Tag Archives: Citigroup

Q And A About The Mortgage Settlement And You.

Aid may take months, and eligibility depends on who owns your loan.

The record $26 billion foreclosure-abuse settlement that states and the Obama administration reached last week with five big banks is being billed as a program that will help more than 1 million U.S. homeowners.

However, the funds are being allocated to a number of different programs and it is not yet clear who will get relief — or when. Housing counselors said borrowers likely won’t begin receiving compensation or other forms of assistance until this summer at the earliest.

Here are answers to common questions about the program.

Q. There will be about $17 billion available to reduce mortgage-loan debt for struggling homeowners. How do I know whether I will be eligible for this principal-reduction assistance?

A. Borrowers who are delinquent or on the verge of delinquency and have loans that are on the books of one of the five participating banks are the likeliest to be eligible for help cutting the size of their mortgage, known as principal reduction. These borrowers must show they are behind on their payments.

Eligible homeowners must have loans serviced by the five big banks participating in the settlement: Bank of America (US:BAC), J.P. Morgan Chase & Co. (US:JPM), Citigroup Inc.(US:C), Wells Fargo & Co.(US:WFC) and Ally Financial Inc, the company formerly known as GMAC.

Borrowers who have loans owned by investors also may be eligible but to a lesser degree.

But homeowners whose mortgage loans are owned by Fannie Mae and Freddie Mac — the two government-seized mortgage giants that own about 50% of all U.S. mortgages — are not eligible to participate in the principal-reduction program. Neither are homeowners in Oklahoma since the state did not take part in the deal. Get more information from the NationalMortgageSettlement.com site.

You can check to see whether Fannie Mae or Freddie Mac owns your home loan at these links.Click here to see whether your home loan is owned by Fannie Mae.

Click here to see whether your home loan is owned by Freddie Mac.

Q. If I am behind on my mortgage payments, what should I do to find out whether I am eligible for any relief?

A. Regulators say that borrowers will be contacted by their mortgage servicer, a state local administrator or their state attorney general in coming months.

But troubled homeowners should also contact a U.S. Department of Housing and Urban Development certified housing counselor in their area to obtain free help in identifying whether they are eligible to receive relief on the amount they owe on their mortgage. Find a local HUD-approved housing counseling agency here.

Housing counselors and state attorneys general also suggest contacting your bank immediately to make sure they are aware of your grievances.

Q: If I am current on my mortgage payments but have little or no equity in my home, whom do I contact to see if I can receive assistance to refinance my loan at current low interest rates? Read: 30-year mortgage holds at record low.

A. If you’re in this situation, your mortgage servicer may contact you in coming months. But housing counselors also suggest that “underwater” borrowers — those who owe more than their home is worth — should contact their bank and local state attorney general’s office for more information.

Q. If my mortgage is serviced by a lender that is not one of the five participating in the settlement, can I participate?

A. The Justice Department and other regulators are currently in discussions with nine other mortgage servicers and say they hope to reach a settlement over problematic foreclosure practices in the coming weeks. Keep an eye out for statements from your local attorney general’s office to see if this deal is announced.

Q. Roughly $1.5 billion in funds is being allocated to borrowers who have lost their homes and experienced mortgage servicing abuse. Regulators estimate that borrowers could receive about $2,000 each if 750,000 people are deemed eligible. If I have lost my home to foreclosure and feel that I have experienced servicer abuse, how can I apply?

A. Borrowers who lost their homes between January 2008 and December 2011 can apply. In a few months, potentially eligible consumers should receive a notification from a settlement administrator or their state attorney general. The spokesman for Iowa Attorney General Tom Miller said consumers will probably fill out a fairly simple form that verifies certain facts, and they’ll have to attest that they were subjected to some form of servicing abuse.

