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Homeowners Still Face Foreclosure Despite Billions in Aid

February 21, 2013 by Leave a Comment

A year after five of the nation’s biggest banks reached a pact with state and federal officials over claims of vast foreclosure abuses, the banks are taking credit for giving more than half a million struggling homeowners roughly $45.8 billion in relief.

But despite the banner numbers released on Thursday in a report by Joseph A. Smith, the independent overseer of the settlement, thousands of homeowners are still not getting the help they need to save their homes from foreclosure, according to interviews with housing advocates and homeowners facing foreclosure.

Just under 71,000 borrowers, or 13 percent of the total borrowers helped so far, received assistance on their primary mortgage, which has been the main source of defaults and foreclosures through the housing crisis. But more than 170,000 homeowners received assistance on their second mortgage, which typically is a home equity line of credit that borrowers can tap for cash.

Even though addressing second mortgages does offer some relief to homeowners, in a troubling number of instances the banks are not providing any help with the first mortgage, the housing advocates said. That leaves the homeowners still in jeopardy of losing their homes, while giving banks credit for restructuring loans or wiping out debt under the settlement.

“The second mortgage forgiveness is basically a loophole, which allows the banks to continue foreclosures unabated,” said Elizabeth M. Lynch, a lawyer at MFY Legal Services in New York.

Based on the monitor’s report, it is impossible to tell how many homeowners who received help on their second mortgage are still facing foreclosure on their first mortgage. Ms. Lynch and other advocates estimate that thousands of homeowners across the country are in that predicament.

Banks say they are working to assist homeowners and to fulfill all their obligations under the settlement. And Shaun Donovan, the secretary of housing and urban development, which helped broker the deal with the five banks, said on Thursday that the settlement had already “exceeded expectations.”

Mr. Smith said, “I believe we have made progress, but I know that there is much more work to be done.”

When Danette Rivera, a 38-year-old single mother, received a letter from Bank of America in July alerting her that it was forgiving her second mortgage of about $115,000, she said she was elated. Ms. Rivera said she thought the assistance would save the home in Queens she shares with her two children.

But that hope, she said, was dashed when she learned a month later that Bank of America was foreclosing on her because of her troubled first mortgage. “This house means everything to my family and I am terrified we are going to be homeless again,” Ms. Rivera said. The bank, citing customer privacy concerns, declined to comment.

At its outset, the settlement was trumpeted as a way to hold banks accountable for foreclosure abuses and help homeowners harmed when the housing bubble burst, sending the housing market to its lowest level since the Great Depression. As of early 2012, roughly four million Americans were in foreclosure since the start of 2007, with abandoned properties marring states including Arizona, California and Florida.

The deal with the five largest servicers — Ally Financial, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo — arose from a sweeping investigation by the 50 state attorneys general after revelations in 2010 that banks were churning through hundreds of foreclosure documents without examining them for accuracy.

Initially, the banks resisted reducing mortgage debt, but the attorneys general insisted that debt reduction was critical to the plan. Under the terms of the settlement, the banks receive a variety of credits based on the kind of relief that they provide. For example, banks that offer short sales to homeowners earn at most 45 cents on the dollar. For extinguishing second mortgages for borrowers who are more than 180 days behind on payments, the banks receive 10 cents on the dollar.

The bulk of the relief, according to the monitor’s report, comes from short sales, which housing advocates say do not actually keep homeowners in their properties. In the sales, banks agree to let homeowners sell their houses for less than the outstanding debt owed. Short sales are among the simplest form of relief, particularly because they are a palatable alternative for the banks, which typically incur lower losses on the sales than on foreclosures. Through short sales, banks forgave about $19.5 billion in debt on an estimated 169,000 properties, according to the report. As the housing market plummeted, millions of Americans were unable to sell their homes because they had lost so much value.

Article source: http://www.nytimes.com/2013/02/22/business/homeowners-still-face-foreclosure-despite-billions-in-aid.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Pay Still High at Bailed-Out Firms, Report Says

January 28, 2013 by Leave a Comment

WASHINGTON – Top executives at firms that received taxpayer bailouts during the financial crisis continue to receive generous government-approved compensation packages, a Treasury watchdog said in a report released on Monday.

The report comes from the special inspector general for the Troubled Asset Relief Program, the bank bailout law passed at the end of the George W. Bush administration. The watchdog, commonly called Sigtarp, found that 68 out of 69 executives at Ally Financial, A.I.G. and General Motors received annual compensation of $1 million or more, with the Treasury’s signoff.

