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Businessman Sues FDIC Over His Investment in a Now-Defunct Bank
February 5, 2010
A Chicago entrepreneur is suing the Federal Deposit Insurance Corp. to win back capital he invested in a bank in the months before it failed. Pethinaidu Veluchamy, the chief executive of a direct marketing conglomerate, filed a complaint last week against the FDIC in federal court in Chicago, claiming that the regulator acted in a way that was "arbitrary, capricious [and] an abuse of discretion" in declining to approve a capital restructuring that would have benefited Mutual Bank in Harvey, Ill., before it was taken over last July. Bank experts said the allegations echo criticism by ailing banks — highlighted in a congressional hearing two weeks ago — that regulators' overly rigid rule interpretations unnecessarily led to the demise of some community banks. "There is no question that bank regulators in this market cycle have moved the goal posts for community banks in capital distress, giving banks significantly less time to work out problem loans and raise capital, while simultaneously increasing the minimum capital adequacy ratios for these same banks," said Justin A. Barr, the managing principal of Loan Workout Advisers, a consulting firm. "This [was done] at a time when community bank capital-raising has never been more difficult," Mr. Barr added. "It's all beginning to read like an Ayn Rand novel."
FTC Proposes Ban on Upfront Fees for Loan Mods
February 5, 2010
The Federal Trade Commission is proposing a ban on companies charging consumers upfront fees for loan modification services. In its notice of proposed rulemaking, the agency said it has already brought 28 cases against companies fraudulently offering loan modification services that charge consumers a fee and don't deliver and that state and federal law enforcement agencies have brought hundreds more. The rule would not allow a loan modification company to be compensated until it had a documented offer from a mortgage lender or servicer. It also bars providers from advising consumers to stop communicating with their lender or servicer. Furthermore, the rule would stop modification providers from misleading consumers about the likelihood of getting the results they want and how long it will take; their affiliation with public or private entities, payment and other existing mortgage obligations; and refund and cancellation policies. It also requires consumers to be told the loan modification firm is a 'for-profit' business that provides its services in exchange for a fee, what that fee is, and that there is no guarantee of success. There is a 45-day comment period for the rule, which ends on March 29, 2010. Some states, most notably California, already ban upfront fees for loan modification services.
GMAC Chief Says ResCap's Bleeding has Stopped
February 5, 2010
GMAC Inc.'s chief executive Michael Carpenter sought to reassure investors — as his predecessor Alvaro de Molina did before him — that the bleeding at its Residential Capital LLC unit has stopped. On a conference call, Mr. Carpenter said GMAC expects to "fully resolve the challenges related to ResCap and the legacy mortgage business to minimize its impact on the company." Additionally, a spokeswoman for GMAC said despite media reports to the contrary, that ResCap, as a company, is not necessarily for sale. In an email, the spokeswoman said GMAC is "exploring strategic alternatives" for ResCap including asset sales. As reported, ResCap lost $4 billion in the fourth quarter, and $9.2 billion over the previous eight quarters. Mr. Carpenter told investors that, "You will see steady progress month by month, quarter by quarter." Part of the reason for such optimism is that in December, GMAC marked down certain loans to 40 cents on the dollar, from 70 cents, and transferred the assets from the Ally Bank unit to ResCap, resulting in a $2.6 billion loss in the quarter. "We expect the majority of the losses related to legacy assets are behind us," said Robert Hull, GMAC's chief financial officer.
BoA Origination Executive Named Short Sales/REO Honcho
February 5, 2010
Bank of America Home Loans, Calabasas, has named an origination executive, Matt Vernon, to lead its effort in residential short sales and REO dispositions. Mr. Vernon will move from the bank's production unit over to its servicing division in an effort to move foreclosed properties off its balance sheet. Thanks to its acquisitions of Countrywide Financial Corp., and Merrill Lynch & Co., BoA has one of the largest portfolios of troubled mortgages in the nation, according to nonperforming loan figures compiled by National Mortgage News. "The distressed economy is creating extraordinary volume on mortgage servicers in short sales and post-foreclosure REO activities," Mr. Vernon said in a statement. "We know we need to improve processes and efficiencies in these areas." Prior to his new assignment he worked for the bank as an enterprise sales executive, leading its origination and cross-selling efforts through BoA's 6,000 retail locations.
