TARP Update; SEC Investigating Deutsche Bank; FDIC Settles; Arizona Attorney Pleads Guilty to Mortgage Fraud
Uh oh: New York state’s financial regulator sent a letter to 28 fin tech companies seeking information about their online lending activities. But in these days of these days of online leads, Quicken Loans' Rocket Mortgage, Guaranteed Rate's Intuitive Loan Finder, reliance on technology, etc., is there a clear definition of "fin tech?" Or is it one of those, "I know it when I see it" things? (I don't think I'll find the answer to that in the WWII Museum here in New Orleans where I am today on the anniversary of D-Day.)
Continuing the bank theme, the U.S. Securities and Exchange Commission is investigating Germany's Deutsche Bank and whether it delayed recognizing losses, or at least a hit to revenue, over several years by mispricing mortgage bonds. Reuters reports it is no small matter: DB may have masked up to $1.5 billion of false profit. On top of that, Deutsche's own risk managers warned of a problem, to little avail.
Deutsche Bank began acquiring a large position in these bonds backed by Fannie & Freddie, per Bloomberg. In late 2008. Deutsche's traders amassed some $30 billion of securities within a few months on a simple bet: the mortgage bonds were paying at least 6 percent in interest, while the bank's funding costs were declining thanks to a mix of rate cuts and government support. "The traders reckoned they could make about $1.2 billion a year just by sitting on the position.
"That, though, was based on assuming the bonds were worth at least 108 cents on the dollar...Deutsche's own risk officials, however, pegged the price at just 103 cents on the dollar after factoring in the likelihood of defaults and mortgage refinancing. Executives from market risk management in 2009 ordered a valuation analysis - but other colleagues pushed back against their findings...The 5-cent price difference allowed the traders to book an extra $1.5 billion of gains, which later had to be booked as a loss as they gradually wound down the position over the next four years."
In other legal affairs, the Federal Deposit Insurance Corporation (FDIC) as receiver for five failed banks announced a $190 million settlement of certain residential mortgage-backed securities (RMBS) claims with Barclays Capital Inc.; BNP Paribas Securities Corporation; Credit Suisse Securities (USA) LLC; Deutsche Bank Securities Inc.; Edward D. Jones & Co., L.P.; Goldman, Sachs & Co; RBS Securities Inc.; and UBS Securities LLC.
The settlement resolves federal and state securities law claims based on misrepresentations in the offering documents for 21 Countrywide RMBS purchased by the five failed banks. The FDIC as receiver for failed financial institutions may sue professionals and entities whose conduct resulted in losses to those institutions in order to maximize recoveries. From November 2011 through August 2012, the FDIC as receiver for the five failed banks filed six lawsuits for violations of federal and state securities laws in connection with the sale of the 21 RMBS to the failed banks. The FDIC has filed a total of 19 RMBS lawsuits on behalf of eight failed institutions seeking damages for violations of federal and state securities laws.
ThomsonReuters reports that the settlement funds will be distributed among five failed bank receiverships: Colonial Bank of Montgomery, Alabama, which failed on August 14, 2009; Franklin Bank, S.S.B. of Houston, Texas, which failed on November 7, 2008; Guaranty Bank of Austin, Texas, which failed on August 21, 2009; Security Savings Bank of Henderson, Nevada, which failed on February 27, 2009; and Strategic Capital Bank of Champaign, Illinois, which failed on May 22, 2009.
Yes, the big names are still out there making news in legal affairs. Remember that The United States Court of Appeals for the Second Circuit in the matter of United States ex rel. Edward O'Donnell v. Countrywide Home Loans, Inc., et al., Docket Nos. 15-496, 15-499, recently overruled a $1.27 billion jury award against Bank of America in a case involving the Financial Institutions Reform, Recovery, and enforcement Act of 1989 ("FIRREA") for mail or wire fraud affecting a federally insured financial institution.
The Government's claims were based upon allegations that Countrywide knowingly sold poor-quality mortgages to government sponsored entities ("GSE's") such as Fannie Mae and Freddie Mac, with the intent to defraud the GSE's under the loan purchase agreements the parties had entered into. Importantly, the appeal addressed the only the issue of whether the Government had successfully proved its fraud allegations under the relevant statute. It appears the Government had chosen not to present or pursue evidence related to more basic breach of contract claims and Bank of America latched onto this point by arguing in its appeal that, at most, the evidence presented at trial demonstrated an intentional breach of contract on the part of Countrywide-i.e., that Countrywide/BOA sold mortgages that it knew were not of the quality promised in the contracts-but not that Countrywide acted fraudulently or with any intent to defraud the GSE's. Ultimately, the court of appeals held that the evidence the Government presented at trial did not, and could not, amount to the kind of fraudulent intent that is necessary to prove a scheme to defraud thro ugh contractual promises under the FIRREA.
Northern California's American Mortgage Law Group reports that it "has now obtained settlements for three clients involved in the pending "In re: ResCap Liquidating Trust" litigation and has also been able to successfully negotiate settlements for lenders that have received pre-litigation demands from the Trust. AMLG believes it has now been able to negotiate the largest number of resolutions with ResCap both in and out of litigation. Meanwhile, AMLG is continuing to vigorously defend its clients in the pending litigation as well as negotiate with ResCap in bringing about swift and beneficial resolutions to the pre-litigation demands.
