Archive for June, 2011
JPMorgan Securities (JPM: 37.2818 -0.56%) will pay $153.6 million to settle Securities and Exchange Commission charges that it misled investors in a complex mortgage securities transaction just as the housing market began to tank, the SEC said Tuesday.
Under the settlement, harmed investors will receive all of their money back, the SEC said.
JPMorgan also agreed to improve the way it reviews and approves mortgage securities transactions, the regulatory agency said.
The SEC alleged JPMorgan structured and marketed a synthetic collateralized debt obligation without informing investors that a hedge fund helped select the assets in the portfolio and had a short position in more than half of those assets.
The SEC separately charged Edward Steffelin, who headed the team at an investment advisory firm that the deal’s marketing materials misleadingly represented had selected the CDO’s portfolio.
“JPMorgan marketed highly-complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests,” said Robert Khuzami, director of the division of enforcement. “What JPMorgan failed to tell investors was that a prominent hedge fund that would financially profit from the failure of CDO portfolio assets heavily influenced the CDO portfolio selection."
The CDO known as Squared CDO 2007-1 was structured primarily with credit default swaps referencing other CDO securities whose value was tied to the U.S. residential housing market, according to the SEC.
"Omitted from the marketing materials and unknown to investors was the fact that the Magnetar Capital LLC hedge fund played a significant role in selecting CDOs for the portfolio and stood to benefit if the CDOs defaulted," the SEC said.
The SEC alleges that by the time the deal closed in May 2007, Magnetar held a $600 million short position that dwarfed its $8.9 million long position.
In an internal e-mail, a JPMorgan employee noted, “We all know (Magnetar) wants to print as many deals as possible before everything completely falls apart," according to the SEC.
The SEC alleges that in March and April 2007, JPMorgan knew it faced growing financial losses from the Squared deal but launched a frantic global sales effort. Ten months later, the securities had lost most or all of their value.
Last year, Goldman Sachs (GS: 109.9707 +1.30%) settled a similar CDO case involving a deal known as Abacus for $550 million. The SEC alleged that Goldman failed to disclose the role that hedge fund Paulson & Co. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.
After the Goldman settlement, analysts at Credit Suisse said they did not anticipate any material long-term impact on the global investment company. But analysts added they "would not be surprised" to see further regulatory actions with others active within the CDO market.
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: $153.6 million, ABACUS, CDO, Credit Suisse, Goldman Sachs, JPMorgan, JPMorgan Securities, SEC
Posted in Secondary Market/Investors, Top Stories | No Comments »
The federal government's Aug. 2 deadline to approve a new debt ceiling is rapidly approaching, and if regulators can't agree on something, the housing market could tank when key but "nonessential" government services are frozen, a financial markets expert said.
David Min, associate director for financial markets policy at the Center for American Progress, said in a commentary Tuesday that failure to increase the country's debt ceiling would cause regulators to freeze what they believe are "nonessential services." Min said many of these nonessential services include housing programs under the Federal Housing Administration, the Internal Revenue Service and the Social Security Administration.
"In the post-crisis world, private mortgage financing is but nonexistent, leaving the government to fill the vacuum," Min wrote. "Consequently, FHA today is a key source of mortgages, particularly for first-time homebuyers and other demographic groups who are critical for restoring some equilibrium to our still-ailing housing markets."
All year, Republicans pushed to cut federal spending by way of housing programs. In February, the House Financial Services Committee proposed cutting 12 different housing programs, including the Neighborhood Stabilization Program and the NeighborWorks America, from the federal budget.
In March, the House of Representatives voted 252-170 to terminate the Home Affordable Modification Program, or HAMP, two years early, based on underwhelming results.
In April, Republicans and Democrats compromised on a 2011 budget agreement that slashed $88 million in funding for nonprofit counseling groups approved by the Department of Housing and Urban Development.
Min calls these services critical in helping lower- to moderate-income families attain a home.
"Any extended suspension of FHA lending activities due to a freeze on nonessential government services would cause the housing markets to lock up and prices to potentially free fall, particularly at the lower end of the market where younger, lower-income, and first-time homebuyers are critical," Min said.
