Archive for April, 2011
The Office of the Comptroller of the Currency should completely dismantle the Office of Thrift Supervision since the agency received much of the blame for ignoring lending and securitizaton risks at Washington Mutual and other banks prior to the 2008 financial meltdown, a new report from the U.S. Senate Permanent Subcommittee on Investigations said this week.
That recommendation is just one of many proposed by senators in the "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" report, which outlines the causes of the financial crisis. However, under the Dodd-Frank Act, the Office of the Comptroller of the Currency is required to absorb the operation of the OTS by July 21.
To prevent future meltdowns, the subcommittee said federal banking regulators should safeguard tax dollars by forcing banks with high-risk structured finance products and no reliable performance data to compensate for the risk by meeting "conservative loss reserve, liquidity and capital requirements."
The report also suggests that federal regulators should require banks issuing negatively amortizing loans to maintain more conservative loss, liquidity and capital reserves.
The committee also supports having regulators ensure all mortgages "deemed to be qualified residential mortgages have a low risk of delinquency or default." The agency also is recommending that financial institutions retain at least a 5% stake in asset-backed securitization products for a reasonable period of time, while also requiring banks with high-risk products to meet "conservative loss reserve, liquidity and capital requirements."
The report suggests more oversight for credit rating agencies is needed and believes the Securities and Exchange Commission should use its regulatory authority to hold the agencies accountable in civil suits when they "knowingly or recklessly" fail to reasonably investigate a rated security.
The Senate committee also believes the credit rating agencies should be ranked on the accuracy of their ratings.
Write to Kerri Panchuk.
Tags: asset-backed securities, financial crisis, MBS, OCC, Office of Thrift Supervision, ratings agencies, SEC, Washington Mutual
Posted in Servicing/Default, Top Stories | 1 Comment »
Housing inventory grew 2.3% in March, according to a report released Thursday on a website for real estate agents, powered by the National Association of Realtors. However, the same report suggested that spring demand could absorb a portion of that inventory.
Realtor.com is the official housing website of NAR that pulls listings from multiple listing services all over the U.S. Every month, the company surveys up to 250 metropolitan areas and reports information regarding consumer trends, listing prices, active inventory counts, supply and demand indicators, among other things.
The online marketplace reported Thursday that inventory currently sits 9.8% above the level in March 2010. At the same time, the number of households searching for housing is growing.
"Compared to one year ago, the number of searches on the Realtor.com website was up by 15.1%," the website said. "The rate of growth in the number of searches exceeded the growth in the overall inventory (9.8%), suggesting that demand may be strengthening in relationship to overall supply."
Freddie Mac too expects a strong spring homebuying season.
The growing rate of inventory does seem to be slowing, the online marketplace said. In January the yearly comparative increase in home listings was 13% and in February it was 17.3%.
The median age of housing inventory in March sat at 160 days, down 2.4% from February but up 40.4% from March 2010.
RealtyTrac reported early Thursday that extended foreclosure processing time lines are directly influencing a downward trend in foreclosure activity across the country.
Realtor.com reported the national median sale price March at $199,500, a quarter percent increase from February, yet a quarter percent decrease from one year prior. The Fort Myers-Cape Coral, Fla. metropolitan statistical area witnessed the greatest year-over-year increase in price, up 24.1%.
Other markets in which the median price was significantly between March 2010 and March 2011 include Fort-Collins-Loveland, Colo. (up 6%); Columbia, Mo. (up 6%); Santa Fe, N.M. (4.8%); Miami, Fla. (up 4.6%); and the Virginia suburbs of Washington DC-VA (up 4.1%).
Areas with the largest year-over-year declines in median list prices include Santa Barbara, Calif. (down 19.6%); Detroit, Mich. (down 13.8%); and Reno, Nev. (down 11.5%).
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: National Association of Realtors, Realtor.com
Posted in Origination/Lending, Top Stories | 2 Comments »
RealtyTrac's March housing study reports a 15% decrease in foreclosure activity between the fourth quarter of 2010 and the first quarter of 2011, as well as a 27% decline compared to the same period a year ago. The online foreclosure property marketplace cites extended processing timelines as the main culprit for the drag.
While the numbers sound encouraging, RealtyTrac Chief Executive Officer James Saccacio said the numbers are artificially manipulated, and the decrease in activity is only temporary.
