Archive for January, 2009
On the heels of an ailing economy have come massive job cuts in all U.S. markets in the recent months, and according to state unemployment data released Thursday, new jobless claims are still on the rise. But mortgage job losses have actually eased 25 percent in the fourth quarter, according to employment data tracked by MortgageDaily.com. Annual migration out of real estate also dropped — by more than half.
"As job losses worsened in other sectors, mortgage job losses began to ease," said MortgageDaily.com publisher Sam Garcia. "Federal Reserve purchases of mortgage-backed securities have recently pushed mortgage rates to record lows — fueling refinance demand. In addition to an increase in the number of mortgage firms hiring, we have reported on at least one temporary employment agency seeking to fill thousands of positions."
Garcia also noted a spike in loan modification firms that are actively recruiting former originators and mortgage brokers.
Layoffs in the mortgage industry were 8,646 during the fourth-quarter 2008. After accounting for 925 new hirings, the net job loss was 7,721, compared to a net job loss of 10,233 in the previous quarter and 16,711 one year earlier. Fourth-quarter's results may indicate, according to MortgageDaily.com, a bottoming-out in mortgage-related layoffs.
Nonetheless, California took the hardest hit of the quarter, experiencing the most mortgage job losses, followed by Minnesota and Florida. As for annual mortgage job losses, California came in at number one, with 8,133 losses. Florida ranked second — although, lagging far behind California — posting 2,651 job losses. New Jersey was a close third with 1,661 mortgage job losses for the year.
If analyzed by company, Residential Capital LLC and its affiliates saw the biggest quarterly loss of mortgage jobs, releasing 2,405 employees. Subsidiaries of JPMorgan Chase & Co. (JPM: 37.21 -0.75%) had the second highest loss of mortgage positions, followed by Citigroup Inc. (C: 30.87 +1.61%) and the companies it owns.
Write to Kelly Curran at kelly.curran@housingwire.com
Disclosure: The authors 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.
U.S. Bancorp (USB: 27.86 +0.25%) on Wednesday reported a net quarterly income of $330 million — or 15 cents per share — down from the 53-cents-per-share earnings reported in the previous-year period. The bank's total residential mortgages increased 3.4 percent to $760 million in the quarter, according to its earnings statement. The bank's mortgage-related revenue decreased more than 60 percent from the previous quarter to just $23 million in the fourth quarter due in part to "lower production income, partially offset by an increase in servicing revenue," suggesting that, while origination were low, defaults were high.
The bank reported it had allowed $84 million for residential mortgage credit losses in the quarter — an increase from the $71 million allowed in the previous quarter. It also allowed $52 million for losses related to home equity loans — or second mortgages — in the fourth quarter, also an increase from the previous quarter, when allowances for second mortgage-related losses came to $48 million. The increase in these losses were driven primarily by consumer loans and "reflected the impact of rising foreclosures on sub-prime mortgages and current economic conditions," according to the statement.
The bank reported average loan growth of 6.4 percent from the third quarter and average deposit growth of 15.2 percent from the year-ago period, showing a "benefit from the 'flight to quality' by customers seeking banks with strong capital," according to the report. Nonperforming assets, however, ended the quarter at more than $2.6 billion, compared with the almost $1.5 billion reported for the third quarter. "The increase in nonperforming assets from a year ago including the Downey [Financial Corp.] and PFF [Bank & Trust] acquisitions was driven … [by] the residential mortgage portfolio, an increase in foreclosed residential properties and the impact of the economic slowdown on other commercial customers," the report read. The bank also said it expects the increase in nonperforming assets to continue "due to general economic conditions and continuing stress in the residential mortgage portfolio and residential construction industry. "
U.S. Bancorp in late-November absorbed Downey Financial and smaller Pomona-based PFF Bank when the Federal Deposit Insurance Corp. intervened as matchmaker, assuring it would assume the first $1.6 billion of losses on certain assets, and would then share in any further losses incurred from the absorption of Downey's operations. In exchange for its portion of the loss sharing, U.S. Bank agreed in November to implement a loan modification program similar to the one the FDIC announced in August 2008 at IndyMac Federal Bank, that will see the bank attempt interest write-offs and principal deferment for troubled borrowers. Details were not provided on the implementation of this modification plan.
