“the agencies’ market risk capital rules for banking organizations with significant trading activities. The amended NPR includes alternative standards of creditworthiness to be used in place of credit ratings to determine the capital requirements for certain debt and securitization positions covered by the market risk capital rules. The proposed creditworthiness standards include the use of country risk classifications published by the Organization for Economic Cooperation and Development for sovereign positions, company-specific financial information and stock market volatility for corporate debt positions, and a supervisory formula for securitization positions.”

Any time one combines Basel III with Dodd-Frank and several government agencies, it can become a little muddled. Here’s the full notice.

Agencies are indeed trying to clarify their supervisory and enforcement responsibilities for Federal Consumer Financial Laws. Remember (who can forget) that Dodd-Frank provides the CFPB with exclusive supervisory and primary enforcement authority over “Large Institutions,” defined as institutions with total assets exceeding $10 billion. The prudential regulators retain supervisory and enforcement authority over their respective institutions falling under that threshold. But the devil is in the details: the Dodd-Frank Act does not specify how or when to calculate total assets for purposes of applying the threshold. Here’s the joint statement.

RealtyTrac has released its U.S. Foreclosure Market Report for the third quarter of 2011, which shows foreclosure filings-default notices, scheduled auctions and real estate-owned (REO) properties-were reported on 610,337 properties in the third quarter, an increase of less than 1% from the previous quarter and a decrease of 34% from the third quarter of 2010. The report shows one in every 213 U.S. housing units with a foreclosure filing during the quarter.

Before you break out the party hats, “U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork,” said James Saccacio, CEO of RealtyTrac. “While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up.”

Folks wonder why servicing values are higher in one state than another. U.S. properties foreclosed in the third quarter took an average of 336 days to complete the foreclosure process, up from 318 days in the second quarter and the highest number of days going back to the first quarter of 2007.

New York properties foreclosed in the third quarter took an average of 986 days to complete the foreclosure process.

The second longest average foreclosure process was in New Jersey, at 974 days, and the third longest average foreclosure process was in Florida, at 749 days.

The Great State of Texas, who has not threatened to secede yet this week, had the shortest average foreclosure process of any state, at 86 days.

The tally of 2011 failed banks is at 58 after the FDIC closed three banks Friday: in Florida American Momentum Bank took over Southshore Community Bank and LandMark Bank of Florida. And up in Colorado, Bank of Choice was closed by the Colorado Division of Banking, which appointed the FDIC as receiver, which brought in Bank Midwest, National Association, Kansas City, Missouri. By the way, if one wants to see the data on the latest number of professional liability lawsuits authorized by the FDIC Board of Directors and the total monetary value of these claims, one should visit LiabilityLawsuits .

We’re nearly done with 2Q earnings. The latest round involved BB&T (profit was up 46%, driven by better credit quality and loan growth), Fifth Third (profit up 76% driven by improving credit conditions and lower loan-loss provisions), US Bancorp (commercial and home loans saw roughly 3% growth vs. the prior quarter offsetting runoff of construction and credit card loans), PNC (lower borrowing costs and higher lending to manufacturing, financial services, and health care were offset by distressed real estate loans and lower consumer lending), and M&T (average loans grew at an annualized rate of 2% and it benefitted from the acquisition of Wilmington Trust). Overall, aside from Bank of America, most lenders did well profit-wise during the second quarter.

I guess that these two banks weren’t “too big to fail.” Departing FDIC chairman Sheila Bair says the era of too-big-to-fail banks isn’t just ending, it’s already over. Really?

A few weeks back she said, “Congress has given the FDIC a tremendous amount of responsibility to ensure that financial organizations formerly deemed too big to fail will no longer receive taxpayer funded bailouts.”

The market seems to believe otherwise, however, and given the way the stocks and bonds of companies like BofA, Citi, Chase, Wells, etc. are trading, analysts believe that the government would indeed rescue them if a crisis threatened to take down the global financial system.

The basis for Bair’s assertion rests in the FDIC’s new powers under the Dodd-Frank Act, which didn’t even pretend to address the issues at too-big-to-fail Fannie Mae, Freddie Mac, or AIG.