All but one of the top executives at the failed insurer A.I.G. – which required more than $180 billion in emergency taxpayer financing – received pay packages worth more than $2 million. And 16 top executives at the three firms earned combined pay of more than $100 million.

“In 2012, these three TARP companies convinced Treasury to roll back its guidelines by approving multimillion-dollar pay packages, high cash salaries, huge pay raises and removing compensation tied to meeting performance metrics,” Christy Romero, the special inspector general, said in a statement. “Treasury cannot look out for taxpayers’ interests if it continues to rely to a great extent on the pay proposed by companies that have historically pushed back on pay limits.”

The report charges that Treasury has failed to rein in excessive pay at the three firms. It found that Treasury approved all pay raises requested for A.I.G., Ally and General Motors executives last year, with individual compensation increases ranging from $30,000 to $1 million. It also faults the Treasury overseer for allowing pay packages above what comparable executives at other firms receive.

The report also accuses Treasury of failing to follow up earlier recommendations made by the special inspector general. A report issued a year ago made many similar criticisms, arguing that the Treasury officials “could not effectively rein in excessive compensation” because the most “important goal was to get the companies to repay” the government.

“Treasury made no meaningful reform to its processes,” it said in this year’s report. “Lacking criteria and an effective decision-making process, Treasury risks continuing to award executives of bailed-out companies excessive cash compensation without good cause.”

In a response letter included in the report, Patricia Geoghegan, acting special master for Tarp executive compensation, disputed several of its assertions. For one, the compensation packages for A.I.G. and General Motors executives were comparable to those received by executives at other firms, Treasury said. Pay packages at Ally were higher than the median because of “unique circumstances,” it said.

Treasury also noted that the Obama administration had cut pay for executives at bailed-out firms and required that the companies pay top employees with more stock and less cash. Treasury “continues to fulfill its regulatory requirements,” the letter said. It has “limited executive compensation while at the same time keeping compensation at levels that enable the ‘exceptional assistance’ recipients to remain competitive and repay Tarp assistance.”

The Treasury Department is in the process of selling off its remaining shares of General Motors. In December, Treasury sold its final shares in A.I.G., bringing its and the Federal Reserve’s total profit on its investment in the company to nearly $23 billion.

Article source: http://www.nytimes.com/2013/01/29/business/generous-executive-pay-at-bailed-out-companies-treasury-watchdog-says.html?partner=rss&emc=rss

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DealBook: Maijoor, Chief Securities Overseer in Europe, Stumps for Streamlined Regulation

December 27, 2011 by Leave a Comment

Steven Maijoor, the chairman of the new European Securities and Markets AuthorityJerry Lampen/ReutersSteven Maijoor, the chairman of the new European Securities and Markets Authority

PARIS — Steven Maijoor, the chairman of Europe’s new securities regulator, has been piling up the frequent flier miles.

On a recent three-day trip, Mr. Maijoor, a former college professor, met fellow regulators in Frankfurt, spoke to institutional investors in Tallinn, Estonia, and held meetings with European politicians in Brussels.

“I knew this would be a hard job,” Mr. Maijoor said in his newly furnished office in central Paris with views of local landmarks, including the Sacré-Coeur Basilica and the Louvre. “Sometimes I tend to leave the office late, and I’m certainly still not the last one out of the door.”

As chairman of the new European Securities and Markets Authority, Mr. Maijoor faces a big task ahead. The organization, which started work at the beginning of 2011, is trying to create one set of securities rules for all 27 members of the European Union.

The streamlined regulation is long overdue. While much of Europe’s financial services industry has been integrated over the last decade, the Continent’s regulation is still largely carried out at a domestic level. During the sovereign debt crisis, for example, investors in some European Union countries were able to bet against banking stocks, while such short-selling activity was banned in other jurisdictions.

The lack of coordination has proved problematic. As markets struggled in the aftermath of the financial crisis, European authorities did not have a clear picture about the performance of complicated financial instruments, like credit-default swaps.

“There’s a likelihood that the impact on the financial system could have been smaller if we had access to more information,” Mr. Maijoor said. “Now, we’re in a much better position than before the credit crisis.”

Mr. Maijoor, previously managing director at the Dutch financial markets regulator, has spent much of his first year in charge getting national regulators to share more information. Along with constant trips across the Continent to meet local authorities, he also heads the organization’s board of supervisors, comprising representatives from the European Union’s 27 national regulators, which meets regularly to decide on new regulation.

