WSJ - Banks and government close deal
Government officials have finalized an agreement worth as much as
$26 billion with five major banks, capping a yearlong push to
settle federal and state probes of alleged foreclosure abuses by
lenders. The deal represents the largest government-industry
settlement since a multistate deal with the tobacco industry in
1998. The agreement covers five banks: Ally Financial Inc., Bank
of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co., and
Wells Fargo & Co. Together, the five handle payments on 55% of
all outstanding home loans, or about 27 million mortgages,
according to Inside Mortgage Finance. Federal and state
officials planned to announce the settlement this morning in
Washington after putting the finishing touches on the deal
following a marathon negotiating session that ended after
midnight Thursday morning. The agreement will include at least
49 states, and officials were finalizing a separate accord with
one remaining holdout, Oklahoma.
The planned pact would involve around $5 billion in cash
penalties, payable to borrowers, states and the federal
government. That includes $1.5 billion in cash payments to
borrowers who went through foreclosure between September 2008 and
December 2011. Borrowers could receive $1,500 to $2,000 each,
with the actual amount paid depending on the number of borrowers
filing a claim. The agreement is expected to call on the banks
to provide $20 billion in other aid—by cutting loan balances
for tens of thousands of homeowners and by refinancing thousands
of borrowers who are current on their loans but owe more than
their homes are worth. Officials say the deal will help provide
immediate benefits to around one million homeowners, while
raising accountability for banks that work with borrowers facing
foreclosure. The foreclosure process has been snarled since late
2010, after allegations that banks had serially submitted bogus
mortgage documents when attempting to repossess homes from
delinquent borrowers.
On its own, the deal won't be a cure-all for the housing market
or to the majority of borrowers at risk of foreclosure. Home
prices have fallen by nearly one-third over more than five years,
slashing real-estate values by $7 trillion and leaving 11 million
homeowners with mortgages that are exceed their property values
by $750 billion. High unemployment has frustrated round after
round of federal efforts to stem foreclosures. "It is frankly a
headline victory for both banks and attorneys general with a
modest impact on the housing market," said Joshua Rosner,
managing director of investment firm Graham Fisher & Co.
Unemployment down slightly
Unemployment benefit applications dropped to 358,000, the
second-lowest level in nearly four years, according to the Labor
Department. The move represented a drop of 15,000 from the
previous week's total. Claims have been a fairly steady trend
lower, reflected last week in the Labor Department's announcement
that the national unemployment rate dropped to 8.3% in January on
the strength of 243,000 new jobs created. The four-week average,
a less volatile measure, fell to 366,250, the lowest since late
April 2008. When applications fall consistently below 375,000,
it usually signals that hiring is strong enough to lower the
unemployment rate. From November through January, the economy
has added an average of 201,000 net jobs per month. The
increased hiring in part reflects faster economic growth. The
economy expanded at an annual rate of 2.8% in the final three
months of last year — a full percentage point higher than the
previous quarter. Still, the job market has a long way to go
before it fully recovers from the damage of the Great Recession.
Nearly 13 million people remain unemployed, and 8.3% unemployment
is painfully high. One reason the unemployment rate has fallen
for five straight months is that many people have stopped looking
for work. The government only counts people as unemployed if they
are actively searching for a job.
Olick - refis surge, banks struggle
"Barely two weeks into a new government program that allows
severely underwater borrowers with loans backed by Fannie Mae and
Freddie Mac to refinance their loans to lower rates, the numbers
are surging. Applications to refinance jumped 9.4% last week,
seasonally adjusted, according to the Mortgage Bankers
Association. Record low interest rates on the thirty-year fixed,
averaging 4.05%, are only adding fuel to the fire. 'There was a
lot of pent up demand,' said Bank of America spokesman Terry
Francisco of the recently revamped Home Affordable Refinance
Program (HARP 2). The newest incarnation removes the cap on
negative equity, so borrowers who owe more than 125% of their
home’s current value can now qualify. These so-called severely
underwater borrowers, however, must be current on their payments.
