Sub Prime Mortgages

Big investment banks that played a role in the sub-prime mortgage crisis by funding the loans and selling them as securities should be required to invest in local communities, a U.S. financial regulator says. John Dugan, head of the U.S. Office of Comptroller of the Currency, said in remarks prepared for delivery to an affordable-housing group that expanding the Community Reinvestment Act to include big investment banks could add billions of dollars to local areas. "These nonbanks, having played such a large role in the sub-prime mortgages that have caused such problems in communities nationwide" have no incentive to address those problems because they aren't covered by the act, Dugan said.

Agreeing to settle 29 class-action lawsuits alleging predatory lending, the Ameriquest group of subprime lenders has pledged $22 million to repay aggrieved borrowers and their lawyers -- a fraction of its payments in previous suits before it shut down as the mortgage meltdown set in. The agreement potentially affects 712,000 borrowers from what once was the nation's largest subprime lender, based in Orange County. Many of the loans were from Argent Mortgage Co., an arm that funded borrowers through mortgage brokers.

Bond insurer MBIA Inc. posted a quarterly loss of $2.4 billion as it took charges on billions of dollars of exposure to bonds linked to sub-prime mortgages. But MBIA's beaten-down shares rose more than 4% as adjusted results beat expectations and the company said new business volumes appeared to be rising from the first quarter. The charges announced Monday wiped out 40% of MBIA's net worth, but MBIA said most of the changes it recorded in the value of its exposure would not translate to actual payouts on insurance.

Federal data released Thursday showed just how poorly banks are doing at turning the growing number of temporary loan modifications into permanent ones under the Obama administration's effort to curtail foreclosures. Only 31,382 of more than 700,000 mortgage modifications under the federal program had been made permanent by the end of November. The numbers reinforced the bleak picture that Treasury Department officials painted last week when they said the number of permanent reductions was low. They unveiled new measures, including the threat of fines, to push mortgage servicers to improve their performance.

Accredited Home Lenders Holding Co., which had dodged the shutdowns and takeovers that gradually wiped out independent rivals in the sub-prime mortgage business this year, joined the list Monday by agreeing to sell itself to a Dallas-based private equity fund. San Diego-based Accredited had been viewed as one of the best-managed specialists in loans to risky borrowers.

Citigroup Inc.'s problems deepened Monday as it was unable to assure investors that a potential $11-billion additional write-down for sub-prime mortgage-related securities wouldn't grow, and its nearly pristine credit ratings were downgraded. The largest U.S. bank also reduced its previously reported third-quarter profit because of worsening credit markets. One day after Charles Prince stepped down as chairman and chief executive, Citigroup's shares continued to slide, falling $1.

Loan service companies did little to help sub-prime borrowers with adjustable-rate mortgages stay in their homes, even as it became clear many homeowners were struggling to keep up with their payments, a study released Friday showed. Moody's Investors Service said banks eased borrowing terms on just 1% of sub-prime mortgages with interest rates that reset higher in January, April and July.

Ambac Financial Group Inc., the world's second-largest bond insurer, has backed eight new issues in the municipal bond market since it raised capital to safeguard its credit ratings. The company said it insured a $46.8-million lease financing deal for the city of Compton and a $62-million Alaska Municipal Bond Bank issue. Ambac, and competitors such as MBIA Inc., stumbled after expanding from backing debt issued by cities and states, which rarely default, to insuring securities backed by sub-prime mortgages.

HSBC Holdings, Europe's biggest bank, said Friday that it would close Decision One Mortgage, a U.S. unit that made sub-prime loans through independent brokers, cutting 750 jobs and taking $945 million in charges and write-downs. HSBC had sold the brokered sub-prime loans in the secondary markets but was no longer able to do so because investor demand has evaporated, said Thomas Detelich, group executive for HSBC North America Holdings Inc.

Five federal agencies that regulate banks have agreed on new standards for sub-prime mortgages and are expected to release them today, several people familiar with the standards said Thursday. The standards will largely resemble a draft version released in March, the sources said. The draft calls on lenders to assess a "borrower's ability to repay the debt by its final maturity at the fully indexed rate."

Federal regulators sued Irvine brokerage Brookstreet Securities Corp. and its founder Tuesday, accusing them of systematically selling high-risk mortgage securities to customers with conservative investment goals. Brookstreet and its chief executive, Stanley C. Brooks, allegedly developed a program that offered the mortgage investments to more than 1,000 retirees and others for whom they were unsuitable, according to the lawsuit filed by the Securities and Exchange Commission. Through his attorney, Brooks denied wrongdoing and said he would contest the allegations.

