Role of Banks in Mtg Finance

8/2/2019 Role of Banks in Mtg Finance

1/17

The Real Role of Banks in

Residential Mortgage Finance2012 REthink Symposium

Palm Beach, FL

March 22, 2012


2/17

Industry Outlook

Weakness in housing sector, lack of consumer

credit and scant progress in terms of job

creation suggests continued deflation.

Benefit of Fed boost to NIM via QE 2 waning.

Global central banks moving to neutral

posture, but deleveraging process continues in

US banking sector.


3/17

Industry Outlook

ZIRP maintained by Fed is encouraging banks such asWells Fargo to originate loans at yields that are noteconomic.

WFC on verge of becoming monopoly in US secondaryloan market, distorting loan pricing across wholeindustry and raising anti-trust issues.

Fed rate policy is single biggest factor blocking therecovery of the private-label market for home loans andRMBS. Price, not legal issues, is the impediment toreviving PLS market.


4/17

Bank Industry Ratings: Units

Period A+ A B C D F

2011 12 3,507 1,678 457 402 69 1,198

2011 09 3,698 1,640 419 389 46 1,199

2011 06 3,669 1,606 482 414 79 1,216

2011 03 3,738 1,550 501 457 72 1,209

2010 12 3,232 1,641 545 444 83 1,659

2010 09 3,493 1,592 519 400 67 1,638

2010 06 3,551 1,575 480 463 77 1,632

2010 03 3,676 1,592 504 480 93 1,534

2009 12 2,978 1,539 480 432 85 2,441

Source: FDIC/The IRA Bank Monitor


5/17

Bank Industry Ratings: Assets ($B)

Period A+ A B C D F

2011 12 $2,817 $6,849 $2,525 $1,062 $20 $597

2011 09 $2,755 $6,895 $941 2,637 13 $547

2011 06 $2,560 $5,060 $2,654 2,569 21 $723

2011 03 $2,507 $6,336 $1,124 $2,723 $39 $672

2010 12 $2,192 $3,289 $4,909 $1,037 $535 $1,340

2010 09 $2,218 $3,185 $4,985 $1,173 $336 $1,464

2010 06 $2,164 $2,837 $4,942 $1,337 $465 $1,458

2010 03 $2,109 $1,295 $6,622 $1,088 $381 $1,843

2009 12 $1,457 $1,826 $3,072 $1,839 $295 $4,601



6/17

Return on Equity (%)


0

5

10

15

20

25

30

Mar-00

Jul-00

Nov-00

Mar-01

Jul-01

Nov-01

Mar-02

Jul-02

Nov-02

Mar-03

Jul-03

Nov-03

Mar-04

Jul-04

Nov-04

Mar-05

Jul-05

Nov-0

5

Mar-06

Jul-06

Nov-0

6

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

C

Peer Avg


7/17

Gross Defaults (bp)


0

100

200

300

400

500

600

Mar-00

Jul-00

Nov-00

Mar-01

Jul-01

Nov-01

Mar-02

Jul-02

Nov-02

Mar-03

Jul-03

Nov-03

Mar-04

Jul-04

Nov-04

Mar-05

Jul-05

Nov-0

5

Mar-06

Jul-06

Nov-0

6

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

C

Peer Avg


8/17

Loss Given Default (%)


50

55

60

65

70

75

80

85

90

95

100

Mar-00

Jul-00

Nov-00

Mar-01

Jul-01

Nov-01

Mar-02

Jul-02

Nov-02

Mar-03

Jul-03

Nov-03

Mar-04

Jul-04

Nov-04

Mar-05

Jul-05

Nov-0

5

Mar-06

Jul-06

Nov-0

6

Mar-07

Jul-07

Nov-07

Mar-08

Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

C

Peer Avg


9/17

Exposure at Default (%)


50

100

150

200

250

300

Citi

Peer Avg


10/17

Industry: Unused Credit ($M)

Source: FDIC (RIS)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000Unused loancommitments -total

Unused homeequity lines

Unused credit

card lines

Unusedcommercial realestate lines

Unused unsecuredcommercial realestate lines

Unused securitiesunderwritingcommitments

All other unusedcommitments


11/17

Interest/Non-Interest Deposits(millions of $)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Interest-bearing deposits

Noninterest-bearing deposits

Source: FDIC/RIS


12/17

Net Interest Income(millions of $)

Source: FDIC (RIS)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000Total interest income

Total interest expense

Net interest income


13/17

Net Op-Income/Charge-Offs(millions of $)

Source: FDIC/RIS

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

Net operating income

Net charge-offs


14/17

Deposits/FHLB Advances(millions of $)

Source: FDIC (RIS)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

Domestic officedeposits

Interest-bearingdeposits

Noninterest-

bearing deposits

Estimated insureddeposits

Time deposits

Brokered deposits

FHLB advances


15/17

Real Estate Lending ($T)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000Loans secured by real estate

1-4 Family residential mortgages

Nonfarm nonresidential

Construction and development

Home equity lines

Multifamily residential real estate

Farmland

Source: FDIC (RIS)


16/17

Real Estate Income

Source: FDIC (RIS)

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

Net servicing fees

Net securitization income


17/17

Contact Information

IRA Corporate Offices

Institutional Risk Analyticsa unit of Lord, Whalen LLC371 Van Ness Way, Suite 110Torrance, California 90501

Sales contact: Diana Waters

Tel. 310.676.3300Fax. 310.943.1570

[email protected]

www.institutionalriskanalytics.com

www.irabankratings.com

Personal Information

R. Christopher Whalen

Vice Chairman

Lord, Whalen LLC

&Senior Managing Director

Tangent Capital Partners9 W 57th Street, 26th Floor

New York, NY 10019

[email protected]

office: 212-804-6016

Role of Banks in Mtg Finance

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