On April 28, 2009, Treasury announced updates to the Making Home Affordable Program. As previously discussed, the Treasury’s Making Home Affordable Program, which is aimed at helping 7 to 9 million homeowners, consists of two programs: The Home Affordable Refinance Program and the Home Affordable Modification Program. The newly announced updates address modifications to second mortgages where the first mortgage has been modified under the Home Affordable Modification Program.
The Making Home Affordable Program is a completely voluntary program. However, mortgage holders and servicers that do sign up for the Program, should realize that they must modify any second mortgage for a homeowner whose first mortgage has been modified under the Program. A mortgage holder cannot elect not to modify a second mortgage once it has entered the Program. A list of participating institutions is available here.
On April 28, 2009, Treasury announced updates to the Making Home Affordable Program. As previously discussed, the Treasury’s Making Home Affordable program, which is aimed at helping 7 to 9 million homeowners, consists of two programs: The Home Affordable Refinance Program and the Home Affordable Modification Program. The newly announced updates address modifications to second mortgages where the first mortgage has been modified under the Home Affordable Modification Program.
The important thing for homeowners to recognize is that the modification to the second mortgage is automatic. That is, if the holder of the second mortgage is a participating servicer under the Making Home Affordable Program, then the holder must modify the second mortgage whenever a first mortgage is modified under the Program. The updates address both traditional, amortizing second mortgages and interest-only second mortgages.
On May 7, 2009, the Federal Reserve released its Overview of Results of the Supervisory Capital Assessment Program (or Stress Test). The headlines regarding the Stress Test Results are likely to emphasize that ten of the 19 participating institutions are required to collectively raise $74.6 billion in new common equity, as follows:
- American Express – $0
- Bank of America – $33.9 billion
- BB&T – $0
- Bank of New York Mellon – $0
- Capital One – $0
- Citigroup – $5.5 billion
- Fifth Third – $1.1 billion
- GMAC – $11.5 billion (of which $9.1 billion must be new Tier 1 Capital)
- Goldman Sachs – $0
- JP Morgan – $0
- Key Corp – $1.8 billion
- MetLife – $0 billion
- Morgan Stanley – $1.8 billion
- PNC Financial – $0.6 billion
- Regions – $2.5 billion (of which $400 million must be new Tier 1 Capital)
- State Street – $0
- SunTrust – $2.2 billion
- U.S. Bancorp – $0
- Wells Fargo – $13.7 billion
Notably, only GMAC and Regions have to raise new Tier 1 Capital in order to satisfy the Stress Test standards; the remaining entities may satisfy the standard by converting existing Tier 1 Capital (such as the TARP Capital Purchase Program funds) into Common Stock. This can be accomplished under the TARP Capital Assistance Program without any additional use of Treasury funds.
For the 8,000+ banks that did not participate in the Stress Test, however, the takeaways are likely to be completely unrelated to the actual results encountered by the 19 participating institutions.
On May 6, 2009, the FDIC provided updated opt-out lists for the Debt Guarantee Program and Transaction Account Guarantee Program. The decision to opt-out of either program was a binding decision as of December 5, 2008, and the FDIC has not given any explanation for why the opt-out lists have been updated, other than a generic statement that “entities may be added as we finalize the election submissions.”
As of December 12, 2008, 863 banks had elected to opt-out of the Transaction Account Guarantee, but that number is 1,110 banks as of May 6, 2009. Similarly, 3,116 entities (which includes affiliated bank holding companies) had elected to opt-out of the Debt Guarantee as of December 12, 2008, but that number is 6,501 entities as of May 6, 2009 (a 109% increase). In Georgia, 25 banks have opted out of the Transaction Account Guarantee, while 165 entities have opted out of the Debt Guarantee.
The continued updates of the opt-out lists serves as a strong reminder to review these lists before (a) presuming that noninterest bearing deposit accounts have an unlimited guarantee; or (b) accepting any senior unsecured debt as being guaranteed by the FDIC.
In advance of releasing the “Stress Test” results (scheduled for 5:00pm on Thursday, May 7, 2009), the Treasury and the federal banking regulators released a joint statement about the Supervisory Capital Assistance Program on May 6, 2009. The joint statement also includes information about the process that will be used for institutions desiring to redeem their TARP Capital Purchase Program Preferred stock.
A few key points about the Stress Test:
- The government intends to announce, for each of the 19 institutions individually and in the aggregate, estimates of: losses and loss rates across select categories of loans; resources available to absorb those losses; and the resulting necessary additions to the capital buffers.
