Risky bets likely for dragging U.S. banks: regulator

WASHINGTON, Thu Jul 5, 2012 – Banks may take on excessive risk to make up for a dragging housing market and low revenues, a U.S. banking regulator said on Thursday.
In its first “Semi Annual Risk” report for Spring 2012, the Office of the Comptroller of the Currency (OCC) said the slow economic recovery, low interest rates and bad loans continue to drag down profits, which may encourage banks to boost leverage and lower underwriting standards to increase profitability.
“Top risks facing national banks and federal savings associations include the lingering effects of a weak housing market, revenue challenges related to slow economic growth and market volatility, and the potential that banks may take excessive risks in an effort to improve profitability,” the OCC said in a statement.
Banks have been under pressure to reduce risk since the financial crisis after risky lending and derivatives bets at top financial institutions nearly toppled the U.S. financial system and led to massive taxpayer bailouts.
The overhang of severely delinquent loans and in-process foreclosures on residential mortgages is a big drag on banks, the report said.
Low interest rates limit the ability of many banks to reduce funding costs and make banks vulnerable to rate shocks, the OCC added. The euro zone’s sovereign debt crisis and the threat of a euro zone break-up have lowered credit quality and increased market uncertainty, increasing the cost of long-term debt and equity for large U.S. banks, the report added.
“These issues continue to weigh on market confidence and the economic recovery in Europe and the United States,” the OCC said in a statement.

Fewer troubled mortgages hobble banks in first quarter

WASHINGTON, Wed Jun 27, 2012 – U.S. banks held fewer troubled mortgages in the first quarter of 2012, according to a report issued on Wednesday by the Office of the Comptroller of the Currency, as loans serviced by national banks performed better in the first three months of the year.

The report said the overall quality of serviced mortgages improved, and the percentage of serviced loans that were current and performing at the end of March was 88.9 percent, the highest level in three years. The improvement was due to an uptick in the economy and continued emphasis on programs intended to keep borrowers in their houses, the OCC said.

Overall, the percentage of mortgages that were 30 to 59 and 60 to 89 days delinquent also decreased to their lowest levels since the OCC began tracking the mortgage data in the first quarter of 2008. The percentage of mortgages in the portfolio that were 30 to 59 days delinquent at the end of the first quarter decreased by 17.3 percent from the previous quarter and by 3.8 percent from a year earlier.

“This improvement can be attributed to several factors, including strengthening economic conditions during the quarter, seasonal effects, servicing transfers, and the ongoing effects of both home retention loan modification programs as well as home forfeiture actions,” the OCC said in the quarterly report.

The number of foreclosures in process decreased from a year ago, edging down 1.8 percent from the previous quarter and by 8.1 percent from a year earlier.

However, the percentage of mortgages in the process of foreclosure at the end of the first quarter of 2012 increased, rising by 1.8 percent from the previous quarter and 2.3 percent from a year earlier.

Housing market recovery gains traction with rising sales, prices

WASHINGTON, Wed May 23, 2012 – The U.S. spring home-selling season got off to a strong start in April with rising sales and prices providing evidence that a housing market recovery was gaining some traction.

The housing sector has been the Achilles’ heel of the economy ever since the home-price bubble burst.

Data this week, however, have painted a relatively upbeat picture for the market and underscored the economy’s resilience.

“The recent buoyancy in housing market activity has raised hopes that this beleaguered sector may finally be on the verge of a rebound,” said Millan Mulraine, senior macro strategist at TD Securities in New York.

New home sales increased 3.3 percent to a seasonally adjusted 343,000-unit annual rate, the Commerce Department said on Wednesday. Compared to April last year, sales were up 9.9 percent.

The report came on the heels of news on Tuesday that home resales hit a two-year high, with the sector getting support from investors who are increasingly seeing value.

Even more encouraging, the median price for both new and previously owned homes surged last month, a further sign of life for a market that has struggled to come back from its 2006 collapse.

The improving tone could be a boon for President Barack Obama whose housing policies have been decried for doing too little to help distressed homeowners.

U.S. housing faces extra drag ― low appraisals

NEW YORK ― When Sean McGowan signed a contract to buy a New Jersey home in November, he didn’t expect he’d still be living with his parents nearly a year later.

The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.

“It was very frustrating. We really wanted to move in,” said McGowan, a 31-year-old real estate lawyer.

Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.

Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can’t agree on how to make up the difference with an original deal price.

“It’s hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue,” said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.

Sixteen percent of Realtors reported contract cancellations in July, matching June’s level, which was the highest since March 2010, when the National Association of Realtors began collecting data.

Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.

Appraisers in the United States have long been used to controversy for their role in the country’s housing market.

The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.

Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.

“The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago,” said Rick Sharga, senior vice president of data firm RealtyTrac.

JPMorgan to pay $153.6 million in SEC fraud case

WASHINGTON/NEW YORK ― JPMorgan Chase & Co agreed to pay $153.6 million to settle U.S. Securities and Exchange Commission charges that it defrauded investors who bought mortgage securities sold just before the nation’s housing market collapsed.

The regulator’s complaint against the banking giant was larded with excerpts from internal JPMorgan communications that indicated bankers sold a collateralized mortgage obligation in 2007 to ensure that it could get credit-scarred mortgage securities off its books.

“We are soooo pregnant with this deal, we need a wheel-barrel to move around,” the head of CDO distribution wrote in a March 22, 2007 email to the sales staff. “Let’s schedule the cesarian, please!”

The settlement with JPMorgan, the second-largest U.S. bank, echoes on a smaller scale the $550 million accord that Goldman Sachs Group Inc reached last July over its Abacus collateralized debt obligation.

Both cases involved charges that banks let hedge fund clients structure complex securities ― and then bet against them ― without disclosing their involvement to investors.

The SEC on Tuesday also filed civil charges against Edward Steffelin, 41, a former managing director at the now bankrupt GSC Capital Corp, which served as collateral agent for the JPMorgan CDO marketed as Squared CDO 2007-1.

It alleged that he hoped to get a job with the Magnetar Capital LLC hedge fund, while helping to create marketing materials that failed to disclose that Magnetar chose some securities in the CDO and had a nearly $600 million bet that they would lose value.

JPMorgan sold $150 million of Squared CDO notes to pension funds and investors worldwide that lost most of their value in just 10 months, the SEC said.