Archive for April, 2009
The Treasury Department invested another $273.7 million through the Troubled Asset Relief Program from March 20 through March 27 after investing $1.7 billion in the first half of the month. The late-March investments, made through the capital purchase program (CPP), involved one publicly-traded firm and nine private financial institutions on March 20. Another 14 private firms participated a week later on March 27.
The smallest daily injection in late March — $442,000 — was given to Argonia, Kan.-based Farmers & Merchants Financial Corp. on March 20. The largest late-March daily injection — $70 million — was given to Glenwood Springs, Colo.-based Alpine Banks of Colorado on March 27. The only publicly-traded firm to participate in late March, Paso Robles, Calif.-based Heritage Oaks Bancorp (HEOP: 3.80 +5.26%), received $21 million. The first New Mexico-based firm to participate in the CPP — Trinity Capital Corp. of Los Alamos, N.M. — received $35.5 million on March 27.
None of the 24 firms that participated in the CPP in late March received capital injections large enough to be subject to the strict compensation requirements that would go into effect if the Grayson-Himes pay-for-performance legislation that recently passed a House vote were to be enacted. Discover Financial Services (DFS: 27.14 -2.93%) remains the only firm to have received a capital injection of more than $250 million — $1.22 billion — in all of March, qualifying it for the proposed restrictions. The others firms, according to language in the legislation, would be considered community banks and immune to the restrictions against paying its executives and employees "unreasonable or excessive" compensation or any bonus "not directly based on performance-based measures."
All told, the Treasury had reported having distributed — or promised — $328.55 billion through different programs within the TARP as of April 2. After repayments of $353 million by five firms on March 31, total TARP funding was down $328.2 billion. It was still unclear how much funding remained in TARP at the time this story was published. The Treasury has come under fire lately for its lack of transparency in reporting details on TARP distribution.
As Congress moved on fiscal year 2010 budgets that eliminated a $250 billion reserve for future bank bailouts, the Treasury was reportedly busy moving funds around within the TARP to preserve as much leeway in the program as possible. The Wall Street Journal reported late last week that the Treasury cut its planned investment in the Term Asset-Backed Securities Loan Facility — or TALF — from $100 billion to $55 billion (although TARP transaction reports still listed the Treasury's contribution at $20 billion on March 3). The Treasury has also scaled back its CPP from the original $250 billion to $218 billion, the Journal reported.
The March 2009 report on TARP by the U.S. Government Accountability Office found that remaining funds may actually be as low as $32.6 billion under the maximum allowance model, which calculates the CPP at $250 billion and TALF at $100 billion. The GAO report did, however, include a separate “projected use of funds” scenario that used the reduced amounts — $218 billion for CPP and $55 billion for TALF — that the Journal reported as the Treasury’s new program goals. Under this scenario, the program retains $109.6 billion.
The Congressional Budget Office's projection of the TARP's ultimate cost to taxpayers rose 88 percent to $356 billion from an original estimate of $189 billion. The increased cost applies to TARP spending for fiscal years 209 and 2010, Reuters reporters noted in a weekend article.
Stocks purchased through the CPP had lost something on the order of $109.6 billion in value as of April 3, according to statistics released by business ethics think-tank Ethisphere Institute, which reports on the government’s loss-on-investment based on the idea that as stocks of publicly-traded TARP fund recipients lose value, so too does the government — and ultimately the taxpayer — lose a portion of the investment. The latest estimate shows a slight decline from recent reports, although Ethisphere pointed out the continued losses despite the market rally that began in early March.
American International Group Inc. (AIG: 25.25 +0.44%), Citigroup Inc. (C: 30.87 +1.61%) and Wells Fargo & Co. (WFC: 29.60 +1.89%) were among Ethisphere's worst-performing TARP participants, losing an estimated $30 billion, $24.4 billion and $2.5 billion, respectively. Morgan Stanley (MS: 18.56 +2.26%), Goldman Sachs (GS: 111.77 +2.96%) and BB&T Corp. (MSDXP: 26.9501 -2.28%) were among the best performers, gaining an estimated $3.2 billion, $577.6 million and $65.3 million, respectively.
