By now, we’ve all heard the line, “Are you better off than you were four years ago?”
It was uttered in 1980 during a presidential debate between Ronald Reagan and Jimmy Carter, when the former questioned incumbent Carter’s America.
And more recently, Mitt Romney brought the line (and the strategy) back to the forefront in his campaign against president Barack Obama.
Obama fired back with an ad that addressed the question, and now just about every other article about the election mentions this “are you better off” business.
Pushing politics aside, but still focusing on Washington D.C., one thing seems to be clear.
1600 Pennsylvania Avenue Is on the Mend
Relax; I’m only talking about the physical structure. The White House is worth more today than it was four years ago, at least, if you ask Zillow.
Yes, the ubiquitous real estate listing company has a Zestimate for 1600 Pennsylvania Avenue, just like every other home in the United States, and it’s higher now than it was in 2008.
Of course, it’s not much higher. Back in October 2008, it was valued at a staggering $280.8 million. Today, its appraised value is $284.9 million, a paltry 1.5% increase.
Sure, it’s not record-breaking home price appreciation, but if you ask most homeowners if a 1.5% gain over the past four years would “work for them,” I’m sure a lot of them would reply, “yes.”
Interestingly, the famous home and landmark saw its value increase $13,465,628 in the past 30 days.
And if home prices in the Washington D.C. area keep rising at their current rate, the White House will be worth $288 million a year from now, another 1.1% increase.
It’ll still be far from the $299.9 million price tag seen at the height of the boom back in June 2006, but it’s clear home prices are marching back in the right direction.
For the record, the White House is a 132-room “mansion” that sits on 18 acres in northwest Washington D.C.
It was built in 1792, designed by Irish architect James Hoban, and features 16 bedrooms and 35 bathrooms spread across 55,000 square feet of living space.
Sounds a little bathroom-heavy to me, but it shouldn’t hurt the value. It also has central cooling and a fireplace!
The bad news is that the Rent Zestimate is $1,778,288 a month, so it’s not all that affordable, even if for just a short stay.
Americans Are Becoming More Bullish on Housing
The White House aside, it’s clear that Americans are starting to believe in housing again.
Most pundits already called a housing bottom this year, and are sticking by it.
Additionally, a new Reuters/FindLaw survey released today indicated that homeowner sentiment is steadily rising.
The survey noted that only 30% of Americans are less likely to buy a home because of the state of the economy, compared to 63% in 2010.
And thanks to the low mortgage rates and reduced home prices, 11% said they were more likely to buy a home, up from eight percent.
Sure, a lot of Americans are still unconvinced, but it seems more and more are getting off the fence and signaling their intentions to buy in the future.
During the first half of 2012, housing contributed 0.3% to real GDP growth of 1.7%, and is expected to add a similar gains in the second half of the year, according to the latest housing outlook from Freddie Mac.
It was a net “drag” on GDP from 2006-2010.
No matter who wins tomorrow, let’s just hope that housing continues to drive the economy out of the doldrums.
GuideWell Mutual Holding Corp., the parent company of health insurer Florida Blue, is the biggest company headquartered in Jacksonville.
But as a mutual holding company that doesn’t publicly report financial results, we don’t often have a chance to know how big it is.
However, as the company announced the appointment of a new chief financial officer Sept. 27, its news release indicated GuideWell has grown significantly in just the last two years.
The announcement of Jeffrey Goddard’s appointment said GuideWell has grown into a “health solutions enterprise” with annual revenue of $30 billion.
That would make GuideWell one of the 150 largest U.S. companies, based on Fortune 500 data. But Fortune magazine’s annual list of largest companies doesn’t include businesses that don’t publicly report data.
Just two years ago, GuideWell was saying annual revenue was at $20 billion.
The company did expand in February 2022 with the acquisition of Triple-S Management Corp., licensee of the Blue Cross Blue Shield insurance brand in Puerto Rico, adding about $4 billion in revenue.
Besides Florida Blue and Triple-S, GuideWell said it owns or has significant interests in several other health care businesses.
