Synergy Partners / Synergy Capital

Synergy Partners / Synergy Capital Announces Factoring Facility for Financial Institutions
FHA Grants Year-Long Extension of Anti-Flipping Regulations
FHA Revises Lender Approval Requirements
Why U.S. Banks Need a New Business Model
Too-Big-to-Fail Bank Definition May Be Expanded by Regulators
OCC Enforcement Actions
Fed Unveils Slew of Key Dodd-Frank Rules
BONUS: The World’s Most Expensive Parking Lot
Regulatory Updates

Regulatory & Compliance Newsletter, January 2012

SPSC — Fri, 20 Jan 2012 10:48:10 +0000

Regulatory & Compliance Newsletter, January 2012

What’s News

LOOKING TO TURN AN NPL INTO A PREFORMING LOAN – HERE’S HOW

Announcing The Synergy Partners Factoring Facility

For a free quick quote and a copy of our application, visit www.synergypartners.com, or call 504-342-4982 x 101 today!

What is compliance costing your financial institution ? Regulatory compliance headaches ?

For more information contact Douglas Cunningham, Synergy Partners Synergy Capital 504-342-4982 ext.101 or DougCunningham@SynergyPartners.com.

FHA Grants Year-Long Extension of Anti-Flipping Regulations

Via National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/news27720/fha-grants-year-long-extension-anti-flipping-regulations

Carol Galante, Acting Commissioner of the Federal Housing Administration (FHA), has announced that the FHA will extend its temporary waiver of the anti-flipping regulations in 2012 through Dec. 31, 2012. The extension was granted in an effort to continue stabilizing home values and improve conditions in communities with high foreclosure activity.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, FHA temporarily waived this regulation through Jan. 31, 2011, and later extended that waiver through the remainder of 2011. The new extension will permit buyers to continue to use FHA-insured financing to purchase U.S. Department of Housing & Urban Development (HUD)-owned properties, real estate-owned (REO) properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” said Galante. “FHA remains a critical source of mortgage financing and stability and we must make every effort that to promote recovery in every responsible way we can.”

The extension is effective through Dec. 31, unless otherwise extended or withdrawn by the FHA. All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions:

►All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

►In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.

►The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

FHA Revises Lender Approval Requirements

Via National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/news27755/fha-revises-lender-approval-requirements

Mortgagee Letter 2011-34 was issued in late September, but didn’t get a lot of attention. In this month’s article, I’ll point out the highlights of the update. The update announced changes to the Federal Housing Administration (FHA) requirements for obtaining, maintaining and utilizing a lender’s FHA approval.

Identifying officers
The lender must list all of its corporate officers who will be managing, overseeing or conducting the FHA business of the lender. Unless the applicant is a supervised lending institution, the applicant must submit a credit report for each corporate officer listed and a resume for the senior officers with FHA origination experience (Handbook 4060.1, 3-2.A.4 and 3-2.A.5). The term “Corporate Officer” is now defined as a “natural person who is an owner, president, vice president, chief operating officer, chief financial officer, director, corporate secretary, chief executive officer, chairman of the board, or member or manager of a limited liability company (LLC).

Identifying owners
The following list defines which of the owners must be listed on the application for FHA approval according to the type of company and the owner’s percentage of ownership:

►Publically traded company or corporation; if 10 percent or more ownership
►Non-publically traded company or corporation; if 25 percent or more ownership
►Limited Liability Company; all members
►Partnerships; general partners

Office facilities
An approved FHA lender may originate and service loans from its home office, branch office and direct lending branch office. All office facilities, regardless of type, must comply with all state licensing requirements within the jurisdiction in which the office is located. In addition, the U.S. Department of Housing & Urban Development (HUD) is no longer regulating branch offices facilities and lenders are no longer required to submit evidence of acceptable home office facilities. However, the FHA will verify compliance with these requirements through on-site visits to the home office to assure that the lender has acceptable office facilities as outlined in 2-11.A of Handbook 4060.1.

Conversion of FHA lender approval type
Lenders that want to convert their FHA approval type must submit a new lender approval application package with all required exhibits, and pay a new $1,000 lender approval application fee. Previously, a lender had to submit certain forms and documents along with a $300 fee.

Prohibited branch arrangement
Approved lenders must directly pay all expenses for the operation of their home, branch and direct lending offices, and may not create “net branching” arrangements in which a party, other than the approved mortgagee, pays some or all of the branch office expenses.

Single-family loan origination lending area
FHA has expanded the single-family origination lending area of each home office and registered branch office to include all HUD jurisdictions throughout the country. Lenders must bear in mind that they must also meet each state’s origination and licensing requirements.

Business changes subsequent to approval
The FHA now requires that mortgagees notify HUD within 10 business days if the lender or any officer, partner, director, principal, manager, supervisor, loan processor, underwriter or loan originator of the lender or mortgagee:

1. Has been suspended, debarred, under a limited denial of participation (LDP) or has been debarred or suspended by HUD or by any other federal agency.

2. Has been indicted for, or convicted of, an offense that reflects adversely upon the integrity, competency, or fitness necessary to meet the responsibilities of the lender to participate in FHA programs.

3. Is subject to unresolved findings as a result of HUD or other governmental audit, investigation, or review (see ML 2010-38 for clarification on meaning of “unresolved findings”).

4. Is engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility.

5. Is convicted of, or pled guilty or no contest to, a felony related to participation in the real estate or mortgage loan industry within seven years prior to the date of the application for licensing and registration, or for any felony at any prior time that involved an act of fraud, dishonesty, or a breach of trust or money laundering.

6. Is in violation of provisions of the Secure and Fair Enforcement (SAFE) Mortgage Licensing Act of 2008 or any applicable provision of state law.

Use of DBA names
FHA now requires lenders to register all of their DBAs though FHA Connection rather than just those used for advertising FHA programs. FHA Connection has been modified to allow the registration of up to seven DBAs for each home office or branch. If a lender has more than seven DBAs, its remaining DBAs must be registered with the FHA by submitting the additional DBA names and documentation authorizing their use to HUD (see ML for address).

Officer changes
FHA-approved lenders are now required to report to any changes in the identity of corporate officers, as defined above, to the FHA.

Ownership changes
FHA now requires approved lenders to report all ownership changes, including new owners and changes in ownership interests, in accordance with the ownership requirements for their business form as detailed above.

Commentary
Note that number four above has broad application in terms of administering the law and gives HUD a great deal of latitude to revoke a lender’s FHA approval status. Let this be a clear warning to companies that walk the line in any of their business practices and want to take advantage of FHA programs. It has been easy for companies in the past to hide their unethical business practices with FHA programs, but things have changed and HUD has worked very hard at leveling the playing field for reputable lenders by removing unethical companies and their leaders.
This update is not only important for owners of companies but also MLOs. Knowing these criteria can help you make better decisions about which companies to work for, and can assist you in judging the integrity of the individuals that run your company. It’s important to know that you are working for a company that has solid leaders. And, if you are considering joining a company, it’s fair to ask questions about its leaders so that you can have peace of mind that you are joining a reputable company—or know that you need to look elsewhere!

Why U.S. Banks Need a New Business Model

Via CFO
Original Article: http://www3.cfo.com/article/2012/1/credit_us-banks-new-business-model-mckinsey

This autumn, many U.S. banks reported a respectable improvement in earnings for the third quarter: more than 80% of the largest beat the market’s consensus forecasts, and a similar proportion showed year-on-year increases. The second quarter was equally impressive. So why have the stocks of large banks declined by more than 20% since the beginning of the third quarter — nearly three times more than the broader stock market — to the point where four out of five now trade below book value?

Many commentators blame Europe’s sovereign-debt crisis and fears of a double-dip recession. But three additional factors also weigh heavily on investors: the new bank capital requirements introduced under the Basel III international-banking regulations, the impact of new U.S. banking regulations responding to the financial crisis, the Dodd–Frank Act, and the unwinding of consumer debt. All three undermine banking’s traditional business model.

By business model, we mean how banks actually operate — how work is done, the degree of automation, the pricing and design of products, and underlying compensation systems. In the market’s view, the threats are so strong that it won’t be enough to trim the sails, refocus investment, or cut costs a bit here and there. Our estimates show that if banks maintain their existing business models, their average return on equity (ROE) would fall to 7% by 2015, from its current level of 11%, against a cost of equity projected to be more than 9%.

Investors want to see the management teams of banks propose credible, far-reaching plans to close this gap. The message that investors are now sending — shares of banks will be valued at levels implying that they will not earn their cost of equity — has profound implications for a U.S. economy dependent on a healthy banking system to support recovery and fuel growth.

Of the three threats, the most significant comes from the Basel III requirements, proposed by the Basel Committee on Banking Supervision. Without mitigating actions, they could reduce the ROE of some banks by as much as five percentage points. While the details are still being determined, we estimate that the US banking system will need an additional $500 billion in retained earnings or new equity to meet the new capital adequacy standards (assuming the current asset level and mix).

The second threat is the continuing deleveraging of consumers. The history of the past 100 years suggests that when excessive borrowing is a principal cause of a recession, consumers and businesses spend the next seven to eight years rebuilding their balance sheets. On that basis, we are in only year three of a much longer journey. There is little prospect of a quick return to the heady consumer-borrowing levels of the years immediately preceding the crisis — and some of that business may never return. In 2006, after all, bank revenues related to consumer credit exceeded their longer-term average by 25%.

Third, new US bank regulations resulting from the Dodd–Frank Act are also taking their toll on bank profits. The reasons include an amendment that caps fees on payments, as well as a requirement to move many over-the-counter (OTC) businesses to clearing houses and to divest proprietary activities. The costs implicit in a new consumer oversight agency will probably make day-to-day operations more expensive and complex.

These forces of change will compel banks to reinvent four of their core banking businesses: retail branch banking, payments, mortgages, and fixed-income OTC trading.

Take the business model of core retail banking. Over the past decade, banks continued to invest in branches as a response to free checking and to the rapid growth in consumer borrowing. But regulations undermining the assumptions behind free checking and a significant reduction in consumer borrowing have called into question the entire retail model. In five years, branch banking will probably look fundamentally different as branch layouts, formats, and employee capabilities change. The use of the Internet and mobile devices will grow exponentially. Overall, the cost of serving each customer in a branch is likely to fall by one-third.

What’s more, until investors see evidence of a similar transformation in cards, mortgages, and OTC trading operations, they will continue to lack confidence in the ability of banks to earn attractive rates of return. Banks must therefore squeeze the most out of every dollar of capital — something they largely neglected to do over the past decade, when it (and leverage) were widely available. They will come under increasing pressure from investors who want to know how capital is deployed, how effectively banks are using it, and how well compensation systems support the new objectives. Banks that historically geared rewards to the results of the income statement must now link them to risk-adjusted capital usage.

Accepted wisdom on the businesses banks should own is also being turned on its head. While most have started to think about which of their activities are noncore, this evaluation will have to be stricter in coming years. Many more businesses will be tagged as peripheral, speeding up divestitures and sales, as investors demand greater transparency on this issue, a rigorous review process, and evidence of solid execution in divestitures.

We estimate that by remaking all four key banking businesses, the industry could boost overall ROE by five to six percentage points. At this level, banks would be earning an ROE of 12% to 13%, comfortably above their cost of equity and right in line with their 50-year average. But valuations won’t improve until investors have a clear understanding of the banks’ plans to embrace the new business model implicit in this transformation.opriate.

Too-Big-to-Fail Bank Definition May Be Expanded by Regulators

Via Bloomberg
Original Article: http://www.bloomberg.com/news/2012-01-11/too-big-to-fail-bank-definition-may-be-expanded-by-regulators.html

Global regulators may expand the definition of a too-big-to-fail financial firm, signing up domestic lenders, clearing houses and insurers to capital rules designed for the world’s biggest banks.

The “framework should be in place for domestically systemically important banks by the end of the year,” Mark Carney, chairman of the Financial Stability Board, said yesterday after a meeting of the group in Basel, Switzerland.

Deutsche Bank AG (DBK), BNP Paribas SA (BNP) and Goldman Sachs Group Inc. (GS) were among 29 banks subject to the so-called capital surcharge on globally systemic financial institutions drawn up by the FSB in November. Banks will have to boost reserves by 1 to 2.5 percentage points above minimum levels agreed on by international regulators.

“The world contains a whole slew of institutions like that which are not systemic on a global level but are on a national level,” Simon Gleeson, regulatory lawyer at Clifford Chance LLP, said in a telephone interview. “The institution most interesting in this regard is Erste Bank,” he said. “The more you look at it the more you think it’s systemically important to Hungary.”

Michael Mauritz, a spokesman for Erste Group Bank AG (EBS), based in Vienna, Austria, didn’t immediately respond to a message seeking comment.

Carney said that the FSB was considering putting in place tougher rules for so-called shadow banks whose failure could harm the global financial system. This work was less advanced than rules for systemic insurers, he said, adding that requirements would vary for different types of institutions.

‘Vulnerabilities’ Remain

“Despite the important steps that have been taken over the last couple of years, we are all aware that, in the short term, vulnerabilities remain,” Carney said.

Shadow banks include money-market mutual funds, special investment vehicles, credit hedge funds, securities lenders and government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

The European Central Bank warned last year that shadow- banks require more scrutiny from regulators on the risks they pose to the financial system, while Michel Barnier, the European Union’s financial services commissioner, said that he will “go as fast as we can” in considering possible rules for them.

The FSB will review its work on shadow banks by March, the board said yesterday in a statement issued following its meeting.

Global regulators will also work on rules to ensure the robustness of clearing houses, the FSB said in the statement. Regulators should be able to take decisions by June on the “appropriate form” of central clearers dealing with derivatives, it said.

Bankers’ Pay

The FSB will also set up a group to examine cross-border disputes over rules governing banker pay, Carney said, acknowledging an “enduring mistrust” between banks over how lenders set their pay.

Regulators will together “address specific level playing field concerns” raised by their respective banks, the board said.

“This will be another tough year for the FSB,” Richard Reid, research director for the International Centre for Financial Regulation, said in an e-mail. “Although much of the regulatory agenda has been put in place, there remains a huge amount of work to be done on implementation.”

Carney said that the board may not replace former Swiss National Bank Governor and FSB Deputy Chairman Philipp Hildebrand, following his resignation this week over a currency trade made by his wife.

The decision will be taken “in the fullness of time and in consultation with G20,” he said.

European Capital

European regulators have demanded the regions’ banks raise 114.7 billion euros ($146.6 billion) in new capital as part of measures designed to boost their resilience during the euro area’s sovereign-debt crisis.

German banks need to raise an additional 13.1 billion euros, Italian banks 15.4 billion euros, and Spanish lenders 26.2 billion euros in core tier 1 capital, the European Banking Authority in London said in December.

The capital shortfalls include 15.3 billion euros for Spain’s Banco Santander SA (SAN) and 7.97 billion euros for Italy’s UniCredit SpA. (UCG) Lenders in the region have until the end of June to raise the money.

OCC Enforcement Actions

Via OCC Bulletin
Original Article: http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-150.html

The Office of the Comptroller of the Currency (OCC) today released new enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with national banks and federal savings associations.

All Cease and Desist Orders, Civil Money Penalty Orders, and Removal/Prohibition Orders are issued with the consent of the parties, unless otherwise indicated as a Decision and Order issued by the Comptroller of the Currency.

Copies of the final actions are available for download by viewing the searchable database of all public enforcement actions taken since August 1989 at http://apps.occ.gov/EnforcementActions/.

You may also submit a request electronically to obtain copies through the OCC’s online FOIA site, https://appsec.occ.gov/publicaccesslink/. Fax requests should be sent to (202)-874-5274. You can also obtain copies by writing to the Comptroller of the Currency, Communications Division, Mail Stop 2-3, Washington, DC 20219. When ordering, specify the appropriate enforcement action number.

Cease and Desist Orders

California
2011-163 Gateway Bank, F.S.B., San Francisco 10/26/2011

Illinois
2011-164 The First National Bank of Grant Park, Grant Park 11/28/2011
2011-165 Dupage National Bank, West Chicago 11/18/2011

South Carolina
2011-166 Independence National Bank, Greenville 11/14/2011

Tennessee
2011-167 Mountain National Bank, Sevierville 10/27/2011

Civil Money Penalty Orders

Nebraska
2011-168 Enterprise Bank, National Association, Omaha 10/25/2011

South Dakota
2011-175 Wells Fargo Bank, National Association, Sioux Falls 12/8/2011

Formal Agreements

Kentucky
2011-169 First Federal Bank, Lexington 11/14/2011

Oregon
2011-170 First FS & LA of McMinnville, McMinnville 11/16/2011

South Dakota
2011-174 Wells Fargo Bank, National Association, Sioux Falls 12/8/2011

Removal / Prohibition Orders

Nebraska
2011-171 Donald Shephard, The First National Bank of Valentine, Valentine 11/10/2011

Terminations of Existing Enforcement Actions

Arizona
2011-172 FA, BNC National Bank, Phoenix (EA# 2010-021) 11/28/2011

California
2011-163 C&D, Gateway Bank, F.S.B., San Francisco, (EA#WN-09-0007) 10/26/2011

Illinois
2011-164 FA, The First National Bank of Grant Park, Grant Park (EA# 2010-144) 11/28/2011
2011-165 FA, Dupage National Bank, West Chicago (EA# 2009-079) 11/18/2011

South Carolina
2011-173 FA, Independence National Bank, Greenville (EA# 2010-009) 10/26/2011

Tennessee
2011-167 FA, Mountain National Bank, Sevierville (EA# 2009-092) 10/27/2011

Fed Unveils Slew of Key Dodd-Frank Rules

Via American Banker
Original Article: http://www.americanbanker.com/issues/176_245/dodd-frank-section-165-systemically-important-too-big-to-fail-1045034-1.html/

Federal regulators unveiled a highly-anticipated proposal Tuesday that details how they plan to regulate the largest domestic financial firms, including new capital and liquidity requirements.

The plan touched on several critical areas governing bank regulation, including risk-based capital and leverage requirements, resolution planning and concentration limits.

It is not clear exactly which institutions will face a surcharge. The largest 8 U.S. banks have already been targeted by international regulators for a surcharge of between 1% to 2.5%.

Fed officials said they would show some flexibility on how the rules would apply to nonbank financial firms once they are designated.

Given the complexity and the breadth of the rule, Fed officials offered to give industry more than 90 days to comment on the proposal. The comment period is set to close on March 31, 2012.

The World’s Most Expensive Parking Lot

Via BusinessInsider

Original Article: http://www.businessinsider.com/this-aircraft-carrier-is-the-worlds-most-expensive-parking-lot-2012-1

What you’re looking at is the deck of the U.S.S. Ronald Reagan covered in the vehicles of Navy Sailors heading to Naval Base Kitsap in Bremerton, Washington. At a cost of about $4.5 billion this is probably the world’s most expensive parking lot.

It may seem phenomenal, but this is actually a common occurrence for the Navy and a lot cheaper and easier than transporting the vehicles almost any other way. The weight of one E-2C Hawkeye is approximately 43,000 pounds, or about 12 cars, and a Nimitz-class carrier usually carries four of those.

The U.S.S. Ronald recently served in Asia and was en route to Kitsap for upgrades and repairs.

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Regulatory Updates

Regulatory & Compliance Newsletter, December 2011, Issue #12

SPSC — Tue, 13 Dec 2011 11:26:41 +0000

Regulatory & Compliance Newsletter, December 2011, Issue #12

What’s News

LOOKING TO TURN AN NPL INTO A PREFORMING LOAN – HERE’S HOW

Announcing The Synergy Partners Factoring Facility

For a free quick quote and a copy of our application, visit www.synergypartners.com, or call 504-342-4982 x 101 today!

What is compliance costing your financial institution ? Regulatory compliance headaches ?

For more information contact Douglas Cunningham, Synergy Partners Synergy Capital 504-342-4982 ext.101 or DougCunningham@SynergyPartners.com.

Rebuilding, Slowly

Via CFO.com
Original Article: http://www3.cfo.com/article/2011/12/the-economy_housing-market-recession-cfos-growth-plans-harp

Mortgage-backed securities. Collateralized debt obligations. NINJA mortgages. Neg-am loans. What was once arcane real-estate jargon became the language of the Great Recession, as the bursting of the housing bubble sent the economy downhill faster than a mortgage broker could say “Approved!”

Over the past two years, those buzzwords faded as the national conversation focused on the federal deficit and the grim employment picture. But as economists, policy makers, and businesspeople struggle to jump-start economic growth, housing is once again a hot topic.
By most measures, the housing market remains anemic, or worse. The Case-Shiller Home Price Indexes, which track changes in residential real estate prices across the country, showed home prices down nearly 4% in August compared with August 2010.

Average home prices nationally have plummeted 31% from their 2006 peak. In some cities, like Naples, Florida, they have fallen as much as 61%. Financial-analytics company Fiserv predicts a further 3.6% average national decline by next June, fueled by continued high unemployment and foreclosures.

The plunge in prices means that nearly a quarter of U.S. homeowners are underwater on their mortgages. While foreclosures remain a fairly localized phenomenon, where they hit they hit hard. In Nevada, which leads the nation in foreclosures, banks were foreclosing on 1 in every 44 homes as of the third quarter of this year. California was second, with 1 in every 88 homes in foreclosure, and Arizona ranked third, with 1 in every 93 homes in the foreclosure process.
The collateral damage from housing’s woes is huge. Foreclosed homeowners aren’t doing much spending, and their underwater neighbors aren’t either, even if they are employed and can still afford their mortgage payments. The negative psychological impact of owing more than one’s home is worth means that spending is curtailed, mobility is limited, and borrowing against home equity, a common phenomenon during the debt-fueled boom, is not an option. Together with co-author John Quigley, economists Karl Case and Robert Shiller, creators of the Case-Shiller indexes, recently estimated that the decline in home prices from 2005 to 2009 caused consumers to spend $240 billion less each year than they otherwise would have — an amount equal to nearly 2% of annual economic activity.

Indeed, the Federal Reserve Bank has identified housing as one of the economy’s most critical issues. “Continued house-price declines could lead to even more defaults, foreclosures, and distress sales, undermining wealth, confidence, and spending,” said William Dudley, president of the Federal Reserve Bank of New York, in an October speech at Fordham University. “Breaking this vicious cycle is one of the most pressing issues facing policy makers.”
Even for those in resilient real estate markets, such as much of the Northeast or California’s Bay Area, news of foreclosures contributes to a feeling of unease and a general lack of confidence that affects both the housing market and the broader economy. “I may be well situated in my housing, but when I read about foreclosures it causes concern,” says Marty Connor, CFO at Toll Brothers, the luxury-home builder. “I’m employed, but when I read about 9% unemployment, it doesn’t make me feel good.”

Housing, says Connor, is critical to the economic recovery not only because houses are most people’s largest personal asset and their value has such an enormous impact on consumer confidence, but also because of the employment generated by the sector, in direct construction of homes as well as in real estate, home furnishings, mortgage banking, home renovation, and a host of other ancillary services tied to the business of selling houses.

The Ripple EffectCFOs in the housing sector tell a similar story. They have survived the worst of the downturn and now maintain a somewhat defensive posture, carefully guarding their balance sheets and protecting the jobs of remaining staffers while waiting — and waiting — for the market to improve.
After a brutal few years in which the company saw its revenues shrink by more than 70% and reduced its employee base by the same amount, Toll Brothers is now at break-even. The company has shored up its balance sheet, Connor says, and is searching for the right opportunities to put its cash to work. “We think we saw a bottom in housing in the spring of 2009, and all we’ve done since is bounce along that bottom,” says Connor. While the average number of homes built in the United States hovered around 1.5 million units a year for the past 40 years and reached 2 million in 2005, for the past few years builders have added fewer than 600,000 houses each year. “We’re so far below the long-term average, it’s distressing,” Connor says. Toll Brothers will hold on to more cash than ever before so that the business is prepared to ride out the rest of the cycle, however long that may be.

Michael Kreamer, CFO at Marrano/Marc Equity, a builder in western New York State, also expects a long slog. “There’s no consumer confidence in the future, so very few people are committing to a big purchase like a house,” he says. “That’s our biggest problem right now.”

Kreamer says the business has held up relatively well, as the region didn’t experience the same kind of building boom as much of the rest of the country and thus has had a less dramatic plunge. Nonetheless, the market has slowed in the past year. The company has shifted its product mix toward smaller homes, from an average of 2,800 square feet to 2,100 square feet. “We’ve moved away from what used to be a ‘move-up’ product to an entry-level product,” he says. “In the past, buyers might have stretched because they had confidence in the future. Now, they’re not willing to stretch.”

