Displaying items by tag: Mortgage Banking

In October, I posted The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! and As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. Time will tell if I am correct, but the trends are still moving in my favor. From Bloomberg:

JPMorgan Chase & Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said.

JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of 2009, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm.

... JPMorgan’s third-quarter net profit of $4.4 billion, up 23 percent from the year earlier, would have been larger if it hadn’t set aside $1.3 billion of pretax income for lawsuits and $1 billion for mortgage repurchases. Banks haven’t yet reported their results for the fourth quarter.

Of course, there are a few tidbits missing from this statement that can add to its accuracy. Let's see... Where did those profits come from? Again, you will find divergence between how BoomBustBlog reports and that of mainstream financial reporting. See JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! Sunday, October 17th, 2010

In a Nutshell, JPM’s quarterly results were downright horrible – as we expected and warned of in our previous quarterly analyses (see notes at bottom of page)…

Published in BoomBustBlog

About a year ago, after hearing so many pie-in-the-sky perma-bullish pundits and bankers say how banks paid every cent of TARP and government assistance back, I went on the following rant - 10 Ways to say No, the Banks Have Not Paid Back Their Bailout from the Taxpayer! Monday, January 18th, 2010:

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn’t fail, at least in part. So, running down the list, the banks paid back TARP. That’s a +, but….

    1. What was the value for bank charter, to get cheap access to the Fed’s funds? did they pay back this value yet? No!
    1. How about the payment of interest on the banks’ excess reserves at the Fed. Have the banks repaid that yet? No!
    2. The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs. Have the banks paid back the capital behind those purchases yet? No!
    3. How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!
    4. Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!
    5. Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!
    6. What about the PPIP? No!
    7. Hey, there’s the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!
    8. There’s the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!
    9. Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?

Well, all rants aside, if you bothered to go through the mass dump of data that the Fed produced as a result of the Bloomberg FOIL suit, you will find that not only did the banks not pay back the massive amount of assistance that was given to them, they were actually granted more in the form of MOPTARP (MBS Overpayment Troubled Asset Repayment Program), and yes, I did make that up. How much more? Well, potentially more than the original TARP bailout! I'm getting ahead of myself though, so let's backtrack.

Published in BoomBustBlog

I realize that many on the Street probably detest Matt Taibbi, but love him or hate him his expose on Goldman Sachs (Taibbi's Takedown of 'Vampire Squid' Goldman Sachs) was not only a phenomenally interesting read, it brought immense amounts of attention to Goldman Sachs - albeit, practically all extremely negative! Long story, short Taibbi has become a contemporary, literary force to reckon with by creating annals of the arcane, yet mundane annals of financial engineering and making it a damn interesting read. His latest piece on Fraudclosure, albeit quite one-sided, is also quite good. You see, he can get away with being one-sided on this topic, for the banks actually have much, much to apologize for. So, round 1 was Goldman Sachs, and round 2 appears to be Citi, Deustche Bank, Wells Fargo and JP Morgan. Here are a few interesting quips from Matt Taibbi: Courts Helping Banks Screw Over Homeowners -

Published in BoomBustBlog

I feel this month has thrown enough events at the market to force it to start taking the real fundamentals into consideration. Of course, battling this ideal is the US Federal Reserve and their QE 2.1 policy. This should be a time to reflect upon exactly where we stand thus, I will review my thoughts and observations over the last 30 to 45 days and then summarize a truly unbiased and independently calculated view of the downright nasty side effects of the US shadow inventory of distressed housing. All paying subscribers can download the full shadow inventory report here: File Icon Foreclosures & Shadow Inventory. Professional and Institutional subscribers should also download the accompanying data and analysis sheet in Excel - Shadow Inventory.

Over the last few weeks, I have commented on my belief that the big banks who optimistically release reserves and provisions to pad lagging accounting earnings under the auspices of increasing credit metrics are simply setting their investors up for a major reversal which will bang those very same accounting earnings: JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! and ).

Published in BoomBustBlog

From an astute BoomBustBlogger that reads the fine print buried in the middle of a 250 page servicer agreement...