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.
It's about time.
Treasury Secretary Tim Geithner, U.S. Attorney General Eric Holder and other Obama administration officials will announce on Monday new details of new effort to align responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities and the private sector to protect homeowners seeking assistance under the Administration's Making Home Affordable program from criminal actors looking to perpetrate predatory schemes.
Details on the new plan haven't been leaked heavily to the press as of yet, but it's clear that the number of foreclosure rescue and loan modification scams have been on a parabolic rise as of late — many firms in this space have taken to positioning themselves as government-approved agencies, with names that sound confusingly similar to federal agencies. One firm even has embarked on a national television campaign to generate leads of troubled borrowers for subsequent sale, despite advertising itself as a consumer counseling service, according to sources that have spoken with HousingWire.
It's a burgeoning space, and here at HousingWire we regularly receive press statements from firms that claim to be in the business of helping troubled homeowners. Some firms — none of whom we will link to in this story — have been touting the availability "loss mitigation kits" for troubled homeowners for fees ranging from $99 to $1,200. HW readers should know we've not run press for any of these firms, because of the lack of standards in the space, and our feeling that charging up-front fees to troubled homeowners for assistance smacks of a conflicting interest.
After all, if we can't tell the genuine players from the bad actors — as an industry news service centered on mortgage banking — I'm not sure how homeowners could be expected to do any better.
Foreclosure rescue scams have become a big problem at the state and federal level, too. Last week, the Kansas Attorney General's Office became the latest to warn consumers about scammers who offer to modify mortgage loans for a fee. "In this time of economic uncertainty, Kansans facing foreclosure are being targeted," attorney general Steve Six said in a news release late last week.
By far, however, the state seeing the most rampant proliferation of "foreclosure help" firms is California, and as a result the state has put a set of laws into place attempting to regulate the growing spate of firms that have looked to profit from the housing mess.
We've heard stories of firms claiming to be hired by servicers, and then asking borrowers for a fee; likewise, we've heard stories of a firms claiming to be affiliated with the Obama administration's Homeowner Affordability and Stability Plan, or HASP — and, of course, then asking borrowers for an up-front fee.
The Federal Reserve has gone so far as to begin placing advertisements in movie theatres in some of the nation's hardest hit housing markets, warning consumers of foreclosure aid scams. "The purpose…is to reach out to an audience that the Fed has possibly not reached before, to try and get people's attention about mortgage scams and direct them to our website where we have tips for people to avoid these scams," Sandra Braunstein, director of the Fed's Division of Consumer and Community Affairs, told Reuters. The movie ads will begin their run in mid-April.
Full details on the U.S. plan will be provided on HousingWire as the press conference takes place.
Write to Paul Jackson at paul.jackson@housingwire.com.
It's not garnering as much press as it perhaps should, but new appraisal guidelines set forth in the Home Valuation Code of Conduct are set to go into effect on May 1 — and a recent study suggests that while U.S. mortgage lenders are confident their systems will be ready, few say they have actually completed system upgrades designed to ensure compliance.
That's the finding from a recent survey distributed to more than 1,000 key industry personnel by mortgage technology company FNC, Inc. — the company's client base includes major mortgage banks as well as regional and community banking outfits.
As the result of legal action almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (formerly OFHEO) to establish a Home Valuation Protection Program. The program demands significant changes to the real estate appraisal process for residential mortgage transactions and includes the Code of Conduct.
Currently, about 85 percent of U.S. mortgages are purchased by Fannie Mae and Freddie Mac, enabling lenders to fund more loans. After May 1, the GSEs will have the right to force the seller to buy back any loans found to be out of compliance with the Code.
According to the survey, almost 80 percent of respondents felt confident that their systems would be ready to comply — but with the deadline looming only a month away, only 14 percent had completed the necessary upgrades.
“Some lenders may not be fully aware that their systems and processes will require significant changes to avoid penalties associated with selling their new originations to the GSEs after May 1,” said Jon Fisher, FNC’s designated HVCC implementation expert. “Even those that think they are in compliance need to make sure by contacting us or their internal compliance groups immediately.”
