The country is in the grip of a home mortgage scandal, with big banks facing investigations, fines and penalties for playing fast and loose during the foreclosure process. There's no question that the banks will suffer, but will their stocks get hurt as a result?
One indication came on Oct. 18, when Citigroup (C) reported a third-quarter profit of $2.15 billion, easily beating analysts' expectations and sending the company's shares higher by 5%. That lifted all banks shares, which had lost $50 billion in valuation at the end of the previous week because of concerns about foreclosure losses.
But Citi indicated that it had managed to sidestep the problems facing banking rivals JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC), which have announced moratoriums on foreclosures while they study whether they acted improperly in the process of documenting foreclosures prior to sales. "We believe that our overall process is sound, and our reviews indicate that nothing is amiss," says John Gerspach, Citi's chief financial officer.
The current mortgage crisis could hurt bank earnings in several possible ways, not all of them directly related to the foreclosure problem.
Investors to Banks: Take It Back
The first is what the banks have termed "putbacks," but are really repurchases of mortgages. Most banks don't keep mortgages on their books any more. Instead, they pool home loans together and sell slices of those bundled securities to investors, who assume the credit and interest rate risk on the underlying loans.
When they sell the loans, the banks make "representations and warrants" to the investors that the borrowers meet certain loan criteria, such as the level of their FICO credit scores or their income. If it turns out later that this information is wrong, the investor can force the bank to repurchase the mortgage from the trust that holds them.
JPMorgan analysts said in a report released Oct. 18 that the putback risk to the industry as a whole might be as high as $55 billion to $120 billion. They said those losses would probably be realized over a period of about five years, so the annual total might run at $10 billion to $25 billion.
Squeezing Every Penny
The JPMorgan estimate was different for loans securitized by government-controlled agencies like Fannie Mae and Freddie Mac. With Congress in an uproar about Fannie's and Freddie's losses, now estimated at $140 billion, the government will likely try to squeeze every penny out of the banks that it can, given that they're now making large profits after being bailed out by taxpayers.
The JPMorgan analysts said the agencies are likely to try to force the banks to take back about 25% of defaulted loans, with about 40% of those demands being successful.
With private sector securitization of mortgages, banks have less recourse to complain about fraud and other misstatements, so repurchases of mortgages would have only a 20% success rate, leading to an estimated 5% loss on defaulted loans.
JPMorgan itself acknowledged this last week when it released its own third-quarter earnings and disclosed that it had put aside an additional $622 million in reserves to cover losses from forced repurchases of mortgages. That didn't seem to have hurt JPMorgan's stock: It was up 2.5% on Oct. 18.
Potential Fines and Penalties
Al Savastano, banking analyst at Macquarie Securities in New York, says the repurchase problem is likely to fester for years and that it's hard to know how much each bank faces in losses. "We think it's going to be an earnings issue, not a capital issue," Savastano says. 'We are a lot more comfortable trying to estimate credit losses than this."
The National Lawyers Guild, founded 73 years ago, held its convention in New Orleans from September 22 to September 26, 2010 - five years after the devastation of Hurricane Katrina - and months after the BP oil spill - in solidarity with the people of the Gulf Coast. The NLG shares the alarm felt across the country in the face of an economic crisis that has left millions of Americans without jobs and out of their homes or on the verge of foreclosure and facing bankruptcy. We are especially dismayed by the plight of our youth, including many young Guild members, who cannot find jobs after investing years of study and going tens of thousands of dollars into debt for college and professional educations.
Thus far, government efforts to create jobs have been indirect through aid to cities and tax breaks for business. Programs to address the foreclosure crisis have largely relied on the financial institutions that are the source of the problems. The government has not used the power of its controlling interests in Fannie Mae or Freddie Mac to stop the foreclosures and evictions. It has abdicated student loan programs to private interests and refused to take steps to relieve the debt burdens young graduates face.
