Archive for January, 2009
The Federal Deposit Insurance Corporation's Board of Directors approved Friday the sale of Pasadena-based IndyMac Federal Bank, FSB, to a thrift holding company controlled by IMB Management Holdings LP for a price tag of $13.9 billion.
IMB HoldCo is owned by a consortium of private equity investors led by Steven Mnuchin, former Goldman Sachs partner and current co-CEO of Dune Capital Management LP.
The complete sale of the bank includes 33 branches, a reverse-mortgage unit and a $176 billion loan-servicing portfolio. The FDIC has agreed to share losses on a portfolio of qualifying loans with New IndyMac assuming the first 20 percent of losses. From there, the FDIC will split losses 80/20 for the next 10 percent of losses and 95/5 thereafter.
"The current economic climate is challenging for selling assets, but this agreement achieves the goals that were set out by the Chairman and Board when the FDIC was named conservator of IndyMac in July," said FDIC Deputy Director James Wigand, the lead negotiator for the transaction.
The deal with IMB HoldCo was expected to be announced prior to the first of the year. But the deal apparently hit a snag Tuesday, as sources close to the sale negotiations revealed to HW that Fannie Mae (FNM: 0.00 N/A) was holding the deal hostage and threatening to jeopordize the potential sale. After IndyMac was seized by regulators this summer, Fannie quickly — and quietly — handed the bank a bill for $1 billion, one source said under the condition of anonymity, claiming the failed thrift had violated representations and warranties on various loans sold to the GSE. See full story.
HoldCo may very well have used this billion-dollar repurchase claim to push down the sale price. And even now, Fannie and HoldCo could still be duking it out behind the scenes on what is actually owed for the bad loans.
Nonetheless, a final agreement was reached, in which IMB Management Holdings LP and the investor group – consisting of Dune Capital Management LP, J.C. Flowers & Company, hedge fund firm Paulson & Company, and MSD Capital, LP — will inject a "substantial amount of capital" into the newly formed thrift holding company, according to the FDIC press release.
The thrift has also agreed to continue the FDIC's existing loan modification program –which has been recently championed by FDIC chairman Sheila Bair as golden template for the industry — which has modified 8,512 home mortgages to date, according to Friday's press release.
"The continuation of the loan modification program will be a condition for the FDIC to provide any type of loss-sharing on IndyMac's assets," the FDIC stated.
The transaction is expected to close in late January or early February. It was determined that the bid from IMB Management Holdings, LP, was the least costly to the Deposit Insurance Fund of all competing bids.
It is estimated that the cost to the FDIC's DIF for resolving IndyMac Bank will be between $8.5 billion and $9.4 billion, in line with previous loss estimates.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
As the New Year rings in, some homeowners are likely to feel the pinch of higher mortgage rates and tightened credit — in particular, borrowers in certain areas of the U.S., with a mortgage between $625,500 and $729,750. That's because temporary legislation that had boosted conforming mortgage limits to as high as $729,750 in certain designated high-cost housing areas expired at the stroke of midnight Thursday morning.
Effective Jan. 1, Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) may no longer purchase or guarantee mortgage loans above the now-final $625,500 conforming limit put into place by the Emergency Economic Stimulus Act; the decrease in conforming limits for some borrowers is likely to be felt in places like California and New York, where the higher lending limits had given some borrowers access to conforming loans.
Now, those borrowers are back into the pool of jumbo borrowers, a market that has essentially dried up during the recent housing and mortgage mess. The loans that are available in the market for jumbos come at a substantially higher rate in the primary market, relative to conforming mortgages.
It's unclear just how many higher-balance loans were purchased or guaranteed by the GSEs during 2008, something HousingWire will research for a future story. But it's clear that the decline will push at least some borrowers into the still-largely-frozen jumbo mortgage market, increasing the rates they pay on a mortgage — assuming there is someone willing to fund the mortgage to begin with.
Expect realtors and home builders to get pretty vocal about this issue in the months ahead. Congress has already seen opposition to the lower limit, as the National Association of Realtors has already lobbied for months, unsuccessfully, to make the $729,750 loan limit permanent, ahead of the Jan. 1 cutoff.