GuideWell is about double the size of the largest Jacksonville-based company in the Fortune 500.
Railroad company CSX Corp. ranked 279th with 2022 revenue of $14.86 billion.
GuideWell said Goddard joined the company as executive vice president and CFO, succeeding Thurman Justice, who took over leadership of the managed care business at Triple-S.
Goddard was most recently senior vice president and CFO for CVS Caremark.
ICE: Black Knight deal helps mortgage ‘ecosystem’
After Intercontinental Exchange Inc. agreed in May 2022 to acquire Jacksonville-based mortgage technology firm Black Knight Inc., antitrust officials were concerned the deal would give ICE too much control over mortgage technology in the U.S.
Now that the deal is completed, ICE officials said in a Sept. 28 conference call the merged businesses will benefit everyone involved in the mortgage process.
Ben Jackson, president of ICE’s mortgage technology business, said the company was convinced when it agreed to buy Black Knight that the deal would result in an improved mortgage workflow.
“Over the last 16 months, our confidence in that strategic vision has only increased,” he said.
ICE’s technology will be able to handle mortgage loans from origination to final settlement “in one digital ecosystem,” Jackson said.
Black Knight dominated the market for technology for servicing existing home loans, handling processing for nearly two-thirds of all first mortgage loans.
ICE is the market leader in technology for originating mortgage loans.
“The breadth and depth of what we have assembled touches nearly every home mortgage in the United States and is a platform that we believe will enable us to provide the foundation for improving risk management in this major consumer credit market,” ICE Chief Executive Jeff Sprecher said in the conference call.
“Together with Black Knight, ICE is well positioned to improve the execution and subsequent settlement and servicing of U.S. home mortgages, the major credit exposure for most U.S. consumers,” he said.
To satisfy antitrust concerns and gain Federal Trade Commission approval for the merger, the companies agreed to sell off Black Knight’s loan origination technology business called Empower and its data subsidiary Optimal Blue.
However, the deals to sell those units to Constellation Software Inc. included an agreement that will give ICE mortgage technology clients access to Optimal Blue’s data services under its new ownership.
While ICE’s mortgage technology operations serve business customers, Sprecher said the merged company will be able to provide data that will help its clients deal with consumers.
“With Black Knight, we are now in a position to see data and micro trends that give us valuable insight into existing homeowners and prospective homeowners in the United States,” he said.
Black Knight is a successor to a long line of Jacksonville-based companies that have provided mortgage technology services since the 1960s.
ICE has not announced any specific plans for Black Knight’s Jacksonville operations after the merger.
A company spokesperson said in an emailed statement Oct. 3: “With about two thousand people already in Jacksonville, and room to grow, it will quickly become an important part of ICE’s operations.”
Atlanta-based ICE provides financial technology in a number of areas and is best known as operator of the New York Stock Exchange.
Jackson said in the conference call that with Black Knight added to the company, the mortgage technology business will increase from 14% of ICE’s total revenue to 25%.
St. Joe gains help chairman’s fund
Reuters news service reported that a strong third-quarter stock performance for The St. Joe Co. helped its chairman’s mutual fund produce some of the best returns for the quarter.
St. Joe Chairman Bruce Berkowitz’s Fairholme Fund controls about 34% of the company’s stock, according to its latest Securities and Exchange Commission filings, and Reuters said the fund has more than 80% of its assets in St. Joe stock.
As the overall market fell in the third quarter, St. Joe’s stock rose 14%, with a big gain in late July after the real estate development company reported strong third-quarter earnings.
As a result, Fairholme rose 17% in the quarter while another fund with a large stake in St. Joe, the Schwartz Value Focused Fund, rose nearly 15%, Reuters said.
Meanwhile, the Dow Jones Industrial Average fell 2.6% and the S&P 500 fell 3.6% in the quarter.
Panama City Beach-based St. Joe was a long-time conglomerate headquartered in Jacksonville before selling off its other businesses to focus on real estate development.
The company moved the headquarters to the Florida Panhandle in 2010 to be closer to its real estate holdings.
