Obsolete Certainty

U.S. banks have reportedly been told by Federal regulators not to go public with the results of the so-called government stress test. I seems that the government may be worried that the unwashed masses (aka the taxpayers funding all these bailouts) will be able to determine which of the 19 large banks may not have passed if a bank doesn’t brag about positive results.

Of course there is also the view held by William Black, a former bank regulator, that the stress test exercise is just a “complete sham” derived to fool the unwashed masses into believing everything is fine with the world.

Acting Office of Thrift Supervision Director Scott Polakoff has been placed on leave pending an internal investigation of the agency’s role in allowing troubled thrifts to backdate capital infusions.

According to the Wall Street Journal, OTS Chief Counsel John Bowman will run the agency in the interim.

Congratulations fellow American taxpayer. We are going to write a check fo $165 million to fund executive bonuses at AIG. That is right! And not just any division of AIG, but the AIG financial products division that wrote all those toxic credit default swaps and other derivatives that threatened a financial doomsday.

Edward Libby, the government appointed head of AIG stated that “We cannot attract and retain the best and the brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of American taxpayers – if employees believe their compensation is subject to continued arbitrary adjustment by the U.S. Treasury.”

In otherwords, keep sending us money but don’t tell us how to spend it.

Ticor Title, a mortgage title insurance company, has sued Countrywide over the title claim to a Chicago home that was reportedly bought and sold THREE TIMES during a period where the previous owner, Randy Johnson, sat mummified in a chair next to his dead dog.

The 2007 loan in question is a $360,000 first mortgage loan on a Victorian on the south side of Chi-town in which Tricor insured title. However, Ticor argues Countrywide was “reckless and grossly negligent in its underwriting of the mortgage.”

It seems that the owner Johnson had grown up in the house but seemingly dropped off the face of the earth in 2005. Cook County officials then discovered that a fraudulent deed had been backdated to 1996, which improperly transferred the property from Johnson’s deceased mother to a woman named Rhonda Evans. Evans then “sold” the house to a Donald Franklin who borrowed the money from Countrywide. The loan reportedly soon went into foreclosure and was then sold to another owner who discovered the bodies of Mr. Johnson and his loyal pet.

The Royal Bank of Scotland, the second largest bank in the U.K., posted a net loss which was the first loss recorded by the bank since becoming a public company 40 years ago.  However, the apparent good news is that the company believes that the $11.4 billion (U.S.) in write-downs announced earlier this year may be the only markdowns needed for the remainder of 2008.  Of course that hasn’t been true for other large banks, so we will all have to wait and see.

The mortgage meltdown continues as Freddie Mac reported a worse than expected loss in the second quarter driven by a $2.5 billion dollar provision for loan losses.  The second quarter loss of $821 million or $1.63 a share was significantly worse than analyst expectations.  Freddie will now cut the third quarter dividend and continue to seek new ways to improve the mortgage giant’s capital position.

It appears that losing billions of dollars on bad mortgage loans wasn’t enough for Washington Mutual. The large thrift has decided to jump head first in the subprime credit card business in an attempt that could be best described as essentially playing a double or nothing bet. According to an article by Ari Levy in Bloomberg, WaMu has increased their credit card business by 56% since acquiring Providian Financial Corp. WaMu stated in its annual report that it seeks customers who “are often underserved by large prime/superprime-oriented credit-card issuers and who satisfy its underwriting criteria”.

Moshe Orenbuch, an analyst at Credit Suisse Group in New York is quoted in the article saying, ‘Lower earnings in the credit-card business are going to compound their earnings issues.” Well Duh!

“Surprising” news today from the Los Angeles Times. Conducting short sale real estate transactions is not easy. Short sales, in which an underwater borrower sells the home for less than the loan balance to prevent a foreclosure, can be complicated, time consuming and sometimes impossible to complete.

“The waiting is torture,” said Mark Shandrow, a Keller Williams Realty agent in Long Beach who specializes in such transactions. “The banks are overwhelmed with short-sale requests, and some make sellers wait five months for an answer.” That answer, in many cases, he added, is “no.”

Of course sometimes the answer should be no. For the lender it is an economic decision. A short sale that will easily result in more money than a foreclosure is a no brainer. If the proposed short sale will result in significantly less that what will be realized from a foreclosure, then the answer will probably be no. If the difference is not significant, then the decision becomes more difficult.

Banks aren’t happy about short sales,” said Sherri Frost, a senior loan officer with Sherman Oaks-based Metrocities Mortgage, “but they have few options.”