When asked what systems they would use—their own or a third-party solution—the response was mixed: About 21 percent said they would use their own internal proprietary processes and system; 18 percent would a vendor management company (VMC) to ensure compliance on their behalf; 15 percent would choose a full-purpose software vendor, such as FNC; and 12 percent indicated they would choose multiple VMCs.
Of those who had already secured a compliance solution prior to completing the survey, most said they chose either their own proprietary system or a full-purpose software vendor; 13 percent selected multiple VMCs; and 6.7 percent chose a single VMC, the study found.
Editor's note: The April issue of HousingWire Magazine takes an updated look at the expected impact of the HVCC. Don't subscribe? Click here.
Write to Paul Jackson at paul.jackson@housingwire.com.
The U.S. Justice Department is urging Congressional leaders to require mortgage lenders and servicers to retain borrower records for up to 10 years, as part of an effort to make it easier to prosecute fraud — alleging that regulators and law enforcement officials have had a tough time pursuing lenders for wrongdoing because of lax recordkeeping.
The remarks came from Rita Glavin, acting head of the DOJ's criminal division in testimony to a hearing of the House Judiciary Committee last week; the DOJ needs settlement statements and other loan documents as part of its investigation into fraud, she said.
But the collapse of the mortgage industry has hindered investigations, she contended, as lenders, brokers and even title companies are largely going under at a rapid rate and/or haven't retained borrower records. In terms of "subprime," the catch-all that now seems to be synonymous with shady business practices, 5 of the 10 top U.S. originators in the subprime market have since folded or otherwise been acquired.
"Requiring those who provide real-estate settlement services to maintain appropriate records for 10 years following the original date of a loan would significantly assist in the investigation of mortgage fraud," Glavin said.
Expanded recordkeeping requirements may be the least of the changes coming to the mortgage industry. In a move that received very little industry press at the time, the Senate Judiciary Committee in March passed legislation designed to expand current bank and financial fraud legislation to encompass nonbank mortgage lenders.
And in late March, a bill co-sponsored by House Financial Services Committee chairman Barney Frank (D-MA) would impose a wide range of new restrictions on origination activity, including banning the use of yield spread premium and requiring originators to retain 5 percent of the credit risk tied to any mortgages they originate. See earlier story.
Mortgage fraud, of course, isn't limited to subprime lending — nor is it limited to the activities of lenders. But it's clearly got the attention of federal authorities. FBI deputy director John Pistol, who spoke at the same hearing with the DOJ's Glavin, said the FBI has been forced to shift agents into mortgage fraud investigations, pulling from other white-collar crime investigations.
The FBI now has more than 250 agents dedicated to mortgage fraud, he said, up from 120 one year ago. President Obama's proposed budget would provide the FBI with additional funding to invesitgate white collar crimes, he said.
More than a few lenders have been lulled into a false sense of security over mortgage fraud due to the de facto death of much of the stated income/NINA lending market, Interthinx vice president Ann Fulmer argues in an exclusive feature in this month's HousingWire Magazine. Don't subscribe? Click here to get the best insight in the mortgage industry.
Write to Paul Jackson at paul.jackson@housingwire.com.
Mortgage Contracting Services (MCS), a Tampa, Fla.-based property preservation and inspection services provider, said recently that it had been awarded a contract with U.S. General Services Administration (GSA) to perform property preservation work for the government. Each year, GSA manages approximately $56 billion worth of contracting dollars in providing its government customers with goods and services, including property management and historic property preservation.
"As the need for pre-foreclosure and REO property preservation continues to grow, MCS wants to be in a position to do as much work as possible to prevent neighborhood blight," said Allan Martin, CEO of MCS.
"It's no surprise that the increase in property preservation work has spawned the creation of many new field service companies. However, with almost 25 years in the industry, MCS is the second largest field service provider in the nation — and receiving the GSA certification is a true testament to our dedication to providing the best service to our clients, one that we hope will ensure we are the number one provider by the end of 2009."