Borrowers in any stage of foreclosure in 2009 or 2010 may also be eligible for compensation or some other remediation (such as getting your home back from bank inventory) as part of a separate regulatory enforcement action against a number of banks. Regulators say borrowers who have been foreclosed upon can apply and possibly receive help through both processes. So far, no borrower has received assistance through this approach, but regulators expect assistance to go out by the end of 2012. Learn more about this foreclosure review and request an application form here.

Q. Another $2.75 billion is being paid to states to fund legal aid, housing counselors and other programs. Can I receive help this way?

A. Money going to housing counselors and legal aid may help borrowers indirectly. But keep in mind that states have some leeway in how to use the funds.

For example, Ohio’s attorney general estimates that $97 million of funds going to the state will be used to conduct foreclosure prevention and neighborhood revitalization programs. However, Wisconsin and Missouri reportedly are planning to use a large part of their settlement funds to help balance their state budgets, rather than directly helping borrowers.

Hope this helps. 


The Watchdogs That Didn’t Bark, and a Fun Halloween Party.

New York foreclosure firm, Steven J. Baum, dressed up as homeless and decorated offices like foreclosed homes for Halloween, before November 2010 when they were shut down because of robo-signing, among other offenses.  NY State court judge called one foreclosure filing from the Baum firm “incredible, outrageous, ludicrous and disingenuous.”
Photos from a former employee: Two Steven J. Baum employees mocking homeowners who have been foreclosed on.
A “squatter” in Baum Estates – photo of the Halloween  party from former employee. Funny, right?

Four years after the banking system nearly collapsed from reckless mortgage lending, federal prosecutors have stayed on the sidelines, even as judges around the country are pointing fingers at possible wrongdoing.

The federal government, as has been widely noted, has pressed few criminal cases against major lenders or senior executives for the events that led to the meltdown of 2007. Finding hard evidence has proved difficult, the Justice Department has said.

The government also hasn’t brought any prosecutions for dubious foreclosure practices deployed since 2007 by big banks and other mortgage-servicing companies.

But this part of the financial system, a Reuters examination shows, is filled with potential leads:

Foreclosure-related case files in just one New York federal bankruptcy court, for example, hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings and records reviewed by Reuters. Similarly altered notes have appeared in courts around the country.

Banks in the past two years have foreclosed on the houses of thousands of active-duty U.S. soldiers who are legally eligible to have foreclosures halted. Refusing to grant foreclosure stays is a misdemeanor under federal law.

The U.S. Treasury confirmed in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.

In Alabama, a federal bankruptcy judge ruled last month that Wells Fargo & Co. had filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.

Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.

And in thousands of cases, documents required to transfer ownership of mortgages have been falsified. Lacking originals needed to foreclose, mortgage servicers drew up new ones, falsely signed by their own staff as employees of the original lenders – many of which no longer exist.

But the mortgage-foreclosure mess has yet to yield any federal prosecution against the big banks that are the major servicers of home loans.


Reuters has identified one pending federal criminal investigation into suspected improper foreclosure procedures. That inquiry has been under way since 2009.

The investigation focuses on a defunct subsidiary of Jacksonville, Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks.

People close to the investigation said indictments may come as early as the end of this month. Nationwide press reports had showed photos of what appeared to be obviously forged signatures on foreclosure affidavits.

The Justice Department doesn’t disclose pending investigations, making it impossible to say if other criminal inquiries are underway. Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.

“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”

Spokesmen for the five largest servicers – Bank of America Corp., Wells Fargo & Co., JP Morgan Chase & Co, Citigroup Inc., and Ally Financial Group – declined to comment about the possibility of widespread fraud for this article.

Paul Leonard, spokesman for the Housing Policy Council, whose membership includes those banks, said any faults in foreclosure cases are being addressed under a civil settlement earlier this year with federal regulators.


Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators who allegedly defrauded banks with forged mortgage applications or took advantage of homeowners by falsely promising arrangements to get them out of default and then pocketing their money.

Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks. She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”

Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.

