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Some private investors are betting that reverse mortgages, an investment product aimed at older people in need of cash, will make a resurgence as more homeowners reach retirement age in the coming years, the New York Times DealBook blog reported yesterday. A reverse mortgage start-up based in New Jersey has raised about $230 million in a private offering managed by the investment banking boutique FBR Capital Markets. Investors in the private sale of shares of Reverse Mortgage Investment Trust included hedge funds, wealthy individual investors and customers of the investment firm. The private placement in February sets the stage for a potential initial public offering for the company, which operates under the name Reverse Mortgage Funding. A public offering would make Reverse Mortgage Funding, which opened its doors last summer, one of the first stand-alone publicly traded companies to specialize in reverse mortgages, which provide government-guaranteed loans to homeowners based on the equity value in their homes in exchange for fees and interest payments that are paid when the loan comes due.

U.S. regulators have spent the past six years forcing banks out of businesses seen as risky, but now they are beginning to worry that they have pushed some financial activity into the shadows and outside their legal reach, the Wall Street Journal reported today. Regulators on the Financial Stability Oversight Council yesterday said that they are monitoring new practices by nonbank financial firms — including mortgage-servicing companies, insurers and asset managers — concerned that their activity could pose an emerging threat to the financial system. Some of these firms aren't required to maintain the same capital cushions that banks need to guard against a severe economic downturn, the regulators said. While regulators in the past have expressed concern about systemic risks of very large nonbank firms, the new report deals with nonbank firms generally and addresses concerns not previously raised. Since the crisis, U.S. regulators have subjected banks to stricter rules, including requiring that they hold more loss-absorbing capital and reduce exposure to riskier businesses. Regulators now are monitoring whether financial firms unencumbered by similar restrictions are stepping into the void left by big banks.

Federal Reserve Chair Janet Yellen said yesterday that the U.S. economy is improving but noted that the job market remains “far from satisfactory” and inflation is still below the Fed’s target rate, the Associated Press reported yesterday. Speaking to Congress’ Joint Economic Committee, Yellen said that as a result, she expects low borrowing rates will continue to be needed for a “considerable time.” Yellen’s comments echo earlier signals that the Fed has no intention of acting soon to raise its key target for short-term interest rates even though the job market has strengthened and economic growth is poised to rebound this year. The Fed has kept short-term rates at a record low near zero since December 2008.

The U.S. is pressing for guilty pleas from the parent companies of banks under investigation, including Credit Suisse Group AG, Bloomberg News reported today. Whether prosecutors would be willing to accept a guilty plea from a smaller unit rather than insisting on the bank holding company has been debated since authorities started speaking this year about imminent criminal actions in speeches, tweets and even a video this week from the U.S. Attorney General. Credit Suisse is trying to settle a U.S. tax evasion probe that could include a penalty of more than $1 billion. Discussions could lead to a penalty of $1.6 billion or more.

Credit Suisse Group AG is close to resolving a U.S. tax-evasion probe with an agreement that might include a penalty of more than $1 billion, after creating a separate entity last year to house the businesses involved, Bloomberg News reported today. The new unit, CS International Advisors AG, was incorporated in December with a Swiss banking license. In February, Credit Suisse moved its U.S. cross-border business into the fully owned entity, according to records from the Commercial Register of the Canton of Zurich. The Justice Department, cracking down on foreign banks that help Americans cheat the Internal Revenue Service, may charge the unit instead of the whole firm, said Scott Michel, a tax lawyer at Caplin & Drysdale in Washington, D.C. Prosecutors, who must weigh economic consequences when taking action, have expressed concern about the potential fallout from charging big banks.

Banks again are doling out money to hedge funds and other investors to finance purchases of complex debt securities, returning to a practice that helped fuel the debt boom ahead of the financial crisis, the Wall Street Journal reported today. RBC Capital Markets, Société Générale SA and Wells Fargo & Co. are among the banks offering to let investors borrow money, also known as providing leverage, to buy collateralized loan obligations (CLOs), say investors and bankers. CLOs are bonds typically backed by pools of low-rated corporate loans. While banks have lent to a handful of investors, the practice picked up late last year when funding costs began to fall. Banks' increased willingness to lend follows new rules weighing on the $300 billion U.S. CLO market. Many banks own CLOs themselves, holding about $130 billion on their books.

Attorneys for Jon Corzine and other former MF Global officials have an "urgent need" to tap the company's insurance money to continuing defending themselves against a deluge of litigation tied to the brokerage's collapse, Dow Jones Daily Bankruptcy Review reported today. More than a dozen former directors, officers and employees of MF Global Holdings and its defunct brokerage on Tuesday filed a letter urging a bankruptcy judge to let them draw additional insurance proceeds, which a pending legal battle has blocked them from tapping for almost a year.

The official winding down Lehman Brothers Holdings Inc.'s brokerage business says he plans to return more than $4 billion in cash to former employees and other creditors, the Wall Street Journal reported today. James W. Giddens, the court-appointed trustee winding down Lehman's broker-dealer, said yesterday that now that he has made whole the failed brokerage's customers, he can turn his full attention to creditors. "With the return of 100 percent of customers' assets, we are now able to lay out a clear plan for winding down the general estate and distributing assets to general creditors as quickly as possible," Giddens said. The distinction between "customer" and "creditor" is a crucial one in the Lehman case. Individual customers of the U.S. brokerage, which was under the purview of the bankruptcy court but not technically in bankruptcy like Lehman's parent, received all $92.3 billion they were owed almost immediately after Lehman's bankruptcy. But general creditors of Lehman's brokerage are set to recover much less.

Fannie Mae and Freddie Mac could require another $190 billion in government support under a worst-case economic scenario, according to stress test results made public yesterday by the firms' federal regulator, the Wall Street Journal reported today. The stress tests, mandated by the Dodd-Frank financial-regulatory overhaul, are designed to forecast potential losses in a "severely adverse" economic environment. The projections released yesterday by the Federal Housing Finance Agency "are not expected outcomes," the regulator said in its report. The stress tests are designed to be similar to those conducted by the Federal Reserve to measure the capital adequacy of large banks and insurance companies. Fannie and Freddie were seized by the U.S. government in 2008 through a legal process known as conservatorship as losses threatened to wipe out thin capital reserves. The Treasury agreed to inject vast sums of aid to keep the companies afloat, and it ultimately provided $188 billion in infusions. The rebound in home prices since 2012 has boosted the fortunes of the companies, which have returned $203 billion to the Treasury in the form of dividend payments.

Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades, the New York Times reported today. In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.” Addressing those concerns, prosecutors in Washington, D.C., and New York have met with regulators about how to criminally punish banks without putting them out of business and damaging the economy. The new strategy underpins the decision to seek guilty pleas in two of the most advanced investigations: one into Credit Suisse for offering tax shelters to Americans, and the other against France’s largest bank, BNP Paribas, over doing business with countries like Sudan that the U.S. has blacklisted.