BofA vs. U.S. Government; Big Banks Becoming Bigger; How Will Ed DeMarco Cast his Ballot?
This short video isn't funny in the least, but should not be missed
for anyone in the financial services sector, IT, or anyone else for that matter
interested in privacy issues.
a few years back when Countrywide, and Bank of America, would flex their muscles
in front of their clients? Like, "We'll give you a great price, but we
demand 50% of your volume be sold to us." And then there was, "We'll
give you a warehouse line, but for our product only." That whole karma
thing might just be for real. Looking at the big bank deals over the last 3-5
years, some worked out better than others, putting some banks at a disadvantage.
An analysis by the WSJ finds Countrywide has cost Bank of America about $40
billion since the deal was closed. (Chase/WAMU and Wells/Wachovia did not
go quite so badly, obviously.) And now Bank of America is being sued in Federal
Court for civil mortgage fraud in a complaint seeking civil penalties as well
as treble damages and penalties. The suit alleges that Fannie Mae and
Freddie Mac lost over $1 billion because of defaulted loans fraudulently sold
them by Countrywide Mortgage and BOA. The suit alleges the from at least
2007 through 2009 implemented a new loan origination process called the
"Hustle," which was intentionally designed to process loans at high
speed and without quality checkpoints, and which generated thousands of
fraudulent and otherwise defective residential mortgage loans sold to Fannie
Mae and Freddie Mac (the GSEs) that later defaulted. The Hustle continued
under the ownership of BofA. Ah, fate...
Many folks wonder if U.S. banks are going to suffer a different fate due to Basel
III. European Union banks may get an unfair advantage over global rivals
because of the bloc's failure to apply international capital rules properly.
The Basel Committee on Banking Supervision said in an unusually blunt report
that EU rules for implementing the committee's Basel III bank capital accord
being phased in from January are "materially non-compliant" in two
crucial respects. Banks could end up holding too little capital against
exposures to risky assets like low-rated government debt, or their buffers may
not be of high enough quality to absorb losses in a crisis, the committee said.
Although the news isn't "fresh off the ticker," it still holds true.
A month or so ago I had dinner with some executives from Scott Valley
Bank in San Francisco, and we were talking about bank concentration. I was
told that currently the top 10 banks in the U.S. hold 85% of the assets! (In a
separate conversation about banking with Phil Hudson of Aspen Consulting,
I learned that the top 10% of depositors generally account for 70% of the
deposits while the bottom 50% of depositors usually account for about 2% of the
deposits - which are often the most unprofitable due to pricing.) Sure enough, large
banks have absorbed so much in total industry assets that those over $10
billion now control 80% of all assets and the top 660 banks control 90% of all
assets. "That means the remaining 6,586 community banks are fighting tooth
and nail for the remaining 10% of assets. Clearly the largest banks control the
assets in the industry, but more concerns surface when you consider community
banks are so reliant on net interest income to drive performance. Banks with
$1B or less in assets derive 80% of total revenues from net interest income.
That is tough when you consider the very largest bank competitors out there
have just reported 3Q net interest margin (NIM) levels at the lowest levels in
more than a decade. Such tight NIM is driving fierce competition for loans, so
the sooner banks take action to try to stabilize the loan portfolio, the better"
per Pacific Coast Bankers' Bancshares.
I guess Ed DeMarco won't be voting for President Obama. "If Mr. Obama
wins re-election, Mr. DeMarco's days may be numbered, with senior White
House officials quietly telling housing industry activists in recent weeks that
he will be replaced." Ed's been there since 2009. Here you go.
It's time for a little recent MI, bank M&A, and investor news.
These relatively recent tidbits will give you a flavor for what's happening.
Radian was a big presence at the Chicago MBA conference, spreading the
news that it expects to make a profit in 2013. Excellent! National MI
was certainly a big presence as well. As folks may be aware, the company is
being sued by Arizona, with the lawsuit centered on PMI and its employees. But here
is some fresher news on National MI.
bank M&A news continues - grow, shrink, or merge! (Watch for this to pick
up in mortgage banking in the next few years.)
Washington's Sterling Financial will buy California's American Heritage Holdings
(holding company of Borrego Springs Bank). Pennsylvania's F.N.B. Corp. ($11.6
billion in assets) will buy Annapolis Bancorp ($437mm) for $51mm in stock. BBCN
Bancorp ($5.1B, CA) will buy Pacific International Bancorp ($209mm, WA) in an all-stock
transaction valued at about $8.2 million. With all that in mind, and just in
the last week, SNL Financial reports the 175 bank and thrift mergers announced
through 3Q have gone at a multiple of 114% of tangible book vs. 101% in 2011.
Fannie Mae has plans to adjust the required interest rate for standard
modifications with pre-modification mark-to-market LTVs of 80% and over.
The new interest rate must be implemented for Trial Period Plans effective on
or after December 1st; servicers, however, are encouraged to implement the
revised rate for Trial Period Plans effective on or after November 1st.
See www.efanniemae.com for the updated required
interest rate and note that modifications approved at the prior rate may not be
resubmitted for approval at the new one.
Effective October 13th, Fannie updated eligibility requirements such that
existing loans with investor-paid mortgage insurance sufficient to meet the
credit enhancement requirements for loans with LTV ratios over 80% can qualify
for DU Refi Plus. This is provided that the policy can be
converted to borrower- or lender-paid coverage; if the insurance can't be
converted, the loan remains ineligible. Certain loans covered by
investor-paid policies with Triad Guaranty Insurance Company will also remain
ineligible. This doesn't change anything for existing Refi Plus loans
whose investor-paid insurance satisfies the credit enhancements for LTVs over
80%, but Fannie encourages servicers to keep an eye out for changes.