Nonetheless, however, it's worth nothing that the reduced high-cost conforming limit doesn't affect most housing markets. In most parts of the U.S., the maximum loan limit will remain at $417,000 in 2009, the Federal Housing Agency said in November.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The Treasury Department has allocated $162 billion to buy stakes in 208 institutions since implementing a capital purchase program on October 14. Precisely how are those dollars being implemented within each institution? Well, the government doesn't exactly know. The Treasury said Wednesday that it's challenging for government officials to track the use of funds given to those banks participating in the $700 billion bank bailout program.
"Each individual financial institution's circumstances are different, making comparison's challenging at best, and it is difficult to track where individual dollars flow through an organization," the Treasury wrote in a response letter to the U.S. Government Accountability Office. In a report released Dec. 3, the GAO said additional actions were "needed to better ensure integrity, accountability, and transparency," relative to TARP spending activity — specifically suggesting that the program amp internal controls in order to monitor, at least to some extent, how institutions are spending CPP funds.
Interim secretary for financial stability Neel Kashkari, who authored the letter Wednesday, said despite the challenges, the Treasury is "working with the banking regulators to develop appropriate measurements and Treasury is focused on determining the extent to which the CPP is having its desired effect."
Kashkari's letter Wednesday echoed his initial response to the GAO's assessment, citing the difficulty in monitoring funds. At that time, he signaled that his team was trying to find the next-best solution — on which we assume the jury is still out — in assessing second-order effects. "We are actively engaged with regulators to determine the best way to monitor CPP investments and bank lending," his Dec. 3 testimony read. "We may utilize a variety of supervisory information for insured depositories, including existing Home Mortgage Disclosure Act (HMDA) data, Community Reinvestment Act (CRA) data, call report data, examination information contained in the CRA Public Evaluations, as well as broader financial conditions.”
Kashkari has continued to defend the implementation of TARP amid intense pressure from lawmakers to account for how each institution has used the capital. "Yes" it's a fair use of taxpayers' dollars he said in the letter. "Treasury has designed its programs, consistent with EESA, to protect the taxpayer…"
House Financial Services Committee Chairman Barney Frank (D-Mass.) and other Democrats have said they will not support releasing the additional $350 billion in TARP funds unless Treasury implements procedures to monitor how participating banks are using the funds.
It's noteworthy, however, that Congress did not explicitly require the Treasury to account for how participating banks would use the funds when it originally approved the bailout bill on Oct. 3.
Kaskari says the program is working, just give it time. "The CPP began in October 2008 and the money must work its way into the system before it can have the desired effect," he wrote. "Moreover, we are still at a point of low confidence…this lending won’t materialize as fast as anyone would like, but it will happen much faster as a result of having used the TARP to stabilize the system and to increase the capital in our banks."
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
As lenders decided to halt foreclosures on some or all of their loans during December and well into January, industry participants are warning that a decision to enact a national foreclosure moratorium could have dire consquences for the economy and for housing.
A few state leaders — New Jersey governor Jon Corzine, among them — as well as key federal lawmakers have suggested in recent months that a nationwide moratorium on foreclosures is needed to help solve the nation's housing woes.
Industry insiders surveyed by New York and Dallas-based National Asset Direct Inc., a principal buyer of performing, sub-performing and non-performing residential assets, asks key market participants for thoughts on hot-burner issues each month. The December survey asked about the possible effects of a national foreclosure moratorium, with more than 46.3 percent of respondents suggesting that halting foreclosures would have a negative impact on underwriting criteria.
Loan underwriting standards are already restrictive, and are preventing many borrowers from purchasing or refinancing; the survey's respondents — which span the residential construction, mortgage originations, servicing, real estate sales, REO management, capital markets and investor/hedge fund fields — suggest that a push to halt foreclosures is likely to make such criteria even more restrictive going forward.
“The banks don't know how badly they’ve messed up and so they are like deer frozen in the headlights," said one respondent. "The people who can't pay for their houses need to be able to move on, not hang around longer. Do the short sales, do the foreclosures and get this mess over with.”
"A national moratorium on foreclosure will drive up investor’s costs associated with foreclosure and increase loses associated with foregone interest income," explained Derek Martin, director of decision science at National Asset Direct. "This would increase actualized losses, as well as potential losses which would result in tighter underwriting guidelines and larger down payment requirements."
Respondents were less certain what such a moratorium would do to interest rates, given the governments aggressive intervention into both primary and secondary mortgage markets to push rates downward. 38 percent suggested a moratorium would have a negative impact on mortgage rates.
