Wells Repurchasing of Bad Loans Falls, US Bank and other Earnings

Wells Fargo Bad Loan Repurchases Fell In 3Q
Yesterday we learned that Wells Fargo’s repurchase obligations fell in the third quarter. Wells Fargo, who has not stopped foreclosure processes, reduced its reserve for repurchases to $1.3 billion from $1.4 billion in the second quarter, and outstanding buyback requests fell to $3.8 billion of loans from $4.3 billion in the previous quarter.

US Bank Earnings
U.S. Bancorp, the #6 lender by volume in the first half of 2010 and the fifth-biggest U.S. commercial bank by deposits, said third-quarter profit rose 51%, beating analysts’ estimates, as costs declined for delinquent loans. Net income increased to $908 million. The bank’s $995 million in new provisions for loan losses were equal to net charge-offs, leaving the allowance for losses at 3.1 percent of loans at the end of the period. And Fidelity National, the largest provider of title insurance in the US, also beat estimates, citing higher fees and volume for its title insurance operations. Fidelity’s earnings were up 13.4% over the year-ago period although revenue dropped 3.4% – a reflection of stronger margins on each transaction.

MERS Problems
Poor MERS. They’ve been around 15 or so years, staying out of the spotlight and probably making decent money for the mortgage companies that own it, and now the company is front-page news. Three states have ruled that MERS, listed on about 20 million home loans as the mortgage owner, standing in for lenders and investors, is not the true owner because it only maintains the database. And if you’re not the owner of the mortgage, you can’t foreclose. The HUD Secretary, however, has stated, “Administration officials have not found any evidence of underlying structural issues” with the MERS process. But there are now class-action suits in California, Nevada, Arizona and Kentucky challenging its right to foreclose on delinquent loans. The Reno-based lawyer running the California suit said, “What we see is a systematic, industry wide fraudulent scheme in which the true owners of the loan do not participate in the foreclosure.” MERS has 65 million loans registered in its database, and was created to speed up legal recordkeeping of mortgages as it tracks repeated sales of mortgages as they go through the process of being turned into packages of loans and the basis for securities sold on Wall Street. MERS also allows banks to avoid the trouble – and the recording fee of up to $50 – of filing deeds and other documents at county registrars’ offices every time ownership of a mortgage changed hands – in theory lowering the cost to the borrowers.

Beige Book Shows Modest Economic Growth
We learned from the Fed’s Beige Book yesterday that the economy continued growing between September and early October but at a modest pace and with lingering weakness in the housing market with lower home sales in most districts. Stocks certainly took it as good news, especially when combined with some decent earnings news, and the DOW shot up 130 points.

Rates About Even
The 10-yr ended yesterday basically unchanged and MBS prices better by .125. Fannie & Freddie 3.5% securities (containing 3.75-4.125% mortgages) are near a 1.5 premium – add on some servicing and you’re talking a big premium. The “tightening” was due to continued strong demand for mortgage products and limited supply – only $1.8 billion.

Today’s economic news does it for the week. Initial Jobless Claims dropped 23,000 this morning to 452,000. The 4-week moving average dropped about 4k, a good trend but not earth-shattering. At 7AM PST we will have Leading Economic Indicators (Sep), expected unchanged at 0.3%, and the Philly Fed Survey (Oct), predicted higher to 2.0 from -0.7 in September. In addition, at 11:00 Treasury announces details of next week’s auctions of 2, 5, and 7-year notes. We find the 10-yr around 2.50% and mortgage security prices slightly better.