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Monday Morning Cup of Coffee: Former TARP inspector warns of new financial crisis

Neil Barofsky: Government never resolved too-big-to-fail

September 15, 2013

Monday Morning Cup of Coffee takes a look at stories across the HousingWire news desk, with more coverage to come on bigger issues.

Neil Barofsky, former inspector general of the bailout iniative, the Troubled Asset Relief Program, is displeased with the way things are turning out. So much so, he says the nation is heading to another financial crisis as a result.

To him, it's just not fair that certain financial institution continue to operate in the current economic environment.

“It leaves intact these giant financial institutions that are still too big to fail,” Barofsky said to Here & Now. “Here we are five years later, and the biggest banks are 30% larger than they were in 2008. Even when all the rules are done, it doesn’t get to the core of the problem.”

The big problem, he said, is Congress not acting harshly enough toward the same financial insitutions Barofsky blames for the financial collapse.

Two people, Tamara Tikal and Ray Kornfeld, were arrested Thursday for their part in an ongoing, multistate foreclosure rescue scam. The scam has defrauded distressed homeowners throughout California and elsewhere, according to a press release from the office of the Special Inspector General for the Troubled Asset Relief Program.

One day prior to their arrest, Tamara Tikal’s husband, Alan, was indicted on additional charges for his role in the alleged scam for which he had been earlier charged. In all, his scheme has victimized more than a thousand homeowners, all of whom have paid in excess of $3.4 million. Of the identified victim homeowners, approximately 95% reside in California and at least 185 live in the Eastern District of California.

"The smugness of their alleged scam that deceived more than 1,000 victims is demonstrated by the very name of their business entity, KATN Trust, allegedly short for ‘Kicking Ass, Taking Names,’" said SIGTARP Special Inspector General Christy Romero.

Interactive Mortgage Advisors has provided a $102.9 million Fannie Mae bulk residential mortgage servicing rights offering. The broker has also requested to enter into a forward monthly flow relationship selling $5-$25 million per month in co-issue servicing.

The quality characteristics of the portfolio include: a 3.945% weighted average note rate, a $247,429 average loan balance, less than 1.00% DLQs on 9 months of seasoning and a weighted average FICO score of 720.

Heidi Moore, Guardian's US finance and economics editor, sparked some serious Twitter debate on Friday after posting an article that made the following claim:

"Rising interest rates are not wrecking the housing recovery; what's wrecking the recovery is that house prices are rising faster than the ability of people to afford them. Maybe we thought we could cheat history, and that a housing recovery would bring about an economic recovery. That can't happen. The housing recovery can't start until the economic recovery begins."

Read some of the debates from Friday by following Moore’s Twitter account.

The five-year anniversary of the Lehman Brothers crash also brings two banks competing for the title of the world’s biggest by market capitalization. One is Wells Fargo (WFC), a San Francisco-based institution; the other is China’s state-owned ICBC.

"It says something about the state of global finance that both are largely domestic, conventional lenders, and that both are buoyed and buffeted by the policies of their respective governments," writes The Economist.

Wells Fargo has gathered a quarter of the American mortgage market. In 2012, it was responsible for originating close to a third of the country’s home loans. According to The Economist, no lender has benefited more from the Federal Reserve’s ultra-low interest rates, which encouraged American homeowners to refinance in droves. Because of those policies, Wells has recorded 14 successive quarters of profit growth. Read the full story on The Economist here.

The Federal Deposit Insurance Corp. announced that the shutters had been put up on two banks at the end of last week.

The Connecticut Department of Banking and the FDIC on Friday closed The Community’s Bank in Bridgeport, Conn. The FDIC was named receiver.

As of June 30, 2013, The Community's Bank had approximately $26.3 million in total assets and $25.7 million in total deposits. The amount of uninsured deposits will be determined once the FDIC obtains additional information from those customers.

And on Friday, First National Bank in Edinburg, Texas, also operating two branches as The National Bank of El Paso, was closed by the Office of the Comptroller of the Currency, and the FDIC was named receiver.

As of June 30, 2013, First National Bank had approximately $3.1 billion in total assets and $2.3 billion in total deposits. In addition to assuming all of the deposits of First National Bank, PlainsCapital Bank agreed to purchase approximately $2.7 billion of First National Bank's assets.

The FDIC will retain the remaining assets for later disposition.

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