Investors are snapping up a new type of security sold by Fannie Mae and Freddie Mac, increasingly assuming the risks of mortgage defaults from taxpayers and powering a quiet transformation of the housing giants after almost a decade of government control, the Wall Street Journal reported today. Fannie and Freddie have sold roughly $48 billion of the securities since 2013 to a broadening group of buyers including asset managers and insurance companies. Sales are expected to reach a fresh high of $15 billion this year, up from the previous record $13 billion last year, according to JPMorgan Securities. The sales mark an early step toward reducing the government’s role in the $14.4 trillion U.S. mortgage market. The amount of mortgage debt funneled through Fannie and Freddie and other taxpayer-backed entities roughly doubled after the financial crisis, to around 70 percent.
Efforts toward financial deregulation are beginning to take concrete shape on rules governing trading desks, bank boardrooms, corporations’ financial disclosures and more, the Wall Street Journal reported today. Nearly seven months into the Trump administration, regulators are setting the stage for a wave of eased rules. Several agencies are reviewing the Volcker rule, a part of the 2010 Dodd-Frank Act that limits banks’ trading. Some regulators also recently dropped a plan to restrict bonuses on Wall Street that had been opposed by banks and brokerage firms. And the Labor Department on Wednesday disclosed an 18-month delay in the so-called fiduciary rule that requires brokers to act in retirement savers’ best interests rather than their own.
Oilfield service creditors have been hit harder this year by bankruptcy court filings than during all of 2016, according to law firm Haynes and Boone, a sign of the oil industry's uneven recovery, Reuters reported. Through the first seven months, U.S. oilfield service companies filed for bankruptcy owing $16.4 billion, compared with $13.5 billion in total debt for all of last year. There were 33 oilfield service bankruptcies through July, compared with 46 filings in the same period last year, according to the law firm. While drilling activity has sharply gained among U.S. onshore producers and oil prices [CLc1] at about $48.50 are above last year's low, they are still not high enough to lift offshore drilling activity and pricier international projects. "Many of the larger companies were able to do some out-of-court restructurings to weather the storm, but as depressed commodity prices continued, the market drove them into bankruptcy," said Stephen Pezanosky, a restructuring partner with Haynes and Boone in Dallas.
Losses at Hertz Global Holdings Inc. are piling up and Avis Budget Group Inc. just dialed back its profit forecast, prompting analysts to question if the U.S. car-rental business can thrive in the era of Uber Technologies Inc., Lyft Inc. and, one day, autonomous vehicles, Bloomberg News reported yesterday. In recent years, Hertz bought more cars than it needs, and it’s been struggling to unload them at decent prices. Perhaps more troubling, however, is that car-rental companies face the kind of threat that felled Blockbuster, which was undone by new technology in the form of digital video and Netflix Inc. There will always be a market for rental cars, but for a growing number of business customers, and even some casual consumers, they seem like a throwback. To be sure, the industry’s tough times may have more to do with mismanagement than Uber, Lyft or new mobility companies delivering a glancing blow. Hertz in particular built up a bloated fleet of too many cars to rent. To keep those vehicles generating revenue, the company had to drop rental rates. The companies have had to slim down their fleets at the worst possible time. Millions of vehicles are coming back off leases from when the U.S. auto industry was on its years-long growth spurt.
U.S. consumer credit card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008, Bloomberg News reported. Outstanding card loans reached $1.02 trillion in June, data from the Federal Reserve show, as lenders including Citigroup Inc. and JPMorgan Chase & Co. compete to sign up cardholders who may carry balances — a relatively lucrative business in a prolonged period of low interest rates. Investors have been skittish over the potential for defaults to rise ever since card balances eclipsed $1 trillion in February. Credit card issuers Capital One Financial Corp., Synchrony Financial and Discover Financial Services said write-off rates ticked up in the second quarter from the previous three months.