Mr. Maijoor, the former dean of Maastricht University’s School of Business in the Netherlands, has also consulted with international counterparts, including the Securities and Exchange Commission, as part of a global effort to increase transparency in the financial markets. That includes weekly discussions with authorities to iron out differences that could potentially lead to regulatory arbitrage between the United States and Europe.

“We already have a pan-European financial market, so it’s crucial there’s an institution that can coordinate all the regulation,” said Diego Valiante, a research fellow at the Center for European Policy Studies in Brussels. “It’s highly dangerous to have fragmented supervisory mechanisms.”

But Mr. Maijoor’s efforts could to be hampered by limited resources. The regulator’s 2011 budget is 16.9 million euros, or $22.1 million, compared with $1.1 billion the S.E.C. receives. It has a permanent staff of 60, which will rise to 200 over the next three years. Its counterpart in the United States employs more than 4,000.

Bureaucratic challenges also may take their toll. The European agency’s legal structure gives all 27 of the European Union’s national regulators a vote in rulemaking. Disagreements could delay reforms or force stand-offs between countries that differ on new legislation.

Market participants also are concerned about the agency’s close ties to European politicians, many of whom vocally criticize the financial services sector’s role in the Continent’s debt crisis. The regulator is overseen by the European Commission, the nonelected executive branch of the European Union that is appointed by national governments.

“People are worried that decisions critical to the future of Europe’s economic union are being taken in a nontransparent forum,” said Etay Katz, a banking regulatory partner at the law firm Allen Overy in London. The securities agency “faces a steep change in European financial regulation. There’s a big question whether it has the capacity to stand on its own.”

Despite the lingering concerns, Mr. Maijoor and his team are moving ahead. Two months ago, the organization, whose staff is drawn from more than 15 European nationalities, started supervising credit ratings agencies in Europe.

It has been an especially thorny issue. European politicians have been critical of the big American players like Moody’s Investors Service and Standard Poor’s for failing to catch problems with subprime securities before they started to implode during the financial crisis.

Now, companies offering ratings on financial products to European investors must register with the new authority. It will carry out inspections on their internal governance and risk mitigation practices. If inspectors find problems, the regulator has the right to fine, sanction or even withdraw a firm’s license. The initial checks are expected to start in early 2012.

This is the first time ratings agencies in Europe have been regulated. The regulator will soon get similar powers to supervise the Continent’s trade repositories, institutions that collect data on opaque over-the-counter derivatives contracts.

“We’re going to be knocking on rating agencies’ doors to see what’s been going on,” Mr. Maijoor said.

The major ratings agencies declined to comment. A market participant familiar with the regulator’s new role said the pan-European approach would help improve regulatory consistency, but expressed concerns that it could be subject to political influence.

“Right now, E.S.M.A. doesn’t have direct regulatory responsibility for anything else, so the ratings agencies are being treated like guinea pigs,” the person said.

Mr. Maijoor’s agenda for next year is packed. As part of the push to increase oversight of the financial markets, the new organization has been charged by the European Commission with writing dozens of new regulations. It is the first time a pan-European institution has been given specific powers to draft rules that affect all of the Continent’s markets.

The authority “has taken on a special role because of its powers to set rules,” said Bert Van Roosebeke, head of the financial services division at the Center for European Policy, a policy research organization based in Freiburg, Germany. “In the future, they will want to flex their muscle to show that they’re in charge.”

The organization is in the process of writing new standards for short-selling practices across Europe. The regulator has the power to ban financial products that it believes are a threat to European investors or market stability. This year, Mr. Maijoor helped to coordinate a temporary ban of short-selling in some euro zone countries.

Standards are also expected on the expanded role for clearinghouses — financial intermediaries that guarantee trades if one side defaults — and trade repositories in the over-the-counter derivatives markets. Under current proposals, derivatives contracts traded over the counter will be moved to exchanges and forced to use clearinghouses, as regulators try to increase oversight of the market.

“The flow of regulation that E.S.M.A. has to draft is a huge amount for such a small number of people,” said Mr. Valiante of the Center for European Policy Studies. “It’s going to be very busy during 2012.”

