Securitization

Cantor Fitzgerald & Co. promoted Carmine Urciouli and Martin Teevan to co-heads of global credit.

The government's moves have been a key driver in the month-long CMBS credit rally, although it has also been sustained beyond technical factors such as the existence of Public-Private Investment Program and TALF (Term ABS Loan Facility), Barclays Capital analysts said.

Lloyds TSB's deal has £3 billion ($4.9 billion) of Class A notes backed by senior secured loans to registered U.K. social landlords (RSL). The deal, dubbed Chepstow Blue Plc, has been assigned a ‘AAA' by Fitch Ratings.

Weak house prices are likely to continue in the Netherlands due to a high degree of leverage in households and a continuing economic recession, according to a Moody's Investors Service report on Dutch RMBS trends.

WASHINGTON — Whether a banker wants the Federal Deposit Insurance Corp. to extend its blanket guarantee for non-interest-bearing deposits turns mainly on his view of the economy.JPMorgan Chase & Co., Wells Fargo & Co. and BB&T Corp. all oppose an extension beyond yearend, arguing the need for the Transaction Account Guarantee Program has faded."Conditions in the financial industry have improved significantly since the introduction of the" program last October, Donna Goodrich, a senior executive vice president at BB&T told the FDIC in a letter. "Financial institutions are now able to access the capital markets to issue both debt and equity. These are positive signs that public confidence in the financial services has been restored."But other institutions, particularly banks in areas hard hit by failures, warned that depositors remain nervous and TAG is still needed."The client-base sensitivity to insured deposits is extreme," Chad Bense, a vice president at $165 million-asset Minnesota National Bank, wrote in a letter. "The environment created warrants the continuation of the program beyond 2009."Chris Cole, a senior regulatory counsel for the Independent Community Bankers of America, urged the FDIC to go beyond the six-month extension it proposed."Particularly in those areas of the country like Georgia, Florida, California and the Southwest, it is very important that this program continue an additional 12 months to allow additional time for those areas to stabilize," Cole wrote.The American Bankers Association did not go that far. It supported a six-month extension, and noted that many banks will not view opting out as an option. "Many banks chose to participate originally because they were concerned that to opt out would put them at a competitive disadvantage," wrote Robert W. Strand, a senior economist with the ABA. "This pressure does not disappear, and at 25 basis points would represent a high cost for some institutions."The TAG program, launched in October 2008, provides unlimited deposit insurance for certain transaction accounts that do not bear interest. The coverage has been widely popular; as of May, only about 1,100 institutions had opted out. The benefit is intended mostly for accounts that business customers use to pay their employees and other expenses.In June, the agency proposed two options: let the program expire at yearend or extend it for six months and raise the premium rates charged for the insurance to 25 basis points from 10."Twenty-five basis points is a nonstarter for most institutions," James Chessen, the ABA's chief economist, said in an interview. "Something closer to 10 — perhaps even 15 — might draw broader participation."A related program that allows institutions to pay the FDIC to guarantee their senior debt has already been extended for four months, until Oct. 31. But it has not imposed any costs on the agency; in June the FDIC reported that it had paid out $840 million to honor the deposit guarantees, while collecting only $700 million in fees.Some banks are arguing for a longer extension than six months."I am writing to … request that the TAG Program be extended indefinitely under its current structure," wrote Ronald D. Paul, the chairman of $1.5 billion-asset EagleBank in Bethesda, Md., in a July 13 letter.SunTrust Banks Inc., meanwhile, suggested a more gradual wind-down."The concern with either of the FDIC's proposed alternatives is that they each create a potential 'cliff event' for both financial institutions and depositors of relatively large balances," Mark A. Chancy, SunTrust's chief financial officer, wrote in a July 24 letter. For those depositors, he said, "a graduated scale back is needed to provide them assurance that their deposits are safe."Chancy proposed that the amount of the guarantee drop by intervals every year starting Jan. 1. At the beginning of 2010, the FDIC would guarantee balances up to $5 million. It would then step down to $2.5 million in 2011, $1 million in 2012 and between $250,000 and $999,999 in 2013. No extra coverage would be available in 2014.But other bankers said the sooner the program ends, the better."Weaker banks that may urge extension of the TAG program in order to shore up customer deposit balances, do so at the expense of safer, more risk-averse financial institutions," wrote James E. Shreiner, senior executive vice president at Fulton Financial Corp. in Lancaster, Pa., which owns community institutions in the Middle Atlantic region and the $8 billion-asset Fulton Bank.Some opponents suggested that maintaining the program posed a competitive problem if their rivals, who may be in a weaker liquidity position, chose to stay in the program. (Under the FDIC plan, if the agency chose to extend the coverage, banks now participating in the program would have a one-time window to opt out.)"The overriding theme to our opposition is that our participation in the TAG program came, not from need, but from competitive pressure," wrote Jeff Asher, a senior vice president at $9.7 billion-asset FirstBank Holding Co. in Lakewood, Colo., which owns institutions throughout the state.The "increased fees" with an extension "are particularly distasteful in this light," he added.While the 85 comment letters filed on the question did not break down cleanly as big versus small banks, Frank Bonaventure Jr., a principal at the Ober Kaler law firm in Baltimore, said many small institutions are arguing for an extension of this program as an offset to the perception that large banks are viewed as safer because of their size."The smaller banks are feeling that they need whatever protections they can get to maintain public confidence," Bonaventure, a former senior counsel at the Office of the Comptroller of the Currency, said in an interview. "The larger banks probably feel: We're over that hump. We've gone though the stress analysis, and we're fine. … Why have extra costs, which is what this is all about?"Large banks that favor an extension include SunTrust, Regions Financial Corp. and U.S. Bancorp."We are supportive of the extension of the program to June 30, 2010, but suggest a declaration that this will be the last extension," wrote Kenneth D. Nelson, executive vice president and treasurer for U.S. Bank."It really has nothing to do with big versus small," said a large-bank source. "It more has to do with: Where are we in this crisis?"WASHINGTON — Whether a banker wants the Federal Deposit Insurance Corp. to extend its blanket guarantee for non-interest-bearing deposits turns mainly on his view of the economy.