"Outside of litigation, the ResCap Liquidating Trust continues to seek recoupment of losses from lenders by way of pre-litigation demands to lenders around the country. AMLG has been retained by several lenders who have received boilerplate demands alleging AVM breaches and undisclosed underwriting defects. Furthermore, AMLG is being vigilant for any indications that a second wave of litigation by ResCap may be coming."
Besides the big names, there are plenty of individuals going through similar legal proceedings. For example, Arizona attorney Jeffrey Greenberg. "'He not only used his legal expertise to help co-conspirators get suspicious loans on multi-million dollar Southern California homes but also to file bogus lien releases in San Diego County. The bogus lien releases enabled the defendants to take out new loans against the same properties, by making it appear as though the former loans had been paid off. The fraud currently totals up to $33.6 million,' according to authorities."
Occasionally someone will ask me about TARP. The Treasury Department reports there are only 16 banks remaining in the Troubled Asset Relief Program. Recall that the TARP (program) of the 707 it originally invested in or about 2.3%. The Treasury is actively negotiating with these banks to exit through restructuring but has not set a timeframe when these institutions will eventually exit TARP.
As I travel around (today I am in New Orleans) I am often asked about negative interest rates. Although the likelihood of them happening in this country is nil, the impact of negative rates in some overseas countries is actually helping our bond market by pushing investors into US Treasuries and mortgage bonds.
Certainly rates dropped on Friday, primarily due to the weak jobs report that reduced June rate hike odds to essentially zero, as well as lowered odds for the remaining meetings this year. As a reminder, Nonfarm Payrolls were only +38k in May versus a consensus call for +162k - the weakest headline reading since September 2010. By the end of the day the yield on the 10-year was down to 1.70%, and agency MBS prices were better by .250-.375.
And here we are in another Monday. There is no scheduled news today but we do have a speech by Fed Chair Janet Yellen speaking on the economic outlook and monetary policy at 12:30PM EDT. Tomorrow we'll have some Nonfarm Productivity and Unit Labor Costs figures, Wednesday the 8th are last week's mortgage application numbers and JOLTS job opening numbers, Thursday is Initial Jobless Claims, and then on Friday the 10th is a series of University of Michigan figures. In the early going the 10-yr's yield is up to 1.72% and agency MBS prices roughly unchanged from Friday's closing prices after the big rally.
Jobs and Announcements
Certainly hedging companies use technology for financial uses, and congratulations to Shawn Ansley who was just promoted to Managing Director at hedge advisory firm Vice Capital Markets, where he had served as VP of Quantitative Analytics for the last 11 years. Vice has been on a tear as of late, trading over $63 billion last year. If you're interested in hearing what these folks can do for you, call or shoot over an email to their CEO, Chris Bennett.
A well-known, established Midwestern-based full-service seller/servicer is seeking a talented and proven sales executive to lead its retail division. "With a focus on exceeding client expectations, while providing the most competitive combination of price, products and services in the industry, you can take your career to the next level." In the retail channel this lender originates, finances and services agency and non-agency residential mortgages through its network of retail offices. Confidential inquiries should be addressed to me for forwarding on to the principals.
In other personnel news Sierra Pacific Mortgage and its reputation have grown substantially over the years and with that growth means new team members. Anna Beltran accepted a new role as Divisional Retail Sales Manager, overseeing the production growth of the Eastern Region for the Retail Division. Anna will continue to oversee area management, retail branches and bring on new regional management in other areas in the future. Additionally, Michael Shackford has joined as a Regional Retail Manager for the Southeast, reporting to Anna. Michael comes to Sierra Pacific Mortgage with over 27 years of successful strategic and tactical leadership in the mortgage and finance industry. And lastly, on the wholesale side of things, Sierra Pacific hired Tony Catanese as the Eastern Division Sales Manager for its Wholesale Division. Tony has a long track record of success in wholesale with many top firms.
Banc Home Loans TPO Division is currently undergoing an exciting, rapid national expansion that will require the addition of Operations staff in its Irvine, CA office. To meet this need, management will be hosting a job fair on June 14th from 3:00pm - 7:00pm (PDT) at the Irvine Marriott Hotel located at 18000 Von Karman Ave, Irvine, CA. They will be hiring experienced Conventional and Government Underwriters, Wholesale Closers and Funders, Account Managers, File Set Up and Correspondent Purchasers to help fill over 40 positions in the coming weeks. "Banc Home Loans TPO offers competitive compensation and a top-notch benefits package. As a division of Banc of California, Banc Home Loans provides the strength of a national bank at the local level. They were recently named one of America's Top Mortgage Employers by National Mortgage Professional Magazine and were included in Mortgage Executive's Top 100 Mortgage Companies in America 2015." To register for the event, please fill out the registration form, or contact Greg Armstrong (SVP, TPO Division) or Erin Steffen (VP, TPO Division).
Congratulations are due to Landon Banfield who United Bank, CT has named as Vice President, head of the bank's new correspondent lending channel, ResX Partners, and will be based in the mid-Atlantic. Banfield has more than twenty-five years' experience in third party and capital markets business development.