In a November 30 court hearing, not previously reported, a federal bankruptcy judge in New York accused Bank of America of falsely telling courts and the public that it was working to renegotiate loans.

“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Drain said Bank of America had been telling the court since January that it was working to modify Tomasulo’s mortgage, but hadn’t done so.

“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”

Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury in 2011 suspended loan modification incentive payments to the bank because it was “seriously deficient” in responding to requests for modifications.


Foreclosure fraud came to light in September 2010, with evidence that employees of Ally Financial Corp. had committed “robo-signing,” in which low-level workers signed and swore to the facts in thousands of affidavits they hadn’t read or checked.

The affidavits were notarized outside the signers’ presence, in apparent violation of state and federal criminal laws.

Since then, mounting evidence of possible foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.

A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy.”

Banks, the Trustees Program says, have falsified affidavits by claiming homeowners owe fees for services never rendered and by overstating how much owners are behind on payments.

Former federal prosecutor Daniel Richman, a professor of criminal law at Columbia University Law School, says a central question is who prosecutors would target in criminal investigations. Richman said it would be easy but not worthwhile to charge large numbers of rank-and-file workers who, directed by supervisors, falsely churned out affidavits.

He said criminal investigations would be warranted, but harder to bring, “if there are particular individuals who lie at the heart of this conduct in a very significant way.”

In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.

The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for harmed homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much.

Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.

Since then, the department’s civil division has worked with a shaky coalition of all 50 states, which have been seeking a civil settlement with five banks that are the largest loan servicers. The negotiations center on requiring them to pay $20 billion or more in penalties, only some of which would go to compensate wronged homeowners.


Federal law enforcement has been noticeably absent, even in areas hardest hit by the crisis, such as Las Vegas.

In 2010 the FBI’s Las Vegas office shut down its mortgage fraud task force, which had focused on small-scale swindlers.

Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.

Impatient with the lack of federal prosecution, states including New York, Massachusetts, Delaware and California have launched their own investigations of the banks.

In November, it became the first state to file criminal charges. The state attorney general obtained a 606-count indictment against two California-based executives of Lender Processing Services.

It accuses the executives of paying Nevada notaries to forge the pair’s signatures and falsely notarize them on notices of default, documents Nevada requires in foreclosure actions. State officials said more indictments are expected.

In an interview, John Kelleher, Nevada’s chief deputy attorney general, said the investigation began in response to citizen complaints.

“We were concerned and then shocked at the sheer number of fraudulent documents we were finding that had been filed with the county recorder,” Kelleher said.

Investigators found “tens of thousands” of false records filed on behalf of big mortgage servicers, he said.

The two executives have pleaded not guilty. In a press release, the company said: “LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure.”


The U.S. Attorney’s Office in Manhattan is the federal prosecutors’ office that traditionally has filed the most cases against top banks and financiers. But it hasn’t brought any foreclosure-related criminal cases involving Wall Street’s biggest financial houses or the law firms that represent them.

To date the only step it has taken publicly was an October 2011 civil settlement with New York State’s largest foreclosure law firm.

The Steven J. Baum P.C. law firm, based near Buffalo, New York, in recent years filed approximately 40 per cent of all foreclosures in New York State, on behalf of banks and other mortgage servicers. Court records show that the firm angered state court judges for alleged false statements and filing suspect documents.

Arthur Schack, a state court judge in Brooklyn, in a 2010 ruling said that pleadings by the Baum firm on behalf of HSBC Bank, a unit of London-based HSBC Holdings, in a foreclosure case were “so incredible, outrageous, ludicrous and disingenuous that they should have been authorized by the late Rod Serling, creator of the famous science-fiction television series, The Twilight Zone.”

Another state judge that year imposed $5,000 in sanctions and ordered the firm to pay $14,500 in attorneys’ fees, ruling that “misrepresentation of the material statements here was outrageous.”

