Bring It On

At a time when many bankers are objecting to the idea of retaining 5% of the credit risk for mortgages they securitize, Union Bank in San Francisco says it has no problem with risk retention, even on brokered loans, largely because it targets affluent borrowers.

"Union is 100% risk retention," said James Francis, an executive vice president and head of consumer lending at the $79.1 billion-asset Union. "We always held the mortgages in our portfolio so if we mess up, we don't blame anyone else."

Union's portfolio of residential mortgages rose 4.5%, to $17.6 billion, last year. It is a unit of UnionBanCal Corp., which in turn is a subsidiary of Mitsubishi UFJ Financial Group Inc. of Japan.

Like most portfolio lenders, Union is heavily skewed toward jumbo loans, primarily "5/1" hybrid adjustable-rate mortgages whose rates are fixed for the first five years and thereafter adjust annually. This suits the bank's funding mix, Francis said. About 2% to 3% of its residential loans are sold to Fannie Mae and Freddie Mac. Union also has a proprietary product known as an "Economic Opportunity Mortgage," for first-time homebuyers and minority and low-income borrowers that competes against Federal Housing Administration loans. That product makes up about 5% of its portfolio, Francis said.

Union continues to rely heavily on a cadre of 100 mortgage brokers and has beefed up its oversight of brokers by putting quality control under the aegis of its risk management department (most lenders have quality control on the production side). "A lot of our competitors have experienced credit problems from brokers and we have not. They're performing very well," Francis said.

Still, like other banks, Union is pushing for its own loan officers to sell more loans through its 400 retail branches in California, Oregon and Washington.

"We've invested heavily in having retail banking offices work collaboratively," he said.

Though foreclosures haven't peaked and housing prices are still falling nationwide, Francis expects a 25% to 30% jump in mortgage production at Union this year. By comparison, the latest forecast from the Mortgage Bankers Association calls for a 36% drop in total one- to four-family residential mortgage volume.

The Standard & Poor's Case-Shiller and CoreLogic home price indexes are forecasting continued declines in California, which is one reason Union requires a minimum 20% down payment (or equity with a refinancing) on jumbo loans.

"Those declines in home prices cut into equity and raise concerns for all of us," Francis said, adding that despite the declines few of its borrowers have resorted to strategically defaulting. "We track very closely our customers' equity."

Dubious Honor

Banks are holding their own in this year's Worst Company in America Tournament sponsored by the website

Four of the nation's top banks, JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and Citigroup Inc. are among the 32 nominees. On Wednesday began posting daily matchups for consumers to vote on until a winner is chosen. The company that wins earns the right to hoist what is known as the Golden Poo Award. (To be clear: the award is not named after the bear in A.A. Milne's children's books.)

Among the nominees, the two most represented industries are financial services and telecommunications. American Express Co. and Capital One Financial Corp. are also in the running.

Melissa Valentino, a spokeswoman for, said one reason for the strong showing by financial institutions is that "people hate banks." The site is owned by Consumers Union, which also publishes the much less facetious Consumer Reports.

Life's Too Short?

While many of Lehman Brothers' counterparties have probably given up on trying to recover billions of dollars in losses, the bankrupt investment bank is apparently sparing no expense in trying to get its own money back.

Lehman is attempting to recover $206,000 that it paid out to Bullet Communications, a corporate branding company in Chicago. According to Lehman, Bullet did not deserve to get paid because the investment bank was already insolvent at the time of the payment. (Maybe Lehman is upset that the corporate branding strategy failed.)

Stephen J. Lubben, a law professor at Seton Hall University, said Wednesday on that the complaint has three attorneys on the case, including an associate who bills out at $630 an hour. "If the defendant can spend more than 325 hours on discovery — about four weeks (using the standard 80-hour workweek in NYC) — who is going to try the case?" Lubben wrote in his blog post, entitled "The Economics of Lehman."

Commenters on the post sounded unsurprised. "Isn't that the purpose of litigation? The lawyers get all the money? See Charles Dickens' 'Bleak House,' " one person wrote.

Another said: "But see, only [Southern District] of New York and Delaware lawyers are sophisticated enough to do preference litigation in these Chapter 11 cases. So clearly, it should be worth it to the unsecured creditors, whose interests they are looking out for."

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