THE BASIS POINT

‘The Situation’ On Jersey Ponzi Scheme, Bank Earnings, Negative Housing Factors, 3 More Banks Fail

‘The Situation’ On Jersey Investment Fraud
If you ever thought Jersey Shore’s Mike “The Situation” Sorrentino was giving Jersey a bad name, consider this situation: Last week in New Jersey Wayne D. Puff, who ran a huge Ponzi scheme from 1998 through 2005, was sentenced to 18 years in federal prison and ordered to pay more than $100 million in restitution after his company (New Jersey Affordable Homes) accepted $123 million from investors, attracted to the annual returns of 15-20% from his business of buying, renovating and reselling real estate, using the time-honored tradition of fudging applications, having appraisers pump up values, and flipping properties.

Factors Against Housing Improvement
In more “great” news items is news like the kind that is issued by market researcher RealtyTrac, which stated that 2.8 million US properties had foreclosure filings in 2009 in spite of legislative and industry-related delays and loan modifications. The Federal Reserve is scheduled to wind down its MBS purchase program at the end of the first quarter, and tax incentives will expire at the end of April. Many markets still have too many houses for sale and too few buyers, and of course tight underwriting guidelines don’t help the supply & demand issue as appraisers continue to struggle to confirm sales prices. That being said, many markets are seeing stable prices and continued solid interest, especially on the low end.

New FHA Guidelines For Foreclosures
In a move that caught many by surprise, for the next year HUD will have a policy starting 2/1 “that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties” – $2 billion worth. The policy applies primarily to communities where foreclosure activity is high, and will hopefully accelerate the sale of vacant properties. “This temporary waiver… will have very strict conditions and guidelines to assure that predatory practices are not allowed.” Since acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days, now buyers can use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. “All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.” Go to HUD’s website for more details and conditions.

Three More Banks Fail
Three more U.S. banks were shut down Friday, in Illinois, Minnesota, and Utah. The FDIC found buyers for two, but was unable to secure a buyer for a third failed bank in Utah and instead created a bridge bank to give customers time to transfer their money elsewhere. Gone are Town Community Bank and Trust (now under First American Bank), St. Stephen State Bank (now under First State Bank), and Kaysville-based Barnes Banking Company in Utah.

Bank Earnings Roundup
This morning First Horizon National, the parent of First Tennessee Bank, posted a widening fourth-quarter loss of over $70 million and saw revenue fall along with booking a large restructuring charge of $31 million. Recently they have cut back mortgage banking and gotten rid of branches outside its Tennessee home base. Loan-loss provisions were $135 million, down from a year-earlier $280 million and $185 million the prior quarter.

We also had Citigroup, parent of CitiMortgage, post a fourth-quarter loss of $7.6 billion, or 33 cents a share, compared to a loss of $17.24 billion, or $3.40 a share a year ago. The loss was about as expected (but apparently folks were hoping for less of a loss); on an adjusted basis, excluding the $6.2 billion after-tax loss associated with TARP repayment and exiting a loss-sharing agreement, the fourth quarter net loss was $1.4 billion, or 6 cents a share.

Industrial Production & Capacity Utilization Up
We finished off last week with Industrial Production, which was up for the 6th time in a row, Capacity Utilization, which hit its highest level in a year, and the University of Michigan Consumer Sentiment, which rose. It is no surprise that Federal Reserve officials are more confident the U.S. economy is moving toward self-sustaining growth, and therefore calling into question 0% overnight rates. Or buying fixed income securities, for that matter.

Economic Preview This Week
I tried to figure out some way to make a joke about setting up and then putting away my MLK Day decorations, but couldn’t figure out a good angle. No matter – this week has only four business days, but there is a fair amount of economic news. We have zip today, but the Producer Price Index (PPI) on Wednesday, as well as Housing Starts & Building Permits. Thursday we have Jobless Claims, Leading Economic Indicators, and the Philly Fed Index, as well as yet again another auction announcement for the following week. Currently the yield on the 10-yr is at 3.69% and mortgage prices are worse by about .125.

Daily Humor
Celibacy can be a choice in life, or a condition imposed by circumstances.
While attending a Marriage Weekend, Walter and his wife, Ann, listened to the instructor declare, “It is essential that husbands and wives know the things that are important to each other…”

He then addressed the men, “Can you name and describe your wife’s favorite flower?”

Walter leaned over, touched Ann’s arm gently, and whispered, “Gold Medal-All-Purpose, isn’t it?”

And thus began Walter’s life of celibacy…