Regulatory agency takes enforcement action against two TARP recipients

A pair of TARP recipients appeared in the Office of the Comptroller of the Currency's latest monthly listing of banks hit with enforcement actions. Santa Clara Valley Bank, which received $2.9 million through the Troubled Asset Relief Program in February...

 
 

daily notes and stories

» Saturday, February 19, 2011

Barofksy's departure pleases some at Treasury Department

Neil Barofsky, Special Inspector General for TARP since the program's inception in 2008, will leave the job at the end of March.

In his resignation letter to President Obama, Barofsky hailed his office's ability to provide a level of transparency to the $700 billion bailout program while helping gain the convictions of 14 individuals for criminal fraud, avoiding $550 million in potential fraud losses, and recovering an additional $150 million in other fraud monies.

Such activity would, he noted, ensure "that SIGTARP will more than pay for itself for its entire existence."  

Barofsky's actions and demeanor were not without their detractors, however, and his departure was viewed with approval in at least some quarters.  He was especially critical of the Treasury Department and the Federal Reserve Bank of New York in relation to the enormous bailout of the American International Group Inc., possibly TARP's biggest black eye. 

Timothy F. Geithner was the head of the New York Fed at the time, and was soon afterward named Secretary of the Treasury. 

An employee of the Treasury, speaking to the Washington Post on the condition of anonymity, claimed that Treasury was not afraid of critics, but asserted that Barofsky had "been consistently wrong about a lot of big things."

The story said that some at Treasury and in the financial services industry viewed Barofsky, a former federal prosecutor, as a self-promoter who tended to overreach his boundaries.  According to another Treasury employee, the resignation "was like a nice valentine to us."

Barofsky himself perhaps found the ideals and realities of his job to be rather disparate.  In March 2009 he set out to dissect the $165 million in bonuses paid out by AIG even after its bailout by taxpayers.  His failure to claw back any of the funds or to mete out restorative justice in the eyes of the taxpayers was a shortcoming he shared with Kenneth Feinberg, TARP's compensation czar.

Oddly enough, Monday was also the day the Congressional Oversight Panel released its own report that took special umbrage with Feinberg's inability or unwillingness to claw back funds.

One area where Barofsky and the COP report were in total accord, however, was their criticism of the "too-big-to-fail" philosophy adopted by the Treasury in relation to companies such as Bank of America Corp., General Motors Co., and AIG, among others.

In his Quarterly Report to Congress in January, Barofsky noted that the problem had not been solved and that such safety nets were deleterious to any economic recovery.  "The SIGTARP believes," he said at the time, "we are running the risks of repeating the same mistakes that resulted in the American people footing the bill for the largest bailout in American history."

As reported by Bailoutsleuth earlier this week, members of the Congressional Oversight Panel voiced the identical concern.  Two COP members repeated the warning of the too big to fail strategy, fearing that companies "can reap the benefits but will not suffer the consequences if the gambles are unsuccessful."  


Bridge Bank set to repay nearly $24 million in TARP money

Bridge Capital Holdings, the San Jose, Calif.-based parent company of Bridge Bank and a December 2008 recipient of $23.9 million in TARP money, said it is ready to repay the government and leave the program.

The company plans to redeem all of the preferred stock that it sold to the Treasury Department in 2008.  It said it has procured all necessary regulatory approvals to complete its departure.

Bridge Capital has paid more than $2.4 million to the U.S. government over the life of its participation in TARP's Capital Purchase Program.  According to the company's press statement, it also intends to repurchase the common stock warrants that it issued to the Treasury in the initial transaction.

Those warrants cover 396,412 shares of Bridge Capital's common stock.  No definitive agreement on the repurchase price has been reached.

Daniel P. Myers, Bridge Capital's chief executive officer, called the redemption of the TARP shares a significant milestone for the company.  "We believe [this] reflects the strength of our balance sheet and our ability to continue actively meeting the financing needs of our growing Silicon Valley customer base." 


The subsidiary, Bridge Bank, is a full-service business bank catering to small, medium and emerging technology companies.    

Bridge Capital raised more than $30 million in capital through a stock placement last November. The company said at the time that it intended to use part of that money to redeem its TARP shares.