The new surge backed up the phone lines at Bank of America, with
some borrowers reporting they heard a message suggesting they
call back in six to nine months. Francisco confirms the lender
has temporarily stopped taking applications for cash-out
refinances because of the additional underwriting those loans
require. Cash-out accounts for 10-15% of their mortgage business.
'We’re taking a lot of applications for HARP 2 and straight
refi’s as well, so we needed to curb our demand in some way,'
Francisco said.
Wells Fargo also reports an increase in refinancing right after
the holidays, as well as an overall increase in 2011. 'From
January of last year through January of this year, Wells Fargo
has seen its refinancing volume more than double,' says a
spokesman, who adds that it’s too early to tell about the
impact of HARP 2, as record low interest rates are a key factor
in demand. Wells Fargo, however, has not suspended any of its
lending. The refinance share of mortgage activity is now 80.5%
of total applications. Applications for mortgages to purchase a
home were flat last week and have been basically flat now for a
month, which is not a promising sign for home sales. President
Obama last week announced yet another government refinance
program to help underwater borrowers who do not have Fannie or
Freddie-backed loans. The plan could cost $5-10 billion and
requires Congressional approval; some have called it dead on
arrival. Strong refinance activity means more money in
consumers’ pockets and potentially more debt reduction, as some
borrowers opt for fixed-rate amortizing loans as opposed to
interest-only adjustable rate mortgages. Unfortunately, the flip
side, which is lower applications to purchase a home, does not
bode well for housing’s fledgling recover. 'The latest weakness
of mortgage applications for home purchase may suggest that the
recent improvement in home sales is not built on solid
foundations,' says Paul Diggle of Capital Economics."
Jobs gap between young and old widens
An analysis by the Pew Research Center, released Thursday,
details the impact of the recent recession on the attitudes of a
generation of mostly 20- and 30-somethings. With government data
showing record gaps in employment between young and old, a Pew
survey found that 41% of Americans believe that younger adults
have been hit harder than any other group, compared with 29% who
say middle-aged Americans and 24% who point to seniors 65 and
older. A wide majority of the public — at least 69% — also
said it’s more difficult for today’s young adults than their
parents’ generation to pay for college, find a job, buy a home,
or save for the future. Among young adults ages 18 to 34, only a
third rated their financial situation as “excellent” or
“good,” compared with 54% for seniors age 65 and over. In
2004, before the recession began, about half of both young and
older adults rated their own financial situation highly.
“Young workers are on the bottom of the ladder, and during a
recession like we’ve had, it's often hard for them to hold
on,” said Kim Parker, associate director of Pew’s Social &
Demographic Trends project. Still, Parker noted that despite the
challenges, young adults were upbeat about the future: Only 9%
said they didn’t think they would ever have enough money to
live the life they want, a share unchanged from before the
recession. In contrast, 28% of adults 35 and older didn't
anticipate making enough in the future. The latest numbers
offered a mixed picture for young adults, many of them
minorities, whose strong turnout and 2-1 support for Democrat
Barack Obama in 2008 buoyed him to election. As voters this year
point to the economy as their top concern, a slew of recent
Census data have underscored the difficulties of young adults: In
record numbers, they are shunning long-distance moves in the
economic downturn to live with mom and dad, delaying marriage and
raising kids out of wedlock, if they’re becoming parents at
all. At risk of becoming a “lost generation,” many young
adults are going back to school or scraping by on waitressing,
bartending, and odd jobs as they wait for the economy to slowly
recover.
Bad loans and foreclosures cost banks $72 billion
Costs from faulty mortgages and shoddy foreclosures have topped
$72 billion at the biggest US banks. Wells Fargo, Bank of
America, Citigroup, JPMorgan Chase and Ally Financial, the five
largest home lenders during the real estate boom, tallied at
least $6.78 billion in new costs tied to mortgages during the
second half of 2011, according to data compiled by Bloomberg
News. Bank of America, ranked second among US banks by assets,
contributes $41.8 billion of the overall total. The mounting
costs pushed lenders and regulators to resolve investigations and
lawsuits over faulty home lending, like the 50-state review of
foreclosures. The wrangling over the status of old loans has
made some banks more reluctant to make new ones, even as Federal
Reserve Chairman Ben Bernanke appeals for action to increase
lending and fix the US housing market because it's a drag on the
economic recovery.
