More about banks and bailouts

Dec. 24, 2008

I read in the South Florida Business Journal:

BankUnited Financial expects $327M loss, gives cautions about future

BankUnited Financial Corp., the holding company for the largest bank based in Florida, expects to lose at least $327 million in the fourth quarter and warns of "substantial doubt" of its ability to operate as a going concern if it fails to raise capital.

In a notification of late filing with the Securities and Exchange Commission on Tuesday, the Coral Gables-based parent of BankUnited (NASDAQ: BKUNA) also acknowledged that the SEC’s Miami office began an informal inquiry into the company in October.

Bank United said it could not file its financial statements for the fiscal year ended Sept. 30 by Dec. 15, the SEC's usual 45-day window, because of adverse market conditions and an additional review of complex accounting and disclosure issues. That review is examining the company’s regulatory issues, liquidity and capital.

One discovery made by the bank is that it misclassified $449 million from securities sales as investing cash flows when they should have been classified as operating cash flows. The mistakes were made over a two-year period that ended Sept. 30, 2007.

The bank said it would restate its consolidated statement of cash flows if the mistake is determined to be a material event.

However, that accounting change would not impact cash, net income or earnings per share, the bank stated.

Bank United said it expects to file its annual report with the SEC sometime in January.

In a research note to clients Wednesday, Raymond James associate analyst Michael Rose said BankUnited appears to be in a "race against the clock in its efforts to survive." He maintained an underperform rating on its shares that encouraged investors to sell.

After signing a cease and desist agreement with the Office of Thrift Supervision in September, BankUnited has been working with federal regulators, who placed restrictions on its business practices and set a Dec. 31 deadline for the bank to raise its capital-to-asset ratios.

BankUnited, which previously said it was seeking $400 million, continues to seek more capital through an asset sale or an equity investment. The bank stated that if it does not raise the money by the end of the year, it doesn’t expect to meet the capital ratio requirement and could face “various enforcement actions regarding the bank” from federal regulators.

“We are in negotiations with a fund to raise capital and restructure our balance sheet,” BankUnited stated in the filing. “We cannot assure you that these negotiations will be successful. If such negotiations are not successful, there is substantial doubt about our ability to continue as a going concern.”

Philip van Doorn, senior banking analyst for The Street.com Ratings in Palm Beach Gardens, said BankUnited faces significant challenges in raising capital. It would be unlikely to receive federal aid, and it is hard for a potential investor to evaluate the bank's finances when it's having difficulty preparing financial statements, he said.

"A potential acquirer looking to expand its deposit footprint into BankUnited's territory might find other opportunities to acquire one or more healthier institutions," van Doorn said. "The potential acquirer could also wait until BankUnited or another local institution fails, so they could scoop up deposits and branches on the cheap, without being forced to take on the failed institution's bad loans."

After losing $209 million over the first three quarters of its fiscal year, BankUnited's holding company said it expects a loss of $327 million in its fourth quarter ended Sept. 30. That loss would be greater than the $261.6 million loss its BankUnited savings and loan subsidiary reported to the Federal Deposit Insurance Corp. for that quarter.

However, BankUnited cautioned that the holding company’s loss could grow “substantially larger” when it completes an analysis of how much it should reserve for loan losses to cover its payment option adjustable-rate mortgage portfolio.

These types of loans, where borrowers can pay less than the monthly accrued interest and let the balance grow, were major factors in the downfall of Washington Mutual and Wachovia Corp. this year.

“If the final earnings analysis results in a material level of additional losses and we are unsuccessful in our negotiations with a fund to increase capital, there is substantial doubt about our ability to continue as a going concern,” Bank United stated in its filing.

Bank United’s liquidity improved, as it had cash and equivalents of $1.2 billion as of Sept. 30. The bank’s management stated it believed there are enough liquid assets to meet the potential demands of customers “in an environment where financial institutions have experienced unexpected withdrawal rates.”

However, the holding corporation has a potential liquidity issue after pumping $80 million into the bank during the fiscal year and the cease and desist order prohibiting it from taking dividends from the bank. As of Sept. 30, the holding company had $28.4 million in liquid assets against $5.3 million in annual administrative expenses and $16.2 million in corporate debt that can’t be deferred.