 


» Tuesday, February 15, 2011

TARP compensation czar gets mixed reviews in latest oversight report

The recently released Congressional Oversight Panel report gave passing marks to efforts to limit cash compensation at seven institutions that received "exceptional taxpayer assistance'' through the Troubled Asset Relief Program.

But the panel said that Kenneth Feinberg, the  program's Special Master for Executive Compensation, "has fallen short in his far broader goal of permanently changing Wall Street's pay practices."

Although past oversight reports have looked at executive compensation, the February report is unique in that it addresses that topic almost exclusively.

The seven companies deemed to be recipients of exceptional taxpayer assistance are American International Group inc., Bank of America Corp., Chrysler LLC, Chrysler Financial LLC, Citigroup Inc., General Motors Co., and GMAC Financial Services, now known as Ally Financial. 

The report particularly praised Feinberg for decreasing the overall compensation for the top 25 executives at each of the seven companies by an average of 54.8 percent from from 2008 to 2009.  In addition to those cuts, Feinberg also managed to reduce or cap annual cash payments for the same group of employees to $500,000 or less.

The successful imposition of such limits was deemed a major coup. Officials believed TARP restrictions were necessary to help taxpayers to recover their investment in the companies at the same time, executives needed to acknowledge taxpayer anger over inflated executive pay at bailed-out companies and press forward to stabilize the teetering financial system.

Feinberg was praised for assuring that stock received as salary by those same executives should be redeemable only over a four-year period.  Such strictures would supposedly tie the executives' rewards to the long-term  performance of the company rather than individual ambitions.

Finally, Feinberg to limit incentive payments to one-third of executive compensation (as required by Congress), while tying such payments to "specific, observable performance metrics."  The Special  Master met all of these goals while working under intense media scrutiny and growing taxpayer unrest.

But the report, approved unanimously by the five members of COP, was not without criticism. The panel found that the general lack of transparency surrounding Feinberg's actions (see especially pages 80 to 82 of the report) made it impossible to critically appraise his efforts to permanently change Wall Street's pay practices.

The report claimed, for example, that although Feinberg promised to set executive pay at rates comparable to those of other companies, he was not clear about how he selected the peer companies he used for comparison purposes. He also rarely explained to the public  how he managed to classify companies akin to those under investigation, or how he went about setting pay in the light of conflicting goals.

Some critics have also claimed that paying executives in stock could lure those stakeholders into taking unnecessary risks to raise the value of their own shares, slashing the very safety net such compensation was meant to provide the company.  The report offered no specifics as to whether that had been the case among the seven companies.

Perhaps the most critical assessment of Feinberg's performance relates to his decision not to "claw back" any pay that went to financial executives in the boom period leading up to the financial crisis.  Although he deemed $1.7 billion in pre-crisis compensation be "disfavored" and perhaps inappropriate, he claimed that none was "inconsistent with the public interest."

Hence, the anticipated feeding frenzy surrounding exorbitant executive pay at companies on the verge of collapse ended with a dull thud.  In the end, not a cent was clawed back from any executive of the seven companies.  That inability to act could itself guarantee that Wall Street's pay practices will never permanently change.  

In a final section of the report dubbed "Additional Views," (pages 89-91) two member of the panel returned to the theme of the "too-big-to-fail" status of the seven companies, among others, that got substantial government aid.  The panelists -- Professor Kenneth R. Troske of the University of Kentucky and attorney and Certified Public Accountant J. Mark McWatters -- reiterated the warning that such intrinsic backstops will usually encourage excessive risk-taking, "since [companies] can reap the benefits but will not suffer the consequences if the gambles are unsuccessful." 

In the presence of these government guarantees, they wrote, "both shareholders and executives have an incentive to design compensation schemes that reward executives for investing in risky projects."  If policymakers truly want to change the manner in which Wall Street executives are compensated, the U.S. government must show the willingness to allow "too-big-to-fail" companies to suffer the same vicissitudes as medium and small corporations and ultimately fail without bailout.  Until that time, they agree, "both shareholders and executives will continue to push for compensation plans that reward executives for focusing on risky projects."

The other three panel members are Sen. Ted Kaufman of Delaware, who serves as chairman; Richard Neiman, Superintendent of Banks for the New York State Banking Department, and Damon Silvers, Director of Policy and Special Counsel to the AFL-CIO.

