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from Financial Regulatory Forum:

UK launches formal probe into Goldman Sachs

   LONDON, April 20 (Reuters) - Britain's financial regulator started a formal enforcement investigation into Goldman Sachs <GS.N> on Tuesday, four days after U.S. regulators filed a fraud case against Wall Street's biggest investment bank.
   "Following preliminary investigations the Financial Services Authority (FSA) has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations. The FSA will be liaising closely with the SEC in this review," the UK regulator said in a short statement.
   The U.S. Securities and Exchange Commission has accused Goldman of hiding from investors the fact that a prominent hedge fund manager was betting against a subprime mortgage product that he helped create. [ID:nN19193616]
   (Reporting by Steve Slater; editing by Douwe Miedema) ((steve.slater@reuters.com; +44 207 542 4367; Reuters Messaging: steve.slater.reuters.com@reuters.net))
 Keywords: GOLDMAN/    
  
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 Tuesday, 20 April 2010 10:14:14RTRS [nLDE63J0TP] {EN}ENDS

from Financial Regulatory Forum:

BREAKINGVIEWS-How Goldman Sachs fell out with the SEC

   By Nicholas Dunbar -- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
   LONDON, April 20 (Reuters Breakingviews) - In December 2000 I received an email from the Goldman Sachs <GS.N> press office in New York, nominating the firm for Risk magazine's "Risk Manager of the Year" award. Central to the pitch was how the Wall Street bank had run a boot camp for its supervisors at the U.S. Securities and Exchange Commission, training them in concepts like value-at-risk and derivatives hedging.
   It was a win-win move, both sides told me. Goldman ensured its regulator was up to date with financial innovation and earned brownie points for its efforts. By offering a "light-touch" regime for its charges, the SEC hoped to prevent the securities firms under its purview from basing their fast-growing over-the-counter derivatives operations in London.
   I was technical editor of Risk at the time and I remember feeling a sense of wonder at the regulator's willingness to take lessons from one of the firms it policed. But I also accepted that Goldman was motivated by good citizenship. If derivatives were coming to Wall Street, why shouldn't Wall Street's best firm join forces with its watchdog to ensure that everything was done properly? The Risk Manager of the Year Award for 2001 went to...Goldman Sachs.
   But the SEC did not realise how innovations like the credit default swap would later transform the markets it regulated. Its mission of ensuring market fairness was to collide head-on with new business imperatives driven by the "derivativisation" of the credit market.
   Like many, the SEC was anchored in an age-old understanding of markets where securities are originated, bought and sold. Derivatives linked to securities fundamentally changed this cosy universe by creating a synthetic market, a world of securities that imitate and subvert reality.
   The business of chopping and bundling U.S. mortgages into bonds, and then into collateralised debt obligations (CDOs), was already a weakly regulated market riddled with conflicts. But it was nevertheless a cash market. The fact that every such bond uniquely connected investors to mortgage borrowers constrained the market's growth, in turn curbing the potential for damage.
   During 2004 and 2005, the industry found a way of expanding the market to cater to growing investor demand -- "synthetic" securitisation. It was a critical evolution. Whereas a standard CDO was a package of real mortgage securities that were themselves composed of real mortgages, a synthetic CDO was really just a bet between counterparties.
   When synthetic CDOs were first invented, the short position -- effectively a form of credit insurance -- was typically taken by commercial banks seeking to hedge corporate loan portfolios. Regulators applauded this innovation as making banks safer.
   But this was not the case with synthetic subprime CDOs. The short position was not typically taken by investors with an existing long position in subprime mortgages who were seeking to hedge against losses they in fact hoped to avoid. It was taken by speculative investors actively betting on losses materialising.
   Goldman, like other banks, operated in all segments of the market -- packaging home loans into mortgage-backed securities and putting these into CDOs, as well as trading synthetic CDOs.
   It's not clear that investors on the long side of these synthetic trades really understood what was different about a synthetic subprime CDO. In a cash CDO, investor confidence comes from the knowledge that almost everyone else has skin in the game: the bank arranging the deal, and especially the CDO equity investor who takes the most risk. With a synthetic CDO, it's a hall of mirrors. Not only are the underlying assets matched with short positions, but each slice of the CDO can also be shorted.
   The key issue with Goldman is timing. After first experiencing losses in subprime in December 2006, the bank started hedging its exposure, and by March 2007 (part of the bank's second quarter), the bank began shutting down its mortgage and cash CDO origination business, at the cost of several billion dollars.
   However, Goldman could still make money in subprime by matching investment clients via synthetic CDOs, with the difference being that the driving force was clients seeking to profit from impending meltdown. This is the moment that Fabrice Tourre, a Goldman vice-president, created the now infamous Abacus deal with hedge fund whizz John Paulson. And the timing may help explain why the SEC's fury is so apparent in the complaint filed last week against Tourre and Goldman.
   Goldman's defence against the SEC suggests that investors like IKB were fully aware of its subtle transformation from cash CDO underwriter to derivative intermediary, and were asking Goldman for new investment opportunities. By trading default swaps to build Abacus, Goldman ended up losing money. But the SEC seems to be arguing that in a world that had moved away from traditional underwriting, arrangers needed to be much sharper about the explanations they gave investors about synthetic CDOs.
   The SEC may have other reasons for feeling that Goldman had forgotten what the regulator expected of a firm at the top of the Wall Street hierarchy. When Goldman taught SEC staff about derivatives and risk management almost a decade ago, there was an implicit pledge that it would keep the SEC educated about market developments. But it was not until Bear Stearns bailed out two hedge funds in July 2007 that the regulator really learned about the transformation of the subprime CDO market and the explosion of synthetic structures, according to people familiar with the watchdog.
   Goldman may protest that it had no obligation to share tentative risk management insights with its regulator. But the bank shouldn't be surprised that the SEC is now rubbing the firm's nose in the mess its bankers thought they were so clever in avoiding.
   