Analysts: GSE Buyout Risk Fails to Materialize in January
February 5, 2010
A wave of GSE buyouts of delinquent loans widely expected to affect higher-coupon agency mortgage-backed securities this year failed to materialize in 2010's first month of prepayment data, according to Wall Street research reports. Prepayments also slowed despite record low rates during the period, but analysts had widely expected that would occur due to tight underwriting and the fact that many loans had already refinanced. More surprising to some analysts was the lack of buyouts. Credit Suisse researchers said the buyouts may have failed to materialize due to operational challenges involved in implementing the accounting changes expected to spur them. "We believe the economic incentive for the GSEs to buy out delinquent loans is still there and hence buyout risk remains in place in the short term," the analysts said. "However, we would start fading out buyout risk should it not materialize in February." Barclays Capital researchers said some MBS investors have been concerned about massive GSE buyouts, but they have been reassuring them that it may not happen due to portfolio caps and other factors. Overall, 30-year fixed rate prepayments declined by 16%, according to Credit Suisse. Both firms said prepayments were slower than they had expected.
Citigroup Unloads $400MM Residential NPL Portfolio
February 5, 2010
An unidentified hedge fund has agreed to buy a $400 million portfolio of nonperforming residential loans from Citigroup, according to vulture fund investors that play in that market. A spokesman for Citi's mortgage unit declined to comment. One investor said the final sale price was in the range of 50 cents on the dollar. No other details were available on the deal. Wells Fargo & Co. is also in the market with a large NPL market, the bank confirmed to National Mortgage News. (See the Monday edition of NMN for the full story.) With the Citi and Wells deals, it appears the market is seeing an increase in the willingness of some large banks to finally unload some of their delinquent residential loans but with roughly $1 trillion worth of mortgages in arrears it's still a fraction of the entire market. "From the prices I'm seeing some of these banks are still asking too much," said one west coast-based investor.
Fed Will Continue to Support MBS Market If Needed
February 5, 2010
The Federal Reserve is prepared to act as a backstop for the mortgage market after it officially ends its MBS purchase program on March 31, according to New York Fed Bank President William Dudley. The Fed is on track to complete its planned purchases of $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae MBS at the end of this quarter. But Mr. Dudley told the Associated Press that the Fed is not on "automated pilot" and will restart MBS purchases if mortgage rates spike. "If there is a sharp turn in the road," Mr. Dudley said, the Fed will intervene. Wall Street mortgage experts seem divided on how the market will react when the Fed stops its MBS purchase program. The Fed bank president expects it will be orderly since the central bank has telegraphed its intentions well in advance of the March 31 cut off.
FHA Reserve Fund Sees Cash Cushion Improve Slightly
February 5, 2010
The Federal Housing Administration had $32.6 billion in liquid assets on hand at Dec. 31 — a slight increase from three months earlier — to cover potential losses on its $700 billion-plus book of business, according to new figures provided by the agency. Compared to the same period a year earlier, the FHA 'Reserve Fund' saw its cash and "investment" balances improve by 13%. However, FHA would not provide a capital ratio for the December 31 period, noting that the figure is "only calculated once a year, at the end of each fiscal year." In the fall, the reserve fund had a capital ratio of just 0.56%, well below the 2% minimum FHA prefers. Analysts fear that unless the insurance fund can quickly raise premiums, FHA might be overwhelmed by claim payments with the reserve fund going into the red. (For the full analysis see the Monday edition of National Mortgage News.)
Distressed Sales Continue to Dominate Vegas Market
February 4, 2010
The number of foreclosures on the market in the Las Vegas area fell in January for the eighth consecutive month, according to the latest figures from local RE/MAX broker Rob Jenson. Nevertheless, distressed sales — foreclosures plus short-sales — continued to account for roughly three out of every four deals closed in the Vegas-Henderson market in January. It was the fourth month in a row that 78% of all transactions were by troubled owners, give or take 1.5% either way. Twice as many short sales are currently being offered, but foreclosures outsell the "shorts," nearly three to one, according to the RE/MAX broker. Only 2,437 properties with price tags under $1 million sold in January, which was a 20% drop-off from December. The average sales price was $156,385. Nine properties sold for $1 million or more, one less than in the previous month.
7.2 Million Loans Behind on Payments, One Million REOs
February 4, 2010
More than 7.2 million mortgage loans are now behind on payments and one million properties are now in real estate-owned status, according to the January 2010 Mortgage Monitor report from Lender Processing Services in Jacksonville, Fla. Home delinquency rates have surpassed 10%. The total foreclosure inventory rate is 3.2%, and the total non-current rate, which combines foreclosures and delinquencies, sits at 13.3%. The percent of "new" serious delinquencies is 4.64%, higher than any other year analyzed for the same period. Of loans that were current as of Dec. 31, 2008, by Dec. 2009 there were 2.3 million new loans that were considered seriously delinquent. Prime loans, including agency, non-agency and jumbo, have experienced deterioration at a worse pace on a relative basis than subprime, FHA and all loans as a whole. Within the prime category, loans with current unpaid principal balances between $417,000 and $600,000 have performed the worse, LPS said. States with most non-current loans include Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Michigan, Illinois and Ohio. States with fewest non-current loans are North Dakota, South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.
