ResCap, A Unit of GMAC, Suing Brokers Over Bad Loans

ResCap suing brokers who originated bad mortgage loans

By DAVID PHELPS, Star Tribune

August 9, 2008

A division of ResCap, the embattled mortgage-finance arm of GMAC Financial Services, is fighting back in the home-lending credit crisis.

The Bloomington-based investor has filed more than a dozen federal lawsuits in Minnesota against mortgage companies, claiming that they failed to do adequate due diligence on borrowers and provided inaccurate information about the financial wherewithal of loan applicants.

ResCap, through its Residential Funding Co. unit, is seeking millions of dollars for nonperforming loans that it financed from mortgage brokers around the nation.

Securities and real estate experts expect more lawsuits to come as the finger-pointing among lenders, brokers and investors gets ugly.

“Was it the brokers who didn’t do the due diligence? Was it the lenders who didn’t investigate? Was it those that pooled the loans as investment securities? Whose fault is it?” asked Eileen Roberts, who teaches real estate law at William Mitchell College of Law. “It was greed,” she said. “Nobody believed the housing bubble would ever burst.”

A survey by Navigant Consulting of subprime-related lawsuits found an explosion of cases in 2007 that shows no sign of abating in 2008. Looking only at federal court filings, the Chicago-based consulting firm said 170 cases were filed in the first three months of 2008, nearly the same number filed in the last six months of 2007.

In its lawsuits, ResCap alleges that individual mortgage and finance companies made misrepresentations concerning borrowers’ employment, income, occupancy and other “undisclosed liabilities.”

ResCap asserts that the mortgage originators are contractually obligated to buy back those troubled loans because they had been sold to ResCap on the belief that they were of “investment quality, had been prudently originated and had been properly underwritten.”

The loans at issue range from $21,000 to more than $1 million.

ResCap declined to comment for this report.

ResCap, the seventh-largest originator of residential mortgages, has been ailing for more than a year. Last week, parent GMAC reported that ResCap lost nearly $1.9 billion in the second quarter of 2008, compared with a second-quarter loss of $254 million a year ago.

Worse in other states

The mortgage crisis in Minnesota is not as bad as in states such as California and Florida or in fast-growing Sun Belt cities such as Las Vegas, where housing values have plunged. Still, the Twin Cities has not been immune from widespread foreclosures. According to Foresight Analytics, a California-based real estate consultant and analyst, the Twin Cities ranked 17th in foreclosure rate among the 100 largest U.S. metropolitan areas.

Minnesota attorneys who practice in real estate law have watched the rise in litigation over the past year and are not surprised by it.

“It was unusual to see these kinds of lawsuits in the past, but now they’re becoming much more common,” said John Koneck of Fredrikson & Byron. “It’s the number of foreclosures and the discovery of [lending] abuses.”

Koneck said lenders typically first pursue the borrower when a loan is in default and then discover that the mortgage was approved on less-than-perfect information from the applicant. Now, lenders are turning their attention to the mortgage brokerages, he said.

ResCap originates loans and also is known as a warehouse lender that provides financing to mortgage companies and issues mortgage-backed securities to investors.

ResCap has filed 13 lawsuits against mortgage companies in federal court in Minneapolis just this year, up from a handful in previous years.

“Lenders are saying to brokers: ‘I relied on you guys to get good information on these borrowers,’” said Jim Langdon, a securities attorney for Dorsey & Whitney. “It’s like the big fish eating the smaller fish.”

The real estate mortgage crisis began to accelerate as adjustable rate mortgages began to reset higher, often becoming too expensive for homeowners who already were stretched thin financially. As homes went into foreclosure, values slumped, causing a new round of headaches for other mortgage borrowers.

“I’m reluctant to say all the blame is on the lenders, said Brent Lindahl, a member of the mortgage banking group for the Twin Cities law firm of Briggs and Morgan. “Borrowers were all too willing to take the money when it was available. Everyone thought the price of housing would continue to go up, and that wasn’t the case, and that turned out to be a problem.”