   Nicholas Dunbar's book, 'The Devil's Derivatives' will be published later this year.
   -- Reuters Take a Look: [ID:nN16131161]
   -- Graphics:
   CDS underwriters 20067/07 http://r.reuters.com/tyg48j http://r.reuters.com/vak48j The case against Goldman Sachs http://graphics.thomsonreuters.com/10/04/US_GSAB0410.gif
   
   (Editing by Chris Hughes and David Evans)
 Keywords: BREAKINGVIEWS GOLDMAN/SEC
  
Tuesday, 20 April 2010 09:59:49RTRS [nLDE63I1LX] {EN}ENDS

from Financial Regulatory Forum:

Rep Frank says Goldman case helps financial reform

    WASHINGTON, April 19 (Reuters) - U.S. Representative Barney Frank said on Monday that securities regulators' fraud case against Goldman Sachs <GS.N> increases the chance that financial reform will pass.
   Frank, chairman of the House Financial Services Committee, also said he does not believe all 41 Republicans in the Senate will vote against the financial reform bill.
   "It reinforces the need for much of what we were doing" on financial reform, Frank said on CNBC Television. On Friday, the U.S. Securities and Exchange Commission charged Goldman with fraud for its marketing of a subprime mortgage product.
   Frank also said it is not essential to create a standing fund of capital to dismantle troubled financial firms, responding to Republican objections that it would amount to a bailout fund. (Reporting by Karey Wutkowski; Editing by Lisa Von Ahn) ((E-mail:karey.wutkowski@thomsonreuters.com +1 202 898 8374)) Keywords: FINANCIAL REGULATION/FRANK 
  
Monday, 19 April 2010 12:15:18RTRS [nWEN2887  ] {C}ENDS

from Financial Regulatory Forum:

BREAKINGVIEWS-Goldman’s CDO investors: fools or victims?