» Sunday, February 13, 2011

Four more banks fail, raising the total for the year to 18

Regulators closed four more banks Friday, bringing the number of seizures so far this year to 18.

All four of the banks were located in different states. Both Wisconsin and Florida witnessed their second bank failures of the year, while Michigan and California each saw their first.

The most substantial bank to close its doors was Peoples State Bank of Hamtramck, Mich.  First Michigan Bank, based in Troy, Mich., took over Peoples' 10 branches, along with its deposits and assets.

First Michigan entered into a loss-share transaction with the Federal Deposit Insurance Corp. on $331.0 million of the failed bank's assets.  It agreed to pay the FDIC a premium of 0.25 percent for Peoples' $390.5 million in deposits.

Pacific Premier Bank of Costa Mesa, Calif., absorbed Canyon National Bank, of Palm Springs, Calif. That three-branch bank had $205.3 million in deposits and $210.9 million in assets.

Earlier Friday, The Florida Office of Financial Regulation closed the Fort Orange-based Sunshine State Community BankPremier American Bank, N.A. of Miami purchased essentially all of the bank's $125.5 million in total assets and took over its five branches.  Premier will also pay a 0.50 percent premium to assume all of Sunshine's $116.7 million in deposits.

Royal Bank of Elroy, Wis., assumed all deposits and purchased all the assets of the single-branch Badger State Bank of Cassville, Wis. Badger held approximately $78.5 million in deposits and $83.8 million in assets. 

The FDIC estimated that the group of closings would cost its deposit-insurance fund approximately $144.9 million.   


» Saturday, February 5, 2011

Three small banks go under; toll for 2011 rises to 14

Regulators seized three small banks Friday, boosting the number of closings in the new year to 14.

 

Two of the banks were in Georgia, which has produced a steady stream of failures since the financial crisis began in 2008. The third was in Illinois, another of the hardest-hit states. All three institutions had been operating under regulatory enforcement orders.

 

The biggest bank to go under was American Trust Bank in Roswell, Ga. Renasant Bank, of Tupelo, Miss., took over American Trust's three branches and $222.2 million in deposits. It also acquired $147.4 million of the failed bank's $238.2 million in assets.

 

The FDIC retained the remaining assets for later sale.

 

BankSouth, of Greensboro, Ga., absorbed North Georgia Bank, in Watkinsville, Ga. That two-branch bank had $139.7 million in deposits and $153.2 million in total assets. The FDIC retained about $30 million of North Georgia Bank's assets.

 

Regulators also closed Community First Bank - Chicago. Northbrook Bank and Trust Co., based in the Chicago suburbs, took over Community First's sole branch, its $49.5 million in deposits and its $51.1 million in assets.

 

The FDIC said the closings would cost its deposit-insurance fund an estimated $116.4 million.


» Thursday, January 27, 2011

More banks repay TARP money

Five small banks have repaid all or part of their TARP money this month, while a fifth, much-larger bank - Fifth Third Bancorp - is preparing to retire its debt as well.

 

BCSB Bancorp Inc., the parent company of Baltimore County Savings, said Wednesday it had repurchased the $10.8 million in preferred stock it issued the Treasury Department when it got taxpayer aid through the Troubled Asset Relief Program in December 2008.

 

Fifth Third said it had completed a $1.7 billion stock offering, as part of its plan to repay $3.4 billion in TARP money and exit the program.

 

Washington Banking Co., based outside Seattle, retired its $26.3 million TARP debt earlier this month. Two banks in the Washington, DC area - Rockville Bank, of Rockville, Md., and United Financial Banking Cos., of Vienna, Va. - also repaid TARP money. Rockville Bank returned all of the $4.7 million it received in December 2008, while United Financial returned $3 million of the $5.7 million it got in early 2009.

 

Stockmens Financial Corp., of Rapid City, S.D., also has repaid $4 million of its $15.6 million in TARP aid, Treasury Department transaction reports show.

 

Three other banks that participated in TARP's Capital Purchase Program have repurchased the stock warrants they issued to the government as part of their aid packages.