Freezing Social Security operations would inhibit lenders from verifying a borrower's identification, thereby slowing down the mortgage approval process even more, Min said. He added that freezing operations at the IRS would further freeze the housing market, as borrowers applying for a mortgage would be unable to receive any tax information to submit with the application.
Write to Christine Ricciardi.
Tags: Center for American Progress, debt ceiling, Federal Housing Administration, HAMP, housing, Internal Revenue Service, IRS, mortgage, nonessential services, Social Security Administration
Posted in Servicing/Default, Top Stories | No Comments »
Georgia Attorney General Sam Olens said he's opposed to any type of national settlement with mortgage servicers that would force attorneys general to conduct principal reductions on mortgages, according to a spokeswoman for his office.
Olens first made that statement to Bloomberg on Monday, suggesting he prefers a cafeteria-type approach in which AGs would pick how they use money that is allocated to states as part of any type of settlement reached with mortgage servicers.
"He is opposed to principal write-downs," a spokeswoman for Olens said Tuesday. However, Olens wants attorneys general to have the flexibility to choose the best options for the funding.
According to Bloomberg, Olens said as many as 20 AGs are against the idea of principal write-downs and don't believe they should be required to conduct the reductions as part of the settlement.
In saying this, Olens and other AG's are backing away from one specific part of the settlement offer that state attorneys general proposed to mortgage servicers. The settlement could run as high as $25 billion, based on early discussions.
When asked about the possibility of conducting their own principal reductions on mortgages earlier this year, executives with both Fannie Mae and Freddie Mac indicated that principal reductions are not part of their plans either.
Write to: Kerri Panchuk.
Tags: Fannie Mae, freddie mac, Georgia, Georgia Attorney General Sam Olens, mortgage servicers, mortgages, principal reductions, Sam Olens, write-downs, writedowns
Posted in Servicing/Default, Top Stories | No Comments »
MERSCORP, the parent company of Mortgage Electronic Registration Systems, hired Bryan Kanefield to the newly created role of senior vice president and chief risk officer.
He will implement and administer a new corporate risk management framework, developing and reporting on key risk indicators, and overseeing the risk management committee. Kanefield will be part of the company’s executive leadership team.
“Bryan is an industry veteran, with nearly 20 years of experience at one of the government-sponsored enterprises,” said Bill Beckman, MERSCORP president and CEO. “We’re pleased to be adding a solid risk and operations professional with experience constructing sophisticated risk management frameworks."
Kanefield comes from Fannie Mae, where he was most recently a member of the senior leadership team responsible for building and managing key operational units of the Making Home Affordable Program. Prior to that, he was a director in Fannie Mae’s divisional risk office, where he developed and implemented corporate-wide risk control self-assessment framework standards and implemented the company’s initial Sarbanes-Oxley compliance program. Kanefield first joined Fannie Mae in 1992 and has served in various roles at the GSE.
The Mortgage Electronic Registration Systems, known by its acronym MERS, is a national electronic registry system that tracks the changes in servicing rights and beneficial ownership interests in mortgage loans on the registry. It is owned by some of the nation's biggest banks.
Over the past year or so, MERS has become a lightning rod as critics of the registry have challenged MERS' role in foreclosure proceedings where it acts as a legal representative for the mortgage holder. The registry has won and lost court battles across the U.S. More than 60 million mortgages are registered on MERS with more than 60% of all new mortgages in the U.S. being entered into the system.
The debate over MERS intensified last week when a New York appellate court invalidated a foreclosure, ruling MERS assigned the loan to a trustee without having possession of the underlying note from the originator.
MERS was part of the April consent order between major mortgage servicers, third-party vendors and regulators that requires the firms to establish new foreclosure processes in light of last year's robo-signing scandal.
At the time of the consent order, 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."
Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.