The bulk of the expense was triggered by investors who bought
mortgages and then demanded refunds after finding flaws in the
underwriting, including false data about borrower incomes and
home values. Outstanding claims against Bank of America jumped
22% in three months to $14.3 billion as of Dec. 31. Bloomberg's
tally also includes expenses tied to court cases and
investigations. Bank of America's increase of at least $2.65
billion in mortgage costs during the second half of 2011 included
$1.76 billion tied to litigation, filings show. Ally, the lender
controlled by US taxpayers following a bailout, added $114
million to its repurchase reserve during the period, filings
show. The Detroit-based company also said last month it will
record a fourth-quarter charge of about $270 million for
penalties associated with foreclosure practices by its mortgage
unit Residential Capital, bringing total costs to about $3.67
billion since 2007.
ECB holds rate
The European Central Bank (ECB) left its key interest rate
unchanged at 1% today but President Mario Draghi promised relaxed
rules for banks taking part in a long-term refinancing operation
at the end of the month, boosting hopes that additional liquidity
will be injected in the system. At the same time, he played his
cards close to his chest on the issue of how the central bank
will treat Greek debt, repeating several times that the European
Union Treaty prohibits the financing of a member state's debt by
the ECB. The central bank will launch a second long-term
refinancing operation (LTRO) on Feb. 29, with analysts saying
banks will boost their participation in the offer of three-year,
1% rate loans. National eligibility criteria for the LTRO have
been improved and the central bank will accept additional credit
claims for the collateral, Draghi said. Draghi also said during
his news conference that inflation is likely to remain high but
it will decrease over the medium term, while uncertainty was high
for the economy. “Inflation is likely to stay above 2% for
several months to come before declining to below 2%,” Draghi
said. “The economic outlook remains subject to high
uncertainty and downside risk.” He also said the criteria for
national eligibility for the central bank’s long-term
refinancing operation (LTRO) have improved and new additional
credit claims will be accepted as collateral.
Foreclosures down 24% in 2011
Foreclosure activity dipped nationwide in 2011 as completed
foreclosures fell 24% to 830,000 from 1.1 million a year earlier,
according to a report from CoreLogic. December foreclosures also
declined year-over-year to 55,000 from 67,000. The foreclosure
decline comes in the context of litigation and regulation
regarding robo-signing, including an expected settlement between
states and the nation's five largest banks over
mortgage-servicing practices. The number of mortgages
90-days-or-more delinquent, however, fell to 7.3% from 7.8% a
year earlier, but rose from 7.2% in November.
Foreclosure inventory saw a similar decline by 8.4% from December
2010. Houses in the foreclosure process totaled 1.4 million in
December 2011, making up 3.4% of all homes with outstanding
loans. Real estate owned sales also outpaced completed
foreclosures in December as the "distressed-clearing ratio"
increased to 1.03 from 0.94 in November. "While foreclosure
filings are being curtailed by a variety of judicial and
regulatory constraints, mortgage servicers are completing REO
sales faster than they are completing foreclosures," CoreLogic
chief economist Mark Fleming said. “This is the first time in a
year that REO sales have outpaced completed foreclosures, and
part of the reason for the decrease in the foreclosure
inventory.”
Florida led states by far in foreclosure inventory as a
percentage of all mortgages at 11.9% in December, though that's
down 0.1% from a year earlier. New Jersey trailed with 6.4%,
followed by Illinois at 5.4%, Nevada at 5.3% and New York at
4.6%. The Sunshine State also topped others with its 17.4%
90-day-plus delinquency rate, driven by 18.3% and 17% rates in
Orlando and Tampa, Fla., respectively. Nevada and New Jersey
followed at 13.4% and 10.6%. About 3.2 million foreclosures have
closed since the onset of the financial crisis in September 2008,
according to CoreLogic. The data firm covers about 85% of all US
foreclosure data.
