by Calculated Risk on 10/16/2009 11:41:00 PM

If no video: Dow Jones Rebounds to 1999

by Calculated Risk on 10/16/2009 09:19:00 PM

Bakersfield failure
A small fish in a big pond
Proof Darwin was right.
by Soylent Green is People
FDIC Press Release: Citizens Business Bank, Ontario, California, Assumes All of the Deposits of San Joaquin Bank, Bakersfield, California

San Joaquin Bank, Bakersfield, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 29, 2009, San Joaquin Bank had total assets of $775 million and total deposits of approximately $631 million. ...

The FDIC and Citizens Business Bank entered into a loss-share transaction on approximately $683 million of San Joaquin Bank's assets. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $103 million. ... San Joaquin Bank is the 99th FDIC-insured institution to fail in the nation this year, and the tenth in California. The last FDIC-insured institution closed in the state was Affinity Bank, Ventura, on August 28, 2009.

by Calculated Risk on 10/16/2009 07:38:00 PM

Note: Late addition to PBL, FDIC Cease & Desist: Eurobank, San Juan, Puerto Rico (ht Dave) $2.7 billion in assets. FDIC Certificate #: 27150 Bank Charter Class: NM. Make it 479!

This is an unofficial list of Problem Banks.

Changes and comments from surferdude808:

The Unofficial Problem Bank List grew significantly from last week. Eighteen institutions were added, which pushes the total to 478.

Aggregate assets increased by $18.8 billion to $316.6 billion. The majority of the asset increase comes from a Cease & Desist order issued against the $11.8 billion Sterling Savings Bank, Spokane, WA.

Other notable additions include Inter National Bank, McAllen, TX ($2.1 billon); Central National Bank, Junction City, KS ($850 million); American Bank and Trust Company, National Association, Davenport, IA ($690.7 million); and Palos Bank and Trust Company, Palos Heights, IL ($530 million).

There were 12 national banks added to the list as the OCC finally released some of its recently issued actions. Among the newly 18 added institutions, the geographic distribution is not surprising with three each headquartered in Florida, Georgia, and Illinois and two each in California and Washington. We again send kudos to the State Banking Department of Illinois for releasing its formal enforcement actions in a prompt manner.

There were no deletions last week as the FDIC did not shutter any institutions. In addition, there were no terminations during the week, but the OCC did convert Formal Agreements against two national banks to Cease & Desist Orders.

Last week, one poster to the blog suggested that there were some errors in the list as a few ticker symbols (i.e., CBC, FINN, or MRB) are associated with more than one institution. We appreciate the close inspection by readers but, in these instances, the ticker association is accurate as these institutions belong to a multi-bank holding company. For example, CBC (Capitol Bancorp, Inc.), a multi-bank holding with consolidated assets of $5.7 billion, controls 56 institutions, which range in asset size from $13.7 million to $1.2 billion.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 10/16/2009 03:26:00 PM

First Federal Bank of California put out a press release claiming better modification performance than the national average:

Compared to the national average, far fewer loans modified by the Bank have defaulted as of August 31, the latest date for which there is comparative data. Just 28.3% of the loans modified by First Federal Bank of California in the first quarter of 2008 had become at least 30 days delinquent 12 months after they were modified. By contrast, that figure is 65.9% for national banks and federally regulated thrifts, according to a September report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Wow. Maybe other banks can learn something from First Fed on loan modifications!

But wait:

Over 90% of the loans that the Bank has modified since the program started were current at the time they were modified. The Bank converted many adjustable-rate loans into fixed-rate mortgages for up to 10 years and eliminated negative-amortization provisions for modified loans. These steps have reduced the risk of foreclosure and potential loan losses.

Not so impressive. Most loans that are modified by national banks are delinquent, and redefault rates are much higher than initial default rates.

Amherst Securities noted that this week (no link):

[R]e-performing loans are defined as those that were once more than 60 days delinquent, and are now less than 60 days delinquent. This can occur either through natural curing or modifications. However, these re-performing loans do not perform in the same manner as loans that have never been delinquent.

In particular, the default rates on the re-performing bucket is huge. Most of these loans will eventually fail. The question is just – when?

Of course First Fed is targeting loans that will probably default (a good strategy), but the solution of modifying to a low fixed rate for up to ten years (without principal reduction), sounds like "extend and pretend".

by Calculated Risk on 10/16/2009 02:31:00 PM

From the California Employment Development Department

EDD’s report on payroll employment (wage and salary jobs) in the nonfarm industries of California totaled 14,200,400 in September, a net loss of 39,300 jobs since the August survey. This followed a loss of 7,200 jobs (as revised) in August.

The goods news is the unemployment rate declined slightly after an upwards revision to the August report:

California’s unemployment rate was 12.2 percent in September ... In August, the state’s unemployment rate was a revised 12.3 percent

The revision makes the 12.3% California unemployment rate for August a new series high (state series began in 1976).

The BLS will release the data for all States on Oct 21st.

by Calculated Risk on 10/16/2009 12:10:00 PM

From MarketWatch: Summers: 'Time has come' for deep change for banks

White House senior economic adviser Lawrence Summers challenged U.S. financial institutions Friday to think about what they can do for their country by stepping up and accepting the regulations imposed upon them in the wake of the largest financial crisis since the Great Depression.