But the U.S. Attorney’s office in Manhattan filed no criminal charges against the Baum firm. Instead, it signed a settlement with Baum ending an inquiry “relating to foreclosure practices.” The agreement made no allegations of wrongdoing, but required the firm to improve its foreclosure practices.

Baum agreed to pay a $2 million civil penalty, but didn’t admit wrongdoing.

The law firm said it would shut down after New York Times columnist Joe Nocera in November published photographs of a 2010 Baum firm Halloween party in which employees dressed up as homeless people. Another showed part of Baum’s office decorated to look like a row of foreclosed houses.

“The settlement between the Manhattan U.S. Attorney’s Office and the Steven J. Baum Law Firm resulted in immediate and comprehensive reforms of the firm’s business practices,” said Ellen Davis, spokeswoman for the Manhattan U.S. Attorney’s office.

Earl Wells III, a spokesman for Baum, said the lawyer wouldn’t comment because “he’s laying low right now.”

An HSBC spokesman said: “We are working closely with the regulators to address any matters raised regarding” the bank’s foreclosure practices.


The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts uniformly have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.

Bankruptcy court records reviewed by Reuters show that at least a dozen radically different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.

In one, Wells Fargo is battling to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.

In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing or seemed obviously altered on the second. And the second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.

The judge threw out the second attempt too. Wells Fargo is trying a third time. It declined to comment on the case.

Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, alleging “fabrication of documents.”

“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”

The office of Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.

In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.

In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.

In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”

Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.

“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.

25 People to Blame for the Financial Crisis. Here’s #’s15, Through 11.

Bernard Madoff

His alleged Ponzi scheme could inflict $50 billion in losses on society types, retirees and nonprofits. The bigger cost for America comes from the notion that Madoff pulled off the biggest financial fraud in history right under the noses of regulators. Assuming it’s all true, the banks and hedge funds that neglected due diligence were stupid and paid for it, while the managers who fed him clients’ money — the so-called feeders — were reprehensibly greedy. But to reveal government and industry regulators as grossly incompetent casts a shadow of doubt far and wide, which crimps the free flow of investment capital. That will make this downturn harder on us all.

Sandy Weill, #14.

  • Sandy Weill

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill’s acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country’s major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill’s Citigroup. The government (tax-payers) has already spent $45 billion trying to fix it.

Jimmy Cayne, #13.

James Cayne

Plenty of CEOs screwed up on Wall Street. But none seemed more asleep at the switch than Bear Stearns‘ Cayne. He left the office by helicopter for 3 ½-day golf weekends. He was regularly out of town at bridge tournaments and reportedly smoked pot. (Cayne denies the marijuana allegations.) Back at the office, Cayne’s charges bet the firm on risky home loans. Two of its highly leveraged hedge funds collapsed in mid-2007. But that was only the beginning. Bear held nearly $40 billion in mortgage bonds that were essentially worthless. In early 2008 Bear was sold to JPMorgan for less than the value of its office building. “I didn’t stop it. I didn’t rein in the leverage,” Cayne later told Fortune.

Dick Fuld, #12.

Richard Fuld

The gorilla of Wall Street, as Fuld was known, steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO, which ended when Lehman did.

Frank Raines, #11.

Franklin Raines

The mess that Fannie Mae has become is the progeny of many parents: Congress, which created Fannie in 1938 and loaded it down with responsibilities; President Lyndon Johnson, who in 1968 pushed it halfway out the government nest and into a problematic part-private, part-public role in an attempt to reduce the national debt; and Jim Johnson, who presided over Fannie’s spectacular growth in the 1990s. But it was Johnson’s successor, Raines, who was at the helm when things really went off course. A former Clinton Administration Budget Director, Raines was the first African-American CEO of a Fortune 500 company when he took the helm in 1999. He left in 2004 with the company embroiled in an accounting scandal just as it was beginning to make big investments in subprime mortgage securities that would later sour. Last year Fannie and rival Freddie Mac became wards of the state. Later, the REAL culprits.