"The nation’s housing market continued to languish in the first quarter, even as foreclosure activity fell to a three-year low," Saccacio commented. "Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of a looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork."
More than 681,000 homes, or one in every 191, received a foreclosure filing during the quarter, according to RealtyTrac's data. In March alone, almost 240,000 properties received a filing, up 7% from February but down 35% from the year-ago period.
March 2010 marked the peak of foreclosure filings at 367,056 properties.
Of the quarterly filings, about 197,000 were notices of default, almost 269,000 were notices of foreclosure sale, and 215,00 properties were actually foreclosed upon. Those figures are down 35%, 27%, and 17% compared to the first quarter of 2010.
Nevada posted the highest rate of foreclosure activity with a total 32,000 properties, or one in every 35, receiving a filing. In March, activity jumped 35% compared to the previous month.
Las Vegas posted the highest number of filings on the metropolitan level, at 26,275, or one in every 31 homes.
Nevada was followed closely by Arizona and California at the top of the foreclosure activity lists. First quarter totals remained below historical levels, down 17% and 22% compared to 2010, respectively; however, bank repossessions spiked 26% in Arizona in March. California foreclosures currently account for 25% of the entire market.
Processing delays continued to keep foreclosure activity artificially low, RealtyTrac said, adding that states where a judicial foreclosure process is used accounted for some of the biggest quarterly and annual decreases in the first quarter.
Florida's foreclosure activity decreased 47% from quarter to quarter and 62% compared to a year prior. Massachusetts too witnessed substantial declines in foreclosure activity, down 46% between quarters and 62% compared to the first quarter of 2010.
Nonjudicial foreclosure states accounted for 19 or the top 20 metro foreclosure rates, RealtyTrac said.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
Tags: foreclosure activity, RealtyTrac
Posted in Servicing/Default, Top Stories | 13 Comments »
Washington Mutual’s 2008 demise provided lawmakers with a case study that pinpointed not only a rise of high-risk lending, but also how those mortgages led to the bank’s failure — eventually contributing to the financial crisis.
The percentage of Washington Mutual high-risk originations rose dramatically from 19% in 2003 to 55% in 2006, according to a report released on Wednesday that dissected the 2008 crisis.
The report, authored by Senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.), was titled "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" and cited WaMu as "the largest bank failure in U.S. history."
WaMu background
By 2006, WaMu embarked on a strategy of high-risk lending and it began incurring record rates of delinquency and default. Its securitizations saw ratings downgrades and losses.
A year later, the bank itself began incurring losses, which prompted loss of confidence and depositors began withdrawing funds, eventually causing a liquidity crisis, the report said.
Its regulator, Office of Thrift Supervision (OTS) seized WaMu and sold to JP Morgan Chase (JPM: 37.25 -0.64%) for $1.9 billion.
"From 2000 to 2007, WaMu and Long Beach together securitized at least $77 billion in subprime loans," the report said.
WaMu and its Long Beach originator steered high-risk borrowers into larger loans and higher-risk products, while also accepting loans without verifying borrower income.
"WaMu and Long Beach engaged in a host of shoddy lending practices that contributed to a mortgage time bomb," the report said.
WaMu’s combination of high-risk loans, substandard lending practices and weak oversight produced hundreds of billions of dollars of poor quality loans that incurred early payment defaults, high rates of delinquency and fraud, according to the report.
FCIC report
The WaMu information in the report released Wednesday aligned with the data from Financial Crisis Inquiry Report, which is released by the Financial Crisis Inquiry Commission in January.
The inquiry report discussed WaMu’s involvement with adjustable rate mortgages and the challenges it faced.
In 2002, Washington Mutual was the second-largest mortgage originator, just ahead of Countrywide. It had offered the option ARM since 1986, and in 2003, as cited by the Senate Permanent Subcommittee on Investigations, the originator conducted a study "to explore what Washington Mutual could do to increase sales of Option ARMs, our most profitable mortgage loan."
The study revealed that many WaMu brokers "felt these loans were 'bad' for customers."
"A lot of (Loan) Consultants don’t believe in it . . . and don’t think [it’s] good for the customer," one member of the subcommittee’s focus group said. "You’re going to have to change the mindset."
