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.

Elizabeth Warren Highlights Key Weakness in Clinton’s Wall Street Donation Defense

Huffington Post:

Hillary Clinton has been fielding questions for months about her Wall Street speaking fees and campaign contributions, in every interview, town hall, and debate. And rightly so; we all know how the banks’ fraudulent behavior tanked the economy, and everyone – Left, Right, and Center – is disgusted with what Citizens United has done to campaign finance. Clinton’s defense has become streamlined and simple: sure, she took money from banks, but so did Obama – and he still passed very strict regulation on the banks. It seems effective; but there’s a huge problem with this argument – so huge, in fact, that it transforms it from a defense into a powerful critique. To understand why, we turn to Sen. Elizabeth Warren (D-Mass).

Warren recently published a report, titled Rigged Justice: 2016; How Weak Enforcement Lets Corporate Offenders Off Easy. She published an editorial at the same time, in which she outlines and interprets her findings. She starts off by referring to candidates “feverishly pitching their legislative agendas.” As she shows, however, laws don’t mean anything if they aren’t enforced — and it turns out, in far too many cases, they effectively haven’t been. Here’s Warren:

In a single year, in case after case, across many sectors of the economy, federal agencies caught big companies breaking the law — defrauding taxpayers, covering up deadly safety problems, even precipitating the financial collapse in 2008 — and let them off the hook with barely a slap on the wrist. Often, companies paid meager fines, which some will try to write off as a tax deduction.

In fact, under Obama not a single Wall Street CEO has been prosecuted for fraud. She goes on:

These enforcement failures demean our principles. They also represent missed opportunities to address some of the nation’s most pressing challenges. Consider just two areas — college affordability and health care — where robust enforcement of current law could help millions of people.

After giving an example of failed enforcement in each, and then one more in banking, she goes on:

Presidents don’t control most day-to-day enforcement decisions, but they do nominate the heads of all the agencies, and these choices make all the difference.

(Emphasis mine). She cites examples of agencies which, under strong leadership, have truly served the public good, then another example where weak leadership has failed to. Finally, she concludes:

Each of these government divisions is headed by someone nominated by the president and confirmed by the Senate. The lesson is clear: Personnel is policy.

It is so simple that it is obvious once she has pointed it out; and yet most people rarely, if ever, consider the impact of presidential nominations – and of late they have likely done so only because Warren blocked a nominee over their strong ties to the industry they were to police. It’s clear, these are the kinds of regulators who don’t regulate – and don’t prosecute. Warren doesn’t put it in such harsh terms, but this is a scathing indictment of the Obama administration. If there were any question about why Obama has not been a Progressive, it is answered here.

Warren closes:

Legislative agendas matter, but voters should also ask which presidential candidates they trust with the extraordinary power to choose who will fight on the front lines to enforce the laws. The next president can rebuild faith in our institutions by honoring the simple notion that nobody is above the law, but it will happen only if voters demand it.

Which brings us back to Clinton, and her defense.

It is true, Obama passed strong Wall Street reform; but under his watch not a single Wall Street CEO has been prosecuted, and regulation has been lax. Do we believe Clinton might also pass strong laws? Maybe so; but Warren has proven that the laws are meaningless if they go unenforced. The real question is, would Clinton nominate strong regulators? If we judge her by Obama – as she has repeatedly insisted we should – we must conclude that she would not. In fact, Warren may just have revealed how those massive donations and speaking fees get repaid: by putting the foxes in charge of the henhouse.

By comparison, Bernie Sanders has never taken big money from any industry or individual; he has campaigned so successfully in part for that reason. Could we trust him to nominate strong regulators? Not just his current campaign, but everything about his career says we can without a doubt count on him to do so – as Warren knows well.

Barclays must face electricity price-fixing lawsuit in U.S.

A U.S. judge ordered Barclays Plc (>> Barclays PLC) to face a proposed class-action lawsuit in which a California water utility accused the British bank of illegally manipulating electricity prices in the western United States, causing purchasers to overpay.

U.S. District Judge Victor Marrero in Manhattan on Monday said the Merced Irrigation District can pursue two claims that Barclays violated federal antitrust law, and one claim that the bank violated a California unfair competition law.

In July 2013, Barclays was fined $435 million by the U.S. Federal Energy Regulatory Commission for allegedly manipulating electricity prices in California and other western U.S. states from November 2006 to December 2008.

Read on.

GE gets subpoena over subprime mortgage operation

DOJ investigating whether General Electric broke any laws from 2005 to 2007

The Department of Justice subpoenaed General Electric’s records containing subprime mortgages from GE’s financial services business WMC Mortgage Corp.

On Friday, GE disclosed in its annual report, that its lending unit, GE Capital, and defunct subprime lending unit WMC, received the subpoenas in January.

According to Reuters:

The conglomerate said it learned in December that the department was probing purchase or sale of residential mortgage loans between Jan. 1, 2005 and Dec. 31, 2007.

“We will cooperate with the Justice Department’s investigation, which is at an early stage,” GE said in a filing on Friday.

According to the DOJ’s investigation, currently there are 14 lawsuits relating to pending mortgage loan repurchase claims with WMC.

Read on.