Tags: Bryan Kanefield, chief risk officer, Fannie Mae, foreclosure, Making Home Affordable Program, MERS, MERSCORP, mortgage, Mortgage Electronic Registration Systems, Sarbanes-Oxley
Posted in Servicing/Default, Top Stories | 1 Comment »
Homebuilder Lennar Corp. (LEN: 21.93 -0.90%) is experiencing widening credit default swap spreads and rising CDS liquidity as the housing market continues to stumble along without a clear bottom in sight, Fitch Solutions said Tuesday.
Larger credit default swap spreads are generally a sign that there are greater fears of a possibility of CDS default.
Miami-based Lennar builds single-family homes and offers title and mortgage services.
Fitch Solutions said credit default swap spreads on Lennar, which reports its second-quarter earnings later this week, widened 24% over the past three months. The ratings agency also said the company's CDS is underperforming the 7% widening observed for the larger consumer goods industry.
"Concerns over the ailing housing market continue to weigh on market sentiment for Lennar," said Diana Allmendinger, author of the report.
One of the main factors weighing on the homebuilder and the entire housing sector is the lack of balance between housing supply and demand.
The housing market took another dose of bad news Tuesday when year-over-year existing-home sales plummeted more than 15%, according to the National Association of Realtors, but California, a trouble spot with high rates of foreclosure, reported Tuesday that pending sales in May increased 12% from one year ago, the first such gain in 18 months,
Write to: Kerri Panchuk.
Tags: CDS, credit default swap spreads, existing home sales, fitch solutions, home builder, home sales, homebuilder, Lennar Corp., mortgage services, NAR, National Association of Realtors, pending home sales
Posted in Origination/Lending, Top Stories | No Comments »
California pending home sales in May increased 12% from one year ago, the first such gain in 18 months, according to the California Association Realtors.
Existing home sales dropped 15.3% across the nation. But in California, May pending home sales — an indicator of the future performance of a market — marked the first yearly increase since November 2009 and the largest since August 2009.
CAR President Beth Peerce said May numbers show home sales could be higher in the second half of the year.
"May's increase in pending sales is consistent with our expectation that home sales in the second half of 2011 should be higher compared with the second half of 2010, and as a result, annual sales for all of 2011 should match or exceed last year's annual pace," Peerce said.
Not all areas of California felt relief, however. Distressed home sales accounted for 90% of the market in Madera County, just north of Fresno. It's an increase from 69% one year ago.
The sale of distressed properties in California neared half of the market, accounting for 48% of all transactions up from 46% one year before. Of the distressed property sales, 28% were REO, and 19% were short sales.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: California Association of Realtors, CAR, existing home sales, May, Peerce, pending home sales
Posted in Origination/Lending, Slider, Top Stories | 2 Comments »
Sheila Bair has won bipartisan support and praise for her work as head of the Federal Deposit Insurance Corp. Her five-year term ends next month, and she has said she doesn't want to be reappointed. Bair talks to Renee Montagne about leading the FDIC through the financial crisis, and what she sees as the biggest challenges for the banking industry going forward.
Posted in Around the Web | No Comments »
Existing-home sales fell 15.3% in May from a year ago, with the National Association of Realtors recording sales at the seasonally adjusted annual rate of 4.81 million units last month, down from 5.68 million housing units a year earlier.
Month-over-month home sales fell 3.8% between April and May, with the trade group posting revised April sales figures of 5 million units.
While NAR Chief Economist Lawrence Yun said the end of the homebuyer tax credit last spring siphoned off a large chunk of spring sales this year, other economic headwinds, including skyrocketing gas prices, are also slowing home sales.
“Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May,” Yun said. “Current housing market activity indicates a very slow pace of broader economic activity, but recent reversals in oil prices are likely to mitigate the impact going forward. The pace of sales activity in the second half of the year is expected to be stronger than the first half, and will be much stronger than the second half of last year.”
Yun also blamed tighter underwriting guidelines for the drops, saying the pendulum swung too far the other way when it comes to safe lending practices, resulting in overly restrictive lending guidelines that are are holding back a housing recovery.
“Even with recent economic softness, this is a disappointing performance with home sales being held back by overly restrictive loan underwriting standards,” he said.