Regarding the absorption of Downey and PFF, the bank said it would incur approximately $4.7 billion of cumulative credit losses, which would be offset by an estimated $2.4 billion benefit under the loss sharing agreements. Under the terms of the agreement, U.S. Bancorp said it will incur the first $1.6 billion of specified losses, "which was approximately the amount of the predecessors' net assets." After the first loss, the bank will incur 20 percent of the next $3.1 billion in losses and 5 percent of losses beyond that limit. U.S. Bancorp said in the quarterly report that it estimates its share of those losses will total some $700 million. "The impact of estimated credit losses on future cash flows from the acquired loan portfolios was included in the determination of the estimated value of the loans at the date of the acquisition," bank officials said in the report.
Before the Downey agreement, U.S. Bancorp had on Nov. 14, received more than $6.5 billion from the Treasury Department through the Troubled Asset Relief Program. "As our results and actions this quarter illustrated, we are actively lending to credit-worthy borrowers, we are investing in our businesses, we are supporting our communities and we are backing the efforts of the U.S. Treasury to stabilize the financial markets and increase the flow of credit to both consumers and businesses, all while creating long-term value for our shareholders," president and CEO Richard Davis said in a media statement.
Write to Diana Golobay at diana.golobay@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.
(Update 1: Noted that the ZIP code 95931 is located in an area known as Mountain House, correcting a reference to Tracy, Calif., which is near — but not part of — the unincorporated planned community.)
Does the economy's recovery hinge on housing? Maybe, maybe not. But we do know this: housing has some serious correcting to do yet ahead of it.
You don't need to look further than October 2008 data from First American CoreLogic, which found that 7.6 million U.S. borrowers were underwater on their mortgages at that point, with an additional 2.1 million mortgages about to head beneath the water's surface.
Let the critics say that such a mess of negative equity doesn't drive defaults. They'll be proven wrong. Anyone in the servicing trenches knows better, because we've seen that borrower equity can cure plenty of ills; we also know that the lack of it leaves a borrower in a tenuous position to manage an economic downturn that, by most accounts, seems likely to hit with a ferocious bite at least through the third quarter of this year.
Perhaps the most staid of all equations in the mortgage servicing business is this: price declines equal borrower defaults.
If you want to know which markets are going to bleed most heavily through this year, then, you need look no further than those markets that are already mostly underwater relative to home equity. With the help of First American CoreLogic, we took at look by ZIP code at which local markets with more than 1,000 mortgages rank among the nation's worst — not by price decline, or sales volume, but by the number of mortgages that are now underwater.
And the localized data reveals what is still a very grim outlook for California, Nevada and Florida, above all, as well as some areas in Arizona. The first three states are home to the top 10 worst local housing markets — where a market is defined by a particular ZIP code.
A look at a dubious list of suspects
The nation's most troubled housing market by this measure would be the ZIP code 95931, in Mountain House, CA, an unincorporated planned community along the western boundary of San Joaquin County; it's an exurb of the San Jose/San Franscisco market, part of the Stockton metro area.
A full 88.7 percent of outstanding mortgage debt in this area is estimated to be underwater, with 91.5 percent of all mortgages ranking as "near negative equity" by First American CoreLogic. Lenders have lost a net $226 million in equity in this market alone, relative to mortgage debt outstanding.
The median income for a household in the city was $62,794 two years ago, according to census data, and the median income for a family was $67,464; sound like a market where median home prices could rise massively relative to incomes?
Despite the severity of the housing price correction already felt there, ZIPs in Las Vegas slotted in at numbers 2 and 3 on the negative-equity list, with their share of active mortgages in negative equity sitting at 87.1 percent and 86.3 percent, respectively.
Between the ZIPS of 89178 and 89166, more than $2.7 billion in mortgage debt remains outstanding; relative to estimated property values in the two ZIPs, lenders have seen more than $350 million in equity evaporate here. The average loan to value ratio in both ZIPs is north of 115 percent LTV — and that's using data from October 2008.
Fifth on the list is a ZIP in North Las Vegas, as well: 89081. With 7,739 mortgages in the ZIP, a full 82 percent of mortgages are estimated to be underwater. That ZIP alone is responsible for an estimated $241.7 million in lost equity.
Coming in at number four? Rancho Cordova, Calif., home to the 95742 ZIP code and part of Sacramento County in Northern California — 84.3 percent of the 2,099 mortgages in the ZIP have reached a negative equity position, CoreLogic's data showed, while an additional 83 mortgages are considered "near" negative equity as well. The city is near to Tracy, Calif., and is part of the Sacramento–Arden-Arcade–Roseville Metropolitan Statistical Area; yet another NorCal property disaster waiting to unfold.