U.S. Justice Department lawyer Kent Kawakami was once the Consumer Financial Protection Bureau’s point man on the ground in Los Angeles, the National Law Journal reported today. An assistant U.S. attorney in the Central District of California, Kawakami would vouch for CFPB attorneys looking to jump into the federal courts there. Ever since the bureau’s first lawsuit in Los Angeles in 2012 — accusing a law firm of scamming struggling homeowners — his name has been a fixture on the roster of attorneys assigned to CFPB enforcement cases in the region. However, Kawakami withdrew from each of the four open CFPB enforcement cases between June and July in which he was designated as the local counsel. When the bureau recently brought a case to force a law firm to comply with a subpoena, it did so without Kawakami. Instead, an attorney in the CFPB’s San Francisco office helped a Washington-based colleague make an appearance. Kawakami is not the only assistant U.S. attorney who’s dropped off a CFPB case recently. In June, Mitzi Dease Paige, a prosecutor with the U.S. Attorney’s Office for the Southern District of Mississippi, withdrew from the CFPB’s case against All American Check Cashing Inc. The move away from CFPB cases comes months after the Justice Department, under U.S. Attorney General Jeff Sessions, said that it would no longer defend the lawfulness of the CFPB’s independent, single-director design. That issue is under review in a Washington appeals court, where Main Justice took a position against the CFPB — an Obama-era agency long assailed by Republican leaders in Congress and attacked by companies in court.
The Federal Reserve moved yesterday to lighten the regulatory load it places on bank boards of directors, saying that it wants directors to refocus on their core responsibilities of overseeing risks, the Washington Examiner reported. The central bank announced that it was soliciting feedback on proposals to eliminate or scale back some of the responsibilities it places on directors, ranging from oversight of energy loans to securitization. After reviewing its oversight of banks, the Fed said in its request for comments, it learned that its expectations "for boards of directors and senior management have become increasingly difficult to distinguish."
Acting Comptroller of the Currency Keith A. Noreika has taken another swipe at a fellow financial regulator.
Noreika chastised the Federal Deposit Insurance Corporation for what he perceived as inaction on granting deposit insurance for new banks seeking to set up shop. The OCC approves bank charters, but new banks also must obtain deposit insurance from the FDIC. “We, ourselves, since 2001 have chartered 14 institutions, and the FDIC hasn’t acted on a single—any of those 14 applications,” Noreika said in a podcast posted Aug. 4 by the Commodity Futures Trading Commission. “They just let it hang out there forever, so that the organizers wasted all their money trying to get insurance, and then they gave up.” Lawmakers and regulators, particularly Republicans, have pointed to this lack of new bank formation as a reason to deregulate. Requiring new banks to apply to separate agencies is “a significant barrier to entry into the banking business,” Noreika said in prior remarks. “The FDIC’s role in reviewing and approving applications for deposit insurance—and closely monitoring the condition of new banks as they become established—has been an important safeguard of the safety and soundness of our banking system for more than 25 years,” Hagenbaugh said.
A regulator responsible for the safety of banks has a message to senators: Don't listen to bankers telling you that they need lower capital requirements to increase lending, the Washington Examiner reported today. Despite the push from the industry to lower the standards that were ramped up in the wake of the 2008 financial crisis, big banks actually have too little capital, according to Thomas Hoenig, the vice chairman of the Federal Deposit Insurance Corporation. In a letter sent on Monday to Senate Banking Committee Chairman Mike Crapo (R-Idaho), Hoenig argued that if banks want to increase lending, they could do so without lower capital requirements, by retaining earnings rather than paying dividends to shareholders. The 10 biggest banks could boost lending by $1 trillion annually simply by holding onto more earnings, he said. "I can only caution against relaxing current capital requirements and allowing the largest banks to increase their already highly leveraged positions," Hoenig told Crapo and his Democratic counterpart on the committee, Sen. Sherrod Brown of Ohio in the previously unreported letter. "The real economy has little to gain, and much to lose, by doing so."
Ocwen Financial could soon get a big boost in its fight against the Consumer Financial Protection Bureau from a once-unlikely source – the Department of Justice. In defending itself against the CFPB’s claims that Ocwen illegally foreclosed on borrowers, ignored customer complaints, mishandled borrowers’ money, and failed at the most basic of mortgage servicing actions. Ocwen asked a federal judge to declare the CFPB unconstitutional and toss out the CFPB’s lawsuit against the company. The issue raised by Ocwen is the whether the structure of the CFPB is unconstitutional, which is also currently in question in a legal battle between the CFPB and PHH. Both PHH and Ocwen have argued that the CFPB is unconstitutionally structured because the bureau’s director has too much power and that the bureau operates without supervision or oversight. It should be noted that the judge’s ruling simply allows the DOJ to contribute to the case if it chooses to. There’s no guarantee that the DOJ will elect to join the case, but given the agency’s previous declaration that the CFPB is unconstitutionally structured, it is likely that the DOJ will contribute to the Ocwen case and make a similar declaration about the CFPB.