Approved Advisor

By: Diane Tuman Content Manager @ Zillow.com | July 22, 2008

http://www.comedycentral.com/videos/index.jhtml?videoId=177062

In case you missed The Daily Show with Jon Stewart last night, he had former wholesale mortgage lender Richard Bitner on as a guest. Bitner calls himself someone “who sat in the middle” of the mortgage mess and is the author of the just-published “Confessions of a Subprime Lender — An Insider’s Tale of Greed, Fraud and Ignorance.” Oddly, the book was only released in paperback.

Stewart: “Did it come out in hardcover?
Bitner: “No”
Stewart: “Was the fear that too many of the subprime consumers would use it as housing?”

And so it started, Jon Stewart using humorous candor and commentary in learning how the wheels fell off the mortgage business. When Bitner started explaining the relationship with Fannie Mae and Freddie Mac, Stewart shot back with, “Why are their names Fannie Mae and Freddie Mac? If you’re going to have a 5 trillion dollar business, let me hear their full f**king name. I don’t want to know their nickname. I don’t want to have a business collapse that destroys the whole American economy and their nickname is Stinky!”

It’s 5 minutes and 39 seconds of Jon Stewart zingers that must be watched to the bitter end for Stewart’s laugh-out loud analogy. As always with Stewart, we laugh so we don’t cry.

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Bank Rating Services

The FDIC never releases its ratings on the safety and soundness of banks and thrift institutions to the public.

However, there are private companies that provide their own ratings of these institutions.

As a service to consumers, the staff of the FDIC Library has compiled a listing of several financial institution rating services.

Disclaimer:   This list should not be construed as an endorsement or confirmation by the FDIC of information provided by these companies.

The bank rating services listed alphabetically below offer a variety of online, web-based, paper and CD-ROM based services that cover banks, bank holding companies, savings and loans and savings banks.

• These services usually assign each institution a letter grade or numerical ranking which is meant to indicate the safety or soundness of the institution.
  
• These rankings are determined through the use of proprietary formulas that are applied to data collected by the bank and thrift regulatory agencies. These formulas vary from service to service.
  
• Most of the formulas use data based upon some variation of CAMELS rating factors – Capital, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk.
  
• DeNovo institutions have unique characteristics that ratings formulas may not fully recognize.
  

Most of the rating services offer subscriptions to specific print and online publications. Several offer ratings over the telephone.

Please contact the companies listed to obtain further information about the full range of services and products offered. Services

(Inman News) Shares of Fannie Mae and Freddie Mac hit 17-year lows today as investors’ fears about the companies’ ability to raise additional capital fueled speculation of the possibility of a government bailout.

The government-chartered companies — which purchase mortgages and securitize and sell pools of loans to investors with guarantees on their performance — are adequately capitalized, federal officials insist.

But some investors are worried that their shares in the publicly traded companies will be diluted if losses at Fannie and Freddie force the companies to issue more common stock to raise additional capital. Investors could face even more substantial losses if the companies are unable to raise capital and the government steps in to provide assistance.

On Monday, a Lehman Brothers report stoked fears that Fannie and Freddie would be forced to raise about $75 billion in additional capital because of proposed changes to an accounting rule by the Financial Accounting Standards Board.

James Lockhart, head of the Office of Federal Housing Enterprise Oversight (OFHEO) — the regulator charged with overseeing the safety and soundness of both companies — tried to quell those fears Tuesday, saying Fannie and Freddie are adequately capitalized and the rule changes wouldn’t require them to raise more money than currently envisioned.

In an interview with CNBC, Lockhart said Fannie has already raised $15 billion, and OFHEO expects Freddie will have $5.5 billion it’s agreed to raise in the bank by the end of the summer. The capital already raised should “allow them to ride out the problems of the past years and underwrite this year what should be a very profitable book of business,” Lockhart said.

Although Lockhart’s statement initially calmed investors’ fears, reports in the Wall Street Journal and Bloomberg have renewed talk of government intervention.

Former St. Louis Federal Reserve President William Poole told Bloomberg Wednesday that because the value of their assets is falling, Fannie and Freddie are already “insolvent.” Congress should recognize “that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole, a longtime critic of Fannie and Freddie, said.

Fannie and Freddie own or guarantee about $5.2 trillion in mortgages, nearly half of the $12 trillion in outstanding U.S. home loans, and have raised about $20 billion to offset $11 billion in losses since the credit crunch hit last year, Bloomberg reported.

Howard Shapiro, an analyst at Fox-Pit Kelton, estimates that Fannie and Freddie can withstand losses of $85 billion and $141 billion in the next three to five years and remain solvent, Reuters reported.