At cabinetmaker American Woodmark, “things are interesting,” says Jonathan Wolk, CFO at the company, which sells its products through Home Depot and Lowe’s and to smaller stores and large home builders, and reports some $450 million in annual revenue. After a strong spring in which sales were up over last year by 20%, business began to slow over the summer as the debt-ceiling talks dragged on and consumer confidence dipped, says Wolk. Now, while he expects sales will still be up for the year, he anticipates more-moderate growth.

Tim Wissner, CFO of Windermere Solutions, the technology arm of Windermere Real Estate, a Seattle-based realtor, says he and his fellow executives are looking at data on a very granular level as they try to plan for the lackluster recovery. “We break down Western Washington almost into neighborhoods,” he says. At one end of the spectrum, in high-net-worth neighborhoods of Seattle, all-cash deals predominate. At the other end, there is a neighborhood in South Puget Sound where even foreclosed-upon homes aren’t moving.

While Wissner says the foreclosure overhang is less of a problem than it was last year, he isn’t expecting robust growth in the short-term. “We were originally projecting 2011 as the year the real estate market would stabilize and 2012 as the year it would see growth. We’ve pushed that back a year,” says Wissner. “Until you solve the jobs problem, you will not fix the real estate issue.”

Laying a FoundationWhile waiting for a break in the vicious weak-jobs/weak-housing cycle, CFOs in the sector are taking steps to prepare for growth when it eventually returns. At Toll Brothers, Connor says, “we’re looking at new land and new opportunities and balancing that with the security of having cash and liquidity for however long we need it.” The company has added some new developments and plans to continue to do so.

A bright spot has been the City Living brand, a division that builds luxury condos in New York, New Jersey, and Philadelphia, which has grown to make up more than 20% of the business. “We still have significant success with the right product in the right location,” Connor says. He cites a community of luxury homes in the $750,000 range outside Philadelphia where the company has sold nearly 50 houses in the past year.

American Woodmark’s Wolk and his fellow executives meet regularly to review market data and try to forecast accordingly. “We’re trying to determine ways to become more efficient in the event that the market just doesn’t want to give us any help for a while,” he says. “What we see is that new housing starts are struggling to get back to historical levels,” Wolk adds. “We’ve been flat-lined for a few years now.” The company is trying to maintain its current staffing levels by carefully managing schedules at its plants.

At Windermere, the company is taking advantage of the slow market to make a “massive investment” in technology, says Wissner, who has recently left his role as CFO of the corporate entity to head up finance for the technology business, which spun out of the parent company last year. “We are revising all of our platforms and trying to become much more sophisticated about social media and innovation. We’re updating and greatly expanding all of the back-end tools for our realtors,” he says.

Some companies have held up remarkably well despite their close ties to housing. Bed Bath and Beyond, the housewares chain, saw its stock reach a 52-week high in October and continues to add stores. Williams-Sonoma, which operates the furniture chains Pottery Barn and West Elm in addition to its high-end cookware stores, has also reported strong results in recent quarters. Others, however, like Lowe’s, reported disappointing second-quarter results. Executives at the home-improvement retailer said same-store sales remained flat compared with the same quarter last year, and the company has closed stores and shaken up the management ranks in an effort to accelerate its business.

Help from HARP?Recently, while data is mixed, the economy has shown signs of life. Numbers released in the fall showed that consumers actually increased their spending over the summer, despite worries about the debt ceiling and the European financial crisis. GDP in the third quarter grew by 2.5%, roughly in line with economists’ expectations, and October’s new jobs number, while still weak, came in better than expected. Analysts are predicting an increase in holiday-season revenues compared with last year.

These stirrings of growth may get a boost from a revamped home lending program, an update of the federal Home Affordable Refinance Program (HARP), which was first launched two years ago but gained little traction as banks hesitated to lend to all but the most creditworthy borrowers. The revised program, which is available to homeowners with loans backed by government agencies Fannie Mae and Freddie Mac, will allow borrowers to refinance even if their homes’ values have dropped.

Announced in October, the new changes will eliminate appraisals, some fees, and some underwriting requirements for homeowners who are current on their payments. The program will also be extended through 2013, rather than expiring in June 2012. As many as a million borrowers could refinance under the program, according to the Federal Housing Finance Agency. The reduced mortgage payments could yield substantial savings for homeowners, which would provide a boost to the economy and, eventually, strengthen the job market. Economists estimate that, combined with continued low interest rates, the program could translate to as many as 4 million jobs.

Finance executives watching the housing market know there will be no quick fix. Wolk says that as he studies historical industry data, housing’s cycles become clear. One of the reasons this downturn is so sharp, he says, is that it comes on the heels of a roaring 15-year upswing. But he is confident that the market will rise again. “We’re going to have an increase from here, but it’s going to be a long slog until we do,” he says. “We didn’t get here overnight on the upside, and we’re not going to get it fixed overnight on the downside.” In the interim, finance chiefs at affected companies are focusing on efficiency, balance-sheet strength, and carefully tailored product portfolios as they prepare for the eventual recovery.

Meanwhile, the market for home buyers has rarely looked better. With interest rates at all-time lows and prices down, says Toll Brothers’s Connor, “I take great solace in being able to tell everyone that it is a great time to buy a house.”

Originators Could You Lose $1 Million on Your Next Audit?

Via National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/blog/originators-could-you-lose-1-million-your-next-audit

I know that sounds outrageous but it could easily happen. Under the new Loan Originator (LO) Compensation rules, your state auditor and the Consumer Financial Protection Bureau (CFPB) will be looking to see if you have complied. The penalties are huge. The regulator could require you to give back three times the compensation or gain on the loan EVEN IF THERE ARE NO DAMAGES!

You are on the hook for three years so if you, as a broker, took in total fees of $300,000 or so and did things incorrectly, your liability could be a million dollars. You will have both the CFPB (if it ever gets off the ground) and State Attorneys General looking to enforce violations of loan originator compensation and other requirements.

If you are a lender the penalties are even worse. Lenders could have to refund all of the finance charges they have collected. Yes, all of the interest on the loan and any upfront fees. This is no trivial matter. Just because you are not the lender doesn’t mean that liability may not flow back to brokers. Almost every wholesale contract requires the broker to reimburse the lender for any losses for violations of law plus legal fees.

There are many facets where you can be in violation. Any form of dual compensation, compensation that is inconsistent with your agreement or irregular compensation can cause you to run afoul of the law. These are complicated issues that are being taken lightly but could turn into your worst nightmare. You should ask yourself whether you could fully document why you chose to give the borrower the loan product you did and why the loan was sent to a particular lender. Are your compensation agreements consistent?

Your regulators are gearing up to enforce this rule with lots of enthusiasm. It seems they like to find violations that carry big penalties. They have already developed a set of guides that define what they will be looking for. You can view it by clicking here.

It is a scary and complex document. I would strongly advise you to attend in-person Federal law courses where you can ask questions such as the one at NAMB/WEST or your local NAMB chapter.

HUD considers FHA mortgage premium increase

Via HousingWire
Original Article: http://www.housingwire.com/2011/12/01/hud-considers-fha-mortgage-premium-increase

The Department of Housing and Urban Development is considering increasing premiums on Federal Housing Administration-insured mortgage loans.

The revelation comes after weeks of FHA official denials.
HUD Secretary Shaun Donovan testified Thursday to the House Financial Services Committee that as a result of an October analysis by an independent actuary of FHA’s insurance fund, HUD is not only having discussions with Congress about whether additional premiums are necessary, but that it plans to announce how it will address premium prices in its fiscal year 2013 budget proposal. The proposal will be published in February 2012.

“FHA is constantly evaluating the appropriate level of premiums given the potential risks to the mutual mortgage insurance fund, and any action regarding premiums will be considered in the context of balancing access to credit in today’s economic environment with the need for added revenue generation to protect the fund,” Donovan said in a written testimony released immediately before the Congressional hearing.

Increases in premiums over the last two years resulted in a $1.37 billion increase in the economic value of the fund, according to FHA. The value’s the fund is currently $2.55 billion. FHA expects its 2012 book of business to add $9 billion to the fund and its capital ratio, which stands at .24%, to cross the federally required minimum by Sep. 30, 2014, FHA’s fiscal year-end.
The ratio is a measure of the fund’s soundness and compares the fund’s capital resources to the dollar amount of mortgages that FHA insures.

Current annual premiums are set at either 1.1% or 1.15% depending on the initial down payment by the borrower. FHA has the authority to raise these fees to 1.5% and 1.55%, which would improve the finances of the FHA’s mutual mortgage insurance fund over time, he said in a written testimony, but cost borrowers more.

FHA’s expectations are based on the actuary’s analysis that low-risk new loan business and a 1.2% increase in 2012 home prices. However, the skeptics remain.

Patrick Sinks, president and COO of Mortgage Guaranty Insurance Corp.,recommended to the committee Thursday that FHA immediately increase premiums to the fullest, legally allowable limit. Sinks spoke on behalf of theMortgage Insurance Companies of America. MICA represents the private mortgage insurance industry.

FHA experienced substantial losses of more than $26 billion from 2000 to 2008 from insurance payouts to borrowers. Donovan said half of the high-risk loans insured at the peak of housing bubble will ultimately result in payouts, with one out of four loans in 2007 resulting in insurance claims. Losses of close to $10 billion will come from FHA’s 2008 book of business, he said.

“That’s why we continue to pursue additional reforms,” Donovan told the committee.
But FHA Acting Commissioner Carole Galante said in a recent conference call that it is highly unlikely the agency will need a bailout, and said the agency has levers such as another premium boost to pull before they would have to resort to government assistance.

“Right now there is no reason for us to activate those conversations,” Galante said, adding that it would take “very significant” declines in home prices in 2012 to create a situation where FHA would need additional support.

In addition to premium increases, HUD is assessing further loss mitigation strategies by potentially changing its partial payment of claim process as well as ensuring that the streamline refinance tool is being used as widely as appropriate.

OCC proposes moving credit rating duties to banks

Via HousingWire
Original Article: http://www.housingwire.com/2011/11/29/occ-proposes-moving-credit-rating-duties-to-banks

National banks must be able to determine on their own that the risk of default is low and a full, timely repayment of principal and interest is expected on an underlying loan before issuing the “investment grade” security, according to a new rule proposed by the Office of the Comptroller of the Currency Tuesday.

The rule, when finalized, would effectively eliminate references to credit ratings agencies in OCC regulations, as required under the Dodd-Frank Act. These firms came under fire after the financial collapse in 2008 for rating many securities, particularly those backed by faulty mortgages, as high as AAA. In the years since, the credit rating agencies have been downgrading billions of RMBS deals.

The OCC put out an advance notice of the proposal in August, followed by a similar one from the Office of Thrift Supervision in October. Under directive from Dodd-Frank, the OCC absorbed the OTS earlier this year.

According to the proposal released Tuesday, the issuer of a security — backed by mortgages, auto loans, student loans and others — must have an “adequate capacity to meet financial commitments under the security for the projected life of the asset or exposure.”

In order to meet this requirement, a national bank can use sources of information provided by credit ratings agencies, but it must also conduct its own due diligence. Therefore, it is possible that a security rated in the top four categories by a rating agency may still not satisfy the “investment grade” standard, the OCC said.

After the advance notice was put out earlier in the fall, community and regional bankers argued that because they would not be allowed to rely on credit rating agencies to evaluate investments, larger institutions with more advanced analytical capabilities would hold yet another advantage.
Even larger banks complained that international financial firms would hold an edge because they could sill rely on credit rating agencies when American banks could not.

The OCC allowed smaller federal savings associations to continue to followFederal Deposit Insurance Corp. guidance for commercial paper until the FDIC puts out new rules in July 2012. But these smaller banks must still consider interest rate, credit liquidity, price and other risks for other securities when determining if it is “investment grade.”

The OCC said a number of comments asked the regulator to interpret the Dodd-Frank Act in a way that would still allow banks to consider credit ratings as one of several factors when measuring credit risk under the new rules. But most of the comments complained of the proposal’s regulatory burden and its effect on competitiveness.

A Family’s Billions, Artfully Sheltered

Via OCC Bulletin 44
Original Article: http://www.nytimes.com/2011/11/27/business/estee-lauder-heirs-tax-strategies-typify-advantages-for-wealthy.html

As he stood in the opulent marble foyer of a Fifth Avenue mansion late last month, greeting the coterie of prominent guests arriving at his private art gallery, Ronald S. Lauderwas doing more than just being a gracious host.

To celebrate the 10th anniversary of the Neue Galerie, Mr. Lauder’s museum of Austrian and German art, he exhibited many of the treasures of a personal collection valued at more than $1 billion, including works by Van Gogh, Cézanne and Matisse, and a Klimt portrait he bought five years ago for $135 million.

Yet for Mr. Lauder, an heir to the Estée Lauder fortune whose net worth is estimated at more than $3.1 billion, the evening went beyond social and cultural significance. As is often the case with his activities, just beneath the surface was a shrewd use of the United States tax code. By donating his art to his private foundation, Mr. Lauder has qualified for deductions worth tens of millions of dollars in federal income taxes over the years, savings that help defray the hundreds of millions he has spent creating one of New York City’s cultural gems.

The charitable deductions generated by Mr. Lauder — whose donations have aided causes as varied as hospitals and efforts to rebuild Jewish identity in Eastern Europe — are just one facet of a sophisticated tax strategy used to preserve a fortune that Forbes magazine says makes him the world’s 362nd wealthiest person. From offshore havens to a tax-sheltering stock deal so audacious that Congress later enacted a law forbidding the tactic, Mr. Lauder has for decades aggressively taken advantage of tax breaks that are useful only for the most affluent.

The debate over whether to reduce tax shelters and preferences for the rich is one of the most volatile in Washington and will move to the presidential campaign, now that repeated attempts in Congress to strike a grand bargain over spending cuts and an overhaul of the tax code have failed.

A handful of billionaires like Warren E. Buffett and Bill Gates have joined Democrats in calling for an elimination of the breaks, saying that the current system adds to the budget deficit, contributes to the widening income gap between the richest and the rest of society, and shifts the tax burden onto small businesses and the middle class. Republicans have resisted, saying the tax increases on the wealthy would harm the economy and cost jobs.

An examination of public documents involving Mr. Lauder’s companies, investments and charities offers a glimpse of the wide array of legal options for the world’s wealthiest citizens to avoid taxes both at home and abroad.

His vast holdings — which include hundreds of millions in stock, one of the world’s largest private collections of medieval armor, homes in Washington, D.C., and on Park Avenue as well as oceanfront mansions in Palm Beach and the Hamptons — are organized in a labyrinth of trusts, limited liability corporations and holding companies, some of which his lawyers acknowledge are intended for tax purposes. The cable television network he built in Central Europe, CME Enterprises, maintains an official headquarters in the tax haven of Bermuda, where it does not operate any stations.

And earlier this year, Mr. Lauder used his stake in the family business, Estée Lauder Companies, to create a tax shelter to avoid as much as $10 million in federal income tax for years. In June, regulatory filings show, Mr. Lauder entered into a sophisticated contract to sell $72 million of stock to an investment bank in 2014 at a price of about 75 percent of its current value in exchange for cash now. The transaction, known as a variable prepaid forward, minimizes potential losses for shareholders and gives them access to cash. But because the I.R.S. does not classify this as a sale, it allows investors like Mr. Lauder to defer paying taxes for years.
It was a common tax reduction strategy for chief executives and wealthy shareholders a decade ago, but in 2006 the I.R.S. said it appeared to be an abusive tax shelter and issued tighter restrictions to regulate the practice. That ruling was enough to persuade most wealthy taxpayers to abandon the technique, according to tax lawyers and records at the Securities and Exchange Commission.

Advisers to Mr. Lauder maintain that his deal “was made in compliance with published I.R.S. guidance on these types of transactions and was fully reported as required by S.E.C. rules,” said his spokesman, Gary Lewi.

In theory, Mr. Lauder is scheduled to pay taxes on the $72 million when the shares are actually delivered in 2014. But tax experts say wealthy taxpayers can use other accounting techniques to further defer their payment.

The tax burden on the nation’s superelite has steadily declined in recent decades, according to a sliver of data released annually by the I.R.S. The effective federal income tax rate for the 400 wealthiest taxpayers, representing the top 0.000258 percent, fell from about 30 percent in 1995 to 18 percent in 2008, the most recent data available.

When Mr. Lauder ran unsuccessfully for the Republican nomination for mayor of New York and released his tax return to the public, he reported paying 30 percent in total federal, state and city taxes on about $30 million in income in 1988. At the time, his net worth was estimated at nearly a quarter of a billion dollars.

Mr. Lauder’s more recent tax returns remain private, and he declined to make them available for this article.

The Family Fortune
Mr. Lauder, now 67, was born into a storied American fortune. His mother, Estée Lauder, the daughter of Eastern European immigrants, began selling homemade beauty creams at a few New York City hair salons in the 1940s and built her product line into a multibillion-dollar global empire.

As the son of a fabulously wealthy fashion icon, Mr. Lauder developed aristocratic tastes — and grand aspirations — at an early age. He summered in Vienna as a boy, developing a passion for Austrian art and medieval armor. At age 13, he bought his first Schiele with money from his bar mitzvah. Mr. Lauder grew so enthralled by politics as a young man that he told friends he dreamed of becoming the first Jewish president of the United States.

After studying in Brussels and Paris and at the Wharton School at the University of Pennsylvania, he joined the family business in 1964 and served in a variety of limited roles. While his older brother Leonard rose to become Estée Lauder’s chief executive, Ronald engaged in a variety of pursuits: becoming a major Republican fund-raiser; serving a rocky tenure as ambassador to Austria; running for mayor, an unsuccessful bid in which he spent $363 for each vote he received; and starting an assortment of business ventures in Eastern Europe, one of which went bankrupt during the technology bubble.

While the family’s wealth was created by hard work and ingenuity, it was bolstered by aggressive tax planning, a skill that has become Ronald Lauder’s specialty. When Mr. Lauder’s father, Joseph, died in 1983, family members fought the I.R.S. for more than a decade to reduce their estate tax. The dispute involved a block of shares bequeathed to the family — the estate valued it at $29 million, while the I.R.S. placed it at $89.5 million. A panel of judges ultimately decided on $50 million, a decision that saved the estate more than $20 million in taxes.

Estée Lauder Companies went public in 1995, and Ronald Lauder and his mother cashed in hundreds of millions of dollars in stock but managed to sidestep paying tens of millions in federal capital gains taxes by using a hedging technique known as shorting against the box.

Together, Mr. Lauder and his mother borrowed 13.8 million shares of company stock from relatives and sold them to the public during the offering at $26 a share. Selling borrowed shares in this way is referred to as a short position. Since the Lauders retained their own shares, the maneuver allowed them to have a neutral position in the stock, not subject to price swings. Under I.R.S. rules at the time, they avoided paying as much as $95 million in capital gains taxes that might otherwise have been due had they sold their own shares.

Such transactions allowed investors to cash in their shareholdings without paying taxes. But the Lauders’ use of the technique was so aggressive that Congress enacted a law afterward that limited the length of the tax deferral. And the Lauders eventually paid tens of millions in stock from the transaction.

Still, the family’s tax planning was effective enough that after Estée Lauder died in 2004, she passed down nearly $4 billion to her heirs, according to tax experts who studied the case and estimated that the estate was taxed at an effective rate of 16 percent — about a third of the top estate tax rate at the time.

Ronald Lauder has not been a director of the company since 2009, but he still serves as the president of its Clinique Laboratories subdivision. He also sublets a full floor of office space from Estée Lauder, on the 42nd story of the General Motors Building in Manhattan, which serves as the hub for the matrix of foundations, investment funds, partnerships and trusts used to control his businesses and personal finances.

His stake in Estée Lauder Companies, according to regulatory filings, is valued at more than $600 million. Nearly $400 million of that stock is pledged to secure various lines of credit. Many financial planners consider it imprudent for principal shareholders in a company to borrow against their stock. But it remains a popular way for wealthy taxpayers to get cash out of their holdings without selling and paying taxes.

There is a certain irony that Mr. Lauder has used $72 million worth of his Estée Lauder shares to carry out his latest state-of-the-art tax reduction tactic. These contracts emerged as a popular tool about a decade ago and were developed by accountants and tax planners after Congress closed down the loophole on the Estée Lauder public offering. The I.R.S. began cracking down on these contracts in 2008, and has pursued a prominent case against the billionaire Philip Anschutz, who used one to avoid more than $140 million in federal taxes.

Whether or not the I.R.S. agrees with Mr. Lauder’s contention that his contract is legitimate, some tax policy experts say the deal illustrates how the wealthy take advantage of the system.
“There’s real truth to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent,” said Victor Fleischer, a law professor at the University of Colorado. “Any taxpayer lucky enough to have appreciated property is usually put to a choice: cash out and pay some tax, or hold the property and risk the vagaries of the market. Only the truly rich can use derivatives to get the best of both worlds — lots of cash and very little risk.”

While Mr. Lauder’s stock holdings in publicly traded companies show some of his tactics, much of his wealth is harder to examine because it is controlled by a maze of privately held trusts and companies. Court documents, S.E.C. filings and property tax records spotlight a few of the more ordinary tax breaks used by affluent people.

Significant portions of his inherited stock are held in family trusts, which reduce the ultimate estate tax. Mr. Lauder and his wife have also established their own family trusts, allowing them to bequeath their wealth to their heirs with minimal taxes.
Other trusts and partnerships control his real estate properties in Palm Beach and the Hamptons and at 740 Park Avenue, a building that was once home to John D. Rockefeller, and is known as one of the world’s wealthiest apartment buildings.

United States tax law allows taxpayers to deduct mortgage interest on one’s homes up to $1.1 million in debt. Households with more than $1 million in income claimed more than $27 billion in such deductions from 2006 to ’09, according to a report this month by Senator Tom Coburn of Oklahoma, who said some wealthy taxpayers even deducted mortgage interest on their yachts.
And there is no limit on the amount of property taxes that can be deducted from federal income. So Mr. Lauder is entitled to deduct the $400,000 he pays annually on his Palm Beach mansion as well as what he pays on his home on Park Avenue and his holdings in the Hamptons.

“This welfare for the well-off — costing billions of dollars a year — is being paid for with the taxes of the less fortunate, many who are working two jobs just to make ends meet, and i.o.u.’s to be paid off by future generations,” said Senator Coburn, a Republican, who has called for limits on tax breaks for high earners.

Mr. Lauder deducts property taxes on all of his holdings, his spokesman said. Mr. Lauder declined to say how much that reduced his federal taxes, but said he did not receive tax benefits in some years because of the alternative minimum tax and other limits.
Charity and Tax Breaks

A week before the opening at the Neue Galerie last month, Mr. Lauder appeared at another gala, 40 blocks south, at the New York Public Library, to receive the Carnegie Foundation’s Medal of Philanthropy.

The program honored people who have given profusely to charities, including Mr. Lauder’s brother Leonard and his wife, Evelyn (who died Nov. 12), whose causes include the Whitney Museum and the pink ribbon campaign for breast cancer awareness.

Ronald Lauder and his wife, Jo Carole, were honored for a variety of contributions: the work of their joint foundation supporting hospitals, rebuilding monuments and refurbishing American embassies around the world — more than a quarter of a billion dollars over the last five years, according to his spokesman.

The Ronald S. Lauder Foundation has donated tens of millions of dollars to rebuild Jewish communities devastated by the Holocaust and communist rule. Mr. Lauder has also given to a variety of Jewish and Israeli organizations, including the World Jewish Congress, where he has served as president since 2007. Richard Parsons, the former Time Warner chairman, presented the award, calling Mr. Lauder and his wife two of “the nation’s pre-eminent supporters of the arts and civic causes.”

Mr. Lauder said his life was changed 25 years ago when he visited a kindergarten in Austria and met a classroom full of Jewish children who were refugees from Russia. Still, he said he found it odd to be referred to as a philanthropist.
“I did what I wanted to do,” he said. “What I thought was right.”

A Passion for Art

In the United States, Mr. Lauder has focused on what he calls his greatest passion — art.
In 1976, at age 32, his generous donations helped him become the youngest trustee of the Metropolitan Museum of Art. He later served as chairman of the Museum of Modern Art and remains an honorary chairman. He has donated and lent artwork to an assortment of museums. Part of his collection of lavishly decorated ceremonial armor is on display at the Met, in a gallery named for him.

