Archive for November, 2010

Regulators to be pressed on foreclosure lapses

Tuesday, November 30th, 2010 | Finance News

WASHINGTON (Reuters) – U.S. regulators will be under pressure Wednesday to show lawmakers they are better policing foreclosures amid widespread evidence that lenders used shoddy paperwork to evict delinquent borrowers.

The Senate Banking Committee is holding a hearing on problems in the mortgage servicing industry and whether they pose a broader risk to the economy or amount to an isolated if nettlesome problem.

The issues facing the still-struggling housing market have been exacerbated by allegations that banks have used "robo-signers" to sign hundreds of foreclosure documents a day without proper legal review.

Regulators have been criticized for not catching the widespread flaws, which have reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.

Federal bank regulators and all 50 state attorneys general are probing Bank of America (BAC.N), JPMorgan (JPM.N), and other major mortgage servicers, many of whom temporarily halted foreclosures to examine their practices, only to then resume them.

These regulators, including Federal Deposit Insurance Corp Chairman Sheila Bair and Federal Reserve Governor Daniel Tarullo, are expected to provide an update on the probe and how big a threat the documentation problems could pose to the banks and housing market recovery.

Representatives from mortgages finance companies Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) have also been summoned to appear.

Fannie Mae and Freddie Mac officials will likely be questioned on their recent decision to resume sales of foreclosed properties.

"I want to hear why they feel that they have corrected policies that have allowed the foreclosures to take place without the rubber stamping and all the excesses that took place in the foreclosure practices," Robert Menendez, chairman of the Senate banking panel's housing subcommittee, told Reuters.

AG PROBE TALKS IN FLORIDA

Much of the action pertaining to foreclosures is taking place outside Washington, with state attorneys general taking a prominent role in investigating the servicing problems.

Officials from Bank of America and JP Morgan Chase have said they would like to have a settlement with states soon, but so far a deal remains elusive and it could be months before one is reached.

The attorneys general are gathering in Florida this week for the winter meeting of their national association. Among their guests will be Elizabeth Warren, President Barack Obama's top adviser on consumer issues.

Warren was scheduled to attend a reception Tuesday night to hear where the attorneys general foreclosure investigation stands and to provide state officials with an update on efforts to stand up the new Consumer Financial Protection Bureau.

Attorneys general and lawmakers have taken aim at the so-called "dual track" practice in which mortgage servicers go ahead with foreclosure proceedings even as they negotiate possible loan modifications aimed at keeping struggling borrowers in their homes. They have derided the process as confusing for borrowers.

A top housing regulator as well as officials from Fannie and Freddie defended the process, however, in testimony prepared for Wednesday's hearing and obtained by Reuters.

"At times, simultaneous actions are necessary because of the long timeframes of the foreclosure process and because borrowers are not always responsive to foreclosure alternative offers," Edward DeMarco, acting director of the Federal Housing Finance Agency, said in prepared testimony. His agency regulates Fannie and Freddie.

(Reporting by Dave Clarke and Corbett B. Daly)

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Time for Fed to show who crisis loans benefited

Tuesday, November 30th, 2010 | Finance News

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WASHINGTON (Reuters) – The Federal Reserve on Wednesday will have to disclose details about emergency loans made during the 2007-2009 financial meltdown, including who borrowed how much and what collateral was offered in return.

The findings, which must be revealed in accordance with a deadline set by a wide-ranging rewrite of U.S. financial rules enacted in July, could shed light on who benefited most from central bank's controversial efforts to support financial institutions and credit markets.

The results might also reignite debate about whether some bailouts, such as the support for insurer AIG (AIG.N), were appropriate.

As the financial crisis that began in the summer of 2007 spread beyond the housing sector to the nation's biggest banks, the Fed, under the leadership of Chairman Ben Bernanke, devised increasingly complex facilities to help restore confidence.

Among these were loans to broker-dealers made outside the Fed's usual discount lending window for troubled institutions, which is reserved for deposit-taking commercial banks.

Investors are curious to see how much money the likes of Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Merrill Lynch, now part of Bank of America (BAC.N), took from the central bank.

"I suspect a lot of institutions might have had their hand out," said Kim Rupert, a managing director at Action Economics in San Francisco. "I expect we'll see some fairly significant borrowings from some of the major financial institutions. It will be interesting to see what foreign institutions were very active."

Other key emergency lending measures included an attempt to revive commercial paper markets with funding from the Fed, as well as a program aimed at securitization markets that also tapped central bank money as an incentive for new deals.

CRYPTIC CLARITY

Arguably, the Fed's most contentious and politically costly decision was the rescue of insurance giant American International Group. Criticism of the Fed grew after it emerged that AIG executives were paying themselves multimillion dollar bonuses.

The Fed-sponsored purchase by JPMorgan of troubled investment firm Bear Stearns in March 2008 also drew heavy scrutiny.

That bailout temporarily quelled market fears about contagion, though Lehman Brothers' failure in September of that year touched off the most virulent phase of the crisis.

Questions linger as to why the Fed and U.S. Treasury decided to let Lehman go after they had acted to save Bear Stearns. The Fed has argued it could not extend a loan to Lehman because the firm was insolvent.

Through it all, the Fed was criticized for being too close to the banking sector, while not doing enough to support the broader economy. In recent months the financial sector has recovered smartly but that rebound has failed to translate into a vigorous economic expansion.

The controversy led to efforts, eventually thwarted, to curtail the central bank's regulatory authority and regularly audit its emergency lending. The one-time disclosure emerged as a compromise.

Some analysts worry that despite the broad nature of the data being released, it would be disclosed in such a way as to make it difficult to make immediate sense of the information.

"My sense is they're going to give us the disclosure in the same grotty fashion (as before)," said Christopher Whalen, managing director at Institutional Risk Analytics, a bank research firm. "It's not going to be well organized so you'll have to sort through it."

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India gold hits record high; 21,000 rupees eyed

Tuesday, November 30th, 2010 | Finance News

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MUMBAI (Reuters) – India's gold benchmark futures on Wednesday struck a record high of 20,625 rupees per 10 grams, tracking firm global markets. Analysts expect the rally to continue and breach 21,000 rupees in coming sessions.

At 10:40 a.m., the contract was at 20,589 rupees, up 0.25 percent, after gaining 1.3 percent in the previous three sessions. The earlier record of 20,624 was hit on Tuesday.

"Gold is expected to trade positive due to continuing debt problems in Europe, and may witness 21,000 rupees by end of the week," said Pranav Mer, senior analyst with Mangal Keshav Commodities.

International gold held near its highest in more than two weeks as growing fears about Portugal's debt pummeled the euro, sending bullion priced in the single currency to a record high.

However, a strong rupee kept the upside in local prices limited, analysts said.

The rupee strengthened supported by positive opening of domestic shares and also tracking gains in other Asian currencies. (Reporting by Siddesh Mayenkar; Editing by Rajesh Pandathil)

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