Saturday, January 30, 2010

Fannie, Freddie Get Tough With Banks

voltron asks: how long before our Treasury Secretary asks them to stop doing this?


Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

Non paywall version:

Wednesday, January 27, 2010

Forbes: Short Wells Fargo

Voltron says: Hat tip to "Jeep". Wells Fargo has since repaid the TARP money (just in time to pay themselves bonuses), even though they could not afford it because they did not want to be the only large bank that did not repay.

Sunday, January 24, 2010

SEC mulled national security status for AIG details

NEW YORK (Reuters) - U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

White House Is Confident Bernanke Will Be Confirmed

Voltron says: The White House remains behind the fed chairman (for
now) and it looks like he will be reappointed next week.

Will More Borrowers Walk Away From Their Mortgages?

Friday, January 22, 2010

Bonds Are Too Hot

By Matthew Craft -

The flow of money into bond funds has had many welcome knock-on effects. As bond prices rise and yields fall, borrowing costs have dropped, helping companies tap the flood of cash to pay off other more expensive debts. But market watchers at Citigroup are beginning to worry about bonds' newfound popularity.

In a note to clients this week, Citigroup strategists compared the current trend to the craze for technology stocks more than a decade ago. "Such conditions were evident for aggressive growth equity mutual funds during the late 1990s at the apex of the Internet bubble and a similar trend appears to be forming now," wrote Tobias Levkovich and Lorraine Schmitt. They liken the paltry yield on Treasury bills - 6-month bills currently pay 0.13% -- to the high valuations given technology stocks in late 1999.

Many are rejecting loan modifications

Homeowners are opting to flee rather than accept loan modifications that might still leave them underwater on their mortgages.

Desperate homeowners scrambling to get a loan modification through federal foreclosure relief programs are beginning to shun the offer, opting for a strictly business approach to the dilemma -- walking away.

Because the majority of modifications don't reduce the principal payment on loans made during the overpriced boom years, people with underwater mortgages could still be drowning 10 years out.

The better option for those borrowers, some say, is to take the hit now and attempt a short sale, deed in lieu, or even allow their home to go into foreclosure.

Rep. Frank to Recommend Replacing Fannie Mae, Freddie Mac

Jan. 22 (Bloomberg) -- Representative Barney Frank said his committee will push to replace Fannie Mae and Freddie Mac, seized by regulators almost 17 months ago, with a different model for U.S. mortgage financing.

"The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. "That's the approach, rather than a piecemeal one."

New off-balance sheet rule: Little impact on Wells


The new accounting standard requiring banks to bring assets back on balance sheet had a negligible impact on Wells Fargo. Despite having over $2.0 trillion of off-balance sheet assets, Wells consolidated just $10 billion of risk-weighted assets when the new standard took effect January 1.

Political pivot point

Wisely Listening to Volcker, Obama Proposes Restrictions on Banks
By Don Bauder - San Diego Reader

Finally showing some backbone and taking advice from former Federal Reserve Chairman Paul Volcker, President Obama today (Jan. 21) proposed restriction on large banks' abusive practices. Obama's proposal would prohibit commercial banks from owning or investing in hedge funds or private equity funds. Most significantly, the proposal would put restrictions on proprietary trading by the big financial institutions that today can borrow from the Federal Reserve at zero percent and gamble in various markets. The president's proposal would place restrictions on banks using federally-insured deposits for gambling activities. The proposal has to pass Congress, and financial institutions will find loopholes, but initial response is positive -- that is, stocks of these big banks are tanking. At least initially, the market fears that the proposals could stick. That's good.

Voltron says: President Obama is calling this the "Volker Plan". This is significant because according to former bank regulator, Prof. William Black, limiting bank size will cause the ponzi schemes to collapse because all ponzi schemes must continuously grow. This marks the ascendency of former federal reserve bank chairman Paul Volker and the marginalization of President Obama's soon-to-be-former economic team: Treasury Secretary Tim Geithner and Larry Summers. Tim and Larry were responsible for the big bank bailouts that have backfired politically and, as we will soon see, have only delayed the crisis. Paul Volker raised interest rates aggressively in the early 80s to combat inflation, the this could pre-sage a change in interest rate policy. Also Federal Reserve Chairman Ben Bernanke's re-appointment is now in doubt.

Thursday, January 21, 2010

Wells Fargo reports unexpected 4Q profit


Wells Fargo set aside $5.91 billion for loan losses during the quarter, a 30 percent decline from the same period a year earlier. Bank of America Corp., which also reported quarterly results Wednesday, actually increased its loan-loss reserves by 18 percent during the final three months of 2009.

Wednesday, January 20, 2010

WSJ: Bad Loans Are Reason to Leave Wells Alone

Is Wells Fargo going to be dealing with bad-loan problems after its rivals are in the clear? Fourth-quarter results, reported Wednesday, point to such a scenario.

Wells's nonperforming assets—past-due loans and repossessed collateral—rose 18% from the third quarter. Meanwhile, J.P. Morgan Chase's fell 3.1%, Citigroup's were more or less flat, and Bank of America's rose 5.7%.

Investors watch this credit metric closely. As nonperformers start to fall, banks can slash bad-loan expenses, causing earnings to soar. Nearly all bank stocks have rallied as investors factor in such an earnings boost. But, after the rally, there could be upsets if credit metrics fail to improve in line with expectations. And that is why Wells is interesting. It trades at 1.4 times its book value, compared with J.P. Morgan's 1.08 times. If credit disappoints, the stock could fall to close that gap.

Wells's defenders might say the bank has adequate reserves for its loans. But Wells's nonperforming loans are now 3.12% of outstanding loans, compared with 2.77% at J.P. Morgan. Yet J.P. Morgan's reserve is 74% larger than its past-due loan total, whereas Wells's reserve is the same size.

R U Unemployed?

Visualizing a Trillion

Wells Fargo earnings conference call

Voltron says: all softball questions.

Tuesday, January 19, 2010

More home equity loan drama

Voltron says: How this shakes out will be critical to Wells Fargo.

Monday, January 18, 2010

Wells Fargo will answer questions

Voltron says: Wells Fargo, for the first time ever, will answer analysts' questions during their earnings conference call on Wednesday. Hopefully they will let Meredith Whitney ask a question. Should be interesting.

Friday, January 15, 2010

Short Wells Fargo and give to Haiti

Voltron says: If everybody shorts Wells Fargo and gives 10% of the profits to Haiti, that'll be over $10 Billion in aid.

Big Banks Accused of Short Sale Fraud


In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.

That's all legal.

But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it.

Banks: The Best Short for 2010

Friday, January 8, 2010

Banning Chinese Imports Would Make The U.S. Trade Deficit WORSE

If you ban Chinese imports, then Americans will be forced to import products from other non-China sources that are more expensive than China, but still far less expensive than what can be produced within the U.S..

What happens to a second mortgage in a modification?

Voltron says: This is a huge question for the $800 billion on second lien mortgages (mostly home equity loans) of which Wells Fargo has about $85 billion.


Normally second lien mortgages (which are simply second mortgages taken out on a property) rank subordinate to the first loan. In principle, that means if the property is sold or the borrower defaults, the first lien lender is first in line to get the resulting money, followed by the second lien lender.

But it seems an interesting thing happens when mortgage modifications come into play.

Because the borrower is paying the Hamp-modified first lien amount, and the full second lien amount, the second lien effectively becomes senior to the first. In fact, second lien lenders might even be thought of as benefiting from the first lien mortgage since they have a better chance of getting more of their money back from the borrower.

How is this efficient?

Thursday, January 7, 2010

NY Times: Walk Away From Your Mortgage!

"HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money."

Voltron says: Here's how I look at it: If you live in a non-recourse state (i.e. where they can only repossess the house and cannot go after other non-mortgaged assets) then you will pay a higher interest rate because the banks know that they can't sue you for any shortfall should you default for any reason. You are FORCED to pay a higher interest rate, whether or not you would intentionally default. This is the same as saying you are FORCED to pay for an put option on the house. If you are forced to pay for this option, why wouldn't you use it?

Friday, January 1, 2010