U.S. Banks Bigger Than GDP as Accounting Rift Masks Risk
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ResCap Sues AIG Allstate over Repayment Priority
Residential Capital LLC sued mortgage-bond buyers including AIG Asset Management LLC and Allstate Insurance Co. to prevent them from collecting money ahead of other creditors in the company's bankruptcy, Bloomberg News reported yesterday. Mortgage investors who lost money on securities they bought from ResCap should not be given priority over unsecured creditors, ResCap said in a court filing yesterday. The lawsuit is a response to an attempt by affiliates of AIG, Allstate, Massachusetts Mutual Life Insurance Co. and Prudential Insurance Co. of America to get paid before unsecured creditors, ResCap said. Should the insurers succeed, they may end up collecting twice for almost identical claims at the expense of unsecured creditors, according to ResCap.
JPMorgan Said to Seek First Sale of Mortgage Bonds Since Crisis
JPMorgan Chase & Co. is seeking to sell securities tied to new U.S. home loans without government backing in its first offering since the financial crisis that this type of debt helped trigger, Bloomberg News reported yesterday. The deal may close this month, according to a person familiar with the discussions. Servicers of the underlying loans may include the New York-based lender, First Republic Bank, and Johnson Bank. The market for so-called non-agency mortgage securities is reviving as the Federal Reserve's $85 billion a month of bond purchases help push investors to seek potentially higher returns. Redwood Trust Inc. and Credit Suisse Group AG, the only non-agency issuers since the market collapsed in 2008, have also been working on deals this month. Redwood created $1.1 billion of the debt in January, after issuance tied to new loans totaled $3.5 billion in 2012, according to data compiled by Bloomberg. That compares with less than $1 billion in all of 2010 and 2011.
Report Banks Provide 19 Billion in Mortgage Debt Write-Downs Under Foreclosure Settlement
Five of the largest U.S. banks have provided $19 billion in mortgage debt write-downs to some 240,000 borrowers under the terms of a federal and state settlement of foreclosure-processing violations reached one year ago, according to a watchdog's report released today, the Wall Street Journal reported. Bank of America Corp., which was required to provide the majority of relief under the foreclosure pact, has accounted for the lion's share of principal write-downs, with about $13.5 billion in homeowner debts written off. The Charlotte, N.C.-based lender reported that another $2.2 billion in loan forgiveness modifications were in a trial stage as of Dec. 31. The figures released today by the independent monitor were established to ensure that banks were meeting the terms of their deal. Today's figures were reported by the banks to the monitor, Joseph A. Smith Jr., earlier this month and have not yet been independently verified by his office. Under the settlement, completed last March, banks must provide at least $10 billion in loan write-downs and $10 billion in other homeowner aid, such as short sales, where banks allow borrowers to sell their house for less than the amount owed. Overall, the report said that banks had provided various forms of aid worth $45.8 billion to more than 550,000 borrowers.
CME Derivatives Skirting Dodd Frank Rules Attract CFTC Review
CME Group Inc.'s decision to allow users of its interest-rate swap future contracts to avoid tougher oversight is drawing scrutiny from its government regulator, Bloomberg News reported yesterday. The contracts, which begin as futures and are converted to swaps guaranteed by CME's clearinghouse if held until delivery, will not be included in totals determining whether users face higher collateral, capital and trading requirements, according to CME. Under Commodity Futures Trading Commission rules, traders who buy or sell more than $8 billion of swaps in a year will face the tougher standards by being designated a dealer or so-called major-swaps participant.
ResCap Creditors Press Ally for Larger Pact
Negotiations are breaking down between creditors of bankrupt mortgage lender Residential Capital LLC and its parent, Ally Financial Inc., making it likely that the government-owned auto-finance company will face litigation as it seeks to sever ties, the Wall Street Journal reported today. The creditors, including Wilmington Trust Corp. and other members of a committee representing ResCap's unsecured creditors, are pushing Ally to provide more money to settle potential liabilities it could face as ResCap's parent. Ally, which is 74 percent-owned by the U.S. government, is working to cap its exposure to the subprime lender's mortgage business so it can move forward on efforts to repay its $17.2 billion crisis-era bailout and focus on its core auto-lending and online-banking businesses.
Analysis Business Loans Flood the Market
The surge in bank lending to businesses is raising worries that lenders are competing so aggressively that some will pay for their largess down the road, according to a Wall Street Journal analysis today. Commercial and industrial loans were up 4.4 percent in the fourth quarter and 16 percent for all of 2012, according to data compiled by research firm SNL Financial of Charlottesville, Va. The push comes at a time when many banks have been flooded with deposits as slow economic growth and low interest rates crimp investment. Domestic deposits since mid-2008 have surged 29 percent to $9.06 trillion, according to Federal Deposit Insurance Corp. data. Banks of all sizes are fueling the lending trend. Outstanding business loans at Wells Fargo & Co., the country's fourth-largest bank, jumped 12 percent to $187 billion in 2012. The State Bank of Southern Utah, a community lender based in Cedar City, Utah with $715 million in assets, saw a 9 percent jump for the year to $38 million.
MF Global Payout Plan Approved for Creditor Vote
Bankruptcy Judge Martin Glenn yesterday approved the outline of a plan by liquidators and creditors of failed brokerage MF Global to repay the company's creditors, a key step toward ending its $40 billion chapter 11 case, Reuters reported yesterday. The approved outline was amended to address minor concerns that Judge Glenn had raised in refusing to approve an earlier version of the outline last week. Under the payout plan, the company's trader customers would be repaid in full. Louis Freeh, the trustee liquidating the MF Global parent, has agreed if necessary to support an effort by customers' trustee James Giddens to allocate some of the parent's assets to customer accounts to ensure their full recovery.
Analysis Better Lending Standards Helping to Reduce Foreclosure Starts
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Analysis Mortgage Bill Faces Tough Road in Congress
A sharply divided Congress is not likely to jump at President Barack Obama's challenge to quickly pass a mortgage refinancing bill that supporters say could help millions of homeowners save big each year and boost the economy, the Associated Press reported yesterday. Obama praised the legislation in his State of the Union speech last week, saying that the proposal would help more homeowners with mortgages backed by Fannie Mae and Freddie Mac take advantage of low interest rates and refinance their loans. Even with mortgage rates near a 50-year low, Obama said, too many families that have never missed a payment and want to refinance are being turned down. While the bill could gain traction in the Democratic-controlled Senate, it faces a rough road in the GOP-run House, where many Republicans favor scaling back the government's role in the housing market as a way of aiding the economy. Similar versions of the measure died in the House and Senate's lame duck sessions last year.