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Archive for June, 2011

Pension funds sue Wells Fargo, alleging executives breached fiduciary duties

Wednesday, June 22nd, 2011

Two pension funds filed a shareholder derivative lawsuit against Wells Fargo (WFC: 29.365 +1.08%) this week, claiming the bank and its leaders failed to properly address mortgage documentation issues, leaving Wells exposed to $15 billion in potential liabilities.

A spokesman for San Francisco-based Wells Fargo declined comment on the suit, which was filed in the U.S. Northern District of California by the Oakland County Employees Retirement System and the Laborers' District Council and Contractors Pension Fund of Ohio.

The pension funds claim the bank's leadership failed to promptly address robo-signing and documentation issues tied to the mortgage securitization process, resulting in a situation where "liabilities appear to be hanging like the sword of Damocles over Wells Fargo and its shareholders."

The plaintiffs specifically named Wells Fargo CEO and Chairman John Stumpf a defendant, along with other board members and officers.

Investors in the pension funds claim Wells Fargo's leadership ignored early reports that robo-signing and issues with the Mortgage Electronic Registration System during the securitization process tainted some foreclosures and property titles.

The plaintiffs, who own a combined 169,000 shares of the banking giant's 5.3 billion shares outstanding, said in court papers the leadership continued "to prolong the illusion of Wells Fargo's success, concealing the adverse facts concerning Wells Fargo's actual financial condition, its lack of ownership over real estate debt that had been securitized through the MERS system, and the company's lack of clean title to real property, in judicial foreclosure states."

"This wrongful conduct exposed the company to billions of dollars of liability to investors in the secondary securitized debt markets, and hundreds of millions of dollars in litigation related expense and liability stemming from wrongful foreclosure and related litigation arising in judicial foreclosure jurisdictions," the pension funds allege.

As part of the derivative suit, the two groups are suing Wells Fargo's directors and executives, claiming they breached their financial duties. MERS, which is a subsidiary of Merscorp Inc., is accused in the complaint of aiding and abetting the bank by assisting and ignoring in some of the material breaches of fiduciary duties.

Write to: Kerri Panchuk.

Tags: foreclosure, John Stumpf, Laborers' District Council and Contractors Pension Fund of Ohio, MERS, MERSCORP, Oakland County Employees Retirement System, pension funds, robo-signing, securitization, Wells Fargo
Posted in Secondary Market/Investors, Top Stories | 3 Comments »

PNC Financial's purchase price for RBC could drop due to loan performance

Wednesday, June 22nd, 2011

The $3.45 billion purchase price Pittsburgh-based PNC Financial has agreed to pay for Raleigh-based RBC Bank USA RBC Bank USA includes $1 billion in PNC common stock, deliverable at the time of the deal’s closing early next year.

How much of the $1 billion actually gets handed over, however, depends on what happens to RBC Bank’s troublesome loan portfolio over the next nine months.

Posted in Around the Web | No Comments »

After SEC settlement with JPMorgan, will other banks pay too?

Wednesday, June 22nd, 2011

The $154 million settlement the Securities and Exchange Commission wrested from JPMorgan Chase involved only one of more than two dozen mortgage securities deals that the hedge fund Magnetar helped create. As we detailed last year, many banks in the waning days of the boom created collateralized debt obligations, or CDOs, with the help of Magnetar, which also bet against many of the same investments.

So is the SEC going to do anything about any of the other deals? The answer to that question reveals as much about the difficulties in policing Wall Street as it does about the excesses committed in the lead up to the financial crisis.

Posted in Around the Web | No Comments »

Bernanke says home price stabilization necessary to woo buyers

Wednesday, June 22nd, 2011

Federal Reserve Chairman Ben Bernanke said home price stabilization and a faster foreclosure process are needed to restore confidence in housing, unleashing a recovery in the sector.

He also said the central bank expects the unemployment rate to slip to 8.6% by the latter part of 2011 and decrease to 7.5% by 2013.

High unemployment continues to weigh down the economy and remains a significant contributor to the stalled housing recovery, Bernanke said Wednesday in the Fed's second press conference following a committee meeting.

Despite projecting the economic recovery will pick up in coming quarters, Bernanke told reporters the economy is expected to grow at a slower pace than the Fed originally projected.

