Daily Archives: July 20, 2014

FHFA watchdog raises concerns about nonbanks

Explosive growth of nonbank lenders comes with risks to GSEs

In the continuing aftermath of the financial crisis, the nation’s biggest banks are hemorrhaging income from their mortgage divisions. Whether it’s due to massive settlements stemming from fraudulent pre-crisis lending practices, like the one that Bank of America announced on Tuesday, or due to shrinking mortgage originations, like JPMorgan Chase announced on Wednesday, the big banks are hurting in the mortgage business.

Their losses have turned into huge growth for nonbank and smaller lenders. According to a report from theFederal Housing Finance Agency’s Office of the Inspector General, the amount of loans that Fannie Maeand Freddie Mac have purchased from nonbank and smaller lenders has exploded in the last few years.

And that may be cause for some concern among the government-sponsored enterprises, the FHFA’s watchdog says.

Read on.

Documents on Citigroup

Citigroup and the Justice Department have agreed to a $7 billion deal that will settle a federal investigation into the mortgage securities the bank sold in the run-up to the financial crisis.

‘We Should Start Praying’

In one internal email cited by prosecutors, a Citigroup trader wrote “went thru Diligence Reports and think that we should start praying … I would not be surprised if half of these loans went down.” But the bank securitized the loans anyway.

Read on.

Citigroup has $280 mln in loans in China ports at center of metals probe

(Reuters) – Citigroup Inc has about $280 million in loans tied tocommodities in two Chinese ports which are at the center of a probe into possible fraud, a senior executive said on Friday, becoming the first U.S. bank to disclose its potential exposure.

The total is a large portion of the bank’s roughly $400 million worth of so-called repo commodity financing deals in China. Short for repurchasing agreements, repo deals give customers access to short-term credit in exchange for goods.

“At this stage we believe the activities are isolated and just specific to those very specific locations,” Chief Financial Officer John Gerspach said in a conference call with analysts.

The loans are to clients that are non-Chinese subsidiaries of large multi-national corporations and the contracts are guaranteed by the parent companies, he said.

Read on.

First Detroit, Now Flint Warns Bankruptcy “Train Is Headed For The Cliff”

As Crains Detroit reports,

 
 

As Detroit draws worldwide attention for its record $18 billion bankruptcy, Flint demonstrates the plight of U.S. cities where unfunded post-retirement costs rival or exceed pension liabilities. In Michigan alone in 2011, municipalities had nearly $13 billion in health-care liabilities for retirees, compared with about $3 billion for pensions. Flint is among 17 cities and school districts under some form of state control.

 

More than 80,000 Flint-area residents were employed by GM in 1978. Now, that number is about 7,500, according to a 2011 report by Michigan State University. In the past two years, the municipal workforce has been cut 20 percent and employees have taken a 20 percent pay cut.

Emergency Manager Earley warns…

 
 

Like Detroit, which a year ago this week filed the largest U.S. municipal bankruptcy, Flint has struggled with loss of population, jobs and revenue. The birthplace of General Motors Co. has only half its population of 1960.

 

“If we have no ability to mitigate the cost of retiree health care, that’s going to make it very difficult for the city to remain financially stable over the next few years,” Earley said in an interview at City Hall. Without changes, retiree pension and health expenses would consume 32 percent of the $55 million general fund.

 

“You can stabilize things by making sure that you’ve got the best systems in place for delivering services,” Earley said. “We haven’t had that in Flint for a number of years. We haven’t had that in Detroit for a number of years.”

The retirees are not happy…

 
 

The city’s accumulated deficit is $12.9 million, though its budget is balanced through June 30, 2016. Allowing higher insurance co-pays and deductibles for retirees will save $5 million this year, Earley said. That would make retirees’ coverage equal to that of active employees, he said.

 

Retirees already have made wage and pension concessions, and now will pay hundreds of dollars a month for prescriptions and co-pays, their attorney, Alec Gibbs, said in an email. He said retirees on fixed incomes will face life-threatening choices.

 

“Think of the position that they are putting these guys in: Pay for your health-care costs and starve, or use your fixed and paltry income to eke out a painful, shortened life,”Gibbs said.

 

Blaming retirees is unfair, said U.S. Rep. Dan Kildee, a Flint-area Democrat who founded the Center for Community Progress, a Washington, D.C.-based advocate for urban revitalization. More culpable, he said, are shrinking local revenue and the state’s cumulative $54.9 million reduction in aid to the city since 2003, according to the Michigan Municipal League.

 

“It’s a conspiracy of bad news,” Kildee said. “The state balanced its budget by unbalancing city budgets.”

This is systemic…

 
 

“If Flint were to go to bankruptcy, that would highlight that this legacy-cost problem has to be addressed more globally,” said Eric Scorsone, a Michigan State University economist. “Flint’s at the forefront, but a lot of cities are on the same train, and that train is headed for the cliff.”

Gallery

Protesters Take To Streets Demanding An End To Detroit’s Water Crisis – The “City’s whoops” on the backs of the people… Al Sharpton tells it like it is!

This gallery contains 5 photos.

Originally posted on Deadly Clear:
CROOKS AND LIARS – Post: Friday morning there was a massive protest in Detroit over the water crisis there. Netroots Nation attendees gathered together with National Nurses United to make a statement about how immoral and cruel…