The Bank United holding company has sufficient liquid assets to meet its obligations for about 16 months, but it can’t be assured that it can make debt payments once those assets are depleted, the company stated.

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It seems like centuries ago, when I was called one day by a representative of Bank United who announced me that from that day on I wouldn't be able to send Bank United any more mortgage transactions.
I was at that time working as a mortgage broker, doing what I could to work honestly in an environment that I didn't seem to understand very well.

Bank United needed at least a deal every month, in order to accept to work with me! (or was it three deals? I don't remember exactly)

My frustration didn't last more than a few minutes, though.

I had in my lenders portfolio hundreds of other banks competing for my small business. Thousands of programs, conventional programs, Alternate-A, A-minus programs, B-lenders, C-lenders, sub-prime, hard lenders, you name it. A dizzying array of ways to lend money to all sectors of society; good credit, fair credit, bad credit, zero-down-payment, foreign national buyers, refinance, jumbo loans, investor loans, each lender with hundreds of possibilities.

The new denominations given to these new categories, as I understand it now, were some of the gimmicks used by many lenders to label and package their mortgage loans for sale to US and international investors. (do you mean suckers?)

I have been a bank manager in my youth. I thought I knew something about lending money to people and businesses. I have even studied this as a career.

I remember that there was a basic consideration when I was taught to underwrite, authorize or deny a loan: the borrower's capacity to repay the loan. Another element was the extent of the hard assets of the client, as well as the verification of the guarantees given by the borrower.

I guess the teachers of my generation didn't know anything about how to become a multimillionaire in a much easier way.

I wasn't a very successful mortgage broker during that period, I confess. It was the only time in my life when I wasn't one of the best at what I was doing.

Reading this kind of news is not a sweet revenge. Just a recollection.

Welcome to the Bailout era.

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website: http://www.condo-southflorida.com to search for

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Bailing out the idiots ...or is there something fishy?

It's amusing, but I don't feel like smiling.

It would be funny if it didn't look very suspicious. The background of the bank crisis makes this case quite eye-opening. It illustrates some of the incredible things that are happening in the real estate and mortgage markets, while our government is embarking on the largest bailout in history.

I am a licensed Florida realtor. In July 2008, one of my clients called me to place an offer on a condo listed in the MLS by another realtor. Located in Hollywood, it was listed for sale at $238,000.

I called the listing agent and he informed me that it was a SHORT SALE, which, as you know, means that the mortgage lender is willing to take a loss. Some time ago, the bank had refused an offer for $ 250,000 but, after a few months, the situation had deteriorated so much that they had lowered their price and would be very open to negotiations.

At the request of my customer, I put immediately presented an offer of $199,000 CASH, with no contingency, which was transmitted to the bank by the listing agent. As required, we provided the bank with the proof of liquid funds that my clients had ready to close.

I did not hear from the bank. I periodically checked with the listing agent who had the contact with the bank. He kept telling me that the bank was silent and had not replied yet.
He told me a couple of times that our offer was the only one and that he hoped that the deal would go through.

About a week ago, I called him again. This time the news was different. The listing agent told me that the bank had foreclosed on the property. Then, the bank gave it to another realtor for sale and it was placed on the Realtors MLS system. Very quickly, the bank got some offers and signed a contract to sell it for $155,000.

I called the new listing agent who is selling the foreclosed condo.
He tried to explain that what looked funny was "usual" since banks have 2 separate divisions, one for foreclosures and the second for short sales, and that they don't act in a coordinate manner. I don't buy into this foolishness. I am sure that a simple note in the file would have made clear to anybody involved in the bank that there was a solid cash offer for $199,000.

The bottom line is that there is no reason why a bank can foreclose on a property where they had an offer to sell for $199,000 and instantly list it (after foreclosure) and sell it for $155,000. That evidently would increase the loss of the bank by $44,000 plus the usual foreclosure expenses. That is an additional loss of about 22%

Later on, I had a conversation with the listing agent who had handled my short-sale offer and he was evidently distressed since he had worked with the seller for a long time, getting offers for up to $250,000 which were systematically ignored or refused by the lender. The outstanding debt was apparently of about $ 288,000. That meant a loss of a little more than 10% on the loan. The bank ended up taking an almost 50% loss. This is one of the major banks. It might be a peanuts case, compared to the hundred of billions these big banks are holding in their portfolios, but still a significant example.

