Using Veritas to Construct the "Per…

29-04-2017 Hits:39336 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:40112 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:39529 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:41298 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:40860 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:43420 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:28202 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:42046 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:41985 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:42226 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:44305 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:43687 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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 Two months ago I pointed out an anomaly in JP Morgan's "blowout" quarterly earnings release - Reggie Middleton on JP Morgan's "Blowout" Q4-09 Results. Let's reminisce...

Warranties of representation, and forced repurchase of loans

JP Morgan has increased its reserves with regards to repurchase of sold securities but the information surround these actions are very limited as the company does not separately report the repurchase reserves created to meet contingencies. However, the Company's income from mortgage servicing was severely impacted by increase in repurchase reserves. Mortgage production revenue was negative $192 million against negative $70 million in 3Q09 and positive $62 million in 4Q08.

Counterparties who are accruing losses from bad loans, (ex. monoline insurers such as Ambac and MBIA, see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton circa November 2007,) are stepping up their aggression in pushing loans that appear to breach certain warranties or smack of fraud. I expect this activity to pick up significantly, and those banks that made significant use of brokers and third parties to place mortgages will be at material risk - much more so than the primarily direct writers. I'll give you two guesses at which two banks are suspect. If you need a hint, take a look at who is increasing reserves for repurchases! JP Morgan and their not so profitable acquisition, WaMu! 

http://boombustblog.com/images/stories/regional_banks/32bustedbanks/thumbnails/thumb_image020.png

As I said, losses should be ramping up on the mortgage sector. Notice the trend of housing prices after the onset of government bubble blowing: If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

PNC Bank and Wells Fargo are in very similar situations regarding acquiring stinky loan portfolios. I suggest subscribers review the latest forensic reports on each company to refresh as the companies report Q4 2009 earnings. Unlike JPM, these banks do not have the investment banking and trading fees of significance (albeit decreasing significance) to fall back on as a cushion to consumer and mortgage credit losses.

Well, it looks as if I was onto something. From Bloomberg:

March 5 (Bloomberg) -- Fannie Mae andFreddie Mac may force lenders includingBank of America Corp.JPMorgan Chase & Co.Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.

 That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.

The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

...

Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost triple the amount in 2008, according to a Feb. 26 filing. As of Dec. 31, Freddie Mac had another $4 billion outstanding loan-purchase demands that lenders hadn’t met, according to the filing. Fannie Mae didn’t disclose the amount of its loan-repurchase demands. Both firms were seized by the government in 2008 to stave off their collapse.

....

The government’s efforts might be counterproductive, since the Treasury and Federal Reserve are trying to help banks heal, FBR’s Miller said. The banks have to buy back the loans at par, and then take an impairment, because borrowers usually have stopped paying and the price of the underlying homehas plunged. JPMorgan said in a presentation last month that it loses about 50 cents on the dollar for every loan it has to buy back.

Striking a Balance

“It’s a fine line you’re walking, because the government’s trying to recapitalize the banks, not put them in bankruptcy, and then here’s Fannie and Freddie putting more pressure on the banks through these buybacks,” FBR’s Miller said. “If it becomes too big of an issue, the banks are going to complain to Congress, and they’re going to stop it.” [Of, course! Let the taxpayer eat the losses borne from our purposefully sloppy underwriting]

Bank of America recorded a $1.9 billion “warranties expense” for past and future buybacks of loans that weren’t properly written, seven times the 2008 amount, the bank said in a Feb. 26 filing. A spokesman for Charlotte, North Carolina- based Bank of America, Scott Silvestri, declined to comment.

JPMorgan, based in New York, recorded $1.6 billion of costs in 2009 from repurchases, including $500 million of losses on repurchased loans and $1 billion to increase reserves for future losses, according to a Feb. 24 filing.

“It’s become a very meaningful issue, and it will continue to be a meaningful issue for the next couple of years,” Charlie Scharf, JPMorgan’s head of retail banking, said at a Feb. 26 investor conference. He declined to say when the repurchase demands might peak.

...

“I can’t forecast the rates at which they’re going to continue,” she said. Her division lost $3.84 billion last year, as the bank overall posted a $6.28 billion profit. “The volume is increasing.”

Wells Fargo, ranked No. 1 among U.S. home lenders last year, bought back $1.3 billion of loans in 2009, triple the year-earlier amount, according to a Feb. 26 filing. The San Francisco-based bank recorded $927 million of costs last year associated with repurchases and estimated future losses.

...

