Archive for May, 2009
At least three large Troubled Asset Relief Program (TARP) participants are eyeing the exit door in the wake of positive results from the government-initiated stress tests.
Still others are looking to get out from under TARP's Capital Purchase Program (CPP) and the scrutiny and strict regulations that have become synonymous with executive compensation and any company expenses seen by the public and regulators as unnecessary.
BB&T (MSDXP: 26.9501 -2.28%), which passed the stress test, received $3.13bn in November through TARP. The company said today it plans a repayment of all its preferred stock with the proceeds of a common stock issuance.
American Express (AXP: 49.85 -0.26%) also passed its stress test and said late last week it filed a request with the Federal Reserve and Treasury Department to repay all of the $3.39bn of preferred shares issued to the Treasury. "We've always viewed CPP as a temporary program," chairman and CEO Kenneth Chenault said in a media statement.
On the same day Goldman Sachs Group's (GS: 111.77 +2.96%) passing test results went public, firm executives said they believed Goldman met all requirements and would soon begin to repay the government's $10bn investment.
But not all firms looking to get out of TARP will leave on positive terms.
Alliance Financial (ALNC: 31.20 -3.38%), which in December received $26.92m, said today it received regulatory approval to redeem all the shares sold to the Treasury and it expects to close the transaction on Wednesday.
Alliance volunteered to participate early in the program when regulators encouraged only well-capitalized, healthy banks to partner with the government and strengthen the banking industry, says president and CEO Jack Webb in a media statement today.
"The program, however, has been dramatically altered and the resulting changes in the legal and regulatory requirements surrounding it have subjected participants to restrictions and regulatory burdens that place Alliance at a competitive disadvantage to financial institutions which do not participate in the program," Webb says. "These changes inhibit the manner in which we operate our business and are not in the best interests of our customers, community and shareholders."
Company officials attribute Alliance's solvency outside of repaid TARP funds in part to its 5.7% ratio of tangible common equity to tangible assets as of March-end and its $1.4bn in assets.
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
The Washington Department of Financial Institutions on Friday shut down Westsound Bank and named the Federal Deposit Insurance Corp. (FDIC) as receiver.
The failure puts $334.6m in assets on the line for sale or disposition.
It marks the 33rd failure of the year, compared with the three bank closures seen by the same time in 2008, indicating the fallout from recession is continuing to unwind.
Another Washington bank, Kitsap Bank, entered a purchase and assumption agreement on all of Westbound's deposits except for brokered deposits. The failed bank's nine offices will reopen today as Kitsap branches.
Westsound as of March 31 held $334.6m in total assets, with $304.5m in deposits. Kitsap assumes all but the approximately $9.4m in brokered deposits, for which the FDIC will pay the brokers directly.
Kitsap also purchased $49.3m of Westsound's assets, including cash, cash equivalents, marketable securities and loans secured by deposits. The FDIC retains all the remaining assets for later disposition and estimates the cost to its Deposit Insurance Fund will be $108m.
Read the FDIC's statement on Westsound Bank.
Write to Diana Golobay at diana.golobay@housingwire.com.
The US jobless rate hit 8.9% in April the Bureau of Labor Statistics said this morning, as the economy continued to shed jobs across nearly all major private-sector industries, raising fears of rising foreclosures as homeowners struggle with the drop in income.
Nonfarm payrolls fell 539,000 in April, the smallest decline recorded in six months, a result of the government's temporary hiring in advance of next year's census.
The data suggests that while labor markets show some signs of recovery, "the improvement may be more gradual than hoped," Zach Pandl, economist at Nomura, told the Wall Street Journal.
During April, the manufacturing industry was hit hardest, dropping 149,000 jobs, while construction employment declined by 110,000. The business services industry lost 122,000 jobs and employment in retail trade fell 47,000.
The Health care industry proved an exception to the trend, increasing employment by 17,000, fairly consistent with the trend of its hiring volume so far in 2009.
The total number of jobs lost since the recession began in December 2007 now sits at 5.7m. The data is especially worrying as unemployment is not longer limited to certain areas. States once believed to be isolated from the downturn, such as Idaho, Illinois and Oregon, are now reporting higher rates of unemployment than expected, decreasing housing prices and rising defaults on mortgages as a result.