 

Huntington Bancshares Inc. paid $49.1 million last week to buy back its warrants, while Susquehanna Bancshares inc. paid $5.27 million to do the same. First PacTrust Bancorp Inc.  paid $1 million to repurchase its warrants and complete its exit from TARP.


» Saturday, December 18, 2010

Regulators close six more banks; total for the year stands at 157

Regulators seized six more banks Friday, bringing the total number of failures for the year to 157.

 

Three of the closings were in Georgia, which has seen 21 banks and thrifts go under in 2010 and ranks second only to Florida in that department.

 

The biggest bank to fail was the Bank of Miami N.A., based in Coral Gables, Fla. Its three branches and $374.2 million in deposits were acquired by 1st United Bank, of Miami.

 

That bank also took all nearly all of Bank of Miami's $448.2 million in loans and other assets. The Federal Deposit Insurance Corp. agreed to share in any losses on $313.5 million of that amount.

 

The other banks that went under Friday were:

 

n  United Americas Bank N.A., of Atlanta

n  Chestatee State Bank, of Dawsonville, Ga.

n  Appalachian Community Bank, of MacKaysville, Ga.

n  First Southern Bank, of Batesville, Ark.

n  Community National Bank, of Lino Lakes, Minn.

 

State Bank and Trust Co., of Macon, Ga., absorbed United Americas' two branches, $193.8 million in deposits and $242.3 million in assets.

 

Bank of the Ozarks, based in Little Rock, Ark., took over Chestatee State Bank's  branches and business, while Peoples Bank of East Tennessee, in Madisonville, Tenn., absorbed Appalachian Community Bank.

 

Southern Bank, of Poplar Bluff, Mo., took over First Southern Bank's two branches, its $155.8 million in deposits and all $152.8 million of its $191.8 million in assets.

 

Farmers & Merchants Savings Bank, in Manchester, Iowa, took over Community Bank's branches, deposits and assets.

 

The FDIC said the six failures would cost its deposit insurance fund an estimated $267.6 million.

 

 


» Friday, December 17, 2010

Two TARP banks repay aid

Sandy Spring Bancorp Inc. and First PacTrust Bancorp have repaid the government money they received through the Troubled Asset Relief Program and exited the program.  Meanwhile, First Horizon National Corp. has announced plans to raise cash to retire its $866.5 million TARP debt.

Sandy Spring Bancorp, the Olney, Md.-based parent company of Sandy Spring Bank, got $83 milion in TARP money from the Treasury Department in December 2008.

As Bailoutsleuth previously reported, Sandy Spring repaid roughly half of that money in July, as part of a two-pronged strategy for exiting the program.  It made the second installment last week, repurchasing the last of the preferred stock that it had issued the government in return for taxpayer aid.

Sandy Spring made significant fiscal strides during the first six months of the year--conducting a successful common offering in the first quarter and turning a $5.1 million profit for the second quarter--and thus received regulators' approval to repay the first $41.5 million in aid.

The company announced Wednesday that it had repaid the final $41.7 million that it owed the government.  The sum reflects the $41.5 million of original principal and $173,112 of accrued dividends.  In a press release, Sandy Spring's chief executive, Daniel J. Schrider, said the decision to exit TARP reflected the company's strong capital position.

Sandy Spring made all the dividend payments on its TARP shares in a timely manner.  The company hopes to repurchase the accompanying warrant from Treasury at fair market value, but said there was no guarantee that it would be able to do so.

First PacTrust, which is based in Chula Vista, Calif., and is the holding company for Pacific Trust Bank, also announced Wednesday that it had redeemed the $19.3 million in preferred stock it had sold to the Treasury in November of 2008.  The move was made possible by a $60 million private placement completed on November 1, 2010.

First PacTrust paid nearly $2 million in dividends over the life of its participation in TARP.  The Treasury still holds a warrant to buy 280,795 shares of First PacTrust's common stock at an exercise price of $10.31 per share, but the release made no mention of the company's  intentions in that regard. First PacTrust's stock is trading for around $12.80 a share.

In what has come to be a rare note of gratitude from a TARP institution, Greg Mitchell, the company's chief executive and president, applauded those who helped the company through tough economic times.   "We thank the U.S. government, our regulators and fellow taxpayers for their support and vote of confidence in our Company, and more broadly for their support of the U.S. financial system."