Government officials have finalized an agreement worth as much as
$26 billion with five major banks, capping a yearlong push to
settle federal and state probes of alleged foreclosure abuses by
lenders. The deal represents the largest government-industry
settlement since a multistate deal with the tobacco industry in
1998. The agreement covers five banks: Ally Financial Inc., Bank
of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co., and
Wells Fargo & Co. Together, the five handle payments on 55% of
all outstanding home loans, or about 27 million mortgages,
according to Inside Mortgage Finance. Federal and state
officials planned to announce the settlement this morning in
Washington after putting the finishing touches on the deal
following a marathon negotiating session that ended after
midnight Thursday morning. The agreement will include at least
49 states, and officials were finalizing a separate accord with
one remaining holdout, Oklahoma.
The planned pact would involve around $5 billion in cash
penalties, payable to borrowers, states and the federal
government. That includes $1.5 billion in cash payments to
borrowers who went through foreclosure between September 2008 and
December 2011. Borrowers could receive $1,500 to $2,000 each,
with the actual amount paid depending on the number of borrowers
filing a claim. The agreement is expected to call on the banks
to provide $20 billion in other aid—by cutting loan balances
for tens of thousands of homeowners and by refinancing thousands
of borrowers who are current on their loans but owe more than
their homes are worth. Officials say the deal will help provide
immediate benefits to around one million homeowners, while
raising accountability for banks that work with borrowers facing
foreclosure. The foreclosure process has been snarled since late
2010, after allegations that banks had serially submitted bogus
mortgage documents when attempting to repossess homes from
delinquent borrowers.
On its own, the deal won't be a cure-all for the housing market
or to the majority of borrowers at risk of foreclosure. Home
prices have fallen by nearly one-third over more than five years,
slashing real-estate values by $7 trillion and leaving 11 million
homeowners with mortgages that are exceed their property values
by $750 billion. High unemployment has frustrated round after
round of federal efforts to stem foreclosures. "It is frankly a
headline victory for both banks and attorneys general with a
modest impact on the housing market," said Joshua Rosner,
managing director of investment firm Graham Fisher & Co.
Unemployment down slightly
Unemployment benefit applications dropped to 358,000, the
second-lowest level in nearly four years, according to the Labor
Department. The move represented a drop of 15,000 from the
previous week's total. Claims have been a fairly steady trend
lower, reflected last week in the Labor Department's announcement
that the national unemployment rate dropped to 8.3% in January on
the strength of 243,000 new jobs created. The four-week average,
a less volatile measure, fell to 366,250, the lowest since late
April 2008. When applications fall consistently below 375,000,
it usually signals that hiring is strong enough to lower the
unemployment rate. From November through January, the economy
has added an average of 201,000 net jobs per month. The
increased hiring in part reflects faster economic growth. The
economy expanded at an annual rate of 2.8% in the final three
months of last year — a full percentage point higher than the
previous quarter. Still, the job market has a long way to go
before it fully recovers from the damage of the Great Recession.
Nearly 13 million people remain unemployed, and 8.3% unemployment
is painfully high. One reason the unemployment rate has fallen
for five straight months is that many people have stopped looking
for work. The government only counts people as unemployed if they
are actively searching for a job.
Olick - refis surge, banks struggle
"Barely two weeks into a new government program that allows
severely underwater borrowers with loans backed by Fannie Mae and
Freddie Mac to refinance their loans to lower rates, the numbers
are surging. Applications to refinance jumped 9.4% last week,
seasonally adjusted, according to the Mortgage Bankers
Association. Record low interest rates on the thirty-year fixed,
averaging 4.05%, are only adding fuel to the fire. 'There was a
lot of pent up demand,' said Bank of America spokesman Terry
Francisco of the recently revamped Home Affordable Refinance
Program (HARP 2). The newest incarnation removes the cap on
negative equity, so borrowers who owe more than 125% of their
home’s current value can now qualify. These so-called severely
underwater borrowers, however, must be current on their payments.
