Monthly Archives: February 2016

Nonbanks make up two-thirds of FHA lending


Since the crisis, banks have increasingly stepped away from mortgage lending. They are still paying up for bubble-era offenses and feel newly-imposed regulations are so strict as to be punitive. Banks made about 52% of all home loans in 2014, down from 74% in 2007, and many analysts think that share is going to go much lower.

Also read: Big banks are fleeing the mortgage market

Companies often called “nonbanks,” or “mortgage bankers,” like Quicken and Nationstar NSM, +1.63%  , are stepping into that void. Nonbanks are held to the same standards as banks for lending and servicing mortgages, but don’t have many of the same resources banks do.

If an economic downturn caused a rash of borrowers to be unable to make payments, banks low on cash could tap emergency funds through the Federal Reserve. And their deposits are protected by the Federal Deposit Insurance Corp.

But more to the point, if nonbanks come up short on liquidity, they must turn to banks for short-term financing – and it’s not clear whether such requests would be honored.

“Non-banks are at a structural disadvantage to banks,” said Chris Whalen, head of research at Kroll Bond Rating Agency and a long-time bank analyst. “The people running these businesses know what they’re doing. But no matter what they’re doing, there’s someone sitting at Wells or Citi who can pull the plug.”

Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch, “I think it’s a very serious concern, not an issue for tomorrow or next year, but this should be addressed and resolved to everyone’s satisfaction because in the next crisis it will be key. In a crisis, when investors are panicked, there are going to be very reluctant to extend credit to smaller, less-established institutions, including many of the non-banks.”

Big shifts in lending since the last crisis are driving that concern. A much larger share of mortgages are now backed by the Federal Housing Agency, rather than Fannie Mae and Freddie Mac. And nonbanks make up two-thirds of FHA lending.

Date Event
2006 Countrywide Home Loans is #1 mortgage originator, with $175.3 billion and nearly 7% market share. Top originators also included American Home Mortgage, Inc., New Century Mortgage Corp, Fremont Investment and Loan. Nonbanks account for 36% of originations.
2007 American Home Mortgage and New Century file for bankruptcy
2008 Countrywide is sold to Bank of America, Fremont is sold to CapitalSource Inc.
2008 Nonbanks originations hit low of 23%
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is signed into law
2013-2014 Over a nine-month period, big banks including J.P. Morgan Chase, Bank of America, and Citigroup strike deals with the government over bubble-era misdeeds, totaling over $16 billion. Such settlements have continued, and the government has also started to pursue lenders for post-crisis wrongdoing.
2014 Nonbank originations make up 43% of the market

This Patriotic Millionaire is calling out Wall Street on its greed

Daily Kos:

Morris Pearl, chairman of the Patriotic Millionaires lobbying group, is unlike many of the wealthy plutocrats that many of us justifiably rail against. To be clear, he is a capitalist. But he’s a capitalist with a conscience, and not an oligarch. In fact, his aim is to prevent the slide toward oligarchy that many believe is occurring—or has already occurred.

Pearl was a managing director at BlackRock, one of the largest investment firms in the world. He worked on the Maiden Lane transactions, and assessing the government’s potential losses from the bailouts of Citibank and AIG. Prior to BlackRock, Pearl enjoyed a long tenure on Wall Street where he invented some of the securitization technology connecting America’s capital markets to consumers in need of credit.

Mr. Pearl was not born poor. His parents were middle-class small business owners of six small clothing stores in upstate New York. He went to public schools and the University of Pennsylvania., where he studied computer science. Additionally, he was in the right place at the right time when asset securitization was becoming the vogue. He made his fortune from his computer skills and securitization of mortgages.

But Pearl, unlike many who have made their fortunes in that domain, has always felt moral responsibility to society at large. He says his desire to do right isn’t altruism. The reality is that he cares about society in general, like any real moral person should.


FOR IMMEDIATE RELEASE                                           

DATE:  2/23/16

New York, NY – Today, Morris Pearl, Chair of the Patriotic Millionaires published an open letter which challenged Mike Sommers, President of the Private Equity Growth Capital Council (PEGCC) to a public debate on the preferential tax treatment of “carried interest”. The so-called carried interest tax loophole allows fund managers to pay a capital gains tax rate on income from managing a fund, despite having none of their own capital at stake.

Mr. Sommers is the former Chief of Staff to former Speaker Boehner and took over the PEGCC just two weeks ago. The Patriotic Millionaires drew attention to Mr. Sommers new position in a public email titled “Who Is Mike Sommers and Why You Should Care.” which was reported in Politico. The PEGCC is the private equity industry’s leading lobbyist and the top defender of the loophole, which the Patriotic Millionaires call “intellectually indefensible and a prime example of money’s corrupting influence on our public policy.”

The Patriotic Millionaires challenge was accompanied by a copy of a 2015 letter the PEGCC distributed to Congress in defense of carried interest. Throughout the letter, Mr. Pearl offers critiques and commentary, line by line dissecting the lobbying groups assertions.

“We hope that with your new leadership, it might be possible to correct some of the inaccuracies put forward by your organization under your predecessor regarding this policy,” added Mr. Pearl.

The Patriotic Millionaires first began their campaign against the carried interest tax loophole in 2015 which included their members calling Congress, numerous targeted placement of opinion editorials, and a day at the Capitol with Senator Baldwin and Representative Levin in support of The Carried Interest Fairness Act.