3.12 Realization on defaulted mortgage loans CitiMortgage will use its best efforts, consistent with its customary servicing procedures, to foreclose upon or otherwise comparably convert the ownership of properties securing any mortgage loans that continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to section 3.2. Consistent with the foregoing, CitiMortgage will use reasonable efforts to realize upon defaulted mortgage loans in a manner that will maximize the receipt of principal and interest by the certificate holders, taking into account, among other things, the timing of foreclosure proceedings.

If a deficiency action is available against the mortgagor or any other person, CitiMortgage may proceed for the deficiency. CitiMortgage may retain 25% of the net proceeds received from a mortgagor pursuant to a deficiency action as compensation for proceeding with the deficiency action.

The reader's interpretation was slightly off. The servicer get's to go after the mortgagor in a delinquency action. Please let it be known that this in know way alters the conflicting dynamic that allows for the servicer to push certain mortgagors into foreclosure vs a mod work out. If you are self-employed and judgment proof, you are more likely to get a mod than if you are high income with a steady job with garnishable wages. The profits could very well keep rolling in. Let's engage in some chart porn...

Published in BoomBustBlog

Reggie Middleton with Max Keiser on the Keiser Report and RTT Television

Go to 12:20 in the video to see the portion with Reggie Middleton

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The topics in this interview stem from the post Four Facts That BANG JP Morgan That You Just Won’t Hear From The Sell Side!!!

On the difference between accounting earnings and economic earnings...

... accountants have not been – and currently are not, trained in the economic realities of corporate valuation. They are trained to tabulate business operations data. There is a marked and distinct difference. That difference is as stark as night and day for investors, yet despite this stark difference, Wall Street still reports corporate performance metrics strictly in accounting terms, and the media (both mainstream and the more specialized financial media) simply follow suit. Hence we hear much about easily manipulable and manageable accounting earnings, revenues, operating margins, earnings per share, etc. These measures are highly flawed in a variety of ways, with the primary flaw being that they do not account for the efforts both required and undertaken to achieve them. Basically, they measure JUST HALF (and coincidentally, the positive half may I add) of the risk/reward equation that should be at the root of every investors move. Long story short, they do not account for, nor do they EVEN RESPECT, the cost of capital. This concept ties in closely with Chairman Bernanke’s current course of action as well as the ZIRP discussion later on this missive demonstrates (capital offered at zero cost causes reckless abandonment of risk management principles which eventually causes crashes – yes, more crashes). Acknowledgment of the cost of capital enforces a certain discipline on both corporate management and investors/traders. Without respect for such, it is much too easy to create and portray a scenario that is all too rosy, since we are only looking at rewards but never bother to glance at the risks taken to achieve said rewards. I reviewed this concept in detail as it relates to bonuses and compensation on Wall Street in The Solution to the Goldman (and by Extension, the Securities Industry) Compensation Dilemma.

Published in BoomBustBlog

Here's a little cross pollination to attract bears from all over.  Karl Deninger, the editor of the Market Ticker, invited me over for a half hour chat on his Blog Talk Radio show to discuss things such as foreclosure fraud, banks, derivative risk and the markets. You can access the original airing podcast on Karl's site. I have taken the liberty to append some graphics to the background to add some information to the discussion (see below). Enjoy!

Part One (the impatient may want to skip ahead about 1:32 to get the actual start of the discussion. I highly recommend you choose the 720p HD setting and expand to full screen in order to read the graphics in full fidelity.

Part one

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Part two

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Published in BoomBustBlog

Summary: As the putback parade gets going, the question is not whether the banks can afford to buy back the mortgages. The question is "Can the Banks Afford the Instantaneous and Guaranteed HIT to CAPITAL?" What investors will lend money to see it instantly evaporate, and how much will they charge for those evaporation services? TARP 3.0 coming to a door step near you!!!

As clearly articulated in detail in , entities are looking to stem losses by putting it to the originating banks and/or servicers. From Bloomberg: Pimco, New York Fed Said to Seek Bank of America Repurchase of Mortgages

Oct. 19 (Bloomberg) -- Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said. The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.

Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP. “We now are in a position where we have to start a clock ticking,” Patrick, who is based in Houston, said today in a telephone interview.