First Horizon National, parent company of the Memphis, Tenn.-based First Tennessee Bank, announced Monday that it planned to sell more than $250 million in common stock to help settle its tab with the Treasury.  Two days later, the company unveiled the second leg of its exit strategy, announcing a public offering of senior notes.

First Horizon National said it intends to sell $500 million in notes. It plans to use the proceeds of the stock and note offerings to help repay its TARP obligations and retire roughly $100 million in other debt.

According to ProPublica, First Horizon has paid nearly $76 million in dividends to the government over the past two years.  The company's communications have made no mention of its plans for the warrant it issued to Treasury along with its preferred stock in 2008.


» Wednesday, November 24, 2010

GM IPO yields $11.7 billion for taxpayers

The Treasury Department earned $11.7 billion from General Motors Co.'s recent initial public offering, the government announced.

Treasury sold 358,546,795 of its shares in GM as part of the IPO.

Treasury could earn an extra $1.8 billion from the deal if investors exercise an option to purchase additional shares of GM common stock. The government got its stock in return for the aid it provided the company through the Troubled Asset Relief Program



» Friday, November 19, 2010

Regulators close three more banks

Regulators closed three banks Friday, bringing the total number of failures for the year to 149.

 

The biggest bank to go under was First Banking Center, of Burlington, Wis., with $664.8 million in deposits and $750.7 million in total assets. The Federal Deposit Insurance Corp. arranged for First Michigan Bank, of Troy, Mich., to take over the failed bank's 17 branches, all of its deposits and virtually all of its assets.

 

The Federal Reserve issued a "prompt corrective action'' order  against First Banking Center in August, giving it 60 days to raise additional capital or find a buyer or merger partner.

 

First Michigan paid a 0.5 percent premium for First Banking Center's deposits, and the FDIC agreed to share in any losses on $516.6 million of the assets.

 

The other two banks shut down this week were Gulf State Community Bank, of Carrabelle, Fla., and Allegiance Bank of North America, based in Bala Cynwyd, Pa. Both of those banks also had been operating under regulatory orders.

 

Centennial Bank, of Conway, Ark., acquired Gulf State's five branches, along with its $112.2 million in deposits and $112.1 million in assets.

 

Centennial did not pay a premium for the failed bank's assets. It got a loss-sharing deal on $84.4 million of Gulf State's assets.

 

VIST Bank, of Wyomissing, Pa., took over Allegiance Bank, which had five branches, $92 million in deposits and $106.6 million in assets. It paid a 0.5 percent premium for the deposits, and the FDIC agreed to share losses on $86.2 million of the assets.

 

The FDIC said the three closings would cost its deposit insurance fund an estimated $199.5 million.

 


House ethics committee calls off Waters trial

The House ethics committee has called off the trial of Rep. Maxine Waters (D-Calif.), who was accused of using her influence to help a floundering bank secure TARP aid, after discovering new evidence, the committee announced today.

According to the statement, the Committee on Standards of Official Conduct voted to send Waters' case back to its investigative subcommittee due to new evidence that could have affected the subcomittee's decision to refer the case to the full committee. As a result, the Nov. 29 trial won't be held, although presumably, it could be rescheduled.

The announcement came a day after the committee recommended that Rep. Charles Rangel (D-N.Y.) face censure.

Waters, a high ranking member of the House Financial Services Committee, is accused of using her influence in 2008 to help secure aid through the Troubled Asset Relief Program for struggling OneUnited Bank.

Waters' husband is a former board member at OneUnited and had between $250,000 and $500,000 worth of investments in the bank. That likely represented a conflict of interest, the committee has said.

Waters has repeatedly denied any wrongdoing.

The committee's report found that Waters may have violated conflict of interest laws when she contacted then-Treasury Secretary Henry Paulson to request that Treasury officials meet with representatives from a banking association. Ultimately, OneUnited was the only bank to be independently represented at the September 2008 meeting.

According to the report, Paulson said Waters did not mention OneUnited during her call, nor did she mention her financial interest in the bank.

"(T)he suggestion that I could gain personally from one phone call made to assist the National Bankers Association in getting a meeting with the Treasury Department is not credible," Waters said in a statement earlier this year.


