Receiving Wide Coverage ...
M&A, or Lack Thereof: It is now harder for U.S. banks to make acquisitions “than at any point in at least the last 20 years,” thanks largely to regulation, the FT reports. Aside from longstanding antitrust and accounting rules, a new impediment is the Fed’s consideration of “financial stability” in approving merger applications, as required by Dodd-Frank. Although the regulator approved PNC’s deal for Royal Bank of Canada’s U.S. retail business and Capital One’s takeover of ING Direct, the Fed “put both banks through the wringer and showed a much more conservative approach to new ‘financial stability’ responsibilities than anyone in the sector thought.” Meanwhile, JPMorgan Chase is worth less than the sum of its many parts, in the estimation of veteran banking analyst Mike Mayo. He released a note making the case for breaking up the company ahead of JPM’s investor conference scheduled for today. Quips a Times reader in the comment thread: “Great idea. Once it's broken up, there will be an immediate opportunity to improve the value of the business through consolidation.”
Processing Content
FHA Hikes Premiums: The agency will raise both the upfront and ongoing annual premiums for its mortgage insurance on April 1. The FHA needs to shore up its reserves, which defaults have severely eroded, and it also wants “to encourage private lenders to wade back into the still-struggling market,” according to the Times. But “whether the higher costs will damp demand for [FHA] mortgages remains to be seen, experts say, since many borrowers have nowhere else to turn.” Wall Street Journal, New York Times.
REO Slow-Wagon: Foreclosures are proceeding much more slowly for high-priced homes than for humbler abodes, according to a story on the front page of today’s Journal. To be precise: “Nationally, borrowers with loans of at least $1 million were in default for an average 792 days last year before banks repossessed their homes, according to an analysis by data provider Lender Processing Services. For loans under $250,000, the wait stood at an average 611 days—a difference of about six months.” The story leads with an anecdote about a former mortgage banker (!) who’s been living in a million-dollar California home (featuring “a lagoon-style pool carved into the property's natural sandstone”) without making a full loan payment for four years. The accompanying photo shows this borrower sitting on a couch with five dogs, and a Journal reader in the comment thread is incredulous that he can feed them all but can’t pay the mortgage. However, the story doesn’t mention the pets, so we don’t necessarily know they’re his. (Also, the guy’s on disability — from an illness related to his military service in Vietnam — and his son is on active duty overseas, which is one reason why Wells Fargo has delayed foreclosure. So we all really need to read deeper before jumping to conclusions.) So why do larger loans stay longer in that purgatory between notice of default and eviction? For one thing, jumbo loans tend to be bank-owned, and so aren’t subject to the strict foreclosure timelines set by Fannie and Freddie. The bigger houses are more expensive to maintain and harder to sell, the Journal notes. (Another commenter adds: “The reason that cheaper homes foreclose faster is very, very simple. … There is a legitimate market for foreclosures selling under 100k, and it’s booming. It’s driven by a big shift from homeowner to renters across the US. It has created the opportunity for ‘buy and hold as rental’ strategies. … But it doesn’t work in the $500,000+ price range in most markets.”) The Journal also points out that lenders may cut more slack for borrowers who have more assets and better prospects of finding a new job (and that conversely, sophisticated borrowers know to hire lawyers).
Meanwhile, the Journal’s “Developments” blog reports that Fannie has begun marketing foreclosed homes in bulk to prospective buyers who would be required to rent them out (perhaps supporting the aforementioned “buy and hold” thesis). California Attorney General Kamala Harris asked the Federal Housing Finance Agency to halt foreclosures by the GSEs in her state until the regulator completes a promised review of its restrictions on principal reductions, according to the Times. The New York Fed reported a drop in total outstanding consumer borrowing in the fourth quarter, due mainly to a decline in mortgage debt; a commenter on the Journal’s “Real Time Economics” blog asks: “how much of the reduction in mortgage debt was from foreclosures, short sales, and principle write-downs v. people making payments?” Finally, HSBC revealed that its U.S. consumer finance unit (the former Household) hasn’t initiated a new foreclosure in more than a year, which the FT says would make it “one of the few big US lenders that has not yet resumed foreclosures in the wake of 2010’s ‘robosigning’ scandal.”
Financial Times
Speaking of HSBC, the British bank “said it was ‘likely’ to face enforcement action — ‘which may be criminal or civil’ — from US authorities over several regulatory and law enforcement investigations. One probe is over transactions involving ‘Iranian parties.’”
New York Times
The flight to quality has driven U.S. Treasury borrowing costs down to the point where bondholders are likely suffering small losses after inflation. Now the government is considering offering bonds with negative interest rates. Yes, investors may get the opportunity to pay the government for the privilege of holding their cash. (Maybe they got the idea from Bank of New York Mellon.) But sooner or later, the Times cautions, the era of absurdly cheap funding for Uncle Sam will end, as our economy strengthens and Europe pulls back from the precipice.
Someone is auctioning a Jaguar convertible on eBay that allegedly once belonged to former MF Global CEO Jon Corzine. Perhaps this is where those missing millions have been all along.
