Archive for June, 2009
This week, President Barack Obama is expected to propose a massive regulatory overhaul of the financial and banking industry.
The proposal puts the Federal Reserve in the position of systemic regulator to manage the largest financial institutions. It also puts the government in control of breaking up systemically important institutions and calls for the creation of a consumer-oriented financial product regulator, unnamed sources told the Wall Street Journal.
The revamped regulation would mandate new rules of the financial industry on many fronts, from mortgage underwriting to the trading of exotic financial instruments, according to the WSJ.
Reports last week indicated the overhaul proposal would see regulators take on broader authority, rather than the consolidation of several agencies into one, as reports had stated before. The proposal, slated to arrive as early as Wednesday, is already making waves in the industry as market players anticipate the largest reform since the policy responses to the Great Depression.
The Securities Industry and Financial Markets Association (SIFMA) has voiced its support for the overhaul and specifically for regulatory reform in the derivatives market. Over-the-counter derivatives, SIFMA said, play an important role in hedging companies against a wide range of risks and should be protected in any regulatory reform adopted.
Regulatory reform on the part of the Federal Reserve, in particular, should consider trading and other capital market activities, according to a speech today by Daniel Tarullo, member of the board of governors of the Federal Reserve Board. In comments on regulation of systemically significant financial firms and community banks, Tarullo says systemic risk was essentially built into the financial system.
The regulatory overhaul, therefore, must take steps to address this deep-set risk. The Fed must strengthen its existing regulations in cases with significant bank involvement in trading and markets, according to his statements. Tarullo also calls for the Fed to look at bank holding companies as more systemic when considering their risk and risk management.
"There is a growing, though certainly not unanimous, view that supervision and regulation must be substantially more oriented toward containing systemic risk and addressing the associated problems posed by institutions considered too-big-to-fail," he says. "The public policy agenda will thus rightly be dominated for some time by proposals for legislative and administrative measures directed at systemic risk."
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.
Nearly 1,000 struggling homeowners braved 95 degree temperatures today to attend a economic assistance event held at the Dallas Convention Center.
The National Urban League's (NUL) 2009 Economic Empowerment Tour stopped in the city, before heading next to Los Angeles and then Washington DC, in an attempt to push those facing economic hardships into a more financially viable situation.
Lenders such as Bank of America (a sponsor for today's event), Chase, National City Mortgage and Wells Fargo set up mortgage modification work stations. HUD-approved mortgage counselors also held court. Freddie Mac also set-up a table.
Across the hall, employers, such as the Dallas Police Department, retailer Dollar General, the Social Security office and worldwide-shipper UPS, worked to place the unemployed.
And in recognition that loss of income often goes hand-in-hand with medical bills due to illnesses, a health fair handled screenings on vitality.
"My philosophy has always been one of economic inclusion," says NUL president Marc Morial, alluding to his stint as mayor of New Orleans and describing the current event's ideology. "The Obama administration offers a flurry of new programs, but the internet will only provide basic information. This tour brings the necessary resources to save a home or secure a job under one roof for some face-to-face interaction."
However, he added, some will still lose their homes. "Some don't realize that voluntary surrender may be favorable to foreclosure," Morial adds. "How many times did Donald Trump return the keys to the lender?"
Jerry Durham, a homeownership advocate for Bank of America, agreed with the former mayor, and added that for every foreclosure, five homes are successfully modified. The bank made 230,000 modifications in 2008 and 155,000 in the first four months of 2009, and expects to do many, many more. But he notes that modified repayments will not insure a borrowers will continue to maintain solvent.
In fact, distressed borrowers are reluctant to publicize their hardships and Durham says the event maintains a strict code of confidence. He did, however, describe some of the situations that brought so many people to downtown Dallas. One guy saw his income slashed from $75,000 a year to $60,000, for example. Bank of America, his lender, could lower his monthly payment by $500, but his car note remained at a restrictive $850 a month.
"A modified payment doesn't insure against foreclosure, especially if a borrower won't put the brakes on spending elsewhere. But if it comes to that, when all retention options have failed, then we will move to introduce an exit strategy, such as a short sale," Durham said.
Cy Richardson, who works in economic development and housing for the NUL believes the tour is working to help keep communities intact but believes there is still more progress to be made across-the-board. He feels originators need to educate more, especially when potential borrowers are minorities, and banks need to increase the transparency of their mortgage strategies.
"No ethnicity was harder hit in the subprime crisis as the African American community. We had 200 years of being refused credit, so when the 'yes' started happening, no one was prepared," he says.