Not that Northern California and Las Vegas have a corner on the market for lost home equity. Markets in Riverside County, located in Southern California's Inland Empire region, ranked numbers five and 10 on the neg-am ZIP rankings nationally. A full 76.7 percent of its mortgages are currently underwater in the 92582 ZIP code in Riverside, and 71.0 percent have gone negative in the 92532 ZIP in the same county, the data showed.
The full list of the top 20 negative equity markets is below:
95391 (San Joaquin County, CA): 88.7 percent neg-am share
89166 (Clark County, NV): 87.1 percent share
89178 (Clark County, NV): 86.3 percent share
95742 (Sacramento County, CA): 84.3 percent share
89081 (Clark County, NV): 82.0 percent share
92582 (Riverside County, CA): 76.7 percent share
33976 (Lee County, FL): 76.6 percent share
33974 (Lee County, FL): 73.6 percent share
89139 (Clark County, NV): 71.1 percent share
92532 (Riverside County, CA): 71.0 percent share
95330 (San Joaquin County, CA): 70.8 percent share
33971 (Lee County, FL): 70.4 percent share
85339 (Maricopa County, AZ): 69.8 percent share
92596 (Riverside County, CA): 69.7 percent share
85353 (Maricopa County, AZ): 69.4 percent share
92571 (Riverside County, CA): 68.8 percent share
34987 (Saint Lucie County, FL): 68.7 percent share
33909 (Lee County, FL): 68.5 percent share
34288 (Sarasota County, FL): 68.3 percent share
89084 (Clark County, NV): 68.2 percent share
Source: First American CoreLogic, data as of Oct. 2008
Write to Kelly Curran and Paul Jackson at kelly.curran@housingwire.com and paul.jackson@housingwire.com.
Disclosure: The authors 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.
Under pressure to report more clarity and oversight in implementing the Troubled Asset Relief Program and the use of TARP funds given to financial institutions, the Treasury Department is apparently going after banks now with letters written by interim assistant secretary Neel Kashkari asking for figures on business and consumer loans, according to a story Tuesday by Bloomberg.
The letters, given to Citigroup Inc. (C: 30.87 +1.61%), Bank of America Corp. (BAC: 7.29 -0.14%) — both recipients of $45 billion each through TARP — and 18 unnamed other banks, came Jan. 16, days before President Barack Obama was sworn into office. They arrived on the heels of rising criticism of outgoing secretary Henry Paulson and his changing strategy on distributing the funds. The Congressional Oversight Panel released several reports asking for clarifications and exposing dodgy answers about the Treasury's program.
Paulson also faced heavy criticism over his decision to bail out failing automakers and the resulting acknowledgment the first $350 billion in funds had essentially been allocated. Weeks passed in which both sides of the fence argued the merits — or lack thereof — of releasing the second $350 billion. The Senate on Jan. 15 voted against a motion to ban the release of the remaining funds, essentially releasing them for Treasury use. Paulson and the Treasury almost immediately gave additional aid to BofA, which had already received $25 billion through the capital purchase program.
With another $350 billion in the hands of the Treasury and Obama's pick for secretary headed into his hearing Wednesday, the call for increased oversight and transparency seems more relevant than ever. The banks Kaskhari wrote to have until the end of January to reply, according to Bloomberg. Kashkari will remain in his position for some months. It is unclear now whether Timothy Geithner — Obama's Treasury secretary pick — will be officially appointed the position after it was revealed through media circles his failure to pay past-due taxes until recently.
Write to Diana Golobay at diana.golobay@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.
Private mortgage insurer MGIC Investment Corp. (MTG: 4.14 +6.98%) on Tuesday reported a net fourth-quarter loss of $273.3 million — or $2.21 per share — compared to the $1.47 billion net loss in the year-ago quarter. Total 2008 losses came to $518.9 million, roughly a third of total 2007 losses, suggesting at least some improvement over last year. Continued losses result from increased delinquencies in the fourth quarter driven by " falling home values and the impact of a recession," and MGIC CEO Curt Culver has said he does not expect a return to profitability in 2009, according to a media statement by the company.