Freddie Mac said the collapse of the lender Taylor, Bean & Whitaker Mortgage Corp. may cause it "significant" losses.

The Financial Accounting Standards Board took plenty of heat in April for loosening mark-to-market guidelines, a move that critics assailed as a gift to the financial industry and a nod to political pressures.The FASB's latest idea, however, if seen to completion, would go a long way toward silencing accusations that the rulemakers have gone soft on banks.Under consideration: an unprecedented proposal to vastly widen the use of mark-to-market accounting, so that it becomes the default method for valuing financial instruments, including loans that banks plan to hold to maturity. If adopted, the rule could set off a new wave of writedowns at a time when investor confidence in banks is fragile at best.Proponents say that stricter use of mark-to-market would simplify accounting rules and give investors a clearer picture of companies' financial health. The opposition, led by the bank lobby, says it is unfair to make companies absorb the blow of falling market values for loans they have no intention of selling. And they say that new questions would be raised as to how to value specialty loans and other assets for which there are no ready markets.Debate on the issue has been relatively muted because the FASB has not yet initiated its formal process for considering new rules. But a July board meeting gave observers the most detailed look yet at the ideas being floated, and the topic is on the agenda again for a FASB meeting scheduled for Thursday, when a formal proposal may get hammered out.The American Bankers Association is trying a nip-it-in-the-bud approach, publishing a position paper earlier this month and sending a letter to accounting standards-setters in advance of an official public comment period."What they're discussing now would be the biggest accounting change we've ever seen," said Donna Fisher, the ABA's senior vice president of tax, accounting and financial management. "If you wait too long, then everybody is wed to their positions, so we really need to start early."The desire to redraw the rules on valuations predates the financial crisis, with the FASB and its counterparts at the International Accounting Standards Board discussing the topic at two joint meetings in 2005. But the crisis heaped new attention on the issue, with the mark-to-market methodology currently in use alternatively criticized as a dangerous catalyst for the financial system's disarray or a convenient scapegoat for it.In April, the FASB issued new guidance on determining whether a market is active, and increased the flexibility companies have for valuing illiquid assets. At the same time, the board allowed banks to separate credit writedowns from market writedowns when accounting for other-than-temporary impairments to assets, requiring that only the credit portion of the loss be subtracted from earnings.That action, which critics of the FASB took as a sign that the board had caved in to pressure from financial industry lobbyists and their allies in Congress, sought to answer some of the questions about when and how mark-to-market valuations ought to be applied. The latest proposal would seek to clear up the "when" question, with companies potentially instructed to use mark-to-market for nearly every financial asset on the books. But questions about how to apply valuations remain."If the FASB is going to move to requiring that every instrument be marked at market value, it's going to require a lot more specific guidance for companies and auditors as to what to use for the market value in different situations," said Brian Bushee, an accounting professor at the University of Pennsylvania's Wharton School. "Most companies might not be opposed to [using] market value if they had confidence that a true market value was showing up on the balance sheet."The FASB, which referred questions about the thinking behind its latest proposal to a fact sheet posted on its Web site, appears to be taking a harder line than international accounting standard-setters, who issued a different set of proposals after deliberating separately on the topic. The IASB, which is trying to develop global standards that may eventually converge with U.S. standards, would let companies eschew mark-to-market for basic loans that would be held to maturity.Marking loans to market under the blanket rule being considered by the FASB would be especially tough for banks that traffic in agricultural loans and other niche products for which no organized market exists, said Ann Grochala, vice president of lending and accounting policy at the Independent Community Bankers of America."FASB appears to think they've moved forward enough with valuation methodology that it shouldn't be a problem anymore. We'd beg to differ," she said.Most community banks do not use mark-to-market when given the option, but they must apply it to their investment portfolios. The new FASB proposal certainly would simplify the preparer's approach, allowing for a single methodology for all kinds of assets, but Grochala questioned whether that would produce a clearer snapshot of a company's health."Continuing to use an accounting basis that's more difficult is better than switching to something that's going to give a significantly less accurate picture and add much more volatility to your valuations for organizations that are not buying and selling their balance sheet items on a daily basis," she said.Bushee, the accounting professor, suggested two potential compromises that might make the proposal more palatable for the industry. First, have downward marks kick in only after prices have been depressed for a set amount of time, say six or 12 months. Second, have regulators base bank capital requirements on numbers that are less subject to the vagaries of the market."There are multiple constituencies here, where investors and regulators may want different types of information, and we may want different rules to facilitate that," he said.The Financial Accounting Standards Board took plenty of heat in April for loosening mark-to-market guidelines, a move that critics assailed as a gift to the financial industry and a nod to political pressures.The Financial Accounting Standards Board took plenty of heat in April for loosening mark-to-market guidelines, a move that critics assailed as a gift to the financial industry and a nod to political pressures.