"Now we are faced with a generation that again believes mortgages are out of reach and they distrust banks," he adds. "We are back to stuffing our sock drawers and mattresses with what could have been a down payment."
The NUL hopes to address this by recruiting for more underwriter positions for blacks, and other, similar initiatives, in order to get minorities to hold a larger voice in the greater financial arena. Banks are receptive, Richardson says, but not a single bank set-up a booth in the job fair, HousingWire noticed.
As for the blame game, everyone agrees that working together for solutions is a more positive step forward than pointing fingers. Richardson said the day of reckoning is now, and introspection is the new code of conduct.
"Between 2005 to 2007, we [African Americans] were reaching 50% homeownership rates and we didn't stop once to question the decision making infrastructure because we were so pleased," he says, "so even the non-profits fell asleep at the wheel."
Anyone who can not attend an Economic Empowerment Tour can find a HUD-sponsored counselor at the Find a Foreclosure Counselor website.
Write to Jacob Gaffney.
Fitch Ratings today made massive downgrades on various vintage '05 through '08 subprime residential mortgage-backed securities (RMBS), indicating the extent of the fallout related to subprime defaults has yet to subside.
The rating agency slashed hundreds of RMBS ratings further into junk territory. Handfuls of Wells Fargo Home Equity RMBS saw ratings drop to single-C from double-C and to single-D from single-C. A variety of JPMAC RMBS fell to double-C from triple-B and many from double- and triple-C to single-C. A handful of CitiGroup RMBS fell to single-C from double- and triple-C and others to single-D from single-C.
Fitch said the actions reflect updated expectations of default and loss from the relevant collateral pool. In terms of losses, the agency expects 17% of the original pool balance of the '05 vintage, 39% of the '06 vintage and 47% of the '07 vintage.
"The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages," Fitch says in a media statement today. "In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%."
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.
A long-time Federal Reserve Board official announced his retirement, effective August 1.
Roger Cole, director of the Division of Banking Supervision and Regulation, at the Federal Reserve is calling it quits after 30 years of service.
Cole currently represents the Board on domestic interagency policy and coordination committees, including the Federal Financial Institutions Examination Council's Supervision Task Force, and on the Basel Committee on Banking Supervision.
"I am grateful to Roger for his distinguished service during this challenging time in our nation's economic and financial history," Federal Reserve Board Chairman Ben Bernanke said. "The Federal Reserve has benefited from Roger’s expertise on risk-management practices, international banking standards, and other important issues throughout his long career."
Over the course of his career with the Fed, Cole has also served as a senior financial analyst, associate director and senior associate director. Before joining the Board, Cole was a financial analyst at the Federal Reserve Bank of Boston and worked at the Wyatt Company.
Write to Kelly Curran.
A study released today finds online lending practices are growing, as is the credit-worthiness of online borrowers, according to Mortgagebot's Benchmarks 2009 report.
Approximately 40% of lenders now take more than 25% of their applications through an online channel, according to the Benchmarks report. That's up sharply from the mere 1% who took applications via the web at the start of the decade.
It seems more and more borrowers prefer the online channel. During 2008, the number of people completing online mortgage applications increased in every demographic category from 30 to 69 years of age, according to the Benchmarks report.
The 'GenX' demographic continued to outperform other groups, with nearly one in three of all online mortgage applications coming from adults in the 30- to 39-year-old range.
Mortgagebot president and CEO Scott Happ also noted that online disclosures are becoming more and more common. "Disclosures are a very hot topic these days, and we're pleased to note that in 2008 almost three-fourths of the disclosures generated by our clients were delivered online," he said.
The report also found online borrowers' household income is increasing. Despite the challenging economy in 2008, the household income of online borrowers climbed to $93,717 — up 10% from 2006. Additionally, online borrowers have increasingly "solid" credit ratings, Mortgagebot said. The average credit score of online borrowers has risen from 709 in 2006 to 732 in 2008.
This bi-annual report is a comprehensive survey and analysis of the online lending trends, practices, and procedures that have been implemented at the more than 5,000 mortgage-lending Web sites that Mortgagebot maintains for its more than 900 clients nationwide.
"Our client family is made up of banks and credit unions of every size and description," noted Happ, "so our study represents the real-world activity of a broad spectrum of lenders from coast to coast."
Write to Kelly Curran.
The Federal Reserve Board today announced the termination of enforcement action against the Bank of New York.