Total fourth-quarter revenues totaled $411.5 million due to increased net premiums, and were negatively affected by fourth-quarter losses of $903.4 million "reflecting the continued increase in the number of delinquent loans," according to the company's report. The company incurred $3.1 billion in losses for all of 2008, an increase from the $2.4 billion in 2007, hinting at the increased force of delinquent loans last year, which essentially doubled since 2007. As of Dec. 31, 2008, delinquent loans — excluding bulk loans — accounted for 9.5 percent of MGIC's books, compared with about 5 percent as of Dec. 31, 2007. The company reported writing $5.5 billion in new insurance during the quarter.
The company's premium deficiency reserve declined from $584 million to $454 million through the fourth quarter. "The $454 million premium deficiency reserve as of Dec. 31, 2008 reflects the present value of expected future losses and expenses that exceeded the present value of expected future premium and already established loss reserves," the company said in its release. It acknowledged Standard & Poor's Rating Services had downgraded its financial strength rating to A- and warned the recent influx of loan modification programs may not have any positive effect on its books. The mortgage industry is also still grappling with losses in 2006 and 2007 vintages, and MGIC said it expects to continue to incur losses "for a number of years" on these books.
"Unless recent loss trends materially mitigate, MGIC’s policyholders position could decline and its risk-to-capital could increase beyond the levels necessary to meet these regulatory requirements and this could occur before the end of 2009," the company said. "As a result, we are considering options to obtain capital to write new business, which could occur through the sale of equity or debt securities and/or reinsurance. We cannot predict whether we will be successful in obtaining capital from any source but any sale of additional securities could dilute substantially the interest of existing shareholders."
Write to Diana Golobay at diana.golobay@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.
Regions Financial Corporation (RF: 5.31 +2.71%) reported a $6.2 billion, or $9.01 per share, fourth-quarter loss Tuesday, largely driven by a $6 billion goodwill write-down and raised loan-loss provisions. The company's non-performing assets eased slightly in the fourth quarter, but full-year losses still reached $5.6 billion or $8.09 per share.
Fourth quarter's loss reflects intensified efforts by the company to aggressively reduce exposure in its most stressed loan portfolios as well as incremental weakness in housing valuations and the overall economy, according to the firm's press release Tueasday.
"Although we're encouraged by steps the government has taken to stabilize the housing market and revitalize the economy, there is no quick fix for credit quality issues currently plaguing the financial services industry," said Dowd Ritter, chairman, president and CEO.
During the fourth quarter, Regions either sold or transferred to held for sale around $1 billion of non-performing loans and foreclosed properties. Losses on those transactions, most of which were included in net-charge-offs, totaled $479 million, driving the linked-quarter increase in net loan charge-offs to $796 million, up from third-quarter's $416 million. Commercial real estate construction write-offs, primarily related to homebuilders and condominiums, drove the losses.
Home equity loan charge-offs increased modestly to an annualized 1.72 percent of average loans and lines from third quarter's 1.59 percent. Embedded in the residential mortgage net charge-offs for the quarter, was $17 million related to loan dispositions.
As expected, Regions' most stressed portfolios continue to be residential homebuilders; home equity, mainly second liens in Florida; and condominiums. The company has made progress in working through homebuilder and condo exposures, the company said, which declined during 2008. These assets currently amount to $9.0 billion, or about 9 percent of the total loan portfolio.
"We fully acknowledge the challenges that we face in 2009. We have been aggressively preparing for those challenges and will continue to take appropriate actions to successfully steer Regions through this difficult environment," Ritter said.
Regions received $3.5 billion in November from the Treasury's Troubled Asset Relief Program, strengthening the company's Tier 1 capital ratio, as it sat $5 billion above "well capitalized" status at the close of the fourth-quarter.
During the fourth quarter, the company's total customer deposits grew 4 percent on average — The Integrity Bank acquisition on August 29 played a significant role in this growth.
Write to Kelly Curran at kelly.curran@housingwire.com
Disclosure: The authors 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.
(Update 1 clarifies a statement by Paul Hayman.)
Government-sponsored entity Fannie Mae (FNM: 0.00 N/A) announced last week a rental policy it would implement for some renters living in foreclosed, Fannie-owned homes. It said it would set up property managers and brokers to collect rent on Fannie's behalf from tenants that sign month-to-month lease contracts on rental homes and units previously owned by investors that had defaulted and foreclosed. The homes will still be listed for sale and might undergo repairs at any time the renter occupies the home. Any lease will transfer to the property's new owner at the time of sale.