The seller had apparently tried to save his property from foreclosure by selling another apartment, and keep paying his mortgage. But, later on, he opted to put it in short sale hoping to minimize the loan default and salvage his credit.

The realtor told me that after this experience he was considering retiring from this business.

This is not about the loss of a commission by me and the other agent.
Frankly speaking, the point is that this smells very "fishy".

The whole situation could only be one of two things. Complete stupidity, or fraud. Actually I wouldn't worry too much about a bank mishandling their business. But at this point, our whole banking system is being "bailed out" with taxpayers' money and we have the right to know.

Traditionally, there was a fairly transparent way of conducting sales and purchases of real estate. Lately, a very different environment is encountered by many professionals, and some of us fear that, even when people are losing their homes and our whole economy is deeply troubled, some persons or organizations could be involved in unscrupulous dealings.

Although I am not making any accusation, this case is, in my opinion, very strange. Of course, there is also the strong possibility that it's just one more instance of the banking mess, and that this is a case of plain bureaucratic stupidity.

Will our money be used to bail out this kind of businesses?

October 11th, 2008

Henry B. Nathan is a Realtor in South Florida. Please visit my website and search of the top real estate database. Great Search Tools will make your search enjoyable and successful. http://www.condo-southflorida.com

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New Property Insurance Bill approved

May 29th, 2008

Florida Property Insurance Costs didn't "drop like a rock" but at least for some time, they are not going up.

Florida Legislature has done a decent job, and the same can be said of our Governor. I would say they did the best they could, unlike the shoddy treatment given to Florida property tax issue.
Governor Crist signed yesterday the new law, called "homeowners' bills of rights".

He signaled that the important consumer protections contained in the bill would help to keep insurance costs affordable. Since his election in 2006, Gov. Charlie Crist has made insurance relief one of his main goals, as seen in his constant objections to insurance companies rate hikes, and his intents of lowering insurance prevailing costs to the consumer.

New insurance regulations were all approved by the governor, with the exception of one provision that would allow up to 250 million to be lent by Citizens Property Insurance to small insurers. Also approved was the extension of rate freeze for Citizens policies.Increased penalties will be set for insurance companies in violation of Florida regulations.

His veto on the $250 million proposed loans to small insurance companies is not essentially against the program itself, but against the state-backed Citizens Property Insurance having to finance it, while its own finances could be challenged in the case of a major hurricane in the near future.
The Florida Insurance Council, which backs the small insurers program, hopes that it will be expanded next year, because of its good success track.

Essentially the new bill contains:
- Extension of the regulators' authority to block insurance companies' rake hikes. - Freeze on Citizen's rate till January 2010.
- Prohibition of using arbitration panels in case of conflicts between insurers and state insurance officials, related to rates. Most states disallow these panels. In Florida's case the panels were used to approve rates, after state regulators had rejected them. The insurance companies would provoke regulators' rejections, by unreasonable demands, only to have the panels be the decision-makers.
- Maximum fines for violation of insurance state laws are doubled.
- The state must approve the methods used for hurricane prediction, which are essential in establishing insurance rates.
- Insurance companies cannot drop a policy holder without giving them a 180 days notice.
- They also must pay undisputed claims within 90 days of agreeing on the amount of the payment. Consumers were complaining that they were pressured into accepting low loss estimates on their claims by the threat of being held for many months and even years if the refused. Consumers can now accept the payment of the undisputed part of the claim, while resolving the remaining parts and start doing repairs on their damaged home, and get some prompt relief.

In general, the bill was well received by state regulators and consumer advocates, giving back to the state its control over rate increases and consumer protection. Insurance companies executives had mixed feelings.

Citizens' customers should be especially cheery about the new law. However, Florida Association of Insurance and Financial Advisors claims that Citizen customers' rate freeze benefits would be paid by all Florida's residential property owners if we are hit by a major hurricane. In effect, major Citizen's deficits would have to be covered by the totality of Florida insured homeowners by rate increases in their policies, regardless of which is their insurer.

Like every summer, I'll cross my fingers.

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.
Visit my website: http://www.condo-southflorida.com/
where you can search for Aventura Condos, Florida Condos,