   By Hugo Dixon and Richard Beales
   LONDON/NEW YORK, April 19 (Reuters Breakingviews) - Were the investors who lost $1 billion by buying a fearfully complex product sold by Goldman Sachs <GS.N> in the dying days of the credit boom fools or victims? That's the key distinction on which the U.S. Securities and Exchange Commission's fraud charges, which roiled the investment bank when they were unveiled on Friday, hinge.
   Back in 2007, Goldman sold investors a $1 billion synthetic collateralised debt obligation (CDO). A CDO is a pool of securities, in this case 90 subprime residential mortgage backed securities. A synthetic CDO is based on a pool of derivatives that reference securities rather than the securities themselves.
   The SEC's key allegation is that Goldman marketed this synthetic CDO to investors without telling them that Paulson & Co, the hedge fund, had been involved in selecting the securities that were subject to the bet. What's more, it didn't tell investors -- or ACA, an independent firm that officially selected the underlying securities -- that Paulson was simultaneously placing bets with Goldman that these securities would fall in value.
   Goldman's defence has four elements. First, that it lost $90 million on the transaction. This shows, it says, that "we did not structure a portfolio that was designed to lose money".
   However, the firm has not said how it lost the $90 million. Did it intend to retain a long position or did it just get stuck with it? The answer to the question is crucial in judging the defense. The SEC has produced an email from Fabrice Tourre, the Goldman vice-president who handled the deal, in which the self-christened "fabulous Fab", said: "The whole building is about to collapse anytime now". This, at least, suggests that Goldman wasn't gung-ho about the market. But on the other hand, the fact that the firm went long at all does undermine suggestions it knew the CDO would lose money.
   Goldman's second line of defence is that "extensive disclosure was provided". It points out that these investors also understood that a "synthetic CDO transaction necessarily included both a long and short side". The suggestion is that these were big boys who should have done their own homework.
   But the SEC alleges a key fact - that Paulson was both betting against the CDO and heavily involved in selecting the underlying securities - was omitted.
   This is where Goldman's third defence kicks in. It admits that Paulson was involved in discussions about the selection but says this was "entirely typical of these types of transactions". What's more, ACA - as well as selecting the securities - was exposed to the transaction to the tune of $951 million. As such, according to Goldman, "it had an "obligation and every incentive to select appropriate securities." Paulson, which has not been charged, also says ACA had authority over the selection.
   But again there are counterpoints. For a start, Paulson's involvement, according the SEC, was pretty intimate. In one email, the Fabulous Fab said the portfolio had been "selected by ACA/Paulson". In another, he says "I am at this ACA Paulson meeting, this is surreal" - a comment that raises the possibility that this type of meeting wasn't typical.
   The SEC also says Goldman knew that a key investor IKB, a bank which ultimately had to be rescued by the German state, would not invest in synthetic CDOs unless there was an independent agent selecting the underlying securities. The regulator further alleges that ACA believed that Paulson was going to be a long investor in the synthetic CDO. As such, ACA arguably did not mind when Paulson helped it select the underlying securities.
   This is where Goldman's final line of defence -- so far -- comes in. It says it "never represented to ACA that Paulson was going to be a long investor". The SEC, however, puts a different gloss on things. It has dug up an email from ACA to Goldman which makes clear that it believed Paulson was going long. The SEC says the Fabulous Fab knew or was reckless in not knowing that ACA had been misled about the matter.
   Goldman's defenders reckon the timing of the charges was motivated more by political considerations than the completeness of the SEC's case. Be that as it may, the SEC and Goldman are now set to fight this out in court. But even if the charges don't stick, they will be expensive in terms of time, money and reputation for the investment bank.
   