"Financial institutions that have benefited from government support can, should and must use this moment to think about what they can do for their country -- by accepting the necessary regulation to protect the American people," Summers said in remarks prepared for delivery at the Economist's Buttonwood Gathering in New York. "There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system."
...
"The time has come for fundamental change in the financial sector of our economy -- both in how financial institutions conduct their business and how they are regulated," Summers said.
...
"[We have] one crisis every three years," Summers said. "Surely a system that produces this many accidents and accidents this severe is a system that is in very much need of reform."

Clearly this means much more than consumer protection and aligning compensation with the goals of the corporation (not on taking short term risks). Those are good first steps - as is regulating derivatives - but the key is that no bank should be “systemically important” or "too big to fail".

by Calculated Risk on 10/16/2009 09:15:00 AM

From MarketWatch: U.S. Sept. industrial production up 0.7%

U.S. industrial production increased at an annual rate of 5.2% in the third quarter ... Capacity utilization rose to 70.5% in September from a revised 69.9% in August.

Auto production was up significantly.

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series has increased for three straight months, and is up from the record low set in June (the series starts in 1967). Capacity Utilization had decreased in 17 of the previous 18 months.

Note: y-axis doesn't start at zero to better show the change.

An increase in capacity utilization is usually an indicator that the official recession is over.

by Calculated Risk on 10/16/2009 08:42:00 AM

From Reuters: BofA Posts Loss Amid Consumer Credit Woes

The nation's largest bank reported a net loss of $1 billion... The bank set aside $11.7 billion during the quarter for credit losses, $1.7 billion less than in the second quarter but $5.3 billion more than in the 2008 third quarter.

And from the WSJ:

Credit-loss provisions swelled 81%, while the net charge-off rate was up at 4.13% from 1.84% a year earlier and 3.64% in the second quarter. Total nonperforming assets rose to 3.72% from 1.45% in the prior year and 3.31% last quarter.

The confessional is still open.

by Calculated Risk on 10/15/2009 10:13:00 PM

This includes lawyers, mortgage brokers, and loan officers ...

From the NY Times: 41 Charged With Widespread Mortgage Fraud

Federal prosecutors announced charges on Thursday against 41 lenders, lawyers and others in the real estate industry who they said used fraud to obtain more than $64 million in loans connected to more than 100 residential properties in New York State.
....
[One case involved] a Bronx real estate company called MTC, 10 people were accused of participating in a $5.6 million “foreclosure rescue” scheme in which they sought out troubled mortgage holders facing foreclosure, running radio ads in which they presented themselves as saviors.

An indictment said that the defendants in that case ... duped troubled homeowners into selling their properties at low prices or persuaded them to transfer the deeds to their homes, promising to help solve their financial problems and then return the properties.

Instead, prosecutors said, Ms. Bills and other defendants flipped those properties to straw buyers at inflated prices subsidized by unaffordable loans that the defendants persuaded lenders to issue based on false documentation.

It is hard to believe how callous and greedy some people are (assuming the charges are true).

by Calculated Risk on 10/15/2009 04:53:00 PM

The housing outlook has probably never been more uncertain ... and the details are masked by many distortions.

"[T]he HAMP program right now ... really makes it difficult for anyone from the outside [of Citi] to actually have a good view as to the inherent credit profile in our [mortgage] delinquency buckets."
Citi CFO John Gerspach, Oct 15, 2009

So, as confusing as it is, here is a rough overview ...

Supply: the supply of distressed homes has been severely restricted by a combination of foreclosure delays and trial modifications.

Demand: demand has been distorted by the first-time homebuyer tax credit, by extraordinary levels of lending using government-insured FHA loans, and the Fed buying GSE MBS pushing down mortgage rates.

This has led to a buying frenzy in many low end areas, and has pushed up prices.

Look at the California Bay Area report today from DataQuick:

Home sales in the Bay Area edged up in September as buyers scrambled to take advantage of low mortgage interest rates as well as a tax credit due to expire at the end of November. ... The month-to-month gain was atypical: sales normally decline around 11 percent from August to September. ... The use of government-insured FHA loans – a common choice among first- time buyers – represented 29.3 percent of all Bay Area purchase loans in September.

This is a very large percentage of government-insured FHA loans - and many of these buyers are probably using the tax-credit as their downpayment (which will probably lead to higher defaults).

“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”
Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.

So what does this mean for the housing market? In the short term:

Existing home sales will probably be strong in September based on regional reports.

With restricted supply and increased demand, prices (Case-Shiller) will probably be strong through at least September (reported with a delay).

Reported inventories will move lower.

But the longer term (2010 or maybe later) will really depend on the success of the modification programs. And according to Citi today, we won't have a feel for the success rate of HAMP until probably Q1.

Amherst Securities isn't optimistic: Timing is Everything, Oct 14, 2009 (no link)

Implementation of the HAMP modification plan is making it even more difficult to predict cash flows. The trial modification period essentially holds the loan in a suspended state ... making it difficult to assess what is happening with modifications. In the end, we expect relatively few of these modifications to be successful.

I also expect most HAMP modifications to fail, although many borrowers might make their payments for a few years, and then finally default.

Even excluding the HAMP, because of slowdowns in the foreclosure process, the lenders are sitting on a backlog of foreclosures in the pipeline (not REOs, but properties in the process). So there should be an increase in foreclosures soon - how soon, and how many, is a guess.

And on the demand side, the Fed's purchases of GSE MBS will end in Q1, the interest in the first-time homebuyer tax credit will wane just like the cash-for-clunkers program (even if it is extended), and the FHA will probably be forced to tighten standards (or at least cut loose poor performing lenders).

So my guess is another down turn in the housing market in 2010 (existing home sales and prices), although prices have probably already bottomed in many low end areas.

But the outlook is very uncertain.