Analysis: Banks Expect to Spend Less on Bad Mortgages. But I Don’t.

Even as President Barack Obama is calling for more assistance for struggling mortgage borrowers, major banks are looking forward to spending less to handle problem home loans.

The chief executives of JPMorgan Chase & Co and Bank of America Corp, the two biggest U.S. banks, said this month their rate of spending to handle troubled mortgages had topped out and should begin to decline soon with falling delinquency rates. Wells Fargo & Co, the fourth-biggest bank, also is counting on lower mortgage expenses this year.

With fewer problem loans to process, the banks could reduce the army of back-office staffers who handle the paperwork and phone calls required by foreclosures.

Bank executives are under pressure from investors to reduce expenses to improve profits amid weak demand for loans in the slow economy. If the three big banks are right in anticipating that the wave of mortgage defaults will subside, their bottom lines will get a lift — and property values will firm up, to the benefit of neighborhoods across the country.

Others are not so optimistic. Executives of Citigroup Inc, the third-biggest bank, continue to caution that mortgage issues, including legal liability for alleged abuses, remain the biggest single threat to the U.S. banking industry. And some consumer advocates worry that the banks could scale back too quickly on their mortgage workout staff.

Obama, who said in his State of the Union address on Tuesday that he intends to ease the mortgage burdens of “millions of innocent Americans,” is sending Congress a plan to allow homeowners to refinance at lower rates even when they owe more than their homes are worth. Also under discussion: a multistate settlement in which banks could pay up to $25 billion in exchange for protection from future lawsuits about improper foreclosures and lending and servicing abuses.

After the bust in house prices, the banks built up armies of staff to handle problem loans, said Guy Cecala, publisher of industry trade journal Inside Mortgage Finance.

“I’m not passing judgment on how well it works or how efficient it is,” he said. “But they have adequate staffing.”

JPMorgan nearly tripled its staff over three years to 20,000 people. “That number has probably peaked, and I think you will see it coming down over the next couple years,” JPMorgan Chief Executive Jamie Dimon told analysts who questioned him about expenses after the company reported lower fourth-quarter profits. Meaning:  higher unemployment. (add a colon after meaning)

Dimon forecasts that two-thirds of the $925 million of expenses JPMorgan incurred to service mortgages in the quarter will go away. (forecast should be plural)

JPMorgan’s mortgage delinquencies are down sharply from 18 months ago, and the bank charged off less than half as much money for problem home loans in the fourth quarter as it did a year earlier.

Bank of America is working off a mountain of mortgage problems left from its 2008 purchase of subprime lender Countrywide Financial. It now has about 32,000 workers handling delinquent or other at-risk mortgage loans, more than six times the staff it had in 2008. The bank spent $2 billion in the fourth quarter, excluding litigation costs, on the issue.

Chief Executive Brian Moynihan said that over time that spending will be reduced to $300 million per quarter, even taking into account stricter servicing regulations faced by banks. (delete second ‘that’)

Moynihan noted that total loans more than 60 days past due declined more than 20 percent from a year earlier to about 1.1 million in the fourth quarter. He said the bank expects costs to decline in 2012 but that it could take up to two years for expenses to return to normal levels.

The resolution of problem loans will depend on how fast the economy improves and the unemployment rate declines, Bank of America spokesman Dan Frahm said. The bank will continue to make “investments necessary to meet the needs of our customers,” he added.

San Francisco-based Wells Fargo told analysts it expects to reduce its quarterly expenses for troubled mortgages and foreclosures to as low as $600 million, compared with $718 million in the fourth quarter.

“We do believe that there are some cyclically high mortgage costs that are going to roll off,” CEO John Stumpf told analysts.

Dan Alpert, managing partner with investment bank Westwood Capital LLC, said, “If the expectation is that the economy is strengthening and new defaults will start to slack off, then yes, expenses should go down.”