Most survey respondents said they see U.S. housing prices stabilizing sometime in 2010 and beyond — 73.2 percent of those surveyed. 25.4 percent suggested home prices would stabilize in 2009.
But the overwhelming theme, oft-repeated in comments by participants, was one of frustration at a market that isn't being allowed to clear. “We need to move forward and clean up the mess not keep trying to fix it," said one survey respondent. "Go back to basics.”
Another voiced frustration with U.S. Treasury actions thus far. “The problem is being underestimated and has been from the beginning. I raised this at a public meeting with [Treasury Secretary Henry Paulson] in March [2008], and he told us that everything is under control.
"In order to preserve an ideology he has sold us down the river."
Write to Paul Jackson at paul.jackson@housingwire.com.
Mortgage brokers are certainly enduring their fair share of criticism throughout this mess — invective that is clearly deserved on some levels — but, for all the slings and arrows tossed their way thus far, few brokers have yet seen their ability to earn legislated into a box. If the Florida Office of Financial Regulation gets its way, however, mortgage brokers in the Sunshine State may soon face caps on how much they can charge per transaction.
It's a move that the state regulator now says is needed to prevent future abuses, after the Miami Herald broke a story in August 2008 that found that more than 10,000 of the mortgage brokers in Florida had criminal records — brokers that were licensed by the state.
The sweeping mortgage reform bill contains other measures, including new requirements of annual criminal background checks for licensed brokers as well as a new affordability requirement for loans originated via brokers, but it's the fee cap that clearly is drawing the most attention from the industry.
The FOFR's proposal would cap origination fees at 2 percent of a loan's value, a move that brokers in the state told the Miami Herald would likely put the vast majority out of business.
The Herald interviewed Margaret Kennedy, president of the Suncoast chapter of the Florida Association of Mortgage Brokers, who said that a 2 percent cap was too low. She told the paper that a cap of about 4 percent would be more amenable to the broker crowd.
"You don't want to gouge the consumer," Kennedy told the Herald. "You want to be fair. At the same time, we have to make a living."
Brokers have become increasingly frustrated at what they see as unfair treatment at the hand of state regulators, relative to retail originators and other non-brokers in the mortgage funding space. A recently-passed final rule to amend the Real Estate Settlement and Procedures Act, for example, led the National Association of Mortgage Brokers to sue the Department of Housing and Urban Development. The brokers' association claims that by forcing third-party originators to disclose yield spread premium — disclosures not required of retail originators — regulators are favoring one business model over the other.
The harsh truth now facing most of the nation's remaining mortgage brokers, however, is that loans originated via third parties have been, and continue to be, among the worst-performing loans on any bank's books. So long as that's the case, it's likely also going to be the case that regulators will focus their legislative pens in the direction of where the bad loans have been coming from — fairly or not.
Write to Paul Jackson at paul.jackson@housingwire.com.
Wells Fargo & Co. (WFC: 29.60 +1.89%) announced Thursday the completion of its merger with Wachovia Corp., resulting in a monstrous distribution system for financial services with 1.4 trillion in assets and 11,000 stores nationwide servicing 48 million banking households and employing 276,000 employees.
The Board of Governors of the Federal Reserve approved the merger in mid-October following a debacle between Citigroup Inc. (C: 30.87 +1.61%) and Wells Fargo over which suitor would acquire Wachovia's banking operations — Citi pulled out of talks after four days of discussion on splitting Wachovia's assets.
As of Thursday, customers of Wells Fargo and Wachovia were granted access to use all the company's 12,260 combined automated teller machines.
Pat Callahan, an executive vice president and head of the Company's merger transition, said Wachovia customers will continue to see the Wachovia brand in their banking stores and communities for the near future. "The key to a successful integration will be our ability to provide outstanding customer service throughout the integration," said Callahan. "So we're going to take our time and do this right. Wells Fargo and Wachovia customers should continue banking as they do today…"
At closing, Wells Fargo acquired all outstanding shares of common stock of Wachovia in a stock-for-stock transaction. Wachovia shareholders received 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock they owned. Shares of each outstanding series of Wachovia preferred stock were converted into shares or fractional shares of a corresponding series Wells Fargo preferred stock, having substantially the same rights and preferences, Wells Fargo said in a press statement.