The enforcement action relates to an agreement between the Fed, the bank and the New York State Banking Department dated April 21, 2006. The agreement listed a number of steps the bank would take to address "deficiencies" regarding its compliance with anti-money-laundering laws.
Much has changed since then, as the agreement dates back to a time in BNY's history before it merged with the Mellon Financial Corp. in 2007 to form the Bank of New York Mellon Corp. (BK: 20.23 +1.15%) seen today, a global financial company and top US asset manager with trillions of dollars in assets and under management.
BNY Mellon is intimately involved in the one of the government's key liquidity programs, the Troubled Asset Relief Program. In October, the firm was hired as custodian of the TARP, where it would manage accounting and administrative duties. BNY Mellon received its own capital injection through TARP, which it announced this week it received permission to repay.
BNY Mellon offices in the Canary Wharf business district in London are also a popular place for foreign banks with large exposures to American assets to park capital reserves, according to a Housingwire source that works there.
The firm boasts a long history of partnership with the US government dating back to the bank’s founder, Alexander Hamilton, who served as the first Treasury Department secretary, and Andrew Mellon, who served as Treasury secretary during three presidential administrations.
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 number of Americans filing for unemployment benefits dropped last week to 601,000, marking the fourth consecutive week during which first time jobless claims eased, the Labor Department reported Thursday.
Unemployment conditions were most improved in Florida, Illinois, Michigan and California, which saw the largest decreases in initial jobless claims. In contrast, the largest increases in initial claims were seen in Connecticut, Louisiana, Tennessee and Arizona.
The four week moving average of initial claims across the US — which can smooth volatility in employment trends — dropped, from 632,250 to 621,750 in the reported week.
However, the total number of people who remained on the benefits roll after collecting at least one week of aid hit yet another record high, climbing 59,000 to a seasonally-adjusted 6.82m.
It was the 19th week in a row where continued claims set a record.
"The labor market is in a situation where you are not seeing a lot of hiring, but the pace of firing is slowing down," Nick Kalivas, vice president of financial research at MF Global, told Reuters. "This is probably consistent with continued increase in the unemployment rate."
Still, despite ongoing unemployment, the slowdown in the pace of layoffs might be boosting moral across the US. A survey by the University of Michigan and Reuters shows US consumer sentiment sits at its highest level in nine months, indicating a return of consumer confidence to the marketplace.
The index's gauge of current conditions, which reflects Americans’ perceptions of their financial situation today, also rose from 67.7 in May to 74.5 in June, the highest reading since September.
A New Initiative
The Treasury Department announced today $25bn in bonds authority available under the Recovery Zone Bonds program. The initiative, created by the Recovery Act, aims to help areas particularly affected by job loss. It helps local governments obtain financing for economic development projects, such as job training and educational programs, for example.
"Creating the conditions for economic recovery requires addressing the challenges facing state and local governments," said Treasury Secretary Tim Geithner in a press statement. "State budgets have been scaled back and local service cut at a time when they are most needed."
Geithner says financing tools provided by Recovery Zone Bonds will help state and local governments obtain the funds needed to revitalize communities, and in turn, aid those citizens affected by job loss.
Write to Kelly Curran.
A new bill introduced in the House Thursday, HR 2801 or Home Ownership Moves the Economy (HOME) Act of 2009, aims to make the current $8,000 first-time home buyer tax credit available to literally anyone that purchases a primary residence through the end of 2010.
The bill, introduced by Howard Coble (R-N.C.), extends the current tax break to anyone "who purchases a principal residence" through Jan. 1, 2011. It also lifts the income limitation (currently, singles earning more than $75,000 and couples earning more than $150,000 are disqualified) but keeps the $8,000 maximum credit, depending on the value of the home.
The bill extends the repayment waiver to account for the extended credit availability. Current law states the tax credit does not have to be repaid unless the home owner sells the property or no longer uses it as a primary residence within 36 months of purchase. Extending the waiver, according to Coble, provides fair treatment of home owners that purchase within the extended deadline.
And all of this, Coble says, encourages home ownership and sparks the housing market as well as the economy:
“As we have seen in the past, when the real estate market is thriving, so is the rest of our economy. Now we are experiencing the dire consequences of a slumping housing market. I believe our HOME Act of 2009 would convince many who are sitting on the fence right now to climb down and purchase a new home. Our entire economy would be the beneficiary of these new sales. Extending the tax credit to all home purchases could be just the boost our housing market needs.”