The number of long-term unemployed — those jobless for 27 weeks or more — increased by 498,000 to 3.7 million over the month and has risen by 2.4 million since the start of the recession in December 2007.
Many economists predict unemployment will eventually mount 10%, before beginning to make a recovery. The Blue Chip Economic Indicators survey released in April shows 86% of the private economists surveyed believe rising unemployment will last well into 2010.
Write to Kelly Curran.
Fannie Mae (FNM: 0.00 N/A) lost a net $23.2bn — or $4.09 per share — in Q109.
A total $20.9bn in credit-related expenses, $5.7bn in securities impairments, and $1.5bn in fair value losses drove the quarterly losses, Fannie Mae officials said in the earnings statement.
The loss, in addition to a decrease in unrealized losses on available-for-sale securities, resulted in a net worth deficit of $18.9 billion as of quarter-end. The Federal Housing Finance Agency, acting as Fannie's conservator, submitted a request for $19bn from the US Treasury Department in response to the net deficit.
The FHFA requested the funds on or prior to June 30, 2009 as part of the senior preferred stock purchase agreement between Fannie and the Treasury.
Fannie's quarter still saw a few bright spots, despite the net deficit. Fannie reported $77bn of refinance in March, the largest volume of refinance activity since 2003, mostly due to its participation in the Obama Administration's Making Home Affordable modification program.
Fannie's mortgage credit book of business increased to $3.14trn as of quarter-end, from $3.11trn at the end of '08. It's market share of new, single-family mortgage-related securities issuance rose to 44.2% in Q109, compared with 41.7% in Q408.
At the same time, nonperforming loans on Fannie's books swelled to $144.9bn as of quarter-end, from $119.2bn at the end of the fourth quarter and from $10.9bn at the end of Q108.
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
Three Ohio residents pled guilty this week to conspiracy to commit bank fraud with real estate loans during the course of a straw-buyer scam running from 2005 through 2007.
According to the Department of Justice, licensed real estate agent Todd Gongwer, along with Lance Parker and Joel Lee — all residents of Ohio — purchased luxury homes for falsely inflated prices from real estate builder Thomas Parenteau in exchange for kickbacks. Parenteau's trial, along with those of his immediate associates, begins July 2009. The trio will not be sentenced until after that case is concluded.
According to the plea agreements and evidence presented during the hearings, in each transaction, the buyers misrepresented their income and assets in order to obtain approximately 90% financing of the inflated purchase price in what is commonly known as a straw-buyer scam.
The buyers, Parenteau and his realtor, Bonnie Helt, justified the inflated purchase prices by creating and signing false work orders, among other claims, which creates the appearance that the inflated prices represent additional work to be completed on the homes.
However, according to presiding judge Michael Watson, neither of the three intended to fulfill any of the renovations and did not disclose required documents to the lenders. All of the loans associated with the real estate purchases of Gongwer, Parker and Lee defaulted — a hallmark of the straw-buyer scam.
"The object of each transaction was to use the loan proceeds in excess of the actual purchase price to fund hundreds of thousands of dollars in kickback payments to the buyers," the Department of Justice wrote in a press statement.
Gongwer and Parker also admitted to conducting a similar transaction involving Parker’s purchase of 15 condominium units in three buildings located in Columbus, Ohio, from Parenteu’s associate and architect, William Tarcy. Tarcy, himself, pleaded guilty to conspiracy to commit bank fraud and agreed to forfeit assets related to the offense in March 2009.
Gongwer accepted responsibility for causing a fraud loss between $2.5m and $7m, while Parker and Lee each accepted responsibility for causing a fraud loss between $400,000 and $1m. The sentencing of all three defendants is set to occur after the July 2009 trial of Tom Paranteau, his accountant Dennis Sartain and his realtor Bonnie Belt, who were charged in April in a tax fraud and money laundering scheme.
Gongwer and Parker each face a maximum penalty of 10 years in prison and a $500,000 fine. Lee faces a maximum of sentence of five years in prison and a maximum fine of $250,000.
Write to Kelly Curran.
Assured Guaranty (AGO: 15.57 +2.43%) posted $85.5m in first-quarter earnings, compared with the $169.2m loss in the year-ago quarter.
