Receiving Wide Coverage ...
Collections Crackdown: The Federal Trade Commission announced its second-biggest settlement with a debt collection agency. Asset Acceptance agreed to pay $2.5 million to settle allegations that it strong-armed consumers into paying debts that had expired under statutes of limitation. That’s a widespread industry practice, according to the government, and a Justice Department official tells the Journal that “more cases are on the way." Wall Street Journal, New York Times
Foreclosuregate Updates: The Journal reports that negotiators in the multistate talks with mortgage servicers have set Friday as the official deadline for the holdout attorneys general to join the settlement. The papers also report that Joseph Smith, the North Carolina banking commissioner, has been tapped to serve as the monitor for the now-apparently-imminent-for-real settlement. Wall Street Journal, Washington Post
Ripples Across the Pond: How is the European crisis affecting banks here? The papers have somewhat divergent takeaways from the Fed’s fourth-quarter senior loan officer survey. The Journal leads with the observation that credit standards (which had been “fairly tight”) changed little in the face of stronger demand. Headline: “Euro Crisis Has Hurt U.S. Loans.” The FT, though, emphasizes the benefit to domestic banks as European banks pulled back from the U.S. market. Headline: “US banks gain from reduced European competition.” We scan, you decide. Wall Street Journal, Financial Times
The ‘Floater’ Surfaces: Two years ago, traders at Freddie Mac were purchasing “inverse floater” securities carved out of CMOs, an investment that would suffer if homeowners prepaid their mortgages. At the same time, the government-owned company was tightening its underwriting criteria, making refis harder to obtain. The trades were revealed in a joint investigative story published yesterday by the nonprofit news organizations ProPublica and NPR. The story charged that Freddie’s positions in the inverse floaters aligned its interests against those of the homeowner — the officials who tightened refi guidelines were helping the company to make money on the floaters. Though perhaps inadvertently: Freddie Mac said its traders were “walled off” from the people who make decisions about what kind of loans the company will buy or guarantee, and the ProPublica-NPR muckrakers turned up no evidence to the contrary. Still, when viewed in isolation, the trades were, as Matt Levine wrote at DealBreaker, “at least awkward given Freddie’s whole role as, whatever, government guarantor of homeownership.” (The “in isolation” part is important — we’ll get back to that.) We at the Morning Scan doubt there was any Freddie-wide conspiracy to profit by “trapping” the homeowner in higher-cost mortgages. A more plausible interpretation would be that this is the umpteenth example of the maddening tension between different public policy goals — saving money for the GSEs' shareholders (a.k.a. taxpayers) versus supporting the housing market — that has defined their conservatorship. The story got so much buzz that the Federal Housing Finance Agency, Freddie’s conservator, was compelled to put out a statement. While the ProPublica-NPR report chided Freddie for making these “bets” at a time when it was supposed to be shrinking the portfolio, per the terms of its bailout, the FHFA said the CMOs were actually created to help slim down Freddie’s holdings. This makes some sense to us. As the always-thoughtful Levine writes, “Freddie may have kept the refinancing risk because it was the hardest to sell. … [I]t gets harder to quantify when politicians want to push refinancing,” so “buying refinancing risk from Freddie becomes less appealing for a private investor. If I stump up a million bucks for fixed-rate Freddie mortgages at 6%, and the next day Freddie says ‘everyone gets a free refinancing!,’ Freddie has cost me a lot of money.” The FHFA also noted that the inverse floaters made up a small piece of Freddie’s portfolios. And here’s where the “in isolation” part comes in: In a characteristically trenchant critique of the ProPublica-NPR piece, Yves Smith at “Naked Capitalism” points out that Freddie and Fannie Mae “have long been engaged in a massive program of interest rate hedging. The implication is that it is meaningless to look at the inverse floaters in isolation; you’d need to look at the composition of all of Freddie’s exposures to reach any conclusions as to what sorts of wagers, if any, they are taking. Looking at one position in isolation is meaningless.” (Yes, the italics and boldface are Smith’s, but we’re not going to poke fun at her excessive use of typographical devices this time; after we did so last week, some of Smith’s devoted readers accused us of “besmirching” her and being “misogynistic.” Nor will we bother to point out that her post on the ProPublica article misuses the phrase “beg the question.” The rigor of Smith's analysis always shines through.) All these “buts” aside, the Treasury is bothered enough by the trades to “investigate” the ProPublica story’s charges, a White House spokesman tells the Times.
Wall Street Journal
MasterCard is joining competitor Visa in pushing merchants in the U.S. to upgrade to EMV chip card terminals, which are standard in other countries.
New York Times
The inimitable analyst Christopher Whalen is starting an investment fund focused on small and midsize banks, putting into practice his long-running thesis that the best bets are old-fashioned lenders without any involvement in trading or derivatives mishegoss.
Need a schadenfreude fix? Jon Corzine is trying to sell his penthouse apartment in Hoboken, N.J. Asking price: $2.9 million. (Which word gets you more hits on the web these days – "Corzine” or “penthouse”?)