Published in BoomBustBlog

I included this sidebar for those of you who have not followed me in the past. You can save some time and just review , but this is probably a lot more entertaining! I took the time to pour through my blog's archives, and...

Hey, Big Wall Street Bank Execs Always Tell the Truth When They're in Trouble, RIIIIGHT????

Here's more of Alan Schwartz lying on TV in March of 2008

Meredith Whitney downgraded Bear Stearns today Friday, March 14th, 2008: "Yep, she did it. The ratings agencies are considering a downgrade. I thought it was a joke when I first heard it. Let's just imagine that I used these wise sources as an info source to make my money! The ratings agencies and sell sides are jokes that I can no longer laugh at."

It's a good thing no one listened to that damn blogger who has the gall to charge money for his research and opinion. We had to listen to him bitch and moan for 2 months before... Is this the Breaking of the Bear? (January 2008)"

Bear Stearns is in Real trouble

Bear Stearns will soon be, if not already, in a fight for its life... the biggest issues don’t seem all that prevalent in the media though. Bear Stearns is in a real financial bind due to the assets that it specialized in, and it is not in it by itself, either. For some reason, the Street consistently underestimates the severity of this real estate crash. If you look throughout my blog, it appears as if I have an outstanding track record. I would love to take the credit as superior intelligence, but the reality of the matter is that I just respect the severity of the current housing downturn – something that it appears many analysts, pundits, speculators, and investors have yet to do with aplomb. With a primary value driver linked to the biggest drag on the US economy for the last century or so, Bear Stearn’s excessive reliance on highly “modeled” and real asset/mortgage backed products in its portfolio may potentially be its undoing. This is exacerbated significantly by leverage, lack of transparency, and products that are relatively illiquid, even when the mortgage days were good."

Notice how the worse case scenario is economic insolvency - as in less than ZERO!

Book Value, Schmook Value – How Marking to Market Will Break the Bear’s Back

...  I can say that when I do watch it I hear a lot of perma-bulls stating that this and that stock is cheap because it is trading at or below its book value. They then go on to quote the historical significance of this event, yada, yada, yada. This is then picked up by a bunch of other individual investors, media pundits and other “professionals,” and it appears that rampant buying ensues. I don’t know how much of it is momentum trading versus actual investors really believing they are buying on the fundamentals, but the buying pressure is certainly there. They then lose their money as the stock they thought was cheap, actually gets a lot cheaper, bringing their investment down the crapper with it. What happened in this scenario? These investors bought accounting numbers instead of true economic book value. Anything outside of simple widget manufacturers are bound to have some twists and turns to ascertain actual book value, actual marketable book value that is. This is what the investor is interested in, the ECONOMIC market value of book, not what the accounting ledger says. After all, you are paying economic dollars to buy this book value in the market, so you want to be able to ascertain marketable book value, I hope it sounds simplistic, because the premise behind it is quite simple – How much is this stuff really worth?. The implementation may be a different matter, though. I set out to ascertain the true book value of Bear Stearns, and the following is the path that I took.

Then he had the nerve to come back with Bear Stearn’s Bear Market – revisited Friday, February 22nd, 2008

So, who was right?

The Bust that Broke the Bear’s Back? Monday, March 10th, 2008: My ruminations on Bear Stearns look to come into their own…

It looks as if the prudent should start debating the ability of Bear Stearns to remain a going concern Thursday, March 13th, 2008

Despite the Federal Reserve’s efforts Wall Street fears a big US bank is in trouble Thursday, March 13th, 2008: While I can't know for sure which IB it may be, my studies tell me it is either the Bear with the Broken Back or the Riskiest Bank on the Street, and that's where I'm concentrating my bets…

From the London Business Times: Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive. The name on most people's lips was Bear Stearns. [Hey, it pays to read the boombustblog.com. ...] “The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said. Bear Stearn's new CEO states unequivocally that his balance sheet hasn't changed since November and that they have $17 billion of cushion. [He did not outright say that they were in good shape though. My concern was looking forward. They are a significant counterparty risk (along with Morgan Stanley) and they have significant illiquid level 2 and 3 assets as a percentage of tangible equity. In addition, 17 billion is not much considering the leverage and amount of illiquid assets held by this bank.]