A Fannie spokesperson said the program was crafted to recover some losses incurred when Fannie takes over the remaining loan balances on foreclosed rental properties. Fannie must sometimes sell these properties at steep discounts to compete in the marketplace, according to the spokesperson, and a renter occupying the property in the meantime helps Fannie to recoup the difference. It may be a temporary, interim solution, but it keeps people in housing and recovers losses.
The trend seems to be catching on. FirstService Corp. (FSRV: 29.34 -0.71%) has announced recently the collaboration of several subsidiary companies — FirstManagement Partners and Field Asset Services — to provide a management service aimed at encouraging renting out real estate-owned properties as an alternative to letting foreclosed properties sit in depreciation or pursuing a distressed sale. TenantAccess combines property management and field asset preservation to reach out to servicers and whole loan holders of foreclosed properties and offer to manage a rental or program that would run while the property is being sold. The company is also promoting a lease-to-own program as an alternative to letting an REO property sit vacant, becoming a neighborhood blight, depreciating in value and inviting vandalism and break-ins.
"We will consolidate the process so that, as the property is designated [REO], we'll analyze the property to see what the return-on-investment is for the different options — sell, lease and sell or lease and hold — and make a recommendation on what the best alternative is, given that marketplace," said president Paul Hayman in an interview. "Then, using the client's standard form lease, we will then go out through their broker channel and put that property onto the leasing market. Upon leasing the home, we'll handle the entire property management processes … right through the time the lease expires or that property is sold."
On an individual basis, the specialized management services don't appear overly necessary, but Hayman points out that on a large, nationwide scale, an investor with 1,000 or 10,000 or 50,000 properties in the rental market can consolidate property management from thousands of agents to a single company controlling the leases and property management. In that sense, Hayman said he likes to think of scattered single-family dwellings as an investor's portfolio of assets. A vacant home will negatively affect the value of the asset and, in turn, the investor's portfolio upon sale. But an occupied home collecting monthly rent insures a positive return on the investor's asset and boosts the value of the portfolio.
"We need alternatives to just the quick liquidation," Hayman said. "Versus the option of selling the property at such a massive discount, [the leasing option] statistically is very strong. With the credit crunch, it's very difficult for many people to get the down payment" required to buy a home, so renting may prove more affordable for people in need of housing, he said. FirstManagement maintains some 3,700 properties, including more than 1 million residential units in 18 states, while Field Asset Services specializes in property preservation, REO maintenance and repair, servicing more than 70,000 properties through a vendor network of some 15,000 contractors. According to Hayman, TenantAccess aims to combine these talents in service to the Southern states — primarily Florida, Texas, Arizona, Nevada and California.
It was unclear at the time this story was published what kind of success rate TenantAccess has seen so far. Hayman could not provide details about what kinds of companies have expressed interest in TenantAccess' services before publication.
Write to Diana Golobay at diana.golobay@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.
Paul Krugman is going to become required reading if he keeps this up. He writes today about the idea of a federal "bad bank" that sops up illiquid assets — ahem, private-party MBS, anyone? — but says that what's being batted around now smacks nothing of the RTC we once knew:
… the creation of the RTC did not rescue the S&Ls. The S&Ls were rescued by (1) having FSLIC seize them, cleaning out the stockholders (2) having FSLIC pay down enough debt to make them viable (3) reselling them to new investors. The RTC’s takeover of the bad assets was just a way for taxpayers to reclaim some of the cost of recapitalizing the banks.
What’s being contemplated now, if Sheila Bair’s interview is any indication, is the creation of an RTC-like entity without the rest of the process. The “bad bank” will pay “fair value”, whatever that is, for the assets. But how does that help the situation?
It appears as if our regulatory leaders are stuck in a negative feedback loop all their own. Didn't we go down the uselessness of the "instrinsic value" of an asset argument earlier when TARP was first rolled out? Apparently, the concept hasn't died on the vine just yet. Look out below, if you're an investor in the distressed mortgage space.
For all the hullabaloo now being directed towards a nascent refinancing boom among the mortgage origination community, evidence seems to be mounting to suggest that much of that refi demand won't likely translate into funded loans. Tighter underwriting standards and a large number of borrowers with homes worth less than they'd hoped for seem likely to keep many applicants from successfully refinancing their loans, researchers at Deutsche Bank (DB: 44.44 +2.40%) suggested in a note to clients late Friday.
