Loan modifications seem like a pretty simple concept. You can’t pay your mortgage so the government “encourages” your mortgage provider to give you a break. The break can come in the form of lower interest rates, a longer tenure, deferring a part of your loan or even “forgiving” a chunk of your loan (that doesn’t happen all that often).

The key word of the above paragraph is “seems”. The truth is not even close to simple. Banks are businesses and like all businesses, successful ones anyway, they need to know where they are going, what the future will look like in order to decide what decisions to make today.
Investors and business analysts also want to know what the future of business looks like. Mortgage and securities analysts have a difficult job on their hands because the future is so difficult (read impossible) to predict accurately.

Loan modifications depend on how the future looks to analysts because mortgage providers decide what interest rates, conditions and how generous (how much they can afford to call a loss) they are going to be depending on how good or how bad things look.
Analysts look at how big companies prepare themselves for the future as a way of checking their own predictions. How can an analyst see how a big company like a bank or mortgage provider is preparing for the future?

One way is to see how much they are setting aside for bad loans and delinquent payments. If a bank predicts the economic future is looking bleak they will set aside larger amounts of cash in case their customers (borrowers) fail to pay. Of course even this is not as simple as all that. If a company wishes to boost their profit or improve how their accounting looks they can play with these figures.

Nevertheless, alarm bells ring in analysts ears when big companies, like Citigroup, reduce their contingency reserves and they can’t figure out why. This is what happened this week and analysts are still asking why.

Normally when banks stock away less cash to cover for loan losses it can be interpreted as a sign of improving credit conditions, but when analysts looked at the rest of Citigroup’s earnings report there was little if any proof of borrower difficulties easing off. What analysts have noticed is that non-performing loans has gone up by 16%, 7% and in the last quarter by 5% which would indicate an improvement in borrowers’ ability to pay but seems to be more of a reaction to the loan modification effort by the government that is improving underlying credit quality.

So is Citigroup being too optimistic or do they believe that the government’s programs have a chance to control the credit crisis? One thing is for sure in business, time will tell.

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1. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
2. Citigroup and Merrill Keep Eating Losses
3. Loan Modifications And Balloon Payments What Is The Cost

Related posts:

1. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
2. Citigroup and Merrill Keep Eating Losses
3. Loan Modifications And Balloon Payments What Is The Cost

Source [blownmortgage]

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Filed under: Valero Energy (VLO)

For now, I’m placing a Hold on Valero Energy Corp. (NYSE: VLO) shares, first recommended on April 20, 2009 at a price of $20.08.

Valero, the largest, independent refiner in North America, continues to underperform, as a result of the decline in demand for refined products triggered by the recession.

Continue reading Valero Energy: Hold shares

Valero Energy: Hold shares originally appeared on BloggingStocks on Tue, 03 Nov 2009 15:00:00 EST. Please see our terms for use of feeds.

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Last week’s big news in loan modifications was that HAMP, Obama’s administration’s program to get troubled (i.e. 60 days behind their payments) loans back in line with “aggressive” modifications made its first target of 50,000 trial loans before November. That is what the government hoped anyway.

The big news this week could be that foreclosures seem to be slowing down as well as loan delinquencies fall from peak. That is an interesting way of saying that things aren’t as bad as when they were at their worst. But, hey, when you are in a world credit crisis you have to make the most of good news.

Why are things getting better? Is the Government’s program proving its worth?

You will get a whole lot of opinions on that. Let’s try and hang on to a few important facts to get some perspective on the whole issue.

- A target few thought possible was achieved through sweat, blood and tears.

- Foreclosures are no longer only coming from subprime mortgages that need the help of HAMP to lower interest rates but are increasingly coming from prime mortgages with good interest rates. This is because the current crisis is not only a mortgage interest crisis but a credit crisis. People have over borrowed not only on their homes but on their cars, their credit cards and when they lose their high paying jobs they are in trouble and of course mortgage payments are right at the top of the loans they are trying to pay back.

