A look at HousingWire's weekend desk, with more coverage to come on bigger issues:
Prosecutors dropped their criminal investigation into former Countrywide CEO Angelo Mozilo, according to a report in The New York Times Saturday.
The case looked into allegations of insider trading. Regulators at the Securities and Exchange Commission claimed Mozilo sold $140 million in Countrywide stock between 2006 and 2007.
Last October, Mozilo agreed to pay the SEC $67.5 million to settle a case in which regulators claimed he misled investors. According to the Times, Bank of America (BAC: 7.26 -0.55%), which bought Countrywide in the summer of 2008, paid $45 million of Mozilo's settlement.
Goldman Sachs (GS: 109.71 +1.06%) CEO Lloyd Blankfein told the Financial Crisis Inquiry Commission that the biggest asset class he was concerned with when the credit crunch started was its leverage loan book, not mortgage derivatives.
"That was a much bigger risk, much bigger exposures," Blankfein said, adding that the mortgage area for them was very small. "Credit exposure was much bigger. …We had tens of billions of dollars, maybe at that point maybe $50 billion exposure in leveraged loans that included such illustrious names as Chrysler. That was a big concern at the time."
The FCIC recently published the audio of its interviews with many characters involved in the financial crisis.
While other employees on Goldman's trading desk scrambled to unwind mortgage-backed instruments, as detailed in the FCIC report, Blankfein said these derivatives were not at the top of his mind at the peak of the credit crunch in 2007 and 2008.
This particular interview with Blankfein shows a company with much wider problems than just unwinding exposure to the subprime mortgage market, which tops the list of causes for the crisis. Instead, problems in the financial markets went far beyond housing, leaving few options for those in charge.
"Well, what you try to do is sell what you have. That's really the only effective thing you can do," Blankfein said.
Barclays Capital analyst said in a report released late Friday that recent legal rulings against Mortgage Electronic Registration Systems will not "derail" the company from assigning mortgages to the trust.
A New York judge recently ruled MERS does not have the right to assign mortgages to the trust without the written consent of the "principal." Another in Kansas recently said it did, but the company sent a letter to members proposing to assign mortgages to the trust so that it can legally foreclose on a property as the holder of the note and the mortgage.
Analysts said the New York ruling would not keep MERS from assigning mortgages to the trust because the ruling was a judicial opinion and did not have a direct effect on that particular foreclosure case. They also said that state courts have generally found that the assignment from MERS to be valid.
"This may change, but we have seen instances where this method seems to work for foreclosures, as demonstrated by MERS changing its preferred method of doing foreclosures to assigning mortgages to the trust rather than foreclosing in its own name," BarCap anlaysts said.
They concluded that if cases continue to slow foreclosures nationwide and increase the cost of mortgages for borrowers, there will be a lot of pressure on lawmakers to address the problem. The ruling, overall, did not alter the analysts' view that foreclosures will happen, just on a longer timeline.
Foreclosures in New Jersey, a judicial foreclosure state, are expected to increase 20% in 2011, according to a report by CBS' New York affiliate.
Kevin Wolf, who works in the court office, said foreclosures spiked to 65,000 filings in 2009 and should climb even higher in 2011. New Jersey isn't the only area still to find a peak in the foreclosure crisis. Nationally, RealtyTrac forecastes that filings would see new heights in the year ahead.
Delays in the process from the robo-signing scandal, lawsuits aimed at MERS and others have delayed the process to almost a standstill in the Northeast specifically. The Mortgage Bankers Association reported last week that the foreclosure inventory, those loans stuck in the process, hit a record high in the fourth quarter of 2010.
Regulators closed three banks over the weekend, bringing the total closings of 2011 to 21. The Federal Deposit Insurance Corp. estimates the latest closings will cost the deposit insurance fund a total of $155.5 million.
The Office of Thrift Supervision closed San Luis Trust Bank in California. First California Bank agreed to assume all $272.2 million in deposits and purchase essentially all of the $241.7 million in assets. The cost to the DIF is estimated to be $96.1 million.
The Georgia Department of Banking and Finance closed Citizens Bank of Effingham. HeritageBank of the South will assume all $206.5 million in deposits and agreed to purchase essentially all $214.3 million in assets. The cost to the DIF is estimated to be $59.4 million.
The California Department of Financial Institutions closed Charter Oak Bank over the weekend. Bank of Marin will assume all $105.3 million in deposits. But the FDIC will retain roughly $28.5 million of the $120.8 million in assets. The closing will cost the DIF $21.8 million.
Write to Jon Prior.
Follow him on Twitter: @JonAPrior
I’m often amazed at how simple lessons from childhood sneak back up in adulthood and cause you to slap your head in long-delayed understanding. I got so tired of hearing my mother tell me to layer my clothing before going outside in the winter. When I moved to the Northeast, the lesson made perfect sense. Other examples: always retain an attorney when you go into business; hire the very best people you can afford; when nature calls, make sure she doesn’t do so near an electric fence; don’t spit into the wind.
Having spent a lot of time in Sunday School as a kid, I’m often surprised at how much conventional wisdom I learned while wearing the frock of an Altar Boy. Matthew 6:24 comes to mind.
Now, I always thought that because the author (God or otherwise) tagged that last bit on there, that this was just another warning to sit still in the pew. In the wake of the financial crash, it has taken on more significance for me.
We had Wall Street ratings agencies that sold ratings to both securities issuers and to institutional investors interested in buying those securities. That didn’t work out so well, though these companies have emerged pretty well from the resulting mushroom cloud, despite the barbs thrown in their direction by the Financial Crisis Investigation Commission.
We also had Wall Street investment banks that performed research and advised clients on the buy-side at the same time they were underwriting and making markets on new issues. That didn’t work out so well.
When the industry got into trouble, we had some large Wall Street players who thought they could serve their own best interests at the same time they "cooperated" with the bankruptcy court to wind down Lehman Brothers. According to a recent story from The Wall Street Journal, that probably isn’t going to work out so well either.
It turns out that it’s really, really hard to serve two masters, whether one of them is God or not.
As the dust continues to clear, you’re going to hear a lot more stories about Wall Street firms and the government agencies that were supposed to be regulating them. None of these stories will be particularly good. Most will contain lessons that may seem as annoying as Sunday School morality tales. We ignore them at our peril.
It seems to me that someone should be bearing this bit of wisdom in mind as the government works to set up the new Consumer Financial Protection Bureau. Who exactly will this new agency serve?
Those of us working in the U.S. financial services business have been led to believe that the new agency will exist to regulate our industry with a fair and even hand. I wonder about this. My first clue is the name. While the word Financial is certainly in there, so are the words Consumer Protection.
What's going to happen when someone at the new agency figures out that it’s better for Americans to put their money in a Mason jar and bury it in the back yard than it is to invest in "goat poo" securities? Will they focus on the "Financial" master and help the industry do a better job or will they serve consumers and shut it all down?
On the surface, this may seem ridiculous (like having to give away everything you own to really follow a prophet), and yet we are talking about bureaucrats here. I thought it was very upfront of the government to put “Bureau” in the name instead of taking a page from the Taxation Bureau’s playbook and sneaking "Service" in there. Still, I doubt they were thinking about us when they put the name on the door of the new agency.
It is possible that I don’t give our government enough credit. Maybe the new agency will be staffed with folks who really understand our business and who are dedicated to making it easier to serve Americans with financial products and services they need to live a happier life. Still, the sooner we figure out who the CFPB is really going to be serving, the sooner we’ll be able to figure out what the industry must do next to enjoy any kind of a future at all.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
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