As all art collectors may, Mr. Lauder is entitled to deduct the full market value of artworks donated to museums. (For years, Mr. Lauder availed himself of a quirk in the tax code that allowed donors to take a deduction for donating a portion of an artwork, without actually turning over the art. That break, known as fractional donation, was eliminated in 2006.)
Unlike some wealthy collectors who are criticized for using tax breaks to underwrite private collections that offer little access to the public, Mr. Lauder is widely praised for making his artwork a community asset.

The Neue Galerie, created by Mr. Lauder and Serge Sabarsky, who died in 1996, in a mansion once owned by Grace Wilson Vanderbilt, the widow of Cornelius Vanderbilt III, offers public viewing of an exquisite collection, worth more than $200 million even before Mr. Lauder added dozens of pieces for its 10th anniversary.

Sheldon Cohen, a former I.R.S. commissioner, said that when used as intended, the tax code’s breaks for art collectors balance private interests with the public good.
“If an art collector makes significant contributions, and the public actually gets access to the works they are donating, then the major thing the collector gets is prestige and social status,” said Mr. Cohen, now a lawyer in Washington.

At times, Mr. Lauder’s efforts to enhance his art collection have coincided with tax avoidance techniques.

In 2006, three months after he agreed to pay $135 million, a record at the time, for the Klimt painting “Adele Bloch-Bauer I,” Mr. Lauder sold a $190 million stake in his broadcast network CME.

When asked about the sale, Mr. Lauder’s spokesman said the proceeds were taxable in the United States at the full capital gains rate. Even then, though, CME’s complex corporate structure — it operates in Central Europe, is organized as a Netherlands holding company, keeps its headquarters in Bermuda and routed the $190 million sale through two Cayman Island companies — allowed Mr. Lauder to minimize taxes in countries outside the United States where it does business.

Some tax reform advocates say that it is unfair that the wealthiest can subsidize their lifestyles using myriad offshore maneuvers and complex accounting strategies.
“It’s admirable when people back their charitable impulses up with donations,” said Scott Klinger, tax policy director of the group Business for Shared Prosperity. “But the tax code shouldn’t allow the wealthy the kind of loopholes that let them, essentially, force other taxpayers to underwrite donations to their pet causes.”

This article has been revised to reflect the following correction:
Correction: December 9, 2011

An article on Nov. 26 about the tax strategies used by the businessman and philanthropist Ronald S. Lauder referred imprecisely to the tax treatment of art in commercial settings. While the purchase of decorative art or lease payments on rented art may be deducted or depreciated as a business expense, the cost of acquiring fine art like the examples in Mr. Lauder’s collection is generally not deductible. The article also misidentified the previous owner of the Fifth Avenue mansion that is now the Neue Galerie. It was owned by Grace Wilson Vanderbilt, the widow of Cornelius Vanderbilt III, not by Cornelia Vanderbilt. Also, a picture with an earlier version of this article was published in error. It showed a house owned by Leonard A. Lauder in Palm Beach, Fla., not the one owned by Ronald S. Lauder.

Hotel Foreclosures an Oncoming ‘Train Wreck’

Via National Real Estate Investor
Original Article: http://nreionline.com/distressedinventory/hotel_foreclosures_wreck_lh_11222011/

He doesn’t see any other way to avoid the oncoming flood of CMBS maturities that originated in 2007, at the absolute pinnacle of the lodging industry, as well as a wave of costly property improvement plans now being mandated by franchise companies emboldened by strong operating results.

Van knows a thing or two about hotel distress. The Dallas-based hotel management company he founded in 1983 has handled more than 150 receivership assignments since 2000. It currently is acting as receiver at approximately 30 properties and Van believes many more are coming.

“How long can you hold your breath?” he asks of the extend-and-pretend strategy employed by many lenders and owners the past two years. “At some point you start getting brain damage.”

The delinquency rate on securitized hotel loans was at 14.12% through October, highest among all commercial real estate classes, according to Trepp, a New York-based analytics firm that tracks the commercial mortgage-backed securities (CMBS) industry. Van believes the number could reach 50% next year with all the loans coming due that originated in 2007 and earlier that were extended.

He’s not alone. At the Bloomberg Commercial Real Estate Summit in New York this month, hotel developer Robert Sonnenblick described the wave of CMBS loans coming due and the lack of replacement capital available as a “close-to-catastrophic problem.”

Van believes Prism will add approximately 25 more receivership assignments in the first quarter alone next year, tipping the scale of his portfolio of 55 properties to more short-term than long-term assignments.

The 33-year industry veteran with a law degree from Texas and author of the Hotel Default Blog recently discussed the oncoming train wreck, as well as his optimistic view of lodging fundamentals and the future of the industry.

Wrecking eight Ferraris, a Lamborghini and two Mercedes

The Daily Mail
Original Article: http://www.dailymail.co.uk/news/article-2070046/8-Ferraris-3-Mercedes-Lamborghini-Skyline-2-5m-Japan-motorway-crash.html

Thirteen high-end sports car owners – and one driver of a Toyota Prius – were probably close to tears last night after a £2.5million motorway pile-up.

A single miscalculation from a Ferrari driver leading a convoy of sports car connoisseurs left a trail of twisted Italian and German metal trailing across this motorway in Japan.

Ten people were rushed to hospital after the smash. But the damage to their wallets may be far more grievous. Among the wrecked vehicles were eight Ferraris, three Mercedes, a Lamborghini, and a Skyline, as well as a Prius hybrid that was simply in the wrong place at the wrong time.

Police said the accident occurred on an uphill curve when the 60-year-old driver of the Ferrari leading the pack lost control while trying to overtake another vehicle.

The trailing cars then proceeded to crash one by one, with the ensuing carnage closing down the express way for six hours while emergency services cleared up the mess.

The cars involved in the epic smash included at least two Ferrari F430s, two Ferrari 360 Modenas, two Ferrari F355s and a Lamborghini Diablo.

There was also a Nissan Skyline GT-R – the only current Japanese supercar – and two Mercedes Benz, while the cheapest involved in the crash was the Toyota Prius hybrid.
Sports Nippon estimates the value of the vehicles to be 300million yen (£2.5million).

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FDIC Issues List of Banks Examined for CRA Compliance

Via FDIC Press Release
Original Article: http://www.fdic.gov/news/news/press/2011/pr11175.html

The Federal Deposit Insurance Corporation (FDIC) today issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in August 2011. The CRA is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations. As part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress mandated the public disclosure of an evaluation and rating for each bank or thrift that undergoes a CRA examination on or after July 1, 1990.

A consolidated list of all state nonmember banks whose evaluations have been made publicly available since July 1, 1990, including the rating for each bank, can be obtained from the FDIC’s Public Information Center, located at 3501 Fairfax Drive, Room E-1002, Arlington, VA 22226 (877-275-3342 or 703-562-2200), or via the Internet at www.fdic.gov.

A copy of an individual bank’s CRA evaluation is available directly from the bank, which is required by law to make the material available upon request, or from the FDIC’s Public Information Center.

Attachments:
Monthly list of Banks Examined for CRA Compliance
November 2011 List of Banks Examined for CRA Compliance

FDIC to examine compliance and risk management at community banks

Via HousingWire
Original Article: http://www.housingwire.com/2011/11/08/fdic-to-streamline-community-bank-supervision

Under a new acting director, the Federal Deposit Insurance Corp. will begin reviewing its risk management and supervision practices of smaller community banks to make them more efficient and possibly less burdensome.

Sandra Thompson, the director of risk management supervision at the FDIC, said the agency’s new Acting Director Martin Gruenberg is maintaining vigilance on the community banks that have survived the financial crisis in the current period of regulatory turmoil.

The FDIC scheduled a national conference early next year on future of community banks. Researchers within the agency are working on a study that traces the development of community banking, their business model changes and concerns with raising capital, keeping up with technology, and maintaining personnel.

The FDIC will also host a series of regional roundtables in several cities including Chicago, Dallas and Atlanta.

“It’s going to be a priority in the coming year. We do want to see this segment regain its standing as a major player in economic growth and job creation,” Thompson said at the Walters Kluwer CRA & Fair Lending colloquium in Baltimore Tuesday. “Supervisors have to take a holistic view.”

Of the 326 bank failures since 2007, 392 have been smaller, community banks. More than 320 have yet to pay back Troubled Asset Relief Program bailouts.

But the amount of bad players being weeded out of the system is beginning to decline as the banking industry began to recover this year. So far in 2011, 87 banks were closed totaling $43 billion in assets. At this time in 2010, a total of 143 banks were shuttered holding $92 billion in assets same time.

“It looks like this year will be the turnaround year for many banks,” Thompson said.

While much of the blame for the crisis landed on the largest firms, smaller institutions consistently complain they are being swept up and out of the lending business – especially for mortgages – because of burdensome regulations from the Dodd-Frank Act.

But if you peel back the curtain on many of the community banks that have failed since the financial crisis in 2007, a trend of consistent noncompliance with lending rules begins to emerge, according to Michael Briggs, acting senior counsel for the consumer and compliance department at the FDIC.

He said there were compliance problems at the heart of many failed banks.

“If you were looking into the files of many of the failed banks, not in every case but in many cases, that compliance may have been short changed. Not that the people in charge of compliance at these institutions weren’t doing their jobs, but they were not making their cases made and were not given the voice they should have had from their executives,” Briggs said shortly before Thompson took made her address.

Briggs admitted the new requirements under the Dodd-Frank Act and upcoming oversight from the Consumer Financial Protection Bureau has created a difficult environment for firms that survived the crisis.

Martin Bishop, a partner of banking law firm Foley & Lardner, said the 2,300-page Dodd-Frank Act, already many times larger than any Wall Street reform before it, will mean tens of thousands of pages in new regulations. But he said any banker betting on the hope that a Republican presidential win in 2012 would mean an automatic repeal of Dodd-Frank and a dissolving of the CFPB was “swimming against the tide.”

Nearly every potential Republican nominee for president has stated in debates that they would effort to repeal Dodd-Frank if voted into office, but recent polls continually show voter support for the legislation.

Roughly 63% of likely voters believe Congress should allow Dodd-Frank to be fully implemented, according to a poll conducted by the Center for Responsible Lending. And 61% of respondents to a USA Today/Gallup poll wanted increased regulations on banks.

“We would like the view the CFPB as providing guidance and supervision to us,” Bishop said. “Somewhat paradoxically, because of this mandate to protect consumers, it’s looking at things from different perspective than what we’re used to.”

Briggs said despite the volumes of pages and still unclear specifics from the CFPB, noncompliance will not be an option. That doesn’t mean banks will have to choose between following the rules and profits, though, he said.

Thompson agreed.

“Failed compliance practices do not reflect well on the bank balance sheet,” she said. “When institutions get in trouble, they usually redirect attention to other parts of the firm. They cut compliance when things get better, and they forget to put them back in place.”

FinCEN Seeks to Stamp Out Mortgage Fraud Among GSEs

Via National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/news27171/fincen-seeks-stamp-out-mortgage-fraud-among-gses

The Financial Crimes Enforcement Network (FinCEN) has annpunced that it has proposed regulations that would require the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—to develop anti-money laundering (AML) programs and file suspicious activity reports (SARs) with FinCEN. The GSEs currently file fraud reports with their regulator and conservator, the Federal Housing Finance Agency (FHFA), which then files SARs with FinCEN when the facts in a particular fraud report warrant a SAR under FinCEN’s reporting standards. The proposed regulations would require that the GSEs file SARs directly with FinCEN, which will help streamline the reporting process, provide law enforcement with quicker access to data about potential fraud, and result in the reporting of a wider range of suspected financial crimes.

The comment period will be open for 60 days from the date of publication in the Federal Register.

“This action is another step to help restore the integrity of the mortgage market,” said FinCEN Director James H. Freis Jr. “Providing law enforcement with quicker access to data about potential financial crimes will help them better hold illicit actors accountable for mortgage fraud and other scams.”

FinCEN closely coordinated this proposal with the FHFA, to which FinCEN would delegate responsibility for examining the GSEs with compliance for the regulations. FinCEN anticipates that new AML and SAR programs can be efficiently and effectively integrated into the GSEs’ existing anti-fraud policies, procedures and training programs.

“This is a positive step and we are pleased to work with FinCEN on this project,” said FHFA Acting Director Edward J. DeMarco. “The proposed rule will streamline the process and build on the efforts of FHFA and the GSEs to support law enforcement in its important work to fight mortgage fraud.”

Another important benefit to the GSEs of developing an AML program and filing SARs directly with FinCEN is that the GSEs, including their directors, officers, and employees, will become subject to the Bank Secrecy Act’s (BSA) “safe harbor” provisions, which are intended to encourage financial institutions to report suspicious activities without fear of liability from lawsuits by SAR subjects.

FinCEN has placed combating mortgage loan fraud and related criminal activity as one of its highest priorities over the past five years. FinCEN has a pending rule to apply AML program and SAR reporting requirements with respect to non-bank mortgage lenders and originators and has released quarterly mortgage loan fraud reports to track the type and number of suspected fraud.

Capital-strapped community banks struggle to repay TARP

Via HousingWire
Original Article: http://www.housingwire.com/2011/10/26/community-banks-struggle-to-repay-tarp

A crisis could soon emerge for the roughly 400 community banks that still owe the Treasury Department nearly $2 billion combined in bailouts, according to the Special Inspector General for the Troubled Asset Relief Program.

“A common misconception is that most of the 707 TARP banks have paid back TARP, when really only the largest banks have exited TARP,” the watchdog said in a report released Thursday.

According to the Federal Deposit Insurance Corp., 326 of the 392 bank failures in the U.S. since 2008 have been community banks.

Beginning in the fall of 2013, the dividend rate these smaller institutions must start paying to the Treasury increases to 9% from 5%. Many of these banks are relying on the Treasury’s willingness to restructure the TARP investments at a steep discount.

“This impression could create moral hazard concerns by taking away incentives for banks to find capital on their own — a necessary step to exit TARP,” SIGTARP said.

The Treasury invested $4 billion into community banks through the Small Business Lending Fund, but $2.2 billion went to 137 banks that have yet to repay the TARP bailout. The banks simply swapped it out for a dividend rate below 5%, removing executive compensation requirements and the dreaded TARP stigma.

About 320 of the more than 500 banks still left in TARP applied for the SBLF program. For many, SIGTARP said, this was their TARP exit strategy.

“Despite the dramatic efforts to expedite the largest banks exit from TARP, there appears to be no corresponding concrete plan for community banks’ exit from TARP,” the watchdog said.

SIGTARP referred to the regulatory bending the Treasury and other supervisors committed to let the larger firms out of TARP possibly too soon.

The watchdog recommended the Treasury create a clear exit plan by providing new access to capital larger lenders enjoy over these smaller institutions. The criteria at a minimum, SIGTARP said, should include a more uniform approach to restructuring the bailouts, rather than continue on the case-by-case basis SIGTARP called “ad hoc and inconsistent.”

“Something needs to happen. There needs to be some action taken right now,” said Acting SIGTARP Christy Romero in an interview with HousingWire. “Otherwise these small banks have no ability to raise capital. When the dividend increases, they will scramble to raise capital in the same time frame. That can flood the markets, and that will put more of these banks in jeopardy.”

Treasury Assistant Secretary Tim Massad pointed out that 259 of 303 banks that exited TARP were smaller institutions with less than $10 billion in assets.

“We believe our overall approach recognizes that each bank’s situation is unique, and that such approach is better suited to fulfilling our statutory responsibilities than attempting to devise standard discounts or terms for all situations,” Massad said in a letter to SIGTARP responding to an audit.

Massad also said that if a bank finds it is unable to pay the elevated dividend, it would not necessarily default or fail. Repayment is voluntary, he said. While the Treasury does have the contractual right to appoint board directors in cases where a bank is unable to meet the payment, it has only done so for six banks.

But SIGTARP raised the point that as long as these TARP dollars are outstanding, recovery at these smaller firms will remain sluggish and lending in their local economies — vital for job growth — would remain constricted.

“These are banks whose names are on the backs of Little League jerseys. If they suffer the communities they’re in suffer,” Romero said.

Bank Appeals Process

Via OCC Bulletin 44
Original Article: http://www.occ.treas.gov/news-issuances/bulletins/2011/bulletin-2011-44.html

Description: Guidance for Bankers

PURPOSE
Pursuant to section 316 of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the Office of the Comptroller of the Currency (OCC) is revising the OCC’s procedures for national banks to appeal agency decisions and actions to include federal savings associations. This issuance also replaces Banking Bulletin 2002-9, dated February 25, 2002,1 and repeals Office of Thrift Supervision (OTS) Thrift Bulletin 68b, dated July 10, 2008. By revising the appeals procedure to include federal savings associations, a uniform appeals process will apply to national banks, federal branches and agencies, and federal savings associations (collectively referred to as “banks” for the purpose of this issuance).
POLICY
The OCC is responsible for assuring the safety and soundness of, and compliance with laws and regulations, fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction. In fulfilling this mission, the OCC maintains open and ongoing communication with both the institutions it supervises and certain affected persons. The agency also fosters the fair and equitable administration of the supervisory process.
The OCC Ombudsman functions outside the bank supervision area and reports directly to the Comptroller of the Currency. With the prior consent of the Comptroller, the Ombudsman may stay any appealable agency decision or action during the resolution of an appealable matter. The Ombudsman also may report weaknesses in OCC policy to the Comptroller, and may make recommendations regarding changes in OCC policy. The existence of a formal bank appeals process does not change the core philosophy of the OCC concerning dispute resolution. The agency remains committed to making every effort to resolve disputes arising during the supervisory process fairly and expeditiously, in an amicable, informal manner.
Banks are encouraged to contact the Ombudsman to discuss any agency policy, decision, or action that might develop into an appealable matter. The Ombudsman’s objective in these cases is to seek an agreeable resolution to the dispute before it develops into a formal appeal. This avenue provides an opportunity for banks to resolve issues in the most efficient and expeditious manner possible.
If banks cannot resolve disagreements through informal discussions, they are encouraged to seek a further review of the OCC decisions or actions that are in dispute. The OCC official involved in the dispute should inform the bank of the formal appeals process.
This issuance establishes the process through which a bank can seek such a review of agency decisions and actions. These procedures also ensure that no one is disadvantaged by filing an appeal. If a bank questions whether it should make use of this appeal authority, it should contact the Ombudsman. If called on, the Ombudsman is available to act as a liaison between the OCC and any affected person with respect to any problem such a person may have in dealing with the OCC resulting from its regulatory activities. Interested parties should direct all communications with the Ombudsman to the following address:
Office of the Ombudsman
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Phone 202-874-1530, Fax 202-874-5678
PROCEDURES
Appealable Matters
Except as otherwise provided below, a bank may seek a review of any agency decision or action, including (1) examination ratings, (2) adequacy of loan loss reserve provisions, and (3) classifications of loans that are significant to an institution.A bank may not appeal to the Ombudsman or its immediate OCC supervisory office:
Appointments of receivers and conservators;

Preliminary examination conclusions communicated to the bank before a final report of examination or other written communication from the OCC is issued (although a bank is encouraged to discuss any concerns or disagreements regarding these conclusions with its examiner-in-charge (EIC) or its supervisory office);

Any formal enforcement-related actions or decisions,2 including decisions to: (a) seek the issuance of a formal agreement or cease and desist order, or the assessment of a civil money penalty pursuant to section 8 of the Federal Deposit Insurance Act (FDIA); (b) take prompt corrective action pursuant to section 38 of the 12 USC 1831o; (c) issue a safety and soundness order pursuant to section 39 of the FDIA (12 USC 1831p-1); and (d) commence formal investigations pursuant to 12 USC 481, 1818(n) and 1820(c);

Formal and informal rulemakings pursuant to the Administrative Procedure Act (APA), 5 USC 500 et seq.;

Decisions or recommended decisions following formal and informal adjudications conducted pursuant to the APA, 5 USC 701 et seq.;

Requests for agency records or information under, and submission of information to the OCC that are governed by, the Freedom of Information Act, 5 USC 552, or 12 CFR 4;

Decisions made to disapprove directors and senior executive officers pursuant to section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (12 USC 1831i); and

Any other agency decisions that are subject to judicial review.
A formal enforcement-related action or decision commences when a Supervision Review Committee determines that the OCC will pursue a formal action under applicable statutes, regulations, or published enforcement-related policies of the OCC, and at that point becomes unappealable. Such policies include the OCC’s Policy for Corrective Action (PPM 5310-3 (REV)), Civil Money Penalty Policy (PPM 5000-7 (REV)), and Securities Enforcement Policy (PPM 5310-5). These policies are available online at occ.gov and on request from the OCC’s Communications Division, 250 E Street, SW, Washington, DC 20219-0001, or by telephone at (202) 874-4700. For purposes of this issuance only, remarks in a report of examination and other communications about a potential formal enforcement action made prior to a Supervision Review Committee decision are preliminary and, therefore, unappealable.
Filing an Appeal
A bank may seek review of appealable matters by filing an appeal with either the Ombudsman or the bank’s immediate OCC supervisory office.3 Except as otherwise provided in the process for appealing Shared National Credit (SNC) decisions and fair lending-related matters, all appealable matters can be received in either location. The choice of where to file is left to the discretion of the bank, with a few exceptions. The procedures for filing an appeal under these options are outlined below:
Appeals to the Ombudsman. Formal appeals to the Ombudsman may arise from two sources: (1) appeals filed directly with the Ombudsman, or (2) second-tier appeals of supervisory office appeal decisions and decisions rendered under one of the appeals procedures designed specifically for the issue in dispute (fair lending-related appeals and SNC appeals).

Appeals Directly to the Ombudsman: Banks filing appeals with the Ombudsman should submit information in writing fully describing the matter in dispute. To ensure that the bank’s board of directors supports the appeal, the president or chief executive officer must submit a bank’s appeal and disclose in the submission the board’s approval of the action. When the Ombudsman receives an appeal, he or she will contact the OCC management official(s) involved in the dispute. That management official(s) will submit written materials and relevant OCC documents pertaining to the appeal within 10 calendar days of the notice from the Ombudsman. The Ombudsman will contact the bank to ensure that the OCC has all relevant materials. If requested by either the OCC management involved in the dispute or a senior bank official, the Ombudsman will arrange a meeting or a telephone call to more fully discuss the issues to be addressed in the appeal and any related matters. In the absence of any extenuating circumstances, the Ombudsman will issue a written response to the appeal within 45 calendar days of accepting an appeal.

Second-Tier Appeals: If a bank disagrees with the decision rendered through a supervisory office appeal or a decision rendered under one of the specifically designated appeals procedures, the bank may further appeal the matter to the Ombudsman. The bank must file written notice of this second-tier appeal within 30 calendar days of receiving the appeal decision letter from the appropriate deputy.

When the Ombudsman receives the second-tier appeal, he or she shall review any material considered in the preparation of the initial appeal response, including information submitted by the appellant at the time of the first-tier (supervisory office) appeal, and any other information considered by the OCC management official in making the initial appeal decision. The Ombudsman will contact the bank to ensure that the OCC is in possession of all relevant material. If requested by either OCC management involved in the appeal or a senior official of the bank filing the appeal, the Ombudsman will arrange a meeting or a telephone call to more fully discuss issues to be addressed in the appeal and related matters. In the absence of any extenuating circumstances, the Ombudsman will issue a written response to the second-tier appeal within 30 calendar days of the filing of that appeal.

Recusal of the Ombudsman: If the Ombudsman should be recused from reviewing the decision under appeal, the Ombudsman will transfer the appeal to a senior official designated by the Comptroller.
Supervisory Office Appeals. Supervisory office appeals should be filed with the Deputy Comptroller representing the OCC supervisory office that supervises the bank. Community banks and mid-size banks should file such appeals with the Deputy Comptroller of the OCC district in which the bank is headquartered. Banks in Large Bank Supervision and Special Supervision programs using this option should file appeals with the appropriate deputy comptroller in the Washington office. Banks that choose not to file appeals of corporate decisions directly with the Ombudsman should file with the Deputy Comptroller for Licensing.