NAR reported that the median existing-home price hit $166,500 in May, down 4.6% from last year. Distressed homes, meanwhile, were selling on average at a 20% discount rate.
“Home prices are rising or very stable in local markets with improved employment conditions, such as in North Dakota, Alaska, Washington, D.C., and many parts of Texas,” Yun noted.
Write to: Kerri Panchuk.
Tags: economic activity, home sales, Lawrence Yun, NAR, National Association of Realtors
Posted in Origination/Lending, Top Stories | 4 Comments »
Basel III capital requirements may have prompted mortgage lender PNC Financial Services Group to agree to finance its acquisition of RBC Bank through the issuance of $1 billion in preferred stock and $1 billion in common stock.
At least, that's the theory floated by FBR Capital Markets. Analysts wrote in a report Tuesday that PNC Financial Services Group (PNC: 58.89 -0.02%), the parent company of PNC Mortgage, is "well positioned to pay cash for the deal."
But because the company chose another avenue, the analysts behind the report believe PNC is worried about complying with Basel III capital requirements, which were designed with the intent of ensuring systemically significant banks have enough capital to cover future risks.
In December, the Basel Committee on Banking Supervision created a framework for new capital standards, raising the minimum level of capital banks are required to hold.
FBR Capital analysts wrote that "although PNC did not disclose its pro forma Basel III Tier 1 common ratio, we believe that the company is being conservative by leaving the door open for a stock issuance in case Basel III requirements prove to be more onerous. Ultimately, we do not expect PNC to issue common stock considering it should earn close to $3 billion by the time the transaction closes. PNC commented that it expects to manage its capital position to 8% to 8.5% Tier 1 common equity ratio, inline with our estimates for a 1.5% SIFI buffer on top of the 7% required capital."
PNC Financial Services Group agreed to buy RBC Bank, the U.S. banking subsidiary of Royal Bank of Canada (RY: 52.21 -0.70%), for $3.45 billion this week.
PNC Mortgage is the 20th largest mortgage originator in the United States, originating $10.5 billion in home loans last year.
Once the transaction closes in March, the acquisition of RBC Bank will add $25 billion in assets, 424 bank branches, $19 billion in deposits and $16 billion in loan balances to the PNC network. RBC's current allowance for loan losses is in the $755 million-range, according to PNC.
JPMorgan (JPM: 37.2818 -0.56%) executives recently warned Congress about the capital burdens that will be placed on banks when Basel III standards come to life in the marketplace.
Write to: Kerri Panchuk.
Tags: FBR Capital Markets, PNC Financial Services Group, PNC Mortgage, RBC Bank
Posted in Servicing/Default, Top Stories | No Comments »
Green River Capital, the REO asset management and loss mitigation provider, is expanding into commercial real estate.
GRC now will be able to handle commercial property repossessed by client lenders. The Utah-based GRC will dispose of the assets, maintain the property, provide property valuation and lease verification, as well as evictions, repairs and title services.
"There is a increasing need for commercial REO management, and our experience with residential properties enables us to take our core capabilities and adapt them to serve a new and rapidly growing client base," said Brent Taggart, senior vice president of business development and client relations for GRC.
In March, Green River Capital won a contract to manage REO for Freddie Mac, and in May, the company expanded these services to credit unions.
GRC plans to focus its commercial REO efforts on small-balance properties. It added commercial REO specialists to its nationwide agent network to manage the rising amount of commercial delinquencies.
Analytics firm Trepp said delinquencies on commercial mortgage-backed securities fell five basis points in May to 9.6%. But analysts at Barclays Capital (BCS: 13.9975 +0.48%) said this may only be a slight and temporary dip.
"As the industry anticipates a continued rise in commercial defaults, GRC will be equipped to provide specialized services to clients across the country and handle any property type," Taggart said.
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
Tags: Asset Management, Barclays Capital, commercial real estate, freddie mac, GRC, Green River Capital, REO, Trepp
Posted in Servicing/Default, Top Stories | 4 Comments »