And the Federal Reserve Board recently released information on the Top 50 bank holding companies in the US as of March 31 2011.

It is apparent that “too big to fail” banks are still too big to fail, and wonders if that should really be a goal of our government. The four largest US bank holding companies each have assets above $1 trillion (Bank of America and JPMorgan Chase are above $2 trillion) and control roughly 52% of all assets of the entire group. All told, the top 50 bank holding companies control over $14.6T in assets.

Too Big to Fail Ends With Wave of a Magic Wand

FDIC Failed Bank List

-How NBA owners lost $300m this year (Bill Simmons via ReformedBroker)

-Obama to nominate Gruenberg for FDIC chair (HousingWire)

-Greece update–with critical dates (CalculatedRisk)

-Roubini: Perfect Storm & Bond Market Revolt Threaten Global Economy (Bloomberg)

-Know your local property market by being a nosy neighbor at open houses (Amy Hoak, Marketwatch)

-Seller financing returns, but seller & buyer beware (MSNBC)

Follow @thebasispoint

So why aren’t significant numbers of consumers moving on to other banks?

For you and me, “switching costs” are a real hassle. Shutting down a bank account, with its credit card or utility bill-paying links, transferring the account, and setting up all the links isn’t anyone’s idea of a good time. The same goes for refinancing – it is often easier for a borrower to do it with the same company that already holds your loan.

And even though many gripe about their bank, many also find a big-name bank’s name reassuring.

Most developed nations have a more concentrated banking system than ours. But too much concentration of the financial industry increases risk, since a handful of dominant players are more likely to make the same kind of mistakes.

But unless consumers rise up to move their money to credit unions or smaller banks, the market isn’t going to deal with the problem – and that means Washington might have to.

Aventur Partners & Aventur Mortgage Capital are turning some heads in the jumbo world. Led by the former co-founder and CEO of Thornburg Mortgage (Larry Goldstone) is developing a new mortgage company specializing in jumbo lending. Past and current legal nightmares aside, Thornburg-style companies certainly have their fans in the business, and the former vice president of Thornburg, David Akre, is COO of the new firm—which is ramping up to capture jumbo market share as Fannie’s and Freddie’s decreases.

A home price report from Zillow yesterday showed that home values posted the largest decline in the first quarter since late 2008. Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, and Zillow reports prices have now fallen for 57 consecutive months. Our economy needs job and housing to truly recover, and although mortgage rates continue to be low, the expiration of the housing tax credit and the continued flow of foreclosures hitting the market aren’t helping prices. Detroit, Chicago and Minneapolis posted the largest declines during the first quarter of the top 25 metro areas tracked by Zillow, while Pittsburgh, Dallas and Washington posted the smallest declines.

As an interesting side note to this, housing is more affordable than any time in a few decades. But credit, appraisal, and documentation standards remain tight (many would say they should, and if they were in place 5 years ago we wouldn’t have these issues). One report mentioned that the average credit score on loans backed by Fannie Mae stood at 762 in the first quarter, up from an average of 718 between 2001-2004.

And here’s the latest confusion on mortgage fraud: Incidents of mortgage fraud dropped (or rose) from 2009 to 2010, depending on who you ask. Regardless, Florida took the “top” honors, followed by New York, California, New Jersey, and Maryland (No. 5).

When it comes to powerful banks, how do they rank for first quarter production? The big four banks originated a combined $186 billion in home loans, down 33% from $281 billion home loans written in 4Q2010, according to their financial statements. Servicing costs were up, each bank has hundreds of millions of dollars in reserves for buybacks on defaulted loans, and thousands of full-time and part-time jobs were eliminated. Here’s the breakdown by bank:

Wells Fargo did $84 billion (down from $128 billion in the 4th quarter), BofA did $52 billion (down from $81 billion), JPMorgan Chase totaled $36 billion (down from $51 billion), and Citi did $14 billion (down from $22 billion in the fourth quarter). However, compared to the 1st quarter of 2010, Wells, Chase, and Citi were all up, with only BofA dropping (from $67 billion last year).