Banks filing supervisory office appeals should submit information in writing fully describing the matter in dispute and setting forth their bases for requesting an appeal. Upon receipt of an appeal, a supervisory office official will contact the OCC employee(s) involved in the matter under appeal. The supervisory office official includes the appropriate deputy comptroller, or a designee who has not directly or indirectly participated in making the decision in dispute. The supervisory office official also should not be directly or indirectly responsible to the agency official who made the decision under review. The OCC employee(s) will submit written or oral information concerning the facts or circumstances resulting in the decision being appealed. If requested by a senior official of the bank filing the appeal, the appropriate deputy comptroller will arrange a meeting or a telephone call to more fully discuss the issues to be addressed in the appeal and related matters.

In the absence of any extenuating circumstances, the appropriate deputy comptroller will issue an appeal decision letter within 45 calendar days of accepting the appeal. Immediately after issuing a decision letter, the Deputy Comptroller will forward to the Ombudsman copies of all relevant materials considered in the preparation of the decision letter, including all written submissions by the bank.

If the bank disagrees with the response from the Deputy Comptroller, a senior official of the bank may further appeal the matter to the Ombudsman. The appeal decision letter from the Deputy Comptroller to the bank will notify the bank of this option. The bank must file written notice of this second-tier appeal within 30 calendar days of receiving the appeal decision letter from the appropriate deputy comptroller.

Recusal of the Deputy Comptroller: If the Deputy Comptroller directly or indirectly participated in making the decision under review, he or she must transfer the appeal to the Ombudsman after advising the appellant. The same is true if he or she directly or indirectly reports to the agency official who made the decision under review.

Fair Lending-Related Matters. When the OCC has made a determination that there is reason to believe an instance or pattern or practice of discrimination exists that will result in either a referral to the Department of Justice or notification to the Department of Housing and Urban Development, the Senior Deputy Comptroller for Midsize and Community Bank Supervision or the Senior Deputy Comptroller for Large Bank Supervision (whichever oversees the bank) will provide written notice to the bank of this finding. Banks may file an appeal to the Ombudsman for reconsideration of this decision within 15 calendar days of the date of this letter.

Shared National Credits. Bank senior management should notify the EIC assigned to the bank if it disagrees significantly with a decision rendered through the SNC program. If the bank and the examining team are unable to resolve the disagreement through informal discussions, the bank may appeal the decision to the appropriate deputy comptroller for Large Bank Supervision.

Who May Submit a SNC Appeal: A SNC appeal may be submitted by the agent bank directly, or on behalf of any of the participating banks. If the agent bank refuses, for any reason, to file the appeal on behalf of the bank group, Large Bank Supervision will accept an appeal from any one participating bank. Banks must file SNC appeals with the regulator that supervises the agent bank. Therefore, if a state-member bank is a participant in a credit that is agented by a bank subject to OCC jurisdiction, the state-member bank must file its appeal with the OCC. Conversely, if a bank subject to OCC jurisdiction is a participant in a credit for which a state-member bank is agent, the bank must file its appeal with the Federal Reserve Board. When there is no agent bank named, the appeal should be filed with the regulator that supervises the bank at which the SNC was reviewed. To ensure that the bank’s senior management supports the appeal, the chief executive officer (CEO) of the appealing bank must submit all SNC appeals.

Timing of SNC Appeals: The agent bank should normally file an SNC appeal within 14 days of notification by the EIC of the preliminary disposition of the credit. Notification is when the EIC gives the bank the preliminary notification letter at the conclusion of the SNC review process. Any one participant bank can appeal either through the agent bank, or on its own, within 14 days of receiving the preliminary SNC results from the agent bank. If preliminary results are not provided by the agent bank, participant banks may file an appeal within 14 days of receiving the official SNC results from the primary regulator. Large Bank Supervision will evaluate the reasonableness of appeals delayed by extenuating circumstances on a case-by-case basis. The SNC preliminary notification letter authorizes agent or review banks, at their option, to notify participating banks of the preliminary disposition of each credit.

The report of shared national credits is issued annually to banks participating in the SNC program at the end of each SNC review. Because of processing deadlines, the report may not reflect decisions on SNC appeals submitted beyond the initial 14-day filing period. In such cases, Large Bank Supervision will send a supplemental letter to each participating institution notifying them of the results of the appeal. The letter will also communicate any necessary revisions to each bank’s report of shared national credits.

SNC Appeal Letter: In drafting a SNC appeal letter, senior bank management should explain why it disagrees with the SNC decision. The SNC appeal letter must identify the credit, commitment amount, disposition, basis for the bank’s disagreement, and any documentation that supports management’s position on the matter(s) in dispute. Banks should address all SNC appeals to the appropriate deputy comptroller for Large Bank Supervision, Comptroller of the Currency, Washington, DC 20219.

SNC Appeal Processing: Once a SNC appeal is received in the OCC Headquarters, the appropriate deputy comptroller for Large Bank Supervision will immediately acknowledge receipt by letter to the CEO of the bank filing the appeal. Large Bank Supervision will normally forward a copy of the appeal letter and supporting information to the voting team within three working days of the receipt date. The voting team will then confirm the accuracy of the facts presented in the appeal letter.

A copy of the appeal letter will also be forwarded to the EIC of the bank. Each individual should provide his or her formal comments and opinions to the appropriate deputy comptroller for Large Bank Supervision within 10 working days after the receipt date. A deputy comptroller for Large Bank Supervision will normally grant requests by bank management for a meeting to discuss the issues in dispute.

An interagency panel consisting of senior credit examiners will evaluate the appeal and make a recommendation to senior management for approval. (Senior management of the appropriate agency has final approval on appeals submitted to them.) Large Bank Supervision will normally conclude the entire SNC appeal process within 30 days of receipt of the appeal. Immediately after issuing a decision letter, the appropriate deputy comptroller for Large Bank Supervision will forward to the Ombudsman copies of all relevant materials considered in preparation of the response, including all written submissions by the bank. If a bank disagrees with the decision rendered through the SNC appeals process, it may further appeal the matter to the Ombudsman. The appeal decision letter from the Deputy Comptroller to the bank will notify the bank of this option. The bank must file written notice of this second-tier appeal within 30 calendar days of receiving the appeal decision letter from the Deputy Comptroller for Large Bank Supervision.

Effect of Filing an Appeal
As a general matter, material supervisory decisions and actions are not stayed during the pursuit of an appeal. In the appropriate circumstances, however, the Ombudsman or appropriate OCC official, upon written request of the bank, may relieve the bank of the obligation to comply with a supervisory decision or action while the supervisory appeal is pending.
Follow-up by the Ombudsman

After the appropriate OCC official renders a decision on an appeal, the Ombudsman will contact the appellant bank to ask whether the bank believes OCC examiners have taken actions against the bank in retaliation for its appeal. The Ombudsman should make these contacts (1) six months after the date of the decision letter, and (2) six months after the date of completion of the first examination of the appellant bank following its appeal. A bank may, of course, contact the Ombudsman any time during or after the appeal, if the bank reasonably believes that an OCC official is retaliating against it for its appeal.

Upon identifying or learning of any possible retaliatory actions, the Ombudsman will investigate the complaint. In the absence of extenuating circumstances, such investigations will be completed within 30 days. If the Ombudsman finds that retaliation has occurred, he or she will forward the complaint to either the Senior Deputy Comptroller for Midsize and Community Bank Supervision or the Senior Deputy Comptroller for Large Bank Supervision (whichever oversees the bank), or to the inspector general. These officials will take appropriate action, including disciplinary action consistent with OCC policies and procedures. In addition, to prevent future retaliation for an appeal, the Ombudsman may recommend to the Comptroller that the next examination of the bank exclude personnel involved in a ruling appealed by that bank. The Comptroller will make the final decision on any exclusion.

Liaison Activity of Ombudsman
In addition to hearing and deciding appeals brought by banks, the Ombudsman is available to act as a liaison between the OCC and any affected person(s). Such help may relate to any problem or question the party may have in dealing with the OCC resulting from the OCC’s regulatory activities. The Ombudsman will either provide the requested information or direct the person to the appropriate point of contact. In so doing, the Ombudsman will ensure that safeguards exist to encourage persons to come forward and to preserve the confidentiality of those seeking information or identifying a concern.

Interested parties may also call the OCC’s Customer Assistance Hotline, located in the OCC’s Ombudsman’s office, to report any problems or concerns they may have regarding banks. The toll-free number is 1-800-613-6743. In addition, interested persons may comment on proposed OCC rulemakings published in the Federal Register for notice and comment by filing written comments with the OCC, as described in the rulemaking.

October bank failures tied to CRE exposure, further risks remain/h1>
Via HousingWire
Original Article: http://www.housingwire.com/2011/11/07/october-bank-failures-tied-to-cre-exposure-further-risks-remain

The 11 U.S. banks that failed in October cratered under the weight of commercial real estate exposure, Trepp LLC said Monday.

In October, the bank failure rate rose from September and August when six and seven banks failed respectively. Trepp said commercial real estate loans made up $401 million, or 65.1%, of the total nonperforming loans at banks that failed in October.

Construction and land loans represented 41.2% of the total, or $254 million, while commercial mortgages made up $147 million, or 23.9% of the nonperforming loan pool, according to Trepp. Residential nonperforming loans made up 22% of the total nonperforming balance, or $136 million.

The remaining portfolio of troubled loans was comprised of commercial and industrial loans, with commercial loans making up 11.2%, or $69 million, of the portfolio. Consumer and other loans made up 1.7%, or $11 million, of the nonperforming pool.

“Last week we noted that the slowing of the U.S. economy seems to have taken its toll on the U.S. banking system,” Trepp analysts wrote. “In prior quarters, the system had seen delinquency rates drop sharply and the volume of troubled commercial real estate loans fall.”

So far this year, more than 100 banks have failed in the United States, following the roughly 300 that failed in 2009 and 2010 combined.

In September and throughout the year, Trepp has tied bank failures to troubled CRE loans.

How to fix Fannie and Freddie

Via politico
Original Article: http://www.politico.com/news/stories/1111/67705.html

Three years and $141 billion of taxpayer money later, the first financial institutions to be rescued by the federal government, Fannie Mae and Freddie Mac, remain in conservatorship under the Federal Housing Finance Agency. The uncertain resolution of these government-controlled goliaths, which still dominate what is left of the mortgage finance business, is keeping most private sources of capital at bay.

The FHFA acting director, Ed DeMarco, has a statutory duty “to conserve the assets” of the two entities. He is not a housing czar empowered to reform a broken market. Nor can he provide backdoor fiscal stimulus by sanctioning outright principal reductions on underwater mortgages, if these reductions would create greater losses to Fannie and Freddie.

But he is not without power to help troubled borrowers. There are actions he could take to hasten the day when the conservatorship finally ends and the taxpayers’ substantial investment in Fannie and Freddie can be repaid.

Indeed, the recently announced changes to the FHFA’s Home Affordable Refinance Program give the agency the opportunity to make a midcourse correction. It could achieve the twin goals of helping homeowners and repaying the taxpayers’ investment consistent with its statutory limitations.

In fact, HARP’s shortcomings have nothing to do with its limited mandate but with its design. To make this refinancing plan a success, four obstacles need to be eliminated:

First, loan-level pricing adjustments and adverse market delivery charges imposed by Fannie and Freddie on refinancings since 2009 should be eliminated. It makes no sense for the government-sponsored enterprises to add these incremental charges when they refinance credit risks that they already guarantee. While risk-based pricing was missing during the housing boom, imposing these charges now has had the perverse effect of deterring refinancing and making it more expensive to refinance into more affordable loans that are less likely to default.

Second, warranties on an old mortgage need to be ended when borrowers refinance. The requirement by the GSEs that those warranties be assumed by the new servicer simply deters competition among banks to refinance eligible borrowers. It would preserve a contingent claim of less value to the GSEs rather than encourage the beneficial impact of getting a troubled borrower into a more affordable loan.

Third, closing costs need to be cut to a minimum. The automated valuation models of the GSEs, rather than third-party appraisals, should be used wherever possible. Similarly, application and mortgage forms should be streamlined so a call to a borrower can initiate, a borrower signature can validate and the filing of a proper lien in a local recording office can perfect an eligible refinancing.

Fourth, the playing field for existing servicers and new servicers has to be leveled so competition can help create the best rates for borrowers. The loan files of the GSEs need to be open to all qualified servicers. Procedural and substantive requirements for eligible refinancing should be the same for new and existing servicers.

These four basic program design changes will make HARP hum, leading to likely 10 million refinancings and lowering future losses for the GSEs — a result well within the FHFA’s statutory mandate.

It would also give the acting director the opportunity to restore Fannie Mae and Freddie Mac’s solvency, putting them on a financial trajectory to pay back taxpayers. A properly designed refinancing program should be coupled with an increase in the fee the GSEs charge mortgage-backed securities purchasers for the government’s guarantee. An increased guarantee fee on new HARP mortgages would vastly improve the financial condition of the GSEs, putting the acting director in a position to propose a plan to end their government bailout.

One major reason Fannie Mae and Freddie Mac ultimately required taxpayer assistance is that they grossly underpriced the risks they were underwriting. While the acting director has recognized that guarantee fees need to be raised to properly reflect the risks that the GSEs are underwriting, HARP is the perfect place to start.

Indeed, if the refinancing program were the launchpad for higher guarantee fees for all GSE-guaranteed mortgages, the acting director could deliver the ultimate prize to the American people: a resolution plan that provides for the end of the conservatorship and the return of private capital to a market the GSEs now dominate.

With deficit reduction now at the top of the political agenda, FHFA’s revised HARP program represents an incredible opportunity: By raising guarantee fees on the refinanced mortgages and on all GSE-guaranteed mortgages going forward, it could set the stage for a far broader normalization of the housing finance market. Ultimately, it helps lay the groundwork for a scenario in which Fannie and Freddie can begin to repay their $141 billion debt to the American people.

By Nov. 15, the FHFA is expected to finalize the new HARP framework. DeMarco can seize the day, making important changes that could really make a difference. There is far more than political capital at stake.

A-Ha! Finally, There’s A New Clue To The Location Of The Missing $600 Million From MF Global

Via Business Insider
Original Article: http://articles.businessinsider.com/2011-11-08/wall_street/30372512_1_harris-bank-jpmorgan-customer

The search for the missing $600 million from MF Global continues.

The latest development shows that finding the location of the missing customer money might begin with Chicago-based Harris Bank, Reuters reported.

From Reuters:

A Harris Bank branch office in downtown Chicago was the main repository for money from many of MF Global’s 150,000 customers, according to customers and representatives with smaller investment firms that introduced clients to the New York-based brokerage.

Harris Bank, a division of the Bank of Montreal , is emerging as a starting point in the investigation by federal authorities, who are trying to determine what happened to more than $600 million in MF Global customer money that remains unaccounted for eight days after the firm collapsed in bankruptcy.

According to the Reuters report, investigators are looking to see what happened to the money that was being held in segregated accounts (used by brokers that’s separate from the firm’s accounts) at Harris Bank, which often holds client funds from many large future brokerage firms.

Last week, it was previously reported that a JPMorgan account had the missing MF Global client money. JPMorgan came out and denied those claims.

Featured Services:

Synergy Partners / Synergy Capital Announces Factoring Facility for Financial Institutions
GOP Bill Targets Dodd-Frank, Banks on Board
Freddie Mac: Single-family delinquencies up slightly in September
Can Real Estate Agents Originate Mortgage Loans?
Mortgage Delinquencies Rose During Second Quarter of 2011
New Fees for Using Debit Cards
OCC; Revised Examination Procedures
Banks Start to Make More Loans
BONUS: Qaddafi Was Worth More Than $200 Billion

Regulatory & Compliance Newsletter, October 2011, Issue #10

SPSC — Thu, 27 Oct 2011 15:49:32 +0000

What’s News

LOOKING TO TURN AN NPL INTO A PREFORMING LOAN – HERE’S HOW

Announcing The Synergy Partners Factoring Facility

For a free quick quote and a copy of our application, visit www.synergypartners.com, or call 504-342-4982 x 101 today!

What is compliance costing your financial institution ? Regulatory compliance headaches ?

For more information contact Douglas Cunningham, Synergy Partners Synergy Capital 504-342-4982 ext.101 or DougCunningham@SynergyPartners.com.

GOP Bill Targets Dodd-Frank, Banks on Board

Via Sheshnuoff / A.S. Pratt
Original Article: http://www.sheshunoff.com/news/40/GOP-Bill-Targets-Dodd%252dFrank%2C-Banks-o

It’s been more than 14 months since President Obama signed the Dodd-Frank Act and there’s no let-up in the partisan bickering over the controversial bill.

On September 22, Senator Richard Shelby (R-AL), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, introduced legislation that would require all financial regulators to conduct comprehensive and transparent economic analysis in advance of adopting new rules. Shelby’s bill, the Financial Regulatory Responsibility Act of 2011, is cosponsored by all Republican members of the Senate Banking Committee.

“American job creators are under siege from the Dodd-Frank Act,” said Shelby. “In their rush to expand the reach of government into our private markets, Congressional Democrats refused to consider the impact of the Dodd-Frank Act on economic growth or job creation. As a result, regulators are about to subject those who had nothing to do with the financial crisis to hundreds of new rules and regulations without determining whether the benefits exceed the costs. More American workers will lose their jobs as Washington bureaucrats implement the Democrats’ vision of a federally supervised economy.”

Shelby’s bill would establish factors the agencies would have to consider in their analysis of new rules, allow the public to comment, and require an agency to revisit the effectiveness of a rule five years after it takes effect.

It would also establish a council of chief economists to bolster the quality of economic analysis being conducted and to ensure that the financial regulators work together to understand the aggregate effects that financial regulations are having on the economy. Through a judicial review mechanism, the bill would ensure that the agencies take their new economic analysis requirements seriously. Finally, the bill would mandate that a rule does not take effect if its costs outweigh its benefits.

“Many of the proposed Dodd-Frank rules contain cursory, boilerplate cost-benefit analyses that do little to quantify the rules’ costs and benefits and their effect on the economy,” said Senator Mike Crapo (R-Idaho). “The court’s unanimous decision to invalidate the SEC proxy access rule for failing to adequately analyze its economic costs reaffirms that economic analysis matters and that a check-the-box mentality will not suffice. By requiring federal financial regulators to conduct meaningful economic analysis, we will get better rules that can withstand scrutiny of whether the benefits of the proposed rule outweigh its cost.”

ICBA Voices Support

Community banks were quick to throw their support behind Shelby’s bill. In a letter to Shelby, Independent Community Bankers of America president and CEO Cam Fine said the bill is very helpful because it would require all financial agencies to perform a more robust and rigorous cost-benefit analysis of proposed regulations and provide more transparency in the rulemaking process.

“Regulations must not be onerous or imposed on a one-size-fits-all basis,” Fine wrote. “Too often community banks contend with unwieldy and costly regulatory burdens that jeopardize their capacity to raise capital, lend to small businesses and consumers, and support job creation. In this difficult economic environment, the Financial Regulatory Responsibility Act offers welcome relief by putting a reasonable check on new regulations, ensuring that they do not jeopardize community banks’ viability by imposing costs that outweigh any benefit.”

Single-family delinquencies up slightly in September

Via HousingWire
Original Article: http://www.housingwire.com/2011/10/26/freddie-mac-single-family-delinquencies-up-slightly-in-septemeber

The rate of seriously delinquent mortgages held by Freddie Mac inched higher in September to 3.51% from 3.49% in August, the government-sponsored enterprise said Wednesday.

In the same month, the aggregate unpaid principal balance of mortgage-related investments at the GSE fell to $1.4 billion, and the single-family loan guarantee volume reached $19.5 billion in September, making up 60% of its purchase and issuance portfolio.

Overall, the GSE’s mortgage-related securities and guarantees fell at an annualized rate of 2.6%, according to its monthly summary report.

Freddie Mac modified 6,465 loans in September and 90,126 through the first nine months of the year.

The company ended September with a total mortgage portfolio balance of $2.11 trillion, down from $2.19 trillion a year earlier.

Can Real Estate Agents Originate Mortgage Loans?

Via National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/news27041/can-real-estate-agents-originate-mortgage-loans

In 2006, the Federal Housing Administration (FHA) updated its Mortgagee Approval Handbook and said that employees of approved mortgagees “May have other employment including self-employment. However, such outside employment may not be in mortgage lending, real estate or a related field.”

To answer the question of whether a real estate agent can originate mortgage loans, you must refer to that section of the Mortgagee Approval Handbook. The answer is: Not if they work for an FHA-approved lender, even if they only originate conventional loans. As a matter of fact, they cannot even be employed in any capacity by a FHA-approved lender.

If you are a mortgage broker, your first reaction to this may be, “I am so happy I’m not an FHA-approved lender,” but if your company is originating FHA loans, the regulation may apply to you too!

When FHA eliminated the mini-eagle certification, they gave FHA-approved lenders the ability to sponsor mortgage brokers to allow them to originate FHA loans. With this increased authority came the burden of ensuring that all sponsored entities were complying with FHA requirements.

Mortgagee Letter 2010-20 says:

“HUD will hold FHA-approved mortgagees responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the approved mortgagee or by its sponsored third-party originator.”

Since FHA has recently cited lenders for having employees with impermissible outside employment, it is merely a matter of time before they notice that some sponsored mortgage brokers are violating the same rule.

If you are a mortgage broker, you may not want to wait until you are told that you are not in compliance. Once FHA has cited a lender and mortgage broker (fines can run as high as $7,500 per violation) for improperly originating loans, the state regulators get involved. In today’s regulatory environment, that could be very costly!

What should you do?
If you are an approved FHA lender or mortgage broker originating FHA loans, we would suggest you take the following steps:

►Adopt a stringent internal written policy requiring full disclosure by any newly-hired employee of any other employment or business activities. Similarly, require periodic confirmation and disclosure by existing employees, in addition to a company requirement to advise management of any changes, additions or deletions of outside employment at the time of the change.

►Adopt a policy advising your entire staff that outside employment of any kind needs to be disclosed to management immediately.

►Perform regular reviews to ensure compliance: Both at the time of hire and periodically during the course of an employee’s tenure with your firm. Check the Nationwide Mortgage Licensing System (NMLS) to see if any of your employees have other employment identified. The public access section shows all past and present employment of any licensed mortgage loan originator. Simple and free Internet searches may provide you with information on your employees.

►Adopt a policy that clearly sets forth that any employee with impermissible outside employment may be subject to immediate termination, for cause.

Remember, this rule is not merely limited to real estate agents, but it applies to anyone employed in a “related field.” This would suggest that an employee also working as an insurance agent/broker, appraiser, title agent, closing agent and many other positions would be ineligible for employment with FHA-approved lenders or mortgage brokers who are originating FHA loans.

Protect your business and proceed with caution!

Mortgage Delinquencies Rose During Second Quarter of 2011

Via Office of the Comptroller of the Currency (OCC)
Original Article: http://www.occ.treas.gov/news-issuances/news-releases/2011/nr-occ-2011-124.html

WASHINGTON—The performance of first-lien mortgages serviced by large national banks and federal savings associations declined slightly during the second quarter of 2011, according to a report released today by the Office of the Comptroller of the Currency (OCC).

The quarterly OCC Mortgage Metrics Report showed that 88 percent of the 32.7 million loans in the portfolio were current and performing at the end of the second quarter, down from 88.6 percent at the end of the first quarter, but up from 87.3 percent a year earlier. The decline in portfolio quality is mainly attributable to an increase in early stage delinquencies—mortgages 30-to-59 days delinquent—which increased 0.4 percent from the previous quarter to represent 3 percent of the servicing portfolio. The increase in early stage delinquencies reflects seasonal effects as well as a sluggish economy and elevated unemployment. The percentage of mortgages that were seriously delinquent, as well as mortgages that were 60 or more days delinquent and delinquent mortgages to bankrupt borrowers, increased slightly to 4.9 percent of the portfolio from 4.8 percent in the first quarter of 2011, after decreasing during each of the previous five quarters. While early stage delinquencies and serious delinquencies both increased from the previous quarter, they decreased from a year earlier.

The percentage of mortgages that were in the process of foreclosure remained steady at 4 percent of the mortgages serviced by the reporting banks and savings associations. Although completed foreclosures decreased by more than 30 percent from a year earlier and increased only 1.2 percent from the previous quarter, completed foreclosures may continue to increase in future quarters as a large number of foreclosures work through the process and alternatives to foreclosure are exhausted.