The Carlton Group launched The Carlton Exchange (CEX), which is a proprietary loan and real estate owned (REO) asset sale platform, the firm said today.

The Federal Home Loan Bank of San Francisco had net income of $303 million for the second quarter of 2009, up from $233 million for the same period last year, as it benefited from $168 million in net gains associated with derivatives, hedged items and financial instruments carried at fair value.

OCC Promotes FHA 203(k) ProgramThe Comptroller of the Currency is urging national banks to take a look at the Federal Housing Administration loan program that can be used to restore foreclosed homes and help stabilize neighborhoods. The FHA 203(k) program provides government insured financing for the purchase and renovation of a property in a single loan transaction. OCC is promoting the benefits of FHA 203(k) loans in its "Community Development Insights" magazine. "This product can be used by banks to develop new business, mitigate risk, enhance profitability, as well as assist in the revitalization and stabilization of neighborhoods negatively impacted by the current foreclosure crisis," OCC says in the magazine. FHA commissioner David Stevens said he welcomes OCC's efforts to increase bank participation in the FHA loan program "With so many bank-owned properties in need of repairs, this program offers a great way for homebuyers to finance both the purchase and rehabilitation of these homes," Mr. Stevens said.The Comptroller of the Currency is urging national banks to take a look at the Federal Housing Administration loan program that can be used to restore foreclosed homes and help stabilize neighborhoods.

Ginnie Mae has hired Bank of America to service the roughly $25 billion in FHA receivables it seized from Taylor, Bean & Whitaker last week, according to industry sources.

Robert Gifford has joined American International Group (AIG), where he will be president and CEO of AIG Global Real Estate.

Freddie Mac reported a profit of $768 million in the second quarter and positive net worth of $8.2 billion so it will not have seek additional capital from the Treasury Department this quarter.

Servicing Advance Transactions on the RiseServicing advance transactions are becoming an increasingly common financing type within the RMBS sector, DBRS reported today.In these transactions, the rating agency explained, mortgage servicers securitize their rights to reimbursement for advances made to U.S. RMBS trusts. These advances arise from mortgage servicers being responsible for making certain payments to RMBS trusts when borrowers fail to make loan and other payments.The increased use of these transactions reflects the financial strain that these advances are placing on servicers with the rise in residential mortgages delinquencies, according to DBRS. While servicers are obligated to advance missed payments to RMBS trusts monthly, full reimbursement of these advances might take months or even years to occur.One perk of servicing advance transactions is that servicers are reimbursed for advances before RMBS security holders are paid, the rating agency said.However, these transactions are risky in terms of determining which collections are designated to pay servicing advance note holders. Whether these cash flows are subject to delays, reductions or interruptions are also important considerations.Minimum overcollateralization tests have been established for each advance reimbursement type. This dampens the effect of the dramatic shifts in delayed recovery advances following note issuance.Principal is due upon maturity, which isgenerally five to 10 years after issuance.Servicing advance transactions are becoming an increasingly common financing type within the RMBS sector, DBRS reported today.