MCS services include property inspections, property preservation, REO maintenance, and default management. MCS currently has staff located in Tampa, Des Moines, Iowa, Cincinnati, Dallas and Austin, Texas, the company said.
Write to Paul Jackson at paul.jackson@housingwire.com.
As Congress considers its own national options for regulating the mortgage industry, states have already begun to clamp down on key lending practices in response to the nation's mortgage and housing crisis. Pennsylvania is the latest state, with new regulations going into effect this month governing mortgage disclosures and practices.
"These rules will help to ensure that Pennsylvanians get mortgages that they can understand and repay," said Secretary of Banking Steven Kaplan, in a press statement recently. "We're trying to prevent a repeat of some of the practices that contributed to the home foreclosure crisis."
The rules are contained in a new regulation that requires mortgage companies to document income, fixed expenses and other relevant financial information to determine if the borrower has the ability to repay the loan; the new regulation effectively outlaws stated income lending within the state.
"Stated income loans present opportunities for abuse on both sides of the transaction," Kaplan said. "The new documentation requirements will go a long way in reducing the potential for fraud and dishonesty."
The new set of regulations wer published in the Pennsylvania Bulletin on December 20, but most mortgage companies were given 90 days to begin complying with the new documentation and disclosure requirements. Violators now face fines of up to $10,000 per offense which, according to Kaplan, are some of the stiffest penalties in the country.
The new laws don't just limit stated income lending; they also restrict the use of prepayment penalties, and require mortgage companies to notify the Pennsylvania Housing Finance Agency whenever they intend to foreclose. In addition, all mortgage lenders, brokers and salespeople in Pennsylvania must now enroll in the Nationwide Mortgage Licensing System, an online registry that allows regulators in different states to more effectively monitor and share information about the industry.
HousingWire first reported on the new laws when they were signed by Pennsylvania governor Edward Rendell in July of last year; the state has seen some of the most aggressive consumer lobbying against the mortgage lending industry in the nation. In April 2008, the city of Philadelphia attempted to pass a blanket six-month moratorium on all foreclosures.
Write to Paul Jackson at paul.jackson@housingwire.com.
NIR Credit Partners LLC, a North Carolina-based alternative asset manager and advisor in structured finance, said recently that it had expanded its portfolio valuation services for residential mortgage loans and mortgage-backed securities. The recently-launched service offers institutional investors a highly customized solution that includes in-depth analytics on illiquid mortgage-related loans and securities, the company said in a press statement.
“Given the ongoing market turmoil, many institutional investors are searching for better independent tools to value these assets and related risk. Due to a high level of demand, we are expanding this service as part of our core capabilities,” said Joe Parish, co-founder of NIR Credit Partners.
The company says it has developed a unique process for evaluating mortgage risk across a wide range of loans and securities, utilizing loan-level data combined with forecasted home price scenarios that can be customized to reflect a client’s views on the economy and housing market. The analytic valuation tool is being offered to institutional and alternative investors, including money managers, hedge funds, private equity groups, banks, insurance companies, and pension plans.
If the name Joe Parisk sounds familiar to anyone, it's because he and NIR co-founder Scott Shannon founded and managed the asset securitization division within the structured products group at Wachovia Securities.
For more information, visit http://www.nirgroup.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
Read the Wall Street Journal today, and you'd think that regulators and financial markets just now figured out that second liens are a real problem in attempting to put together criteria for cookie-cutter loan modifications. The story says that the Obama administration's Making Home Afforable program has "hit a stumbling block" and that the Treasury is "scrambling to address the problem" of second liens.
The reason? Second lien holders aren't required to participate in the loan modification plan the administration outlined in early March. (Oops.)
But the suggestion that this is a new problem that nobody saw coming is absolutely horrible reporting — worse yet, it does a disservice to the analysts that did great work to highlight the very problems with the plan that now have investors in a lather.
One group of analysts comes particularly to mind for both their great work and their glaring lack of mention in the Journal: that would be uber-mortgage analyst Laurie Goodman and her team over at Amherst Securities. How the Journal failed to mention perhaps the best-known analyst in the mortgage space in a story about mortgages, a story borne from research she did, is absolutely beyond me.
