Federal Regulators Busy

The Federal Trade Commission has issued to Countrywide Financial Corp. civil investigative demands for various documents and items of information in connection with an investigation related to its loan servicing activity, a filing Monday with the Securities and Exchange Commission said. The Bank of America Corp. subsidiary said it has a solid defense against the investigation but cannot estimate what potential losses may result or whether they may be material.

The SEC is conducting an informal investigation of National City Corp., a filing Friday said. The regulator has requested documents in connection with loan underwriting experience, dividends, bank regulatory matters and the sale of First Franklin Financial Corp. to Merrill Lynch in September 2006. No allegations of illegal actions have been made as of yet.

The Office of the Comptroller of the Currency announced yesterday that cease-and-desist orders were issued against Vineyard Bank N.A. in Rancho Cucamonga, Calif.; The First National Bank of Logan, Logan, Iowa; and T Bank N.A., Dallas.

OCC said civil money penalty orders were issued against Intercredit Bank N.A. in Miami; Richard Abrams at Seaway National Bank of Chicago; Phillip C. Carlson, Carolyn M. Helmig, Charles W. Helmig III, David C. Holly, Hubert J. Mennie and Daniel J. Wujek, all of The Granville National Bank in Granville, Ill.; Preston G. Smith, The First National Bank in Mulberry Grove, Ill.; and Jeffrey S. Ray, First National Bank of Muhlenberg County in Ky.

Formal agreements were reached with Granite Community Bank N.A. in Granite Bay, Calif.; Cornerbank N.A. in Winfield, Calif.; First National Bank in Chisholm, Minn.; Landmark Community Bank N.A. in Isanti, Minn.; Standing Stone National Bank, Lancaster, Ohio; Home National Bank in Blackwell, Okla.; Border Capital Bank N.A. in McAllen, Texas; and The First national Bank of Trenton, in Trenton, Texas.

In addition, OCC issued removal and prohibition orders against Liu H. Saephan at Bank of America N.A. in Charlotte, N.C., and terminated formal agreements against The First National Bank – Fox Valley in Neenah, Wis., and Fidelity National Bank in Medford, Wis.

The National Association of Federal Credit Unions issued a statement rebutting a Wall Street Journal story that suggested declining values on mortgage securities could prompt a loss of confidence in the sector and even potentially trigger a run on deposits. NAFCU clarified that the article focused on corporate credit unions, which serve other credit unions, and that their investments are limited to the most highly rated securities. The group went on to say that consumer credit unions are solid and operating with low delinquency.

BankUnited Financial Corp. reported Friday a $146 million loss before taxes for its fiscal third quarter ended June 30, compared to a $102 million loss in the prior quarter $23 million profit a year earlier. The loss was primarily attributable to a $130 million loan-loss provision.

The Coral Gables, Fla.-based company said it is shrinking its residential mortgage loan portfolio. Residential loans on its balance sheet were $9.5 billion on June 30, while specialty consumer mortgages were $0.8 billion and home-equity loans and lines-of-credit totaled $0.5 billion. Loans serviced for others ended the period at $2.1 billion.

“This quarter was a mix of strong results from our core banking operations offset by continued deterioration in the mortgage portfolio,” BankUnited Chairman and CEO Alfred R. Camner said in the report.

In an SEC filing Monday, Wachovia Corp. increased its second-quarter loss to $9.1 billion from $8.9 billion originally reported on July 22. The increase reflected the effect of recent and active settlement discussions with securities regulators of investigations relating to auction-rate securities.

Radian Group Inc. reported Monday a $393 million second-quarter loss, worse than the $197 million loss a year earlier. The latest period reflected a pre-tax first-lien premium deficiency reserve of $422 million. The reserve reflects Radian’s best estimate of the present value of expected future losses not already included in the June 30, 2008, loss reserves, net of related future premiums.

JPMorgan Chase & Co. said in an SEC filing Monday that it has already incurred $1.5 billion in third-quarter losses as a result of spreads on mortgage-backed securities and loans that have sharply widened. The New York-based firm said its investment bank’s exposure to prime and Alt-A mortgages was $19.5 billion and its subprime exposure was $1.9 billion.

“These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers,” JPMorgan said in the filing.

UBS reported yesterday a second-quarter loss of CHF 358 million (U.S. $330 million). Results were impacted by realized and unrealized losses of (U.S.) $5.1 billion on legacy risk positions, mainly on exposures related to U.S. residential real estate related securities and other credit positions.

Standard & Poor’s Ratings Services announced Monday that it lowered Fannie Mae’s risk-to-the-government rating to A from A+, reflecting a worsening financial profile. The rating measures Fannie’s credit worthiness as if there were no government support. The Washington, D.C.-based company’s preferred stock and subordinated debt rating were lowered to A- from AA-.

S&P cited the same logic in its downgrade Monday of Freddie Mac’s risk-to-the-government rating to A from AA- and its downgrade of Freddie’s subordinated debt and preferred stock rating to A- from AA-.

Downey Financial Corp. said in an SEC filing Monday that it experienced elevated levels of deposit withdrawals at the end of the second quarter. But the situation has reversed, and the Newport Beach, Calif.-based company has since experienced deposit inflows. Downey warned that if elevated levels of net deposit outflows resume, the usual sources of liquidity could become depleted, forcing it to raise additional capital — which it said could be difficult in the current environment.

Office of the Comptroller of the Currency  Order Numbers 2008-068 through 2008-091

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com