The prospect of litigation in the mortgage market prompted Eden Prairie-based Kroll Ontrack to survey the attitudes of potential jurors to the home-lending crisis. Lenders may not like the results. Nine out of 10 who were surveyed said they believe that lenders who issued subprime loans took risks and ignored more-prudent lending practices.

“There aren’t too many people who have a positive view of the lending community,” said Robert Minick, trial consultant with Kroll Ontrack’s TrialGraphix division. “From the mortgage/lender point of view, it’s a very frightening situation,” he added. “It’s going to be expensive.”

David Phelps • 612-673-7269

© 2008 Star Tribune. All rights reserved.

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CAMB Urges More Changes….

By Kevin Smith, Staff Writer

Article Launched: 08/07/2008 10:43:44 PM PDT

 http://www.pasadenastarnews.com/business/ci_10131298

 

Consumers who have suffered because of home foreclosures will see some stability returned to the marketplace as a result of the housing stimulus bill – but more needs to be done, an industry group said Thursday.

Fred Arnold, president of the California Association of Mortgage Brokers, said his organization has several recommendations that are geared to help consumers, promote high standards and strengthen the industry.

The first recommendation is the creation of “sensible alternative loan products” that are conducive to a consumer’s financial situation.

Self-employed individuals and older residents are having a tough time being able to verify some income and qualify for loans. CAMB is urging loan servicers and secondary-market investors to do everything possible to create loan products that will help those people achieve homeownership and also continue to create a market of opportunity for first time homebuyers.

Other recommendations include:

Flexible payment modification plans for borrowers who are current on their loans. That flexibility will help to keep consumers in their homes until the real estate market stabilizes.

Restoration of more realistic lending standards. The association is calling upon lenders to reform existing underwriting standards in order to create more opportunity for consumers and ultimately restore health to a struggling real estate market.

The association also encourages FHA, Fannie Mae and Freddie Mac to investigate streamline-refinance programs for non-delinquent homeowners.

Specifically, those organizations should consider allowing consumers to refinance their existing mortgages into fixed rate mortgages without having to have their properties reappraised, provided that they meet “prudent qualification criteria.”

Steve Johnson, Southern California director for the housing research firm Metrostudy, said CAMB’s recommendations are reasonable.

But he offered a more global view of the fix that’s needed.

“Overall, what we really need is a new insurer – a new Fannie Mae or Freddie Mac kind of entity that could guarantee loans that are different than the loans going on today,” Johnson said. “Those loans could be sold to our partners in world commerce, like Asia, the Middle East and Europe.”

Investors need more confidence before they will begin to buy mortgages, he said.

Johnson said there’s still plenty of pain in the pipeline before the housing market fully recovers.

“We’re going to drag along the bottom until people can buy a house,” he said. “We’ll be doing this for quite a while.”

Arnold said flexible loan payment plans for borrowers who are current on their loans makes sense in cases when there is sickness in a family or a key provider loses a job.

“We understand that this is not as easy to do as it sounds,” he said. “But this would allow someone to stay in their home and it wouldn’t ruin their credit.”

Arnold said some of the loans that lenders issued should never have been allowed.

“We cannot allow loans to be done that have multiple risk factors, where there’s no downpayment and a poor credit history,” he said.

kevin.smith@sgvn.com

Recession Worries Continue

Posted: 31 Jul 2008 04:32 AM CDT

Something’s in the air…news of recession everywhere. Or so it seems this evening.

First, readers Michael and Scott sent us Jeremy Grantham’s latest newsletter. Grantham is known as a perma-bear, and his call that a major bank would fail in the next five years (this about two years ago) was seen as a symptom that he had a few screws loose. No more.

Several changes in this update. First, Grantham now thinks we will have a global recession (before, he thought emerging markets would escape):

Economically, most emerging countries really looked to have decoupled for 18 months as we slowed and they did not. But in a global recession no one decouples. As German, French, and British growth slowed rapidly in the last 6 weeks, a global slowdown looks more likely and more painful. To this end, we have done an about face and lowered our weightings in emerging equities to
neutral or just below. To critics of this change, I would cite the quote attributed to Keynes, caught in the same predicament: “When the facts change, I change my mind – what do you do, sir?”