Citigroup increased its repurchase reserve sixfold to $482 million, because of increased “trends in requests by investors for loan-documentation packages to be reviewed,” according to a Feb. 26 filing.

“The request for loan documentation packages is an early indicator of a potential claim,” New York-based Citigroup said.

...

Banks that sell mortgages to Fannie Mae and Freddie Mac have to provide “representations and warranties” assuring that the loans conformed to the agencies’ standards. With more loans going bad, the agencies are demanding that banks turn over loan files, so they can scour the records for missing documentation, inaccurate data and fraud.

...

The most common include inflated appraisals or falsely stated incomes in the loan applications, said Larry Platt, a Washington-based partner at law firm K&L Gates LLP who specializes in mortgage-purchase agreements. The government agencies hire their own reviewers who go back and compare the appraisals with prices from historical home sales, he said.

“They may do a drive-by for a visual inspection,” he said.

Wells Fargo said three-fourths of its repurchase requests came from Freddie Mac and Fannie Mae. While investors may demand repurchase at any time, most demands occur within three years of the loan date, Wells Fargo said.

The mortgage firms are looking at every loan more than 90 days past due and “asking us basically to give them all the documentation to show that it was properly underwritten,” JPMorgan’s Scharf said. “We then go through a process with them that takes a period of time, and literally it’s every loan, loan-by-loan, and have the discussion on whether or not we actually should buy the loan back.”

...

Mortgage repurchases may crimp bank earnings through 2011, Oppenheimer’s Kotowski said. That’s because the worst mortgages -- those underwritten in 2007 -- are just now coming under the heaviest scrutiny, he said.

...

“The worst of the stress is the 2007 vintages, though 2006 and 2005 weren’t a whole lot better and 2008 wasn’t much better,” Kotowski said.

Next week, the Mortgage Bankers Association is holding a workshop in the Dallas area that promises to help banks “survive the buyback deluge” and “build up your repertoire of lender defenses.” According to the MBA’s Web site, the workshop is sold out.

 That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.

The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

...

Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost triple the amount in 2008, according to a Feb. 26 filing. As of Dec. 31, Freddie Mac had another $4 billion outstanding loan-purchase demands that lenders hadn’t met, according to the filing. Fannie Mae didn’t disclose the amount of its loan-repurchase demands. Both firms were seized by the government in 2008 to stave off their collapse.

....

The government’s efforts might be counterproductive, since the Treasury and Federal Reserve are trying to help banks heal, FBR’s Miller said. The banks have to buy back the loans at par, and then take an impairment, because borrowers usually have stopped paying and the price of the underlying homehas plunged. JPMorgan said in a presentation last month that it loses about 50 cents on the dollar for every loan it has to buy back.

Striking a Balance

“It’s a fine line you’re walking, because the government’s trying to recapitalize the banks, not put them in bankruptcy, and then here’s Fannie and Freddie putting more pressure on the banks through these buybacks,” FBR’s Miller said. “If it becomes too big of an issue, the banks are going to complain to Congress, and they’re going to stop it.” [Of, course! Let the taxpayer eat the losses borne from our purposefully sloppy underwriting]

Bank of America recorded a $1.9 billion “warranties expense” for past and future buybacks of loans that weren’t properly written, seven times the 2008 amount, the bank said in a Feb. 26 filing. A spokesman for Charlotte, North Carolina- based Bank of America, Scott Silvestri, declined to comment.

JPMorgan, based in New York, recorded $1.6 billion of costs in 2009 from repurchases, including $500 million of losses on repurchased loans and $1 billion to increase reserves for future losses, according to a Feb. 24 filing.

“It’s become a very meaningful issue, and it will continue to be a meaningful issue for the next couple of years,” Charlie Scharf, JPMorgan’s head of retail banking, said at a Feb. 26 investor conference. He declined to say when the repurchase demands might peak.

...

“I can’t forecast the rates at which they’re going to continue,” she said. Her division lost $3.84 billion last year, as the bank overall posted a $6.28 billion profit. “The volume is increasing.”

Wells Fargo, ranked No. 1 among U.S. home lenders last year, bought back $1.3 billion of loans in 2009, triple the year-earlier amount, according to a Feb. 26 filing. The San Francisco-based bank recorded $927 million of costs last year associated with repurchases and estimated future losses.

...

Citigroup increased its repurchase reserve sixfold to $482 million, because of increased “trends in requests by investors for loan-documentation packages to be reviewed,” according to a Feb. 26 filing.

“The request for loan documentation packages is an early indicator of a potential claim,” New York-based Citigroup said.

...