In a front page story today, the Wall Street Journal reported that while the government does not expect Fannie and Freddie to fail and “no rescue plan is imminent,” Treasury Department officials are “nonetheless talking about what the government could — or should — do if Fannie and Freddie become so pressed that they are unable to borrow money and continue operating.”

The Wall Street Journal reported that so far, Fannie and Freddie have been able to borrow money “at relatively low cost, despite jitters over their financial condition.” Fannie Mae issued $3 billion in two-year bonds this week at a yield of 3.272 percent. But the yield on the bonds was 0.74 percent more than comparable Treasury bonds — more than twice the spread a year ago, the Journal said.

If investors stopped buying the companies’ debt, they might be forced to sell assets including mortgage-backed securities, which would raise interest rates on mortgages, the Journal reported.

In his prepared remarks to the House Financial Services committee today, Treasury Secretary Henry Paulson said Fannie and Freddie are “working through this challenging period” and that OFHEO has “made clear that they are adequately capitalized.”

The worries about Fannie and Freddie come at a time when Congress is asking them to do more to help pull the nation out of the housing slump. Congress and the Bush administration are allowing the companies to purchase and guarantee loans of up to $729,750 in high-cost markets, far above the previous conforming loan limit of $417,000.

That action was taken in the hopes of bringing down interest rates on jumbo mortgages, which skyrocketed after Wall Street investors stopped buying mortgage-backed securities not guaranteed by Fannie and Freddie last August.

In addition, OFHEO has lifted growth limits on Fannie and Freddie’s loan portfolios and relaxed stricter capital requirements put in place in 2004 in the wake of accounting and management scandals.

The home equity market is shaky, and banks are responding by trimming home equity lines of credit. That tightening is prudent, but the Federal Deposit Insurance Corporation sent out a stern reminder to financial institutions late last month to play by the rules.

In its letter, the FDIC notes that suspending or reducing HELOCs “may be prudent and appropriate ways for institutions to manage credit risk, as articulated more fully in existing supervisory guidance. However, certain legal requirements designed to protect consumers must be followed.”

While banks have considerable leeway in making these credit-tightening calls, the FDIC “urges institutions to adopt best practices for working with borrowers who may experience financial hardship or significant inconvenience” from pared credit limits.

What qualifies as distress? Borrowers with home improvement projects in the works, or those using HELOCs as “cash management tools, or to finance small businesses,” the FDIC document explains. Using different types of credit to ease the pain “may be considered favorably in the institution’s public CRA evaluation,” the letter adds. Of equal importance, though: Borrowers should have the chance to “seek a review” of a lender’s decision to reduced or suspend credit based on lower property values.

First-quarter statistics from the American Bankers Association confirm that the home equity credit sector is looking increasingly troubled. The percentage of HELOC accounts in delinquency jumped 14 basis points to 1.1 percent, the highest rate for the category since 1987, when ABA started the series.

Elevated delinquency rates will persist. “The tax stimulus is helping to boost personal income,” says ABA chief economist in a press release, “but persistently high gas and food prices will eat away at overall resources.”

(U.S. Banker  |  Tuesday, July 1, 2008)

News Jul. 2–Jacob Milton, a Queens, NY mortgage broker at the center of a scandal involving identity theft and phony mortgages, has pleaded guilty to grand larceny and scheme to defraud.

But Milton, 42, of Port Washington, seemed unfazed by the possibility of serious jail time when Newsday caught up with him outside his home recently. He could spend the next 25 years in prison when he is sentenced on Dec. 16. “Why should I worry?” he asked. “I’ve done nothing wrong. In the mortgage business other people, other companies say things about you if their business is not doing well.” The six-month lag between a plea and sentencing often indicates a cooperation agreement is in the works, but neither he nor his lawyer is commenting. The Queens district attorney’s office also had no comment.

The probe opened a window into the fairly sizable Queens Bangladeshi community, in which Milton was something of a rock star. He had his own cable TV talk show, he carried himself with a swagger, and he fashioned himself a political player, donating money to several politicians, including Hillary Rodham Clinton, during her 2005 senatorial campaign. Milton, according to police sources, was in many ways the face of Griffin Mortgage, using his Bangladeshi immigrant success story to convince fellow immigrants he was one of them, someone to guide them through the often anxiety-ridden process of buying home.