On March 5 and again on March 9, Goodman and Roger Ashworth published a research note criticizing the Obama plan for its "inherent conflict of interest between servicers and investors." Beyond more generic criticisms of the plan — the idea that the plan produces an incentive for a homeowner to 'rent' their home for 5 years — Goodman zeroed specifically in on the issue of second liens.
"The plan, in combination with the servicer safe harbor, leaves the current 1st lien holders with no protection," the Amherst analyst wrote in their March 9 note. "It is the equivalent of having the fox guard the hen house, with the fox in possession of the only set of keys. And it potentially corrupts the integrity of the securitizaton market."
This research is what has set investors — people like Jeffrey Gundlach, chief investment officer of TCW Group Inc., who is quoted in the story — off into the press with pronouncements that the plan does a disservice to any first-lien RMBS holder, and they'd likely not participate as a result. But the story mentions nothing of the research team that first called attention to the problem, and suggests that administration officials have been caught off guard by a problem they didn't see coming.
While it's clearly true they didn't see it coming, it's probably far more accurate to suggest that the current spat is the latest proof of two seemingly immutable facts surrounding efforts to 'solve' the nation's mortgage crisis: first, that regulators and financial authorities don't understand all that well what they are trying to fix; and second, that as a result, any fixes that are offered up have the very real potential to do more harm than good.
Treasury officials told the Journal they're now trying to come up with a fix, essentially, something they hope will bring second lien holders into the fold to share in losses via the bulk loan modification plan; the idea being floated apparently would "require lenders to cap monthly payments on second loans at a set percentage of the borrower's gross income," the paper said. In plain English, the idea here is to force down the value of any second lien, too, perhaps in line with the first, perhaps not.
But devaluing a second lien is a very different thing from seeing that lien rendered altogether worthless. And as it stands now, any bank holding second liens doesn't just take a haircut when a borrower goes delinquent; it generally gets scalped. Non-performing seconds are essentially worthless, something that can be seen in the fact that many second lien holders are actually not even foreclosing when a borrower stops paying (according to at least one distressed note purchaser I spoke with recently). There's nothing to recover in so doing.
Some of the largest banks (and, not coincidentally, the largest servicers as well) would be more than happy to see that dynamic change to one where those losses — the kind of losses that are currently wiping out their second liens at a rapid clip — are instead shared among first and second lien holders. The Amherst team made the point in March that the top 4 servicers hold 52 percent of residential revolving lines of credit held by all FDIC-insured institutions — add in closed-end seconds on the balance sheet, and you're talking about $441 billion in second liens with the Big 4.
Aggregate holdings of non-agency MBS at the same Big 4 are only a fraction of that total, at $117.5 billion, in comparison. In other words, protecting even some of the value of outstanding second liens delivers far more protection to the collective balance sheet here, versus the alternative. No wonder a banking executive deadpanned to Journal that they're willing to negotiate on taking a hit on seconds, but "don't think we should get wiped out." (You don't have to wonder if that executive worked at a large versus a small bank.)
But the question of what appears to essentially be a 'loss sharing' proposal that asks first lien holders to share in the losses that would traditionally be ascribed to second lien holders — if that is indeed what the Obama administration is set to propose here — does little to remove the underlying concerns that generated the spate in the first place: aren't second liens supposed to bear first loss, and all of the first loss?
Editor's note: The April issue of HousingWire Magazine, out now, takes an exclusive and in-depth look at the Obama Administration's Making Home Affordable program for loan modifications. It's insight you can't find anywhere else, and the sort of insight you'll read months from now in other publications. Don't subscribe? Click here, or call 817-745-4671.
Write to Paul Jackson at paul.jackson@housingwire.com.
(Update 1 reflects corrected repayment amounts.)