Mortgage servicers continued to seek alternatives to foreclosure for delinquent borrowers in the second quarter, implementing 456,397 home retention actions compared with 287,145 new foreclosure proceedings. Although modifications under the Home Affordable Modification Program increased by 31.6 percent during the quarter, other home retention actions declined, causing an overall decrease of 18.1 percent in new modification actions from the previous quarter.

Other key findings of the report included:

Mortgage modifications during the second quarter of 2011 reduced borrowers’ monthly principal and interest payments in 89.4 percent of all modifications, with 53.8 percent of the modifications reducing payments by 20 percent or more. On average, modifications during the quarter reduced borrowers’ monthly payments by $393, or 25.1 percent. HAMP modifications reduced payments by an average of $577, or 35.9 percent.

Modifications that reduced payments by 10 percent or more performed better than those that reduced payments by less. At the end of the second quarter of 2011, 59.9 percent of modifications made since the beginning of 2008 that reduced payments by 10 percent or more were current and performing, compared with 37.0 percent of modifications made during that time that reduced payments by less.

Servicers have modified 2,083,464 mortgage loans from the beginning of 2008 through the end of the first quarter of 2011. At the end of the second quarter of 2011, 51.3 percent of those modifications remained current or had been paid off. Another 9.2 percent were 30-to-59 days delinquent, and 18.2 percent were seriously delinquent. More than 10 percent were in the process of foreclosure and 5.3 percent had completed the foreclosure process. Of the 938,180 modifications implemented during 2010, 62.4 percent were current or paid off. Another 10.4 percent were 30-to-59 days delinquent, 15.2 percent were seriously delinquent, and 8.4 percent were in the process of foreclosure or had completed the foreclosure process.

The report covers about 63 percent of all first-lien mortgages in the United States, worth $5.7 trillion in outstanding balances. The complete report can be downloaded from the OCC Web site, www.occ.gov.

Banks Plan New Fees for Using Debit Cards

Via The Wall Street Journal
Original Article: http://online.wsj.com/article/SB10001424052970204138204576600800330404330.html

READ LATER
The nation’s beleaguered banking industry, which has been raising fees and doing away with free services, has a new target: debit-card users.

Bank of America Corp. is laying plans to charge millions of customers a $5 monthly fee to use their debit cards, and other big banks are expected to follow suit. The industry says it needs the fees to recoup revenue it will lose because of new government regulations taking effect Saturday that cap what they can charge merchants for debit-card transactions.

Bank of America, the largest U.S. bank by assets, disclosed the plan on Thursday in a memo to its senior staff. It intends to begin collecting the fees nationwide early next year.

Bank of America Corp. plans to charge customers a $5 monthly fee for making debit card purchases starting next year. Andrew R. Johnson joins the PM Hub to explain.

Several other large banks, including J.P. Morgan Chase & Co. and Wells Fargo & Co., are testing or plan to test similar fees in some states. Regions Financial Corp., a Birmingham, Ala.-based lender, has said it will start charging a $4 monthly debit-card usage fee on certain accounts on Oct. 1.

New federal limits on debit-card “swipe fees” are expected to cost U.S. banks an estimated $6.6 billion a year in lost revenue.

To offset that lost revenue, many banks have eliminated or scaled back debit-rewards programs, added monthly fees for checking accounts and raised minimum balance requirements for customers to avoid certain fees.

The limits on debit-card swipe fees—one of the most contentious regulations to arise from the financial crisis—were finalized by the Federal Reserve Board in June. The new rules will cap at 24 cents the fee merchants pay banks each time a customer buys something with a debit card, down from the current average of 44 cents. The rules apply to banks with $10 billion and more in assets.

Bank of America has said it expects the caps, which the industry lobbied against for months, to erase $2 billion in revenue annually.

“The economics of offering a debit card have changed with recent regulations,” a spokeswoman for Bank of America said Thursday.

In its internal memo, Bank of America said it will levy the $5 fee each billing cycle in which a customer uses a debit card to make a purchase. The fee will not be triggered by transactions at automated-teller machines.

The fee will apply to standard checking accounts, but not most premium accounts held by affluent customers. Banks typically exempt their premium accounts from many fees because they tend to be more profitable than standard accounts with lower balances.

Alison Miller, a Bank of America customer in West Windsor, N.J., who uses her debit card several times a week, said she would consider changing banks because of the new fee.

“It’s just another way of gouging the customer,” she said.

As banks were lobbying against some provisions of last year’s Dodd-Frank financial-reform legislation, they warned that the new rules would force them to raise fees on some products, hitting consumers with higher costs.

Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group that represents Visa Inc., MasterCard Inc. and several large banks, said the new fees are an “unintended consequence” of the new rules.

Sen. Dick Durbin (D-Ill.), who championed the legislative provision that led to the caps, said in a prepared statement: “After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It’s overt, unfair, and I hope their customers have the final say.”

Bank of America declined to comment on reaction to its plan.

Brian Riley, a senior research director of bank cards at research group TowerGroup, said the new fees are not a surprise given the amount of revenue on the line for Bank of America and other banks with lots of debit-card customers.

“Bank of America has a real challenge,” he said.

Bank of America, which has been rocked by large losses on its mortgage portfolio, said it has more than 58 million banking relationships with consumers and small businesses. Its customers are projected to make $260 billion in debit-card purchases this year, according to Mr. Riley’s research.

Bank of America’s planned $5 fee is higher than what most other banks are testing or planning to charge. San Francisco-based Wells Fargo said it will charge a $3 fee for some debit-card customers in Nevada, Washington, Oregon, New Mexico and Georgia, starting Oct. 14. Wells Fargo’s fee also applies to debit-card use, not ATM transactions.

Getty Images
The fee won’t apply to customers in certain premium accounts.

A Wells Fargo spokeswoman said that the fee is part of a pilot program, and that the bank has not determined whether it will roll it out to all customers. Wells Fargo has said it expects to lose $250 million each quarter from the new caps on swipe fees.

J.P. Morgan has been testing a $3 fee in a small market in Wisconsin since February. SunTrust Banks Inc. has begun charging a $5 monthly fee for “unlimited debit-card purchases.” The fee has been in effect since June for new customers that open an “Everyday Checking” account, and will go into effect in November for existing customers who choose that account.

Citigroup Inc. said last week it was raising fees on certain checking accounts but would not charge fees for using debit cards.

Norma Garcia, a lawyer for advocacy group Consumers Union, said she urges consumers to read their bank statements and shop around for account options if they are unhappy with new fees.

“I’m not making business decisions for BofA, but I can only say from a consumer perspective, consumers are tired of being nickel and dimed,” she said.

OCC: Revised Examination Procedures

Via Office of the Comptroller of the Currency (OCC)
Original Article: http://www.occ.treas.gov/news-issuances/bulletins/2011/bulletin-2011-43.html

The Office of the Comptroller of the Currency (OCC) is issuing a new booklet entitled “Electronic Fund Transfer Act–Regulation E” in the Comptroller’s Handbook. This booklet updates examination procedures and incorporates recent changes the Board of Governors of the Federal Reserve made to Regulation E regarding overdraft services, gift cards, and electronic signatures.

The overdraft services rule (12 CFR 205.17) limits the ability of a financial institution to assess overdraft fees for paying automated teller machine and one-time debit card transactions that overdraw a consumer’s account unless the consumer affirmatively consents, or opts in, to the institution’s payment of overdrafts for those transactions. This rule became effective July 1, 2010, for new account holders and August 15, 2010, for existing account holders.

The gift card rule (12 CFR 205.20) imposes certain restrictions on a person’s ability to impose dormancy, inactivity, or service fees with respect to gift certificates, store gift cards, and general-use prepaid cards. In addition, it prohibits the sale or issuance of such products if they are subject to an expiration date earlier than five years from the date of issuance of the gift certificate or the date on which the funds were last loaded to a store gift card or general-use prepaid card. This rule was effective August 22, 2010.

The new booklet also addresses changes made to Regulation E that simplify and clarify requirements regarding e-communication and the relationship of the regulation to the Electronic Signatures in Global and National Commerce Act (15 USC 7001 et seq.).

The “Electronic Fund Transfer Act–Regulation E” booklet is available on occ.gov and on Examiner’s Library. This booklet replaces the sections of the “Depository Services” booklet that address Regulation E and the Electronic Fund Transfer Act. If you have questions, please contact your supervisory office or the Compliance Policy Department at (202) 874-4428.

Grovetta N. Gardineer
Deputy Comptroller for Compliance Policy

Banks Start to Make More Loans

Via The New York Times
Original Article: http://dealbook.nytimes.com/2011/10/17/banks-start-to-make-more-loans/

Despite all the bleak economic news, a funny thing has been happening in the financial industry over the last few months: the banks have quietly turned on the lending spigot.

Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers. But after several quarters of having their loan balances plunge or flatten out, several of the nation’s biggest banks are reporting increases.

On Monday, Citigroup officials said the bank recorded loan growth, compared with a year ago, in almost every one of its businesses during the third quarter, and in almost every corner of the globe. Wells Fargo executives said new loan commitments to small businesses were up 8 percent, while lending to bigger companies has been growing for 14 months in a row. Across the industry, analysts expect credit card loan balances will start increasing before the end of the year.

“The narrative that banks aren’t lending is incorrect,” Timothy J. Sloan, Wells Fargo’s chief financial officer, said in an interview. “Lending is strong, and based on what we’re seeing,” he added, it will “continue to grow.”

Still, the stocks of both banks, and the sector as a whole, dropped on Monday as the sluggish economy and revenue figures pointed to broad drags on the banks, including low returns on making loans and exposure to the European debt crisis.

But the new lending numbers suggest that while the economy remains extremely fragile, the confidence of consumers and businesses may be more resilient than many experts had believed. “It hasn’t really strengthened, but it looks like the recovery is still here,” Jamie Dimon, JPMorgan Chase’s chairman and chief executive, said after heralding his bank’s lending data last week.

There are myriad explanations behind the uptick in loan growth, including more customers taking advantage of ultra-low interest rates and borrowers in need of cash drawing on their credit lines. Others believe the downbeat headlines in recent weeks have been overblown. If the confidence clouds hanging over Europe and the United States were removed, the lending figures would be even stronger, analysts and bankers say.

Housing remains the banking industry’s Achilles’ heel. Mortgage and home equity loans have fallen more than 6.2 percent since their peak in late 2007 and early 2008, according to weekly data from the Federal Reserve. Most banks have ratcheted up the underwriting criteria so that fewer new borrowers qualify for a loan, especially in the housing markets along the coasts that were hit hard by the recession. As existing loans end, they are less likely to replace them with a new one.

But there has been a modest increase in lending elsewhere. Over all, corporate lending has rebounded 7.2 percent after bottoming out in October 2010. Consumer lending, with the exception of housing-related loans, turned positive during the second quarter and has been gradually increasing since then, the data show. All told, total loan balances are near where they stood in mid-2007.

“The banks want to lend,” said Gerard Cassidy, a longtime banking analyst at RBC Capital Markets. After all, he said, more than 70 percent of their income is tied to that activity. And the Federal Reserve survey of loan officers shows that banks have been gradually relaxing their underwriting requirements.

Others, however, say the banks are still clinging to their purse strings. For a broader recovery, they will need to make loans more available to more consumer borrowers with blemished credit histories and a broader array of small businesses, the critics say.

“I don’t think the lending window is open near enough to what you need to see to get the economy growing, businesses expanding, and to bring the unemployment rate down,” said Bernard Baumohl, the chief global economist at the Economic Outlook Group, a forecasting firm.

So far, the revival in lending has not been strong enough to significantly move the revenue needle for the nation’s biggest banks, either. The poor performance of their Wall Street-related businesses and the elimination of once-lucrative overdraft and credit card penalty fees have weighed on their results. Meanwhile, the rise in new loan volume has not been enough to offset the lower profit margins on new loans as a result of the Fed’s decision to keep interest rates close to zero until at least 2013.

On Monday, Citigroup reported that its core revenue fell 8 percent, even as it squeezed out a $3.8 billion profit with some favorable accounting. It booked a $1.9 billion paper gain since the cost of retiring its debt had, theoretically, declined because of concerns over its financial condition. It also delivered about $1.4 billion to its bottom line, using money it had previously set aside to cover credit card and other loan losses. Together, those moves accounted for 67 percent of its pretax earnings.

Wells Fargo also reported a 6 percent drop in revenue, as several major divisions, like its vast mortgage operations and its investment banking businesses, reported a decline from last year.

But the bank still managed a record $4.1 billion profit, thanks in part to a sharp reduction in charge-offs and the release of $800 million in loan loss reserves.

But buried in the numbers of both big banks were signs that loan growth was modestly improving. Citigroup pointed to healthy demand in emerging markets, which have only recently started to feel the impact of the global slowdown.

In Asia, for example, corporate loans grew 22 percent, while card lending increased by about 4 percent, excluding the impact of the exchange rate. Citi’s Latin American operations showed similar resilience, while even the North American business showed a slight increase in lending, with the exception of mortgages.

Much of it is not “forced lending” as borrowers tap credit lines because they are in desperate need of money to pay their bills, Citi executives said. Small-business customers are “drawing them down because they have real needs and we are extending additional commitments,” said John C. Gerspach, Citigroup’s chief financial officer. “Absent the continued uncertainty, you would likely have loans growing and the economy growing at a faster rate.”

Executives at Wells Fargo, whose giant lending operations are largely focused on consumer and corporate borrowers in the United States, said that “customer sentiment is good” even though some of the economic data worsened during the third quarter. “It’s not just energy or commercial real estate; it’s really across the board,” said Mr. Sloan, the chief financial officer at Wells Fargo.

Some of the growth was due to foreign lenders ceding some ground to Wells and other large American banks, rather than an overall increase in demand. The uptick in Wells Fargo’s commercial lending business was aided, in part, by a $1.1 billion commercial real estate portfolio it bought from the Bank of Ireland. Even its mortgage business, which reported more than a 50 percent jump in home loan applications, owed some of the lending growth to consumers refinancing existing loans — not people obtaining new ones.

On Thursday, Mr. Dimon was keen to highlight JPMorgan’s lending numbers in an otherwise sobering quarter. Lending to small businesses with less than $50 million in revenue was up 70 percent through this year compared with the same period in 2010, while lending to middle-market customers was up 18 percent.

“These are pretty powerful numbers,” Mr. Dimon said on a conference call with journalists. “We look at loan growth translating to jobs.”

Qaddafi Was Worth More Than $200 Billion

Via Business Insider
Original Article: http://www.businessinsider.com/qaddafi-200-billion-richest-2011-10

Muammar Qaddafi was three times as rich as Carlos Slim and ten times richer than King Abdullah of Saudi Arabia — easily the richest man in the world.

Qaddafi was supposedly worth over $200 billion with assets in bank accounts, real estate and corporate investments around the world.

This staggering new estimate comes from senior Libyan officials and seems to be legitimate, according to the LA Times.

How did he get so rich?

“King of Kings” Qaddafi had uncontested personal control over the largest oil reserves in Africa for the past 41 years.

Unlike Abdullah and other oil-rich leaders, Qaddafi invested little money in national infrastructure like schools and hospitals or any kind of economic diversification. What money Qaddafi did spend went largely to buy support from African leaders.

While much of this money was held by government institutions like the Central Bank of Libya and the Libyan Investment Authority, Qaddafi was able to withdraw money at will.

Featured Services:

Synergy Partners / Synergy Capital Announces Factoring Facility for Financial Institutions
Credit Quality of Large Loan Commitments Improves for Second Consecutive Year
U.S. said ready to sue big banks over mortgages
Feds Sue 17 Banks For Misrepresenting Mortgages
Stress Test: Regulators Evaluating the Health of Big Banks
For Banks, Unfortunate Echoes of 2008
FDIC: Insurance Fund Back in the Black as Bank Profits Rise 38%
The performance of first-lien mortgages
BONUS: Angry Birds Costing Businesses $1.5 Billion In Lost Wages

Regulatory & Compliance Newsletter, September 2011, Issue #9

SPSC — Wed, 28 Sep 2011 18:36:07 +0000

What’s News

LOOKING TO TURN AN NPL INTO A PREFORMING LOAN – HERE’S HOW

Announcing The Synergy Partners Factoring Facility

For a free quick quote and a copy of our application, visit www.synergypartners.com, or call 504-342-4982 x 101 today!

What is compliance costing your financial institution ? Regulatory compliance headaches ?

For more information contact Douglas Cunningham, Synergy Partners Synergy Capital 504-342-4982 ext.101 or DougCunningham@SynergyPartners.com.

Credit Quality of Large Loan Commitments Improves for Second Consecutive Year

Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Original Article: http://www.occ.treas.gov/news-issuances/news-releases/2011/nr-ia-2011-112.html

Federal Reserve officials are drawing up rules for the largest U.S. banks that won’t be more stringent than global capital standards agreed to in Basel, Switzerland, according to a person familiar with the discussions.

Federal Reserve Governor Daniel Tarullo cited a “goal of congruence” between the Basel standards and the Fed’s work on rules under the Dodd-Frank Act, which overhauls banking regulation, in a June 3 speech. The central bank hasn’t veered from that, according to the person, who declined to be identified because the rules are still being drafted.

The Basel Committee on Banking Supervision, which includes regulators from the U.S. and Europe, set an additional capital buffer standard for the largest international banks in June that will range from 1 percentage point to 2.5 percentage points of risk-weighted assets. That comes on top of a requirement of 7 percent of common equity for all banks.

“I have always thought it was very important to try to preserve the level playing field for internationally active banks, and those are the key terms in Basel,” said Ernest Patrikis, partner at law firm White & Case LLC and a former general counsel at the Federal Reserve Bank of New York. “There will be a sigh of relief” among bank executives that the Fed is staying within the Basel framework, he said.
Largest Banks

Regulators worldwide are trying to curb the risk the largest banks pose to taxpayers and the financial system. The rule-making comes as bank stocks worldwide have plunged on forecasts for lower economic growth. Higher capital levels could have crimped bank returns even more, posing greater risk to a flagging U.S. recovery.

“Higher and higher levels of capital mean less lending, risking a policy error given the fragility of the economic recovery,” said John Dearie, executive vice president for policy at the Financial Services Forum, a Washington-based organization whose members include Goldman Sachs Group Inc. and JPMorgan Chase & Co. Capital requirements “determine how much banks can lend.”

A draft of the Fed’s rule-making on a section of the Dodd- Frank Act that calls for “enhanced prudential standards” for banks with $50 billion or more in assets should be finished by the end of September, according to the central bank. The rules will also apply to nonbank financial firms that regulators determine pose systemic risk. The rule proposal will also cover liquidity requirements, credit exposure limits and risk management standards for the biggest U.S. banks.
‘High Enough’

Richard Spillenkothen, a former director of banking and supervision for the Fed, said the capital standards are “high enough to be credible.” He said the central bank still has latitude to go even further later.

“U.S. regulators retain the authority to require any individual U.S. global bank to operate with capital above the Basel surcharge levels based on the bank’s unique circumstances and risks — which is to say that the proposed Basel surcharges remain minimum systemic risk add-ons,” he said in an e-mail yesterday. “This is an important tool that regulators should not be afraid to use.”
Bank Stocks Drop

The KBW Bank Index (BKX), which tracks shares of 24 banks including Citigroup Inc., Bank of America Corp., and Wells Fargo & Co., is down 30 percent this year, compared with an 11 percent decline in the Standard and Poor’s 500 Index. The Bloomberg Europe 500 Banks and Financial Services Index is down 29 percent.

The rout in banks stocks is risky because financial institutions could pull back on lending as they try to curb risks and protect returns. Fed officials attempted to support the economy this week by pledging to keep the benchmark lending rate in a range of zero to 0.25 percent, where it has been since December 2008, for at least the next two years.

Simon Johnson, the former chief economist at the International Monetary Fund who is now a professor at Massachusetts Institute of Technology, said Fed officials may be missing an opportunity to force banks to hold even more capital against losses.

“They certainly should have higher capital requirements for systemically important financial institutions,” he said. “This week is going badly in the markets partly because one or more global megabanks is under pressure — precisely because their buffers against losses are so low.”

U.S. said ready to sue big banks over mortgages

By William L. Watts and Ronald D. Orol, MarketWatch
Original Article: http://www.marketwatch.com/story/us-said-ready-to-sue-big-banks-over-mortgages-2011-09-02?dist=beforebell

WASHINGTON (MarketWatch) — A federal U.S. agency is ready to sue more than a dozen major banks, arguing that they misrepresented the quality of mortgage securities they put together and sold in the run-up to the bursting of the housing bubble, according to a published report.

The New York Times reported Friday that the Federal Housing Finance Agency, which oversees government-seized mortgage firms Fannie Mae (OBB:FNMA) and Freddie Mac (OBB:FMCC) , is expected to seek billions in compensation. The lawsuits are expected to be filed in federal court Friday or Tuesday.

They are aimed at Bank of America Corp. (NYSE:BAC) , Goldman Sachs Group Inc. (NYSE:GS) , J.P. Morgan Chase & Co. (NYSE:JPM) , Deutsche Bank AG (FRA:DE:DBK) (NYSE:DB) and others, the report said, citing three unidentified individuals briefed on the matter.

Separately, Bank of America was asked by the Federal Reserve to show what measures it could take if conditions were to worsen for the bank, according to a Wall Street Journal report.

The Charlotte, N.C.-based bank responded by saying it could issue tracking shares in Merrill Lynch, the brokerage giant it acquired during the height of the financial crisis. Fed spokesman David Skidmore declined to comment.

Meanwhile, the FHFA is expected to argue that, when it came to mortgage securities purchased by Fannie and Freddie during the years leading up to the financial crisis, the banks failed to meet their due-diligence duties under securities law.

The large financial institutions failed to spot evidence that borrowers’ incomes were overstated or falsified, the Times reported. The securities backed by the mortgages quickly lost value when many borrowers proved unable to meet payments.

FHFA subpoenaed the big banks last year looking for documents related to loans the institutions securitized and marketed to investors. Mortgage giants Fannie and Freddie bought a number of these securities and reportedly charge that the banks misrepresented the quality of the loans, overlooking evidence that many homeowners didn’t pass muster as qualified borrowers.

The lawsuits aim to secure reimbursement for losses on securities held by Fannie and Freddie. Private investors have attempted to force banks to buy back mortgage-backed bonds.

FHFA spokesman Corinne Russell declined to comment.

Michael Stegman, director of policy and housing at the The John D. and Catherine T. MacArthur Foundation, said Bank of America and other big financial institutions facing other suits may be less likely to settle immediately with FHFA for fear it will impact their ability to reach a deal with other groups.

As the FHFA considers its suit, state attorneys general and the Justice Department are investigating big bank mortgage servicers, trying to reach a multibillion-dollar settlement with the institutions over problems uncovered in foreclosure practices.

Large financial institutions are facing investor lawsuits over problem mortgages as well, though these investors want the big banks to repurchase problem loans they sold them before. FHFA is reportedly seeking reimbursement for losses on securities held by Fannie and Freddie.
Spillover effect?

“If the representations and warrants from one failed mortgage-backed security are the same as another MBS with the same kinds of loans, the first settlement will likely set a precedent for the other,” said Stegman.

He added that he thinks it’s especially important for Bank of America to settle because until the company reaches a variety of settlements nobody can know how well capitalized it is.

Donald Lamson, a former Office of the Comptroller of the Currency official and attorney with Shearman & Sterling LLP, also said a particular financial institution may be reluctant to settle with one group for fear it might negatively affect efforts with another litigation.

“You have a lot of dancing involved here,” Lamson said. “A settlement might entrench others with whom you thought you had already negotiated a separate deal, because after a deal is struck with FHFA, for example, they might want more.”

Michael Barr, a former assistant secretary for financial institutions at the Treasury Department, said he doesn’t expect a settlement right away.

“I think it will take months for them to resolve it and I wish the banks had been focused on reaching closure of this issue much earlier but they were resistant to settlement of the claims,” Barr said.

Barr, a law professor at the University of Michigan, noted that the FHFA suits will be similar to that of private investors, but he added that the agreements banks made with Fannie and Freddie when selling securities to the two mega-firms were tougher than those made with private investors and as a result they may seek more in damages.

Regulatory observers argue that a July lawsuit FHFA filed over $4.5 billion in mortgages the agency purchased from UBS (NYSE:UBS) (SWL:CH:UBSN) will act as a template for other lawsuits. FHFA acting chief Edward DeMarco previously had said it was considering such suits when the agency sued UBS . In that suit FHFA said Fannie and Freddie have lost more than 20% of the $4.5 billion investment, or $900 million. See story on FHFA’s suit over $4.5 billion of mortgages.

