Monthly Archives: September 2012

New poll for the week.

Long toxic, mortgages now seen boosting bank results

Pay attention to QE3 profits for the banks that will be released next month. 

One of the few businesses working well for the biggest banks these days is the same one that got them in trouble just five years ago: mortgages.

Wells Fargo & Co and JPMorgan Chase & Co are both expected to post more than $4.5 billion in profits for the third quarter, an increase of more than 15 percent from last year, according to Thomson Reuters I/B/E/S.

Other businesses at big banks will likely benefit from the mini-mortgage boom. Fixed-income trading revenue will likely rise at Goldman Sachs Group Inc and other investment banks, thanks in part to more trading in mortgage-backed securities.

A booming mortgage business will help make up for a challenging environment that includes low interest rates squeezing lending profits and slow merger activity pressing earnings from investment banking. Analysts said banks may announce new rounds of cost cutting.

While banks are making new mortgages, the home loan business is still tough. Lenders have millions of foreclosures to process, and all the current refinancing will translate into lower income from mortgage securities they choose to hold.

Read on.

Exposing China’s Shadow Banking System

h/t to

Today, however, courtesy of AsiaFinanceNews we get a report as close as possible to the most comprehensive overview of what may soon be (especially if rumors of tumbling Chinese municipal dominoes are correct) the most talked about subject in the financial world: China’s Shadow Banking empire.

From Chinese Shadow Banking System

China presently has five state-controlled megabanks operating within the supervision of the central government, of which the government is a majority shareholder, and seventeen additional “shareholder banks.” Because China’s state banking sector operates as a direct subsidyfunding channel for state-owned enterprises (as opposed to acting in the capacity of risk analytics based credit institutions), the largest state-owned banks have required periodic recapitalization every decade over the past sixty years as the constant generation and cumulative exposure to non-performing loans exceeds the banks’ total equity. The circumstances comprising the present situation, however, will include monetary exposure by international asset management firms which have acquired both direct equity-stakes in the banks as well as exposure to Hong Kong-listed shares.

State Control and Politically Mandated Loans

The banking system is generally considered to represent the weakest link in China’s political economy. Loans are typically a form of direct subsidy by the central government to the various state-owned enterprises. According to Victor Shih, a professor at Northwestern University who specializes in China’s political economy and is considered an expert on China’s banking system, prior to 1997 there had been no comprehensive audits, nor general ledgers, nor any capital stock at any of the five largest banks, as such was considered unnecessary. The central government, which controls 98% of China’s financial sector, maintains control over the banks in order to finance various political and socio-economic policy objectives, maintain capital controls and set fixed interest rates, comprising in effect a self-referential sector,  resulting in inefficient capital allocation which deprives China’s small and medium-sized enterprises (“SMEs”) of access to credit through the supervised banking system

Rejection of Western Credit Practices: Global Financial Crisis Doomed Reforms

The government halted and subsequently reversed reforms, and began moving away from western banking practices in late 2008 in response to the global credit crisis, ordering banks to originate loans to both local and centrally-planned investment projects in order to prevent a rapid slowdown in growth. The credit expansion undertaken by banks in 2009 at the direction of Chinese president Hu Jintao resulted in approximately $3.1 trillion in new loans created by the end of 2010.5 The National Development and Reform Commission (“NDRC”) fast-tracked and granted approval of virtually 100% of all fixed-asset investment projects submitted for funding by local governments. The NDRC was created to address the response to a survey by the central government asking local government officials to identify those projects for they had been unable to obtain credit financing. The role of the NDRC is to approve the projects rejected by the banks, thus in essence having approved the worst projects for financing in 2009 and continuing to approve such projects through the present

Read on below (full pdf):

Brookline man gets house back from foreclosure after fighting Bank of America

BROOKLINE – One Brookline family is pretty happy that this time the little guy won.

Ray Lavoie, a self-employed carpenter whose home was sold at auction this summer, is breathing easier after Bank of America agreed to reverse the sale and modify his mortgage under the terms of a billion-dollar Department of Justice mortgage settlement, allowing Lavoie, his wife and their two daughters to stay.

Lavoie mostly built his Cleveland Hill Road home 21 years ago, along with a large workshop beside the house where he earns his livelihood.

Read on.

When banks erase debt that isn’t there

GREETINGS, unhappy homeowners! Here’s some wonderful news:

“We are canceling the remaining amount you owe Chase!” says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. “You are approved for a full principal forgiveness of your Home Equity Account,” says another, from Bank of America.

Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn’t elated — because she doesn’t owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out.

What’s going on?

Read on.

Welcome to another episode of the Twilight Zone.

Revealed: Barclays Urged Libor Anonymity

Data about banks’ ability to borrow from each other should be kept anonymous and based solely on real transactions between financial institutions, according to Barclays, the only lender to be fined so far for attempting to manipulate Libor rates.

The British bank set out a series of previously unreported ideas for overhauling Libor following its £290m fine by regulators in the UK and US in June.

In its submission to the Wheatley Review of Libor, which published its recommendations yesterday, Barclays said that regulators should compel submissions from “the widest possible range of relevant market participants, in order to remove the question of incentives to participate”.

Allowing banks to submit Libor rates anonymously – a central plank of the Barclays submission – was rejected by Martin Wheatley, who headed the Government-commissioned inquiry and who is proposing a three-month delay before the borrowing rates are made public.

Barclays argued that it would have “eliminated the signalling effect of the current process”, a reference to the actions of employees who in 2008 falsified rates to discourage the notion that Barclays was finding it more difficult than other banks to fund itself.

Read on.


(BLOOMFIELD) – A March 2013 jury trial date has been set for David Council Jr., of Solsberry, who is accused of pointing a loaded .12 gauge shotgun at a bank employee who was on his property on Washboard Road taking photographs as part of the foreclosure process.

Nick Schneider of the Greene County Daily World reports that Council is charged with pointing a firearm at another person, a Class D felony.

According to a probable cause affidavit Greene County Sheriff’s Deputy Leon Dunigan arrived at Council’s home on Sept. 20, and saw him standing at the driveway holding a loaded Saiga .12 gauge semi-automatic shotgun at waist level.

The deputy ordered Council to place the gun on the ground. Dunigan says there was on shotgun round in the chamber and four more in the magazine.

Council’s wife, Barbara, told police that the U.S. Bank employee Richard Haynes had identified himself as a bank employee and gave her a red card that contained telephone numbers to call to verify his assignment.

Haynes was there taking photos as part of a monthly inspection, part of the foreclosure action.

Rest here…

The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default

Whereas earlier today we presented one of the most exhaustive presentations on the state of the student debt bubble, one question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a number which few if any lenders and colleges openly disclose for fears the general public would comprehend not only the true extent of the student loan bubble, but that it has now burst. This is a question that we specifically posed a month ago when we asked “As HELOC delinquency rates hit a record, are student loans next?” Ironically in that same earlier post we showed a chart of default rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically undercutting the amount of bad debt in the system.

Luckily, this is a question that has now been answered, courtesy of the Department of Education, which today for the first time ever released official three-year, or much more thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number, for all colleges, stood at a stunning 13.4% for the 2009 cohort. The number is stunning because it is nearly 50% greater than the old benchmark, which tracked a two year default cohort, and which was a “mere” 8.8% for the 2009 year. Broken down by type of education, and using the new improved, and much more realistic benchmark, for-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent. In other words, more than one in five federal student loans used to fund private for-profit education, is now in default and will likely never be repaid!

And while it is impossible using historical data to extrapolate with precision what the current consolidated federal student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else has certainly deteriorated), there is now at least $122 billion in federal student loan defaults. And surging every day.

Ladies and gentlemen: meet the new subprime.

Read on.

Judge on MERS: Law enforces deed of trust in TX

A U.S. District Court in Texas released an opinion this week defending theMortgage Electronic Registration Systems’ (MERS) role in certain foreclosure processes.

U.S. District Judge Sam Sparks with the Western District of Texas held that state law says “foreclosure enforces the deed of trust, not the underlying note.”

The distinction, while not necessarily precedential, gives an interpretation of how complaints against MERS when a foreclosure has taken place will be sized up under Texas law.

Read on.

Woman says foreclosure team cleaned out wrong home


A Des Moines woman came home to find her belongings gone.

A police report shows that last Thursday a crew that cleans out foreclosed homes arrived at the house on University Avenue and broke the lock off the back door when the homeowner was not home.

The team entered the home and removed items.

The homeowner confronted the supervisor who said there had been a mistake.

The woman asked if she could get her items back from storage because they were supposed to be held for 30 days, but according to the police report she was told the items had been destroyed.

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