Editor's Note: The Morning Scan is off Monday, Presidents' Day. We'll be back on Tuesday, Feb. 21.
Receiving Wide Coverage ...
Your Tax Dollars at Work, Quietly: Could this be why the $25 billion RoboSettlement was announced without releasing an actual legal document? Citing unnamed “officials,” the FT reports that the federal Home Affordable Modification Program (and hence the taxpayer) will partially reimburse mortgage investors for the principal writedowns agreed to under the deal. That would include the five megabank servicers — the parties supposedly being punished — when they write down second liens. Funny, we don’t remember any “officials” bothering to mention this rather salient detail in any of the press conferences. Well, maybe it was in the “executive summary”? Uhm, no. So the parties to the settlement get an F for transparency rather than the D we previously thought they’d earned. According to one of the FT’s two stories on this, “state negotiators wanted the banks to modify mortgages using Hamp standards, which are seen as borrower-friendly, but did not want the banks to receive settlement credit when modifying Hamp loans. Federal officials pushed for it anyway.” The eagle-eyed Naked Capitalism blog spotted a relevant passage in the Jan. 19 draft settlement that the Journal posted on one of its blogs this week. In that iteration of the deal, if a servicer reduced $100 of principal on a HAMP loan and received $21 in incentive payments under that three-year-old program, it could claim only $79 of credit toward its settlement obligations. We guess that’s better than giving full credit, but you could also argue that giving any settlement credit on a HAMP loan results in fewer borrowers receiving aid overall — why throw two stones at one bird? Anyway, it’s unclear if that particular language survived the subsequent talks, because there’s still no final settlement document available (“coming soon” remains the status as of 8 a.m. Eastern Friday). “In certain situations,” the other FT story says, “thanks to US taxpayers, the banks could suffer minimal losses where the Hamp-assisted principal cuts occur within the first year after the foreclosure accords are finalised. Incentive payments for successful loan restructurings could thenturn a profit for the banks.” Sorry to get all raging Occupier/Tea Partier on you this morning, folks. This subsidy might not have been so infuriating if the administration had been upfront about it.
Wall Street Journal
As part of a hypothetical emergency planning exercise, Bank of America told the Fed it would be willing to sell its branches in Texas and U.S. Trust, the private wealth manager it purchased in 2007, if forced to raise capital in a stressed scenario.
Although they are living through a stressed scenario right now, European banks don’t want to sell their U.S. retail-banking businesses, which they consider “to be among their most stable operations.” Sorry, investment bankers.
More Liborgate: Canadian regulators said in a court filing that a bank, which they didn’t identify, told investigators that its traders, working with interdealer brokers, successfully manipulated the Japanese yen version of LIBOR. Anonymous sources tell the Journal the bank in question is UBS, which the FT recently fingered as being caught up in this mess.
“Goldman Sachs and Morgan Stanley have reduced their use of mark-to-market accounting.” A total $100 billion of corporate loans will now be accounted for using the historical cost method, which means the investment banks won’t have to hold much more capital against these assets.
New York Times
The Consumer Financial Protection Bureau proposed rules that would allow it to supervise debt collectors and credit reporting agencies. “The draft rule is the most significant proposal yet to emerge from the consumer agency … and the first of several efforts to police financial companies that are not banks."