   CONTEXT NEWS
   -- The U.S. Securities and Exchange Commission filed charges against Goldman Sachs on April 16, accusing the bank of securities fraud related to the structuring and marketing of a synthetic collateralised debt obligation linked to subprime residential mortgage-backed securities.
   -- SEC releases: http://link.reuters.com/qyx38j
                    http://link.reuters.com/ryx38j
                    http://link.reuters.com/syx38j
   -- Goldman releases: http://link.reuters.com/tyx38j
                        http://link.reuters.com/vyx38j
   -- Paulson statement: http://link.reuters.com/baz38j
   -- Reuters Take a Look [ID:nN16131161]
   
   RELATED STORIES
   Trimming hedges [ID:nLDE63F1ZH]
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   Back on the beat  [ID:nLDE63F1M2]
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   -- For previous columns by the author, Reuters customers can click on [DIXON/]
   (Editing by Hugo Dixon and Aliza Rosenbaum)
   ((hugo.dixon@thomsonreuters.com))
 Keywords: BREAKINGVIEWS GS/INVESTORS
  
Monday, 19 April 2010 09:22:51RTRS [nLDE63I0G9] {EN}ENDS

from Financial Regulatory Forum:

UK’s Brown wants investigation into Goldman Sachs

   By Adrian Croft
   LONDON, April 18 (Reuters) - Prime Minister Gordon Brown said on Sunday he wanted Britain's financial watchdog to investigate U.S. bank Goldman Sachs <GS.N> after it was charged with fraud by U.S. regulators.
   Brown, who is fighting an election campaign, piled pressure on Wall Street's most powerful bank, accusing it of "moral bankruptcy" over reported plans to pay big bonuses.
   Goldman Sachs was charged with fraud by the U.S. Securities and Exchange Commission (SEC) on Friday over its marketing of a subprime mortgage product. Goldman has called the U.S. lawsuit "completely unfounded" and has vowed to defend itself.
   "I want a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened," Brown told BBC television.
   "There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority (FSA) to investigate it immediately," he said.
   "I know that the banks themselves will be considering legal action," Brown said, apparently referring to European banks that lost money on the product marketed by Goldman Sachs.
   "We will work with the Securities and Exchange Commission in the United States," he said.
   A spokeswoman for the FSA declined comment. "We would never confirm or deny we are investigating anybody," she said.
   A person familiar with the matter said the FSA was liaising with the SEC, but currently viewed the investigation as primarily a U.S. matter.
   Brown's Labour Party lags in the polls before the May 6 election and a tough stance against bankers is popular with voters angry about high bonuses paid by banks, particularly those that received state bailouts during the financial crisis.
   The FSA is operationally independent and the British government cannot order it to launch an investigation.
   
   BIGGEST CRISIS
   The civil lawsuit Goldman faces in the United States is the biggest crisis in years for the company that emerged from the financial meltdown as Wall Street's most influential bank.
   Goldman shares slid 12.8 percent on Friday, wiping out more than $12 billion of market value.
   According to the SEC complaint, Britain's Royal Bank of Scotland <RBS.L> paid Goldman $840 million in August 2008 to unwind a position built up by ABN Amro, some of whose operations RBS had acquired.
   RBS is 84 percent owned by the British government after a series of bailouts during the financial crisis.
   It declined to comment on whether it was considering legal action against Goldman Sachs.
   Brown also attacked Goldman Sachs over a report in Britain's Sunday Times newspaper that the bank planned to pay its staff more than 3.5 billion pounds ($5.6 billion) for three months' work, including 600 million pounds to 5,500 London-based staff.
   "I am shocked at this moral bankruptcy. This is probably one of the worst cases that we have seen," he said.
   "It makes me absolutely determined we are going to have a new global constitution for the banking system ... a global financial levy for the banks, that all countries that are major financial centres pay, and we quash remuneration packages such as at Goldman Sachs," he said.
   "If this is proved to be the case, they have got to return that money. I cannot allow this to continue," he said.
   Goldman Sachs declined to comment on the level of any bonuses, which would not be paid until the end of the year. (Additional reporting by Tim Castle and Mark Potter; editing by Elaine Hardcastle) ((tim.castle@reuters.com; +44 207 542 7947; Reuters Messaging: tim.castle.reuters.com@reuters.net)) operationally
 ($1=.6233 Pound)
 Keywords: BRITAIN ELECTION/GOLDMAN 
  