Nouriel Roubini, by contrast, never bought the decoupling thesis, as he reminds us in his latest post:

As already analyzed and discussed in detail in this blog there is now fresh evidence that at least a dozen major economies and some emerging markets are at risk of a recessionary hard landing. The list includes:

United States
Japan
United Kingdom
Spain
Ireland
Italy
Portugal
Canada
New Zealand
Estonia
Latvia
Some other South-Europe emerging markets

Moreover, even in the rest of the Eurozone (Germany, France, etc,) there is now evidence of a sharp growth deceleration as industrial production is falling in all of the Eurozone, business confidence is down, consumer confidence is down and retail sales are flat or falling….

So while we will not experience a global recession we will get close to one as the US will have a severe recession, Japan is entering one, a third of Europe will go into a recession, the rest of Europe will have a severe growth slowdown, the rest of the G-10 advanced countries is sharply slowing down and a few emerging market economies are entering a recession. And if the advanced economies are sharply slowing down or entering a recession the idea that China, India, the other BRICs and emerging markets can happily decouple from these recession or sharply slowing economies is far fetched.

Back to Grantham. Second change: he has not modified his “fair value” of a 10% to 15% fall in the S&P (1100ish) and a further 10% fall in housing prices. but he thinks the odds of overshoot on the downside have increased:

So, in general, the unexpectedly bad fundamentals have not dramatically changed our asset class forecasts. Yes, there has been an unexpectedly large bite taken out of the net worth of financial companies. But other than that, it is more that the probability has increased for longer and deeper overruns below fair value and the chance of a “meltdown” substantially more rapid than my long-held suggestion of a leisurely move to a low in 2010 or later.

Michael also pointed out that the Baltic Dry Index has fallen, as this Bloomberg chart confirms, but that sighting needs to be taken with a grain of salt. The Baltic Dry Index, which is a measure of shipping rates and hence international trade activity, is prone, like the negative yield curve, to send false signals. Still, the trend is clearly not positive:

Citi To Write Down More Losses?

Ready for another wave of writedowns? Deutsche Bank analyst Mike Mayo is. On the heels of Monday’s messy news from Merrill Lynch (MER), which sold a huge portfolio of collateralized debt obligations at a big loss and raised yet more capital to offset its latest round of mortgage-related losses, Mayo is forecasting that Citi (C) will take an added $8 billion in CDO writedowns in its third quarter. The comments come a day after Mayo and another analyst, Merrill’s Guy Moszkowitz, forecast $2.5 billion in third-quarter writedowns at another mortgage-racked investment bank, Lehman (LEH). Shares of both Lehman and Merrill tumbled 10% in trading Monday.

After the market closed Monday, Merrill said it would sell $30.6 billion in CDOs to Lone Star Funds for $6.7 billion – 22 cents on the dollar. The New York-based firm had been carrying the CDOs at $11.1 billion, so the sale forced a $4.4 billion writedown and prompted the company to sell $8.5 billion in new stock to investors including Temasek, the Singapore-based sovereign wealth fund that took a big chunk of Merrill back in December at much higher prices. That capital-raise contained provisions sheltering Temasek from the dilution of its stake, and accordingly Merrill was forced to pay out $2.5 billion to compensate the firm. In turn, Temasek agreed to invest that money and almost a billion more in Merrill’s new capital raising, which contains no so-called reset provisions.

The announcement comes just two weeks after Merrill sold its stake in financial services provider Bloomberg back to the company’s founder, New York Mayor Michael Bloomberg, for more than $4 billion. Merrill chief John Thain said the latest transactions “materially enhance the company’s capital position and financial flexibility going forward.” But like Mayo, many investors are probably more apt to wonder how big the next round of writedowns will be at Merrill’s rivals.