Regional Bank Earnings
The flow of regional bank earnings continued through the end of last week, with PNC’s net income coming in more than expected at $3.63mm, up 15% from the same period last year. NIM (net interest margin) was stable on flat loan growth and most of the improvement came from lower non-performing assets. No loan growth was reported. BB&T reported a 21% increase in earnings to $234mm, or slightly higher than expected. NIM and loan growth were largely unchanged from the quarter before and most of the earnings came from a 40% drop in provisions. Cap One posted profit that was 60% higher at $1B on better credit card recoveries and lower charge offs. 5th 3rd said net income rose to $265mm from a $10mm loss from a year earlier and SunTrust posted a $38mm gain compared to a loss of $229mm a year earlier. Both 5th 3rd and SunTrust had improvement due to better credit quality.

Jumbo Mortgage Bond Downgrades
In the past, the setting of jumbo loan rates was much more dependent on where the jumbo residential mortgage-backed securities traded. Now, prices are primarily set based on a spread to the investor’s cost of funds. Still, it is important to see what is happening with the price of existing jumbo securities, and it is not good news. Here is the WSJ and HousingWire on jumbo mortgage bonds being downgraded by ratings agencies.

The FDIC’s deposit insurance fund took some serious hits during the crisis, and they just released some updates. The FDIC predicts the cost of FDIC-insured institution failures for the five-year period from 2011 through 2015 is $21 billion, compared to estimated losses of $24 billion for banks that failed in 2010 alone. The future is never certain, but most believe that the fund should become positive this year (it has increased for four consecutive quarters) and reach 1.15 percent of estimated insured deposits in 2018. Dodd-Frank rules and Consumer Protection Act require that the fund reserve ratio reach 1.35 percent by September 30, 2020.

Last October the FHA increased its MIP’s from 55 basis points to 90 basis points, and today is increasing the monthly fee to 115 basis points for higher LTV loans. The FHA insurance premiums are not “grandfathered in,” so a borrower who is currently paying low MIPs will have to pay higher MIPs if he/she were to refinance. This is a pretty clear example of what is bad for one group (originators, borrowers) is good for another (investors in existing Ginne Mae securities).

Also note that starting today FHA systems will require mortgagees to certify at the time of requesting a case number that they have an active application for the borrower and property, and provide the borrower’s name and social security number for all new construction. And FHA systems will automatically cancel any uninsured case number where there has been no activity for 6 months since the last action except for loans where an appraisal update has been entered and/or loans where the UFMIP has been received.

CitiBank earnings came in slightly higher than expected, although earnings were slightly below. Net credit losses were down 25% in the first quarter, and analysts are hoping for more good news ahead. It had a 10% loan growth in the first quarter, but repurchase requests are expected to take a toll on future earnings.

According to a Bloomberg report: “Fannie Mae told mortgage servicers to halt a practice that could help them avoid repurchasing flawed home loans. In a notice to banks today, the company said servicers are prohibited from entering into loss-sharing or indemnification agreements with mortgage insurers. The deals help servicers avoid having their policies revoked.”

And the enforcement actions taken yesterday by the Federal Reserve, the OCC, and the OTS do not address the issue of fines or modifications. But the Federal Reserve said in a statement that it believes that monetary sanctions are appropriate for the affected banks it oversees, including Ally Financial, SunTrust, and HSBC. Other banks that have agreed to the enforcement actions include Bank of America, Citigroup, JPMorgan Chase, MetLife, PNC, US Bancorp, Wells Fargo, Aurora, EverBank, and Sovereign Bank. The servicers represent nearly 70% of the mortgage servicing industry, or nearly $7 trillion in mortgage balances.

“The enforcement orders issued today are important, but they are only a first step in setting out a framework for these large institutions to remedy these deficiencies and to identify homeowners harmed as a result of servicer errors. While today’s orders put these large servicers on a path to improving their management of the foreclosure process, they do not purport to fully identify and remedy past errors in mortgage-servicing operations of large institutions. Much work remains to ensure that the servicing process functions effectively, efficiently, and fairly going forward. Importantly, these enforcement orders do not contain monetary remedial measures.”