He is advocating for congressional budget cuts that will occur over a longer, 10-year period as opposed to rapid budget reductions currently in play that could derail attempts to achieve maximum employment growth before a full recovery is reached.

Bernanke, who continues to balance inflationary concerns against unemployment gains, said the inflation rate, which picked up in recent months, is expected to eventually fall back to a level of 2% or lower by 2012.

He told reporters the Fed has not taken any action as far as additional asset purchases, but said that would be a committee decision at a later date.

When asked about the risk Greece poses to the overall financial system, Bernanke said the banks that U.S. regulators oversee are not significantly exposed to the European countries facing debt crises. While he did note a direct tie to other European countries, Bernanke said, "We have asked the banks to do a stress test, looking at their positions and hedges and the effect on their capital if Greece defaults, and the answer is the effects would be very small."

Write to: Kerri Panchuk.

Tags: Ben Bernanke, economy, Federal Reserve Board Ben Bernanke, FOMC, foreclosure, homebuyers, housing, QE2, QE3, unemployment
Posted in Secondary Market/Investors, Top Stories | 6 Comments »

US home prices show positive results in April: FNC

Wednesday, June 22nd, 2011

Home prices in the U.S. rose 0.5% in the month of April, according to the FNC Residential Price Index.

The index increased for the first time since the withdrawal of the homebuyer tax credit in April 2010, despite nation's economic malaise. Prices in April shrugged off downward pressure from a continued high number of foreclosures.

The FNC 10-MSA composite showed a 0.4% increase from March. The 30-MSA increased 0.6% in April. Home prices nationwide remained 6.4% lower than one year ago.

These results are contrary to what others may believe are continued price deteriorations, FNC analysts said. Listing activities increased more than 65% with the arrival of the summer home-buying season. The difference between the initial listing price and the final sales price dropped 4% in the first quarter of 2011 from a 6.7% difference at the end of 2010.

The amount of time these distressed properties spent on the market dropped to 2.5 months in April from four months in October 2010.

Home prices in 17 markets went up at an average rate of 2.5%.

"Despite downward price pressure from high volumes of foreclosure sales, home prices continue to gain traction in April after remaining relatively unchanged in March," FNC said.

Write to Matthew Torres

Tags: FNC, foreclosures, MSA, Residential Price Index, RPI
Posted in Origination/Lending, Top Stories | 11 Comments »

Current subprime bond yields impede private-label RMBS

Wednesday, June 22nd, 2011

Legacy assets held by major lenders are trading so well on bond markets, the economics aren't right to issue new mortgage-backed securities from a yield perspective, according to the chairman of the American Securitization Forum.

"There are 6% to 8% yields in the legacy subprime market, that's nonagency MBS, loss-adjusted yields," said Ralph Daloisio, also managing director at Natixis. "There is no economic incentive to generate a primary mortgage market."

Daloisio said it appears the Obama administration is using the government-sponsored enterprises as a chief housing policy tool. The GSEs finance more than 90% of the nation's mortgages, and this may also have a systemic impact on the reformation of a private-label securitization market, he added. Nonetheless, this scenario is more or less obvious to secondary market players.

"The market sees through the strategy, it sees the 'kick-the-can approach,'" Daloisio said, warning, "We may meet fate on the road we took to avoid it."

A prior panel at the ASF annual meeting in Washington, D.C., said mortgage bond markets, as a whole, rallied from March 2009 through March 2011, but investors have since grow bearish on continual negative numbers concerning home prices.

Write to Jacob Gaffney.

Follow him on Twitter @jacobgaffney.

Tags: ASF, GSE, legacy assets, mortgage, Natixis, non-agency MBS, subprime
Posted in Secondary Market/Investors, Top Stories | No Comments »

Morgan Keegan to pay SEC $200 million to settle subprime MBS fraud charges

Wednesday, June 22nd, 2011

Securities brokerage firm Morgan Keegan & Co. and investment manager Morgan Asset Management agreed to a $200 million settlement with the Securities and Exchange Commission Wednesday to settle fraud charges related to the valuation of subprime mortgage-backed securities.

Former employees James Kelsoe and Joseph Weller also agreed to settle with the regulator and pay additional fines of $500,000 and $50,000, respectively, for their actions in the fraud scheme.