- Banks are starting to work hard to meet the targets set by the administration. One example is the First Federal Bank of California a subsidiary of FirstFed Financial Corp has modified more than 1.4 billion dollars worth of home mortgages, averting 3,000 mortgages from foreclosure. In fact this relatively small local bank is doing very well when compared to banks nationally. The great results in loan modifications at First Federal Bank of California are strongly linked to good results in other related areas like loan delinquencies which have also declined significantly from previous peak levels. For instance loans that were 30 to 59 days behind payments were 55 percent lower than in January.

How did First Federal Bank of California pull this off?

I don’t know. They will happily say it is there interest in their client’s real needs that allow them to provide realistic modifications to their loans which provides sustainable loan payments for borrowers. What can’t be argued is that this bank is meeting and exceeding government’s expectations.

One of the factors that might be contributing towards this is that smaller banks can modify and fine tune their management faster and more efficiently. Smaller can be better in business and banks have complained about the difficulty of changing the cogs of their corporations to provide fast loan modifications.

What is amazing is that after 6 months we know the government is on target (at least their first target) but we’re not sure if it is aiming for the right target, subprime mortgages.

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1. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
2. Loan Modifications: Why Is Citigroup Optimistic About Future Loan Delinquencies
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

Related posts:

1. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
2. Loan Modifications: Why Is Citigroup Optimistic About Future Loan Delinquencies
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

Source [blownmortgage]

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Filed under: Scandals, Mutual funds, Headline news

Investors are calling for an inquiry into mutual fund fees, but the Supreme Court is reminding them that it isn’t beholden to public opinion. The mutual fund industry is being accused of charging “excessive” fees, which could be particularly harsh on individual investors who use these tools as their primary way to access the market. Currently, the mutual fund industry has more than $10 trillion in assets under management, some of it through retirement and 529 college savings plans.

The Court doesn’t seem inclined to step into the fray, saying that regulatory agencies are better equipped to address the situation. Chief Justice John Roberts, for example, said during arguments that “It makes a lot more sense to have the SEC regulate rates than to have courts do it, doesn’t it?”

Continue reading Supreme Court pushes back on mutual fund issue

Supreme Court pushes back on mutual fund issue originally appeared on BloggingStocks on Tue, 03 Nov 2009 10:20:00 EST. Please see our terms for use of feeds.

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Filed under: U.S. Steel (X), Stocks to Buy

Not-for-squeamish U.S. Steel (NYSE: X) is rising on schedule, despite a recent pull-back, which is why I’m reiterating my Buy rating for the company, first recommended on April 15, 2009, at a price of $27.61. If you bought X in April, you’re up about 28%.

The rationale for owning X’s shares remains the same. U.S. Steel will likely be a survivor in the consolidating global steel sector with sufficient scale to either produce raw materials and acquire raw material assets.

Continue reading U.S. Steel: Poised to race ahead during the global economic expansion

U.S. Steel: Poised to race ahead during the global economic expansion originally appeared on BloggingStocks on Mon, 02 Nov 2009 13:40:00 EST. Please see our terms for use of feeds.

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Filed under: Competitive strategy, Wal-Mart (WMT)

Wal-Mart Stores Inc. (NYSE: WMT) wants to sell you everything it possibly can. Need funeral arrangements? The world’s largest retailer wants to help. $4 prescription drugs? It has you covered. In fact, it’s hard to think of any product category that Wal-Mart does not seem at least a little covered with. For good reason, too: Wal-Mart has tapped out much of the short-term growth by virtue of it being almost everywhere in the U.S. and selling everything you can possibly think of.

Continue reading Wal-Mart shares are dead money - so where is it headed?

Wal-Mart shares are dead money - so where is it headed? originally appeared on BloggingStocks on Mon, 02 Nov 2009 17:45:00 EST. Please see our terms for use of feeds.

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