Banks Have Recognized 60% of Expected Loan Charge-Offs: Moody’s

Gee, and here I thought that the Federal Reserve bought $1.4-$2 *trillion* of them! Let alone Lehman and its 50 billion in subprime mortgages that it “hid” (and what about all the other TARP/Federal Reserve member banks??)

BY: CARRIE BAY 6/3/2010 DSNEWS

n its latest quarterly report on credit conditions of the U.S. banking system, Moody’s Investors Service says banks’ asset quality issues are “past the peak” butcharge-offs and non-performers continue to eat away at profitability and sheer fundamentals.

Based on Moody’s market data, banks’ non-performing loans stood at 5.0 percent of total loan assets at March 31, 2010.

Moody’s says U.S. rated banks have already charged off or written-down $436 billion of loans in 2008, 2009, and the first quarter of 2010. That leaves another $307 billion to reach the rating agency’s full estimate of $744 billion of loan charge-offs from 2008 through 2011.

In aggregate, the banks have recognized 60 percent of Moody’s estimated total charge-offs and 65 percent of estimated residential mortgage losses, but only 45 percent of projected commercial real estate losses.

In the first quarter of this year, the banking industry’s collective annualized net charge-offs came to 3.3 percent of loans, versus 3.6 percent of loans in the fourth quarter

of 2009, Moody’s said. Despite two consecutive quarters of improvement in charge-offs, the ratings agency notes that the figures still remain near historic highs, dating back to the Great Depression.

According to Moody’s analysts, the decline in aggregate charge-offs was driven by commercial real estate improvement, which “we believe is likely to reverse in coming quarters,” they said in the report. A similar commercial real estate decline was experienced in the first quarter of 2009 before charge-offs accelerated through the rest of the year.

“The return to ‘normal’ levels of asset quality will be slow and uneven over the next 12 to 18 months,” said Moody’sSVP Craig Emrick.

But Emrick added that “Although remaining losses are sizable, they are beginning to look manageable in relation to bank’s loan loss allowances and tangible common equity.”

U.S. banks’ allowances for loan losses stood at $221 billion as of March 31, 2010, which is equal to 4.1 percent of loans, Moody’s reported. Although this can be used to offset a sizable portion of remaining charge-offs, banks will still require substantial provisions in 2010, the agency said.

Moody’s says its negative outlook for the U.S. banking system is driven by asset quality concerns and effects on profitability and capital. The agency’s ratings outlook is also influenced by the potential for a worse-than-expected macroeconomic environment, Moody’s said.

“More severe macroeconomic developments, the probability of which we place at 10 percent to 20 percent, would significantly strain U.S. bank fundamental credit quality,” Moody’s analysts wrote in their report.

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More than Half of Foreclosures Triggered by Job Loss: NeighborWorks

BY: CARRIE BAY 5/28/2010 DSNEWS

According to a study released Friday by NeighborWorks America, 58 percent of homeowners who’ve received assistance through its national foreclosure counseling program reported the primary reason they were facing foreclosure was reduced or lost income.

NeighborWorks was created by Congress in 1991 as a nonprofit organization to support local communities in providing its citizens with access to homeownership and affordable rental housing. In January 2008, with the foreclosure crisis raging, Congress implemented theNational Foreclosure Mitigation Counseling (NFMC) Program and made NeighborWorks the administrator.

The organization says that over the course of the NFMCprogram, the percentage of homeowners who’ve cited wage cuts or unemployment as the primary reason they were facing foreclosure has steadily increased.

In November 2009, 54 percent of NFMC-counseled borrowers reported reduced or lost income as the main reason for default. Six months earlier in June 2009, it was 49 percent; in February 2009, 45 percent; and in October 2008, 41 percent.

These steady increases parallel the nation’s unemployment rate, which until the November 2009 employment report, had marched upward since October 2008.

“With unemployment numbers not likely to dip below nine percent in 2010, our report proves what many already believed to be true. Unemployment and reduced income are having a devastating effect on our nation’s homeowners,” said Ken Wade, CEO of NeighborWorks America.

The administration recently announced changes to its Making Home Affordable program to provide assistance to unemployed homeowners by temporarily reducing or suspending mortgage payments for a minimum of three months. The initiative becomes effective July 1, 2010.

The federal government has also awarded additional funding to states where unemployment is high to support localized mortgage relief programs for homeowners who are out of work.

Lawmakers too are on a push to help homeowners who’ve lost their jobs. Congress’ financial reform package includes a measure that uses $3 billion from the Troubled Asset Relief Program (TARP) fund to make loans of up to $50,000 to unemployed homeowners to be used to make their mortgage payments for up to 24 months while they are looking for a new job.