Article source: http://feeds.nytimes.com/click.phdo?i=2ace22efda14682767378cfacac5b6f5

Filed Under: Business News Tagged With: , ,

DealBook: Fannie and Freddie Near Settlement With Regulators

September 9, 2011 by Leave a Comment

Robert Khuzami, the S.E.C. enforcement chief, is said to have met this summer with lawyers for ex-chiefs of Freddie and Fannie.Daniel Rosenbaum for The New York TimesRobert Khuzami, the S.E.C. enforcement director, is said to have met with lawyers for ex-chief executives of Freddie and Fannie.

Regulators are nearing a settlement with Fannie Mae and Freddie Mac over whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans, bringing to a close a three-year investigation.

The proposed agreement with the Securities and Exchange Commission, under the terms being discussed, would include no monetary penalty or admission of fraud, according to several people briefed on the case. But a settlement would represent the most significant acknowledgement yet by the mortgage companies that they played a central role in the housing boom and bust.

And the action, however limited, may help refurbish the S.E.C.’s reputation as an aggressive regulator, particularly as the country struggles with the after-effects of the financial crisis that the housing bubble fueled.

But the potential settlement — even it if it is little more than a rebuke — comes at an awkward time for Fannie Mae and Freddie Mac. Last week, the government overseer of the two companies sued 17 large financial firms, blaming them for luring the mortgage giants into buying troubled loans. That is a similar accusation to the one the S.E.C. is leveling at Fannie and Freddie — that the two entities misled their own investors. The case against the financial firms could be complicated should Fannie and Freddie sound a note of contrition for their own role in the implosion of the mortgage market in settling with the S.E.C.

The agency abandoned hopes of assessing a fine because of the precarious financial positions of the two companies, according to the people briefed on the case, who spoke on condition of anonymity because the deal was not yet final. The government has already propped up Fannie Mae and Freddie Mac with more than $100 billion since taking control of them in 2008. Any fee levied against them would simply wind up on the taxpayers’ tab.

The negotiations have been going on since at least early summer, and a deal may not materialize until later this year, these people cautioned. Fannie Mae, Freddie Mac and the S.E.C. all declined to comment.

The sprawling investigation into Fannie Mae and Freddie Mac once encompassed both civil and criminal elements, making headlines as one of the most significant cases to stem from the financial crisis. The case also threatened to ensnare some of Fannie and Freddie’s former top officials. Earlier this year, recent chief executives at both companies received so-called Wells notices from the S.E.C., an indication that the agency was considering a civil enforcement action against them.

But three years on, the civil settlement would be the only government action against the companies.

The criminal inquiry has sputtered to a halt. The Justice Department has concluded its inquiry, at least at Freddie Mac, according to a securities filing in August by the company. No charges have been filed against either company.

At the S.E.C., regulators have zeroed in on the fine print of Fannie’s and Freddie’s disclosures, according to those who have been briefed on it. The agency is specifically looking at the way the companies reported their subprime mortgage portfolios and concentrations of loans extended to borrowers who offered little documentation.

While Fannie and Freddie do not offer home loans, they buy up thousands of mortgages from lenders and resell them in packages to investors. The S.E.C.’s case hinges on whether the companies misled the public and regulators by lowballing the number of high-risk mortgages on their books.

One potential weakness of the case is that it hinges on the definition of subprime, which the government itself has struggled to nail down. The term often references loans to borrowers with low credit scores and spotty payment records. But Fannie and Freddie categorized loans as prime or subprime based on the lender rather than on the loan itself.

The path to the current settlement talks at Fannie Mae and Freddie Mac has been a delicate one. While internally, the two companies did not view the government’s case as particularly strong, they said they moved to settle to spare time and precious resources, according to one person close to the talks. In addition, the companies asked that whatever the settlement, it not include a fine or accusations of fraud in the hopes of protecting an already battered morale and an empty purse at the institutions.

In particular, a fraud accusation could cause an exodus of the employees best equipped to dig the institutions out of their current morass, people close to the talks said. A settlement with the mortgage companies would be a first step in wrapping up the S.E.C.’s broader examination. The agency is still pursuing potential claims against at least four former executives at Fannie and Freddie.

This summer, lawyers for Richard Syron, the former chief of Freddie Mac, and Daniel H. Mudd, his counterpart at Fannie Mae, met directly with the S.E.C.’s enforcement chief, Robert Khuzami, according to some of the people briefed on the case.

The S.E.C. has sent Wells notices to Mr. Syron; Mr. Mudd; the former chief financial officer at Freddie Mac, Anthony J. Piszel; and Donald J. Bisenius, executive vice president at Freddie until his recent departure.

None of the individuals have been accused of any wrongdoing.

