The run on Kabul Bank leaves policy makers with a set of bad choices.

Kabul Bank was created as part of US strategy to create a civil society in Afghanistan. Critics might say that is another example of cultural imperialism, where a conqueror creates institutions that mirror their own. Fine. At the same time, a banking system creates the framework for exactly the kinds of changes that will lead Afghanistan toward progress.

Deposit-holding customers have withdrawn $200 million from Kabul Bank this week.

It would be less problematic if the shortcomings at Kabul Bank weren’t so clearly due to (more…)

The benefit of the liquidity nurtured by TARP is going to help people refinance their mortgages, and not to getting borrowers into new homes.

Data from the Federal Housing Finance Administration shows that only 1 in 8 loans made in the first quarter of 2010 went for a home purchase. More than 87 percent of loans made in the quarter were for refinances. With the exception of the first quarter of 2009, when less than 8 percent of loans went for home purchase, this is an inequality unseen in the last thirty years.

Home Purchase Loan Share in the Mortgage Market (Source: FHFA)

There is more than one type of refinance borrower. Some may include borrowers that are trying to get out of a loan with a resetting interest rate. Others may be trying to pull cash out of their home in order to finance a new purchase. Another group is probably made up of people who are current on fixed rate mortgages with affordable interest rates, but that want to take advantage of the historically low interest rates available to borrowers right now.

Fine. However, other data suggests that the people getting refinance loans are not drawn equally from all across our communities. More often than not, the chance of getting approved for a refinance loan is distinctly easier in some neighborhoods, than in others.

In a study (Paying More for the American Dream, IV) that analyzed mortgage data across seven different cities from 2006 to 2008, borrowers in minority neighborhoods were much more likely to be denied a new prime rate refinance. That inequality widened over time, too. During that period, approval rates dropped twice as fast in minority neighborhoods as they did elsewhere.

(more…)

On Tuesday, BankTalk slammed the recent surge in Pacific Capital shares (see “Is there a Bubble at Pacific Capital?).  Pacific Capital has soared from less than $1 to over $4 this year.  On Wednesday, Pacific Capital shares closed at $4.07.  On Thursday morning, they opened at $1.98, and today they are trading at about $1.85. The game-changing news: Pacific Capital accepted a massive stock-diluting investment from Texas financier Gerald Ford. Ford will now own 91 percent of PCBC, providing that shareholders (including the Treasury Department) approve the sale.

North Carolina slam-dunked the initial round of Census 2010 turnout.  Census reports that 74 percent of North Carolina households returned their form. By the way, the Old North State is in a race with New Jersey to claim a Congressional seat.  Jersey didn’t get out the count, with just 72 percent of households mailing back before the deadline.

I am shocked at the loan volumes in the new HMDA data.  The banks might have been trying to say otherwise, but they really didn’t make a lot of loans in 2009.   Case in point, Bank of America made 3,683 conventional home purchase loans for single-family houses (owner-occupants, first lien) in its hometown in 2008.  In 2009, they made 1072 in Charlotte.  Same town, different bank: Wells/Wachovia made 3,064 such loans in 2008, but just 1,047 in 2009.  Pinch me and tell me the data is wrong!

I’m wondering about how wise it was for Arizona to decide to be so draconian right now.  (I’m also wondering how wise it is, ever.) If your state stands to win or lose hundreds of millions of dollars depending upon how well it can get out a count of its residents, don’t you think you’d want to put off plans to deport them until after Census 2010? Yes, the bill will not go into effect until 90 days after the end of the current legislative session.  Even so, I would imagine that its threat will be felt right away. How receptive are immigrants going to be when a government worker knocks on their door, asking to record who lives at this address?

Thursday will be a telling day to followers of Pacific Capital Bancorp. BankTalk has not been tracking Pacific Capital much in the last few months, as they sold their refund anticipation loan business to Platform Partners in early January.  Absent our gaze, PCBC shares have skyrocketed.  Believe it or not, but PCBC has soared from about $1.20 to over $4 per share.  It is the highest-returning stock in the Russell 3000!

This gain makes no sense.  The performance at the bank has done nothing to justify its returns. Here are few important facts:

• Pacific Capital still has not made a TARP payment.
• Pacific Capital has not addressed its capital ratios.  It has been operating in violation of expectations placed on the bank by the Office of the Comptroller of the Currency and the Federal Reserve for over a year.

Even a quantitative analysis hints that something is not right. PCBC’s Texas Ratio (non-performing assets/tangible equity) is 97 percent.  That means that if all of the non-performing assets had to be written off, that there would be almost not tangible equity left.  RBC developed this metric to predict bank failures. Banks tend to fail when Texas Ratios reach 100 percent.  Hmmm.

PCBC is trading above book value! This means that the market believes that all of those construction loans at PCBC are actually worth more than their outstanding principal balances!

According to Seeking Alpha, the largest investors in Pacific Capital are all index funds and quantitative funds. These are uncommitted buyers.

Pacific Capital will host an earnings call on April 29th.

I have new data on lending by JP Morgan Chase from last year.  Even at first glance, the numbers show how hard it has been to get a home mortgage loan.

Chase received more than 469,000 loan applications in 2009. They turned down more than 36 percent of those loans. That is much higher than in recent years. That is the big picture. Cutting their lending into smaller pieces shows where they were willing to offer capital, and where they were not.

• Not all loan guarantees were the same. For example, less than one of every four USDA and VA-back home purchase loans were denied, but more than 31 percent of home purchase FHA mortgages were denied.
• It was virtually impossible to get a loan to fix up your house.  Chase turned down 68 percent of rehab loans. It was even harder for African-Americans. Chase approved a conventional home rehab loan to only 1 in 10 African-Americans (10.7 percent).
• It was a market for refinancing: Chase had more than 267,000 applications for refinances and slightly more than 73,000 applications for home purchases.  Those applications resulted in about 118,000 refinances but only 25,760 home purchase loan originations.

To me, the most disturbing number is the sum of home purchase approvals. For one of the nation’s second largest bank to only make 25,000 home purchase loans is shocking. In 2006, JP Morgan Chase Bank made, by itself, more than 154,000 home purchase loans.  Chase Manhattan Bank, one of its subsidiaries, made another 19,101 home purchase loan originations.

JP Morgan Chase’s annual meeting is scheduled for May 18th in New York. Any shareholder can attend the meeting.