Wade said, “While Congress and state governments have stepped up and extended unemployment benefits to help families survive this tough economic climate, it’s time for mortgage servicers and investors to make meaningful accommodations for homeowners facing foreclosure. If they don’t, we’ll see even more empty houses and devastated neighborhoods in our communities.”

NeighborWorks also noted in its report that 62 percent of all NFMC clients held a fixed-rate mortgage, and 49 percent were paying on a fixed-rate mortgage with an interest rate below 8 percent.

Nearly one million families have received foreclosure counseling as a result of NFMC Program funding. According to NeighborWorks, NFMC clients are 60 percent more likely to avoid foreclosure than homeowners who do not receive foreclosure counseling.

Underwater borrowers in America: A splash of good news?

The government tries a new tack in the fight against mortgage foreclosures

Mar 31st 2010 | NEW YORK | From The Economist print edition

WITH America braced for 4m or more foreclosures this year, the government is still searching for an effective way to stop the rot in housing. Under the Home Affordable Mortgage Programme (HAMP), a mere 170,000 borrowers have received permanent loan modifications, well below the target of 3m-4m. Will a revamped HAMP, unveiled on March 26th, mark a turning-point?

Until now the focus has been on lowering mortgage payments as a share of income, mainly through interest-rate reductions and term extensions. New rules put an emphasis on reducing principal (ie, loan balances). A crisis first sparked by subprime-mortgage defaults has since spread to better-heeled borrowers: one in four American households with mortgages owe more than their properties are worth. Forgiving some of this debt makes it less likely that they will throw away the keys.

The new plan aims to help in four main ways. It offers incentives for loan servicers (which collect payments for investors in mortgage-backed securities) to reduce principal for those owing more than 115% of the property’s current value; the write-down will be staged over three years if the borrower keeps up with lower payments. Second, struggling borrowers who have kept up their payments can switch into loans guaranteed by the Federal Housing Administration (FHA), a government agency, as long as their loan is reduced by 10% or more. Third, jobless borrowers will get up to six months of payment assistance while they look for work.

The final element is perhaps the most important. The government hopes to remove a blockage in the modification process with a bribe to holders of “second lien” mortgages, such as home-equity loans. CreditSights, a research firm, estimates that the four big banks hold $423 billion of home-equity loans (see chart), $151 billion of them to borrowers who are either underwater or close to it. These lenders have resisted modification of first mortgages, fearing knock-on write-downs of their second liens. The sweetener on offer is a payment of between ten and 21 cents on the dollar for balances they cut.

The new plan is widely seen as having more teeth than the first version of HAMP. But it still has its flaws. Participation by servicer banks is not assured. The motivation to avoid modifying second liens is likely to be stronger than a few thousand dollars in incentive payments for investors and servicers. Even so, the plan appears to treat second-lien holders better than investors in the main mortgage, because the former are not required to cut principal when first-lien balances drop. This “undermines the priority of claims in the capital structure” and supports the overvaluation of exposures on banks’ books, says Joshua Rosner of Graham Fisher, a consultancy.

The taxpayer will still be stuck holding the bill for the FHA. Already, the agency’s reserves have been heavily eroded by risky loans it took on in 2008-09 to shore up the housing market. Even homeowners may end up feeling dissatisfied. It is jobs that these households really desire, says Anthony Sanders, a property-finance professor at George Mason University, not to stay in a house that they cannot afford, especially when rental properties are so readily available.

New Obama Mortgage Plan: A Backdoor Bank Bailout

  • MARCH 30, 2010, 3:38 P.M. ET WSJ
  • New Obama Mortgage Plan: A Backdoor Bank Bailout

    We are looking at tens of billions of taxpayer dollars again being funneled to the very banks behind the mortgage crisis.

    By MARK A. CALABRIA

    From the Cato Institute

    Today President Obama announced an expansion and modification of his Home Affordable Modification Program (HAMP). While one can debate the merits of incentives to keep unemployed families in their homes while they search for jobs — I personally believe this will more often than not keep those families tied to weak labor markets — what should be beyond debate is the various bailouts to mortgage lenders contained in the program’s fine print.

    Several of the largest mortgage lenders, including some that have already received huge bailouts, carry hundreds of billions worth of second mortgages on their books. As home prices have nationally declined by almost 30 percent, these second mortgages are worthless in the case of a foreclosure. Second mortgages are usually wiped out completely during a foreclosure if the price has decreased more than 20 percent. Yet the Obama solution is now to pay off 6 cents on the dollar for those junior liens. While 6 cents doesn’t sound like a lot, it is a whole lot more than zero, which is what the banks would receive otherwise. Given that the largest lenders are carrying over $500 billion in second mortgages that may need to be written down, we are looking at tens of billions of taxpayer dollars again being funneled to the very banks behind the mortgage crisis.