DB researchers Mustafa Chowdhruy and Marcus Hule projected that prepayments will reach roughly 20 percent — well short of the 60 percent prepayment level observed during a historic refi boom in 2003, and not enough to revive a sagging economy.
"Primarily this is the result of falling credit quality of mortgages due to declining home values. LTV ratios have gone up, making many borrowers ineligible for a new refinanced loan," the analysts said. "In addition, borrowers’ FICO scores have deteriorated with the increase in the jobless rate and its effects on the timeliness of borrowers’ payments. Thus the effect on consumption is not likely to be substantial enough to revive the economy."
Buttressing this view, sources in the primary market have suggested in recent weeks that the current fallout rate between applications and actual loans closed is well north of 50 percent.
Which means that at least some researchers are taking issue with the idea that fixing housing and disjointed mortgage markets will be enough to right the ship of the American economy. Even a regulatory mandate that would see the GSEs possibly waive appraisals on streamlined refinancing transactions (see earlier coverage) would likely have a limited effect, Deutsche Bank's analysts said, perhaps raising prepayments by another 10 percent CPR.
"[I]n order to implement a streamlined refi process through the agencies, the ultimate status of the agencies must be clear, since the process would force the agencies to adopt non-economic capital allocations," Chowdhruy and Hule suggested. "The end result would be a shift towards full nationalization of the GSEs."
Beyond the GSEs, both analysts suggested that unlike the 2003-2004 refinancing episode, the current episode of refinancing activity is unlikely to lead to a net economic benefit, since borrowers don't have equity to extract. "It is unclear whether the government's encouragement of a refi wave would be positive for the economy as a whole," they said.
Sources close to key regulators have suggested to HousingWire in recent days that the incoming Obama administration may be likely to deal with the "currently in-limbo" status of the GSEs sooner rather than later; it's a move that could potentially serve to disrupt at least some of the currently still-functioning aspects of the MBS market, depending on the actions taken to restore or break up the GSEs as currently consituted.
Complicating matters, these sources said, were emerging problems within the Federal Home Loan banking system; as HW reported earlier, numerous Home Loan banks have suspended excess stock repurchases and cut or suspended dividend payments to member banks.
Write to Paul Jackson at paul.jackson@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.
Late Friday, the United State Supreme Court said it will hear a case that may have far more import for the mortgage banking community than most might realize upon first glance; Dow Jones reported after market close that the SCOTUS had agreed to consider whether the New York attorney general's office has the power to investigate whether some national banks have engaged in discriminatory mortgage lending in the state.
In 2005, the NY AG's office, under the auspices of then-AG Eliot Spitzer, began a wide-ranging inquiry into residential mortgage lending practices within the state; the investigation was fueled by long-standing HMDA data that consumer advocates say provides proof of discriminatory lending practices against minority borrowers, with black and Hispanic borrowers allegedly more likely to receive high-cost loans than their white counterparts.
Spitzer had demanded that numerous commercial banking giants, including Wells Fargo & Co. (WFC: 29.60 +1.89%), J.P. Morgan Chase & Co. (JPM: 37.21 -0.75%) and Citigroup Inc. (C: 30.87 +1.61%), disclose non-public information about their lending activities to his office, under the threat of legal action. A consortium of national banks, known as the Clearing House Association, as well as the Office of the Comptroller of the Currency, sued to block the NY AG's request under the grounds that state-level laws did not apply to federally-regulated banking entities.
The federal banking pre-emption argument is one that has long simmered between and among regulators, banking executives, and consumer advocates, who have argued that lax federal oversight enabled national banks to discriminate against certain groups of borrowers.
In early 2008, the OCC"s John Dugan spoke forcefully against such logic, saying that his office had in fact protected the national banking system from predatory abuses. “Predatory mortgage lenders have avoided national banks like the plague,” he said in a statement last February.
“Almost everyone who has paid attention to the subprime lending crisis has concluded that OCC-regulated national banks were not the problem,” Dugan said. “Instead, the worst abuses came from loans originated by state-licensed mortgage brokers and lenders that are exclusively the responsibility of state regulators.”
Apparently, now, that debate will be settled by the nation's highest court. Dow Jones reported that oral arguments in the case could begin as early as April.
Write to Paul Jackson at paul.jackson@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.
