ProPublica Eye on Bailout

Homeowners Getting Blame for Lack of Loan Mods, but Evidence Points to Banks and Servicers, Too

Why has the administration’s $75 billion mortgage modification program shown such meager results so far? One answer has predominated in the media over the past week: Homeowners are largely to blame. Homeowners, the line goes, just can’t seem to get the necessary documents together.

In testimony to Congress on Tuesday,  executives from JPMorgan Chase and Bank of America said a majority of the borrowers who’d entered into trial modifications were in danger of being denied permanent modifications through the program because they hadn’t submitted all of the required documents. Last week, the Treasury Department released survey results from all participating servicers showing the same trend.

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Bank Failure Friday Roars Back: Six Banks Fail, Costing FDIC $2.4 Billion

Correction (12/7/2009): Due to poor math by an editor, the headline on this story previous stated that Friday’s bank failures will cost the FDIC $2.6 billion. The failures are actually projected to cost the agency about $2.4 billion.

After a brief holiday respite, bank failure Friday came back with a vengeance this week. The FDIC and its fellow regulators closed six institutions, bringing the total to 130 for the year. (See our complete list of failed banks this year.) 

By far, the largest institution to go down was Cleveland-based savings and loan AmTrust. It’s the fourth-largest bank or thrift to fail this year. As of late October, AmTrust had total deposits of approximately $8 billion. Its demise is expected to cost the FDIC’s deposit fund about $2 billion.

In a geographic departure, New York Community Bank of Westbury, N.Y., entered into an agreement with the FDIC to assume all of AmTrust’s deposits and its 66 branches. Until now, New York Community had branches only in New York and New Jersey. 

The Wall Street Journal has a detailed account of AmTrust’s slow demise, including how politicians in Cleveland and Washington interceded with regulators to give the thrift more time, thereby likely increasing the ultimate cost to the FDIC.

Also failing on Friday were three banks in Georgia. The Peach State now leads the country in bank failures, with 24 this year. Among the failures was Buckhead Community Bank, located in a tony suburb of Atlanta. The Atlanta Journal-Constitution describes the bank as “founded by Atlanta business royalty to cater to a wealthy clientele.” It had total deposits of approximately $838 million. The failure will cost the FDIC’s deposit fund an estimated $241 million.

The big winner in Georgia on Friday was Macon-based State Bank & Trust, which gobbled up the remains of Buckhead Community Bank. As the Journal-Constitution reports:

Until recently State Bank was one of the state’s smallest lenders. But last summer, the bank was acquired by an investment team led by veteran Georgia banker Joe Evans, who raised nearly $300 million to take over Security Bank of Macon, which failed in July.

While gaining the deposits of Buckhead Community Bank, State Bank also agreed to take on Buckhead’s failed assets, which includes failing loans.

State Bank & Trust also picked up First Security National Bank of Norcross, Ga., which the Office of the Comptroller of the Currency closed on Friday. As of late September, First Security had approximately $123 million in deposits. State Bank bought the deposits and will also cover approximately $118 million of the failed assets. The last bank to fail in Georgia on Friday was Tattnall Bank of Reidsville. HeritageBank of the South assumed its deposits. The day’s carnage in Georgia alone cost the FDIC’s deposit fund about $285 million.

The Greater Atlantic Bank of Reston, Va., and Benchmark Bank of Aurora, Ill., rounded off the day’s failures. Greater Atlantic’s failure was the first in Virginia since 1993. Its deposits were taken by Sonabank of McLean, Va. Benchmark Bank is the 20th bank to fail in Illinois this year. Only Georgia has had more failures. Benchmark Bank’s deposits were assumed by MB Financial Bank of Chicago. The two failures are expected to cost the FDIC’s deposit fund $99 million.

Add it all up, and Friday’s bloodbath will cost the FDIC’s deposit fund an estimated $2.38 billion. 

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Bailout Balance Sheet (December 2009): Taxpayers’ Revenues Grow, but So Do Losses

Last month, we added a new category to our monthly update on bailout spending: how many billions of taxpayer dollars are lost forever. At the time, we put that tab at $2.33 billion, due to the bankruptcy of the commercial lender CIT, which the U.S. had previously bailed out. But this month, we’ve added taxpayer money now almost surely lost as part of the auto bailout.

We’re offering this total as a way to give you an idea of where the bailout (we track both the TARP and the Fannie Mae and Freddie Mac bailouts) stands now, but it’s worth keeping in mind two things. First, the amount lost will very likely mount over time—this is just the amount we can be near certain of today. And second, the government is also collecting billions in revenue through the bailout, an amount that, at least for now, exceeds the losses.

Counting TARP money lost through the failure of two banks in November, the total amount lost is about $9 billion. That includes $986 million in taxpayer money that remains on the books of the old GM – the husk of the company left behind through its bankruptcy restructuring – and will never be seen again. And at Chrysler, $5.4 billion of taxpayer debt was left behind in bankruptcy and is “highly unlikely to be recovered,” according to the Congressional Oversight Panel.

More losses from the auto bailout are probable. For instance, the former chief of the government’s auto task force said in October that $20 billion of the $50 billion given to GM probably won’t be coming back.

Now for last month’s spending.

