Jumbo Loans Being Made But Not Securitized, 2010 Bank Failures At 143

Jumbo Loans Made But Not Securitized
For folks who continue to look toward the “non-agency” or jumbo mortgage backed securities sector, rates have been coming down, and analysts are pointing to slower liquidation rates on option ARMs and subprime loans. Banks are starting to make jumbo loans again. Smaller, and regional, lenders are issuing more new jumbo loans and doing more refinancings, as are larger banks that never stopped doing them. The linked WSJ report points out that in the second quarter of 2010, jumbo-mortgage lenders originated $18 billion in loans-a 20% increase from the first quarter. Chase increased its jumbo-mortgage volume by 146% in the first six months of this year over the same period a year earlier, Wells Fargo by 48%, and PHH by 65%.

But jumbos are being mostly kept in portfolios. Interestingly, Redwood Trust, the only company to securitize new jumbo loans during the past few years, has pushed backed its second deal to early 2011 because “major bank originators are reluctant to sell [jumbo] loans due to their high level of excess liquidity.” (Last week Redwood Trust posted a profit of $20 million for the third quarter, compared to $29 million in 2Q, and $27 million in the year ago quarter.) According to its shareholder report, Redwood had accumulated $160 million of recent loans as of Halloween. There continues to be re-packaging of existing jumbo production, and Redwood’s $238 million securitization of Citi’s loans earlier this year brought some hope to that area.

2010 Bank Failures At 143
Regulators shut down four banks Friday, bringing the total of 2010 failures to 143 and already beating 2009’s 140. K Bank (MD), Pierce Commercial Bank (WA), Western Commercial Bank (CA), and First Vietnamese American Bank (CA) are gone, with deposits going to (in order) M&T Bank, Heritage Bank, First California Bank, and Grandpoint Bank. So far in 2010 the deposit insurance fund has been hit with a $21 billion loss so far this year, compared with $36 billion in 2009. To add more perspective, the 2009 total of bank failures had been the highest annual toll since 1992, at the height of the savings and loan crisis. In 2008 25 failed, in 2007 only 3.

Fannie & Freddie Troubles
Early last week Freddie reported on their 3rd quarter financial picture, and late last week it was Fannie’s turn. Fannie lost $1.3 billion during those three months, and is asking the US government for an additional $2.5 billion in federal aid. The loss takes into account $2.1 billion in dividend payments to the Treasury Department, and compares with a loss of $19.8 billion a share, a year earlier. The $2.5 billion in additional aid that Fannie is seeking compares with a request for $1.5 billion in the second quarter. Fannie and Freddie together have repaid $16.7 billion as dividends to the US Treasury. “The company requested $2.5 billion from the Treasury Department, most of which will be used to pay a $2.1 billion dividend on the federal government’s nearly 80 percent stake, per an SEC filing.”

I haven’t made the effort to figure out why Fannie & Freddie are asking for aid from the Federal government so that they can pay preferred dividends to…the Federal government. Perhaps it is the same logic that has the Fed, which I think is part of the US Government, purchasing another $600 billion of US Government securities.