Sunday, 18 April 2010 13:36:26RTRS [nLDE63H0AA] {C}ENDS

from Financial Regulatory Forum:

Top Republican senator, White House clash on financial reform

Photo

McConnell says 'No'

McConnell says 'No'

   By Kevin Drawbaugh
   WASHINGTON, April 13 (Reuters) - The White House said "yes we can" on financial regulatory reform on Tuesday, while the top Republican in the U.S. Senate said "no we won't."
   A bare-knuckles fight is coming in days ahead as the Obama administration and congressional Democrats push for a crackdown on banks and capital markets against Republican opposition. With lawmakers recently returned from a two-week recess, a final vote on Senate legislation is near.
   The shape and profitability of the financial services industry for years to come hangs in the balance, as well as the U.S. economy's ability to withstand future financial crises.
   A White House official said momentum for regulatory reform seemed to be building. "We hope Republicans in Congress will join us in a constructive conversation about how to move a strong bill forward," White House spokeswoman Amy Brundage said in a statement.
   (For a full story on the White House official's comments, double-click on [ID:nN1314851])
   But that upbeat assessment clashed with a defiant message delivered by Senator Mitch McConnell, the chamber's top Republican.
   "We must not pass the financial reform bill that's about to hit the floor. The fact is, this bill wouldn't solve the problems that led to the financial crisis. It would make them worse," said McConnell on the Senate floor.
   "The American people have been telling us for nearly two years that any solution must do one thing -- it must put an end to taxpayer-funded bailouts for Wall Street banks.
   "This bill not only allows for taxpayer-funded bailouts of Wall Street banks; it institutionalizes them," he said.
   (For a full story on McConnell's remarks, double-click on [ID:nN13235415])
   Though Republicans oppose a number of provisions in the Democrats' proposed reforms, opposition is turning to measures designed to address the problem of firms seen as too-big-to-fail because of the risks they pose to the financial system.
   Republicans, in particular, oppose a measure that would allow regulators to borrow money from the Treasury -- that means taxpayers -- to help finance the seizure and dismantling of large, troubled firms.
   President Barack Obama is scheduled to meet on Wednesday with congressional leaders from both parties, including McConnell and Senate Democratic Leader Harry Reid, to discuss the Democratic bill expected any day in the full Senate.
   "I do not think there is a tenable position that anyone could take ... that says we don't need to fix the system, to reform the system," U.S. Treasury Secretary Timothy Geither said on Tuesday in a panel discussion.
   "Look at the devastation caused by the financial crisis. Look at the damage it did to the lives of millions of Americans ... what it did to American businesses," he said.
  
   REGULATION LITTLE CHANGED
   Yet, government oversight of banks and markets has changed little more than two years since the near collapse of former Wall Street giant Bear Stearns ushered in the worst financial crisis in decades that tipped the economy into a deep recession.
   The House of Representatives approved a sweeping reform bill in December. It embraced most of the many proposals Obama issued in mid-2009. But the slow-moving Senate has yet to act on a 1,336-page bill offered by Senator Christopher Dodd.
   (For a Factbox on major U.S. financial regulation reform proposals, double-click on [ID:nN12191809])
   The Senate banking committee that Dodd chairs approved his bill last month, but did so without any Republican support. Dodd will need some Republican backing to get his measure through the full Senate. A final vote is likely this month or next.
   "It's going to be a fight," Senator Richard Durbin, the No. 2 Democrat in the chamber, said in floor remarks.
   He said the financial firms that are working to block reforms are the same ones that piled up excessive risks and leverage in their "excitement and greed" during the real estate bubble that broke in 2007-2008, precipitating the crisis.
   The debate in the Senate heated up as investigations revealed damaging details about the practices of financial firms leading up to the financial crisis.
   Democrats are betting that, as investigations continue, bankers' already deep political unpopularity will worsen, making Republicans increasingly reluctant to stand too close to them in the reform fight ahead of November's elections.
  