There is no greater responsibility that any government has than to secure the well-being of its citizens. The NLG rejects the view that these times call for less government action and declares that bold steps are necessary and long overdue to provide some relief to our suffering population. It therefore demands that President Obama:
1. Issue an Executive Order similar to that issued by President Roosevelt which established the Works Progress Administration (WPA) to create 12 million federal jobs at a living wage. These jobs would begin to rebuild the country's failing infrastructure and would fund arts and other areas where public jobs are needed. They would be paid for primarily from the repayments of TARP money loaned to the "too big to fail" institutions that bear the bulk of the responsibility for the crisis.
2. Issue an Executive Order requiring Fannie Mae, Freddie Mac and holders of any other federally backed mortgages to stop all foreclosures and evictions for at least the next two years and to renegotiate mortgages with terms homeowners can meet.
3. Issue an Executive Order imposing a two year moratorium for repayment of all federally subsidized student loans.
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Small Business <b>News</b>: Social Media Secrets
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ABC <b>News</b> airs big exposé on BMW N54 engine problems, lawsuits [w <b>...</b>
ABC News investigates BMW fuel pump problems – Click above to watch video after the jump ABC News has cottoned on to the story that BMW.
Arrowheadlines: Chiefs <b>News</b> 10/27 - Arrowhead Pride
Good morning Chiefs fans! There's some interesting Kansas City Chiefs news today. A great piece from Cory Greenwood's hometown newspaper, and more on Chambers' playing time start us off. Enjoy.
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The country is in the grip of a home mortgage scandal, with big banks facing investigations, fines and penalties for playing fast and loose during the foreclosure process. There's no question that the banks will suffer, but will their stocks get hurt as a result?
One indication came on Oct. 18, when Citigroup (C) reported a third-quarter profit of $2.15 billion, easily beating analysts' expectations and sending the company's shares higher by 5%. That lifted all banks shares, which had lost $50 billion in valuation at the end of the previous week because of concerns about foreclosure losses.
But Citi indicated that it had managed to sidestep the problems facing banking rivals JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC), which have announced moratoriums on foreclosures while they study whether they acted improperly in the process of documenting foreclosures prior to sales. "We believe that our overall process is sound, and our reviews indicate that nothing is amiss," says John Gerspach, Citi's chief financial officer.
The current mortgage crisis could hurt bank earnings in several possible ways, not all of them directly related to the foreclosure problem.
Investors to Banks: Take It Back
The first is what the banks have termed "putbacks," but are really repurchases of mortgages. Most banks don't keep mortgages on their books any more. Instead, they pool home loans together and sell slices of those bundled securities to investors, who assume the credit and interest rate risk on the underlying loans.
When they sell the loans, the banks make "representations and warrants" to the investors that the borrowers meet certain loan criteria, such as the level of their FICO credit scores or their income. If it turns out later that this information is wrong, the investor can force the bank to repurchase the mortgage from the trust that holds them.
JPMorgan analysts said in a report released Oct. 18 that the putback risk to the industry as a whole might be as high as $55 billion to $120 billion. They said those losses would probably be realized over a period of about five years, so the annual total might run at $10 billion to $25 billion.
Squeezing Every Penny
The JPMorgan estimate was different for loans securitized by government-controlled agencies like Fannie Mae and Freddie Mac. With Congress in an uproar about Fannie's and Freddie's losses, now estimated at $140 billion, the government will likely try to squeeze every penny out of the banks that it can, given that they're now making large profits after being bailed out by taxpayers.
The JPMorgan analysts said the agencies are likely to try to force the banks to take back about 25% of defaulted loans, with about 40% of those demands being successful.
With private sector securitization of mortgages, banks have less recourse to complain about fraud and other misstatements, so repurchases of mortgages would have only a 20% success rate, leading to an estimated 5% loss on defaulted loans.
JPMorgan itself acknowledged this last week when it released its own third-quarter earnings and disclosed that it had put aside an additional $622 million in reserves to cover losses from forced repurchases of mortgages. That didn't seem to have hurt JPMorgan's stock: It was up 2.5% on Oct. 18.