As part of the recently announced HARP 2.0 enhancements, Fannie has updated the
list of eligible employment, base pay, overtime, bonus, commission,
self-employment, alimony, child support, rental, retirement, pension, Social
Security, and temporary leave income documentation methods for DU Refi Plus
II Same Servicer, Other Servicer, and Value Plus loans. The required
documentation for verification of retirement accounts; trust accounts; secured
borrowed funds and gifts; stocks, bonds, and mutual funds; and checking,
savings, certificate of deposit, and money market accounts has been revised as
well. The enhancements also state that proof of asset liquidation is not
necessary even if borrowers must pay closing costs and that borrowers who are
being removed through refinance transactions are no longer required to be
removed from the property deed or title.
Wells Fargo has updated its Market Classification List, the latest
version of which is available via the Wells Fargo Funding website. The
updates affect all Best Effort registrations, Best Effort locks, and mandatory
commitments dated October 15th and after.
As a result of the GMAC Market Portal changes at the beginning of
October, Florida and Nevada are now eligible for the Maximum Market upgrade of
10% LTV/CLTV permitted for D Markets. Arizona and Michigan have also been
upgraded to the C Market; existing credit guidelines still apply.
With the implementation of DU Version 9.0, Franklin American updated its
guidelines on maximum LTV/CLTV/HCLTVs for ARMs, appraisal documentation
recommendations, property inspection waivers, minimum employment and income
documentation requirements, minimum documentation on LP loans, disputed trade
lines, conversion properties, and the Funds section in the Underwriting
Analysis Report for all relevant loans. The FAMC pricing engine will be
updated accordingly, as will the FAMC online manual, which had the changes on
Affiliated Mortgage has added several names to its Unacceptable
Appraiser List, which is effective for all loans with underwriting decisions
dated October 11th and after regardless of lock date. The updated list is
Pinnacle Capital reminded clients that all automated findings should be
included in submission packages; packages without findings will be considered
incomplete and held at the registration stage. PCM will run LP
separately, but findings should be included for informational purposes, and if
using DO, clients should authorize the findings to be released to PCM.
PCM Platinum may also be used to run automated findings. In addition,
clients are reminded that all borrowers whose names are listed on the Note
should be presented with Anti-Steering Loan Options Disclosures as per
The Pinnacle appraisal pricing matrix has been updated. The
updated fees are effective for all loans originated on or after October 8th.
As expected, the Fed did not make any major policy changes as yesterday's 2-day
traditional meeting wrapped up. The policy statement was largely unchanged
with word choice still slanted towards concerns over slow growth, no change to
a 0% overnight rate into 2015, no change with the $40 billion/month MBS
purchase program serving to keep mortgage rates down and supporting real estate
loans, and "Operation Twist" continues through year-end.
and mortgage companies continue to count their blessings that the
Fed will be buying this much in residential mortgage-backed securities indefinitely
until the employment market "improves substantially". But what's a bank to do? QE3
has served to drive down the yield on mortgage backed securities significantly,
and with MBS a major holding in most bank investment portfolios, finding new
purchases to replace cash flows is proving challenging. Every loan officer
knows that they're refinancing borrowers from 2011 and earlier this year, and
as a result prepayment speeds have increased. But for most community banks,
loan growth is difficult and margin compression has become a major concern.
Banks should be working on plans to address this low rate environment for a few
Meanwhile, over in the housing market, yesterday we learned that New Home
Sales were up 5.7% in September, much stronger than "the experts" expected and
hitting a 2-year high. The median sales price of new houses sold in September
2012 was $242,400; the average sales price was $292,400. The seasonally adjusted
estimate of new houses for sale at the end of September was 145,000, about a 4.5
month's supply at the current sales rate.
Residential agency MBS prices were lower/worse a shade, by the end of the
day, and the 10-yr closed at 1.77%. No volatility is better than rates sliding
higher. Maybe we'll muddle around here until next Friday's unemployment data. I
did hear something about an election coming up ("vote early, vote often!")
Fixed income markets took a beating overnight as, as one trader put it, "real
money was good sellers/payers of 5 to 10s. The recent strength of the yen and
the overnight break of the 200-day moving average on 10- T-notes have prompted
some real money accounts to liquidate US rate products." Not helping was today's fun & games with Durable Goods for
September (+9.9%, higher than expected) and Jobless Claims at 369k, down from a
revised 392k, so down 23k! At 7AM PST the cavalcade of housing numbers
continues with the National Association of Realtor's Pending Home Sales Index,
and later we'll have a $29 billion 7-year note auction. The 10-yr is up to
1.83% and MBS prices are worse about .250.
(I have a
short joke today to give you time to watch that video mentioned in the first
Two brooms were hanging in the closet and after a while they got to know each
other so well, they decided to get married.
One broom was, of course, the bride broom, the other the groom broom.
The bride broom looked very beautiful in her white dress. The groom broom
was handsome and suave in his tuxedo. The wedding was lovely.
After the wedding, at the wedding dinner, the bride-broom leaned over
and said to the groom-broom, "I think I am going to have a little whisk
"IMPOSSIBLE!" said the groom broom. "WE HAVEN'T EVEN SWEPT
(Sounds to me like she was sweeping around.)