The CEO of Chase disclosed that the federal probe into the robosigning scandal reached a settlement. Image from Wikimedia Commons.

A settlement is soon to be announced regarding the robosigning foreclosure controversy. Some of the nation’s largest mortgage lenders rubber-stamped foreclosure documents without looking at them and may have foreclosed on some people who didn’t deserve it. A legal probe into foreclosure practices has reportedly reached a settlement with those lenders.

JPMorgan exec discloses deal with some federal agencies

Chief Executive Officer of JPMorgan Chase Jamie Dimon recently disclosed that the government probe into the robosigning controversy had come to an agreement with the mortgage lenders being investigated, according to Reuters. Dimon confirmed that no fines had been levied yet, but they are likely to come. The nation’s largest mortgage lenders and servicers were the subject of a sweeping investigation by nearly a dozen federal agencies and the attorney general of every state in the union. The agreement is not complete; it is only the settlement between the financial institutions involved and the Federal Reserve, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. A settlement with all 50 state attorneys general has not been reached.

State settlements to come

The controversy stemmed from the discovery that a lot of foreclosure proceedings started when paperwork to begin foreclosures was approved in a robotic fashion, or “robo-signed,” without proper review. The resolution of the robosigning foreclosure debacle is important, as foreclosure practices may change. JPMorgan, for instance, expects to hire at least 3,000 more employees to ensure compliance with the settlement agreement, according to Bloomberg. In other words, there will be an increased amount of regulation in the mortgage industry when it comes to foreclosures, which means it will cost the lenders in the mortgage industry more to lend and service a loan. Those costs will be passed on to the consumer at some point, likely in the form of requiring more money up front to get a loan. There is also a backlog of foreclosures on the books at these banks, as they have become more skittish about foreclosing on borrowers who are delinquent in paying their mortgage.

Mortgage modification failed participants

One failure of the Obama administration and the various stimulus programs was the various mortgage modification programs that were made available through the federal government. People who were behind on their mortgages or facing foreclosure could apply for a modification. The distressed homeowner’s lender would receive an incentive payment from the government if it modified the borrowers’ mortgage on a trial basis. However, according to USA Today, not many people were helped. The goal was to keep 3 million to 4 million people in their homes; instead only about 630,000 people had their mortgages permanently modified.

Sources

Reuters

Bloomberg

USA Today

Wells Fargo and other banks are ending debit rewards programs as financial reform efforts are eating into their bottom line. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The costs of financial reform are adding up as a potential curb on interchange fees is causing banks to cancel debit card reward programs. Financial reform legislation has caused ripple effects, and the effort to legislate fairer conditions for consumers is leading to more restrictive conditions for consumers. Lawmakers are beginning to balk at the high cost of such laws.

Interchange fee cap may deprive consumers in effort to protect them

The proposed cap on interchange fees or “swipe fees,” which merchants must pay banks to complete debit card transactions, has already led to major banks trying to save money any way possible. Free checking programs and debit card rewards have landed on the chopping block. JP Morgan Chase ended its debit card rewards program and more are following suit, according to CNN. Wells Fargo subsidiary Wachovia has stopped offering debit rewards to new customers, and Wells Fargo will do likewise on April 15. Citibank recently disclosed that the bank is “in the process of evaluating potential changes,” which means it is likely going to cut debit rewards programs for customers as well.

Costs of financial reform adding up

A recent estimate by the Government Accountability Office placed a price tag of $1 billion per year on the Dodd Frank Act, or the financial reform bill, according to USA Today. The creation of a totally new agency, the Consumer Financial Protection Bureau, has already caused controversy and infighting among lawmakers. The GAO estimated that federal agencies would need to hire more than 2,000 people to enforce the laws, including any the CFPB would be enforcing. Congressional Republicans have been openly critical of the agency, which some assert has too much authority. The special adviser to the president in charge of setting up the agency, Elizabeth Warren, has defended the agency, saying that the “Wall Street behemoths” that created the need for the agency should be targets, not the CFPB, according to Bloomberg. The agency will have oversight of consumer financial products from personal loans to credit cards, when it starts operations later this year.

Consumers may end up not using credit at all

The aim of financial reform laws is to prohibit trickery by financial institutions and make the use of credit safer for consumers. That is a noble aim, but it seems to be having a chilling effect on financial institutions. Debit card rewards and free checking are falling by the wayside, but banks cannot impose fees with impunity. Loan credit is likely to get tighter, though that also means banks and lenders cannot gouge customers out of the blue. However, the debate is going to be whether the loss of convenience is worth it.