Despite these challenges, option ARM originations soared at Washington Mutual from 30 billion in 2003 to 68 billion in 2004, when they were more than half of WaMu’s originations and had become the thrift’s signature adjustable-rate home loan product.
The Office of Thrift Supervision (OTS) later determined that the thrift likely could not "pay its obligations and meet its operating liquidity needs." The government seized the bank on Thursday, September 25, 2008 — appointing the Federal Deposit Insurance Corporation as receiver. In doing so, many unsecured creditors suffered losses. WaMu’s assets were $307 billion as of June 30, 2008.
Write to Shaina Zucker.
Tags: Carl Levin (D-Mich.), Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report, JPMorgan Chase, Office of Thrift Supervision, OTS, Tom Coburn (R-Okla.), WaMu, Washington Mutual
Posted in Origination/Lending, Top Stories | 3 Comments »
A new report compiled by lawmakers on the financial crisis leaves no stone unturned and blatantly criticizes the Office of Thrift Supervision for its "reluctance to interfere with unsound lending and securitization practices."
Senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) released the "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" report on Wednesday, which is based on a two-year study led by the U.S. Senate Permanent Subcommittee on Investigations.
The report concluded "the crisis was not a natural disaster, but the result of high, risk complex financial products, undisclosed conflicts of interest,and the failure of regulators, the credit rating agencies and the market itself to rein in the excesses of Wall Street."
The report throws egg in the face of the OTS saying the regulator "displayed an unusual amount of deference to lender Washington Mutual's management, choosing to rely on the bank to police itself" when issues over mortgage lending and securitization practices arose. The report blames OTS for maintaining this attitude even after the agency identified "over 500 serious deficiencies (at WaMu) in five years." The report added, "OTS did not once, from 2004 to 2008, take a public enforcement action against Washington Mutual to correct its lending practices, nor did it lower the bank's rating for safety and soundness."
Washington Mutual became a case study for lawmakers working on the report. The study reveals that WaMu – the largest bank failure in U.S. history — would have depleted the entire $45 billion deposit insurance fund if the the bank had not been sold to JPMorgan Chase for $1.9 billion. The report said the percentage of WaMu originations classified as high-risk loans grew from 19% of its portfolio in 2003 to 55% in 2006.
"From 2000 to 2007, WaMu and Long Beach together securitized at least $77 billion in subprime loans," the report said. In addition, the study's authors say WaMu and its Long Beach originator steered high-risk borrowers into larger loans and higher-risk products, while also accepting loans without verifying borrower income.
The Senate subcommittee even reviewed reports from WaMu President Steve Rotella who described the bank's Long Beach origination platform as "terrible" and "a mess."
The Senate report also is short on sympathy for lenders.
"These lenders were not the victims of the financial crisis; the high risk loans they issued were the fuel that ignited the financial crisis," the bipartisan Senate study concluded.
Investment banks Goldman Sachs (GS: 109.804 +1.15%) and Deutsche Bank (DB: 44.02 +1.43%) also are hit in the report for designing and promoting "complex financial instruments" such as residential mortgage-backed securities, credit default swaps and CDS contracts linked to the ABX index.
The report even punched Goldman Sachs for using net short positions to benefit from the downturn in the mortgage market as the products they promoted began to unwind.
In the Deutsche Bank study, the Senate Subcommittee uncovered information on how the bank's top global CDO trader Greg Lippman warned his colleagues and his clients about the poor quality of RMBS securities underlying may CDOs, even describing them as "crap" and "pigs."
“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” said Sen. Coburn. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”
Write to Kerri Panchuk.
Tags: JPMorgan Chase, Office of Thrift Supervision, Washington Mutual, Washington Mutual Bank
Posted in Secondary Market/Investors, Top Stories | 5 Comments »
In a $262.1 million foreclosure judgment that is one of the largest in South Florida in recent history, the Paramount on the Bay Condominium in Miami is headed to auction.
IStar Financial (SFI: 7.12 -0.84%) won the judgment against Royal Palm Miami Holdings, an affiliate of Boca Raton-based RPC Holdings, managed by Daniel Kodsi, based on a $220.9 million mortgage, plus interest and fees. Kodsi, who did not challenge the foreclosure, was not named in the judgment.