And what happens after the fact? Yes, I can turn bullish as well...

Joe Lewis on the Bear Stearns buyout Monday, March 17th, 2008: The problem with the deal is that it is too low, and too favorable for Morgan. It is literally guaranteed to drive angst from the other side. Whenever you do a deal, you always make sure the other side gets to walk away with something.  If you don’t you always risk the deal falling though unnecessarily. $2 is a slap in the face to employees who have lost a life savings and have the power to block the deal. At the very least, by the building at market price and get the company for free!

BSC calls are almost free and the JP Morgan Deal is not signed in stone Monday, March 17th, 2008

This is going to be an exciting, and scary morning Monday, March 17th, 2008

As I anticipated, Bear Stearns is not a done deal Tuesday, March 18th, 2008


Reggie Turns Bearish on Lehman in February, before anyone had a clue!!!

  1. Is Lehman really a lemming in disguise? Thursday, February 21st, 2008
  2. Web chatter on Lehman Brothers Sunday, March 16th, 2008: It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?” I’m curious to see how the options on Lehman will be priced tomorrow. I really don’t have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody’s radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I’ll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.
  3. I just got this email on Lehman from my clearing desk Monday, March 17th, 2008 by Reggie Middleton

Like I said above, it's not as if upper management of these Wall Street banks would ever mislead us, RIGHT????

Erin Callan, CFO of Lehman Brothers Lying giving an interview on TV in March and again in June of 2008.

Even if the big Wall Street banks would lie to us, we have expert analysts at hot shot, white shoe firms such as Goldman Sachs, who of course not only are "Doing God's Work" but also happen to be the smartest of the smart and the "bestest" of the best, RIIIGHT!!!??? Below we have both Erin from Lehman AND Goldman lying on TV in a single screen shot. Ain't a picture worth a thousand words???

We even had the inscrutable Meredith Whitney say "To suggest that Lehman Brothers is going out of business is a real stretch!" (She OBVIOUSLY DOESN'T READ THE BOOMBUST) as well as Erin Callan, the CFO of this big Wall Street bank on TV lying interviewing again...

But that damn blogger guy Reggie Middleton put his "put parade"short combo on Lehman right about that time, and had all of these additional negative things to say...

Lehman stock, rumors and anti-rumors that support the rumors Friday, March 28th, 2008

May 2008: I never got a chance to perform a full forensic analysis of Lehman, but did put a fair size short on them a few months back due to their “smoke and mirrors” PR (oops), I mean financial reporting. There were just too many inconsistencies, and too much exposure. I was familiar with the game that some I banks play, for I did get a chance to do a deep dive on Morgan Stanley, and did not like what I found. As usual, I am significantly short those companies that I issue negative reports on, MS and LEH included. I urge all who have an economic interest in these companies to read through the PDF’s below and my MS updated report linked later on in this post. In January, it was worth reviewing “Is this the Breaking of the Bear?”, for just two months later we all know what happened. I came across this speech by David Eihorn and he has clearly delineated not only all of the financial shenanigans that I mentioned in my blog, but a few more as well. Very well articulated and researched.

So, who was right? The Ivy league, ivory tower boys doing God's work or that blogger with the smart ass mouth from Brooklyn?

Please click the graph to enlarge to print quality size.



Learn more about BoomBustBlog here: Who is Reggie Middleton!!!


Note: I will be on CNBC's Squawk on the Street Monday Morning, Oct 18th to discuss my (probably controversial) opinions on banking, technology and real estate. It should be interesting for I believe I am a very "different" type of pundit. Be sure to tune in and write CNBC with your opinions and comments

This is my opinion and analysis of  JP Morgan's 3rd quarter 2010 operating results. I have included the hefty sidebar to the right to give my readers and subscribers historical perspective into the possibility of management being,,, ah,, well, optimistic at times when confronting investors and the public about what I see as potentially devastating macro and/or fundamental developments. I also included the sidebar to illustrate and remind all that just because certain big, brand name pundits, Wall Street banks and analysts may claim the coast is clear and all is just fine, it may not necessarily be the case - particularly when your favorite, most handsome and humble blogger claims otherwise. Please take careful note of the dates next to each entry and video. The time line aids significantly in giving the reader perspective. For those who are new to BoomBustBlog or are not familiar with me and my work, please visit Who is Reggie Middleton!!! before you move on.