Hours before the Congress passed versions of President Barack Obama's budget that omit his requested $250 reserve for future bank bailouts, reports began circulating that the Treasury Department had rearranged its investments in two key programs as part of an attempt to shore up funds in the Troubled Asset Relief Program. The Wall Street Journal reported late Thursday that the Treasury cut its planned investment in the Term Asset-Backed Securities Loan Facility — or TALF — from $100 billion to $55 billion. The Treasury has also scaled back its Capital Purchase Program from the original $250 billion to $218 billion, the Journal reported.
According to the Journal's article, Treasury secretary Tim Geithner had said during the weekend that the fund had a remaining $135 billion. The Treasury did not return calls regarding Geithner's comments from this weekend — which could not be immediately located on either www.financialstability.gov or in the Treasury's press room — before this story was published.
The March 2009 report on TARP by the U.S. Government Accountability Office found that remaining funds may actually be as low as $32.6 billion under the maximum allowance model, which calculates the CPP at $250 billion and TALF at $100 billion. The GAO report did, however, include a separate "projected use of funds" scenario that used the reduced amounts — $218 billion for CPP and $55 billion for TALF — that the Journal reported as the Treasury's new program goals. Under this scenario, the program retains $109.6 billion.
According to a TARP capital investment transaction report dated April 2, the Treasury has invested — after receiving back $353 million in repayments from five institutions — $198.4 billion, leaving only $19.6 billion for capital investments under the reduced CPP, until other firms step up to repurchase stock from the Treasury. It was unclear at the time this story was published whether the Treasury intended to distributed only the GAO's "projected use" funds. Naturally, exactly where the new projections or Geithner's commentary from this weekend were reported by the Treasury remains obscure. Calls to the press office there were not returned before this story was published.
The department's recent switch of much of its reporting initiatives to www.financialstability.gov — touted as an unprecedented campaign for transparency — effectively derailed the department's old method of reporting various data. Although the new site boasts some interactive bells and whistles, it fails to make up for a confused jumble of reports out regarding just how many funds remain in the TARP coin purse, a fact that seems to have caught on at the GAO.
"Given the complexity of the issues involved and the heightened public scrutiny, an effective communication strategy continues to be critical, but Treasury has yet to develop a means of regularly and routinely communicating its activities to relevant congressional committees, members, the public, and other critical stakeholders," the GAO noted in its March 31 report.
A cabinet secretary for the British government has been quoted in recent weeks — as Treasury staffing issues became apparent — as finding communication with the Treasury "unbelievably difficult." According to the British official, "There is nobody there." At no other time is that irony apparent than when critical information like the Treasury's commitment to TALF is needed; indeed, there seems to be no one at the Treasury willing to speak on the issue or provide details.
The lack of communication out of the Treasury on what it has touted as a crucial program is disconcerting, especially as TALF was recently expanded and touted along with the newly-minted public-private investment plan as a tool for price discovery of so-called "toxic" or "legacy" assets (Was that a scream we heard? Read Linda Lowell's PPIP commentary.) and for encouraging investing and lending. Both the TALF and the PPIP have come under fire lately for projections of their success that critics say have been exaggerated. With Treasury commitments to the TALF receding according to various reports, the question remains wether the criticism bears some truth.
Write to Diana Golobay at diana.golobay@housingwire.com.
Below is a statement released Friday from Larry Goldstone, president and CEO and Thornburg Mortgage. The company, as many of you know, is headed for bankruptcy after struggling to stay afloat for two years — despite running one of the most conservative lending books in the entire industry. It's a sad story, and one that should remind us of just how tough a climate we're really facing. We send our best wishes to those affected.
Today has been a really difficult day for our organization as we have separated with a majority of our colleagues. When an organization has to go through such an exercise, it is always unfortunate because it affects people who were not responsible for the circumstances and who we care about deeply.
Thornburg Mortgage, Inc. has been through a very difficult two years as it has tried to survive this tumultuous mortgage marketplace and we have done everything humanly possible over the past year to try to bring a satisfactory resolution to our situation. The sad fact is that the credit crisis has turned out to be far bigger than Thornburg Mortgage, and we could not overcome its challenges. We gave it our best shot against very difficult odds. We value the contributions of the people who have been affected by this situation and we will be providing support to help them get through this difficult time.
