Big Banks Woo Subprime Borrowers Again

By Jessica Silver-Greenberg and Tara Siegel Bernard

4/11/2012

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending

her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

Auto loans are particularly attractive for lenders since they were largely untouched by many of the new regulations. The new Consumer Financial Protection Bureau said it had not yet decided whether it would oversee the largest nonbank auto lenders.

At the same time, the market for securities made up of bundles of auto loans is heating up. Last year, investors scooped up $11.7 billion in auto loan securities, up from $2.17 billion in 2008. The pace of securitization in credit cards is slower, with lenders selling roughly 30 percent of their card portfolios to investors, down from 60 percent before the financial crisis, according to S&P.

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HOW LONG UNTIL SUB-PRIME MORTGAGES RETURN?

Breadth of Payroll Gains Adds Heft to Recovery

By Bob Willis and Rich Miller – Feb 4, 2012

The U.S. labor market recovery is broadening as industries from construction to retail to manufacturing added workers in January and the jobless rate fell to the lowest level in three years.

The world’s largest economy generated 243,000 jobs last month following a 203,000 increase in December, Labor Department figures showed yesterday in Washington. The share of industries showing job gains climbed to the highest level since April.

Stocks advanced, extending the best start to a year for the Standard & Poor’s 500 Index since 1987, on optimism the economy will weather the European debt crisis. The data may help President Barack Obama’s re-election bid while casting doubt on the Federal Reserve’s plan to keep lending rates low at least through late 2014.

“There’s encouraging breadth in terms of what we are seeing in the labor market,” Bruce Kasman, chief economist at JPMorgan Chase & Co in New York, said in a conference call after the report. “We got good gains in both the goods-producing and service-producing industries,” he said. “We don’t think the Fed will need to deliver further quantitative easing during 2012,” he said, referring to large-scale asset purchases.

The Labor Department’s so-called employment diffusion index, which measures the share of industries adding jobs, climbed to 64.1 in January from 62.4 a month earlier. The gauge was last higher in April, when it was at 65.2. Prior to a surge in early 2011, the index was last above 61 in January 2007. Readings above 50 signal more industries are adding jobs than cutting them.

Service Providers

Manufacturing payrolls increased by 50,000, the most in a year, and service providers added 162,000 jobs, the biggest gain since September. Professional and business services hired 70,000 workers, the most since March. Employment in leisure and hospitality, education and health care also rose.

“It basically gives the recovery more legs if the hiring is broad-based,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York. “You want the improving economic picture to come from many industries.”

The unemployment rate fell to 8.3 percent in January from 8.5 percent.

The payroll report coincided with other stronger-than- forecast data this week. Service industries last month grew the most in a year, and the pace of manufacturing expansion was the strongest since June, according to the Tempe, Arizona-based Institute for Supply Management.

Car Sales

Car sales in January rose to a 14.1 million annual rate, the highest since the government’s “cash-for-clunkers” program in August 2009, industry data showed.

Excluding J.C. Penney Co. (JCP) and Walgreen Co., same store sales for the 20 companies tracked by Swampscott, Massachusetts- based Retail Metrics advanced 4 percent, beating estimates for a 3 percent gain.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Revisions added a total of 60,000 jobs to payrolls in November and December.

Sustained increases of around 200,000 jobs a month are needed to bring the unemployment rate down one percentage point over a year, according to Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

Obama used yesterday’s report to push lawmakers for an extension of the payroll-tax cut for workers and unemployment benefits.

‘Speeding Up’

“The recovery is speeding up,” Obama said at a fire station in Arlington, Virginia. “And we’ve got to do everything in our power to keep it going.”

Employment, overtime and hours worked in factories increased as manufacturers, who have been leading the two-year recovery, boosted production to rebuild inventories and meet global demand for their goods.

Assembly-line workers put in an average 41.9 hours of work each week, the most since 1998.

Tibco Software Inc. (TIBX) plans to hire 500 people in the U.S. this year as the economy improves and Europe works out its debt crisis, Vivek Ranadive, chief executive officer of the Palo Alto, California-based company said in an interview.

“We are hiring quite rapidly now, all in sales and service,” Ranadive said last week at the World Economic Forum’s annual conference in Davos, Switzerland. “It’s a good time to hire.”

Construction companies added 21,000 workers last month. The number of people unable to go to work because of bad weather was 206,000 last month, less than half the 424,000 average for the month since 1976. The shortfall signals mild weather may have played a role in the gain in employment, according to Neil Dutta, an economist at Bank of America Corp. in New York.