High rates affect Dream Finders, other homebuilders
Dream Finders Homes Inc. was the best-performing stock among Jacksonville-based companies in the first half of 2023, nearly tripling in price.
However, continued high interest rates are hurting the homebuilder sector, and Dream Finders’ stock has dropped sharply since peaking in early August.
The stock ended the third quarter at $22.23, down nearly 30% from its Aug. 7 peak of $31.60 and down nearly 10% for the entire third quarter.
However, Dream Finders still had a net gain of more than 150% for the first nine months of the year.
FPL parent’s stock drops sharply
NextEra Energy Inc.’s stock dropped sharply after a related business said it was cutting its growth expectations.
Juno Beach-based NextEra is the parent company of Florida Power & Light, which provides electricity to 5.8 million Florida customers. It serves most of the state’s East Coast outside of Jacksonville.
NextEra formed a limited partnership in 2014 called NextEra Energy Partners, or NEP, to own and manage clean energy projects.
The limited partnership announced Sept. 27 it was cutting the expected growth rates for distributions to its shareholders to 5% to 8%, with a target growth rate of 6%, down from the previous level of 12% to 15%.
NEP cited tighter monetary policy and higher interest rates for the cut.
That caused NEP units to lose more than half their value, falling from about $50 two weeks earlier to a low of $24.25 on Oct. 2.
NextEra’s stock fell from the upper $60s to a low of $50.18 on Oct. 2.
Wells Fargo analyst Neil Kalton cut his rating on NEP from “overweight” to “equal weight” Oct. 2 and cut his price target from $80 to $33.
“Despite a still strong secular backdrop for renewables and a high quality sponsor (NEE), NEP’s existing cost of capital raises questions about the partnership’s ability to execute on growth initiatives,” Kalton said in his research note.
In a Sept. 28 note, J.P. Morgan analyst Jeremy Tonet said he was maintaining his “overweight” rating on NextEra Energy Inc., or NEE, after the NEP announcement.
“While these concerns and sharp NEP weakness could weigh on NEE in the near-term, we see the sell off as overdone. We still see FPL as one of the best utilities in the country (benefiting from a constructive regulatory backdrop and favorable economic trends),” Tonet said.
FEC Railway expanding intermodal services
The Jacksonville-based Florida East Coast Railway announced a deal Sept. 27 that will expand its intermodal business.
FEC, which operates a 351-mile railroad from Jacksonville to Miami, said it agreed with Norfolk Southern Corp. to provide intermodal service at FEC terminals in Fort Pierce and Fort Lauderdale.
Norfolk Southern was already providing services at FEC terminals in Miami and Titusville, it said.
Atlanta-based Norfolk Southern is the main competitor of CSX, providing railroad services in much of the Eastern U.S.
Its railroad connects to FEC’s rail line in Jacksonville.
FEC said the new agreements will help it offer services for freight customers to more U.S. cities outside of Florida.
FEC is owned by GMXT, the transportation subsidiary of Mexico City-based Grupo Mexico.
GMXT acquired the Florida railroad in 2017.
Safe & Green Holdings spinoff completed
Safe & Green Holdings Corp. completed the spinoff of its real estate development subsidiary into a separate company on Sept. 28, and Safe and Green Development Corp. is now trading on Nasdaq under the ticker symbol “SGD.”
Safe & Green Holdings continues to trade under the ticker “SGBX.”
The company’s main business is converting cargo shipping containers into buildings, and it announced its plan to spin off its real estate development company in December 2022.
The company was formerly known as SG Blocks and was headquartered in Jacksonville, but it moved its offices to Miami in early 2023.
NEW YORK, Oct 4 (Reuters) – U.S. mortgage interest rates rose to the highest since November 2000 last week, helping to drive home loan application volumes to the lowest in 27 years, a report on Wednesday said.
The average weekly rate on a 30-year fixed mortgage hit 7.53% in the week ended Sept. 29 from the week prior’s 7.41%, according to data released by the Mortgage Bankers Association (MBA). The increased rate was accompanied by a 6% fall in home loan applications.
“Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields,” said Joel Kan, the MBA’s vice president and deputy chief economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996.”