Delinquencies of U.S. CMBS surpassed record levels in July and could climb further by year-end, according to Fitch Ratings.

Ambac Financial Group Inc. obtained permission to liberate more money from its reserves and count it as capital, rescuing the struggling bond insurer from a possible regulatory takeover.The Wisconsin Insurance Commissioner's Office requires the New York-based bond insurer to maintain at least $2 million in policyholders' surplus- or assets in excess of liabilities.

U.K.'s Financial Services Authority (FSA) said it is conducting a wide-ranging review of all aspects of its mortgage regulation, and plans to publish its proposals this fall.

Not all servicers want to play the tortoise. Erbey claimed some of his rivals are accepting verbal verification and still granting mods. Others, like Citigroup Inc., are asking the government to ease income verification requirements.The danger is that doing so could effectively return to the days of stated-income loans, when lenders did not require verification of the income the borrower stated on their application. Stated income loans, widespread from 2003 to 2008, were a contributing factor to the housing bubble.As Treasury assesses whether to ease verification requirements, one area that most servicers are struggling with is obtaining an additional signature from borrowers who filed tax returns electronically. "You have to ask whether the documents are really providing additional support to the decision," Garland said. "The program is there. The money is there. We're all just tied up in paperwork."He also noted that some borrowers are being asked to submit documents — without a loan officer's aid — that were not required at origination. "Many of these loans were no-doc, low-doc loans to begin with, so we're holding the borrower to a more onerous qualification than they had originally."But Meadows said that without the extra layers, "we're falling into the same trap that got us into this problem in the first place."If servicers appear to be failing in their implementation of the Obama administration's loan-modification program, it may be for good reason: Reunderwriting hundreds of thousands of borrowers who got low- or no-documentation mortgages just takes time.

