Barclays: Housing from the Banks’ Point of View

There is a growing consensus among lenders that home prices have stabilized, according to analysts at ""Barclays Capital"":http://www.barcap.com. Research by the investment firm also indicates that loan modification efforts have risen significantly, and banks have begun to take a more aggressive approach when it comes to disposing of troubled real estate assets.

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As Barclays has done for the past several quarters, the company's analysts sifted through the fourth quarter earnings transcripts for roughly 20 banks â€" regional and national â€" to capture their current views on the housing market and their expectations for the market going forward.

Research notes from that analysis released to DSNews.com reveal that while the 2010 outlook for the broader economy is somewhat mixed, lenders are largely in agreement that home prices appear to have stabilized in many parts of the nation.

Although certain markets â€" Arizona, Nevada, and parts of Florida predominantly â€" continue to exhibit softness in property values, Barclays says stabilization throughout most of the country has led banks' management teams to believe that stress in the real estate portfolio is likely to abate in 2010.

Barclays quoted ""Synovus"":http://www.synovus.com as saying in its Q4 earnings call, ""We're not expecting a big pick-up in the housing market, but we certainly view it as a market with some stability in it.""

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Residential portfolios continue to constitute a large portion of troubled assets, Barclays notes. However, many management teams pointed to improving credit metrics and appeared confident that in-flows of problem assets had stabilized or improved in the fourth quarter of 2009, citing lower early-stage delinquencies and less exposure, due mainly to write-offs or loan sales.

Barclays analysts say the sequential rise in banks' troubled debt restructuring balances also suggest increasing participation in loan modification programs, such as the government's Home Affordable Modification Program (HAMP), as well as their own internally-developed programs.

Although as of the end of Q4, loan modifications predominantly included reductions in interest rates, the government's ""recent enhancements to HAMP"":http://dsnews.comarticles/white-house-adds-underwater-unemployed-assistance-to-housing-program-2010-03-26 could encourage banks to consider principal forgiveness. The analysts said in their report that they believe this approach is a positive move toward keeping residential foreclosure inventory in check.

But, the analysts said, ""[D]espite the slowing pace with which new residential loans become delinquent, we believe the plethora of foreclosures already in the pipeline will likely weigh on the housing market for the foreseeable future.""

Several banks indicated an aggressive stance towards moving through REO inventory, citing sequential increases in sales activity, Barclays said, adding that a few management teams offered concrete examples of inventory marks relative to original loan values.

Barclays quoted a ""Comerica"":http://www.comerica.com exec as saying, ""[A]cross the board I would say there's more interest in distressed asset sales whether it's packages of deals or one-off deals. [T]he prices of real estate and the write-downs have been so significant that people are now starting to say maybe the bottom has been reached or maybe we're on the upside of that depending on the market. Very, very good activity.""

Barclays analysts cautioned in their report, though, ""[W]e would note that should home prices begin to show further signs of deterioration, we believe banks would likely be more patient with their REO inventory.""