Posted in Around the Web | No Comments »
Iowa Attorney General Tom Miller said actions taken Wednesday by the Office of the Comptroller of the Currency and the Federal Reserve against mortgage servicers found to be improperly foreclosing on homeowners will not impact the 50 state AG investigation he is leading.
"We are reviewing the actions of the Office of the Comptroller of the Currency (OCC) and related agencies," Miller said. "However, their actions will not impact our investigation of the nation’s largest servicers and pursuit of a joint settlement."
After lenders and some third-party vendors were found to be mishandling foreclosure affidavits and filing against homeowners while in the modification process, the 50 AGs, led by Miller, launched their investigation. Federal regulators hopped aboard, too. But at some point in the negotiation process, the OCC and the Fed split off and pursued their own actions, announced Wednesday.
Meanwhile, Miller and a central band of state AGs are working to find a consensus among their own ranks during their settlement talks with the banks. The U.S. Department of Justice, the Treasury Department, the Federal Trade Commission and the Department of Housing and Urban Development will continue to work with the AGs as they pursue a settlement. Even Elizabeth Warren, the special adviser to the Treasury, who is putting together the Consumer Financial Protection Bureau, has been pulled in for her input.
The Fed and the OCC signed consent forms with lenders requiring these companies to comply with state law and retool their loss mitigation processes to give homeowners a chance at modification before foreclosure. Regulators made room for monetary sanctions as well, but have yet to release an exact amount.
"Today’s actions by the OCC will not limit our pursuit of remedies and reforms," Miller said. "We will continue our own efforts to ensure that the nation’s servicing and foreclosure system is fair to homeowners, banks, and investors.”
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Federal Reserve, foreclosure, Iowa AG, OCC, robo-signing, servicers, Tom Miller
Posted in Servicing/Default, Top Stories | 3 Comments »
The nation's largest mortgage servicing technology providers warned investors Wednesday about a federal order that is forcing servicing platforms to implement new foreclosure processes.
Lender Processing Services Inc., one of the companies forced to comply with the regulators' corrective consent order, told investors in securities filings it will hire an independent third-party to study the firm's default management businesses and document execution practices.
The study will cover LPS' activities from Jan. 1, 2008 through Dec. 31, 2010. LPS said the third-party's probe will hone in on the firm's DocX and Default Solutions operations, according to SEC filings.
Lender Processing Services is only one of the major servicing players that signed a consent order with the Federal Reserve and the Office of the Comptroller of the Currency. Other firms impacted by the regulator's order include, Bank of America (BAC: 7.21 -1.23%), JPMorgan Chase (JPM: 37.25 -0.64%), Wells Fargo (WFC: 29.344 +1.01%), Citigroup (C: 30.3842 +0.01%), Ally Financial (GJM: 22.50 -0.31%), HSBC North America Holdings (HBC: 42.49 +0.73%), PNC Financial Services (PNC: 58.93 +0.05%), U.S. Bancorp (USB: 27.78 -0.04%), MetLife (MET: 34.76 +0.75%) and SunTrust Banks (STI: 20.42 -0.39%).
Ally Financial also warned investors Wednesday, saying in securities filings that the firm and its subsidiaries entered into the consent order which is "a result of the ongoing investigations into procedures followed by mortgage servicing companies."
Meanwhile, Mortgage Electronic Registration Systems Inc., or MERS, issued a statement saying the electronic mortgage tracking registry is "already actively implementing changes that tighten corporate governance, improve internal controls, and address quality assurance issues identified by the company and the agencies in the course of this review."
JPMorgan Chase (JPM: 37.25 -0.64%) reported Wednesday that new servicing practices will cost the firm $1.1 billion in the first quarter.
Write to Kerri Panchuk.
Tags: Ally Financial, Bank of America, Citigroup, HSBC, HSBC Bank, HSBC North America Holdings, MetLife, PNC Financial Services, SunTrust Banks, U.S. Bancorp, Wells Fargo
Posted in Servicing/Default, Top Stories | 3 Comments »
Fitch Ratings released a report Wednesday suggesting that rising interest rates could pose new challenges for investors in U.S. mortgage bond markets.
Within the $6.8 trillion market, the higher rates would affect the current U.S. private label and agency mortgage-backed securities markets, banks with significant, mortgage-related exposure and the structure of U.S. mortgage finance.