With Wachovia, Wells Fargo for the first time has a Community Banking presence in Alabama, Connecticut, Delaware, Florida, Georgia, Kansas, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington D.C.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
I'd like to think I'm downright religious about sourcing stories here on HW, going so far as to name sources and provide links wherever possible — hell, I'm so religious about that sort of thing that I gladly cite competitors in the trade press when they beat HW to a story. It happens in the rough-and-tumble news business.
But to see the WSJ and Bloomberg completely fail to cite our story from earlier this week in their own coverage of the negotiations with Fannie Mae over the pending sale of IndyMac just reeks of information theft, to me. There is supposed to at least be some level of understanding among journalists in terms of tipping the hat towards a colleague.
Here's our story from Dec. 30th: http://www.housingwire.com/2008/12/30/fannie-mae-holding-indymac-deal-hostage-sources-say/
Here's Bloomberg's Dec 31st coverage, which doesn't mention us. And here's the WSJ's Jan. 1 coverage, which also doesn't mention us. I suppose it's merely coincidence that both major news outlets managed to get on the scent of a story we broke a day or two after we broke it. I'm sure they managed to find the story of their own accord.
Here's the thing: smaller, niche media like ours has to fight to make sure we retain credibility nationally. And this is an example of how the larger media outlets tend to use blogs and smaller media channels to feed their own news, without caring so much as to source their own efforts. Given the pains we go to here at HW to source our work, it's frustrating to see such flippant journalism elsewhere.
Just ahead of the Christmas holiday, BusinessWeek featured an exclusive interview with John Dugan, the Comptroller of the Currency, on the occasion of a joint release of housing and mortgage metrics — much of the focus now being placed by regulators is on redefault rates. On Dec. 8, ahead of the release of the agency delinquency data, Dugan made waves by suggesting that recidivism — or, loans going bad after modification — was a problem.
“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due,” Dugan said in a statement at the time. “After six months, the rate was nearly 53 percent, and after eight months, 58 percent.”
He told BusinessWeek that his agency has "just begun within this quarter to focus more on modifications and default rates," and said that federal regulators "unfortunately have to learn as we go."
"We've never seen a problem on this scale before; we've never seen delinquencies at this rate," he said. "So there's not the wealth of industry experience with how to deal with this problem."
That's fudging the truth a bit; while delinquencies are indeed at record levels nationally, we have seen high delinquency rates regionally before — the early 1990s come to mind, in particular. Furthermore, the fact that Dugan believes there isn't industry experience in how to deal with this problem only underscores the fact that current regulators are now guilty of making the same mistake originators made during the boom: everyone is still ignoring what those servicing the loans have to say about this mess.
Had Dugan asked, nearly every servicing manager on the planet would have told him that a 50 percent recidivism rate is pretty much part for the course, irrespective of credit class. The reasons for this are numerous, but redefaults on loan modifications can and usually do happen all the time — look at it this way: even if a loan mod results in lower payments, does an extra $300/month really help certain borrowers? Bad financial skills are bad financial skills, regardless of payment, for one thing. Job losses are job losses, too; and in this market, many unemployed are finding it harder to re-enter the work force than in years past.
"What we can't tell from the raw data is whether these high delinquency rates … are because the modifications didn't reduce the monthly payments enough to make them sustainable, or whether the economy has just gotten worse," Dugan told BusinessWeek. Which underscores just how much learning Dugan, and likely other regulators, have yet to do.
What regulators will find out as they go through their training on loan servicing techniques is that nominal reductions in monthly payments may help reduce recidivism somewhat, but will not push redefaults into oblivion — doubly so, given the millions of borrowers that now owe much more on their mortgage than their home is currently worth.
It isn't just servicing practices that appear new to the OCC, and perhaps other regulators as well; Dugan also said in his interview that the OCC was caught flat-footed by securities purchases that reached heavily into the nation's secondary mortgage markets.
"Honestly [we thought] there were companies that weren't taking much subprime risk because they weren't making subprime loans—only to find that their securities arms were buying them from third parties," Dugan told BusinessWeek. "They were making and holding on to pieces which proved to be the really toxic instruments that caused the problems. And the very fact that it was a surprise tells you about how risk management was being handled."
The fact this came as a surprise to the OCC, however, also should tell you just how far behind the curve regulators really have been when it comes to the mortgage space. The secondary mortgage market dwarfed our equity markets during those boom years, yet regulators were ignoring such activity at the institutions they were responsible for regulating?
Read the entire interview here.
Write to Paul Jackson at paul.jackson@housingwire.com.