WASHINGTON — Though the Federal Reserve Board is clearly opposed to handing off its consumer protection powers to a new agency, its proposed alternative has left many confused and others saying it would accomplish little.In separate appearances before House panels last month, Fed Vice Chairman Donald Kohn and Elizabeth Duke, a governor, said Congress could explicitly mandate consumer protection as a core mission of the central bank instead of creating a new agency.The comments were sufficiently vague so that, to some, it sounded as though the Fed was proposing to expand its dual mandate of promoting price stability and maximizing employment to include consumer protection — an idea many saw as unworkable."They already have a problem following the dual mandate because they tend to shift from one thing to the other," said Allan Meltzer, a professor at Carnegie Mellon University and a noted Fed historian. "You put a third thing in there, and they have another reason for not doing what they're supposed to do."Many said that, adding to the dual mandate, which Congress enacted in 1978, makes no sense.Full employment and price stability are "so important," said George Kaufman, a finance professor at Loyola University in Chicago. "They're overwhelmingly more important than consumer protection. A stable economy dominates everything."Others said consumer protection would be a messy fit with the two other mandates. "It's the 'what does not belong in this picture' question, and you'd have to say the consumer piece," said Cornelius Hurley, a former Fed lawyer who now directs the Morin Center for Banking and Financial Law at the Boston University School of Law.Some Fed supporters said that it could help, arguing that consumer protection gels with broader oversight of the economy."Good consumer protection can be consistent with economic stability and safety and soundness," a former Fed official said. But Joseph Mason, a finance professor at Louisiana State University, questioned the broader impact such a change would have on the conduct of monetary policy."Think for a moment of a world where interest rate policy doesn't work, the Fed wants to expand lending and can't figure out how," he said. "One policy tool becomes to promise or implement laxity to [give] lenders [an incentive] to expand credit."Fed officials declined to discuss this on the record, but in private they say Kohn's and Duke's comments were misinterpreted. What the central bank is advocating, these sources said, is a simple reopening of the Federal Reserve Act to add language to the preamble requiring that the Fed protect consumers. The preamble now mandates that the Fed supervise banks and maintain an elastic currency.In her testimony, Duke told lawmakers they "could formally codify consumer protection as a core mission or responsibility for the Federal Reserve, similar to monetary policy and banking supervision and regulation."But observers are equally critical of adding consumer protection language to the Federal Reserve Act as an explicit duty. The theory is that such a change would signify the elevated importance of consumer protection at the Fed and ensure that future leaders of the central bank dedicate sufficient resources to the issue."Putting it as a core function is basically telling the Fed to spend more money on this and we won't mind if, at the end of the year, you send $14 billion instead of $15 billion" to the Treasury, said Robert Litan, a senior fellow at the Brookings Institution.But many said that would be little more than window dressing. After all, observers argue, Congress has passed a number of laws, including the Truth in Lending Act and the Home Ownership and Equity Protection Act, making clear that lawmakers felt the Fed has a role in consumer protection."Just go through and look at the Fed regs," said Bert Ely, an independent consultant in Alexandria, Va. "Consumer protection is already a significant part of their mission."House Financial Services Committee Chairman Barney Frank appears to agree."One of the greatest unused examples of power were the consumer protection powers we've given the Fed," the Massachusetts Democrat told reporters last month.Given that background, it is hard to believe that consumer protection would be any stronger in practice with an explicit mandate, said Kevin Jacques, the chairman of the finance department at Baldwin-Wallace College."I see this kind of talk as simply talk," he said. "I don't believe it will make consumer protection No. 1. The fact is the No. 1 job of the agency is the safety and soundness of the financial system, period. Consumer protection is simply further down the line."The Federal Reserve Act has been amended frequently as the needs of financial markets and the desires of Congress evolve. The most recent change came in October when lawmakers gave the Fed authority to pay interest on reserves financial institutions hold at the central bank. But as scrutiny of the Fed has grown this year, a risk emerges that opening up the law to explicitly codify consumer protection could give lawmakers the chance to poke around in other areas as well."That's always the risk," said Douglas Landy, a former lawyer at the Federal Reserve Bank of New York who is now a partner at Allen & Overy LLP. "If the Federal Reserve Act is opened up, are they opening a can of worms that could work against them? Sure."Both options carry risks to the Fed. Many observers said an enhanced consumer protection mandate would draw the Fed into the political fray more often, possibly reducing its prized independence and moving it further away from the traditional responsibilities of a central bank."The more objectives you have, the more difficult it is to stay out of the political arena," said Loyola's Kaufman. "The Fed's most important objective is monetary policy."Speculation is rampant about why the Fed would want to keep its consumer protection power when it is fighting so many other battles, including worries about inflation, winding down liquidity facilities and proving to Congress that it can manage systemic risk. Some say it is simply a classic example of a Washington powerhouse working to avoid any loss of power and influence."The Fed has never left a power vacuum in Washington," said Louisiana State's Mason. "They've always been prepared to pick up power when it's made available."Others said the strategy amounts to a Plan B in case Congress does not ultimately create the consumer protection agency. Rep. Frank has already delayed consideration of the issue in his committee, though he and the White House remain committed to its enactment."This is like a fallback strategy for the Fed and Congress itself," said Brookings' Litan.From: Luke, Claire Sent: Monday, August 10, 2009 11:24 AMTo: Sibayan, KarenSubject: RE: FSA Conducts Mortgage Market ReviewThe Financial Services Authority (FSA) said it is conducting a wide-ranging review of all aspects of its mortgage regulation, and plans to publish its proposals this fall.The wide-ranging review, which encompasses issues from securitization to arrears, is being conducted to establish what went wrong in the mortgage market, to fix those problems, and to ensure the presence of a sustainable, long-term market. The FSA said it will take a hard position with firms proven to have acted poorly, will bring its sanctions to bear against rule-breaking firms, will tackle unauthorized business, and will ensure mortgage consumers are treated fairly.The FSA said it will respond in full to the Treasury Select Committee’s report on mortgage arrears and access to mortgage finance in due course. The Treasury Select Committee has voiced concern at the amount of time the FSA has taken to respond the report, which was released over the weekend, and to name firms whom it is taking action against, suggesting its protection of lenders.John McFall, Chairman of the Committee said he is shocked at the length of time it is taking the FSA to complete enforcement action against firms it suspects are breaking the rules, and that the FSA “must raise its game on the enforcement front and demonstrate that it can take action speedily and decisively where wrong doing is taking place.”Though the Federal Reserve Board is clearly opposed to handing off its consumer protection powers to a new agency, its proposed alternative has left many confused and others saying it would accomplish little.

Teachers Insurance and Annuity Association of America, College Retirement Equities Fund (TIAA- CREF) provided a $145 million loan against the Graybar Building located at New York City’s Grand Central Station.