Housing News: Weakness, Weakness

(From NakedCapitalism.com)

The latest housing news is not pretty. The decline, however, was only slightly below the expected annualized level of 4.94 million units. From Bloomberg:

Sales of previously owned U.S. homes fell in June to the lowest level in a decade, signaling tumbling real-estate prices and consumer confidence are hurting demand.

Resales dropped 2.6 percent to a lower than forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June last year…

“People are waiting until prices hit bottom, and credit is still difficult to obtain,” Gus Faucher, director of macroeconomics at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “We expect to see home sales fall further.”

In its report on the news release, the Wall Street Journal included these cheery tidbits:

Existing-home sales resumed falling in June and the median price also dropped as inventories crept higher.

Separately, The number of U.S. workers filing new claims for unemployment benefits soared last week, matching a three-year high, suggesting no stabilization in sight for labor markets.

Home resales slid to a 4.86 million annual rate, a 2.6% decrease from May’s unrevised 4.99 million annual pace, the National Association of Realtors said Thursday. The median home price was $215,100 in June, down 6.1% from $229,000 in June 2007. The median price in May this year was $207,900.

Fannie Mae Rolls Out Refi Plus

Fannie Mae has finished developing Refi Plus, a portfolio retention tool that was introduced in July.

The program allows borrowers to lock in rates for refinancing existing Fannie Mae loans up to two years in advance of the prepayment-period end date, in conjunction with supplemental financing.

The company feels the time is perfect for such a product, since acquisition activity has sharply declined over the last six months and more owners are opting to refinance rather than sell.

“If you have two years of yield maintenance remaining, but you like where rates are today and you’re ready to put a supplemental on, we now have a product for that,” said Heidi McKibben, Fannie Mae’s vice president of multifamily production. “This will give borrowers the flexibility to lock in today’s rates if they feel like we’re in a rising interest-rate environment, take out a supplemental, and basically lock up their new loan up to two years out.”

Borrowers using Refi Plus are able to get cash out immediately in the form of a supplemental loan; they don’t have to wait for the existing loan to mature. Additionally, the existing loan has no prepayment premium, so there’s no need to fund a good-faith deposit.

Borrowers also eliminate uncertainty about future rates since they’re locking in the rate of the refinance loan on a forward basis, up to 24 months out. The interest rate of the supplemental mortgage loan and the refinance mortgage loan are rate-locked simultaneously.

Fannie Mae’s Delegated Underwriting and Servicing (DUS) lenders are able to underwrite, commit, rate-lock, and deliver most Refi Plus loans without prior review by Fannie Mae, speeding up the deal cycle time. All multifamily loans of more than $750,000 are eligible, though loans of more than $25 million that want to use Refi Plus would need to be pre-reviewed by Fannie Mae before the deal closes.

Because Fannie Mae is already familiar with the property, borrower documentation is reduced. Borrowers can certify that there haven’t been any changes to their organizational structure, or to their financial strength and credit standing, in lieu of providing new documentation. However, new third-party reports, such as an appraisal report and physical needs assessment, are required. —Jerry Ascierto

Wachovia Reports $9 Billion Loss…Dumps Wholesale Mortgage Business

Robert Steel has gone from putting out fires as Treasury undersecretary to facing a three-alarm blaze on his own block.

Steel was recently named chief executive of Wachovia, which has now reported a loss of nearly $9 billion for its second quarter and cut its dividend to nearly zero.

Wachovia has been roiled by the collapse in the mortgage market. Nearly half of its mortgage lending has been in California and Florida, two states with some of the highest foreclosure rates in the nation. Its overexposure came as a result of the acquisition of Golden West, a California lender bought at the height of the housing boom.

The architect of that deal, Ken Thompson, was ousted as C.E.O. last month, and Wachovia turned to Steel, who was vice chairman of Goldman Sachs before joining Hank Paulson at the Treasury Department.