As for those who may consider it blasphemous to mention the enshrined, the exalted JP Morgan and Bear Stearns or Lehman in the same sentence - I query "Who bought Bear Stearns?". Whatever Bear had, JPM now has - of course along with some very convenient government guarantees. But, then again...

Click any graphic below to expand... (there is a typo in the graphic below, it should read "t"rillion, not "b"billion)

Excerpted from An Independent Look into JP Morgan (subscription content free preview!):

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???

Now, on to JP Morgan's 3rd quarter 2010 results...

In a Nutshell, JPM's quarterly results were downright horrible - as we expected and warned of in our previous quarterly analyses (see notes at bottom of page)...

JP Morgan’s Q3 net revenue declined 11% y/y (-5% q/q) to $24.8bn as investment banking revenue declined 18% y/y (-9% q/q) to $12.6bn from $13.9bn in the previous year and net interest income declined 2% y/y (-2% q/q, off of a combination of ZIRP victimization and a rapidly shrinking asset base and loan book) to $12.5bn versus $12.7bn in the previous year. Non-interest expense increased 7% y/y (-2% q/q) to $14.4bn as compensation expenses to net revenues remained broadly flat (28% vs 27.5%) while non-compensation expenses to net revenues jumped to 33% vs 23% in the corresponding period last year. As a result of "Fraudclosure" we expect this number to skyrocket next quarter. Overall, the efficiency ratio (total expenses-to-net revenues) increased to 60% vs 51% and we expect this ratio to spike next quarter as well as the banking business becomes even more expensive.

Click to enlarge...

However, despite a decline in net revenue and increase in non-interest expenses (both of which appear to be part of an obvious trend), profit before taxes was up 22% y/y as provisions for credit losses were slashed by 60%. JPM decreased its provision for credit losses despite no evidence of a substantial, sustainable improvement in credit metrics (please reference As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves). Provisions have lagged charge-offs for two consecutive quarters in a row.

As a result, banks allowances for loan losses have decreased to 4.9% in Q3 from 5.1% in Q2 and 4.7% in previous year.  Although under provisioning has helped the bank to mask its dearth in profits it has also materially undermined its ability to absorb losses if economic conditions worsen. The Eyles test, a measure of banks ability to absorb losses, has consequently worsened to 1.9% in Q3 from 3.7% in Q2 and 5.9% in Q3 09.

JPM also increased its mortgage repurchase reserves increased $1.0 billion pretax in anticipation of pressures from GSE’s for repurchase of troubled mortgages and made a provision of $1.3bn for litigation reserves. I explicitly outlined this risk this time last year (Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results) and reiterated it days before JPM’s earnings release (The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!) wherein I told BoomBustBlog readers to carefully follow the “warranties and representations” numbers, which is nearly guaranteed to spike – and spiked it has.

I would like to note that I don’t recall anyone making a big deal about this topic when it first reared its head last year, although the trend was quite obvious. Now, it is one of the biggest issues of discussion in the earnings call Q&A. Was it potentially my advice on watching the spike in the repurchase requests? I do hope somebody was paying attention!

If you haven't noticed, despite the fact JPM is pulling provisions to, IMO, pad accounting earnings ahead of what I feel to be a tsunami of macro and fundamental issues, they are at the same time going to the capital markets for a re-up, and willing to pay a premium to do so...

Here Comes The Scramble For Capital: JPM To Raise $4 Billion


I suggest readers brush up on reading between the lines... I will be factoring a lot of this into the updated valuation for JPM for my subscribers next week.

As quoted from “Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results” almost a year ago:

“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!