Mr. Mudd and Mr. Syron are the two most prominent executives swept up in the case. Mr. Mudd is now chief executive of the public traded hedge fund and private equity firm the Fortress Investment Group. Mr. Syron, a former president of the American Stock Exchange, is an adjunct professor at Boston College and serves on its board of trustees.

Through their lawyers, Mr. Mudd and Mr. Syron declined to comment. The S.E.C. could yet decide not to sue the former executives.

Ultimately, the two mortgage companies have larger worries to confront than the potential citations: chief among them is their continuing viability.

Earlier this year, the Obama administration announced plans to wind down the two companies, leaving the fates of the companies unresolved and the future of government-backed housing finance in doubt.

Article source: http://feeds.nytimes.com/click.phdo?i=c7aa5b29abb0c46e8833a73bb4e833fa

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New York Attorney General Moves to Block Mortgage Settlement

August 29, 2011 by Leave a Comment

The New York attorney general is moving to block a proposed $8.5 billion settlement struck in June by Bank of New York Mellon and Bank of America over troubled loan pools issued by Countrywide. A lawsuit filed late Thursday accuses Bank of New York of fraud in its role as trustee overseeing the pools for investors.

In papers filed in New York State Supreme Court, lawyers for Eric T. Schneiderman, the attorney general, contended that Bank of New York misled investors about its conduct as overseer of the securities. The bank also breached its duties to investors by agreeing to the deal with Bank of America, according to the complaint, because the trustee is conflicted and “stands to receive direct financial benefits” as a result of the agreement.

Questioning the fairness of the deal, the attorney general’s lawsuit said that it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” that have been suffered by investors.

When the terms of the deal emerged, they appeared to be quite favorable to Bank of America. On June 29, when the deal was announced, Bank of America’s shares closed with a gain of almost 3 percent.

A spokesman for Mr. Schneiderman declined to comment. Jeep Bryant, a spokesman for Bank of New York Mellon, disputed the attorney general’s allegations, calling them “outrageous, baseless, unsupported by fact and law” and saying that the bank would fight them in court. “We are confident that we have fulfilled in all respects our responsibilities as trustee,” he said, adding that Mr. Schneiderman’s action fails to understand the “benefit the settlement would provide to investors.” 

Bank of America purchased Countrywide in a distress sale in early 2008.

A judge overseeing the settlement will ultimately decide whether it should be approved. A court hearing on the proposed settlement was scheduled to take place Friday. Mr. Schneiderman’s lawsuit is likely to change the nature of those discussions.  

As announced by Bank of New York, which is overseeing 530 mortgage pools issued by Countrywide, the deal would require Bank of America to pay $8.5 billion to investors holding the securities. The unpaid principal amount of the mortgages remaining in the pools totaled $174 billion. Lawyers representing 22 institutional investors, including the Federal Reserve Bank of New York, BlackRock and Pimco, contended the deal was favorable.

But other investors in the Countrywide pools who were not part of the settlement negotiations between Bank of New York and Bank of America complained that the terms were inadequate. Among the criticisms made by a group of investors known as Walnut Place were that the negotiations were conducted in secret and that Bank of New York was conflicted as a negotiator because Bank of America agreed to cover all its costs and liabilities relating to the deal.

Mr. Schneiderman’s contention that Bank of New York breached its duties to investors is significant because a trustee that agrees to oversee loan pools like those issued by Countrywide must abide by the rules governing the securities. Such rules require that lenders deliver to the trust complete and original mortgage documents for each loan in a pool, for example, and require that the trustee notify investors when such loan documents are missing.

Bank of New York led investors in the Countrywide pools to believe that the lender had in fact delivered complete and adequate mortgage files for each loan as was required, the lawsuit said. The bank also misled investors by confirming that loan files relating to hundreds of thousands of mortgages were complete.

But the bank failed in these duties, the attorney general’s complaint said. After conducting a review of court records in the Bronx and Westchester County, Mr. Schneiderman’s investigators have determined that Bank of New York did not ensure that notes underlying properties were delivered properly to some trusts, according to the lawsuit. If loan documents were not delivered as required to the trustee, investors could recover the money they invested in the mortgages.

“Investors in the trusts were misled by Bank of New York Mellon into believing that Bank of New York Mellon would review the loan files for the mortgages securing their investment, and that any deficiencies would be cured,” the lawsuit said.

Article source: http://feeds.nytimes.com/click.phdo?i=7c23950f186d305e39598a83dbadf7b7

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