But Alpert cautioned that if the economy is doing “a head fake, like in the first and second quarters of last year, then defaults will start going up again.”

Diane Thompson, an attorney with the not-for-profit National Consumer Law Center, said it is premature for banks to say their operations are ready to be scaled back.

Banks continue to lose documents, give bad information to customers and take too long to resolve loan modification applications, said Thompson, whose organization assists struggling borrowers.

Banks could also have additional costs if they agree to new servicing standards to reach a settlement with federal officials and state attorneys general investigating alleged foreclosure abuses.

Some statistics suggest the foreclosure crisis is far from over. A study last fall by the Center for Responsible Lending estimated that while more than 2.7 million homeowners who received loans between 2004 and 2008 had already lost their homes to foreclosure, another 3.6 million were still at serious risk of ending up in the same boat.

Citigroup executives cautioned last week, for the second time in three months, that overall delinquency rates had stopped falling recently because some borrowers, who previously defaulted and had their mortgages modified, had defaulted again. Citigroup also said its servicing costs increased in the fourth quarter because it spent more to comply with a settlement banks reached last year with some regulators over the handling of mortgages.

“We continue to believe mortgage-related issues are the single largest source of risk facing the U.S. banking industry,” Citigroup Chief Financial Officer John Gerspach told analysts.

Alongside servicing costs for existing mortgages and potential losses on the loans, banks also still face allegations that they broke laws during the housing boom by giving loans to unqualified borrowers and then fraudulently packaged and sold mortgage-backed bonds. Obama pledged Tuesday to ramp up government investigations of those allegations, which could lead to billions of dollars of litigation expenses and penalties for banks.

But Citigroup executives also noted that repeat defaults are not as frequent as it had expected and that early-stage delinquencies were less common in the fourth quarter than in the third quarter.

Paul Miller, a bank analyst at FBR Capital Markets, said big banks’ servicing expenses are likely to fall from current levels. But he cautioned that significant relief will not come as quickly as the banks would like.

“I would think 2012 is probably the year it peaks,” Miller said, “but it’s not like it’s going down by 50 percent.” No, it isn’t.

You Want New Lending? Not from Banks, and Not Anytime Soon.


Big Banks “Killed” in 4Q Mortgage Results

If you expect the banks to start opening the credit spigot anytime in the next two years, forget it!

The big banks’ mortgage expenses keep piling up, in a backlog that is likely to drag down their profits — and a broader housing recovery — for the foreseeable future.

As the largest banks reported quarterly results this month, they took charges for repurchasing soured loans, complying with federal mortgage servicing standards, paying for an upcoming settlement with state attorneys general and resolving significant foreclosure and litigation costs.

The mortgage woes at big banks have been so dire for so long that Jamie Dimon‘s comment this month that JPMorgan Chase & Co. was “getting killed in mortgages” became a footnote rather than the main story.

Even Wells Fargo & Co., which posted the strongest fourth-quarter mortgage results and now controls a third of the U.S. mortgage market, had significant costs for loan repurchases and mortgage servicing failures. It posted about $300 million in costs related to mortgage servicing and foreclosures.

The worst problem, analysts say, is that the banks’ fourth-quarter charges do not necessarily signal any sort of resolution to the litigation and regulatory risk for banks with significant mortgage exposure.

“The optimistic view is these are one-time charges and they will be over and done with,” says Brian Foran, an analyst at Nomura Securities. “But some of the charges are not big enough to cover everything.”

Foran singled out U.S. Bancorp and PNC Financial Services Group Inc., which both took charges in the quarter related to the pending settlement agreementwith state attorneys general and to the cost of complying with federal consent orders for past mortgage servicing failures.

US Bank took a $130 million charge for the settlement and $34 million for servicing compliance; PNC disclosed a total of $240 million in expenses for both, including foreclosure costs.