» Thursday, November 18, 2010

Waters grills Treasury, OCC officials at mortgage-modification hearing

Rep. Maxine Waters (D-Calif.) blasted Treasury Department officials and banking regulators Thursday during a hearing that focused on the impact that improper paperwork and "robo-signing" have had on the government's mortgage modification program.

The hearing, hosted by the House Financial Services Subcommittee on Housing and Community Opportunity, came just days after another government panel warned that the same irregularities that caused banks to temporarily halt foreclosures earlier this year may be undermining the government's mortgage modification program.

That program, known as the Home Affordable Modification Program, is part of TARP.

Waters -- who chairs the subcommittee and is facing her own TARP-related scandal -- had harsh words for a panel that included officals from the Treasury Department, the Office of the Comptroller of the Currency and the Federal Housing Finance Agency, among others.

"I'd like to thank you for basically reiterating what you've said over and over again," an exacerbated Waters said in response to government officials insisting they were monitoring potential problems with the mortgage paperwork and the Home Affordable Modification Program.

Waters repeatedly questioned officials about what type of penalties mortgage services have suffered when they fail to comply with the rules of HAMP.

Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office, said servicers have been required to re-evaluate homeowners for HAMP and to invite applications from homeowners who may have been passed over. "That's not a penalty," Rep. Stephen Lynch (D-Mass.) told Caldwell.

Caldwell ultimately conceded that no servicer has suffered monetary penalties under HAMP despite widespread complaints by borrowers of servicers who are inefficient and violate the program's rules.

Meanwhile, John Walsh, the acting head of the OCC, said that the regulator hasn't levied fines, issued cease-and-desist orders or threatened to revoke the charters of any servicer.

"Do you think the servicers really believe you mean business if they don't have to (face) any consequences?" Waters said. "Why should they take you seriously?"


» Tuesday, November 16, 2010

GM increases price of IPO shares by 18 percent; proceeds could top $18 billion

General Motors Co. announced today that it has increased the price of shares in its initial public offering scheduled for Thursday by 18 percent.

The company will sell its common stock for $32 to $33 per share. Previously, it had announced the stock would sell for $26 to $29.

The increase is good news for taxpayers, who likely will see greater returns on their GM investment, made through the Troubled Asset Relief Program.

The Special Inspector General for TARP has previously estimated that GM's stock would need to sell for $133.78 a share for Treasury to break even on its investment.

That comes to $45.59 a share after a recent three-for-one stock split -- still about 29 percent higher than the mid-point of the new price structure.

GM also is increasing the amount of preferred stock it will sell in the offering by a third, to 80 million shares. The move is expected to lift its proceeds from that share sale to $4 billion.

The U.S. government curently owns 61 percent of GM. The company will sell 365 million shares as part of the IPO, and of those, 263.5 million are owned by Treasury.

Under the new pricing structure, Treasury can expect to earn at least $8.4 billion, compared to $6.9 billion under the old plan.


» Monday, November 15, 2010

Oversight panel issues report on mortgage confusion

The same irregularities that caused banks to temporarily halt foreclosures earlier this year may be undermining the government's mortgage modification program, the Congressional Oversight Panel announced in its latest report released today.

This fall, Bank of America Corp. and JPMorgan Chase & Co. delayed or suspended foreclosure proceedings due to irregularities with foreclosure affidavits, the documents signed by bank officials certifying they own the mortgage. GMAC Mortgage also temporarily suspended evictions and post-forelocusre closings in some states.

The problem is due to the increasing tendency of financial institutions to bundle and sell mortgages many times over. Eventually, it can become difficult to determine exactly who owns the loan.

The panel, charged with providing oversight of the Troubled Asset Relief Program, reported that -- given the confusion over the ownership of those loans -- it is possible that the Treasury Department is dealing with the wrong parties when it seeks to modify mortgages through the Home Affordable Modification Program.

Under HAMP -- a program within TARP -- Treasury pays incentives to mortgage servicers who are willing to modify the mortgages of borrowers who are having trouble making their payments.

But if an institution does not legally own a mortgage, its servicer cannot foreclose on it. In that case, HAMP could be paying incentives needlessly to a servicer that lacks the legal authority to foreclose.

Treasury has no way to determine whether improper payments are being made, the panel wrote. "Treasury may well be paying incentives to servicers that have no right to receive them," the panel reported.

