In a letter to members last night, the Securities Industry and Financial Markets Association (SIFMA) CEO Tim Ryan announced the formation of the trade body's own securitization advocacy group. The news comes after SIFMA and the American Securitization Forum (ASF) yesterday parted operational ways.

"SIFMA sought during the past year to more comprehensively integrate its affiliate the American Securitization Forum (ASF) into SIFMA’s efforts," the letter states. "However, the ASF was unwilling to formally integrate its activities into SIFMA, and released a statement that it was ending its affiliation with SIFMA."

SIFMA members include players in the securitization markets: from issuers to intermediaries to asset managers, who collectively manage $20trn in assets for pension funds, retirement funds and mutual funds.

With the departure of the ASF, the SIFMA board felt the need to maintain a advocacy platform specifically for securitization "in a time when restarting the securitization market is a priority and we are engaged in wide ranging legislative and regulatory efforts."

Write to Jacob Gaffney.

[Update 1: includes details on federal funds rate, Treasury yields, mortgage rates projections.]

Economic recovery will maintain its current pace, leading to job growth later this year, according to the American Bankers Association's (ABA) Economic Advisory Committee (EAC).

“We’re on the cusp of private industry job creation, which will gain momentum throughout the year,” said Stuart Hoffman, EAC chairman and a chief economist with PNC Financial Services (PNC: 59.08 +0.31%), in an e-mailed statement Friday.

High unemployment and constrained consumer spending will keep the speed of recovery in check, but ABA economists indicated real gross domestic product (GDP) will grow at an annualized rate of 3.1% throughout 2010. It's half the historic rate of GDP growth seen  after previous deep recessions, leaving the unemployment rate fairly high – but below 10% – at year-end.

The U-3 unemployment rate, calculated by the US Department of Labor's Bureau of Labor Statistics, was at 10% in December. In 2007, the unemployment rate was at 4.6%, rising to 5.8% in 2008 and ending 2009 at an average 9.3%, according to HousingWire's review of publicly available data.

A look at the U-6 underemployment data, shows a much larger percentage of the workforce is not employed to full capacity. This figure remained high in Q409 – slipping from 17.4% in October to 17.2% in November before inching up to 17.3% in December.

“The recession technically ended last year,” Hoffman said. “However, the normal rapid economic rebound seen in the first year or so following past deep recessions will not occur.”

ABA noted that monetary and fiscal policies helped restart the economy, and banks are now working hard to keep credit flowing to consumers and businesses. Additionally, private sector investment should gain momentum as policy stimulus wanes.

The ABA expects the Federal Reserve to begin raising the federal funds rate in the second half of 2010, ending the year at 0.75%. Ten-year Treasury yields should rise to to 4.4% and mortgage rates are projected to rise to 6.2%.

Write to Diana Golobay.

The "alchemy of rating-agency assisted securitization" of subprime and Alt-A mortgage products fueled the growth of easy credit access that greatly contributed to the current crisis, said Federal Deposit Insurance Corp. (FDIC) chairman Sheila Bair.

A more transparent securitization process is the solution for the pain still felt in the financial markets, according to her comments, made Thursday before the Financial Crisis Inquiry Commission.

Credit-rating agencies (CRAs) are often assigned blame for giving structured finance vehicles high ratings despite significant risk in underlying mortgage products. Bair's use of the term "alchemy" in describing the role of the CRAs invokes an image of an archaic scientist transforming junk metal into precious gold.

Although CRAs sometimes assigned triple-A ratings to residential mortgage-backed securities (RMBS) that would eventually be slashed in the midst of massive subprime-related defaults, CRAs are not the only party Bair held responsible in her comments.

She recommended both originators and securitizers retain some form of recourse to ensure sound underwriting for future structured finance transaction. And consumers should understand financial products offered to them as well as demonstrate an ability to repay.

"Investors and creditors should face some amount of loss, in the event of default; this should cause them to perform due diligence and not simply rely on third-party assessments of the quality of the investment," Bair said. "And finally, we must impose market discipline by ending too big to fail. This is best accomplished by establishing a credible resolution regime for large interconnected firms."

According to Bair's comments, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which were established in response to the last major financial crisis – the thrift and banking crisis of the '80s – allowed the shadow banking system to grow outside of the regulated sector. The interconnectedness of large financial institutions and regulated banking entities led to a financial system-wide sentiment that many banks are too big to fail.

