Court Ruling Puts Cloud Over Consumer Financial Protection Bureau as Work Slows
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Fannie Mae Said to Sell Boom-Era CMBs to Reduce Holdings
Fannie Mae plans to sell $2 billion of commercial-mortgage bonds issued before the credit market seizure as it seeks to reduce holdings of illiquid assets, Bloomberg News reported yesterday. The government-controlled loan financier, which has returned to profitability after being taken over by U.S. regulators in 2008, is offering securities linked to apartment complexes issued in 2006 and 2007. Demand for bonds backed by loans on commercial-properties from offices to hotels to strip malls is surging, sending values on the debt up by as much as 25 percent since December, according to Deutsche Bank AG. Executives at Fannie Mae and Freddie Mac were given a goal in March of selling off at least 5 percent of illiquid holdings this year as the Federal Housing Finance Agency seeks to make the firms smaller.
Analysis Banks Slow to Pay Out Mortgage Relief
Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis today of government data. In 2011, Wells Fargo agreed to compensate up to 10,000 borrowers after the Federal Reserve found the bank was steering them into subprime loans even though they qualified for better mortgages. But no borrowers have received money yet. Last year, Bank of America agreed to pay some borrowers between $1,000 and $5,000 for what the Justice Department called lending discrimination. The agency said that the bank illegally asked some would-be home buyers who relied on disability income to provide a doctor’s letter verifying the severity of their ailment. But it is still unclear how many people will ultimately be paid, and there isn’t a full list of the victims. The agreements are coming under increased scrutiny from state authorities who are concerned the banks are not living up to their obligations to help homeowners. The New York attorney general recently threatened to take Bank of America and Wells Fargo to court to force the banks to comply with a large national agreement to offer struggling borrowers help.
Hedge Funds Betting More on Freddie Fannie
Some of the hedge funds that made fortunes in the housing-market crash are now betting on the recovery of Fannie Mae and Freddie Mac, the government-controlled mortgage giants, the Wall Street Journal reported today. Paulson & Co. and Perry Capital LLC are among a handful of hedge-fund firms that have bought preferred shares in Fannie and Freddie, which collapsed in value in 2008 after the companies were taken over by the federal government. These firms are hoping Fannie and Freddie's recent return to profitability on the back of a recovering housing market will lead eventually to the companies being able to make payments to preferred shareholders.
ResCap Creditors Ally Nearing Deal on Billions in Claims
Creditors of bankrupt Residential Capital LLC are nearing a deal to settle billions of dollars of claims against the mortgage lender's parent, Ally Financial Inc., a development that prompted a delay in a much-anticipated report on ResCap's failure, Reuters reported on Friday. A mediator overseeing talks between Ally and ResCap creditors asked that an independent examiner postpone his report on claims that Ally should be held responsible for up to $25 billion of ResCap liabilities, according to a court filing. That report was expected to be published last week, but the examiner's attorney said in a court filing on Friday that the report will now be published today. Creditors of ResCap are pursuing billions of dollars of cash that Ally had raised by selling its international business and planned to use to repay the remaining $11 billion of a U.S. government bailout.
Examiners Report Could Spur ResCap Creditors Seeking Ally Cash
A report to be released today could embolden creditors of bankrupt mortgage lender Residential Capital LLC to pursue billions of dollars of cash that its parent, Ally Financial Inc., had planned to use to repay a U.S. government bailout, Reuters reported today. The report by a court-appointed examiner deals with allegations of improper activity before the ResCap bankruptcy, including claims that Ally Bank was stripped from ResCap. ResCap creditors have said that Ally, which is about three-quarters owned by the U.S. government, could be on the hook for up to $25 billion owed to them by ResCap. Former bankruptcy judge Arthur Gonzalez was appointed by a bankruptcy court last year to examine the pre-bankruptcy deals between Ally, ResCap, Ally investor Cerberus Capital Management LP and others. Gonzalez also investigated the negotiations that led to Ally's initial proposed settlement, which was rejected by ResCap creditors.