Now, let’s fast forward to the Q3 2010 conference call:

On outlook, what we said is for 2010 I think our outlook was plus or minus $1.2 billion of expense. Obviously you'll take a look at our third quarter numbers are a little higher. And so we're likely to come in at the high end of that range. For 2011 what we've said is $1 billion of realized repurchase losses. And what we've done is we've taken, based on what we know, we've gone back and increased our reserves by $1 billion based on the higher file requests as well as higher settlement demands. And where we are today we believe we're adequately reserved based on what we know and we'll go back periodically and review that.

Reggie Middleton (not invited nor present at the conference call, but throwing his 22 cents (2 cents levered 11x) in anyway: But why are you raising these reserves "based on the higher file requests as well as higher settlement demands" now when it was obvious this was coming down the pike anyway? Hey, I called it in Q4 of last year, and I have much, much less access to info than you guys. It seriously looks as if you were more interested in padding the quarter than in preparing for this issue - although I could always be wrong. Is next quarter gonna be an "unexpected jump" in "higher file requests as well as higher settlement demands" as well or are you guys gonna come clean and realize that the insurers, investors and borrowers are officially lawyered up and comin' after 'ya? Again, if you haven't read it, peruse The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! in its entirety!

Oh well, back to the people who were invited, welcome, and present at the conference call...

Matt O’Connor – Deutsche Bank

I realize you guys don't want to talk in too much detail on the litigation reserve, but just conceptually, you've taken a little bit greater than $4 billion reserves for litigation so far this year and I guess a lot of us are just having a hard time understanding what it might be for and are you getting ahead of it or are still trying to catch up and -

Jamie Dimon

You know our society, right? You know how many lawsuits go on, and class action suits, and stock drop suits, and [unintelligible] suits and WaMu suits and Morgan suits and it ain't going away. It's becoming a cost of doing business.

…In repurchase reserves and litigation, it's unclear exactly how or where it's going to show up, but we do think there will be some of that. And when we make the statement that some of these costs may go on for a while it relates also to that. That while we're burning through the vintages or the GSEs there are other vintages where there may have been more of a time lag than that. And I think it's also important to note that they're fundamentally different, because a lot of the private label stuff didn't have the same rules, requirements, disclosures. So they're all different, but loan by loan it's going to have some of the same characteristics that people are right. You're going to have to make them [unintelligible]. Hopefully if they're going to sue just to win they're making a huge mistake.

Jim Mitchell

Right, but you're already contemplating some of those issues in your current reserving?

Jamie Dimon

To the extent we can, you know? Reserves are - you can't guess and put up numbers, but to the extent we can. I think the question is, between the reserves we have is how long losses relating to repurchase, whether it's GSE or private label, and whether it shows up on the litigation or repurchase, how long they go on for. We don't expect it to be a blowup kind of number. We expect it will be they'll just drag out these losses as these things play themselves out.

Nancy Bush - NAB Research

Two questions. The first related to the foreclosure issues, and whether there are going to be any extraordinary expenses associated with that. And is the level of expense in that whole activity now going to be higher going forward?

Jamie Dimon

I think I already mentioned that the way I look at it we're bearing $5 billion of charge-offs a year, $1 billion in repurchase reserves a year, a lot of re-owned foreclosure, which I forget off hand, but it's big numbers. Those numbers may bounce up and down and probably will go up a little bit because of this, but I'm not sure they're going to materially change because of this. And there will be litigation, I put to the side, I don't know how it's all going to be sorted out.

… I think the way you should look at this topic is that we're bearing today $7 billion of charge-offs, foreclosure, repurchase costs - this affects reserves. That $7 billion will go up or down based upon the economy and stuff like this. I'm not sure stuff like this is going to dramatically change that number. It may extend it a little bit longer and stuff like that but - and remember we have in total, between repurchase reserves and the $11 billion, we have $14 billion of reserves for repurchases or loan losses. And look, the mortgage thing is - we're halfway through all this. We think we should continue and get done and make sure we do the right things for the consumers, the investors, and the country. And so obviously it will increase our costs a little bit and maybe we'll have to pay penalties eventually to some of the AGs, but we really think we should just continue.

…And the big one is the $200 billion runoff of stuff, a lot of which was acquired from WaMu. That will be running off for years.