But those expenses might not be enough to cover the banks’ exposure from the settlement, which has been negotiated for months. Foran cites some concern that banks will have to “dig deeper” by giving borrowers principal reductions beyond the upfront costs of a settlement. Because banks cannot talk in detail about the settlement before it is finalized and announced, they have not been able to explain what the payouts would actually cover, he says.

Though mortgage banking profits are up and origination volume increased for some banks in the fourth quarter, mortgage loan growth has fallen from a year ago. Bank of America Corp.‘s pullback in correspondent lending continues to remake the overall mortgage landscape as banks try to bolster their capital levels.

At B of A, mortgage origination volume dropped 77% from a year ago to just $18 billion at Dec. 31, a dramatic retreat. Though Wells Fargo appears to be the main beneficiary of B of A’s withdrawal from mortgages, the San Francisco bank had a 6.2% decline from a year earlier in fourth-quarter mortgage originations, to $120 billion.

JPMorgan Chase’s mortgage origination volume dropped 24% from a year earlier to $38.6 billion, while Citigroup Inc.‘s fell 3% to $21 billion from a year ago.

Banks saw some signs of life in consumer and especially corporate lending, but analysts were still largely unimpressed.

“Loan growth was tepid,” says Frederick Cannon, a co-director of research and chief equity strategist at Keefe, Bruyette & Woods, Inc. “Solid organic loan growth is very difficult to achieve when consumers and corporations are deleveraging and economic growth is moderate.”

Banks are having a tough time growing revenues or earnings “meaningfully,” Cannon says, particularly when balance sheets are shrinking.

Each bank is facing unique hurdles in its mortgage operations. Wells Fargo, for example, is trying to liquidate a $112.3 billion loan portfolio, which Cannon says “may present a challenge to loan growth in the coming quarters.”

But the challenges for Bank of America are far more acute, he says, because the bank’s pullback in mortgages is likely to overshadow any potential gains for the foreseeable future.

“Mortgage accounting is not friendly when you’re shrinking your mortgage operations,” Cannon says. “They’re more and more just going to be servicing bad loans for a long time, which means the cost of servicing is going up.”

High servicing expenses are expected to be a drag on the top banks for some time to come. JPMorgan Chase’s mortgage servicing expenses totaled $925 million in the fourth quarter, down 4% from a year earlier, but chief financial officer Doug Braunstein told analysts during a conference call that servicing costs will continue to be high in the first half of 2012. He attributed 75% of those expenses to costs for defaulted loans and foreclosures. (JPMorgan Chase posted a $258 million loss in its mortgage unit, compared with a profit of $330 million a year earlier.)

A drop in mortgage volume and high servicing costs are not the only reasons behind industry members’ pessimism. Some of the biggest hits in the quarter came from mortgage repurchase requests, which remain elevated and show no signs of abating.


The high level of repurchase requests in the fourth quarter “indicate that repurchases are not going to go away any time soon,” Pfeifer says. “There is still a substantial amount of repurchases requests out there. The tail of the litigation risk is very long.”


Wells took a $404 million provision for mortgage loan repurchase losses; JPMorgan Chase took a $390 million provision; B of A set aside $263 million for repurchases and Citigroup took a $200 million hit.

Meanwhile, SunTrust Banks Inc. said Friday it had to increase reserves for mortgage repurchases to $320 million.

Fannie Mae and Freddie Mac are being “hyper-aggressive” in pursuing repurchase claims, because they have a statute of limitations of between four to six years to do so, says Michael Pfeifer, a managing partner at the law firm Pfeifer & DeLaMora LLP in Orange, Calif., which defends mortgage lenders and banks against repurchase requests.

He adds that some banks are quietly settling repurchase claims with the Federal Deposit Insurance Corp., which has a longer statute of limitations.

B of A, which has perhaps the most exposure to mortgages from its ill-fated acquisition of Countrywide Financial Corp., said it ended 2011 with $15.9 billion reserved to address potential representation and warranties mortgage repurchase claims, up from just $5.4 billion at the end of 2010