After failing and being seized by the FDIC earlier this year, Indymac is now on the block to be bought within 90 days. The FDIC has taken on the role of investment bank as the bank failures mount. After the Indymac failure depleted the FDIC fund, FDIC head Sheila Bair took on a new approach, which is to broker deals for troubled banks so that they don’t have to absorb all of the losses.
The plan worked as they helped get JP Morgan Chase to take over WAMU and Wells Fargo to take over Wachovia. Indymac, WAMU, and Wachoivia were among the largest players in negative amortization Option ARMs. The other two players were Countrywide which was taken over by Bank of America and Downey Savings which was recently taken over by US Bank. Now US Bank is thought to be a top suitor for Indymac. more…
US Bank is posting $1.2b in writedowns for the fourth quarter according to WSJ. This is due largely to loan losses. It’s unclear whether this includes the losses from recently acquired Downey Savings following the FDIC’s seizure of Downey. Downey was one of the top originators of Option ARM loans, which led to their demise and ultimate acquisition by US Bank.
U.S. Bancorp will post fourth-quarter net charge-offs of $600 million to $650 million and a roughly equal amount of loan-loss provisions, the bank’s chief executive, Richard Davis, said Thursday. more…
Downey and Two Other Banks Seized by FDIC
Over the last few years, Downey Savings bought its share of loans from brokers. They were seized Friday.
They, along with PFF Bank & Trust (Pomona, CA) were taken over by U.S. Bancorp. Downey is the third largest bank to fail this year, and US Bancorp has agreed to change the terms of mortgages taken out by Downey and PFF customers, in a program similar to the one the Federal Deposit Insurance Corp is using for mortgages held by IndyMac. The FDIC agreed to share losses on the acquired loans with the bank’s U.S. Bank unit. U.S. Bank had 2,556 branches before this transaction, of which 353 were in California. Downey has 170 branches in California and five in Arizona while PFF Bank has 38 branches in California. So far this year, 22 banks have failed, the most since 1993 when 50 banks failed. more…
Downey Financial, a Newport CA based savings and loan, was seized by the FDIC Friday and sold to US Bank in a deal the FDIC brokered. As of October 22, Downey’s loans no longer collecting interest were 15.7 percent of bank assets. Most of these bad loans were from their portfolio of about $7 billion in negative amortization Option ARMs. After WAMU, Wachovia and Countrywide, Downey was the fourth largest seller of Option ARMs. Indymac was the fifth. All firms have been brought down by these loans.
In the same deal US Bank also took over PFF Bank & Trust. Between the two takeovers, they said they’re acquiring about $12.8 of assets and $11.3 of liabilities. The Minnesota bank will more than double its California presence after adding 170 Downey branches in California plus five in Arizona, and also 38 PFF Bank branches in California. US Bank never lent Option ARMs, and retains most of its loans in its portfolio. more…
Why couldn’t I have been born a Saudi prince? Then I could influence the supply and demand of a commodity. Crude oil prices hit a 13-month low, and so now OPEC will probably announce production cuts at a meeting next week. Under the heading, “nothing goes up, or down, forever”, oil has tumbled more than 50% since reaching a record $147.27 in July due to falling demand. Frankly, many had hoped that high oil prices would continue to help conservation efforts and improved alternative fuel and energy solutions. Today oil is up $3/barrel to $73/barrel. Where are my Escalade keys?
Ginnie Mae Background
It is good to keep in mind that the reserve requirement for Ginnie Mae securities is 0. 0 with a “z”. Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration. Their insured bonds have always had the explicit backing of the federal government, as opposed to Fannie and Freddie, who guarantee bonds backed by mortgages that have no government guarantee up until recently. As many originators know, the FHA was created in the 1930’s to help borrowers who couldn’t get conventional home loans because they had low credit scores or limited resources. A bank or other institution bundles a group of FHA mortgages and sells a bond backed by mortgages in the pool to investors, and Ginnie Mae insures the bond, for a fee. (It doesn’t own any bonds itself.) Borrowers make their payments to the servicer, who in turn remits the payment to Ginnie Mae, which passes them through to investors. more…
Another week, another lender exits the mortgage brokerage (or wholesale) business. Downey Savings has just announced that they will shut down their wholesale division, and all loans must clear their pipeline in 30 days.
“Do not corner something that you know is meaner than you.” And is there anything meaner than me when I feel I was on the bad side of a trade? Last week I bought some Krispy Kreme stock for my daughter. This week it was lower! So I called Charles Schwab to complain, and ask that they use this week’s price instead of last week’s. I couldn’t believe that they wouldn’t do it! The clerk told me that I needed to explain to my daughter, “That wasn’t how it worked”. So I told the clerk that loan agents want to do that all the time when they lock a loan and then rates go down: they tell us that the borrower wants the lower rate. He didn’t buy it.
Along the lines of fallout, to control costs Provident Funding stated that, “When we commit a fixed price to you for a specific time period, we must honor that price. We take interest rate risk to guarantee to you a price we may not be able to secure in the market when we sell your loan. Managing that risk can be costly if an account fails to keep their commitment to close the loan with us. Logically then, Provident Funding places a great deal of importance on closing every locked loan within the agreed upon time period so we monitor our accounts locked fallout. Fallout = loans that an account locks and subsequently does not fund with us.” Provident proceeded to notify brokers who had poor pull through that they were terminating their relationship. Makes sense! more…
“I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.”
— Kansas City Fed President Thomas Hoenig in an August 13 speech justifying why he's been the only FOMC member to vote against low rates thro
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