Hourly Earnings

Average hourly earnings rose 0.2 percent to $23.29, the report showed. The average work week for all workers held at 34.5 hours.

The Fed said on Jan. 25 that it would extend its low-rate pledge from a prior date of mid-2013. Bernanke, speaking at a news conference after the meeting, said that the option of a third round of large-scale bond purchases is still “on the table.”

“We still have a long way to go before the labor market can be said to be operating normally,” Bernanke told the House Budget Committee in Washington this week.

Yesterday’s figures may change the Fed’s thinking, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The report definitely scales down the odds for QE3, particularly the drop in the unemployment rate,” Feroli said. “There is strength in the labor market.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net; Richard Miller in Washington at rmiller28@bloomberg.net

Will Others Follow MetLife’s Exit?

Mortgage Daily News,  BY ROB CHRISMAN

Jan 11 2012

Some would say it is grim out there, and no, I am not talking about Hostess Brands, the manufacturer of Twinkies, Ho Hos, and Ding Dongs cake snacks, filing for Chapter 11 bankruptcy.  Is it right that 4,300 of our brethren were notified of losing their jobs, after a potential sale fell through, in a letter to clients with a dancing Snoopy in the letterhead?

“To Our Valued Customers…We have made the decision to wind‐down all MetLife Home Loans’ (MLHL) forward origination business, including the Institutional Lending Group (ILG)… We will continue to honor all of our loan commitments and will maintain the necessary staff in place to ensure each of your loan transactions closes (subject to the loans meeting all investor and MLHL guidelines).  Our sales and support teams will work with each of you to ensure this transition is as transparent to your customers and referral partners as possible.  In return, we ask that you keep your commitment by delivering your locked pipeline in accordance with our agreements…”

The top five wholesale lenders for the 3rd quarter, volume-wise, were in order: Provident Funding, U.S. Bank Home Mortgage, Wells Fargo, Flagstar, and MetLife Home Loans.  The top twelve correspondent lenders for the 3rd quarter, volume-wise, were in order: Wells Fargo, BofA, Chase, GMAC, Citi, Flagstar, PHH, U.S. Bank, BB&T, Franklin American, SunTrust, and MetLife.  And when one adds in retail originations to the other two channels, for the 3rd quarter MetLife clocked in at #10 (per National Mortgage News).

I received this note: “If Fannie and Freddie don’t wake up and expedite their approval process the industry will be gone. Private investors such as Wells are bogged down in operations. Companies aren’t long for this world when they don’t have agency approval – we saw what happened last month to O 2 Funding. Every lender out there is grabbing onto the apron strings of the agencies; the same agencies that many in the government want to shut down! Where will that leave things?”

On top of this, investors in Residential Capital Corp., which does business as GMAC Mortgage, have organized out of concern that the residential lender and loan servicer could be headed toward bankruptcy.  Parent Ally Financial had hoped to take ResCap/GMAC public in 2011 but ultimately scrapped those plans; it has since cited “risk factors” with the unit but has not specifically discussed a possible bankruptcy filing.  And another top investor, PHH, was downgraded by S&P and raised its doubts over continuing as a “going concern” if it failed to improve its liquidity.  PHH is also being investigated by the CFPB regarding its mortgage insurance practices.

One can just hear large lenders talking in their boardrooms.  “Do we really want to be in this business, given the regulatory, legal, financial, and public relations issues? Where the value of servicing has dropped dramatically in the market, and could drop further depending on Basel III?  Where the mortgage insurance tax deductibility has gone away?  Where every week brings a new lawsuit – when will we have more attorneys on staff than originators?”

The shutdown will cost insurer MetLife about $100 million.  “We continue to move forward with our plans to cease being a bank holding company,” the CEO said last month.  Servicing and reverse mortgage origination will continue, at least at this time.  John Calagna, as spokesman for MetLife, noted that most of the 4,300 employees at the unit will lose their jobs, 20% of whom are in Irving, Texas. (Add this to Bank of America’s announced 30,000 job cuts, and Citi’s 4,500, and one really starts to make a dent in financial services.)

The news is not much better elsewhere.  JPMorgan Chase’s mortgage originations in 2011 were the lowest in 10 years.

Lastly, Michael Williams announced his intention to step down as CEO of Fannie Mae after 21 years with the agency.  He’s had that post since April 2009, and is viewed as the leader in guiding Fannie Mae through the transition into conservatorship and in “directing Fannie Mae’s efforts to enhance loss mitigation strategies, including loan modification and refinanceoptions to help struggling homeowners.”  FHFA will work with the Fannie Mae board of directors in searching for a new CEO.