Freddie Mac to Start Sales of Non-Agency Mortgage Bonds
Freddie Mac, the government-controlled mortgage financier that’s returned to profitability after requiring a taxpayer-funded rescue during the credit crisis, plans to start selling home-loan bonds without U.S. backing from its holdings as rising property prices help boost their value, Bloomberg News reported yesterday. Freddie Mac is offering $1 billion of non-agency securities from its $121.5 billion portfolio this month, Freddie Mac said. The McLean, Va.-based company expects to sell another $1 billion in June and may offer as much as $5 billion in all this year.
Fannie Mae to Send 59.4 Billion to U.S. Treasury
Fannie Mae said today that it would make a $59.4 billion payment to the U.S. Treasury next month after reporting a $58.7 billion first-quarter profit thanks to a big tax benefit the bailed-out mortgage-finance company booked after determining it would generate profits in the coming years, the Wall Street Journal reported today. Fannie recognized $50.6 billion in tax benefits during the first quarter, in addition to pre-tax income of $8.1 billion during the period. That compared to a $2.7 billion gain during the year-earlier period. The tax boost stemmed from reversing write-downs of its deferred-tax assets, which are unused tax credits and deductions that can offset future tax bills but which are worthless if a company is not expected to turn a profit and have taxable income. The mortgage-finance company began writing down the tax benefits in 2008 as rising mortgage defaults threatened to wipe out thin capital reserves.
More Errors in Checks Meant to Aid Homeowners
Three weeks after checks sent to homeowners as compensation for foreclosure abuses were rejected for insufficient funds, the consulting firm at the center of the mishap erred again: a fresh round of checks was written for the wrong amounts, the New York Times DealBook blog reported today. In recent days, Rust Consulting issued nearly 100,000 checks for less than the homeowners were owed. The mistake potentially cheated consumers out of millions of dollars they were owed under a deal reached between the government and the nation’s biggest banks. Federal regulators ordered Rust to fix its mistake, and Rust said yesterday that it had “corrected the error and plans to mail supplemental checks to affected borrowers as soon as May 17.” It attributed the mistake to a “clerical error.”
ResCap Sues Bondholders over Bid for Control of Bankruptcy
Residential Capital LLC is suing a group of junior bondholders to block them from wresting control of the subprime mortgage lender's bankruptcy case, Dow Jones Newswires reported yesterday. In a lawsuit filed on Friday evening in bankruptcy court, ResCap sued the bondholder group—dubbed the ad hoc group of junior secured noteholders—asking a judge to reject their claims on some of lender's assets securing the bonds. Lawyers for ResCap, a subsidiary of government-owned lender Ally Financial Inc., say that the bondholders are attempting to take over the chapter 11 case by manufacturing an "oversecured" position that would entitle them to hundreds of millions of dollars in interest payments. At issue is the bondholders' claim that they're owed $2.2 billion in principal and interest, which includes so-called post-petition interest accruing at about $250 million a year. ResCap's lawyers, however, said that the value of the collateral securing the bonds is only $1.5 billion. If so, that means the bondholders are under-secured and thus not entitled to interest payments.
http://www.foxbusiness.com/news/2013/05/06/rescap-sues-bondholders-over…
In related news, Residential Capital LLC Chief Executive Thomas Marano has resigned as the mortgage subsidiary of auto lender Ally Financial Inc. works its way out of bankruptcy, Reuters reported yesterday. Marano, who joined ResCap in 2008, will remain as a member of the board. Marano spent more than 25 years at now-defunct investment bank Bear Stearns & Co., where he was the global head of mortgage and asset-backed securities. Marano was managing director at Cerberus Capital Management before moving to ResCap. ResCap filed for bankruptcy in May 2012 to protect its parent from mortgage liabilities that threatened to swamp the company. Ally is 74 percent-owned by the U.S. government after a series of bailouts.
http://www.reuters.com/article/2013/05/06/rescap-ceo-resignation-idUSL3…