FT Alphaville does like a good Senate Banking Hearing. Especially when they feature a political body slam on proper statistical methods. And so we are proud to announce this month’s Ultimate Statistics Fighter… [dramatic pause]… is Senator Elizabeth Warren!
Warren demonstrated her moves on Thursday during a hearing on Outsourcing Accountability? Examining the Role of Independent Consultants. (Don’t let the incredibly dull title of the hearing deter you. That would be a mistake. Don’t be that person.) Read more
A grand settlement on states’ foreclosure investigations remains out of grasp because banks want a legal waiver that would cover lending and securitisation in addition to servicing, the WSJ reports. State attorneys general and federal officials have rejected a blanket waiver out of hand although they are prepared to provide immunity for practices including robo-signing that are related to servicing. “They wanted to be released from everything, including original sin,” said one official. One indication of a narrower deal came last week, as officials negotiated with Bank of America on a waiver for securitisation practices, Bloomberg reported.
Ally Financial, the US home and car loan company, is set to shelve its IPO plans because of weak market conditions and impending fines due to its mortgage foreclosure practices. Ally declined to comment but three people close to the situation told the FT that there was a small chance the offering, planned for June, would go ahead with a modest delay in July, but it was more likely to be delayed until after the summer. The delay in listing Ally, formerly known as General Motors’ financial arm GMAC, would stymie the Obama administration’s plans to sell a chunk of its majority stake in the company, which was acquired during the automotive sector bail-outs.
Hopes are fading for a far-reaching settlement between regulators and banks over improper home foreclosures as some regulators press ahead to reach their own settlements with banks that others involved in the talks deem weak, the Wall Street Journal says. The dispute pits federal regulators against state attorneys general, who are seeking stiff penalties and comprehensive changes in the way banks foreclose on homeowners and modify loans. Advocates of tougher sanctions accuse federal banking regulators, including the OCC and the Federal Reserve, with going easy on the banks. Federal regulators are on the verge of sending their orders, and federal and state officials are scrambling to maintain an uneasy alliance as talks reach a critical point and test whether there can be a universal settlement.
Goldman Sachs is exploring options for its mortgage servicing division including a sale that would end its foray into collecting on delinquent borrowers, the FT says. Goldman bought Litton Loan in 2007 for $428m as part of a strategy to acquire troubled mortgages on the cheap and restructure the debts, but its hopes faded as fewer distressed loans came up for sale than expected and prices remained higher than it was willing to pay, former employees say. NYT DealBook says the unit is up for sale amid continued concern over whether borrowers were improperly evicted from their homes.
Nestled in the 27-page mortgage settlement term-sheet which surfaced earlier this week, is a clause that could have big consequences for mortgage investors.
It looks like this: Read more
The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could make the US’s biggest banks pay for reductions in loan principal worth billions of dollars, the Wall Street Journal reports, citing people familiar with the matter. Terms include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers in negative equity. Some government officials are pushing for banks to pay more than $20bn in civil fines or to fund a comparable amount of loan modifications for distressed borrowers. FT Alphaville adds that $20bn of losses would classify as ‘a benign scenario’ under estimates produced by JP Morgan last year.
Regulators are preparing to issue mortgage servicers with fines after a report found ‘critical deficiencies’ in the way they handled foreclosures, Reuters reports. Prepared congressional testimony by the acting head of the OCC reveals that investigators have found violations of state laws by servicers, including a ‘small number’ of wrongful evictions. The commissioner of the Federal Housing Administration said on Wednesday that penalties could range from fines to loan modifications or forgiveness of principal. Punishments could be announced for institutions including Wells Fargo, JPMorgan and Bank of America within days, according to the WSJ.
Back in 2005 in Springfield, Massachusetts…
Remember this chart? It’s old, but still relevant.
Should banks be trembling in their boots after Friday’s “Ibanez case” ruling from a Massachusetts High Court — you know, the one that said Wells Fargo and US Bancorp couldn’t foreclose on two properties in the eastern seaboard state.
Laurie Goodman at Amherst Securities thinks not. Read more
A footnote, from the US Treasury’s Hamp programme.
The Home Affordable Modification Plan was created in the spring of 2009 with the stated goal of keeping delinquent homeowners in their houses. It’s now widely regarded as a failure — with just 519,648 permanent modifications completed. Read more
Goldman Sachs is considering a sale of its Litton Loan mortgage-servicing division, a move that would potentially bring an end to the bank’s three-year foray into the business of collecting home loans and foreclosing on delinquent borrowers, according to the FT. Goldman has been approached by at least one potential buyer, but the talks broke down over price and no sale is imminent, people familiar with the situation said. Goldman bought Litton in late 2007 to gain a better understanding of the housing market, but profits quickly eroded and the servicer has also become entangled in recent scandals over foreclosure practices.
Jeff Horowitz at American Banker has a cool story to add to the mortgage servicer conflict-of-interest meme. It’s all about — wait for it — forced-place insurance.
This is the stuff that banks foist onto mortgage borrowers (to protect mortgage investors) if the borrowers don’t take it out and pay for it themselves. Sounds reasonable, right? And it is, except that the opportunity for profiteering does exist. The hint is in the “forced” bit of the forced-place insurance name — synonymous with “selected by your bank”, which may or my not own its own insurance biz. Read more
The mortgage servicing biz is not coming out of the foreclosure scandal unscathed.
What was once a fairly steady industry — based on narrow margins but lots of volume — is suddenly having to rethink its business model. The foreclosure scandal has also firmly kicked some of the conflicts between servicers and Mortgage-Backed Securities (MBS) investors straight into the public eye — and the courts. Read more
Foreclosure fraud! Robosigning! Repurchases!
How, as Mike Konczal noted a couple weeks ago, did mortgage servicers get it so wrong? Read more
Wednesday morning. New York. The Robo-Signers Conference.
Hosted at the swanky Core Club on on East 55th Street this was not an event for the Robosigners themselves — the foreclosure document-signing recruits who sparked a wave of industry uncertainty. Instead it’s a meeting of mortgage-backed securities (MBS) investors interested in exploring potential legal action on faulty loans. Read more
Oh Sarbanes-Oxley, you always come back to haunt financials, don’t you?
Sarbox, enacted in 2002 in response to corporate fraud at firms like Enron, mandates increased personal liability for senior managers. And we should be clear here — it doesn’t seem to be Sarbanes-Oxley per se that could come back to haunt mortgage servicer execs accused of shoddy practices, but rather Sarbox-type agreements they may have signed as part of the US Treasury’s various housing programmes. Read more
So… since FT Alphaville was working on a special RMBS supplement;
We spoke with Scott Simon, head of MBS at Pimco last week — who gave us this quote: Read more
Congress is so far treading lightly on investigating the foreclosure scandal with the extent of the problem still unclear, the American Banker reports. They may find out soon enough. Fannie Mae and Freddie Mac are entering the crisis for the first time via their use of ‘foreclosure mills’, law firms that gave advice on the process to mortgage servicers, the WSJ says. Fannie and Freddie say that it was servicers’ responsibility for ensuring foreclosures are done properly. Even so, the agencies play a critical role in the RMBS market. Meanwhile, the NYT provides detail on the joint investigation begun into the crisis by all 50 state attorneys-general, and reports on banks’ failures leading up to the crisis. It’s not for the faint-hearted.
We like to think of the foreclosure scandal as Hamp on super-steroids, with a hefty dose of litigation and structured finance for added fun.
Recall that the US administration’s mortgage modification program was aimed simply at keeping people in their houses. The foreclosure freeze does this too, albeit somewhat inadvertently. Read more