   SENATOR LEVIN BLASTS WAMU
   Democratic Senator Carl Levin, chairman of an investigative subcommittee, on Tuesday accused former managers of Washington Mutual -- which was the largest U.S. savings and loan when it was seized by regulators in September 2008 -- of creating a "mortgage time bomb" in their quest for profits.
   He said WaMu made hundreds of billions of dollars in shoddy loans. Many of them lacked documentation or were based on fraudulent paperwork and were packaged and sold to investors as mortgage-backed securities, Levin said at a hearing.
   WaMu's former chief executive, Kerry Killinger, replied that regulators unfairly seized the thrift just as it was working its way through the crisis. JPMorgan Chase & Co <JPM.N> bought WaMu's banking operations from regulators for $1.9 billion.
  
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   * CFTC energy limits could hurt small exchanges-ICE, double-click on [ID:nN13238656])
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   (Additional reporting by Caren Bohan, Alister Bull, Glenn Somerville, Emily Kaiser, Rachelle Younglai, Dan Margolies, ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax))) Keywords: FINANCIAL REGULATION/ 
  
 . Keywords: FINANCIAL REGULATION/ 
  
Tuesday, 13 April 2010 23:15:37RTRS [nN13258546] {C}ENDS

from Financial Regulatory Forum:

U.S. Treasury seeks to protect federal benefits – WSJ

    April 14 (Reuters) - The U.S. Treasury department will release new rules on Wednesday that would prevent banks from seizing a borrower's social security to recover unpaid debt, the Wall Street Journal said. 
   The proposed new rules, to be published in the Federal Register, will require banks to check if the borrower has received any direct deposits of federal benefits within the past 60 days, the Journal said.
   In case the borrower had received a federal benefit then the new rule would require the banks to establish a protected amount equal to the sum of the benefits deposited, the paper said.
   For example, if a person had two federal benefit deposits of $1000 each, then the banks must establish a protected amount of $2000, even if the person had spent the benefits, the Journal said.
   Any amount above the protected amount would be handled according to the garnishment rules of each state, the newspaper said.
   Garnishment is a debt collection practice that involves a bank seizing the assets of a borrower in case the debt remains unpaid.
   The U.S Treasury could not be immediately reached for comment by Reuters outside regular U.S. business hours. (Reporting by Sakthi Prasad in Bangalore ) ((sakthi.prasad@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: sakthi.prasad.reuters.com@reuters.net))
 Keywords: USTREASURY/NEWRULE
  
Wednesday, 14 April 2010 08:44:42RTRS [nSGE63D07U] {C}ENDS

from Financial Regulatory Forum:

