October 25, 2020

New Defaults Trouble a Mortgage Program

Banks and other mortgage servicers have accepted $815 million in taxpayer-funded incentives for helping homeowners who have since redefaulted on their home loans, a watchdog for the Treasury Department’s Troubled Asset Relief Program, or TARP, reported on Wednesday.

More than a third of homeowners who received loan modifications under TARP’s mortgage modification program have since stopped paying, but servicers kept the money they received for modifying those loans, according to a report by Christy L. Romero, the special inspector for TARP.

Many of the homeowners received scant relief, with a large majority benefiting from a reduction of less than 10 percent on their monthly payments, according to an analysis by Ms. Romero’s office.

The Treasury has spent only about a fifth of the $38.5 billion allocated to help homeowners under TARP. Any TARP money not spent by the end of 2015 will be returned to the general fund.

“Treasury took extraordinary action to bail out the banks,” Ms. Romero said. “They still have to do the same for homeowners. The idea was not to put money into the banks and then have them fail later, and the same is true for homeowners.”

Treasury officials have defended the mortgage program, called the Home Affordable Modification Program, pointing to data showing that loan modifications under its rules have been longer-lasting, and more favorable to homeowners, than private loan modifications. The Obama administration has also taken a number of steps to improve the program, and more recent modifications show lower default rates after a year than those given in 2009 and 2010.

At first, servicers received $1,000 for every loan modified. Now they are paid $400 to $1,600 for permanent loan modifications, depending on how many months in arrears the homeowner was (a modification made at the first sign of trouble is more effective than one made after many months of failure to pay). They can receive extra money if they reduce the monthly payment more or the loan modification lasts longer.

Timothy G. Massad, assistant Treasury secretary for financial stability, said the loans in question already posed a high risk of default. “While the housing market and the economy are improving, it is important to acknowledge the variety of challenges homeowners faced during the economic crisis, including unemployment and underemployment,” he wrote in a letter to Ms. Romero. “These facts limit the ability to achieve a very low redefault rate by program design alone.”

The Obama administration was criticized for failing to help homeowners enough during the financial crisis, but such complaints have receded as the housing market improves. According to CoreLogic, the national foreclosure rate is still more than double what it was before home prices began to plunge in 2007 and 2008. As many as 9.7 million households, out of roughly 75 million owner-occupied homes, still owe more on their mortgages than their home is worth.

The Home Affordable Modification Program was initially supposed to help three to four million homeowners, but only 1.2 million received permanent modifications, of which about 27 percent have defaulted again.

The report found that the smaller the reduction in payments and overall debt, the more likely the homeowner was to redefault. Those who had low credit scores, owed significantly more than their home was worth or had mortgages less than five years old were also more likely to stop paying.

Ms. Romero said that Treasury had not collected enough information about what was causing loan modifications to fail.

“We’ve been focused on trying to get more people into the program, and Treasury has too,” she said. “And all of a sudden we were thinking, how many people are falling out of the program?”

Of the 865,000 people who have current loan modifications, she said, more than 10 percent are one or two payments behind. Those people may be eligible for help from other federal programs.

“Treasury should require, at the very least, the servicers to reach out to the homeowners,” she said, “and ask ‘What’s going on?’ ”

Article source: http://www.nytimes.com/2013/07/25/business/new-defaults-trouble-a-mortgage-program.html?partner=rss&emc=rss

DealBook: Wells Fargo Profit Rises 22%

A Wells Fargo branch in Daly City, Calif.Justin Sullivan/Getty ImagesA Wells Fargo branch in Daly City, Calif.

Wells Fargo posted a 22 percent increase in first-quarter profit on Friday as the bank, which is the nation’s largest home lender, continued to notch record gains even while its mortgage machine slowed.

The bank, which benefited from recent effort to curb expenses, reported earnings of $5.2 billion, or 92 cents a share, compared with $4.25 billion, or 75 cents a share, in the period a year earlier. The results outpaced estimates of analysts polled by Thomson Reuters, who had forecast earnings of 88 cents a share.

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For Wells, which is based in San Francisco, it was the 13th consecutive rise in quarterly earnings and the eighth consecutive record.

“Wells Fargo delivered outstanding first-quarter 2013 results for our shareholders,” the bank’s chief executive, John G. Stumpf, said in a statement.

In a downside for the bank, however, its revenue slipped slightly, to $21.3 billion, compared with $21.6 billion in the period a year earlier.

And the bank’s mortgage business, riding years of record gains, finally showed it was unable to sustain the gains.

The bank’s mortgage banking income, for example, slipped 3 percent. And while handling $109 billion in mortgage originations might be a feat for some banks, it represented a 16 percent drop for Wells Fargo.

The results could present problems for Wells Fargo, whose fortunes rise and fall with the mortgage market. The bank now creates roughly a third of all mortgages in the country.

The results could also signal a flattening out of the broader mortgage market. As the Federal Reserve cut interest rates in recent years, it prompted millions of borrowers to refinance their home loans to reduce costs.

Now, that pipeline of borrowers could dry up, unless interest rates once again drop significantly or the housing market makes a fuller recovery. Refinancing accounted for 65 percent of Wells Fargo’s mortgage origination in the first quarter, down from 76 percent in the period a year earlier.

Still, the bank’s lending business showed some signs of strength. In the first quarter, that business helped lead the growth, as the banks overall loan portfolio grew 4 percent. And profit in the community banking division, which includes Wells Fargo’s retail branches and mortgage business, climbed 24 percent, to $2.9 billion.

“Loans and deposits demonstrated continued growth in a challenging economic environment,” Mr. Stumpf said.

But the strong returns were spread across the bank. The unit that caters to corporations showed improvement, with profits rising 9 percent. The bank also reported a 14 percent profit gain in its wealth management business.