Almost three years after New Century Financial Corp. collapsed in the first phase of the mortgage meltdown, three former executives of the Irvine company were accused by regulators Monday of misleading investors as its subprime loan business came unglued. New Century was the nation's second-largest lender to borrowers with spotty credit before its demise in April 2007 signaled an unfolding crisis in the mortgage and housing markets that set off a deep global recession. In a lawsuit filed in U.S. District Court in Los Angeles, the Securities and Exchange Commission accused Brad Morrice, a co-founder and former chief executive of New Century; Patti M. Dodge, its former chief financial officer; and David N. Kenneally, its ex-controller, of securities fraud.

Attempts to place blame for the great financial crisis that sent the economy into a nose dive last year have made household names of top executives such as Angelo R. Mozilo, Richard Fuld and Maurice "Hank" Greenberg. But the only major criminal case to emerge thus far from the global cataclysm involves two lesser-known hedge fund managers who will be thrust into the spotlight today when their trial begins with jury selection in a Brooklyn courtroom. Federal prosecutors allege that former Bear Stearns Cos. fund managers Ralph Cioffi and Matthew Tannin -- in a frantic, eventually unsuccessful scramble in mid-2007 to keep their mortgage bond funds from collapsing -- misled investors about the deepening woes in the portfolios.

Congress gave the Federal Reserve the power to enact rules to protect consumers from unscrupulous mortgage lending in 1994. But as the years passed and risky subprime loans inflated the housing bubble, restrictions on lenders never came. It wasn't until last summer, long after the bursting bubble triggered the deep recession, that the central bank adopted rules prohibiting unfair, abusive or deceptive lending practices. The 14 years it took the Fed to act are now cited by Obama administration officials, consumer advocates and lawmakers as a key reason for scrapping a fragmented regulatory structure spread across multiple agencies and replacing it with a new Consumer Financial Protection Agency.

Bank of America Corp. has lost a bid to dismiss most of a combined lawsuit accusing its Countrywide unit of steering borrowers into subprime and other high-risk mortgages during the housing boom. In a May 18 ruling, U.S. District Judge Dana Sabraw in San Diego said borrowers represented in several lawsuits could pursue claims that Calabasas-based Countrywide Financial Corp. engaged in racketeering and unfair business practices before it was acquired by Charlotte, N.C.-based BofA.

The major banks now collecting federal bailout money were not unwitting victims of the mortgage meltdown but instead were directly linked to the root cause of the problem: a subprime lending machine concentrated in Southern California, a new study asserts. The banks were "enablers that bankrolled the type of lending threatening the international financial system," according to the study being released today by the Center for Public Integrity, a Washington-based watchdog group.

Fremont General Corp., which made thousands of sub-prime loans in Massachusetts, will stop foreclosure proceedings in the state to give officials time to review all transactions, the state said Wednesday. Martha Coakley, Massachusetts' attorney general, said her office had reached a preliminary agreement in which the Santa Monica-based lender would stop foreclosures on more than 2,000 Massachusetts loans that the company services.

In the latest of a series of cutbacks triggered by the housing downturn, Countrywide Financial Corp. said Wednesday that it had eliminated 900 jobs. The announcement came as rumors swirled of far greater staff reductions at Calabasas-based Countrywide, the nation's largest home lender. In its latest tally for investors, Countrywide said it had 61,586 employees as of July, up from 56,059 a year earlier.

Lawmakers, housing advocates and both presidential candidates are demanding that any bailout for financiers on Wall Street needs to help homeowners on Main Street too. But it's easier said than done. The main proposals for helping struggling homeowners call for allowing the federal government to restructure mortgages it would buy under the Bush administration's $700-billion bailout plan, and to give bankruptcy judges new powers to force lenders to accept revised home loans.

The regulators operating failed IndyMac Bank said Wednesday that they would try to modify about 25,000 troubled mortgages by slashing interest rates to as low as 3% for five years, extending payments over 40 years and in some cases charging interest on only part of the loan balance. The plan, aimed at about 37% of IndyMac's seriously delinquent borrowers, is the start of a modification program that eventually could involve thousands of other borrowers at the savings and loan. Sheila Bair, chairwoman of the Federal Deposit Insurance Corp.