A $66.9m improvement in pre-tax underwriting results and a significant improvement in after-tax unrealized losses on credit derivatives drove the year-over-year disparity, company officials said in the earnings statement.
The company's Q109 operating income was $63.4m, from the $6.2m seen last year. Assured saw $17.1m lost on investments from $0.4m gained in the year-ago quarter, and $39.1m gained on credit derivatives from $175.8m lost in Q108.
The company incurred $1m in losses on credit derivatives for Q109, reflecting additional reserves on US residential mortgage-backed securities (RMBS) contracts written in credit derivative form, compared with a year-ago loss of $3.2m.
Q109 pre-tax loss and loss adjustment expenses of $79.8m included $44.4m for US RMBS exposures in the financial guaranty segments — including $18.7m in losses related to home-equity-line-of-credit exposures — and $30m in loss reserves in the mortgage guaranty segment.
Fitch Ratings cut Assured's ratings to double-A from triple-A as the monoline continues to face negative credit migration within its combined insured portfolio, though primarily related to structured finance.
"We regret…Fitch downgraded Assured's debt and financial strength ratings based on their more pessimistic outlook for our residential mortgage-backed and trust preferred securities," CEO Dominic Frederico said in the quarterly earnings report. "We believe their actions were premature as the Fitch model, like those of other rating agencies, is extremely sensitive to slight changes in assumptions."
"We are experiencing a very volatile real estate and mortgage market and we believe that their analysis would benefit from more seasoning," Frederico added, "given the wide difference between actual experience and their projections and the potential benefit of the federal government's economic stimulus and mortgage programs."
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
Morgan Stanley (MS: 18.56 +2.26%) successfully priced a public offering of 146m shares of common stock, at $24 per share, in the rush to raise capital following government stress testing.
And, the NYC firm is not alone, as Wells Fargo (WFC: 29.60 +1.89%) offered shares, in oversubscribed trading, that saw 1.25bn of common stock go for $7.5bn, or $22 per share.
The Morgan Stanley total gross brought in proceeds of approximately $3.5bn, nearly double it initial hopes to raise $2bn. The underwriters in the deal may also exercise a 30-day option to purchase up to an additional 21.9m shares of common stock from the financial services firm.
Market commentary this morning on Bloomberg news haled the success of the trading as a sign that confidence in the market is returning. They also downplayed the below-par pricing of the shares.
For Morgan, the share offering represents only one means of raising capital. The firm also today priced a public offering of $4bn in aggregate principal amount of senior notes, despite lacking an FDIC guarantee.
The Wells stock is only about half the capital the firm needs to raise to satisfy the government stress tests.
Bank of America (BAC: 7.29 -0.14%) announced yesterday the Federal Reserve notified it of its need to increase Tier 1 common capital by $33.9bn in order to weather two years of the most severe economic circumstances.
Write to Jacob Gaffney.
Chairman of the Federal Reserve Bank of New York, Stephen Friedman, resigned unexpectedly Thursday, days after media reports surfaced questioning his ties to former employer, Goldman Sachs (GS: 111.77 +2.96%).
"Today, although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," read Friedman's resignation letter to William Dudley, president and CEO of the New York Fed.
Friedman lead the board at the New York Fed while also serving as a Goldman director and holding sizeable stake in the company. The overlapping roles violate Federal rules.
The New York Fed, however, obtained a one-year waiver of the rule in January. Regardless, Friedman said "The Federal Reserve System has important work to do and does not need this distraction."
Denis Hughes, deputy chair of the board, immediately takes over as interim chairman of the board, according to a statement from the New York Fed.
“My colleagues and I appreciate Steve’s vital service to the Bank during this time of great economic stress,” says Hughes. "We value his contributions and I know the Bank’s leadership acknowledges his unique perspectives on the economy and his financial market expertise."
Since, 1990, Friedman worked at Goldman in various departments as co-head or head. He served on Fannie Mae's board and as a senior principal of the investment arm of insurance broker Marsh & McLennan. In 2002, the Bush administration called upon him to succeed Lawrence Lindsey as director of the National Economic Council.
And in 2005, Friedman became a senior adviser to Stone Point Capital, where he remains chairman. Stone Point is a private-equity firm in Greenwich, Conn. formed by principals of MMC, a March & McLennan unit.