9th Circuit rejects claims over reverse mortgage foreclosure

A federal appeals court has rejected claims that Wells Fargo and Freddie Mac unlawfully foreclosed on homes of consumers with reverse mortgages after their deaths and violated rights of heirs to purchase the homes.

In a decision on Thursday, the 9th Circuit Court of Appeals affirmed a lower court’s dismissal of the case, saying federal guidance on reverse mortgages, “while not entirely clear,” did not support claims of borrowers’ heirs.

Read on.

JPMorgan traders sacked over compliance

JPMorgan Chase sacked the head of its government debt trading desk and another employee after they allegedly circumvented the bank’s compliance procedures following a disagreement in valuing certain trades, said people familiar with the matter.

Andrew Lombara, then head of US Treasury trading at the bank, and Chi Lee, a junior Treasury trader, both left the bank in early January but the reasons for their departure were not disclosed publicly.

The traders and the bank’s valuation committee disagreed over the amount of reserves taken for certain Treasury trades known as strips, the Financial Times has learnt.

Read on.

‘Spotlight’ Gets Investigative Journalism Right

Unlike many films about reporters, “Spotlight” accurately depicts the frustrations and joys of breaking a big story, from the drudgery of spreadsheets to the electric thrill of revelatory interviews.


Over the decades, Hollywood screenwriters have taken liberties with every imaginable profession and craft, from doctors to lawyers to spies to police detectives. Rocky Balboa survives punches that would decapitate an ordinary boxer. The car chases in The Bourne Identity defy physics. John McClane, the hard-boiled cop in the Die Hard series, displays a supernatural ability to evade bullets.

Journalism movies have had their share of utterly improbable moments. In the 1994 film “The Paper,” the city editor of a New York City tabloid gets into a fist fight with his female boss as he tries to stop the presses. (Not a great career move.) More recently, the first season of HBO’s television series The Newsroom showed a producer landing a series of astounding scoops in the first hours after the explosion of the Deepwater Horizon. The reporter’s information came from miraculously well-placed sources – a sister who worked at Halliburton and a close friend who happened to be a junior BP executive attending all the key crisis meetings.

All of this makes “Spotlight,” the film based on the Boston Globe’s investigation of the Catholic Church, a remarkable achievement. The movie, which has been nominated for six Academy Awards including best picture, vividly captures the mix of frustration, drudgery and excitement that goes into every great investigative story. Where liberties were taken, and there were a few, they are in line with the realities of the news business.

One of the most credible aspects of the movie is the cluelessness with which the reporters begin their quest. As is often the case, the Globe’s group of reporters, known as the “Spotlight” Team, have no idea of the size and scope of what they’re trying to examine. At first, they stumble around, lacking the most basic information about how the church bureaucracy worked.

The notion of pedophile priests was not new. Newspapers from Dallas to Portland had done deeply reported stories on individual cases. Boston itself had just witnessed the criminal trial of a particularly notorious priest, Father John J. Geoghan. Initially, senior editors at the Globe are not even persuaded there was a story worth chasing.

As the film briefly acknowledges, the Globe was behind the Boston Phoenix, a respected alternative weekly, in covering the subject for local readers. Kristen Lombardi, a reporter for the Phoenix, had already written a series of stories implicating Cardinal Bernard Law, the leader of Boston’s archdiocese, in allowing Geoghan to remain in daily contact with children for three decades.

Whistleblowers Challenge Candidates: Stand Against Wall Street Fraud

Crossposted from Common Dreams

Isaiah Poole

Four people who have been at the center of some of the nation’s biggest Wall Street scandals have come together to send a message to the 2016 presidential candidates: Pledge to stand against Wall Street fraud and corruption – not just with words, but with the kind of actions that Americans have long expected but have yet to see.

The four veterans of battles with banksters – Gary J. Aguirre, William K. Black, Richard M. Bowen III and Michael Winston – on Thursday called on the candidates to not take contributions from financial companies or officers that have been charged with fraud, particularly related to the 2008 financial meltdown. They have also outlined a set of actions that they say will “restore the rule of law” on Wall Street. They have formed a new organization, Bank Whistleblowers United, to move that agenda forward.

“We use the f-word a lot,” said Black, who came into national prominence for his role in exposing the “Keating Five” savings-and-loan senatorial scandal in 1989, “the five-letter word, ‘fraud,’ that you are supposed to be able to say in polite company.”

That word, he said, is central to the issue these whistleblowers are concerned about: the fact that regulators and prosecutors have too often in the wake of the financial crash given a pass to banks and other financial institutions that profited from deception and dissembling.

Black recalled that during the era of the savings-and-loan scandal, when the federal government brought an action involving a financial institution “we actually spelled out in the English language what had happened.” The news media echoed that language, and in the glare of that disclosure “the politicians who took political contributions from those institutions rushed to return the contributions or to donate them to charity.”

In today’s era of no-blame settlements and obfuscatory language, “that never happens now,” Black said.

Nonetheless, people running for office have no excuse. It is clear that the financial meltdown was a consequence of actions that done by individuals rather than Wall Street institutions would likely have landed those persons behind bars. The biographies of the founding members of the Bank Whistleblowers United make that clear.

Adam McKay (of The Big Short) put it so well when he won the Oscar last night


“If you don’t want big money to control government, don’t vote for candidates that take money from big banks, oil or weirdo billionaires: Stop!”—Adam McKay said in his speech on Oscar night for winning Best Adapted Screenplay for The Big Short movie.