Potential Fines and Penalties
Al Savastano, banking analyst at Macquarie Securities in New York, says the repurchase problem is likely to fester for years and that it's hard to know how much each bank faces in losses. "We think it's going to be an earnings issue, not a capital issue," Savastano says. 'We are a lot more comfortable trying to estimate credit losses than this."
The National Lawyers Guild, founded 73 years ago, held its convention in New Orleans from September 22 to September 26, 2010 - five years after the devastation of Hurricane Katrina - and months after the BP oil spill - in solidarity with the people of the Gulf Coast. The NLG shares the alarm felt across the country in the face of an economic crisis that has left millions of Americans without jobs and out of their homes or on the verge of foreclosure and facing bankruptcy. We are especially dismayed by the plight of our youth, including many young Guild members, who cannot find jobs after investing years of study and going tens of thousands of dollars into debt for college and professional educations.
Thus far, government efforts to create jobs have been indirect through aid to cities and tax breaks for business. Programs to address the foreclosure crisis have largely relied on the financial institutions that are the source of the problems. The government has not used the power of its controlling interests in Fannie Mae or Freddie Mac to stop the foreclosures and evictions. It has abdicated student loan programs to private interests and refused to take steps to relieve the debt burdens young graduates face.
There is no greater responsibility that any government has than to secure the well-being of its citizens. The NLG rejects the view that these times call for less government action and declares that bold steps are necessary and long overdue to provide some relief to our suffering population. It therefore demands that President Obama:
1. Issue an Executive Order similar to that issued by President Roosevelt which established the Works Progress Administration (WPA) to create 12 million federal jobs at a living wage. These jobs would begin to rebuild the country's failing infrastructure and would fund arts and other areas where public jobs are needed. They would be paid for primarily from the repayments of TARP money loaned to the "too big to fail" institutions that bear the bulk of the responsibility for the crisis.
2. Issue an Executive Order requiring Fannie Mae, Freddie Mac and holders of any other federally backed mortgages to stop all foreclosures and evictions for at least the next two years and to renegotiate mortgages with terms homeowners can meet.
3. Issue an Executive Order imposing a two year moratorium for repayment of all federally subsidized student loans.
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Small Business <b>News</b>: Social Media Secrets
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ABC <b>News</b> airs big exposé on BMW N54 engine problems, lawsuits [w <b>...</b>
ABC News investigates BMW fuel pump problems – Click above to watch video after the jump ABC News has cottoned on to the story that BMW.
Arrowheadlines: Chiefs <b>News</b> 10/27 - Arrowhead Pride
Good morning Chiefs fans! There's some interesting Kansas City Chiefs news today. A great piece from Cory Greenwood's hometown newspaper, and more on Chambers' playing time start us off. Enjoy.
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Small Business <b>News</b>: Social Media Secrets
Pssst. We've got something important to tell you about a new tool that can totally transform your business. In terms of upfront investment, there is no cost,
ABC <b>News</b> airs big exposé on BMW N54 engine problems, lawsuits [w <b>...</b>
ABC News investigates BMW fuel pump problems – Click above to watch video after the jump ABC News has cottoned on to the story that BMW.
Arrowheadlines: Chiefs <b>News</b> 10/27 - Arrowhead Pride
Good morning Chiefs fans! There's some interesting Kansas City Chiefs news today. A great piece from Cory Greenwood's hometown newspaper, and more on Chambers' playing time start us off. Enjoy.
bench craft company complaints bench craft company complaints
Small Business <b>News</b>: Social Media Secrets
Pssst. We've got something important to tell you about a new tool that can totally transform your business. In terms of upfront investment, there is no cost,
ABC <b>News</b> airs big exposé on BMW N54 engine problems, lawsuits [w <b>...</b>
ABC News investigates BMW fuel pump problems – Click above to watch video after the jump ABC News has cottoned on to the story that BMW.
Arrowheadlines: Chiefs <b>News</b> 10/27 - Arrowhead Pride
Good morning Chiefs fans! There's some interesting Kansas City Chiefs news today. A great piece from Cory Greenwood's hometown newspaper, and more on Chambers' playing time start us off. Enjoy.
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