He's not alone in pushing for broader financial incentives for home purchases. Georgia State governor Sonny Perdue on May 11 signed HB 261 into law, making up to $1,800 (or 1.2% of the purchase price, whichever is less) in tax credit available to home buyers. The state tax credit, taken over three years, is in excess of the federal tax credit for qualifying first-time home buyers. It applies to all home buyers within six months of the law's enactment.
The Federal Housing Administration recently began allowing home buyers to "monetize" the federal home buyer tax credit toward closing costs on FHA-insured mortgages. The credit cannot count as the buyer's minimum 3.5% down payment, but can be put toward other closing costs up front through a short-term loan the borrower repays after filing his or her income tax return.
The efforts to broaden the availability of federal dollars toward home purchases looks socially responsible on paper, especially as underwriting standards among lenders across the nation have tightened since the housing bubble fallout began.
But the principle of taxpayer money incentives for (albeit qualifying) borrowers to obtain government-insured mortgages raises questions, namely:
If the tax credit's intended audience would not otherwise purchase a home outside of thousands of dollars from Uncle Sam, doesn't it create somewhat of a false housing demand?
The broad argument surrounding the cause of the housing bubble generally states that risky lending practices allowed people into home ownership who could not reasonably afford payments. What began this year as a temporary stimulus to get the housing market on its feet again looks to turn into a broad tax credit for just about anyone that purchases a home, if Coble's bill gains momentum.
Even if house prices increase under a permanent housing stimulus, they would stem from an exaggerated level of demand, so a government-subsidized housing bubble may be in the works.
Write to Diana Golobay.
Fitch Ratings on Thursday downgraded Popular Mortgage Servicing Inc.'s (PMSI) US residential primary servicer rating to 'RPS3' from 'RPS2-' and stuck the rating on negative watch.
Fitch rates servicers from one to five, with one ranking the highest.
The rating agency's decision on Popular reflects potential impact on PMSI's servicing operations from financial pressure and continuing challenges among the residential mortgage market. Fitch said it will continue to monitor PMSI's ability to manage its servicing performance in "a high delinquency environment" going forward.
In September, Fitch noted Popular's rising delinquency rate — nearly 30% at the time — and affirmed it's 'RPS2-' rating. Since then, however, PMSI sold off much of its servicing business to Goldman Sachs (GS: 111.77 +2.96%) affiliates.
PMSI's servicing portfolio now consists of 10,500 loans worth $915m, down from more than 82,600 loans worth $11.6bn, Fitch said. As the company's servicing business contracts, forcing staff cuts in the process, talk is developing among management around the potential sale of PMSI's servicing platform, according to the rating agency.
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.
A look at the stories on HousingWire’s weekend desk… with more coverage to come on bigger issues.
Hundreds of struggling homeowners met up in Dallas at the National Urban League's annual Economic Empowerment Tour. There, borrowers visited refinancing work stations manned by big lenders like Bank of America, Chase, National City Mortgage and Wells Fargo. Employers were on-hand to recruit homeowners in need of jobs, and a health fair offered vitality screenings.
The Group of Eight finance ministers in a discussion this weekend agreed on the objectives of a strategy, "the Lecce Framework," to build on existing initiatives and facilitate the regulation of international finance. The ministers issued a statement highlighting their discussion:
At the same meeting, US Treasury secretary Tim Geithner issued comments to the ministers on the importance of encouraging growth before unwinding policy:
Fitch Ratings upgraded LoanCare Servicing Center's residential primary specialty subservicer rating to "RPS3" from "RPS4." Fitch rates servicers from one to five with one ranking highest. The ratings agency also withdrew LoanCare's residential primary prime servicer rating at "RPS4." The upgraded subservicer rating came as a response to LoanCare's recent acquisition by Fidelity National Financial, while the withdrawal of the primary servicer rating is based on LoanCare's volume of loans serviced not sufficient to support the primary prime servicer rating.
National Health Investors (NHI) announced the purchase of a discounted first mortgage for $3.9m. The mortgage, collateralized by a 70-bed assisted living facility in Minnesota, matures in February 2018 and boasts an average annual yield if held to maturity in excess of 12%. NHI is a health care real estate investment trust that specializes in the financing of health care real estate by first mortgage and by purchase and leaseback transactions.
The former president and director of now-bankrupt US Mortgage Corp., Michael McGrath Jr., pleaded guilty to mail and wire fraud and money laundering charges in connection with a $139m fraud scheme that eventually bankrupted US Mortgage and its subsidiary, CU National Mortgage. Acting US attorney Ralph Marra Jr. announced McGrath's plea agreement, under which he faces from 150 to 240 months in federal prison:
Write to Diana Golobay.
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