Wachovia’s dismal results will add to the gloom over the financial sector, gloom that was briefly lifted by better-than-expected—or perhaps more accurately, not-as-bad-as-expected—results from Citigroup and Bank of America. On Monday, American Express reported an unexpected 38 percent decline in earnings.

Wachovia lost $8.66 billion, or $4.20 per share, compared with a profit of $2.34 billion, or $1.22 per share. Revenue fell 14 percent, to $7.5 billion. The bank added $5.6 billion to its loan-loss reserve to cover net charge-offs and increase the reserve by $4.2 billion.

“These bottom-line results are disappointing and unacceptable,” said Lanty Smith, Wachovia’s chairman, who served as interim chief executive officer beginning June 1. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.”

Wachovia is cutting its dividend a second time this year, to 5 cents, from 37.5 cents. The bank estimates the move will save $700 million of capital every quarter.

It is also exiting its wholesale mortgage business and plans to fire more than 6,300 employees.

This is a bank that is moving aggressively to slash and burn so that it might have a chance to start growing again. Steel, who has no commercial banking experience, will need to be a quick study if Wachovia is to remain independent.

Mortgages Get Harder To Qualify For

http://www.kiplinger.com/printstory.php?pid=14237

To qualify, you’ll need top-notch credit and solid financial resources.

By Pat Mertz Esswein

From Kiplinger’s Personal Finance magazine, August 2008

Ever since Wall Street lost its appetite for mortgage securities, the supply of money for home buyers and refinancers has been tight. The biggest remaining investors are the federally chartered corporations Freddie Mac and Fannie Mae, which set the rules of the game and operate with the implicit promise that, if necessary, the U.S. government will step in to bail them out.

That’s why, in mid July, it came as a shock that the mortgage giants’ solvency was in question — an issue raised by a former Federal Reserve governor who has been a long-time critic of Fannie and Freddie’s special status. (See The Fannie & Freddie Saga Is Far From Over.)But precisely because the two government-sponsored enterprises now stand like Atlas holding up the U.S. mortgage market (and by extension, world financial markets), the U.S. Treasury and the Federal Reserve announced the beginnings of a bailout, promising lines of credit or even support for their stock if needed.

What does it all mean for mortgage borrowers?

Fannie and Freddie are still open for business and will continue to be the primary purchasers of mortgages.

“The availability of credit won’t be any further impaired than it already has been due to market conditions,” says Keith Gumbinger, of HSH Associates, a publisher of mortgage information. But a riskier environment for lenders (he cites the recent federal takeover of Indy Mac bank) and the more stringent federal regulation and oversight of Fannie and Freddie likely to come will probably boost the cost of credit.

So while mortgage money will still be available, says Gumbinger, higher interest rates could place more of it out of the reach of borrowers.

How hard is it to get a mortgage now?

To reduce demand and risk in the face of the subprime mortgage meltdown, Fannie and Freddie (and the lenders whose loans they buy) had already made it harder to qualify for a mortgage. Subprime borrowers were affected first, but now even borrowers with the best credit are feeling the squeeze.

To get a mortgage now, “you’d better walk on water,” says San Diego mortgage broker Victoria Johnson. And she’s only half kidding. Lenders acknowledge that their credit tightening is really a return to normal lending standards, last seen in about 2000.

Patricia McClung, of Freddie Mac, says that getting back to basics means a renewed emphasis on the “three C’s of credit”: credit history, capacity (the depth and continuity of your resources) and collateral (the value of your property and your down payment or equity). “If you’re down on one of those, you don’t want to be down on the other two,” says McClung.

If you plan to buy a house or you want to refinance your mortgage, here’s what you need to know before you visit a lender.

How do I get the best rate?

Getting the best terms on a loan requires a high credit score, a substantial down payment (or increased equity), full documentation and solid financial reserves.

According to myFICO.com, in early June lenders nationwide were offering borrowers with top credit scores (760 to 850) an average interest rate of 5.9%, versus 9.4% for those with scores of 580 to 619, the lowest acceptable to Fannie.