In April, the SEC brought administrative proceedings against the two Memphis, Tenn.-based companies and the two former employees alleging that they falsely represented the value of subprime MBS in five funds managed by Morgan Asset Management. Kelsoe served as portfolio manager for the funds, which include the Helios High Income Fund, the Helios Multi-Sector High Income Fund, the Helios Strategic Income Fund, the Helios Select Fund and the Helios Advantage Income Fund.

Between January and July 2007, Kelsoe instructed Morgan Keegan's fund accounting department to make price adjustments to the fair value of certain portfolio securities, according to the SEC. Sometimes these adjustments ignored lower valuations conducted by outside parties, as part of pricing protocol, and often lacked a reasonable basis, the regulator said.

"Through his actions, Kelsoe fraudulently prevented a reduction in the (net asset values) of the funds that should otherwise have occurred as a result of the deterioration in the subprime securities market in 2007," the SEC said in its June 22 order. "His misconduct occurred in the context of a nearly complete failure by Morgan Keegan to employ the fair valuation policies and procedures adopted by the funds’ boards of directors to fair value the funds’ portfolio securities."

Weller was head of fund accounting at Morgan Asset Management and a member of the valuation committee. The SEC claimed he "knew, or was reckless in not knowing," the violations to the valuation procedures that were being made.

As part of the settlement brought by the SEC, in conjunction with the Financial Industry Regulatory Authority and several state regulators from Alabama, Kentucky, Mississippi, Tennessee and South Carolina, Morgan Keegan is required to pay $25 million in disgorgement and interest, as well as a $75 million penalty to the SEC. Morgan Keegan must also pay $100 million to a state fund.

Of the penalty, $175 million will go to investors who were harmed in the transaction, the SEC said.

Regions Financial Corp. (RF: 5.19 +0.39%), the parent company of Morgan Keegan, said the company will use this opportunity reevaluate internal procedures. Regions said it brought in Goldman, Sachs & Co. to explore strategic alternatives on how best to manage Morgan Keegan's capital.

"The resolution of this legacy regulatory matter gives Regions greater flexibility with respect to the Morgan Keegan franchise and the ability to explore opportunities that are consistent with our strategic and capital planning initiatives," said Grayson Hall, president and chief executive officer of Regions. "Regions is committed to continuing to provide a full range of products and services seamlessly to its customers, including through a continuing relationship with Morgan Keegan."

Write to Christine Ricciardi.

Tags: Financial Industry Regulatory Authority, fraud, Goldman, Helios Advantage Income Fund, Helios High Income Fund, Helios Multi-Sector High Income Fund, Helios Select Fund, Helios Strategic Income Fund, MBS, Morgan Asset Management, Morgan Keegan & Co., Regions Financial Corp., Sachs & Co., Securities and Exchange Commission, subprime, subprime mortgage-backed securities
Posted in Secondary Market/Investors, Top Stories | No Comments »

QRM requirements could slash refinancing in hardest hit states

Wednesday, June 22nd, 2011

An overwhelming percentage of homeowners located in states hardest hit by the housing downturn would be shut out of refinancing their mortgage because they do not meet equity standards under the proposed risk-retention rule, according to a study from consumer and industry groups.

A coalition of these 44 groups and the lawmakers who wrote the requirement for the risk-retention rule under Dodd-Frank met on Capitol Hill Wednesday. They urged regulators to scale back the requirements on the rule's exception – the qualified residential mortgage.

Lenders would not have to retain 5% of the credit risk on a QRM. In addition to a mandatory 20% down payment that could price out many future homebuyers, a white paper submitted to regulators showed existing homeowners would be harmed as well.

A borrower must hold 25% equity in the home in order to refinance into a QRM loan and at least 30% equity for a QRM cash-out refinance loan, according to the current proposal.

Data from CoreLogic (CLGX: 14.54 +0.48%) showed the five states most impacted by the proposed equity requirements are Nevada, Arizona, Georgia, Florida and Michigan.

Home values dropped so much in these areas that the study found two out of three homeowners in these states would not have the necessary 25% equity to refinance. The study also found six out of 10 would not be able to move out of the home and put 20% down on a new QRM.

The study showed 64% of Michigan homeowners do not meet the 25% equity requirement. The percentage goes up in Florida (66%), Georgia (65%), and Arizona (72%).