I will be releasing the balance of this review to subscribers, including an updated valuation, more on the (by now probably fully disintegrated) discount on the WaMu purchase and any other issues we uncover.

As a matter of fact, the quarter ended before the “robo signing” scandal really started making waves, thus the numbers reported are only the tip of the iceberg. We contend that the “robo-signing’ subject will actually open the door to a much more critical issue for the banks (refer to our upcoming Foreclosure Crisis subscriber research for details) as RMBS securities tied to residential mortgages will experience higher loss due to longer liquidation time lines, negative ratings and potential losses arising from the repurchase of loans from GSE’s due to mortgages not meeting the investor underwriting standards – or put more directly, fraud during the underwriting process will come to the forefront and cause many an investor to attempt to disgorge these loans and derivative loan products. With GSE’s already vying for more repurchases of troubled securities, the outrage caused from falsified documents would further escalate the repurchase demands.  When combined with the issues of foreclosures, weakening pricing, and legal issues with foreclosures which materially exacerbate the economic sales and pricing situation, combined with the deluge of repurchase demands, the banks will be facing one of the toughest periods of this century.

Let's not forget about CRE!

JP Morgan's (like many other banks) real estate related issues are woefully underestimated, yet JP Morgan can get away with under-provisioning without being punished by the markets. Hmmm!!! How long will that last?

Even visitors from Amsterdam, never having been here (area in the video below) before, can see there is something fundamentally wrong with the mortgage landscape (still) in many parts of the US. The clincher, "But how do all of these people [developers] get all of this money to put up all of these [empty] buildings? [as they are still building new buildings around the empty buildings that they cannot sell or rent!]"  I reply, "Those people over there! The banks!" As I point to the local JP Morgan Chase branch in downtown Brooklyn.

[youtube WsTdV86nAGw]

For all of you CRE bulls, that clip is the same area photo-toured more than one year ago - tell me if the situation has changed in accordance with the 100%+ spike in REIT and bank share prices - “Who are ya gonna believe, the pundits or your lying eyes?”. Download my free research on the topic - CRE 2010 Overview CRE 2010 Overview 2009-12-15 02:39:04 2.72 Mb. Tuesday, December 15th, 2009, then subscribe to get the juicy stuff.

The clip above is from the October 4, 2010 VPRO Backlight (Dutch public television) featuring the issues facing JP Morgan, as well as the European banking sector. This special was very well done and I look forward to the US public television stations doing similar investigative work. See the entire video (43 minutes) on the VPRO site (in Italian, Dutch and some English with Dutch Subtitles).

Teaser to our upcoming foreclosure research


More Reggie Middleton on JP Morgan

The full JPM Q2 review can be downloaded by subscribers (click here to subscribe) here: File Icon JPM 2Q10 review

Subscribers should also review our forensic valuation reports, which have (thus far) proven to be right on the money in terms of JP Morgan:

The JP Morgan Professional Level Forensic Report (subscription only)

The JP Morgan Retail Level Forensic Report (subscription only)

Those that don’t subscribe still have a lot of BoomBustBlog JPM opinion and analysis to chew on, including a free, condensed (but still about 15 pages) version of the forensic analysis above. You can find it below this pretty graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…

  1. An Independent Look into JP Morgan (subscription content free preview!)
  2. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 – JP Morgan
  3. Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!
  4. Anecdotal observations from the JP Morgan Q2-09 conference call
  5. Reggie Middleton on JP Morgan’s Q309 results
  6. Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results
Published in BoomBustBlog
Thursday, 14 October 2010 20:33

A Miami-Dade Resident Calls Bull[green]shoots!

A note from a regular BoomBustBlogger,  self-explanatory:

Look, Miami-Dade County Clerk of Courts has a page for foreclosure filing nos.  Lots of Clerks of Courts do.   Miami lists the nos since 2004......here is the page


3,206 were filed last month in Miami-Dade County alone.  There are 67 counties in Florida.....let's not forget CA, AZ, NV, etc.

100,000/month?  I cry b.s.   Let's just assume 1,000/month are being filed in each county in Florida.  That is 67,000.   Why is no one reporting the nos. lies??????

Published in BoomBustBlog
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