price appreciation next year, which they said would be “healthy.”

As with many other home builders, KB Home’s “bullish” view of the housing outlook was reflected in its aggressive acquisitions of land/lots. In its conference call an official said that KB Home owned/controlled “over 61,095 lots at the end of November, up 36.5% from last November.

While the vast majority of large home builders noted a “significant” slump in home orders in late summer/early fall, several reported some improvement recently, and most expect a substantial increase in home sales in 2014 -- and most (though not all) have positioned themselves accordingly with “aggressive” land/lot acquisitions. Below is a comparison of the latest number of lots owned/controlled by each of the above builders, compared to a year earlier (note: some are estimated based on builder-provided charts/graphs).

Lots Owned/Controlled, Large Publicly-Traded Home Builders
Company	As of:	2013	2012	% Change
D.R. Horton	30-Sep	180,900	152,700	18.5%
PulteGroup	30-Sep	126,474	122,235	3.5%
NVR	30-Sep	55,533	51,938	6.9%
The Ryland Group	30-Sep	39,698	26,629	49.1%
Meritage Homes	30-Sep	25,046	16,000	56.5%
MDC Holdings	30-Sep	15,808	10,428	51.6%
Standard Pacific	30-Sep	35,643	30,154	18.2%
M/I Homes	30-Sep	18,133	10,428	73.9%
Beazer Homes	30-Sep	28,004	24,147	16.0%
Lennar*	30-Nov	154,000	128,484	19.9%
Toll	31-Oct	48,628	40,350	20.5%
Hovnanian	31-Oct	31,849	27,648	15.2%
KB Home	30-Nov	61,095	44,752	36.5%
Total		820,811	685,893	19.7%
*approximate, based on conference call

Given that (1) home builders have acquired significant land/lot positions; and (2) supply chain/other issues kept overall housing production lower than planned in 2013, it appears as if builders are planning that overall SF housing production will increase significantly in 2014. That increased production, combined with vastly-improved margins at most builders, is likely to dampen significantly new home price gains next year.

by Calculated Risk on 12/20/2013 01:39:00 PM

From Jordan Rappaport, Senior Economist at the Kansas City Fed: The Long-Term Outlook for U.S. Residential Construction. Here is the complete paper.

Excerpt:

Long-term demand for both single- and multifamily housing can be projected by considering the observed, historical housing choices of different demographic groups defined by age and gender. By combining this information with U.S. Census Bureau forecasts for the size and composition of the country's population through 2035, we project the long-term path of the number of occupied housing units in the United States. This projected trend is well above the current number of occupied units, especially for multifamily housing. Closing the gap between actual occupancy and the projected trend will require a significant rise in construction over the next few years.

However, the longer-term outlook for construction growth is significantly weaker. ...

Under a baseline projection, single family starts increase by 150 percent from 2012 to their peak in 2021 (Chart 1). The annual level of starts at this peak is about the same as in 2002, one year into the single-family construction boom. Single-family construction is then projected to fall over the subsequent decade ...

CR Note: I haven't looked at all Rappaport's assumptions for the longer-term, but I agree that demographics are favorable over the short term, and that we should expect single family starts to continue to increase over the next few years.