- Any of the 19 needing to raise capital will be given until June 8, 2009 to develop a detailed capital plan, and until November 9, 2009 to implement that plan.
- As part of the capital plan, an institution may apply for Mandatory Convertible Preferred under the TARP Capital Assistance Program, and may convert its existing TARP Capital Purchase Program Preferred shares into the Capital Assistance Program Convertible Preferred shares.
- “Smaller financial institutions generally maintain capital levels, especially common equity, well above regulatory capital standards.”
- Accordingly, the government does not intend to expand the Stress Test beyond the initial 19 bank holding companies (at least officially).
- The Treasury reiterates that the TARP Capital Assistance Program is available to other institutions on the same terms and conditions applicable to the 19 Stress Tested banks. The Treasury intends to process applications received “in an expedient manner.” (No discussion is made of when or if term sheets will be made available for non-publicly traded institutions to participate in the Capital Assistance Program.
From October 28, 2008 through May 1, 2009, a period covering just over six months, the United States Treasury Department has completed 574 investments under the TARP Capital Purchase Program in 572 different financial institutions, resulting in total investments of just over $199.0 billion.
- The institutions receiving the 30 largest investments (representing just over 5% of the recipients) have received $180.1 billion, or 90.5% of the disbursed funds.
- 277 receiving institutions are publicly traded (48%); 279 are private (49%); 13 are community development financial institutions (CDFIs) (2%); and 3 are Subchapter S institutions (<1%).
- The publicly traded institutions have received $195.6 billion (98%); the private institutions have received $3.3 billion (<2%); the CDFIs have received $105 million (<1%); and Sub S institutions have received $19.9 million (<0.01%).
- Despite the recent news that redemption of the TARP funds will be difficult, eleven institutions (9 public and 2 private) have already redeemed their TARP funds, totaling $1.0 billion. Of the eleven redemptions, only one completed a qualified equity offering before redeeming the TARP funds. One of the redeeming institutions held the TARP funds for only 75 days; for that investment, the Treasury earned (and the institution paid) an annualized 30% return.
- Despite the recent news emphasis on banks desiring to redeem shares, institutions receiving funds each week still greatly outnumbers the institutions seeking to return TARP funds. Since the first redemption on March 31, 2009, there have been 11 redemptions and 40 institutions accepting new investments. With the Treasury just starting to investment in Subchapter S institutions and the deadline for mutual organizations to apply still looming, one can expect more new investments then redemptions for a period of time.
- California has 69 recipients of TARP funds. North Carolina and Illinois tie for second with just 27 recipients each. Missouri is right behind at 26 recipients. See our regularly updated list of TARP Capital Recipients by State or Map of TARP Capital recipients.
H1N1 Flu Concerns: Workplace Privacy and Employee Illnesses
In the wake of the H1N1 Flu outbreak (initially named “swine flu”), many employers will be asked to balance employee privacy rights with public and company health concerns. We have recently issued a client alert that offers a brief checklist of guidelines that may help balance the privacy interests of potentially infected workers and the health interests of co-workers and the public.
For more information, read the client alert published by Bryan Cave LLP’s Labor and Employment Client Service Group and its Pandemic Preparedness Team on May 1, 2009.
H1N1 Virus: Employees in Mexico
In light of the current H1N1 virus outbreak events around the globe, the Mexico Practice of Bryan Cave has prepared a list of issues and recommendations to be taken into consideration by our firm’s clients and friends with employees in Mexico, so as to avoid any improper or unlawful employer conduct under Mexican labor laws.
For more information, read the client alert published by Bryan Cave LLP’s Labor and Employment Client Service Group and its Pandemic Preparedness Team on May 4, 2009.
New Case Clarifies Copyright Protection for Handbooks, Manuals and Training Materials
Although the copyright term “literary works” tends to conjure images of Hemingway and Faulkner, most companies have a different — and often more valuable — set of “literary works”, including training manuals, employee handbooks, how-to booklets, customer pamphlets and the like. Some are in printed form; others are available at the company’s website. Indeed, some companies are in the business of creating such materials — and this spring, a hotly litigated dispute between two such companies has shed new light on the scope of protection for this special category of literary works.
For more information, read the client alert published by Bryan Cave LLP’s Intellectual Property Client Service Group on April 30, 2009.
On April 28, 2009, the Treasury announced the completion of the twenty-fourth round of TARP Capital infusions. The Treasury purchased a total of approximately $121.8 million in securities from 12 financial institutions on Friday, April 24, 2009, and has now invested in 566 institutions, totaling approximately $199 billion. (more…)