The report contributed to sharp drops in Asian and European equity markets Friday and weighed in turn on Wall Street, where stocks sank and bonds rallied as investors reacted to a government report showing no new jobs were created in August. See indications.

Spokespersons for the banks weren’t immediately available Friday to respond to requests for comment on the story.

The report noted that financial executives have privately argued that losses on mortgage-backed securities were the result of a broad downturn in the economy and the housing market rather than how the mortgage securities were structured.

Feds Sue 17 Banks For Misrepresenting Mortgages

By Thomson Reuters Accelus – Staff
Original Article: http://currents.westlawbusiness.com/Article.aspx?id=80527dc5-4710-4d2d-a7e4-b4b356d330f4&cid=20034500000000&src=FE110907018&sp=

Pity Fannie Mae and Freddie Mac, poor victims done in by their innocence of the nuances of the American housing market. In their conservator, the Federal Housing Finance Agency (FHFA), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) finally have a valiant protector to stand up to those mean ol’ Wall Street bullies. In a pre-Labor Day weekend shot, the FHFA, on behalf of its wards, Fannie and Freddie, filed 17 separate suits in federal and state courts seeking damages for losses incurred in the Residential Mortgaged Back Securities (RMBS) fiasco that nearly wrecked the entire world.

For Fannie and Freddie, being a government-sponsored enterprise (GSE) has nothing but upside. When it’s bonus time, they slip on the cloak of publicly traded company, their executives due a righteous payday for another profitable year;1 when things go south,2 they’re merely proxies for the American taxpayer. While the public will applaud any effort to mitigate lost taxpayer dollars, an examination of the suits may raise more questions than they answer.

From the earliest days of the Republic, the meaning of the Necessary and Proper Clause of Article I of the Constitution has vexed those favoring a literal interpretation of that document. Although the Bank of the United States was a fertile field of debate, what the Framers would think of GSE’s trading in securities in the many billions of dollars can only be imagined.

The report of the Financial Crisis Inquiry Commission (FCIC) devotes ample attention to the role of GSE’s, particularly Fannie and Freddie, in precipitating the Financial Crisis. Testimony before the Commission by former heads of both Fannie and Freddie found fault with the GSE business model.

The 17 FHFA suits filed on September 2, name the various enterprises (and their parent holding companies) that underwrote RMBS offerings during a roughly two-year period between 2005 and 2007. The suits also name as individual defendants directors of the subsidiary companies that underwrote the securities. The names of the institutions read like an All-Star roster of banks on Wall Street and beyond. The amount of RMBS purchased by Fannie and Freddie—in a two year period—is staggering:

(in billions)

Ally Financial (f/k/a GMAC) $6.0

Bank of America $6.0

Barclay’s $4.9

Citigroup $3.5

Countrywide $26.6

Credit Suisse $14.1

Deutsche Bank $14.2

First Horizon National Corp $0.883

General Electric $0.549

Goldman Sachs $11.1

HSBC $6.2

JP Morgan Chase $33.0

Merrill Lynch $24.853

Morgan Stanley $10.58

Nomura Holding America $2.0

Royal Bank of Scotland $30.4

Societe Generale $1.3

Total $196.165

It’s no misprint: Public companies backed by the United States Government purchased nearly $200 billion in Residential Mortgage Backed Securities in a two-year period.

As for the quality of the securities purchased, the FHFA will have no difficulty proving the RMBS were an unqualified disaster. Although the suits expressly exclude claims of fraud on the part of the defendants, that exclusion may be the sole “kitchen sink” element, as almost everything else is roundly attacked and all other claims may very likely stick.

Unlike 2008, many a lay person today has at least a passing understanding of the way RMBS were packaged. Banks and other originators signed up borrowers for mortgage loans, loans which were then packaged together and sold in the form of securities split into a number of tranches. Tranches carrying the lowest risk received the lowest premium; those with the highest risk, the highest premiums. In theory, this securitization of bundles of hundreds or thousands of mortgages not only freed up liquidity into the market, it also evened out or absorbed the risks of isolated defaults.

The wheels fell off at a number of stages as the FHFA suits allege. First, the lending standards dropped precipitously. Prior to securitization, federally guaranteed lending programs such as Fannie and Freddie had rigid underwriting standards that included: minimum thresholds of loan-to-value ratios (LTV); income and borrower’s debt standards; minimum down payments; documentation standards; appraisal standards and others. The swelling real estate bubble squeezed those standards until they were no longer recognizable. Not only were originators churning out no-documentation or low-documentation “liar loans,” they were pressuring appraisers to inflate property values. Rather than lending to owner-occupiers, the loans went to speculators who bought real estate as investments to flip. All these shortcomings, allege the FHFA, should have been caught by the banks that underwrote the RMBS.

The FHFA urges that the underwriters ignored their own guidelines. As Fannie and Freddie relied upon material statements (or omissions) included in the prospectuses touting the RMBS, the FHFA alleges that the statements and omissions rise to the level of not only violations of §§11 and 12 of the Securities Act of 1933, but state law and common law negligence as well. While the allegations may ultimately prove true, loose ends all but cry out to be tied up.

Even if one can reconcile the idea of a business (as opposed to a pension fund) backed by the United States Government that trades in securities, how can Fannie and Freddie portray themselves as dupes? The complaint against Citigroup and its subsidiaries and their directors states:

Fannie Mae and Freddie Mac are government-sponsored enterprises chartered by Congress with a mission to provide liquidity, stability and affordability to the United States housing and mortgage markets. As part of this mission, Fannie Mae and Freddie Mac invested in residential mortgage-backed securities.

The Bank of America (BOA) complaint declares, “Defendant BOA Corp. purports to be one of the world’s largest financial institutions…” Another defendant adds, “BOA National is one of the nation’s largest banks and a wholly-owned subsidiary of BOA Corp.” The leitmotif of Big Bank versus taxpayer/homeowner is hard to overlook.

The literature published since the financial crisis has been not only pervasive, but often outstanding. These books tell the story of how as banks packaged these securities, they laundered virtually worthless loans into instruments backed in some cases by AAA credit ratings. On multiple occasions, the assumptions underlying RMBS were attacked by prescient hedge fund managers in public meetings and conference calls. A handful of these canny traders made billions of dollars betting that RMBS were dangerously defective. If these guys could see the problem—and warned others about it—why didn’t Fannie and Freddie, who literally invented the residential mortgage market as we know it, also see the defectiveness?

Another pesky, if academic, question relates to the ability of the banks to receive a fair trial. The Government of the United States, in the guise of the FHFA, is suing Wall Street to recover money damages that, if the case is successful, will accrue to the benefit of the jurors as taxpayers. Bank of America has already had an $8.5 billion settlement kicked back as insufficient; it’s worth mentioning that these 17 suits hardly represent the totality of litigation confronting these institutions. (See Business Law Currents Litigation Watch: Another CDO Shot Across Goldman’s Bow.) Where is the juror who’s going to deny a bias against investment bankers?

Although the fair trial question may be academic, a more pragmatic question may be what effect this litigation will ultimately have on Wall Street. The outcome of these suits will likely have far-reaching implications in the financial industry. Will the weak sisters be swallowed up by a few hardy survivors? Will the government give in to settlements that leave the banks room to breathe? Will policy reasons, viz., competing with China for investment finance, bring Washington to heel at the expense of taxpayers? Will the FHFA triumph only to continue the legacy of seven-figure compensation for Fannie and Freddie big shots?

As the more than 550-page FCIC Report makes clear, when it comes to responsibility for the crisis, there is plenty of blame to go around. The FHFA’s cases against the underwriters are far from frivolous. Still, if Fannie and Freddie couldn’t read the tea leaves, why were they in so far over their heads?

© 2011 Thomson Reuters. All rights reserved. Republication, repurposing, modification or redistribution of Westlaw Business Currents content, including by framing, removal of hyperlinks or similar means, is prohibited without the prior written consent of Westlaw Business.

Stress Test: Regulators Evaluating the Health of Big Banks

Article by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Insider data sourced from Fidelity, all other data from Finviz.
Original Article: http://community.nasdaq.com/News/2011-09/stress-test-regulators-evaluating-the-health-of-big-banks.aspx?storyid=93973

In August the Federal Reserve asked a number of big US banks to undergo various “stress tests” in order to judge how their balance sheets could fair in worst-case financial scenarios.

The goal, as reported by CNBC, seems to assure regulators that these companies can produce emergency capital given the sudden need.
U.S Banks interviewed by the Fed include Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C) and Morgan Stanley (MS), according to CNBC’s sources.

These interviews are a reaction to market volatility and the “too-big-to-fail” mentality.

“The summertime tests were a follow-up to a larger round of balance-sheet assessments that the country’s 19 biggest banks undertook as part of the Comprehensive Capital Analysis and Review process that the Fed mandated in March, according to someone familiar with the matter.”
Although the specific stress-stress scenarios are unknown, Bank of America “suggested to the Fed that it might introduce a Merrill Lynch tracking stock, among other things, say people familiar with BofA’s proposal.”

So we’re wondering–which U.S. banks offer relative safety for investors looking to gain exposure to the banking industry?
For ideas we looked towards the trades of banking insiders. If they’re using their own cash to buy into the shares of their employers, you better pay close attention.

1. Capitol Federal Financial, Inc. (CFFN): Operates as the holding company for Capitol Federal Savings Bank that provides various banking products and services in Kansas. Over the last six months, insiders were net buyers of 139,500 shares, which represents about 0.09% of the company’s 157.42M share float.

2. Capstead Mortgage Corp. (CMO): Operates as a self-managed real estate investment trust in Dallas, Texas. Over the last six months, insiders were net buyers of 28,500 shares, which represents about 0.03% of the company’s 83.23M share float.

3. Flagstar Bancorp Inc. (FBC): Operates as the holding company for Flagstar Bank, FSB that offers consumer and commercial financial products and services to individuals, and small and middle market businesses in Michigan, Indiana, and Georgia. Over the last six months, insiders were net buyers of 72,793,301 shares, which represents about 37.29% of the company’s 195.23M share float.

4. Sterling Financial Corp. (STSA): Operates as the bank holding company for Sterling Savings Bank that provides various banking products and services to individuals, small businesses, commercial organizations, and corporations in the United States. Over the last six months, insiders were net buyers of 840,934 shares, which represents about 5.9% of the company’s 14.25M share float.

For Banks, Unfortunate Echoes of 2008

By FLOYD NORRIS, NYT
Original Article: https://www.nytimes.com/2011/09/10/business/for-banks-unfortunate-echoes-of-2008.html

THREE years ago, financial stocks tumbled as worries about the health of the banking system grew. By Sept. 12, indexes of financial stocks were down 28 percent from the end of 2007 in both the United States and Europe.
Then Lehman Brothers failed, and prices fell much more.

As the anniversary of that date approached, investors seemed to fear it might all happen again. By the end of this week, those same indexes were down about as much this year as they were at this point in 2008, and many bank stocks did even worse than they did in early 2008.
There is a circular logic to this year’s decline. In 2008, banks in many countries were rescued by governments. Now it is feared that banks may be in danger because some of the same governments may not be able to meet their obligations. That is particularly true in Europe, where bonds from several countries trade well below face value.

On Friday, Greece’s finance minister, Evangelos Venizelos, blamed “organized rumors” for renewed speculation that Greece would default, and said the country intended to comply with all terms needed for the bailout that European countries agreed to in July. But the fact that the details of the deal have yet to be locked down has unnerved some investors.

In a speech this week, Josef Ackermann, the chief executive of Deutsche Bank, said it was not justifiable for politicians to demand that European banks raise more capital, as Christine Lagarde, the head of the International Monetary Fund, had done. “It’s obvious,” he said, “that many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels.”
But, he said, it would “risk undermining the credibility” of European bailout packages “if politicians were to now send out the signal that they do not believe in the success of those measures.” And, he argued, forcing banks to raise capital now would anger investors by forcing the dilution of current shareholders.

As can be seen in the accompanying charts, Deutsche Bank has lost more than two-fifths of its value this year, a performance that is better than that of some banks. Its shares are trading for about what they cost at the end of 2008, but they are less than half what they were worth just before the Lehman failure.

Of the 30 banks shown, only one — Standard Chartered of Britain — has a share price higher than it had on the eve of the Lehman collapse. Even so, its shares have lost nearly a quarter of their value this year.

Shares in Intesa Sanpaulo, an Italian bank, have lost half their value this year, and are trading for about one-quarter less than they did on March 9, 2009, when most financial stocks hit their credit crisis lows. UniCredit in Italy, Société Générale in France and Lloyds in Britain have also suffered badly this year, losing half or more of their value. Credit Suisse, in Switzerland, and Barclays, in Britain, have fallen almost as much.

Among the largest American banks, some of the worst performers have been those that were widely deemed to be too big to fail. Bank of America, troubled by its ill-fated acquisition of Countrywide Financial, is the worst performer so far in 2011, but Citigroup, Goldman Sachs and Morgan Stanley have done almost as poorly. Morgan Stanley’s share price is also a little below its March 9, 2009, level.

FDIC: Insurance Fund Back in the Black as Bank Profits Rise 38%

Via Journal of Accountancy
Original Article: http://www.journalofaccountancy.com/Web/20114508

The improved health of the nation’s banks boosted the Deposit Insurance Fund (DIF) into a positive balance ($3.9 billion) for the first time in two years, according to the FDIC’s Quarterly Banking Profile for the quarter ending June 30. The report also said profits at insured institutions rose to $28.8 billion in the quarter, a 38% improvement over the prior-year quarter and the eighth consecutive year-over-year increase in quarterly earnings.

Profits were helped by large drops in loan-loss provisions and noncurrent loans. Actual loan balances posted their first quarterly increase since the second quarter of 2008, and the number of banks on the regulator’s “Problem List” dropped for the first time in almost five years.

However, net operating revenue (net interest income plus total noninterest income) was lower than a year ago for the second quarter in a row, as net interest income declined by $1.9 billion (1.7%) and noninterest income fell by $1.1 billion (1.9%). The FDIC said the decline in net interest income was caused by lower asset yields at a number of the largest banks, reflecting growth in low-yielding balances at Federal Reserve banks.

Loan-loss provisions were $19 billion, a decline of $21.4 billion (53%) from the second quarter of 2010. This is the seventh consecutive quarter that provisions have declined from year-earlier levels. The $21.4 billion decline was the smallest year-over-year decline in the past five quarters.

At the end of June, insured institutions reported $319.8 billion in noncurrent loans (loans 90 days or more past due or in nonaccrual status), which was $22.2 billion (6.5%) less than they reported at the end of the first quarter. This is the fifth consecutive quarter in which noncurrent loan balances have fallen; they are now $90.2 billion (22%) below the peak reached at the end of the first quarter of 2010.

Total loans and leases at insured institutions rose by $64.4 billion (0.9%) during the quarter. Apart from the $221 billion increase in reported balances in first quarter 2010 that was caused by new accounting rules, this is the first actual growth in loan balances since the second quarter of 2008.

The FDIC reported the smallest number of failures in a quarter (22) since the first quarter of 2009. At the end of the second quarter, there were 865 “problem” institutions, down from 888 at the end of the first quarter—the first quarterly improvement since the third quarter of 2006. (Institutions on the problem list are those at greatest risk of failure.) Total assets of problem institutions declined from $397 billion to $372 billion. These improvements helped the DIF balance increase by $4.9 billion during the second quarter to $3.9 billion (unaudited), the sixth consecutive quarterly increase. The DIF had a negative $1.0 billion balance at the end of the prior quarter. This is the first positive quarter-end balance since June 30, 2009.

The performance of first-lien mortgages

Via Journal of Accountancy
Original Article: http://www.journalofaccountancy.com/Issues/2011/Sep/Banking

The performance of first-lien mortgages serviced by large national banks and federal thrifts improved during the first quarter of 2011, according to a report released by major federal banking regulators.

The quarterly report by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) showed that 88.6% of the 32.7 million loans in the portfolio were current and performing at the end of the first quarter of 2011. That was up from 87.6% at the end of the fourth quarter of 2010 and 87.3% in the year-ago period.

While the report said delinquencies and foreclosures remained elevated from historic norms, delinquencies improved across all risk categories and for all investors. Mortgages that were 30–59 days delinquent fell to 2.6% of the portfolio, the lowest level in three years. Mortgages more than 60 days past due and delinquent loans to bankrupt borrowers declined for the fifth consecutive quarter to 4.8% of the portfolio, the lowest level since the first quarter of 2009.

The OCC and OTS Mortgage Metrics Report, First Quarter 2011, available at tinyurl.com/3uw6a5r, covers about 63% of all first-lien mortgages in the United States, worth $5.7 trillion in outstanding balances.

The report said a large inventory of seriously delinquent mortgages and foreclosures in process continued to work through the loss mitigation and foreclosure process. Servicers implemented 557,451 home retention actions (17.4% more than the previous quarter) to mitigate risk and assist homeowners struggling with mortgages. Driving that increase was a 78% rise in trial-period plans. Permanent modifications fell during the first quarter of 2011, reflecting the lower number of trial-period plans in the third and fourth quarters of 2010 that would be maturing during the first quarter of 2011.

The report said the number of mortgages entering the foreclosure process fell to 312,404—down 11.3% from the previous quarter and 15.6% from a year ago. The number of mortgages in the process of foreclosure fell slightly, but the overall portion of mortgages in the process of foreclosure remained unchanged from the previous quarter at 4%. The number of mortgages that completed the foreclosure process rose by 26% from the previous quarter but dropped 27.7% from a year ago, as servicers lifted voluntary moratoriums on foreclosures that were in place during the previous quarters.

New in this report are data on the performance of mortgages held by the reporting national banks and federal thrifts. Because most of the loans tend to be nonconforming loans with increased risk characteristics and geographic concentration in weaker real estate markets, mortgages held by reporting banks and thrifts perform worse than mortgages serviced for others. The report said that 80.3% of mortgages held by reporting banks and thrifts were current and performing at the end of the quarter, compared with 88.6% of all reported mortgages. Reporting banks and thrifts hold 14.5% of the mortgages included in the report.

Angry Birds Costing Businesses $1.5 Billion In Lost Wages

Via Business Insider
Original Article: http://www.businessinsider.com/angry-birds-losses-2011-9

The world’s love of Angry Birds could be costing businesses over $1.5 billion in lost wages, according to an estimate from Alexis Madrigal of the Atlantic.

Madrigal looked at the methodology used to calculate things like how much money companies lose when productivity slows thanks to the NCAA tournament, or how much money is lost thanks to our obsession with fantasy football.

From there he came up with his estimate, which is laid out in the graphic below. He admits the math could be a little fuzzy, but says, “I bet this estimate is right to the order of magnitude, if not in the details.”

Frankly, we think these sorts of things are bogus. Productivity isn’t lost. People just do what they do. But, it’s sort of fun to play with numbers.

Featured Services:

Synergy Partners / Synergy Capital Announces Factoring Facility for Financial Institutions
Fed Said to Draft Rules for Biggest U.S. Banks Following Basel Standards
Changes Ahead for Mortgage Servicing
State Street’s Cloud: Benefits and the Damage Done
Banks Open Loan Spigot Just a Bit
FBI: Where There Is Opportunity, There Will be Mortgage Fraud
Fed Eyes European Banks
Net interest income Shrinking Bank Margins
BONUS: Excess is back as Ferrari sales soar

Regulatory & Compliance Newsletter, August 2011, Issue #8

SPSC — Tue, 23 Aug 2011 18:33:38 +0000

What’s News

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Fed Said to Draft Rules for Biggest U.S. Banks Following Basel Standards

By Craig Torres and Cheyenne Hopkins Via Bloomberg.com
Original Article: http://www.bloomberg.com/news/2011-08-11/fed-said-to-draft-rules-for-biggest-u-s-banks-following-basel-standards.html

State Street’s Cloud: Benefits and the Damage Done

Posted by David Rosenbaum via cfo.com
Original Article: http://www.cfo.com/blogs/index.cfm/detail/14592453

Whether due to the so-called jobless recovery, or because the recession (call it what you will: de jure, de facto, or just ad nauseam) is rolling along like Old Man River, profits in the U.S. banking industry are declining, leading to waves of cost cutting. Wells Fargo reportedly is aiming to cut 12% in overhead by the end of 2011; this year Bank of America already has closed 158 branches. And on July 19, Boston-based State Street Bank announced it would shed 850 IT jobs (a little over a fifth of IT’s total head count) as part of its “IT transformation program” announced in late 2010. About 320 State Street IT employees will be transferred to outsourcing partners IBM and Wipro, and the remaining 530 will be let go over the next 18-20 months.

State Street CIO Chris Perretta, while acknowledging the financial imperatives behind the layoffs (“We had to find ways to free up resources to make technology investments”) as well as the pain (“Of course there’s sadness in letting people go, my goodness, yes”), insists that the transformation, keynoted by the implementation of a private cloud, is less a cost-cutting effort than “a strategic play to deploy our people to differentiating tasks,” such as developing new products and services. The outsourcing piece largely will be about supporting the bank’s infrastructure.

“I’m not saying the infrastructure isn’t important, but just because it’s important doesn’t mean we have to do it ourselves,” Perretta says. “When I get on a plane, I look at the engine and that engine seems pretty important. But Boeing doesn’t make it.”

Perretta believes that cloud computing inevitably shrinks the size of in-house IT. It is, he says, more efficient to run IT in the cloud because it’s a more homogenous environment. “So if you had your entire portfolio of applications in the cloud, you’ll run with fewer people.”

Efficiency, however, does not confer simplicity. Accordingly, as Perretta moves 60% of the bank’s application portfolio to its cloud over the next two or three years, the work of architecting that environment will be kept in-house, as will the development of new applications focusing on “bringing enlightened insight into customer portfolios with high-powered analytics,” he says.

“So much data is being generated in this environment,” continues Perretta, “that the killer apps turn out to be data search and the translation of that data into usable information.”

Bringing those apps online is not simple, either, and inevitably it involves finance. “We have an asset-management system,” Perretta says, “so when we stage our apps to the cloud and replace our servers, the servers we retire will be fully depreciated. We tailor our application rollouts to the end of life of those servers. It’s a pretty sophisticated dance.”

This marriage of IT and finance — even to the extent of timing application rollouts — will become increasingly common in the new cloud world as, says Perretta, “the line between IT and operations grows fuzzy.

“All our transformation activity is grounded in commercial outcomes,” he concludes. “As CIO, I’m on the hook for those results. So IT doesn’t do anything without finance looking at the plans. IT’s governance structure is managed together with operations, and finance blesses all the economics.

“Good times, bad times, you always have to work the cost line.”

Changes Ahead for Mortgage Servicing

by Stephanie Dhue, via cnbc.com
Original Article: http://www.cnbc.com/id/43991596

Robo-signing, lost paperwork and wrongful evictions have put mortgage servicers under the gun.

Banking Committee Chairman Tim Johnson on Tuesday blamed servicers, in part, for stalling a housing recovery: “Homes that should move through the foreclosure process are held up because courts and servicers are concerned that paperwork has not been completed properly.”

To address the problem, lawmakers are considering a national standard for mortgage servicers. The industry is urging caution. Servicers are already subject to a slew of new servicing rules from bank regulators, the FHA, Fannie Mae and Freddie Mac. And more could be on the way, as banks are in settlement talks with states attorneys’ generals.

Faith Schwartz, who heads up the industry-led Hope Now Alliance, says “it is important to understand the wide variety of rules and initiatives already in progress.”

One rule creates a single point of contact. While it may sound simple, Schwartz describes companies having to complete intensive retraining of employees, so they can answer all consumer questions, instead of passing them from department to department. That has been a huge frustration for borrowers.

Dissatisfaction with the industry has grown in the last year, according to consumer-opinion surveyor JP Power. Much of it comes from borrowers who would like to refinance but can’t because falling home prices have left them without enough equity in the property or they can’t meet today’s tougher credit requirements.

Credit unions, independent and community banking groups want an exemption from a national standard, saying they were not part of the problem. Jack Hopkins, who is CEO of CorTrust Bank in Sioux Falls, SD, says his bank competes for loans by keeping the loans in-house, but to comply with rigid and over-prescriptive new rules could force them to exit the servicing business.

Banks Open Loan Spigot Just a Bit

By: SUDEEP REDDY via wsj.com
Original Article: http://online.wsj.com/article/SB10001424053111903480904576510513857960944.html

Banks relaxed their lending standards further during recent months as competition intensified among financial institutions and demand increased for many types of loans, according to a Federal Reserve survey.