Another industry growing up within the financial system, mortgage securitization, at first facilitated the flow of credit among banks and thrifts but soon led to the rapid growth of government-sponsored enterprises (GSEs) responsible for buying and securitizing mortgages.

As the practice of securitization grew, the share of whole mortgage loans held by banks and thrifts fell off in recent decades, from 39.6% in late 1990, to 25.4% in Q309. At the same time, the share held by the GSEs swelled from 42.6% to 51.4% in Q309. The GSEs, Bair said, created a market for investors to buy securities backed by loans originated by banks and thrifts, thereby providing more liquidity for the banks and thrifts to make more loans.

"Many argue that the shift of mortgage holdings from banks and thrifts to the GSE-retained portfolios was a consequence of capital arbitrage," Bair said. "GSE capital requirements for holding residential mortgage risk were lower than the regulatory capital requirements that applied to banks and thrifts."

The private-label securitization market grew alongside the agency MBS market, fueling the credit for subprime, Alt-A pay-option adjustable-rate mortgages (ARMs). These private investment firms took on significant risk, including employee compensation structures.

For example, employees that specialized in long-term investments were often rewarded in bonuses based on near-term results, which Bair said magnified risk-taking.

Her comments echo a growing sentiment that executive bonuses at publicly-traded firms ought to be reigned in.

House Financial Services Committee chairman Barney Frank (D-MA) announced this week the committee will hold a hearing January 22 over compensation at both financial and non-financial firms.

"Very large percentages of the revenue of some of these companies are going to compensation, and it does seem to me that the issue about whether or not the shareholder should be able to comment on that overall amount is relevant."

The Committee's hearing follows a move by President Barack Obama to tax banks that received bailout funds. Congress is also looking to crack down on executive pay. Rep Peter Welch (D-VT) to introduce legislation to levy new taxes on yearly employee bonuses at financial institutions that receive financial assistance from TARP. Under the bill, bonuses above $50,000 in either cash or stock would be taxed at a rate of 50%.

Write to Diana Golobay.

JP Morgan Chase (JPM: 37.21 -0.75%) posted net income of $3.3bn, or $0.74 per share, to close out the last quarter of 2009.

That’s better than the net income of $702m in Q408. For all of 2009, net income was $11.7bn, $2.26 per share, on record annual revenue of $108.6bn and up from net income of $5.6bn in 2008. The bank earned nearly $3.6bn in Q309.

JP Morgan said it made approximately 600,000 mortgage modification offers to homeowners and approved 120,000 modifications during 2009. On a conference call this morning regarding the earnings CEO Jamie Dimon remarked that his firms could have modified more distressed mortgages in Q4, but "there's too much paperwork involved in [modifications] so a lot of the reasons we're not getting to final modifications half the time we don't finish the paperwork."

The comment set both trader commentary and the blogosphere abuzz. One trader remarked that Dimon always "tells its like it is," while Calculated Risk is commenting that "Dimon apparently isn't aware of any momentum for a macro principal reduction program."

Dimon, nonetheless felt the Q4 results still showed improvement in the firm's operations, though "we acknowledge that they fell short of both an adequate return on capital and the firm’s earnings potential,” Dimon said in the quarterly report. “While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious.”

The bank wrote off $452m in subprime mortgages, up from $319m in Q408. Prime mortgage charge-offs totaled $568m, up from $195m a year ago.

Consumer lending posted a net loss of $1.4bn, worse than the $416m net loss in Q408. Net revenue for this sector was down $1bn to $3.1bn for the quarter, primarily due to decreased mortgage fees and related income and lower loan balances because the bank originated fewer mortgages and a decline in servicing revenue.

Average mortgage loans were $136.3bn, down by $13.7bn. Mortgage loan origination totaled $34.8bn, up 24% from the prior year and down 6% from the prior quarter. Total third-party mortgage loans serviced were $1.1trn, a decrease of $90.5bn, or 8%. Average home equity loans were $130bn, down by $12.8bn. Home equity originations were $402m, down 76% from the prior year and 20% from the prior quarter.

The mortgage production business had a loss of $192m, compared to positive revenue of $62m a year ago. The bank said an increase in reserves for the repurchase of previously sold loans was partially offset by wider margins on new originations and the absence of markdowns of the mortgage warehouse in the prior year. Mortgage servicing revenue was $564m, up $41m year-over-year, but the mortgage servicing rights (MSR) risk management results were $109m, compared to $1.4bn in Q408.

Write to Austin Kilgore.