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Monday Morning Cup of Coffee: Moody's likely to downgrade five big banks

A look at stories across HousingWire's weekend desk, with more coverage to come on bigger issues:

Banks, bond issuers and investors are expecting a gush of bank downgrades this week that, among other things, will raise borrowing costs.

Moody's Investors Service is likely to reduce credit ratings for 17 large global banks by the end of June, including five of the six biggest U.S. financial firms: JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS).

The ratings adjustments could affect how banks raise capital to support their lending and trading. Already, The Wall Street Journal reports, money-market funds are curbing lending to banks, and cities and states are switching bankers.

The ratings action has been in the works since February when Moody's said it would review the credit ratings of more than 100 banks around the world because of the potential impact of nervous financial markets and tighter regulations on bank profits.

Many banks are lobbying Moody's to limit the size of its cuts. The market has had months of warning, potentially limiting the immediate impact of any downgrades.

Stay tuned this week for onsite coverage of HousingWire’s third annual REO EXPO as real estate professionals descend onto Fort Worth, Texas, to network, receive training and learn from the nation’s top distressed property experts.

Taking place Tuesday through Friday, REO EXPO is the nation's largest event focused solely on distressed residential real estate management.

Significant price cuts to the Federal Housing Administration’s streamline refinance program — announced in March — begin Monday. The agency is lowering its upfront mortgage insurance premium to 0.01% and reducing its annual premium to 0.55% for certain FHA borrowers. To qualify, borrowers must be current on their existing FHA-insured mortgages, endorsed on or before May 31, 2009. 

The FHA is increasing its upfront premiums on most other loans by 75 basis points to 1.75%, and is raising annual premiums 10 basis points for loans under the $625,500 limit and by 35 bps for home loans above that amount.

HUD says the new discounted prices present no greater risk to its Mutual Mortgage Insurance Fund. The increases on other loans are designed to bolster the FHA's reserves, which fell below the minimum established by law as a result of the housing crash. It’s the fourth FHA fee increase in the last three years and is expected to bolster the fund by more than $1 billion through 2013, according to HUD.

The fee increases will raise the cost of a $200,000 FHA mortgage by about $24 a month, assuming the borrower includes the upfront charge in the amount financed through a 30-year mortgage.

The House is out of session this week, but on Wednesday at 10 a.m. EST, all eyes and ears will be fixed upon the Senate Banking Committee questioning of JPMorgan Chief Executive Jamie Dimon as he attempts to explain how and why, under his watch, the firm lost at least $3 billion on a bad trade.

The hearing comes a week after the Federal Reserve, to protect against another JPMorgan-like implosion, finalized a set of rules that requires large banks to hold more capital against their trading books. The market risk capital rules, effective Jan. 1, 2013, are intended to force big banks to better capture the risk posed by complex financial products. They are a result of international cooperation with the Basel Committee on Banking Supervision.

“The final rule will better capture positions for which the market risk capital rule is appropriate, enhance sensitivity to risks that are not adequately captured by the current regulatory methodologies and increase transparency through enhanced disclosures,” the Fed said last week.

San Francisco-based Mortgage Resolution Partners and local governments in California are exploring a controversial government power used to force homeowners to sell their property to make room for new roads as a way to solve the housing crisis.

Rather than forcing people out of homes, the scheme would use compulsory purchase powers known as “eminent domain” to keep them in.

If it proceeds, the public-private partnership would use legal powers to forcibly purchase underwater mortgages and offer occupants fresh mortgages with reduced debt. If rolled out nationwide, the biggest losers could be the large banks, who hold loans on their books at more than their current fair market value, the Financial Times reports. People involved with the plan believe it could be disastrous for big mortgage lenders like BofA.

Regulators shut down fours banks over the weekend, raising the 2012 total to 28. This time last year, 45 had failed.

Charleston, S.C.-based Carolina Federal Savings Bank was shut down. The Federal Deposit Insurance Corp. entered into a purchase and assumption agreement with Thomasville, N.C.-based Bank of North Carolina to assume both $41 million of Carolina Federal’s total assets of $54.4 million and $53.1 in total deposits.

The FDIC will retain the remaining assets for later disposition and estimates the closing will cost its deposit insurance fund $15.2 million.

Whiteville, N.C.-based Waccamaw Bank closed. The FDIC entered into a purchase and assumption agreement with Bluefield, Va.-based First Community Bank to assume both $515.3 million of Waccamaw’s total assets of $533.1 million and $472.7 in total deposits.

The FDIC will retain the remaining assets for later disposition and entered into a loss-share transaction with First Community on $330.6 million of Waccamaw’s assets.

Kingfisher, Okla.-based First Capital Bank also closed. The FDIC entered into a purchase and assumption agreement with Edmond, Okla.-based F & M Bank to assume both $40.7 million of First Capital’s total assets of $46.1 million and $44.8 in total deposits.

F & M will pay the FDIC a premium of 7.65% to assume all of the deposits of First Capital. The FDIC estimates the closing will cost its deposit insurance fund $5.6 million.

And Shabonna, Ill.-based Farmers and Traders State Bank shut down. The FDIC entered into a purchase and assumption agreement with Mendota, Ill.-based First State Bank to assume all of $43.1 million of Farmer and Traders’s total assets and $42.3 in total deposits.

The FDIC estimates the closing will cost its deposit insurance fund $8.9 million.

jhilley@housingwire.com

@JustinHilley

 

 

 

 

 

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