Banks that sell mortgages to Fannie Mae and Freddie Mac have to provide “representations and warranties” assuring that the loans conformed to the agencies’ standards. With more loans going bad, the agencies are demanding that banks turn over loan files, so they can scour the records for missing documentation, inaccurate data and fraud.

...

The most common include inflated appraisals or falsely stated incomes in the loan applications, said Larry Platt, a Washington-based partner at law firm K&L Gates LLP who specializes in mortgage-purchase agreements. The government agencies hire their own reviewers who go back and compare the appraisals with prices from historical home sales, he said.

“They may do a drive-by for a visual inspection,” he said.

Wells Fargo said three-fourths of its repurchase requests came from Freddie Mac and Fannie Mae. While investors may demand repurchase at any time, most demands occur within three years of the loan date, Wells Fargo said.

The mortgage firms are looking at every loan more than 90 days past due and “asking us basically to give them all the documentation to show that it was properly underwritten,” JPMorgan’s Scharf said. “We then go through a process with them that takes a period of time, and literally it’s every loan, loan-by-loan, and have the discussion on whether or not we actually should buy the loan back.”

...

Mortgage repurchases may crimp bank earnings through 2011, Oppenheimer’s Kotowski said. That’s because the worst mortgages -- those underwritten in 2007 -- are just now coming under the heaviest scrutiny, he said.

...

“The worst of the stress is the 2007 vintages, though 2006 and 2005 weren’t a whole lot better and 2008 wasn’t much better,” Kotowski said.

Next week, the Mortgage Bankers Association is holding a workshop in the Dallas area that promises to help banks “survive the buyback deluge” and “build up your repertoire of lender defenses.” According to the MBA’s Web site, the workshop is sold out.
For all of you JP Morgan fans out there, this was always a very popular piece, An Independent Look into JP Morgan :

The JP Morgan forensic preview is now available. Remember, this is not subscription material, but a "public preview" of the material to come. I thought non-subscribers would be interested in knowing what my opinion of the country's most respected bank was. There is some interesting stuff here, and the subscription analysis will have even more (in terms of data, analysis and valuation). As we have all been aware, the markets have been totally ignoring valuation for about two quarters now. It remains to be seen how long that continues.

Click graph to enlarge

 

image001.png

 Cute graphic above, eh? There is plenty of this in the public preview. When considering the staggering level of derivatives employed by JPM, it is frightening to even consider the fact that the quality of JPM's derivative exposure is even worse than Bear Stearns and Lehman‘s derivative portfolio just prior to their fall. Total net derivative exposure rated below BBB and below for JP Morgan currently stands at 35.4% while the same stood at 17.0% for Bear Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know what happened to Bear Stearns and Lehman Brothers, don't we??? I warned all about Bear Stearns (Is this the Breaking of the Bear?: On Sunday, 27 January 2008) and Lehman ("Is Lehman really a lemming in disguise?": On February 20th, 2008) months before their collapse by taking a close, unbiased look at their balance sheet. Both of these companies were rated investment grade at the time, just like "you know  who". Now, I am not saying JPM is about to collapse, since it is one of the anointed ones chosen by the government and guaranteed not to fail - unlike Bear Stearns and Lehman Brothers, and it is (after all) investment grade rated. Who would you put your faith in, the big ratings agencies or your favorite blogger? Then again, if it acts like a duck, walks like a duck, and quacks like a duck, is it a chicken??? I'll leave the rest up for my readers to decide. 

This public preview is the culmination of several investigative posts that I have made that have led me to look more closely into the big money center banks. It all started with a hunch that JPM wasn't marking their WaMu portfolio acquisition accurately to market prices (see Is JP Morgan Taking Realistic Marks on its WaMu Portfolio Purchase? Doubtful! ), which would very well have rendered them insolvent - particularly if that was the practice for the balance of their portfolio as well (see Re: JP Morgan, when I say insolvent, I really mean insolvent). I then posted the following series, which eventually led to me finally breaking down and performing a full forensic analysis of JP Morgan, instead of piece-mealing it with anecdotal analysis. 

  1. The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets
  2. Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
  3. As the markets climb on top of one big, incestuous pool of concentrated risk...
  4. Any objective review shows that the big banks are simply too big for the safety of this country
  5. Why hasn't anybody questioned those rosy stress test results now that the facts have played out?

You can download the public preview here. If you find it to be of interest or insightful, feel free to distribute it (intact) as you wish.

JPM Public Excerpt of Forensic Analysis Subscription JPM Public Excerpt of Forensic Analysis Subscription 2009-09-18 00:56:22 488.64 Kb