The panel also wrote that servicers' "tendency to cut corners" means they may have made mistakes when calculating who is eligible for modifications and who is not.

Phyllis Caldwell, who leads Treasury's Homeownership Preservation Office, said that HAMP "is not directly affected" by the questionable affidavits. The COP reported that Treasury is doing nothing to independently verify that mortgages modified by HAMP servicers are under proper ownership.

Treasury, meanwhile, has said that if mistakes have been made in the HAMP process, it can clawback the incentive payments when a legal owner ultimately emerges. But, the oversight panel wrote, that plan "optimistically assumes that legal owners will be able to identify clearly the mortgages they own." In other words, those legal owners may not come forward.

Additionally, that policy creates a double standard in which borrowers must provide extensive documentation to benefit from HAMP, while servicers do not. The program has been marred by criticism from borrowers, who say the documentation requirements of HAMP are onerous and not consistently followed.

The panel urged Treasury to investigate whether documention problems are undermining HAMP and to publicly report its findings.

The panel also advised the Treasury Department and bank regulators to continue monitoring allegations of illegal foreclosures on a broader level. The report reiterated the critique that the growth of mortgage securitization has outpaced the industry's ability to track ownership of properties, and that banks may have foreclosed on homes they couldn't prove they owned.

"If documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages, the consequences could be severe," the panel wrote.

"Clear and uncontested property rights are the foundation of the housing market. If these rights fall into question, that foundation could collapse."

Sen. Ted Kaufman (D-Del.), who chairs the panel, said in a conference call with the reporters that the latest report covers only potential problems that "could turn out to be nothing."

Given the vast size of the mortgage-backed security market -- an estimated $7.6 trillion -- even if a small portion of the market was affected by the confusion, the damage to the financial system could be vast, Kaufman said. That's of particular concern to the panel, given that such a crisis could undo the progress of TARP in stabilizing the financial system.

The panel also urged bank regulators to conduct stress testing to determine whether Wall Street banks can handle a potential real estate crisis that may emerge from the questionable ownership concerns.

Kaufman declined to promote a national moratorium on foreclosures when questioned by reporters.


» Saturday, November 13, 2010

TARP recipient Tifton Banking Co. fails, marking the second TARP closure in two weeks

Bailout recipient Tifton Banking Co. was closed by regulators Friday night, marking the second time in consecutive weeks that a TARP bank has failed.

The bank, based in Tifton, Ga., received $3.8 million in taxpayer aid through the Troubled Asset Relief Program in April 2009. That investment will likely be wiped out due to the bank's failure.

A total of three banks -- two in Georgia and one in Arizona -- failed Friday.

Tifton;s failure came week after regulators closed Pierce Commercial Bank, which received $6.8 million in taxpayer aid through TARP.

Tifton now becomes the sixth TARP recipient to be closed by regulators. A seventh, CIT Group Inc., went through a bankruptcy that wiped out Treasury's $2.3 billion investment.

Tifton had been current on its quarterly dividends to the Treasury Department until August when, for the first time, it became a TARP "deadbeat" by failing to pay $51,800 owed as a condition of receiving government aid.

The bank, established in 2004, had a single Georgia office, according to FDIC records. It held $151.7 million in deposits and $160.7 million in assets. The bank was struggling at the time of its closure, having lost nearly $9.5 million in the first half of 2010, on top of a $3.3 million loss in 2009.

Friday's largest failure was Darby Bank & Trust Co. in Vidalia, Ga., which had assets of $654.7 million and total deposits of $587.6 million. That bank had seven offices, all of which were in Georgia.

Darby had net losses of $17.9 million so far this year, and lost more than $28.6 million in 2009.

The bank had been under an FDIC consent order since December, and its holding company has been under Federal Reserve enforcement since May.

Both Tifton Banking Co. and Darby Bank & Trust Co. will be taken over by Ameris Bank of Moultrie, Ga.

Also failing Friday was Copper Star Bank in Scottsdale, Ariz. It will be taken over by Stearns Bank National Association, based in St. Cloud, Minn.

The three failures combined will cost the FDIC's deposit insurance fund an estimated $204.4 million. There have now been 146 bank failures this year, compared with 140 for all of 2009.