Elevated rates would expose trading-oriented investors to heightened price volatility, particularly those that are highly leveraged, funded through repo markets or mark-to-market their holdings, according to the report.
In a rising rate scenario, U.S. banks' current MBS holdings of roughly $1.3 trillion would face either mark-to-market losses or, if held on a long-term basis, lower net interest income.
Liability-sensitive banks would also face re-pricing risks on mortgage loans held in the banking book, potentially squeezing net interest margins, the report said.
Higher mortgage rates would also dampen housing affordability, motivating originators to offer more initially cheaper floating rate and hybrid adjustable-rate mortgages, Fitch said.
However, a shift away from the traditional 30-year, fixed-rate mortgages would transfer interest rate risk from lenders to borrowers, running contrary to the current public policy focus on mortgage product simplicity and consumer protection, the report said.
By reducing the appetite of banks to retain mortgages on balance sheet, a rising interest rate scenario might also stimulate securitization markets, which enable mortgage originators to transfer interest rate risk to institutional investors who prefer long-duration assets.
Potential losses in a rising rate environment could significantly exceed credit-related losses, with strengthening underwriting standards mitigating credit risk on new mortgage originations.
U.S. government debt is at record levels and 10-year Treasury yields are starting to increase from their generational lows, which could lead to rising interest rates over the next several years, according to the report.
Rising rates would also pose risks to both mortgage lenders and investors in MBS, who over the past 20 years have benefited from a falling rate environment.
Write to Shaina Zucker.
Tags: Fitch Ratings, hybrid adjustable-rate mortgages, initially-cheaper floating rate, Mark To Market, repo markets, rising interest rates, U.S. mortgage markets
Posted in Secondary Market/Investors, Top Stories | No Comments »
A report released by the Federal Reserve and the Office of the Comptroller of the Currency on its investigation of major servicers concluded improper foreclosure practices were widespread across the industry.
In conjunction with consent orders and an upcoming fine, regulators directed the servicers to hire third-party companies to conduct a more detailed review of foreclosure actions taken between Jan. 1, 2009 and Dec. 31, 2010.
The OCC and the Fed reviewed 2,800 borrower foreclosure files in their investigation, evaluated the servicers' self-assessments and staff involved in the preparation of foreclosure documents, according to the report. The file reviews did not provide a complete analysis of the payment history of each loan before foreclosure, and regulators admitted it may not have uncovered misapplied payments or unreasonable fees.
The servicers investigated represent a collective two-thirds of the entire servicing industry. But while performance varied from servicer to servicer, regulators said the problems violated federal and state law.
"Thus, the agencies consider problems cited within this report to have widespread consequences for the national housing market and borrowers," regulators said.
Regulators showed the scope of those consequences. Borrowers faced extended time in the foreclosure process, excess and improperly assessed fees. States showed foreclosure timelines to an average of 450 days at the end of 2010, regulators said. And courts have begun "lose confidence" in the reality of these affidavits.
Regulators found that although most of the borrowers were in serious default at the time of their review, some servicers failed to accurately complete or validate amounts owed by those borrowers.
"While the error rates varied among the servicers, the percentage of errors at some servicers raises significant concerns regarding those servicers’ internal controls governing foreclosure-related documentation," according to the report.
The investigation also found servicers overly relied on third-party law firms and vendors such as Lender Processing Services (LPS: 16.78 +1.39%) and Mortgage Electronic Registration Systems. Contracts between the servicers and these default management service providers were "generally inadequate" and provided little room for oversight, according to the report.
As far as MERS goes, the investigation found a range of problems including quality control, internal audits and an inability to address any foreclosure-processing risks.
For both LPS and MERS, regulators will sanction both and force the companies, just as the servicers, to repair their operations and put them in compliance. LPS said it has discontinued its affidavit services.
These enforcement actions and frequent monitoring will remain at the servicers and outsourcing companies until they demonstrate the weaknesses and deficiencies have been corrected, regulators said.
The report concludes that the servicers and their vendors were overwhelmed by the rising foreclosure inventory and cut corners to speed up the process of working through it.
"The risks presented by weaknesses in foreclosure processes are more acute when those processes are aimed at speed and quantity instead of quality and accuracy," regulators said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: consent orders, Federal Reserve, foreclosure, LPS, MERS, OCC, report
Posted in Servicing/Default, Top Stories | No Comments »
