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FDIC Sells Junk Zeros
The FDIC announced
two deals today. The first was a 1.38B CDO that was “secured” by $4.5
bil of Corus Bank sludge. The assets were non-perform construction loans
and REO “assets”. The coverage ratio on this one is 3.25X1. This
implies the assets are worth about 30 cents on the dollar.
The second transaction was a $653mm deal secured by 1.2 B of Franklin
Bank SSB loans and more of those REO assets.
The debt sold today against this package of swill is non-interest
bearing. The notes sold at a discount. At the maturity (up to four
years) the junk notes will be paid at par.
I don’t think you could sell this deal to even IKB. It is just crap. But
it went out the door in about two seconds. The reason is that the
discount notes are full faith and credit of both the FDIC and Uncle Sam.
These notes are as solid as Treasuries and the yield is better.
The zero coupon feature was done because the underlying assets have no
predictability of either cash flow or disposition of the assets.
You have to ask why this was done like this. The FDIC is not in need of
cash at the moment. They are sitting on $50b or so of Special Issue
Treasury notes. If they were a little tight they have a $500b line of
credit from Treasury that they could draw on with no questions asked and
much cheaper pricing than these deals got.
These are not securitized financings. This gets nothing off the books of
the FDIC. It is just straight debt. So far this year there have been
about $4b of this type of paper issued. More is clearly coming. Does it
matter if the FDIC borrows another $20b in our name this year? Not
really. $20b is just a drop in the debt bucket these days. The FDIC
would not need to borrow money if it’s DIF Fund was at the $50-60b
surplus that it should be at. This debt is just another way to kick the
can down the road a bit farther. The FDIC needs equity, not more debt.
But in this case equity equals bailout and we wouldn’t want that.
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Maybe the answer to the main question would be another question - who bought it?
Maybe Tim is having trouble pushing his paper? He told the FDIC that they need to slow it down?
Bruce, this was a previous FDIC deal....Why they do it?? You tell me mate...you tell me.
http://www.youtube.com/watch?v=ssl5yb7FewA
If the notes are gov't-backed and the yield is better, why wouldn't you want to invest in it then, rather than park money in straight up Treasuries?
This never saw the light of day. It was taken up by big players. No retail on this one.
I've got a question i hope someone can answer.
If the Federal Reserve is so adamant that the US dollar is NOT a pyramid scheme destined to collapse, why on earth would they chose the image of a PYRAMID for an FRN?
secured by 1.2 B of Franklin Bank SSB loans and more of those REO assets
I did a ZH & google search and still do not understand what 'SSB' means in this context.
I would appreciate any help. Thank you in advance.
I believe Franklin Bank S.S.B. is a Texas state savings bank...
thanks
honesty is too much to ask for?
As a matter of fact....yes.
How dare you.
This is horrible, they are just kicking the can down the road. They don't know what else to do.
How about a "progressive" insurance premium where the TBTFs pay a multiple of the rates that smaller non-systemic risk local banks have to pay. Only fair since the big boys are only alive today thanks to Uncle Sam's generosity. I am sure that squid and the boys won't mind. <sarcasm off>
More political bullshit that costs the taxpayer money. Sheila doesn't want to be beholden to Timmay so the taxpayer pays more in interest.
What were the yields?
If I read it right, you're looking at something equivalent to (I'll guess)a little better than 10 yr Treasuries, so maybe high 3s low 4s? good question anybody know.
I know from first hand accounts that Franklin Bank stuff is dog manure swill, underwater, never pay in a hundred years residential development loans, among others.
Where is Deadhead these days?
I thought of him yesterday. What about Daedal? Did I spell that right?
A good person to answer that question would be the Goldman Sachs analyst over at ELX Futures.....
I was wondering the same thing......where is Deadhead ??
He couldn't have been 86d from the site. Marla would surely have nailed Chumba before DH and Chumb is still around.
DH was on the site a couple days ago. Said he was interviewing for a job or jobs and was busy with that. He definitely hasn't been booted.
$550 billion might not be enough for all the banks that are going to be going belly up over the next year. At some point, we are going to see thousands of bank failures, just like in the 30's, only this time, they will take the government down with them.
cash until pay the piper day
a "public gathering" is the only accurate definition left for our market
William Black speaking truth to power:
http://www.youtube.com/watch?v=3-HTylLzXu8&playnext_from=TL&videos=ZP-t0s2D4IM&feature=sub
If anyone is interested in watching more of Panel 4, "2008 Lehman Brothers Failure" (title via C-SPAN), here is a link to C-SPAN's coverage (total length of 1:55:18), Black comes in at14:20
http://c-spanvideo.org/program/293077-102
Thanks to BlackBeard for the original link, I did not catch Black today (I can only waste so much time listening to congressional hearings, but when I listened to Black in the youtube segment, I had to hear more, especially any reactions (even if from Frank or Kanjorski).