It was a welcome sign for the banking industry.

Wells Fargo, along with JPMorgan Chase, kicked off bank earnings season. Citigroup, Goldman Sachs and other Wall Street giants will report next week.

Article source: http://dealbook.nytimes.com/2013/04/12/wells-fargo-profit-rises-22/?partner=rss&emc=rss

Bank of America Settles Claims Stemming From Mortgage Crisis

Bank of America announced Wednesday that it would take a whopping $20 billion hit to put the fallout from the subprime bust behind it and satisfy claims from angry investors. But for its peers, the settlements may just be starting.

Heavyweight investors that forced Bank of America to hand over billions to cover the cost of home loans that later defaulted are now setting their sights on companies like JPMorgan Chase, Citigroup and Wells Fargo, raising the prospect of more multibillion-dollar deals.

“Bank of America has charted a path that our clients expect other banks will follow,” said Kathy D. Patrick, the lawyer who represented BlackRock, Pimco, the Federal Reserve Bank of New York and 19 other investors who hold the soured mortgage securities assembled by the Bank of America.

Ms. Patrick’s clients are seeking $8.5 billion from Bank of America — a settlement that needs a judge’s approval and could still face objections from investors seeking a better deal. A date to review the blueprint has been set for Nov. 17 with Justice Barbara R. Kapnick in New York Supreme Court.

All told, analysts say the financial services industry faces potential losses of tens of billions from future claims — real money even by the eye-popping standards of the nation’s biggest banks. Indeed, even that $20 billion announced Wednesday will not be enough to completely stanch the bleeding at Bank of America — it says litigation over troubled mortgages could cost it another $5 billion in the future.

The proposed settlement is more than just another financial blow to a company staggering from the collapse of the mortgage bubble. It also represents a major acknowledgment of just how flawed the mortgage process became in the giddy years leading up to the financial crisis of 2008, typified by the excesses at Countrywide Financial, the subprime mortgage lender Bank of America acquired in 2008.

Ms. Patrick and her clients claim that Countrywide created securities from mortgages originated with little, if any, proof of assets or income. Then, they argue, Bank of America did not properly service these mortgages, failed to heed pleas for help from homeowners teetering on the brink of foreclosure and frequently misplaced documents.

Most of the loans in the pools covered by the settlement were underwritten at the height of the mortgage mania: in 2005, 2006 and 2007. But with borrowers soon unable to meet their monthly payments, defaults soared.

For the banking industry, the reckoning could not come at a worse time. On Wall Street, trading revenue has been devastated by the economic uncertainty in Europe, the anemic recovery in the United States, and the stock market swoon of the last two months.

What’s more, new regulations have already taken a big bite out of profits. Despite a modest amount of relief on Wednesday, when the Federal Reserve completed new rules governing debit card swipe fees, the banks stand to lose billions when the regulations take effect next month.

If all this were not enough, further weakness in the housing and job markets has reduced lending by the banks to businesses and consumers alike, cutting yet one more source of profits.

Nevertheless, investors appeared to endorse the proposed settlement, with Bank of America shares rising nearly 3 percent, to $11.14, a move mirrored by shares of other big financials.

Some experts said the settlement could prove good news for consumers and the broader economy, speeding the foreclosure process for hundreds of thousands of homeowners while potentially making it easier to obtain modifications of existing mortgages.

By providing a template for cleaning up past claims and setting standards for future practices, the settlement could make it easier for banks to bundle and sell mortgages again, a business that has been all but dead since the financial crisis.

“That is important for providing funding for people to buy homes, grow their businesses and create jobs,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan.

The accord does not resolve an investigation by all 50 state attorneys general into allegations of mortgage service abuses by Bank of America and other major lenders that could ultimately cost the industry billions more in fines and penalties. Nor does it cover liability from soured home equity loans or bonds the bank created with mortgages from lenders other than Countrywide.

Gretchen Morgenson contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=191b3cb0fc65f09932a69666c8bf44e9

Bucks: A Plan to Cut Mortgage Paperwork

Elizabeth Warren, assistant to the President on the Consumer Financial Protection Bureau(Harry Hamburg/Associated Press)Elizabeth Warren, the acting head of the Consumer Financial Protection Bureau

Anyone who has applied for a mortgage knows it can involve a daunting amount of paperwork. The new Consumer Financial Protection Bureau is taking a step toward reducing at least some of the pages required by federal law.

The bureau is trying to combine two federally required disclosure forms, which now total five pages, into a single form that makes clear the costs and risks of the loan.

The two forms are the Truth in Lending Act disclosure and the Real Estate Settlement Procedures Act’s Good Faith Estimate of settlement service charges, which all borrowers must receive within three days of filing a loan application. (I have particularly bad memories of the good faith estimate form causing debate during the closing of our first home years ago.) The two forms are meant to convey basic facts about home loans to help consumers compare different loan options and interest rates, but they’re often redundant and difficult to understand.

So as part of its “Know Before You Owe” project, the new agency is testing two form prototypes, with the goal of proposing a new, combined form next year. “With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?” Elizabeth Warren, the acting director of the new bureau, said in a news release.

The testing will include in-person interviews with borrowers in English and Spanish, in six cities: Albuquerque; Baltimore; Birmingham, Ala.; Chicago; Los Angeles; and Springfield, Mass. There will be five rounds of testing and revision through September. The agency will then further refine the draft form into a final proposed version by next summer.

The agency is also interested in feedback from consumers and advocacy groups. Both of the proposed documents are two pages long. You can view the first proposed form here, and the second one here.

Or, you can go here to view the two versions together and submit comments.

What do you think of the forms? Does anything stand out that could be made simpler?

Article source: http://feeds.nytimes.com/click.phdo?i=ebd99ea8b528425a063958afd2eb08cf