The bailout total outstanding rose to $421.5 billion by the end of November. That’s up more than $21 billion from last month, mainly due to another big sum going to Fannie Mae and the continued ramp-up of the toxic asset program. The Treasury also continues to invest in smaller banks, though that spigot has slowed to a trickle: seven banks received about $39 million in November.

Bank of America’s announcement Wednesday that it has been approved to repay its $45 billion bailout means that the amount of the overall bailout outstanding may decrease soon. (BoA must raise $18.8 billion before it can repay the money.) But bailout spending will continue – despite recent talk of winding down some key programs. For example, the amount above doesn’t include any spending through the administration’s $50 billion foreclosure prevention program. That’s because Treasury has yet to report how much has actually been spent on the program. A Treasury spokeswoman said it would in “the near future.” Treasury doesn’t pay mortgage servicers for modifications until homeowners pass from the trial to the permanent stage – a topic we covered earlier this week.

We’ll continue to update the totals on our frequently updated bailout database*, which, again, tracks both the TARP and the bailout of Fannie Mae and Freddie Mac.

Now for the revenue side of the ledger.

The TARP has two main sources of revenue: quarterly dividend or interest payments and stock warrant redemptions. The Treasury is obligated to use TARP revenue to pay down the national debt.

So far, bailout recipients have paid $14.7 billion in dividends and interest, an amount that includes the $4.3 billion in dividends paid by Fannie and Freddie and special one-time fees charged to two TARP recipients.

The Treasury has also collected $2.9 billion in exchange for its warrants. The stock warrants, which give the U.S. the right to buy equity in the companies at a set price, came as a condition of the investments. When companies refund the Treasury’s money, the warrants are either sold back to the company or auctioned off. The warrant total should jump soon, when the Treasury auctions off warrants for some big TARP recipients.

Altogether, the Treasury has collected $17.59 billion in revenue from TARP and the Fannie and Freddie bailouts.

So that’s our monthly sobering assessment of the likelihood of recouping the bailout funds: $421.5 billion out the door, at least $9 billion that almost surely won’t be coming back, and $17.59 billion in revenue to serve as a buffer against losses.

*A technical note:  While we do our best to keep our bailout database comprehensive and accurate, the government has not released the data for each participant – namely in the case of the toxic asset program. In those cases, our database shows a lower amount than has actually been spent, because Treasury has not yet disclosed how much was paid to each recipient. However, Treasury has released the aggregate amount invested and lent  via the program so far, and we show that amount. We’ve used it to compute the totals in this post.

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AIG May Soon Lose Crown as Biggest Bailout Debtor

AIG is coming close to losing its crown as the biggest debtor in the bailout. The company announced today that it has completed two deals that, together, shaved $25 billion off its tab to the Federal Reserve Bank of New York (PDF), bringing the combined total it owes the Fed and the Treasury to about $62 billion. That’s only about $2 billion more than what Fannie Mae, the company that’s received the biggest government bailout next to AIG, still owes taxpayers.

Fannie has said that it expects its bailout total to continue to mount, as it takes losses from the slumping housing market and its role in the administration’s loan modification program.

AIG has shifted two of its prized subsidiaries – ALICO and AIA – into new arrangements, called special purpose vehicles. The move will eventually take the subsidiaries off AIG’s books. The Fed wrote down the $25 billion in exchange for a stake in both new vehicles. The idea is to prep the subsidiaries to be sold off, or to go through public offerings on the stock market.

We mentioned these deals a few months ago when we explained what AIG really owes taxpayers – and it’s not the $180 billion figure that gets bandied about. That was the maximum offered by the government to save AIG, but the government never actually used more than $134 billion. Of that, $43.5 billion came from the Fed to buy up mortgage-related investments that were tanking at the time. Those instruments still have value: Some are trading a little below what the Fed paid for them; some are trading substantially above book value. Like this new investment in the two subsidiaries, it’s a large exposure. In the end, though, the Fed could make money on these deals. Either way, that’s no longer AIG’s problem, it’s the Fed’s.

That’s not to understate the company’s problems. AIG still owes the Fed $17 billion in loans, and the Treasury would like to recoup the $40 billion it spent buying up preferred stock. There’s also $5.3 billion in Treasury loans, according to company filings.

There is still disagreement over whether AIG will ever repay the whole bailout – $62 billion is still a formidable debt – but it has cut its debt by over half since the height of its woes.

After showing a record-breaking loss in March this year, AIG recently announced a modest return to profitability.

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Treasury Still Vague on Penalties for Loan Mod Laggards

The administration’s big mortgage modification program features $50 billion worth of carrots – but the stick part has been largely absent. Today, the Treasury Department announced it is increasing oversight of mortgage servicers, and made a vague threat of unspecified penalties against companies that don’t play by the rules of the loan-mod program.

When pressed on a call with reporters today about what those penalties might be, Assistant Secretary Michael Barr said he didn’t “want to get into the details,” except that the Treasury would use “the full range of authorities that we have.” For now, Barr said, he wanted to focus on pressuring the companies participating in the program to perform better.

The Treasury has focused on publicly shaming the less-effective servicers as its “only tool for accountability,” said Diane Thompson of the National Consumer Law Center. She added that it was a “fundamental problem in the way the program is set up,” that Treasury does not have a way to adequately punish misbehaving servicers. “It’s an open question whether shame is enough.”

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