U.S. watchdog says mortgage modifications too slow

    By Corbett B.Daly
   WASHINGTON, April 14 (Reuters) - An Obama administration program to help struggling homeowners modify their mortgages is not moving fast enough to keep up with the growing number of foreclosures, a U.S. congressional watchdog said on Wednesday.
   And even if borrowers are helped in the short-run, many troubled borrowers will likely end up re-defaulting on their new loan down the road, said a report released Wednesday by the Congressional Oversight Panel of the Troubled Asset Relief Program.
   "The re-defaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures," the report said, referring to the Obama administration's $75 billion Home Affordable Modification Program.
   The panel noted that 2.8 million homeowners received a foreclosure notification last year.
   Weakness in the housing market and high unemployment continue to weigh on the U.S. economic recovery, though consumer confidence is recovery.
   The White House announced major changes to its homeowner assistance program last month, expanding it to include incentives for borrowers who temporarily suspend payments to unemployed workers.
   And they added subsidies for lenders to write-down some principal from the loan for borrowers who owe more than their home is worth.
   The panel, which had advocated those measures in earlier an earlier report, praised those moves but said they are likely too late.
   "Foreclosures prevented by HAMP will still likely be eclipsed by the number of actualforeclosures filed in any given year of the program's existence," the report said.
   Treasury spokeswoman Meg Reilly said the program's progress has already exceeded the figures used in the report.
   She noted that the HAMP program has more than 1.4 million borrowers in temporary modifications through March and 230,000 of those borrowers have had loan modifications made permanent.
    That's up from about 1 million temporary modifications and 170,000 permanent modifications through February.
   The administration has said it hopes to help 3 to 4 million homeowners by 2012,though the watchdog said "the goal itself seems small in comparison to the magnitude of the problem."
   The report said it is too soon to say for certain how many borrowers would end up re-defaulting, though it called the existing data "worrisome."
   The panel predicted Treasury would only prevent about 276,000 foreclosures, or less than 4 percent, of the 6 million loans that are behind on payments by 60 days or more through February.
   The total number of loans past due by more than 60 days through March has not yet been published.
   "When the total picture of HAMP is taken into account, low conversion rates plus potentially high redefault rates mean that the total number of sustainable, permanent modifications generated by HAMP will be quite limited," the report said.
 (Editing by Kim Coghill)
 ((corbett.daly@thomsonreuters.com; +1-202-310-5487)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
    * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com))
Keywords: USA HOUSING/MODIFICATIONS
  
Wednesday, 14 April 2010 05:01:13RTRS [nN13116665] {C}ENDS

from Financial Regulatory Forum:

U.S. bank chief mobbed by angry borrowers

    WASHINGTON, April 13 (Reuters) - The mortgage chief of the United States' second largest bank was mobbed by angry borrowers on Tuesday after he invited customers to speak to him if they feared foreclosure of their homes. 
   The JPMorgan Chase & Co <JPM.N> executive was at a congressional hearing in Washington when a lawmaker asked him who mortgage borrowers could turn to if they felt his bank's employees were not helping them hold onto their homes.
   "Come to me," said David Lowman, chief executive for JPMorgan Chase & Co's home mortgage business in response to the question from Massachusetts Democrat Barney Frank.
   Minutes later, around 50 borrowers burst from the audience and presented Lowman with a a 6-page document alleging his bank reneged on a pledge to help struggling homeowners.
   The activist who organised the protest said Lowman did not want to talk and left the hearing.
   "He ran. He ran like a dog with its tail between his legs," said Bruce Marks of the Neighborhood Assistance Corporation of America (NACA), which helps homeowners avoid foreclosure. "He was scared to death because he doesn't really want to talk to homeowners."
   The incident is symptomatic of frustrations among U.S. homeowners as defaults and foreclosure filings dominate the housing sector more than three years after the property bubble began to deflate.
    NACA organizes events where borrowers try to get loan modifications with lenders. The group says JPMorgan signed up to the NACA program but dropped out in December.
   A JPMorgan spokesman declined to comment on the complaint.
   (Reporting by Corbett Daly, additional reporting by Al Yoon; writing by Andrew Hay)
   ((corbett.daly@thomsonreuters.com; +1-202-310-5487)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
    * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com)) Keywords: USA HOUSING/ACTIVISTS
  
Wednesday, 14 April 2010 00:29:09RTRS [nN13107113] {C}ENDS

from Financial Regulatory Forum:

Ex-Washington Mutual CEO cries foul; risky loans slammed

   By Dan Margolies
   WASHINGTON, April 13 (Reuters) - The former chief executive of Washington Mutual said banking regulators seized it unfairly in 2008 as the Seattle-based savings and loan fell outside an inner circle of banks that were "too clubby to fail."
   But the chairman of the Senate's Permanent Subcommittee on Investigations said Washington Mutual had created a "mortgage time bomb" by writing risky loans and selling them off to investors in its quest for profit.
   Former WaMu CEO Kerry Killinger testified on Tuesday that, while the company suffered from rising loan losses, it was working its way through the financial crisis and would have benefited from measures announced within days of its seizure in the biggest bank failure in U.S. history.
   "It was with great shock and sadness that I read of the seizure and bargain sale of Washington Mutual on Sept. 25, 2008," he said. JPMorgan Chase & Co <JPM.N> bought WaMu's banking operations from regulators for $1.9 billion.
   <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
   Reuters Breakingviews                      [ID:nLDE63B1LD]
   ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
   Killinger, who was paid more than $100 million between 2003 and 2008, was forced out just weeks before WaMu was seized.
   In October of 2008, U.S. officials announced measures including an increase to $250,000 for insured deposits and a federal guarantee of bank debt.
   Killinger also complained that WaMu had been excluded in July 2008 from a list of Wall Street bank stocks protected from abusive short-selling, and was cut out of crisis discussions between Wall Street executives and policy leaders.
   "For those that were part of the inner circle and were 'too clubby to fail,' the benefits were obvious," Killinger said.
   But Senator Carl Levin, the chairman of the subcommittee, blasted the bank's management for ignoring warning signs that bank employees were making shoddy loans to high-risk borrowers.
   Levin concluded the hearing saying Washington Mutual under Killinger became "just a conveyor belt that dropped into the stream of commerce literally hundreds of billions of dollars of mortgages that were substandard and dubious."
  
   TIME BOMB
   The Michigan Democrat said WaMu contributed to the financial crisis by selling its loans, which were packaged into securities and sold to investors.
   "To keep that conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb," Levin said.
   He told reporters on Monday that he would leave it up to the U.S. Department of Justice whether any executives at Washington Mutual should be charged with criminal wrongdoing.
   A staffer on the subcommittee, asked on Tuesday if any referrals would be made by the committee to the FBI, said a decision had not been made.
   Killinger maintained an easy-going demeanor even as he was confronted with internal emails urging the sale of delinquent loans to investors, and evidence that employees responsible for fraudulent loans were rewarded with paid vacations.
   Levin repeatedly asked him if he was troubled by the emails. Finally, Killinger grudgingly responded, "I would have inquired more."
   "Well, I guess that's progress," Levin muttered.
  
   RISK OFFICER
   James Vanasek, WaMu's chief risk officer from 1999 to 2005, told the subcommittee that the mortgage industry generally began taking on more risk ahead of financial crisis.
   The dangers were "recognized by some but ignored by many," said Vanasek, who faulted a broad swath of industry players including loan originators, lenders, regulators, rating agencies and investment banks.
   Vanasek said he had tried to cap the percentage of high risk and subprime loans in the thrift's portfolio but was thwarted by lower-level managers.
   Regulators seized Washington Mutual less than two weeks after Lehman Brothers filed for bankruptcy and touched off a global panic that led to the freezing of credit markets and the biggest U.S. financial crisis since the Great Depression.
   Washington Mutual was the largest savings and loan in the country with more than $300 billion in assets and $188 billion in deposits.
   The Seattle-based thrift was a traditional home mortgage lender for more than 100 years, focusing on 30-year, fixed-rate and government-backed loans, before it decided to chase after  riskier borrowers.
    Washington Mutual's parent company, Washington Mutual Inc <WAMUQ.PK>, announced an agreement last month to share about $5.6 billion in tax refunds with the FDIC and JP Morgan Chase.
   Its plan to exit bankruptcy court includes a rights offering to raise an undetermined amount of money to support the company, which would reorganize itself around an investment subsidiary and a mortgage reinsurer. (Reporting by Dan Margolies; Editing by Tim Dobbyn) ((dan.margolies@thomsonreuters.com, +1 202 898 8324)) Keywords: FINANCIAL WAMU/ 
  
Wednesday, 14 April 2010 00:08:47RTRS [nN13244066] {C}ENDS

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