Sources

CNN

USA Today

Bloomberg

Musician Lily Allen is just one of the many big-name artists on the embattled EMI label. Image: Wikimedia Commons

In 2007, investment firm Terra Firma purchased control of music giant Electric and Musical Industries Ltd. After losing more than $2.5 billion on the investment, Guy Hands of Terra Firma’s decided to sue Citibank. A jury has found, however, that Citibank did not defraud Terra Firma in the purchase of EMI, as was accused.

Terra Firma purchase of EMI

In August 2007, investment company Terra Firma made a $6.8 billion purchase of British company EMI. Citigroup funded the purchase, just before credit markets seized in October of 2007. Since that purchase, Guy Hands, who controls the Terra Firma fund, has lost billions in the company. He has also been the target of frustrated investors who are not happy with the fact two-thirds of the fund is tied up in the quickly shrinking EMI.

Terra Firma takes Citigroup to court

Citigroup, which funded the Terra Firma purchase of EMI, has been on the defensive. Terra Firma sued Citigroup, claiming, among other things, that the company defrauded Terra Firma in the EMI purchase. Terra Firma apparently believed that it was in a “bidding war” for EMI, when it was not. A jury unanimously found that Citigroup did not defraud Terra Firma in the purchase.

What is next for EMI?

EMI is one of Britian’s largest music labels. Musicians as diverse as Lilly Allen and the Rolling Stones have been or are on the EMI label. When Terra Firma and Guy Hands took over the label in 2007, spending was slashed at every corner almost immediately. Many large acts, including as the Rolling Stones, decided to leave the label. Despite the cost-cutting, however, Hands is claiming that EMI has cost him more than $8 billion. Hands may very well be removed as the head of Terra Firma, as well as EMI. Citigroup has said that, because of the lawsuit, the company is “much less likely” to be willing to discuss refinancing for EMI. This could leave the musical industry giant ripe for takeover or purchase by yet another company.

Source

Business Week

Apartment building loans are being shifted around the big lenders Citi and JP Morgan Chase. Image: Flickr/NCinDC

As a part of its goal of expanding its lending portfolio, JP Morgan Chase has purchased a loan portfolio from Citi. The deal is worth about $3.5 billion, and is a part of the $8 billion in troubled loans Citi has been selling to others. The purchased loans are practically guaranteed payday loans for JP Morgan Chase, as they are loans for apartment and multi-family buildings.

Citi selling off no fax loan portfolio

As a part of its rebuilding strategy, Citi has been selling off a wide range of loans and securities. Citi Holdings group has been the recipient of some of these loans, while about $19 billion worth of products have been sold to other companies. In short, Citi is trying to shrink its business, while selling securities at close-to-value prices.

JP Morgan Chase purchases credit loans

The portfolio that JP Morgan Chase has purchased from Citi includes about 3,800 multi-family dwelling loans. With this purchase and others, JP Morgan Chase has become the third-largest mortgage lender behind Fannie Mae and Freddie Mac. This adds to the $300 million in multi-family loans that JP Morgan Chase has “in the pipeline.”

The increase in mortgage lending

Applications for new mortgages have been slowly but surely ticking up. Applications for new home loans increased by about .6 percent last week. The number of people who need a loan but are not applying for one, though, also appears to be rising. Though legislators are putting pressure on banks to increase their lending, banks are fighting back. The argument is that banks are doing everything they can to offer loans to “credit-worthy” applicants. After years of economic downturn and job losses, there are fewer “credit-worthy” people than ever. JP Morgan Chase’s purchase of multi-family home loans is helping shift assets around large banks, but there is debate as to whether it will actually help increase lending from either entity.

Citibank sent the letters on February 16

The company is calling it a “processing error,” according to the Chicago Tribune. The numbers appear at the lower edge of the envelope with other numbers and letters. So it isn’t as obvious as problem flatulence, but it is definitely a bit of a brain fart on the part of Citibank, Citigroup and everyone else in the Citi family. But don’t worry; Citibank Client Services Director Norman Wright sent letters to all 600,000 customers in an effort to clean up the mess. He extended an offer for free credit monitoring for 180 days. Unfortunately, now that forgers know to wait 180 days, perhaps that isn’t enough. They could be using your Social Security number to take out money loans.

The error produced “little to no risk” to Citibank customers?

Talk about spin control by Citibank. Citigroup and its board of directors must be proud, and shareholders must be exceedingly happy that the company is so deftly handling the situation. In Wright’s apology letter he says as much, that there is “little or no risk.” Isn’t it comforting to know that your bank is actively lying to you, Citibank customers? How could there be little or no risk if unauthorized people are getting hold of your Social Security number?

If you’re a Citibank customer, are you satisfied with their offer?

Personal Money Market would love to know your thoughts on the matter.

(Photo Credit: http://www.flickr.com/photos/kiwanja/ / CC BY 2.0)

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