Griffin’s owner, John Messer, has not commented on the investigation, but sources said investigators have been trying to determine what, if anything, Messer knew about the fraud. Milton’s accomplice, Shamsun Nira, 38, also pleaded guilty last week, to scheme to defraud, and faces a year in prison. She and her lawyer wouldn’t comment. Milton and Nira made headlines when police arrested them last October and seized records from Griffin, the firm that employed them. Since the arrests, investigators have pored over records and computer files and concluded that Griffin, which was based in Jackson Heights but also had offices in Jamaica and Garden City, was a legitimate mortgage brokerage that dealt in the illegitimate — stealing identities to buy homes and obtain credit cards.

The methods were often as crude as cutting up documents and pasting them on other documents, but the effect was just the same. (Jul 2, 2008 – McClatchy Tribune Business)

Banking industry nightmare awaits in ruling to rescind adjustable-rate mortgages

Courts are asked to reform mortgages originated under “unfair or deceptive practices”

(Reuters)—A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan’s interest rate had more than doubled by their second monthly payment from the 1.95% rate they thought was locked in for five years. The interest rate rose well above the 5.75% fixed-rate loan they had refinanced to pay their children’s college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial mortgages originated under “unfair or deceptive practices.”

‘MASSIVE CLASS SUITS’

The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.

The loans have caused serious instability in the financial sector, as mortgage interest rates adjusted upward and borrowers began defaulting at a significant rate starting in 2007, drawing lawsuits from investors and homeowners.

Federal appeals courts disagree over whether class-wide rescission under the Truth in Lending Act is available, said attorney Christine Scheuneman, whose firm represented Chevy Chase at the district court.

“If class treatment is found to be available for rescission …, given the current crisis not predicted in 2005, the result all over the country could be massive class suits,” said Scheuneman, a partner at Pillsbury Winthrop Shaw Pittman.

The Truth in Lending Act, a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs, lets consumers seek rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation.

Should the 7th U.S. Circuit Court of Appeals agree with Judge Adelman, banking industry associations predict “confusion and market disruption” as banks curtail lending further.

“Class certification of rescission claims would saddle the mortgage lending industry and secondary market with billions of dollars of class action exposure for supposed violations of TILA that do not give rise to any actual damages,” the financial services associations wrote in an amicus brief.

But the Andrews’ attorney, Kevin Demet, said lenders want to scare the judiciary into banning class action rescissions because they were unable to convince Congress to do so in the 1990s.

“If (banks) get relief (from the appeals court), it’s activist judges trying to give them what they could not get legislatively,” said Demet, of Demet & Demet of Milwaukee, Wisconsin.

Consumer advocates said the banks would have “no more or no less” liability for the tainted mortgages if the court found in favor of the Andrews plaintiffs.

But an adverse ruling for borrowers would cut off an important remedy. Borrowers would “lose the opportunity to use rescission to save their homes from foreclosure or to rescind their mortgages and refinance into affordable ones,” the Center for Responsible Lending, the National Consumer Law Center, Public Citizen and AARP Foundation Litigation wrote in an amicus brief filed in the case.

Both sides said the case will likely be decided by the U.S. Supreme Court.

Wachovia Corporation Announces Assistance for Pick-A-Pay Customers

CHARLOTTE, N.C., June 30 /PRNewswire-FirstCall/ — Wachovia Corp. today announced it is taking a number of actions to help its mortgage customers deal with a challenging economy and declining home values.

Effectively immediately, Wachovia is waiving all prepayment fees associated with its Pick-A-Pay mortgage to allow customers complete flexibility in their home financing decisions. This includes all Pick-A-Pay mortgages on 1-4 unit residences.

Additionally, for all new loan originations, Wachovia is discontinuing offering products that include payment options resulting in negative amortization.

Wachovia continues to be actively engaged in assisting customers through a number of programs to provide mortgage relief to help them avoid foreclosure. Over the past 12 months, Wachovia has worked with approximately 18,000 homeowners to help them stay in their homes and make payments that are more manageable under their current circumstances.

“Wachovia is committed to serving our customers and ensuring they not only have the right product to meet their needs, but also the resources available to help them during these challenging times,” said David Pope, president of Wachovia Mortgage. “Proactively waiving prepayment fees for our Pick-A-Payment mortgage products gives our customers the freedom to manage their current financial situation more effectively.”

Wachovia will continue to offer a variety of portfolio, marketable and government products through Wachovia Mortgage employees, third party brokers and via telephone and the Internet in order to accommodate customer needs.

“This move is consistent with our long tradition and steadfast commitment to listening to our customers,” said Tim Wilson, head of Loan Origination for Wachovia Mortgage. “Wachovia continues to provide them with a variety of products to meet their needs in varying economic conditions.”