The new surge backed up the phone lines at Bank of America, with
some borrowers reporting they heard a message suggesting they
call back in six to nine months. Francisco confirms the lender
has temporarily stopped taking applications for cash-out
refinances because of the additional underwriting those loans
require. Cash-out accounts for 10-15% of their mortgage business.
'We’re taking a lot of applications for HARP 2 and straight
refi’s as well, so we needed to curb our demand in some way,'
Francisco said.
Wells Fargo also reports an increase in refinancing right after
the holidays, as well as an overall increase in 2011. 'From
January of last year through January of this year, Wells Fargo
has seen its refinancing volume more than double,' says a
spokesman, who adds that it’s too early to tell about the
impact of HARP 2, as record low interest rates are a key factor
in demand. Wells Fargo, however, has not suspended any of its
lending. The refinance share of mortgage activity is now 80.5%
of total applications. Applications for mortgages to purchase a
home were flat last week and have been basically flat now for a
month, which is not a promising sign for home sales. President
Obama last week announced yet another government refinance
program to help underwater borrowers who do not have Fannie or
Freddie-backed loans. The plan could cost $5-10 billion and
requires Congressional approval; some have called it dead on
arrival. Strong refinance activity means more money in
consumers’ pockets and potentially more debt reduction, as some
borrowers opt for fixed-rate amortizing loans as opposed to
interest-only adjustable rate mortgages. Unfortunately, the flip
side, which is lower applications to purchase a home, does not
bode well for housing’s fledgling recover. 'The latest weakness
of mortgage applications for home purchase may suggest that the
recent improvement in home sales is not built on solid
foundations,' says Paul Diggle of Capital Economics."
Jobs gap between young and old widens
An analysis by the Pew Research Center, released Thursday,
details the impact of the recent recession on the attitudes of a
generation of mostly 20- and 30-somethings. With government data
showing record gaps in employment between young and old, a Pew
survey found that 41% of Americans believe that younger adults
have been hit harder than any other group, compared with 29% who
say middle-aged Americans and 24% who point to seniors 65 and
older. A wide majority of the public — at least 69% — also
said it’s more difficult for today’s young adults than their
parents’ generation to pay for college, find a job, buy a home,
or save for the future. Among young adults ages 18 to 34, only a
third rated their financial situation as “excellent” or
“good,” compared with 54% for seniors age 65 and over. In
2004, before the recession began, about half of both young and
older adults rated their own financial situation highly.
“Young workers are on the bottom of the ladder, and during a
recession like we’ve had, it's often hard for them to hold
on,” said Kim Parker, associate director of Pew’s Social &
Demographic Trends project. Still, Parker noted that despite the
challenges, young adults were upbeat about the future: Only 9%
said they didn’t think they would ever have enough money to
live the life they want, a share unchanged from before the
recession. In contrast, 28% of adults 35 and older didn't
anticipate making enough in the future. The latest numbers
offered a mixed picture for young adults, many of them
minorities, whose strong turnout and 2-1 support for Democrat
Barack Obama in 2008 buoyed him to election. As voters this year
point to the economy as their top concern, a slew of recent
Census data have underscored the difficulties of young adults: In
record numbers, they are shunning long-distance moves in the
economic downturn to live with mom and dad, delaying marriage and
raising kids out of wedlock, if they’re becoming parents at
all. At risk of becoming a “lost generation,” many young
adults are going back to school or scraping by on waitressing,
bartending, and odd jobs as they wait for the economy to slowly
recover.
Bad loans and foreclosures cost banks $72 billion
Costs from faulty mortgages and shoddy foreclosures have topped
$72 billion at the biggest US banks. Wells Fargo, Bank of
America, Citigroup, JPMorgan Chase and Ally Financial, the five
largest home lenders during the real estate boom, tallied at
least $6.78 billion in new costs tied to mortgages during the
second half of 2011, according to data compiled by Bloomberg
News. Bank of America, ranked second among US banks by assets,
contributes $41.8 billion of the overall total. The mounting
costs pushed lenders and regulators to resolve investigations and
lawsuits over faulty home lending, like the 50-state review of
foreclosures. The wrangling over the status of old loans has
made some banks more reluctant to make new ones, even as Federal
Reserve Chairman Ben Bernanke appeals for action to increase
lending and fix the US housing market because it's a drag on the
economic recovery.