Translate those rates into monthly payments on a $250,000 mortgage, and the best-qualified borrower will pay $588 less each month.

How big should my down payment be?

To buy a home, borrowers whose loans are processed by Fannie Mae’s automated underwriting system can put down as little as 3%. For other Fannie Mae loans and for loans from Freddie Mac, the minimum is 5%. Borrowers who want to refinance and take cash out must have at least 10% equity left once the loan is made.

Down-payment or equity requirements may be higher depending on your lender and the private mortgage insurer (all loans with less than 20% equity must have private mortgage insurance before they can be sold to Fannie or Freddie).

Mortgage insurers, like lenders, adjust their guidelines to changing market conditions. For example, Radian, a major insurer, requires a minimum down payment of 10% for condos and co-ops in markets with declining home values.

MGIC requires a minimum of 5% down on conforming loans and 10% on jumbo mortgages (those with a balance of more than $417,000) in 32 markets, which include all of Arizona, California, Florida, Kentucky, Michigan, Nevada and New Jersey.

Can I still get nontraditional financing?

Fannie and Freddie will still buy piggyback mortgages (a first mortgage of up to 80% to avoid the expense of private mortgage insurance and a second covering the balance) up to their maximum loan-to-value ratios.

They are buying back mortgages with interest-only features, but the credit-score requirement is higher. Option adjustable-rate mortgages, which allow borrowers to choose the amount of their monthly payment (and can result in negative amortization, or an increasing loan balance), are fading quickly from lenders’ menus.

What’s up with jumbos?

After investors fled the mortgage marketplace, rates on jumbos skyrocketed to an average of 1.25 percentage points higher than for conforming mortgages.

New “conforming jumbo” loan limits (125% of a metro area’s median home value, up to $729,750) were announced in early March for 71 markets. And in mid April, Freddie Mac said it would work with selected lenders (Chase, CitiMortgage, Washington Mutual and Wells Fargo) to buy conforming jumbos for a guaranteed price. Lenders are now offering rates for conforming jumbos that are within one-fourth to one-half percentage point of rates for conforming loans.

Freddie Mac expects to announce more agreements with lenders well before the conforming-jumbo limits expire on December 31. Whether Congress will extend the higher limits is uncertain. One proposal currently under consideration would reduce the maximum conforming-jumbo limit to $625,000 nationwide.

Meanwhile, the bar is higher for conforming-jumbo borrowers: The allowable loan-to-value ratio maxes out at 90% for purchases and refinancings with no cash out, 75% for a cash-out refi (you could land in this category if you try to roll existing home-equity debt into the refi to pay it off), and 60% for the purchase or refi of a second home or investment property.

What’s the outlook for interest rates?

In the conforming-mortgage market, a 30-year fixed-rate mortgage in mid July averaged 6.4% (plus 0.6% in fees and points), compared with 6.7% a year ago, according to Freddie Mac.

The rate on 5/1 hybrid ARMs (the rate is fixed for the first five years and then adjusts annually) was 5.8%, and one-year ARMs averaged 5.2%. Rates will probably edge higher this year.

Citi and Major Banks Stabilizing

http://www.portfolio.com/news-markets/top-5/2008/07/18/Citigroup-Narrows-Loss?TID=email/news/top5

Been Down So Long It Looks Like Up to Me, is the title of the novel by Richard Fariña. It could also describe how investors are looking at America’s biggest bank.

The bank had its third consecutive quarter in the red, reporting a $2.5 billion loss. It took another $7 billion of write-downs on top of more than $40 billion since last fall.

The good news? The loss was much narrower than forecasts and the write-down was not as huge as feared.

Vikram Pandit, the chief executive of Citigroup, described this as progress.