Yields on the 10-year Treasury note , which is the main benchmark for determining mortgage rates, have climbed to their highest since the global financial crisis, hitting 4.8% this week.
Moreover, the spread between 10-year note yields and 30-year mortgage rates are near record-wide levels, which has also exacerbated the rise in borrowing costs for prospective homebuyers. After the Federal Reserve launched its aggressive rate hike campaign in March 2022, the spread has progressively widened, and currently stands around 3 percentage points.
Last week also marked the fourth consecutive week that mortgage rates rose. The share of activity for adjustable-rate mortgages rose to 8% – the highest since March – from 7.5% a week earlier as buyers searched for affordable payment options, Kan said. ARMs typically have a lower introductory rate but then reset after a period.
Reporting by Amina Niasse; Editing by Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
Searching for a new apartment often takes a lot of time and research; in fact, it can be disheartening if you have a hard time finding an apartment you love. And that’s why winter is the best time to rent an apartment. You might be surprised at how easy it is to discover your next apartment, one that you can’t wait to turn into a home.
1. There often is lower demand in the winter
It’s no secret people love to move in the summer. The weather usually is great, the kids are out of school for families looking to relocate and there often is less demand on our time for other activities. In fact, 40 percent of all moves occur in the summer, with just 5% taking place in November and December. As a result, apartment shoppers can find some great apartments for rent, particularly new apartments that may be completed during the season.
2. You could find more options for apartment size, style
In tandem with lower demand, renters may find there is a wider variety of apartment sizes and styles available during the winter than in other seasons. Because demand is lower, it might be easier to find that two-bedroom apartment you wanted instead of having to settle for a one-bedroom unit. This also applies to those new apartments that are completed during the winter. That means you could land a great apartment with new appliances, updated finishes and special spaces such as a sunroom or screened porch.
3. There could be more availability with movers
Because people don’t move as often during the winter, you may be able to book your movers on your timetable instead of having to wait for one to become available. This is important so you can schedule the movers around your commitments and work schedule and don’t have to use valuable personal or vacation days for moving instead. Also, during this slower season, movers may not be as rushed, so might be less likely to damage your items.
4. You could have more time off to move
No one wants to spend their personal or vacation days moving instead of on a much-needed vacation. When moving in the winter, particularly around the holidays, you likely could have extra days off that won’t interfere with your PTO or vacation days. Although no one wants to spend their holidays moving, it could prove beneficial if you don’t have to take off extra time at work.
5. You could snag an apartment when a fall graduate vacates
Looking for an apartment near a college campus could be especially challenging because many, if not most, apartments are already booked from September through May. However, if you are moving to a college town during the winter, particularly in December or January, you could score an apartment when a fall graduate prepares to move out. After all, no landlord wants an apartment to sit empty until the new students arrive in August or September.
6. You could save money
While you may not be looking for a less expensive apartment, you could still score one during the winter. No landlord wants a vacant apartment, so it’s not uncommon for them to run rent specials during the winter when demand is low. This could range from waiving the security deposit to offering a free month of rent to reducing rent for the entire term of the rental agreement.
7. It’s a good time to negotiate preferred rental terms
Because landlords want to rent empty apartments during the winter, the tenant is in a good position to negotiate the rental agreement terms. This could include asking for a shorter- or longer-term lease, waiving fees such as those for pets or upgrading the appliances in the unit. If there’s something you want, now is the time to ask. The worst that could happen is the landlord says no.
Yes, winter is the best time to rent an apartment
As you can see, renting an apartment during the winter could provide many benefits, so don’t hesitate to start looking for a new apartment when the weather turns cold. You could end up scoring a hot deal on your next home.
Alicia Underlee Nelson is a freelance writer and photographer. Her work has appeared in Thomson Reuters, Food Network, USA Today, Delta Sky Magazine, AAA Living, Midwest Living, Beer Advocate, trivago Magazine, Matador Network, craftbeer.com and numerous other publications. She’s the author of North Dakota Beer: A Heady History, co-host of the Travel Tomorrow podcast and leads travel and creativity workshops across the Midwest.
July 12 (Reuters) – The interest rate on the most popular U.S. home loan leapt back over 7% last week for the first time since last fall as financial markets adjusted to an expectation that the Federal Reserve would need to keep its benchmark rate higher for longer to beat back inflation.
The average contract rate on a 30-year fixed-rate mortgage jumped 22 basis points to 7.07% in the week ended July 7, the Mortgage Bankers Association said Wednesday in their weekly recap of home loan applications activity. That was the highest since November and brings that rate to within 10 basis points of last October’s two-decade high in home loan borrowing costs.
“Incoming economic data continue to send mixed signals about the economy, with the overall impact leaving Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation. All mortgage rates in our survey followed suit,” said MBA Deputy Chief Economist Joel Kan.
The rate on “jumbo” loans for amounts greater than $726,200 rose to 7.04%, the highest since MBA began tracking that data series in 2011.
Rate futures markets expect the Fed to resume interest rate hikes two weeks from now after foregoing an increase last month to take the time to assess the effects of the aggressive actions it has taken since March 2022 to contain the highest inflation in four decades. The Fed has lifted rates by 5 percentage points since then from near zero, and officials have signaled that rates may rise by perhaps another half point by year end.
Reporting By Dan Burns; Editing by Chizu Nomiyama
Our Standards: The Thomson Reuters Trust Principles.
The Federal Deposit Insurance Corp. (FDIC) looks to have found a way forward for the portfolio of affordable-housing assets it took over from failed lender Signature Bank.
In its announcement that it has begun the process to sell the $33 billion of commercial real estate loans from Signature, FDIC said it will create joint ventures with potential buyers of the approximately $15 billion in loans for multifamily residences that are rent- stabilized or rent-controlled.
The regulator said the move is part of its obligation to ensure that it helps preserve affordable housing “for low- and moderate-income individuals.” The majority of these loans are for properties in New York City.
FDIC said that it will retain “a majority equity interest” in the venture while the winning bidders will be tasked with the “management, servicing and ultimate disposition of the loans.”
“Operating agreement will provide certain requirements that facilitate the financial and physical preservation of these loans and underlying collateral,” it said.
A spokesperson at FDIC told Newsweek that the “joint venture transactions enable the FDIC to retain a majority interest while transferring day-to-day management responsibilities to private sector professionals who also have a financial interest in the assets and an obligation to share in the costs and risks associated with ownership.”
The decision by FDIC to want to preserve affordable housing for low-income residents comes at a time when rent in New York City has skyrocketed. Median rent in September in New York is a little over $3,700, which is 77 percent higher than the national median, according to real estate site Zillow, and has gone up by more than $200 from the same time last year.
There were fears by some New Yorkers that the assets could be sold to new owners that were more interested in squeezing profits out of the properties rather than maintaining their rent-controlled or rent-stabilized status, as reported by The City earlier this year.
In March, the New York Department of Financial Services shut Signature Bank down after its collapse in one of the largest bank failures in U.S. history and appointed FDIC as the receiver of the failed lender’s assets. Flagstar Bank, a subsidiary of New York Community Bank, took over the deposits and some assets of the former Signature Bank in a deal struck in March by the regulator.
The shift could help FDIC find buyers who might have been reluctant due to rent stabilization or rent control, according to The Real Deal, a real estate-focused news outlet.
But some analysts say the properties remain attractive, despite the high interest rates.
“Even in this environment, there are buyers of rent-stabilized buildings and lenders who make loans on them, because if the underlying properties are valued at cap rates near today’s interest rates, they would be very safe investments to own as a loan or as real estate in the case the loans are not performing,” Matt Pestronk, president and co-founder of Post Brothers, a real estate developer based in Philadelphia, Pennsylvania, told Reuters.
FDIC said the marketing for Signature Bank’s portfolio will occur over the next three months and the deals are expected to conclude by year’s end. The New York City-headquartered Newmark & Company Real Estate is advising on the sale.
Wachovia said today that it will discontinue wholesale loan origination beginning this Friday, leaving very few players in the broker-originated space.
It’s unclear how many jobs will be lost as a result of the shift in operations, but that will likely be disclosed when the company announces second quarter results tomorrow.
It is assumed that loans already locked and in progress will continue to be processed until a certain funding cut-off date.
Tim Wilson, Head of Loan Origination for Wachovia Mortgage, explained that the bank and mortgage lender was repositioning itself to work with clients who have existing relationships and live in areas where the bank’s franchises are located.
The Charlotte-based bank’s third-party origination unit Vertice is apparently not affected by the changes, and will continue to offer broker-originated loans.
Wachovia has been hard-hit by the ongoing mortgage crisis, especially after acquiring option arm specialist Golden West for a staggering $25 billion in 2006.
The company has since stopped originating option arms with the negative amortization feature, and has waived prepayment penalties tied to the so-called toxic loans.
In early June, Wachovia said it would contact all portfolio loan applicants whose loans were submitted by mortgage broker clients in what it referred to as “enhanced customer service”.
The bank is expected to report a second quarter loss in the range of $2.6 billion to $2.8 billion, according to Reuters estimates.
That includes a $4.2 billion increase in loan-loss reserves, with $3.3 billion going towards those nasty pick-a-pays.
Shares of Wachovia slipped 71 cents, or 5.37%, to $12.52 in after hours trading.
LISBON, Sept 21 (Reuters) – Portugal’s government said on Thursday that banks must discount the benchmark six-month Euribor rate by 30% when calculating mortgage interest rates if asked to do so by borrowers struggling to deal with rising interest rates and avoid default.
Around 90% of Portugal’s stock of 1.4 million mortgages have variable rates indexed to euro interbank offered rates (Euribor) , one of the highest levels in the euro zone. But interbank rates have soared as the European Central Bank hiked interest rates from record lows.
“As a result of this measure, the implied interest rate on mortgages cannot exceed 70% of the six-month Euribor rate in the next two years,” Finance Minister Fernando Medina told a news briefing.
Those with mortgages indexed to three- and 12-month Euribor rates will also receive a discount equal to the nominal amount resulting from the cut in the six-month rate, he added.
Banks will be able to start recovering unpaid interest from those that requested the reduction after four years by redistributing the payments until the mortgages mature.
Medina said the new measure and the interest subsidy that the state already guarantees to the most indebted families should help around one million families.
“The abrupt rise in mortgage payments is undoubtedly the most serious problem that Portuguese families face today, in addition to the impact of inflation, and we want to give them stability for two years,” he said.
Bank of Portugal Governor Mario Centeno has recently estimated that at the end of 2023 the mortgage expenses of around 70,000 families could exceed 50% of their net income.
Medina said the new measure, which helps banks to avoid non-performing loans (NPL), was agreed with the Association of Portuguese Banks APB and the central bank.
Portuguese banks suffered a spike in bad loans after the economic and debt crisis in 2010-13, but have since reduced the share of NPLs to 3.1% of total credit from a peak of 17.9% in mid-2016.
($1 = 0.9377 euros)
Reporting by Sergio Goncalves; editing by Andrei Khalip, Kirsten Donovan
Our Standards: The Thomson Reuters Trust Principles.
Mortgage rate cut quantum will vary depending on clients, cities
Bank exec: rate cut conducive for easing prepayment pressure
Chinese banks will also cut some deposit rates by 10-25 bps
$5.3 trillion mortgage book accounts for 17% of banks’ loan
BEIJING, Aug 29 (Reuters) – Some Chinese state-owned banks will soon lower interest rates on existing mortgages, three sources familiar with the matter said on Tuesday, as Beijing ramps up efforts to revive the debt crisis-hit property sector and bolster a sputtering economy.
The quantum of the cut on existing mortgages, which, if implemented, will be the first such move in China since the global financial crisis, would be different for different types of clients and in different cities, said the sources.
The reduction could be as much as 20 basis points in some cases, said the sources, who declined to be named as they were not authorized to speak to the media.
The country’s central bank, the People’s Bank of China (PBOC), did not immediately respond to Reuters’ request for comment after business hours.
The reduction in existing mortgage rates will come amid several other property, economic and market support measures Beijing has announced over the past few weeks, as concerns mount about the health of the world’s second-largest economy.
The property sector, which accounts for roughly a quarter of the economy, has lurched from one crisis to another since 2021, and contagion fears deepened this month after liquidity stress in leading developer Country Garden (2007.HK) became public.
Chinese lenders were widely expected to cut interest rates on existing mortgages after the PBOC earlier this month said that it would guide commercial banks to do so.
The central bank’s proposal to cut rates, which came after a wave of early repayments of mortgage debt, aims to reduce the interest rate costs for homebuyers and to boost consumption in a slowing economy.
China has been cutting new mortgage rates since last year to boost sales in its moribund property market, but the main result so far has simply been a rush by households paying off existing mortgages early, squeezing banks’ profits.
Lowering existing mortgage rates is expected to further weigh on the banking sector’s net interest margin (NIM) – a key gauge of profitability – which fell to a record low at the end of the second quarter, official data showed.
DEPOSIT RATES
Chinese banks have been battling headwinds such as lower lending rates and pressure from the government to prop up the economy, as well as bad debt related to property developers and local government financing vehicles (LGFV).
China’s mortgage loans totalled 38.6 trillion yuan ($5.29 trillion) at the end of June, representing 17% of banks’ total loan books.
Zhu Qibing, chief macro analyst at BOC International China, estimates the weighted average rate of new mortgages is 4.11%, while the average rate on all existing mortgages is at least 100 basis points higher.
Citigroup in a note this month said that the repricing of existing high-yielding mortgages would further add to Chinese banks’ NIM pressure and dampen their profitability and lending capability.
Adjusting existing mortgage rates is conducive to easing pressure on banks from mortgage prepayment, Lin Li, vice president of Agricultural Bank of China Ltd (601288.SS), the country’s No.3 lender by assets, said earlier on Tuesday.
The bank would draft detailed implementation rules on rate cuts after policies on this become clear, he said. The lender reported a drop in its NIM to 1.66% at the end of June from 1.7% at the end of March.
Chinese banks’ net interest margin would face downward risks in the second half of this year, Fu Wanjun, Agricultural Bank of China’s president, said.
To soften the hit on the margins, the three sources said that major state banks would also lower interest rates on some fixed-term deposits, and the quantum of cuts would range from 10 basis points to 25 basis points.
Cutting deposit rates could help banks to maintain a proper level of NIM, one of the sources said.
Analysts have said China last week did not opt for a broad rate cut that would further depress banks’ narrow net interest margins, instead deferring to banks to cut their deposit rates and give themselves room to cheapen mortgages.
($1 = 7.2916 Chinese yuan renminbi)
Reporting by Xiangming Hou, Rong Ma, Ziyi Tang and Ryan Woo in Beijing, Selena Li in Hong Kong; Editing by Sumeet Chatterjee, Alex Richardson and Sharon Singleton
Our Standards: The Thomson Reuters Trust Principles.
The U.S. government is seeking to sell $13 billion worth of mortgage bonds amassed after the failures of both Silicon Valley Bank (SVB) and Signature Bank earlier this year.
First reported this week by Bloomberg News, the bonds in question are part of $114 billion in assets the Federal Deposit Insurance Corporation (FDIC) recovered when it assumed control over both banks earlier in the year.
The bonds are secured by “long-term, low-rate” loans made primarily to developers of low-income multifamily apartment complexes.
To aid the impending sales, the FDIC has reportedly considered alternatives to cutting bond prices up to and including repackaging the associated debt into new securities, Bloomberg reported. BlackRock Financial Market Advisory had preliminary conversations with investors about the bonds, the report said, citing unnamed sources.
In April, the FDIC decided to sell a portfolio of $114 billion in MBS it obtained after seizing control of the banks, retaining Blackrock to conduct the sale. In March, First Citizens Bank & Trust Company announced its intent to acquire all of SVB’s deposits and loans that were moved to an FDIC-created bridge bank after the collapse.