The findings from the Fed’s poll of banks’ senior loan officers indicate continued improvement in lending conditions heading into the third quarter, particularly among business customers.

But some areas, such as residential real estate, remain plagued by continued weak demand.

The survey, which drew responses from 55 domestic banks and 22 U.S. branches of foreign banks

FBI: Where There Is Opportunity, There Will be Mortgage Fraud

Via: National Mortgage Professional
Original Article: http://nationalmortgageprofessional.com/news26258/fbi-where-there-opportunity-there-will-be-mortgage-fraud

Mortgage fraud continued at elevated levels during 2010, according to the Federal Bureau of Investigations (FBI) 2010 Mortgage Fraud Report. The FBI, with its partners, dedicated significant resources to the issue of mortgage fraud over the past year and saw a number of investigative successes. The FBI feels that the current housing market will likely remain an attractive environment for mortgage fraud criminals in the near future who will seek new methods to circumvent loopholes and gaps in the mortgage lending market.

The objective of the 2010 Mortgage Fraud Report is to provide FBI program managers and the general public with relevant data to better understand the threat posed by mortgage fraud. The report was requested by the Financial Crimes Section, Criminal Investigative Division (CID), and prepared by the Financial Crimes Intelligence Unit (FCIU), Directorate of Intelligence (DI).

Credit: ComstockThe FBI 2010 Mortgage Fraud Report found that mortgage fraud remained elevated in 2010 despite modest improvements in various economic sectors and increased vigilance by financial institutions to mitigate it. Although recent economic indicators report improvements in various sectors, overall indicators associated with mortgage fraud—such as foreclosures, housing prices, contracting financial markets, and tighter lending practices by financial institutions—indicate that the housing market is still in distress and providing ample opportunities for fraud. As unemployment remains high nationwide and housing inventory remains at the same level it was at in 2008, mortgage delinquency rates and new foreclosures continued to increase in prime and sub-prime markets.

Key findings of the FBI’s study included:

►Mortgage fraud continued at elevated levels in 2010, consistent with levels seen in 2009. Mortgage fraud schemes were found to be resilient, and readily adaptable to economic changes and modifications in lending practices.

►Those instigating mortgage fraud included licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.

►Total dollar losses directly attributed to mortgage fraud are unknown.

►A continued decrease in loan originations from 2009 to 2010 (and expected through 2012), high levels of unemployment and housing inventory, lower housing prices, and an increase in defaults and foreclosures dominated the housing market in 2010. RealtyTrac reported 2.9 million foreclosures in 2010, representing a two percent increase in foreclosures since 2009 and a 23 percent increase since 2008.

►Analysis of available law enforcement and industry data indicates the top states for known or suspected mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey; reflecting the same demographic market affected by mortgage fraud in 2009.

►Prevalent mortgage fraud schemes reported by law enforcement and industry in FY 2010 included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.

►With elevated levels of mortgage fraud, the FBI has continued to dedicate significant resources to the threat. In June 2010, the U.S. Department of Justice (DOJ), to include the FBI, announced a mortgage fraud takedown referred to as Operation Stolen Dreams. The takedown targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in combating mortgage fraud.

This report is based on FBI; federal, state, and local law enforcement; mortgage industry; and open-source reporting. Information was also provided by other government agencies, including the U.S. Department of Housing & Urban Development (HUD)-Office of Inspector General (HUD-OIG), the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac, and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Industry reporting was obtained from LexisNexis, Mortgage Asset Research Institute (MARI), RealtyTrac, Inc., Mortgage Bankers Association (MBA), Interthinx and CoreLogic. Some industry reporting was acquired through open sources.

Net interest income Shrinking Bank Margins

By: Vincent Ryan
Original Article: http://www3.cfo.com/article/2011/8/credit_net-interest-income-shrinking-bank-margins

Bank CFOs didn’t groan publicly when the Federal Reserve’s Open Market Committee voted to leave the Fed funds rate at essentially zero until mid-2013. But it couldn’t have been good news. One of the principal reasons U.S. commercial banks (especially on “Main Street”) are in such poor financial shape is lower interest rates. Indeed, it’s a factor contributing to the slow growth in overall bank lending.

Since the Fed started its drastic cuts to the funds rate in the spring of 2008, banks watched their net interest income slide then fall drastically. Net interest income (NII), of course, is the difference between what a bank borrows money at (interest expense) and the price at which it lends that money (interest income).

At first the spread wasn’t so bad, but now that more consumer and business loans have been repriced at very low rates, and banks are at a “hard bottom” on the deposit interest they pay, NII has cratered.

Data analysis obtained from Capital IQ shows that in the past three years (as of the second quarter) NII at 19 of some of the 30 largest banks in the U.S. fell by 15% on average. (The media was a dip of 12.4%.) That’s a neck-wrenching reversal from the three-year run-up to 2008, when NII for those banks rose 53.7% on average.

CIT Group, Deutsche Bank and Trust Company, Morgan Stanley Bank, RBC Bank (USA), and First Horizon National had the largest drops. Some of these financial institutions tend to be “asset sensitive”—their assets are more likely to be investment securities and other short-term instruments, so their net interest margins get hammered when interest rates decline.

But the data show that banks that do the bulk of their business in consumer and business loans—like TD Bank, Regions Financial, Sovereign Bank, and Comerica–have also suffered.

Low deposit rates and net interest margins make it difficult to support the cost structure associated with capital-intensive bank branch networks, says Richard Speer, chief executive of bank consultancy Speer & Associates. “If your money yields half a percent, it’s hard to justify a branch network that might cost you 2%.”

The gloomy math is creating the appetite for credit card receivables, which have significantly broader net interest margins, says Speer. Capital One recently bought a $30 billion credit card portfolio from HSBC. Regional banks are also re-entering the credit card issuing business, after jettisoning those loans the last 20 years. “It’s a core [client] relationship and a nice profitable operation if a bank runs it well,” says Speer.

While banks don’t generally make much money on large commercial and industrial loans, the net income from lending is not helping the more typically profitable loans to midsize and smaller businesses. The good borrowers aren’t borrowing, says Speer, and the less creditworthy were hit hard by the recession. If a bank isn’t going to earn a big spread from a risky borrower, it doesn’t pay to lend at all.

So the Fed’s year commitment to low interest rates until 2013 will cost banks dearly—unless they can find other ways to earn more interest.

Excess is back as Ferrari sales soar

By: Peter Valdes-Dapena via CNNMoney
Original Article: http://money.cnn.com/2011/08/21/autos/ferrari_world_record_price/index.htm?iid=HP_River

NEW YORK (CNNMoney) — A 1957 Ferrari Testa Rossa racecar sold at a California auction Saturday for $16.4 million, the highest amount ever paid for any car at auction.

The price includes a 10% fee for the auction company, Gooding & Co. The name of the buyer was not immediately available. The name of the seller, described in Gooding auction catalog as “a preeminent collector with a passion for Italian automobiles,” is also undisclosed.

The car, a 1957 Ferrari 250 Testa Rossa, was the first Testa Rossa built, and served as the prototype for all subsequent Testa Rossa race cars.

The car has a 300-horsepower 3.0-liter V-12 engine and a four-speed manual transmission, and it had an eight-year racing history in both Europe and the United States.

It won first place in the 2006 Pebble Beach Concours d’Elegance, an event where classic cars are judged based on their appearance. The auction in which the car was sold was held in conjunction with the 2011 Pebble Beach Concours d’Elegance.

The annual Pebble Beach Concours has become a major automotive event, where several high-priced car auctions are held and luxury automakers unveil new models. This year General Motors’ (GM, Fortune 500) Cadillac division unveiled a plug-in car that will soon enter production, and a large convertible concept car. Also, Nissan’s (NSANY) Infiniti division unveiled a new seven-seat SUV, while Toyota’s (TM) Lexus division unveiled a new GS sports sedan.

The previous record for a car sold at auction was the $12 million sale of another 1957 Testa Rossa in Maranello, Italy in 2009.

“The $16.4 million sale of the prototype at Gooding goes to show that the market for great racing Ferraris is very competitive and collectors want to have the most significant example as the centerpiece for their collection,” said McKeel Hagerty, president of the collector car insurance company Hagerty Insurance.

Although this was the highest price ever paid at auction for any car, this Ferrari isn’t the most expensive car ever sold, according to Hagerty. Ferraris have sold privately for about twice the price of this car, he said.

Today, Ferrari is majority owned by Italy’s Fiat Group (FIATY), which also now controls Chrysler Group of the U.S. Piero Ferrari owns 10% of the exotic car maker and Mubadala Development Company of the United Arab Emirate owns another 5%. To top of page

Featured Services:

Synergy Partners / Synergy Capital Announces Factoring Facility For Financial Institutions
‘Everybody Is Going to Sue’
HUD Settles Allegations
Credit Score Disclosure Requirements
Bank Fails Slow, Backlog Looms
Time for Action on Freddie and Fannie
RESPA: Technical Corrections and Clarifying Amendments
JOA: Fraud / Banking
BONUS: Meet Robert Kuok, The man who spent $4.8 Billion On A Solid Gold Yacht
Regulatory Updates

Credit Analysis Underwritin

Regulatory & Compliance Newsletter, July 2011, Issue #7

SPSC — Thu, 21 Jul 2011 15:34:16 +0000

Registry Issues Reminder:

The NMLS and Registry Resource Center has issued a reminder that mortgage loan originators (MLO’s) who are employed by federally regulated institutions have until July 29th, 2011, to comply with the SAFE Act registration requirement.

What’s News

Announcing Synergy Partners Factoring Facility

For a free quick quote and a copy of our application, visit www.synergypartners.com, or call 504-342-4982 x 101 today!

Synergy Partners mortgage loan post-closing audits cost $99.00

Most QC companies charge between $125.00 – $175.00 per audit. Our comprehensive audits include a review of the original appraisal and meet HUD, FHA, Fannie, Freddie, Reverse, and VA requirements. For more information contact Douglas Cunningham, Synergy Partners Synergy Capital 504-342-4982 ext.101 or DougCunningham@SynergyPartners.com.

‘Everybody Is Going to Sue’

By Rick Green Via Bloomberg.com
Original Article: http://www.bloomberg.com/news/print/2011-07-14/dimon-everybody-is-going-to-sue-over-mortgages.html

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said clashes over faulty mortgages may drag on as investors and regulators demand compensation for soured loans issued at the peak of the housing market.

“There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Dimon said during a conference call today. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”

JPMorgan disclosed about $2.5 billion in second-quarter costs tied to faulty mortgages and foreclosures. The bank added $1.27 billion to litigation reserves, mostly for mortgage matters, and incurred $1 billion of expenses tied to foreclosures, according to a slide show accompanying today’s earnings report. Repurchase losses were $223 million, according to the company, which ranks second by assets among U.S. banks.

Banks are struggling to stanch losses tied to loans based on missing or wrong data about borrowers and properties and are facing probes of foreclosures that may have used falsified documents. Lenders led by Bank of America Corp. (BAC) have reimbursed investors for losses on mortgages, and New York-based JPMorgan said it has $3.3 billion in costs so far on repurchases from government-backed firms such as Fannie Mae.

JPMorgan’s additional litigation reserve may help cover “fees and assessments related to foreclosure delays and payments for other settlements,” including probes by the U.S. Department of Justice and the state attorneys general, the bank said. Litigation reserves also cover projected costs tied to so- called private-label mortgage bonds that may have contained faulty loans, the lender said.
Private-Label

“The private-label stuff will probably go up a little bit,” Dimon said when asked about future expenses to resolve disputes tied to the securities. “But I doubt it will go up more than the reserves we’re going to have to take down in the next 12 months.”

The litigation reserves aren’t earmarked for liabilities tied to Washington Mutual, the lender that JPMorgan acquired after it collapsed during the financial crisis in 2008. JPMorgan said those are the responsibility of the Federal Deposit Insurance Corp., adding that the “FDIC has contested this position.”

The outstanding balance of the Washington Mutual loans was approximately $70 billion as of March 31, with about $24 billion overdue by 60 days or more, according to JPMorgan’s first- quarter regulatory filing.

JPMorgan’s second-quarter net income climbed 13 percent to $5.43 billion as investment banking profit surged and more customers paid credit cards on time, the company said today. The lender advanced $1.08, or 2.7 percent, to $40.70 at 2:41 p.m. in New York Stock Exchange composite trading. The bank declined 6.6 percent this year through yesterday.

Credit Score Disclosure Requirements

By the FRB and FTC via Board of Govenors of the Federal Reserve System
Original Article: http://www.federalreserve.gov/newsevents/press/bcreg/20110706a.htm

The Federal Reserve Board (Board) and the Federal Trade Commission (FTC) on Wednesday issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. If a credit score is used in setting material terms of credit or in taking adverse action, the statute requires creditors to disclose credit scores and related information to consumers in notices under the Fair Credit Reporting Act (FCRA).

The final rules amend Regulation V (Fair Credit Reporting) to revise the content requirements for risk-based pricing notices, and to add related model forms that reflect the new credit score disclosure requirements. The Board is issuing these final rules jointly with the FTC.

The final rules also amend certain model notices in Regulation B (Equal Credit Opportunity), which combine the adverse action notice requirements for Regulation B and the FCRA, to reflect the new credit score disclosure requirements

The rules under Regulations V and B are effective 30 days after the date of publication in the Federal Register, which is expected soon.

For media inquiries, call 202-452-2955.

Federal Register notice: Regulation B, HTML | PDF

Federal Register notice: Regulation V, HTML | PDF

2011 Banking and Consumer Regulatory Policy
http://www.federalreserve.gov/newsevents/press/bcreg/2011bcreg.htm

Time for Action on Freddie and Fannie

By AGNES T. CRANE, GEORGE HAY and PETER THAL LARSEN via NYT.com
Original Article: https://www.nytimes.com/2011/07/19/business/economy/time-for-action-on-freddie-and-fannie-reuters-breakingviews.html

A year after passage of the Dodd-Frank act, the $10.5 trillion American mortgage market remains in limbo. One big reason is that the law scarcely touches Fannie Mae, Freddie Mac and the Federal Housing Administration — the government-run lenders that dominate the home loan market.

The consequences of lax mortgage lending were central to the crisis that Dodd-Frank was intended to make unrepeatable. But rather than tackle the huge and highly political issue of Fannie, Freddie and the F.H.A., the law narrowly focused on one part of the market. That’s the private-label mortgage-backed securities area, source of more than $3 trillion of mortgage bonds from 2002 to 2007.

The most significant new rule could require private sector financial institutions to hold at least 5 percent of securities they create by repackaging loans. Giving them some incentive to ensure the securities are creditworthy isn’t a bad idea, but it reinforces the notion that the private sector is at a competitive disadvantage to government lenders if it returns to the mortgage-backed business. That’s because Fannie and other government-run programs would be exempt from this requirement.

The risk retention rule plays into another Dodd-Frank initiative: the creation of standards for safer home loans known as qualified residential mortgages. Such loans, in which the proposal is that homeowners must put 20 percent down, among other criteria, would be exempt from risk retention requirements.

Banks, real estate lobbyists and consumer groups want looser standards because mortgages that don’t qualify could be costlier. That hardly seems catastrophic for borrowers when 30-year mortgage rates are as low as 4.5 percent. But it’s easy to see the point when federally backed housing agencies sometimes allow homeowners to borrow 96.5 percent of the value of their homes.

In short, the reform effort so far seems to make it harder for the private sector to re-establish itself while entrenching the cost, and risk, with taxpayers. Congress and regulators must assess housing finance as one market. Until the future of the hulking government mortgage finance companies is mapped out, the worthy goals of Dodd-Frank don’t mean much.

Europe’s banks can mostly withstand serious losses on their holdings of Greek sovereign debt. Officially, just eight banks failed the European Union’s latest stress tests, with a capital shortfall of 2.5 billion euros ($3.5 billion). But the exam had a major flaw: it did not require banks to apply a haircut to the majority of their holdings of euro zone peripheral debt.

That’s at odds with reality. Any revised bailout package for Greece is likely to force banks to recognize at least some losses on their debt. An analysis by Breakingviews examined what would happen under such a case. It takes the banks’ holdings of sovereign debt in their banking books and applies losses to Greek, Portuguese, Irish, Spanish and Italian debt based on where the countries’ five-year bonds were trading last Friday. The value of Greek bonds, for example, is slashed in half.

As a result, this analysis shows 27 banks failing, with a capital shortfall of about 25 billion euros, or 10 times the official number.

That sounds scary. But the biggest problem is in Greece itself, where the hole is 13.6 billion euros. This is not much more than the 10 billion euros Greece has already set aside to recapitalize failing lenders.

Portugal and Spain also take a hit under the analysis, with capital shortfalls of 3.3 billion euros and 6 billion euros, respectively. But in the context of their economies, the amount isn’t huge.

Investors may quibble with some of the Breakingviews assumptions. In particular, the pass mark of 5 percent for a bank’s core Tier 1 capital ratio may seem too low. Raise it to 6 percent, and the number of failing institutions jumps to 38, and the capital hole to 45 billion euros.

None of it means euro zone leaders can merrily let Greece default. They need to recapitalize banks sufficiently to deal with such an event, not merely any stresses anticipated by the official tests. And they need to put in other firewalls to prepare for any second-order impacts. But if they do, a Greek default need not be a disaster.

HUD Settles Allegations That Prospect Mortgage
Violated Respa And Fha Reporting Requirements

California lender to pay $3.1 million and dissolve sham joint ventures

By; Brian Sullivan Via Hud.gov
Original Article: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-146

WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today announced an agreement with Prospect Mortgage, LLC (Prospect) to settle allegations the California-based mortgage lender created sham affiliated business arrangements for the purpose of paying improper kickbacks or referral fees in violation of Federal Housing Administration (FHA) guidelines and the Real Estate Settlement Procedures Act (RESPA). Prospect agreed to dissolve these sham joint ventures and pay $3.1 million to resolve the complaint.

HUD claimed Prospect operated as a “series limited liability company,” a business structure unauthorized by FHA, and that Prospect used this business structure to create hundreds of sham joint ventures with real estate brokers, mortgage brokers, mortgage lenders, servicers and other settlement service providers and to share profits for the referral of real estate settlement services. Through these affiliated business arrangements, Prospect allowed non-approved branch offices to originate FHA-insured mortgages in violation of FHA’s guidelines. Read the full text of the agreement announced today.

“The real test for any bona fide affiliate business arrangement is whether the affiliate has sufficient capital and employees to stand on its own two feet,” said Acting FHA Commissioner Carol Galante. “In this case, it was clear that these sham companies had neither and were merely sharing profits for the referral of business.”

HUD alleges that Prospect entered into “series” or “subscription agreements” with real estate brokers, agents, banks, mortgage servicers and others to give the appearance that it was creating legitimate joint ventures to provide real and compensable services. HUD discovered these sham businesses had little or no employees, capital and/or offices; that all core mortgage origination services were performed by Prospect itself; and that Prospect had allowed these affiliated businesses to participate in the origination of FHA-insured loans out of branch offices registered with FHA as exclusive to Prospect. In return for the referral of business, Prospect shared 50 percent of its profits with these entities which HUD determined were not bona fide affiliated businesses, and many of which were not FHA-approved lenders.

RESPA was enacted in 1974 to provide consumers advance disclosures of settlement charges and to prohibit illegal kickbacks and excessive fees in the homebuying process. Section 8(a) of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business and Section 8(b) prohibits unearned fees.

Bank Fails Slow, Backlog Looms

By JOAN E. SOLSMAN Via Wsj.com
Original Article: http://online.wsj.com/article/SB10001424052702303544604576434071834263868.html

U.S. bank failures have slowed in 2011 from the flood of recent years, but a large reservoir of “problem” banks will keep the failure rate relatively high as regulators slog through the backlog.

In the first half of the year, there were 48 bank failures, down from 74 in the second half of 2010 and 86 in the first half of 2010, which included three large failures in Puerto Rico.

Total assets of failed banks also dropped sharply from a year earlier, down 73%, but were relatively steady compared with the second half of 2010. That is because smaller community banks are predominantly the ones still being closed.

On Friday, U.S. regulators announced the failure of two banks in Colorado and another in Illinois, pushing the country’s tally this year to 51.

The first half of last year included the failure of 19 banks with more than $1 billion of assets, while there were just four such failures in the second half of 2010 and just three in the first half of this year.

The biggest bank failures in the latest period were United Western Bank in Colorado, First Community Bank in New Mexico and Superior Bank in Alabama. But their combined assets, at $7.36 billion, still were far short of the largest failure in the year-earlier period: Westernbank Puerto Rico, with $11.94 billion of assets.

Timur Braziler, analyst and assistant vice president at Keefe, Bruyette & Woods Inc., said the country is in about “the seventh inning” of this cycle of failures, which began in 2007. He predicted that the pace of failures is stabilizing and that the second half will have a similar number of failures as the first half did.

“It’s really just the regulators working through the backlog” unless the economy or commercial real estate worsen, he said. “There’s not going to be a new crop of problem banks.”

Still, the backlog is significant. The number of banks on the Federal Deposit Insurance Corp.’s problem list—a quarterly tally of banks in greater danger of failing—was at the highest level yet for the current cycle when it was last released in May, at 888.

Though net additions to the list have fallen to a trickle, the number has yet to decline even as banks continue to fold.

Matthew Anderson, managing director at researcher Trepp LLC, said one factor keeping that number elevated is an elongating failure process. Trepp keeps its own Watch List of banks at elevated risk of failure, and Mr. Anderson said that year to date the median length a bank spent on its list before failing was nearly six quarters, about double what it was in 2008.

That is partly a function of more time having elapsed since the financial crisis, but Mr. Anderson said the main factor is that regulators are working with weakened banks more to help them raise capital.

KBW analyst Mr. Braziler also said the imminent dissolution of the Office of Thrift Supervision—thrift regulation will shift to Office of the Comptroller of the Currency this month as part of the Dodd-Frank financial overhaul—may be slowing down the process as well.

Yet given an expectation for failures’ pace to hold steady for some time, clearing through the backlog is still a daunting prospect. Greg Hernandez, a spokesman for the FDIC, said historically 19% of the banks on the agency’s confidential problem list end up failing. At the first half’s rate, it would take nearly two years to work through that percentage on the latest list.

Mr. Hernandez also noted that this year so far “is basically what the FDIC anticipated it would be.” The agency has said it believed 2010, with its 157 total failures, would be the peak.

Luckily for the FDIC, the costliness of failures has dropped as the failure rate slowed. In the first half, the estimated cost to the FDIC’s fund was 20.5 cents for every dollar in failed-bank assets, down from 24.1 cents a year earlier.

Real Estate Settlement Procedures Act (RESPA): Technical Corrections and Clarifying Amendments

By: DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT via Bankersonline.com
Original Article: http://www.bankersonline.com/topstory/76fedreg/76FR40612.htm

This final rule makes technical corrections and certain
clarifying amendments to HUD’s RESPA regulations promulgated by a final
rule published on November 17, 2008. The majority of the regulations
promulgated by the November 17, 2008, final rule became applicable on
January 1, 2010. Now that the regulations have been in use for a little over one year, HUD has identified certain needed
technical corrections, which this rule will make, and certain other
regulatory provisions in which additional clarification would be
helpful.

The full dissertation and amendments are available via the HUD Portal here:
http://www.hud.gov/respa/

Fraud / Banking

By: Journal of Accountancy via journalofaccountancy.com
Original Article: http://www.journalofaccountancy.com/Issues/2011/Jun/Fraud

Mortgage loan fraud was cited in 54% of suspicious activity reports (SARs) referencing bankruptcy fraud in 2010, up from 42% in 2009, the Financial Crimes Enforcement Network (FinCEN) reported. The division of the U.S. Treasury Department also noted growth in reports of real estate “flopping” over the course of 2010, possibly spurred by the agency’s warning about the growing practice in its report for the first quarter of the year.

The report also contains data on state, county, and metropolitan statistical area (MSA) by total number and per capita filings of MLF SARs. More detailed reports and publications on mortgage fraud are available on FinCEN’s “Mortgage and Real Estate Fraud” page at http://fincen.gov/news_room/rp/mortgagefraud.html.