ADDENDUM: Black's original statement happened with Fuld and Cruikshank at the same table. He is not shy, and we are most grateful.
QUESTIONs: Wonder who the man was that kept trying to look over or around Black???? Why???
Wonder how the walk out the door and in the hallways went afterwards? ;-)
Wow!
Remember back in the real estate boom days when Kenneth Harney in his nationally syndicated real estate column wrote an article every week in the thick real estate sections of all the major news rags?
Well, lest we forget how we got in this mess, here’s just one aspect reported back in January of 2002 of Lehman’s shenanigans while in bed with Ben the Lender of Last Resort at the Goldman Sachs Fed spa...where the billionaires at 33 Liberty Street, New York, NY, make all those rules that add to their fortunes and subtract from ours… You know, like when Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008, and reports filed with the U.S. Bankruptcy Court in Manhattan on September 16 indicated that J.P. Morgan had provided Lehman Brothers with a total of $138 billion in "Federal Reserve-backed advances"? And the cash-advances by JPMorgan Chase were repaid by the Federal Reserve Bank of New York for $87 billion on September 15 and $51 billion on September 16? Hey, it’s only money.
Here’s Harney back in ‘02 which brings us to today and William Black:
“WASHINGTON – Consider this exceptional financing opportunity for your home. The lender gives you $58,000 in cash over a 32-month period. When your home is sold a few months later, you owe the lender more than $765,000.
Sound like a nightmare? It’s not. It’s an actual mortgage transaction that a subsidiary of the prominent Wall Street firm of Lehman Brothers insists is legal, fair and precisely what the borrower requested.
Lehman’s subsidiary, Financial Freedom Senior Funding, is demanding that huge payout from the estate of Lacy S. Eckhardt, a widow who signed up for a reverse mortgage in April 1998. Eckhardt died in December 2000. When her children sold her home the following spring, they were stunned to receive a “Final Loan Payoff Demand” of $765,112.13 from Financial Freedom, based in Irvine, California.
How could that be? Welcome to the world of reverse mortgages, where poorly advised seniors and their heirs can lose tens of thousands of dollars almost overnight…
Some reverse mortgages contain equity-sharing features designed to cut the lender into a portion of the appreciated value of the home at the time of sale. In Eckhardt’s case, the appreciation-sharing percentage was unusually generous – 50 percent to the lender. The loan terms also required Eckhardt to purchase an annuity that would not pay her a cent until 2012. Assuming she was still alive, the annuity would then begin paying $1,816 per month, in place of payments from the lender.
Eckhardt paid $40,453 up-front for the annuity, but it carried no death benefit or cash surrender value. At the time she applied for the loan, Eckhardt was 69 and in chronically poor health with frequent hospitalizations, according to the family.
In a complaint filed in Westchester County, NY, Eckhardt’s estate claims that she was misled to applying for a mortgage with “unconscionably high” costs, without counseling or legal guidance. The complaint also alleges that she received an “artificially low appraisal,” which when combined with the appreciation sharing feature, allowed the lender to be “guaranteed a profit of at least $225,000 even if (Eckhardt) died the day after making the loan,” according to the complaint.
The appraisal arranged by the lender on the property valued it at $980,000. Two follow-up appraisals paid for by Eckhardt’s estate put the market value around $1,425,000 at the time of the loan. The estate sold the home in May 2001 for $2.2 million—more than double the reverse mortgage appraisal value. A local realty agent said that the $980,000 value placed on the home was so low “there would have been a buyers’ stampede” if it had been listed for sale…
In defense of the $765,000 payout demand, now totaling more than $800,000 with penalties, a lawyer for Financial Freedom said Eckhardt applied for the loan of her own volition and received full disclosure of the terms…
Lehman Brothers pools high-return loans such as Eckhardt’s into multimillion-dollar bonds, and it sells pieces to private investors…
The bottom line for seniors and their loved ones is simple: Borrower be on guard.
VB said tonight that ZH should be standard reading for H.S. I agree, but would add, why stop there. If every citizen was on ZH, even once a week, the world would change over night. Viva la Rev!
Thanks JR. It is best when it hits home.
Dipstick YT commenter says:
Sigh...