“We cut our second-quarter losses in half compared to the first quarter,” he said. “The cost of credit increased by 20 percent from the first quarter, but write-downs in our securities and banking business dropped by 42 percent. Additionally, head count and expenses declined sequentially. While there is still much to do, we are encouraged by our progress in delivering on our commitment to the reengineering efforts,”

Stock futures rallied after the results were released. The been-down-so-long-it-looks-like-up-to-me report is apparently leading many investors to think that the worst of the credit crunch is over. The results on Thursday night from Merrill Lynch suggested otherwise, after the investment firm recorded a loss of $4.6 billion, even wider than the biggest Merrill bear on Wall Street had forecast

“In an environment where sentiment is against these stocks, we’re going to see a relief rally,” Jonathan Monk, a senior portfolio manager at Aerion Fund Management, told Reuters. “Despite Merrill, the sector as a whole has done better than people’s worst fears.”

And indeed investors have been encouraged by better-than-expected results from J.P. Morgan Chase and Wells Fargo. But the big commercial banks are a different species than the Wall Street banks.

In one respect, the giant banks will benefit from the credit crisis, as smaller competitors retrench, withdraw from some businesses, are sold, or collapse, like IndyMac. Yet at the same time, the credit crunch is just beginning to squeeze consumers—customers of banks both big and small.

With prices of food and fuel rising, Americans are increasingly falling behind or defaulting on their payments on credit cards, home equity, and other loans. The costs for banks are rising.

J.P. Morgan showed weakness in its card business, and so did Citi, reporting a 56 percent decline in earnings in its global cards business. Revenue at Citi’s consumer banking unit was essentially flat from a year ago.

For the quarter overall, Citi lost $2.5 billion, or 54 cents per share, compared with a profit of $6.23 billion, or $1.24 per share, in the quarter a year earlier. Its loss from continuing operations was $2.22 billion, or 49 cents per share.

Under Pandit, Citi has been trying to shrink, selling nonessential businesses, like its German banking unit, and cutting jobs. The bank said that it reduced its workforce by 6,000 in the second quarter, or by 11,000 in the first half of the year.

The process of trying to make Citi a leaner, more nimble global behemoth, while working through a deep economic quagmire, means that investors should not get their hopes up too soon. Citi’s stock price is still near where it was in 1998, when it was born out of the barrier-breaking merger of Citicorp and Travelers. Pandit is back at the starting line.

Powerful Friends of Countrywide’s Mozillo Receiving Special Treatment

1.  Christopher Dodd

U.S. senator (Democrat, Connecticut); chairman, Senate Committee on Banking, Housing, and Urban Affairs

1. May 3, 2002
Loan type: Refinance
Amount: $388,991
Rate: 7.38 percent
Property: Washington townhouse
 
2. June 16, 2003
Loan type: Refinance
Amount: $275,042
Rate: 4.5 percent
Property: Residence, East Haddam, Connecticut
V.I.P. Treatment: Three-eighths of a point waived, or $2,000; received free float-down from 4.875 percent to 4.5 percent

3. July 9, 2003
Loan type: Refinance
Amount: $506,000
Rate: 4.25 percent
Property: Washington townhouse
V.I.P. Treatment: One-fourth of a point waived, about $700; received free float-down from 4.875 percent to 4.25 percent

6.  Richard Holbrooke

Former U.S. ambassador to the United Nations

1. November 26, 2002   
Loan type: Refinance
Amount: $675,000
Rate: 5.00 percent

2. February 28, 2003
Loan type: Refinance
Amount: $1.2 million
Rate: 5.38 percent
Property: Vacation home, Telluride, Colorado
V.I.P. Treatment: At least 1.25 points ($15,000) waived, per Angelo

 

7.  William Esrey

Former chairman and C.E.O., Sprint

1. September 27, 2002
Loan type: Home-equity loan
Amount: $1.5 million
Rate: 3.75 percent
Property: Primary residence, Kansas

2. September 27, 2002
Loan type: Refinance
Amount: $748,100
Rate: 5.38 percent
Property: Primary residence, Kansas
V.I.P. Treatment: 1.25 points waived; about ($9,000)

3. September 27, 2002
Loan type: Refinance
Amount: $1,794,800
Rate: 5.75 percent
Property: Vacation home, Vail, