FHFA Seeks to Limit Mortgage Buybacks Afflicting Big Banks
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Analysis Homeowner Aid Boosts Big Banks
A government program that helps struggling homeowners take advantage of low interest rates to cut monthly mortgage payments is providing an unexpected revenue boost to large banks such as Wells Fargo & Co. and JPMorgan Chase & Co., the Wall Street Journal reported today. Banks that collect those payments could get as much as $12 billion in revenue this year refinancing mortgages under the federal Home Affordable Refinance Program (HARP), according to data compiled by Nomura Holdings Inc. Borrowers who refinance mortgages through HARP, on the other hand, stand to save between $2.5 billion and $5 billion this year, according to an analysis by the Wall Street Journal of Nomura's figures. Federal officials last year revised the HARP program in a bid to encourage banks to refinance borrowers who were underwater on their mortgage. The revisions have driven a sharp increase in refinancings, following years in which the program fell short of government projections. But some critics, including members of the Obama administration, say that the changes risk making HARP a giveaway to big banks.
Private Equity Has Difficult Time Finding Bulk Sales of Low-Cost Homes
The number of low-cost foreclosed homes coming to market has dropped, bulk sales have been slow to materialize and prices are recovering, making it hard for private-equity firms, hedge funds and pension systems to buy as many homes as they need, Bloomberg News reported today. "The folks that raised capital are worried about under-accumulating properties and how to get capital out in an efficient way," said Richard Ford, a managing director in the real estate investment banking group at Jefferies Group Inc. "A lot's being raised. Less than $2 billion of institutional capital has been spent." Investors are trying to spend at least $6.4 billion on single-family rentals, including from funds such as Colony Capital LLC, GTIS Partners, KKR & Co., Oaktree Capital Group LLC, Och-Ziff Capital Management Group LLC and the Alaska Permanent Fund Corp. They want to take advantage of U.S. home prices that are 35 percent below the 2006 peak and growing demand for rentals as the homeownership rate sits at the lowest level since 1997.
Former Loan Officer Claims Wells Fargo Targeted Black Communities for Shoddy Loans
Former Wells Fargo loan officer Beth Jacobson in sworn testimony has described watching loan officers comb through heavily African American areas such as Baltimore and Prince George's County, Md., forging relationships with churches and community groups to sell their members shoddy mortgages, the Washington Post reported today. She says that she processed loans for homeowners with sterling credit ratings with higher interest rates than they needed to pay. And she says she pumped out millions of dollars in mortgages to people with no paperwork and low incomes, becoming Wells Fargo’s top-producing loan officer. Now, Jacobson has recast herself as a crusader for consumers in a battle that has pitted her against the system she once pushed.
Berkshire Sells Some ResCap Debt As it Seeks Probe
Warren Buffett's Berkshire Hathaway Inc. sold more than a third of its Residential Capital LLC bond holdings this week, shortly after calling for a probe into the mortgage lender's pre-bankruptcy transactions, Reuters reported on Friday. Ted Weschler, a Berkshire investment manager, said his company sold its holdings of more than $500 million of unsecured ResCap bonds on June 5 and 6, according to court papers filed on Thursday. Weschler did not disclose sale prices. Berkshire had held the bonds for several years.
Housing Agency to Sell More Troubled Loans
The Federal Housing Administration, struggling to manage a growing glut of delinquent home mortgages, plans to ramp up sales of the loans to investors, a move that could stave off foreclosure for thousands of homeowners, the Wall Street Journal reported today. The government agency, which is expected to announce the bulk sale program today, has more than 700,000 loans in default, amounting to more than 9 percent of the $1 trillion in loans it insures. Mortgage-finance giants Fannie Mae and Freddie Mac as well as banks have shied away from bulk mortgage sales despite heavy interest from investors because they would have to sell the loans at such deep discounts. For now, the FHA says that it plans to sell up to 5,000 defaulted mortgages every quarter. In a small pilot sale in April, the agency sold 279 loans to buyers that paid around $19 million, representing around a third of the outstanding loan balances. It sold about 2,200 loans last year through the program.
Foreclosure Settlement with Banks Filed in Federal Court
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New York Delaware Can Intervene in Bank of America Deal
New York and Delaware won their bids to intervene in litigation over Bank of America Corp.'s proposed $8.5 billion settlement with mortgage-bond investors, Bloomberg News reported yesterday. New York State Supreme Court Justice Barbara Kapnick yesterday granted motions by the attorneys general of the states to intervene in the case over the objections of an investor group. New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden "have identified legitimate quasi-sovereign interests at play" in the case, Kapnick wrote. The judge also said that she is not persuaded by arguments that the intervention would delay or burden the proceeding. The settlement would resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Bank of America acquired the mortgage lender in 2008. Bank of New York Mellon Corp., as trustee for investors, is seeking approval of the deal in state court.
Abacus Bank Charged with Mortgage Fraud
Abacus Federal Savings Bank, a small bank with a major presence in New York City's Chinese community, and 19 of its former employees have been charged with inflating the qualifications of mortgage applicants to meet federal loan standards, a scheme that prosecutors say brought the bank tens of millions of dollars in ill-gotten fees and sent hundreds of millions of dollars in risky mortgages to the investment market, the New York Times reported on Friday. From May 2005 through February 2010, hundreds of millions of dollars’ worth of Abacus mortgages were guaranteed by Fannie Mae based upon false information, the indictment says. In announcing the indictment on Thursday, Manhattan district attorney Cyrus R. Vance Jr. said that nearly all of the Abacus loans were still performing, meaning the borrowers were still making payments on the mortgages they received. However, Vance said that the 2008 financial crisis showed the danger of waiting for illegitimate mortgages to go bad.
ResCap Unsecured Creditors May Fight Quick Sale Lawyer Says
Residential Capital LLC's unsecured creditors may oppose plans by the bankrupt mortgage company to quickly sell most of its assets to Fortress Investment Group LLC (FIG), a lawyer for the creditors said in court, Bloomberg News reported yesterday. The company's unsecured creditors' committee will decide in the coming weeks whether it will oppose ResCap's request for a fast sale of $4 billion of assets, attorney Kenneth H. Eckstein said in court yesterday. The company is pushing to sell assets to Fortress and ResCap's parent, Ally Financial Inc., within 90 days, Eckstein said. ResCap is scheduled to seek approval of those sales from Bankruptcy Judge Martin Glenn next month.