The bulk of the expense was triggered by investors who bought
mortgages and then demanded refunds after finding flaws in the
underwriting, including false data about borrower incomes and
home values. Outstanding claims against Bank of America jumped
22% in three months to $14.3 billion as of Dec. 31. Bloomberg's
tally also includes expenses tied to court cases and
investigations. Bank of America's increase of at least $2.65
billion in mortgage costs during the second half of 2011 included
$1.76 billion tied to litigation, filings show. Ally, the lender
controlled by US taxpayers following a bailout, added $114
million to its repurchase reserve during the period, filings
show. The Detroit-based company also said last month it will
record a fourth-quarter charge of about $270 million for
penalties associated with foreclosure practices by its mortgage
unit Residential Capital, bringing total costs to about $3.67
billion since 2007.
ECB holds rate
The European Central Bank (ECB) left its key interest rate
unchanged at 1% today but President Mario Draghi promised relaxed
rules for banks taking part in a long-term refinancing operation
at the end of the month, boosting hopes that additional liquidity
will be injected in the system. At the same time, he played his
cards close to his chest on the issue of how the central bank
will treat Greek debt, repeating several times that the European
Union Treaty prohibits the financing of a member state's debt by
the ECB. The central bank will launch a second long-term
refinancing operation (LTRO) on Feb. 29, with analysts saying
banks will boost their participation in the offer of three-year,
1% rate loans. National eligibility criteria for the LTRO have
been improved and the central bank will accept additional credit
claims for the collateral, Draghi said. Draghi also said during
his news conference that inflation is likely to remain high but
it will decrease over the medium term, while uncertainty was high
for the economy. “Inflation is likely to stay above 2% for
several months to come before declining to below 2%,” Draghi
said. “The economic outlook remains subject to high
uncertainty and downside risk.” He also said the criteria for
national eligibility for the central bank’s long-term
refinancing operation (LTRO) have improved and new additional
credit claims will be accepted as collateral.
Foreclosures down 24% in 2011
Foreclosure activity dipped nationwide in 2011 as completed
foreclosures fell 24% to 830,000 from 1.1 million a year earlier,
according to a report from CoreLogic. December foreclosures also
declined year-over-year to 55,000 from 67,000. The foreclosure
decline comes in the context of litigation and regulation
regarding robo-signing, including an expected settlement between
states and the nation's five largest banks over
mortgage-servicing practices. The number of mortgages
90-days-or-more delinquent, however, fell to 7.3% from 7.8% a
year earlier, but rose from 7.2% in November.
Foreclosure inventory saw a similar decline by 8.4% from December
2010. Houses in the foreclosure process totaled 1.4 million in
December 2011, making up 3.4% of all homes with outstanding
loans. Real estate owned sales also outpaced completed
foreclosures in December as the "distressed-clearing ratio"
increased to 1.03 from 0.94 in November. "While foreclosure
filings are being curtailed by a variety of judicial and
regulatory constraints, mortgage servicers are completing REO
sales faster than they are completing foreclosures," CoreLogic
chief economist Mark Fleming said. “This is the first time in a
year that REO sales have outpaced completed foreclosures, and
part of the reason for the decrease in the foreclosure
inventory.”
Florida led states by far in foreclosure inventory as a
percentage of all mortgages at 11.9% in December, though that's
down 0.1% from a year earlier. New Jersey trailed with 6.4%,
followed by Illinois at 5.4%, Nevada at 5.3% and New York at
4.6%. The Sunshine State also topped others with its 17.4%
90-day-plus delinquency rate, driven by 18.3% and 17% rates in
Orlando and Tampa, Fla., respectively. Nevada and New Jersey
followed at 13.4% and 10.6%. About 3.2 million foreclosures have
closed since the onset of the financial crisis in September 2008,
according to CoreLogic. The data firm covers about 85% of all US
foreclosure data.
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