In Nevada, 83% of homeowners do not have 25% equity in their home and would not be able – even if they had never missed a payment – to refinance into a lower-rate QRM loan.

"In effect, the proposed QRM would penalize families who have played by the rules, scraped each month to pay their bills, kept their credit clean, and saved for a modest down payment," according to the study.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Tags: Capitol Hill, CoreLogic, industry, mortgage, QRM, Refinancing, regulators, risk retention, Washington, white paper
Posted in Origination/Lending, Top Stories | 4 Comments »

American home equity cut by one-third

Wednesday, June 22nd, 2011

The head of global securitized products research at Citi Global Markets said that home equity held by American households is down from 60% to 39%.

Mary Kane, speaking at an American Securitization Forum session about consumer trends and the state of the housing market, said residential mortgage comprised the largest proportion of debt held by families.

The massive decline in home prices in the last few years is hitting those household investments hard, especially if families don't invest in other ways, such as with stocks and bonds. If families are not in the stock market, then recent rallies in those markets aren't helping them.

In regards to falling home equity, Kane said it is important to keep perspective on the statistic.

"When looking at this number, it's a very bifurcated number," Kane said. "One-third of homeowners don't have a mortgage, and another 20% are underwater."

An estimated 14 million homeowners have negative equity, according to the ASF.

Kane added that total U.S. debt is on a 10-year climb. The debt held by U.S. households in the fourth quarter of 2010 was 77% greater than in 4Q 2000, when including the effect of taxpayer exposure to the federal deficit.

"I think it's extremely important that lenders and families take responsibility for taking on debt responsibly," Kane said, in an appeal to lenders to take a more proactive view of mortgages.

"I don't feel that any regulatory proposals deal with underwriting or help families make responsible debt decisions," she added.

Write to Jacob Gaffney.

Follow him on Twitter @jacobgaffney.

Tags: American Securitization Forum, ASF, bonds, Citi, home equity, home prices, Mary Kane, mortgage, negative equity, stock
Posted in Origination/Lending, Top Stories | 1 Comment »

FOMC keeps fed funds rate near zero, says little about possible QE3

Wednesday, June 22nd, 2011

The Federal Open Market Committee once again kept the federal funds rate at next to nothing and said the economic recovery is progressing slower than members expected.

The central bank said investment in nonresidential properties remains weak and persistent depression permeates the housing market.

The FOMC admitted inflation has increased recently due to higher commodities and import prices, as well as supply-chain disruptions.

"However, longer-term inflation expectations have remained stable," according to the committee.

The Federal Reserve's quantitative easing program to buy up to $600 billion in Treasury securities ends June 30. The Fed "will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate."

As it has for the past several months, the Fed said the recovery is continuing at a moderate pace. But now conditions in the labor market are deteriorating further from already depressed levels.

The FOMC also reiterated its belief many factors hindering growth are transitory in nature, such as the "damping effect of higher food and energy prices on consumer purchasing power and spending, as well as supply chain disruptions associated with the tragic events in Japan."

Committee members expect the pace of recovery to pick up over coming quarters with unemployment starting to decline toward levels closer to what the FOMC views as consistent with its dual mandate of maximum employment and price stability.

Analysts at Capital Economics said the FOMC decision "offers no hint that the recent signs of a renewed economic slowdown might tempt the Fed to launch another round of large-scale asset purchases."

"Overall, we suspect the Fed will stay on the sidelines for this year," Capital Economics Chief U.S. Economist Paul Ashworth said.

The FOMC voted unanimously in favor of the monetary policy decision. Fed Chairman Ben Bernanke is set to hold a press conference Wednesday to discuss the decision.

The federal funds rate has been 0% to 0.25% since December 2008. The FOMC reiterated its belief that "economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

In November, the Fed began its plan to purchase up to $600 billion of longer-term Treasurys by the end of the second quarter "to promote a stronger pace of economic recovery and help ensure that inflation, over time, is at levels consistent with its mandate."

Write to Jason Philyaw.

Tags: Ben Bernanke, Capital Economics, economic recovery, economy, Federal Open Market Committee, Federal Reserve, FOMC, housing, inflation, QE2
Posted in Secondary Market/Investors, Top Stories | 6 Comments »