from Financial Regulatory Forum:

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

April 14, 2010

    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

April 14, 2010

    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

April 14, 2010

    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

April 14, 2010

   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

from Financial Regulatory Forum:

Exchanges to Washington: don’t flood us with swaps

April 14, 2010

   By Jonathan Spicer
   NEW YORK, April 13 (Reuters) - Big exchanges and clearinghouses are key planks in the U.S. government's plan to revamp derivatives markets, but the fierce competitors warned in near-unison on Tuesday that lawmakers should not recklessly force more products through them than is appropriate.
   A day before a White House meeting on financial regulatory reform, officials from CME Group Inc <CME.O>, NYSE Euronext <NYX.N> and others that stand to gain from handling more over-the-counter swaps said the political push was nonetheless a big concern.
   "It's a fear for all of us that operate clearinghouses that we'll now be told how to manage risk when we've proven again and again through some of the worst financial crises ... we can manage that risk flawlessly," Derek Sammann, managing director of CME's financial products and services unit, told Reuters.
   "Why does the government feel it can do that better when we're spending the bulk of our time educating those very  legislators as to what it is we do, and how we do it?" he said on the sidelines of a Futures Industry Association conference.
   "I think you risk overreaching and actually creating risk where there was none before."
   Complicated derivatives, such as credit default swaps, are seen as a major cause of the 2007-2009 financial crisis. Lawmakers and regulators internationally want more visibility into the private $450 trillion market, and proposed running the "standardized" products through exchanges and clearinghouses.
   A bipartisan draft bill fell through last month in the U.S. Senate Banking Committee, while a parallel effort in the Agriculture Committee has been delayed repeatedly. The Senate may soon tackle a draft Banking Committee bill that would push as many swaps as possible through exchanges and clearinghouses. [ID:nN13250708]
   Clearinghouses stand between all parties in a market, guaranteeing their obligations in the case of a default.
   Exchange operators have raced to launch clearinghouses ahead of any new laws, often signing on big dealers as revenue-sharing members in order to attract trading. They have warned in the past that not all OTC products are suitable for clearing, and that even fewer are suitable for exchange-trading.
   "The two issues that were at the core of the financial crisis were lack of transparency and lack of central clearing," Thomas Callahan, head of NYSE Euronext's U.S. futures business, told the conference. "What you're seeing is all sorts of people with various agendas coming in and piling on these issues, and certainly some of these issues could be horrifically disruptive to our business."
   Thomas Farley, president of IntercontinentalExchange Inc's <ICE.N> U.S. futures unit, said forced clearing of swaps is his biggest concern of several possible regulatory changes including forced swaps trading; commodity market position limits; and the debate over freely moving positions between exchanges. [ID:nN13140447]
   "All those give us some pause in part because we feel it's coming a bit from an anti-bank bias," he told the conference.
   Farley likened the overall reform push to too many doctors performing too many operations on an injured patient:
   "You could have just solved that dislocated shoulder problem, in the case of financial reform, really with trade repositories and some minimal systemic risk oversight," he said. "We in this room are now the patient getting the 14 unnecessary surgeries -- and by the way, those surgeries are being done with a hatchet and not a scalpel." (Reporting by Jonathan Spicer, editing by Matthew Lewis) ((jonathan.spicer@thomsonreuters.com; + 1 646-223-6253; Reuters Messaging: jonathan.spicer.reuters.com@reuters.net))
  Keywords: REGULATION EXCHANGES/SWAPS
  
Tuesday, 13 April 2010 22:35:11RTRS [nN13255173] {C}ENDS

from Financial Regulatory Forum:

US Senate panel: high-risk loans brought down WaMu

April 13, 2010

   By Dan Margolies
   WASHINGTON, April 12 (Reuters) -  Despite fraud rates of over 58 percent and 83 percent at two of Washington Mutual Bank's top-producing loan production offices in 2005, the bank did nothing to address the problem, according to findings released Monday by a congressional panel.
   The loans were made after the the bank, a subsidiary of now bankrupt Washington Mutual Inc <WAMUQ.PK>, decided in 2003 to focus on high-risk mortgages because they were more profitable, the subcommittee found.
   The strategy, endorsed by Washington Mutual Chief Executive Kerry Killinger, led the bank and an affiliate, Long Beach Mortgage Corp, to securitize more than $77 billion in subprime home loans and billions more in other high-risk mortgages.
   The focus on high-risk loans eventually contributed to WaMu's failure in September 2008.
   Killinger will be among the former Washington Mutual executives testifying before the Senate Permanent Subcommittee on Investigations on Tuesday. Washington Mutual is the biggest bank failure in U.S. history.
   "Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river," Senator Carl Levin, chairman of the subcommittee, said at a briefing for reporters on Monday.
   "Using a toxic mix of high risk lending, lax controls, and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad," the Michigan Democrat said.
   Seattle-based Washington Mutual was the nation's biggest thrift with more than $300 billion in assets and $188 billion in deposits before regulators seized it and sold the banking operations to JPMorgan Chase & Co <JPM.N>.
   Washington Mutual's parent company is in bankruptcy proceedings and may have a second life thanks to billions of dollars of tax refunds owed to it. [ID:nN29104131]
   The failure occurred a couple of weeks after investment bank Lehman Brothers declared bankruptcy, triggering a global financial panic that led to the freezing of credit markets and the biggest financial crisis in the United States since the Great Depression.
   Levin's subcommittee said it reviewed millions of pages of documents and conducted more than 100 interviews and depositions as part of its investigation, which started in November 2008.
   The subcommittee plans to hold four hearings to address the roles played in the crisis by high-risk mortgages, regulators, credit rating agencies and Wall Street investment banks.
   The hearing on Tuesday will focus on Washington Mutual itself, a once traditional lending institution that had been around for more than a century and focused on fixed-rate and government-backed loans before shifting to higher-risk home loans in 2003.
   Among those scheduled to testify are Killinger, whom the subcommittee said was paid $103.2 million between 2003 and 2008; Stephen Rotella, the bank's former president and chief operating officer; David Schneider, the former president of Washington Mutual's home loan division; and two of the thrift's former chief risk officers.
   The subcommittee found that Washington Mutual's pay policies rewarded loan officers and processors for originating high volumes of high interest-rate loans, paid extra to loan officers who overcharged or imposed stiff prepayment penalties on borrowers, and granted top executives millions of dollars in compensation even when Washington Mutual's lending strategy put the bank at financial risk.
   "Volume was king," Levin said.
  
   "IT IS UGLY"
   Washington Mutual and the Long Beach unit originated billions of dollars in subprime and other high-risk loans through their own loan offices and third-party mortgage brokers. Washington Mutual also made bulk purchases from other lenders.
   The thrift retained some loans on its books and sold the rest to Wall Street, usually after bundling them into securities, or to the government-sponsored home finance companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>.
   The high fraud rates at two of Washington Mutual's top producing loan offices, both in southern California, were uncovered during a 2005 internal review by Washington Mutual, according to the subcommittee's findings. The review found that the fraud, which involved falsified documents, was caused mainly by employees circumventing bank policies.
   Yet the two loan officers responsible for the loans continued working for the bank until 2008 and received prizes for their loan production, the subcommittee found.
   Washington Mutual's own executives issued warnings as early as 2003 about lending and securitization deficiencies at the thrift and at Long Beach, according to documents obtained by the subcommittee.
   "Delinquencies are up 140 percent and foreclosures close to 70 percent," Rotella wrote in an April 2006 e-mail cited by the subcommittee. "... It is ugly."
   Washington Mutual shut down Long Beach in mid-2007 and took over its subprime operations. A Long Beach employee was subsequently indicted for taking kickbacks to process fraudulent and substandard loans.
   The Puget Sound Business Journal reported on Monday that Killinger plans to tell the subcommittee that the bank could have survived and that regulators seized it precipitously. (Reporting by Dan Margolies; Editing by Tim Dobbyn) ((dan.margolies@thomsonreuters.com, +1 202 898 8324)) Keywords: WAMU/SENATE
   
Monday, 12 April 2010 22:15:47RTRS [nN12207084] {C}ENDS

from Financial Regulatory Forum:

US watchdogs may still get ‘Volcker rule’-consultant

April 13, 2010

    FRANKFURT, April 12 (Reuters) - U.S. banking supervisors could get indirect powers to ban proprietary trading by banks even if the "Volcker rule" is not in the financial reform bill, a banking consultant with close contact to decision-makers said.
   White House economic adviser Paul Volcker has said he hoped some form of proprietary trading ban is included in a final draft of a financial reform bill the Obama administration is urging Congress to pass to tighten bank and capital market oversight. [ID:nN06238725]
   Banks do not want the Volcker rule included in the bill, saying it would restrict their ability to make profits.
   "The latest idea is that the Volcker rule will be delegated to the relevant supervisory authorities," said Geoffrey Bell, executive secretary of the Group of Thirty, an informal forum of some of the world's top economic and monetary policymakers, including Volcker.
   "It will be in the bill, through an indirect approach through the regulators," Bell said on Monday.
   Regulators such as the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp would have the power to impose a ban on proprietary trading if they wished to do so, Bell told a briefing of journalists.
   Bell said it was still unclear what would be the final form of the Volcker rule, which would also ban banks from the hedge fund business and limit their future growth.
   "If there is another banking crisis tomorrow ... it might reaffirm the more restrictive approach," he said.
   The U.S. House of Representatives passed a financial reform bill last year that does not include an explicit ban, while a Senate version also lacks an outright ban on proprietary trading but instead instructs regulators to study the issue.
   Volcker, a former Federal Reserve chairman, said last week he thought a bill could be ready for President Obama's signature shortly before or after the Congressional recess in August.
   "Volcker (himself) thinks that there may well be some variant of the Volcker rules," Bell said.
   "If it isn't there directly, it is going to be there indirectly. Of that, I am absolutely certain." (Reporting by Jonathan Gould; editing by Karen Foster) ((Reuters Messaging: jonathan.gould.reuters.com@reuters.net; +49 69 7565 1242))
 Keywords: BANKS/VOLCKERRULE
  
Monday, 12 April 2010 17:44:45RTRS [nLDE63B1KY] {C}ENDS

from Financial Regulatory Forum:

US’s Wolin defends fight for financial overhaul

April 13, 2010

USA/   WASHINGTON, April 12 (Reuters) - The Obama administration will resist any efforts to weaken a "comprehensive and strong" change to the way the U.S. financial system is regulated that lawmakers are now debating, Deputy Treasury Secretary Neal Wolin said on Monday.
   "We will fight hard against any effort to weaken that legislation, and we will work to strengthen it further where we can," Wolin said in a speech to the Council of Institutional Investors.
   The former insurance company executive said he expects the Senate "soon" to take up its version of the measure, which he called "long overdue."
   Wolin said the U.S. is now "on the path to recovery," but policymakers should not be complacent and avoid fixing a "flawed, outdated regulatory system."
   "We cannot afford to let the memory of the (financial) crisis fade without taking action," Wolin said.
   Wolin's speech is one of a number of high-profile events the administration has scheduled on financial regulation in the wake of congressional passage of comprehensive changes to the U.S. healthcare system.
   The administration has repeatedly said changing the U.S. financial regulatory regime is now the top legislative priority for the administration, though the recent retirement of U.S. Supreme Court Justice John Paul Stevens could complicate those efforts.
   Debate over Stevens' replacement is likely to consume a substantial amount of the oxygen of official Washington in the coming months.
   (Reporting Rachelle Younglai and Corbett B. Daly; Editing by Chizu Nomiyama)
   ((corbett.daly@thomsonreuters.com; +1-202-898-8395; Reuters Messaging: corbett.daly.thomsonreuters.com@reuters.net))
   ((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 TREASURY/WOLIN 
  
Monday, 12 April 2010 15:35:49RTRS [nN12186326] {C}ENDS

from Financial Regulatory Forum:

US bailout cost seen lower at $89 bln -WSJ

April 12, 2010

    NEW YORK, April 11 (Reuters) - The U.S. government's bailout of the financial system is expected to cost $89 billion, much lower than earlier projections, the Wall Street Journal reported on Sunday, citing Treasury Department officials.
   The Journal also said that Treasury officials were looking into ways to disentangle the government from its nearly 80 percent stake in American International Group Inc <AIG.N>.
   The officials are hopeful that the bailed-out insurer could be on its own within a year, the paper said.
   Last month, Reuters reported that the government was likely to follow an exit strategy similar to what it had used with Citigroup Inc <C.N> to untangle itself from AIG. [ID:nN01244525]
   In April last year, U.S. congressional budget analysts had estimated the net cost to taxpayers for the government's financial rescue program to be $356 billion. [ID:nN04502401]
   The $89 billion estimate is also 42 percent less than the savings-and-loan crisis, the paper said.
   The figure, however, does not include losses at Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, which are projected to be $370 billion through 2020, the Journal said.
   The officials see a profit of $8 billion from the Treasury's investment of $245 billion in banks, the paper said.
   A Treasury official did not have immediate comment. (Reporting by Paritosh Bansal; Editing by Diane Craft) ((paritosh.bansal@thomsonreuters.com +1 646 223 6113; Reuters Messaging: paritosh.bansal.reuters.com@reuters.net)) Keywords: FINANCIAL/BAILOUT
  
Monday, 12 April 2010 02:01:01RTRS [nN11164019] {C}ENDS