    If that bailout isn’t enough, the new plan increases payments to lenders to not foreclose, all at the expense of the taxpayer. While TARP was passed under Bush’s watch, and he rightly deserves blame for it, Obama continues these bailouts in the name of avoiding a much needed correction in our housing market.

    Bank of America, Wells Fargo probably won’t pay income tax for 2009: THANKS TO TRAP…I MEAN TARP!

    Bank of America, Wells Fargo probably won’t pay income tax for 2009

    Annual reports suggest BofA and Wells Fargo won’t have to pay federal income taxes for 2009.
    By Christina Rexrode
    crexrode@charlotteobserver.com
    Posted: Friday, Mar. 26, 2010

    This tax season will be kind to Bank of America and Wells Fargo: It appears that neither bank will have to pay federal income taxes for 2009.

    Bank of America probably won’t pay federal taxes because it lost money in the U.S. for the year. Wells Fargo was profitable, but can write down its tax bill because of losses at Wachovia, which it rescued from a near collapse.

    The idea of the country’s No. 1 and No. 4 banks not paying federal income taxes may be anathema to millions of Americans who are grumbling as they fill out their own tax forms this month. But tax experts say the banks’ situation is hardly unique.

    “Oh, yeah, this happens all the time,” said Robert Willens, an expert on tax accounting who runs a New York firm with the same name. “Especially now, with companies suffering such severe losses.”

    Bob McIntyre, at Citizens for Tax Justice, said he opposes the government giving corporations such a break.

    “If you go out and try to make money and you don’t do it, why should the government pay you for your losses?” McIntyre said. “It’s as simple as that.”

    For 2009, Bank of America netted a $2.3 billion benefit related to income taxes, according to its annual report: It had a benefit of $3.6 billion from the federal government, and an expense of $1.3 billion that it paid to different state and foreign governments.

    It’s not unusual for a company’s debt to the federal government to vary widely from its debt to state governments, as appears to be the case with Bank of America, said Douglas Shackelford, a tax professor at UNC Chapel Hill.

    The federal government often offers more tax deductions than the states; for example, Bank of America wrote down its federal taxable income with credits from low-income housing and losses on foreign subsidiary stock.

    Company tax returns aren’t public, so it’s difficult to say for certain how much a company pays to, or receives from, tax coffers in any year .

    The bank’s $3.6 billion current federal tax benefit for 2009 came in a year when it lost $1 billion in the U.S., according to its latest annual report. For the previous year, when the bank had profits of $3.3 billion in the U.S., it listed a current federal tax expense of $5.1 billion.

    Wells Fargo was profitable in 2009, with $8 billion in earnings applicable to common shareholders. But its tax payments were reduced because of Wachovia’s losses.

    Wells netted an overall tax benefit of $4.1 billion in 2009. It got a benefit worth nearly $4 billion from the federal government, and another worth $334 million from state governments. It had an expense of $164 million in foreign taxes. Wells did record an overall income tax expense of $5.3 billion, but that was offset by the tax benefits of the Wachovia losses.

    Tax breaks and stimulus

    The topic of corporate tax breaks has gained buzz recently because of a provision in the 2009 stimulus bill, which allows companies to “carry back” their losses for 2008 and 2009 to the previous five years, instead of just the previous two years. Homebuilders and other industries that suffered big losses in 2008 and 2009, but made a lot of money in the years before that, stand to gain billions in refunds. However, the stimulus bill provision does not apply for Bank of America and Wells Fargo, because companies that received TARP loans are ineligible.

    UNC’s Shackelford said the argument for carrybacks stems from the belief that it’s “arbitrary” that taxes are collected on an annual basis.

    “There’s no reason we couldn’t collect them on a monthly basis or a two-year basis. Then your losses and gains would be offset over the period,” he said. “The carryback enables you to not be penalized because your losses got bunched in a different year from your gains.”

    The stimulus bill provision, he said, was helped by business lobbying. “There’s an awful lot of companies that paid a lot of taxes in the 2004 period, then they lost a lot of money, and they went to their legislators and said, ‘Please help us,'” Shackelford said.

    McIntyre, at Citizens for Tax Justice, co-authored a report in 2004 related to carrybacks, after the Bush administration expanded many corporate tax breaks. The report examined 275 of the country’s largest companies and found that nearly one-third paid no federal income taxes in at least one year from 2001 to 2003. The companies overall were profitable in those years, but took advantage of tax breaks.

    “If you or I lose money in the stock market, we don’t get to carry back our losses to any significant degree,” said McIntyre. His group works on closing tax breaks for corporations.

    “Getting a refund from the past, that’s just weird,” he added.

    Read more: www.charlotteobserver.com/2010/03/26/1337021/billions-in-tax-benefits-for-banks.html#ixzz0jUTUfF0A