FinCEN’s latest Mortgage Loan Fraud Update (tinyurl.com/6bzxpma), which contains full-year 2010 data for SARs involving mortgage loan fraud (MLF), said MLF SARs increased 4% in 2010 to 70,472, compared with 67,507 filings in 2009. The report also noted, however, that the growth rate for all MLF SARs began to slow over the last two to three years. Filings for the fourth quarter of 2010 alone decreased 1% compared with the same period in 2009.

References to bankruptcy have steadily increased as a share of total MLF SAR filings. In 2010, 6% of all MLF SARs contained a key term related to bankruptcy in the SAR narrative, compared with 1% in 2006 and 2007. Some MLF SARs specified the type of bankruptcy filing, most frequently Chapter 7, which was cited in 27% of 2010 reports citing both bankruptcy and MLF.

The report said that SAR filers over the course of 2010 explicitly referenced “flopping” in 112 reports. In its summary of SAR MLF filings in the first quarter of 2010 (available at tinyurl.com/4c2kzfl), FinCEN warned of the technique, which it said is “a new type of flipping scheme used in the context of short sales.” FinCEN said flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.

Only two SAR filings referenced the term “flopping” in the first quarter, but that total rose to 112 by the end of 2010. FinCEN said filers referenced the related terms “short sale” in 827 MLF SAR narratives and “broker price opinion” or its abbreviation “BPO” in 41 narratives in the first quarter of 2010. While reports of flopping ballooned over the course of the year after FinCEN’s first quarter report, the agency said full-year SARs involving broker price opinions (228) and short sales (3,191) were relatively stable. FinCEN posited in its report that anecdotal feedback on flopping from law enforcement and industry sources suggests that the volume of related MLF SARs is much lower than the actual number of suspected incidents.

Reported incidences of suspicious activity in commercial real estate (CRE) financing almost tripled between 2007 and 2010, according to FinCEN. The analysis of suspicious activity reports (SARs) from depository institutions said a key concern in this area is the fact that an estimated $1.4 trillion in CRE loans will reach the end of their terms between 2010 and 2014.

The report, Commercial Real Estate Financing Fraud Suspicious Activity Reports by Depository Institutions (tinyurl.com/4pzlou2), said that falling commercial rents and occupancy rates along with a rise in commercial loan defaults over the last several years have prompted growing concerns about the CRE market and its potential effects on the nation’s economy. The CRE market includes brokerage and lending services for the industrial, retail, office, hotel and multifamily housing sectors. SARs related to the CRE market involve a variety of transactions and activities related to the purchase and development of raw land as well as the acquisition, development, construction and improvement of commercial buildings.

FinCEN simultaneously released Advisory FIN-2011-A007 (tinyurl.com/4n666b4), which provides examples of common commercial real estate fraud schemes, and suggests a key word for financial institutions to use when completing SARs involving potential commercial real estate fraud. The advisory lists several examples of common types of reported suspicious activity, including:

Misrepresentations. Subjects make false statements and/or submit falsified documents including rent rolls, tax documentation, appraisals, draw requests, lien waivers and financial statements to bolster loan applications. Subjects may also make fraudulent disbursement requests, including fraudulent invoices and receipts, to receive loan proceeds. This activity may occur across multiple banks using multiple accounts.

Bank insider collusion. Bank insiders facilitate loan approval processes and disbursement of funds for accomplices. Bank insiders’ suspicious client bases may move with them from employer to employer.
Flipping and straw-buyer schemes. Subjects may use straw buyers who “flip” the property to generate equity for another purchase, for profit, or to improve borrowers’ creditworthiness.
Collateral transfer. Borrowers sell collateral without disclosure to the lender or fail to forward proceeds of collateral sales to the lender, hide or convey the collateral to associates, or quit-claim deed the collateral to another entity. This may involve transferring ownership to family members or trust accounts, diverting funds for collateral improvements to other projects, or inflating collateral values, any of which would negatively affect the banks’ financial positions.
Advance fee schemes. Subjects engaging in advance fee schemes target borrowers, lenders and companies unable to obtain commercial real estate financing. These schemes may involve fraudulent business proposals and financial instruments.

FinCEN’s report said that as the $1.4 trillion in loans referenced above become due, analysts anticipate a delinquency rate of 10% because some borrowers will be unable to refinance due either to stricter underwriting standards or because the loan amounts outstanding exceed property values. The report said the valuation of the overall CRE market has fallen approximately 42% since it peaked in October 2007, with future fluctuation in CRE prices expected.

The analysis said 73% of the 2010 SARs originated from different financial institutions, indicating that CRE fraud affects a wide range of institutions of varying sizes and locations. Likewise, between 2007 and 2009, 71% of SARs originated from different financial institutions. For all these years, the top filer submitted 6% of SARs.

Meet Robert Kuok, The man who spent $4.8 Billion On A Solid Gold Yacht

By: Julie Zeveloff via BusinessInsider.com
Original Article: http://www.businessinsider.com/robert-kuok-malaysia-billionaire-buys-yacht-photos-2011-7

An anonymous Malaysian businessman just dropped an incredible $4.8 BILLION on a solid gold yacht.

That’s 10 times the amount Russian mogul Roman Abramovitch spent on his megayacht, the Eclipse, which previously held the title of the world’s most expensive yacht.

There aren’t many people in the world who could afford such an extravagance, let along that many Malaysians.

According to Forbes billionaires’ list, only three Malaysians have a net worth of $5 billion or more.

If the $4.8 billion figure is accurate — and a representative from Stuart Hughes, the yacht’s maker, assured us that it is — the most likely buyer is Robert Kuok, the richest man in Malaysia, with a net worth of $12.5 billion (the rep would not confirm or deny that the owner is Kuok).

Kuok is notoriously private and an astute businessman, so it’s somewhat shocking to think he would drop more than a third of his assets on a blinged-out vessel.

But hey, stranger things have happened.

Featured Services:

    Lenders Should Require Red Flag Compliance for Their Own Protection
    Don’t Blame Banks For The Latest Plunge In Housing
    Audit Committee Oversight or Ownership of ERM?
    Complaint Filed With HUD: Will Lenders be Forced to Accept FHA Minimum Scores?
    Bank Profits Up Sharply, but Revenues Falter
    Banks May Need More Capital
    Proposal to Implement Dodd-Frank Wall Street Reform

Credit Analysis Underwritin

Regulatory & Compliance Newsletter, June 2011, Issue #6

SPSC — Thu, 23 Jun 2011 14:19:44 +0000

In This Issue

Synergy Pricing

Our post-closing audits cost $99.00.
Most QC companies charge between $125.00 – $175.00 per audit.

Contact Douglas Cunningham, Synergy Partners / Synergy Capital
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Lenders Should Require Red Flag Compliance for Their Own Protection

In a recent news release, Florida Attorney General Bill McCollum and the Florida Department of Law Enforcement announced the arrest of 10 members of a criminal mortgage fraud and identity theft operation. The group is charged with defrauding numerous financial institutions out of more than $8 million, and using the identities of unsuspecting individuals as part of the conspiracy to obtain mortgage loans.

Senior Federal Bureau of Investigation (FBI) officials recently told Congress that identity misrepresentation tied to mortgage fraud continues to increase at an alarming rate. Identity theft and identity misrepresentation work hand-in-hand to fuel the fire of rampant mortgage fraud. The FBI also reports a 71 percent increase in pending mortgage fraud cases, with 66 percent of those cases involving losses to lenders totaling $1 million or more. These are just a few glaring examples of why lenders should insist that their brokers and correspondents become compliant to the FACTA Red Flag Rule.

Lenders must seriously consider their own liability when allowing their brokers or correspondents to originate loans without the proscribed identity verification protocols. Since the homeowner whose identity was used in the fraudulent transaction did not actually steal the money, they are not generally held liable to repay the lost funds. In almost every case of fraud involving identity misrepresentation, it is the lender who is most damaged by that type of criminal activity.

Don’t Blame Banks For The Latest Plunge In Housing, They’re Still A Mess

NAR chief economist Lawrence Nun blames banks for “holding onto huge cash reserves” as the primary reason for the latest plunge in housing. He also cites the weather, oil prices, a temporary soft patch, and everything but motherhood and apple pie.

Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.

The data reflects contracts but not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said the dip in contracts may be due to temporary factors. “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” he said. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”

Audit Committee Oversight or Ownership of ERM?

Audit committee’s responsibility for understanding, communicating and actively addressing enterprise risk management issues.

A recent (April 18, 2011) article in The Wall Street Journal titled “Most CEOs Prize Growth, But Other Priorities Vary” captured my attention. This survey of over 700 global CEOs conducted by the Conference Board listed the “Top 10″ priorities of today’s CEOs. Number 1 was “Business Growth” and Number 10
was “Investor Relations.” Interestingly, “Enterprise Risk Management (ERM)” did not make the Top 10 … though perhaps in a veiled manner as Number 6 was “Corporate Brand and Reputation,” while “Sustainability” came in at Number 8.

While recovering from our most severe recession in history, we would clearly understand why Number 1 is “Business Growth.” However in the last 12 months to 24 months we have endured record-setting oil spills, nuclear-plant disasters, a global financial crisis triggered by toxic mortgages and derivatives, billions of dollars of bailouts and air traffic control tower naps … the fact that ERM did not strike CEOs as a Top 10 concern is a bit puzzling!

Synergy Pricing

Our post-closing audits cost $99.00.
Most QC companies charge between $125.00 – $175.00 per audit.

Contact Douglas Cunningham, Synergy Partners / Synergy Capital
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Complaint Filed With HUD: Will Lenders be Forced to Accept FHA Minimum Scores?

In a complaint filed with the U.S. Department of Housing & Urban Development (HUD) on Dec. 7, 2010, the National Community Reinvestment Coalition (NCRC) alleged that the lending practices of 22 banks deny Federal Housing Administration (FHA)-insured loans to African-Americans and Latinos by requiring minimum credit scores as high as 640. The NCRC is an association of more than 600 community-based organizations that promote access to basic banking services.

It is interesting to note that on Oct. 4, 2010, only two months before this complaint was filed, the FHA instituted minimum credit scores (MCS) into its policy with Mortgagee Letter 10-29 (see below). Many mortgage loan originators (MLOs) think that the scores required by banks are representative of what the FHA requires, and are unaware that FHA has established minimum credit scores.

Below is a list of the current FHA minimum scores established by Mortgagee Letter 10-29 for all standard FHA programs:
1. Borrowers with an MCS at or above 580 ARE eligible for maximum financing.
2. Borrowers with an MCS between 500 and 579 ARE limited to a 90 percent loan-to-value (LTV).
3. Borrowers with an MCS less than 500 are NOT eligible for FHA-insured mortgage financing.
4. Borrowers with a non-traditional credit history or insufficient credit are eligible for maximum financing, but must meet the underwriting guidance in HUD 4155.1 4.C.3.

According to the NCRC, their fair lending testers “evaluated the practices of national lenders, financial services corporations, and other regional and local FHA-approved lenders.” In the complaints filed, NCRC states that lenders were chosen according to their market share and volume of FHA loans.

I’m a former FHA underwriter trained by HUD, and it has always been my position (and it was also the position of HUD until recently) that a borrower’s loan should be underwritten according to creditworthiness, regardless of the credit score. According to Fair Isaac Corporation (FICO), approximately 6.3 million people fall within the range of 620 to 640. It’s my guess that those who fall between 580 and 620 number about another five million. In this estimated 11 million that fall between 580 and 640, a significant percentage of those wishing to buy a home are also creditworthy individuals who would pay their mortgage on time every month.

Bank Profits Up Sharply, but Revenues Falter

Commercial banks and savings institutions reported a big drop in loan-loss provisions and continued improvements in asset quality as industry profits climbed to $29 billion in the first quarter of 2011, and the FDIC’s Deposit Insurance Fund (DIF) inched closer to positive territory. However, some of that improvement was offset by a 3.2% drop in net operating revenue, and a continuing decline in loan balances.

The FDIC’s Quarterly Banking Profile, First Quarter 2011 said income grew 66.5% from $17.4 billion in the year-ago period to the highest level since the second quarter of 2007-before the financial crisis. This is the seventh consecutive quarter that year-over-year earnings increased. Loan losses were down for a sixth consecutive quarter.

“The industry shows continuing signs of improvement,” FDIC Chairman Sheila Bair said in a press release, though she added, “There is a limit to how far reductions in loan-loss provisions can boost industry earnings.”
First-quarter loss provisions were $20.7 billion, less than half the $51.6 billion that insured institutions set aside a year ago. Net operating revenue (net interest income plus total noninterest income) was $5.5 billion (3.2%) lower than a year earlier, and realized gains on securities fell by $1.7 billion. The revenue drop was only the second in the 27 years data have been collected.

Asset quality continued to improve as noncurrent loans and leases (those 90 days or more past due or in nonaccrual status) fell for a fourth consecutive quarter. Insured banks and thrifts charged off $33.3 billion in uncollectible loans during the quarter, down $19.9 billion (37.5%) from a year earlier.
Total loans and leases fell for the 10th time in the past 11 quarters (the one exception in the first quarter of 2010 resulted from changes in reporting rules, not from actual loan growth). More than 70% of all insured institutions reported declines in loan balances in the first quarter. The net decline in balances in the first quarter totaled $126.6 billion (1.7%). The largest reductions in loan portfolios occurred in one-to-four family residential mortgages (down $63.8 billion, or 3.4%), credit card balances (down $38.9 billion, or 5.5%), and real estate construction and development loans (down $25.9 billion, or 8.1%). Balances in loans to commercial and industrial borrowers increased for a third consecutive quarter, rising by $18.1 billion (1.5%), but nearly half of this growth represented loans to foreign borrowers. Small loans to businesses and farms declined by 2.8%.

Banks May Need More Capital-
Fed Weighs a Range of 8% to 14% of Assets, Stricter Than Many Expected

Freddie Mac reported a 38% drop in refinancing volumes in March from the previous month and a corresponding 33% drop in MBS issuance, providing more evidence of the slowdown in mortgage lending. The secondary market agency said it purchased $19.4 billion in refinanced single-family loans from originators in March, compared to $31.4 billion in February.

In March, refinancings comprised 72% of loan purchases, down from 81% in the prior month.
The GSE’s monthly activity report shows issuance of mortgage-backed securities fell to $23.9 billion, down from $35.8 billion in February.

Meanwhile, Freddie’s single-family delinquency rate continues to trend downward.
The serious delinquency rate (90 days or more past due) fell to 3.63% in March, down 15 basis points from February. A year ago, the GSE had a 4.13% serious delinquency rate.

CEO Ltr 387

OCC Proposal to Implement Dodd-Frank Wall Street Reform and Consumer Protection Act; OTS Integration

    Undercapitalized and Overregulated
    Servicing Standards, Regulations, Increase Demand For Training
    Next Buzzword for Servicing May Be ‘Remod’
    FRB Unveils ‘Ability To Pay’ Proposal and Seeks Comments
    Existing Home Sales…New Home Sales Jump 11%
    Freddie Reports Big Drop in Refi
    Georgia Leaves Fraud’s Top Ten List

Synergy Pricing

Our post-closing audits cost $99.00.
Most QC companies charge between $125.00 – $175.00 per audit.

Contact Douglas Cunningham, Synergy Partners / Synergy Capital
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Regulatory & Compliance Newsletter, May 2011, Issue #5

SPSC — Tue, 03 May 2011 14:22:47 +0000

In This Issue

Synergy Pricing

Our post-closing audits cost $99.00.
Most QC companies charge between $125.00 – $175.00 per audit.

Contact Douglas Cunningham, Synergy Partners / Synergy Capital
(504)342-4982 ext.101 or DougCunningham@SynergyPartners.com.

Undercapitalized and Overregulated…

So far, bank mergers in the wake of the financial crisis have mostly centered on targets that were distressed or, like Pennington’s bank, had failed and were sold with some backing from the FDIC. Excluding the failures, the number of mergers involving banks with assets under $1 billion rose 37% last year, to 153, according to SNL Financial. That was short of the volume seen in prerecession years, but “over time, as acquirers become more comfortable with targets’ balance sheets, you will see more,” predicts analyst Fenech. Jake Lutz, a partner at law firm Troutman Sanders, agrees: “M&A activity has been mostly opportunistic, but now I’m seeing people talk about more-traditional deals.”

What’s universal, though, is that new compliance and reporting burdens on banks stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act are making it more expensive for banks to stand on their own. “No matter what size a bank is, it believes it needs to be bigger to digest the cost of the increased regulatory burden that’s coming its way,” says Michael Clarke, president of Access National Bank, which is based in Reston, Virginia, and has $832 million in assets.

The Dodd-Frank Act “will have an enormous and negative impact on my bank,” Charles Maddy, CEO of Summit Community Bank in Moorefield, West Virginia, told the House Financial Services Committee at a recent hearing on the topic. “Already there are over a thousand pages of new proposed rules, and there will be many thousands more.” Among other costs associated with the legislation, the bank has “already added one new full-time member to our compliance staff, and that may not be enough,” said Maddy.

Dodd-Frank may also indirectly suck revenue from community banks by drastically lowering the interchange, or “swipe,” fees that large banks charge merchants when their customers use bank debit cards for payment, said Maddy. Although smaller banks have a “carve-out” from this mandate, they “will almost certainly be forced to adopt the same price level or risk losing business to the largest banks,” he said. “We cannot afford to offer financial services if we can’t cover the cost of doing so,” he warned.

Many banks may simply be too small to shoulder the new regulatory burden. Maddy reported in his testimony that he had heard of bank regulators encouraging those with less than $500 million in assets to merge, which would translate into more than 90% of banks based in his state consolidating, he says. Fenech says he expects banks will need at least $1 billion to $2 billion in assets to sustain the additional costs, since “it’s going to be really hard for some of these smaller institutions to make do.”

Are There Any Trained Compliance Officers?

Current and expected regulatory compliance requirements and loss mitigation challenges are pressing servicers to address shortages in well-trained, experienced staff.

Supporters say mortgage servicing standards will help increase workout efficiency. But there is a catch. ” It goes back to the issue of training” says Rebecca Walzac CEO and president of Walzak Consulting. “It is very difficult to train people.”

Compliance demands banks change loan processing often and fast. They may have to change everything within 30 days, which in turn demands technology systems that can be easily updated to support those changes and the staff that has to execute the work. “Training is critical,” Walzak says. One of the issues that became evident because of the large scale modification process is that servicers did not and still have a shortage of people that are trained to do modifications, or take on the thousands of calls and loan processing demand of the recent past.

According to most economists capacity issues to prevail at least in the short term, thus fueling another type of demand. She agrees with insiders who see advanced technologies an effective way to help measure a firm’s ability to process defaults and modifications or provide other loss mitigation solutions. Technology can enable loan processors understand their job, provide compliance related guidance, monitor the mortgage servicing process, staff performance and the efficiency of vendors who act as third-party service providers. Automated reports bring invaluable insights servicing managers can use to improve servicing efficiency.

Next Buzzword for Servicing May Be ‘Remod’

Lenore Albert, a plaintiff’s lawyer in Huntington Beach, Calif., says the consent orders federal regulators recently issued against the largest mortgage servicers gave her “another tool” to fight foreclosures.

On April 15, two days after the enforcement actions came out, Albert won a court order blocking Aurora Loan Services from holding foreclosure sales on six homes in Orange County. In their request for a restraining order, her clients claimed they were harmed by so-called dual tracking, in which Aurora began foreclosure proceedings at the same time it was evaluating the borrowers for loan modifications. The consent orders bar this practice.

The borrower plaintiffs “acted diligently upon issuance of the [consent] orders,” wrote Judge James V. Selna of the U.S. District Court for the Central District of California in Santa Ana in his restraining order.

Servicers can expect more such diligence nationwide.

One likely result of the orders, some industry observers say, is that thousands of borrowers, many of them currently in litigation against servicers, will get another shot at a loan modification.

“There will be a lot of remodifications for those [borrowers] that fell out of a modification the first time,” said Art Tyszka, director of document services at Wolters Kluwer Financial Services, which has been hired by several of the largest servicers to conduct loss-mitigation efforts.

“Several hundred thousand loans at a minimum” will get one more chance, Tyszka said.

Synergy Pricing

Our post-closing audits cost $99.00.
Most QC companies charge between $125.00 – $175.00 per audit.

Contact Douglas Cunningham, Synergy Partners / Synergy Capital
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FRB Unveils ‘Ability To Pay’ Proposal and Seeks Comments

The Federal Reserve Board this week began soliciting public comments on a proposed rule that would give mortgage lenders two ways to show they have sufficiently vetted a consumer’s “ability to repay” a mortgage.

Due to lax underwriting during the subprime and alt-A era, Congress decided lenders should be held liable for making loans homebuyers cannot afford. But lawmakers also directed regulators to establish underwriting standards for a “qualified mortgage” that is so prudent lenders would be shielded from litigation.

“A creditor can originate a qualified mortgage which provides special protection from liability,” the Fed says in a summary of the Truth in Lending Act proposal. The Fed is proposing underwriting standards for two alternative qualified mortgages.

The first alternative provides a “legal safe harbor” if the lender originates standard, fully amortizing mortgages not exceeding 30 years and the points and fees do not exceed 3% of the loan amount. The borrower’s income and assets must be verified and the lender must qualify the borrower based on the maximum interest rate during the first five years of the loan.

Lenders are likely to gravitate to the first alternative. The second provides less legal protection but requires greater due diligence. Under the second alternative, lenders must comply with requirements of the first alternative. But they also have to verify the borrower’s employment and credit history while considering the borrowers’ other debt obligations and debt-to-income ratios. In return, lenders receive a “rebuttal presumption of compliance” with the qualified mortgage test.
Community Mortgage Banking Project managing director Glen Corso said the first alternative appears to provide a real safe harbor. “If this option does offer a true legal safe harbor, lenders and investors will have the legal certainty necessary to provide low cost mortgage credit without the added expense of excessive defensive measures undertaken strictly to ward off class action attorneys,” Corso said.

The comment period ends July 22 when general rulemaking for the Truth in Lending Act will be transferred to the Consumer Financial Protection Bureau. The new bureau, not the Fed, will be responsible for finalizing the ability to repay rule.

Existing Home Sales

New home sales jumped 11% in March and the government revised upward its estimate of February and January sales by 31,000 units.

The U.S. Census Bureau reported Monday morning that sales of newly constructed homes rose to a seasonally adjusted annual rate of 300,000 in March from a 270,000 rate in February.
The March sales rate is 22% below the rate a year ago.

However, February sales were revised upward from a 250,000 rate and January sales were revised upward by 11,000 units. “This report is relatively good news since it is indicating that there is some hope for new home sales after last month’s dismal reading,” said Chris Christopher, Jr., a senior principal economist at IHS Global. However, “home builders are feeling the squeeze from falling house prices, increased fuel and commodity prices and lackluster demand,” Christopher said.

Weiss Research analyst Mike Larson noted builders are having a hard time competing with all the foreclosed properties in the market. And he does see a “catalyst” that will really turn demand around for new home or existing home sales. “I think we are going to see a stagnant, sideways pattern of the rest of the year. I don’t see a catalyst to spark a real uptick,” Larson said.

Freddie Reports Big Drop in Refis

Georgia Leaves Fraud’s Top Ten List

For the first time in 13 years, Georgia won’t be among the top ten states for mortgage fraud when LexisNexis releases its annual MARI fraud index on May 2.
Arizona also is leaving the list that’s compiled by LexisNexis’ Mortgage Asset Research Institute, according to a preview presented at the American Bankers Association’s Real Estate Lending Conference in Baltimore.

The two states have been replaced by Ohio and Colorado, Merle Sharick, a solutions consultant in the Alpharetta, Ga.-based firm’s mortgage and real estate group, told the meeting. It is the first time either state has made the list.

Sharick said MARI’s 13th annual report will show “troubling trends” in appraisal and valuation fraud as well as the rising use of erroneous tax returns to support false statements of earnings. The firm also has been able to identify new trends in identity misuse and bankruptcy abuse, he said.
Loan fraud “is still pervasive,” he said. “The mortgage business is one of the last ones standing, so crooks are trying to take advantage of whatever holes in the system they can find, and everybody’s got them.”

Worse, Sharick said, is that the scam artists have better technology than the lenders they are fleecing, and they are more creative, too. For example, it took them “just about three weeks” to figure out how to get past lenders who are now verifying applicants’ tax returns with the Internal Revenue Service, the fraud expert said. They file a fraudulent return with the IRS, and after the lender checks his copy with the one the IRS has on file, they file amended returns that more honestly reflect their earnings.