Write to Kelly Curran.
The US Department of Housing and Urban Development (HUD) in its fiscal year 2010 budget proposal requests $798m for the Federal Housing Administration's (FHA) reverse mortgage program.
The Home Equity Conversion Mortgage program offers FHA-insured reverse mortgages to seniors, aged 62 years or older, who want access to the equity in their homes via monthly streams of income or a line of credit to be repaid when they no longer occupy the homes.
The problem inherent in the program, however, is the unpredictability in housing prices.
If a senior pursues a reverse mortgage line of credit on a home at $300,000 but the value later drops to $250,000, FHA must assume any losses. HUD does not seem to have forgotten the drawback, since the budget calls for nearly $800m to cover anticipated future losses.
The budget proposal reads, in part: "The need for appropriated funding for this program reflects the sensitivity of reverse mortgages to changes in home price assumptions." Or in other words: If home prices fall going forward, FHA's insurance fund could be hard hit by reverse mortgages.
But the program, and FHA, is still viable, HUD officials said.
HUD secretary Shaun Donovan stressed the budget's focus on responsibility and transparency, not just in FHA but throughout the department. The budget strengthens FHA, curbs mortgage abuse and predatory practices and increases counseling for homeowners at risk of foreclosure, he said in a statement.
"We are cutting or consolidating programs that don't work and instead, investing in programs that do work," Donovan added.
HUD's budget also requests $37m for an agency-wide initiative to prevent mortgage fraud and predatory lending practices: $20m to boost fraud detection, $4m for additional staff to address abusive and fraudulent concerns and $13m for efforts to curb discrimination.
"Such additional funding will support the efforts of traditional fair housing centers, consumer protection advocates and others in waging a comprehensive response to discriminatory mortgage practices and mortgage rescue scams," HUD officials said in the budget proposal.
HUD has faced recent criticism over insufficient staffing and resources needed to investigate certain types of discrimination in mortgage lending. The National Fair Housing Alliance (NFHA) concluded in its 2009 Fair Housing Trends Report that 93 private non-profit fair housing organizations processed almost twice as many cases of discrimination — made on the basis of race, color, national origin, religion, sex, familiar status and disability — last year as HUD, the US Justice Department, and 107 state and local government agencies combined.
The request for $13m to pursue discriminatory cases might reverse the trend seen by NFHA last year.
HousingWire takes an in-depth look at the workings, benefits and drawbacks associated with reverse mortgages in the upcoming June magazine issue.
Write to Diana Golobay.
The U.S. Department of Housing and Urban Development (HUD) completed the review period for Lend America, allowing the lender to exercise some autonomy in granting government-insured refinance mortgages for delinquent or at-risk borrowers.
The Federal Housing Administration (FHA)-approved lender now has Hope for Homeowners (H4H) direct endorsement and can underwrite, close and insure FHA loans through the program without prior HUD review.
H4H became effective Oct. 1, 2008 and allows lenders to refinance current or delinquent borrowers provided the first lien holder writes the loan down to less than the home's current value and waives any late fees or prepayment penalties. FHA then insures the new loan and subordinate lien holders share in future appreciation of the loan.
The program might look good on paper, but in practice it had a slow start.
HousingWire first reported on the fewer than 50 applications under the program in its first weeks. Mid-tier lenders told us they found themselves shut out of the program when the investors they worked with on a consistent basis were unwilling to buy the loans.
But the slow start didn't deter Lend America from formally launching its participation in mid-October.
"Despite some early obstacles with the H4H program, Lend America did not abandon this important solution to the housing crisis, but has taken a leadership role and is committed to saving 10,000 homeowners from foreclosure and allows families to remain in their homes on affordable terms," chief business strategist Michael Ashley says today in a media statement.
"We may have to extend our timeline," he adds, "but this mission to Lend America is extremely important and with HUD's approval we are moving full speed ahead to save one homeowner at a time."
The US Justice Department is reviewing as many as 50 loans made under H4H at Lend America, according to a report filed by Maurna Desmond of Forbes. Justice Department spokesperson Ian McCaleb told HousingWire he could neither confirm nor deny the report, while Lend America executives have yet to return inquiries.
Write to Diana Golobay.
