First Citizens buys Silicon Valley Bank

Good morning. This is Mortgage Nuggets. The email that tells you what's going on in the mortgage industry, in plain jane English.

1. First Citizens buys Silicon Valley Bank

First Citizens BancShares has agreed to purchase Silicon Valley Bank's commercial banking business, which recently collapsed and was seized by the U.S. government. The deal will see First Citizens Bank purchase around $72 billion of Silicon Valley Bank assets at a discount of $16.5 billion.

The transaction will not include SVB's private banking business, which the FDIC is also seeking to sell. The move is aimed at stabilizing America's regional banking sector and comes after a month of turbulence.

Under the deal, SVB's 17 branches will reopen under the First Citizens brand, and all depositors will become depositors of First Citizens. The FDIC expects to book around a $20 billion loss once it disposes of all SVB assets. The losses are funded by a pool of capital that insured banks provide.

Noteworthy: First Citizens entered the year as America's 30th largest bank, and now, it is poised to absorb an institution that had been America's 16th largest bank.

2. Fannie Mae revises GDP forecast upward

Fannie Mae's Economic and Strategic Research Group has revised its GDP forecast upward for the first quarter of 2023 due to stronger-than-expected economic data.

However, the group still predicts a "modest recession" will occur in the second half of 2023 due to the combination of tighter lending standards among small and midsized regional banks and weakened business and consumer confidence.

The group does not expect a repeat of the 2008 financial crisis but instead sees the savings and loan crisis of the 1980s as a better analog. The ESR Group also notes that recent banking instability may affect the availability of jumbo mortgages and residential construction loans due to the high concentration of those originations stemming from small and midsized banks.

Additionally, the ESR Group expects home sales to remain subdued due to ongoing affordability constraints and the “lock-in effect” continuing to create a strong financial disincentive for homeowners to move.

3. KB Home sees cancellations slow

KB Home's first quarter cancellation rate dropped to 36%, a significant improvement from last quarter's 68%. This decline indicates aggressive builder incentives and home price reductions are starting to bring back buyers.

CEO Jeffrey Mezger reported an increase in housing demand as the spring selling season began, with a sequential improvement in net orders in January and February. Despite ongoing uncertainties, homebuilders are encouraged by this progression.

The housing correction impacted KB Home more than other public homebuilders due to its concentration in the Western markets, where the correction was particularly sharp.

During the Pandemic Housing Boom, builders achieved high-profit margins, allowing them to cut prices and offer incentives to entice buyers when the market slumped.

4. More Nuggets

🤝 The U.S. housing market is holding up the best in the global correction (Axios)

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5. FHFA helped 52k homeowners avoid foreclosure

The Federal Housing Finance Agency (FHFA) reported that Fannie Mae and Freddie Mac completed 52,469 foreclosure prevention actions in Q4 2022, bringing the total number of GSE-assisted homeowners to 6,712,833 since the start of the conservatorship in September 2008, which placed control of Fannie and Freddie with the FHFA.

About 37% of the loan modifications completed in Q4 reduced borrowers' monthly payments by 20% or more. Due to the increase in rates, mortgage refinances decreased from 194,189 in the previous quarter to 111,251 in Q4 2022.

The serious delinquency rate dropped slightly from 0.68% to 0.65% from Q3 to Q4, and the 60-plus day mortgage performance delinquency rate saw a slight increase from 0.83% to 0.84%.

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Please forward this to your friends and colleagues if you found it valuable. Written by Ian M.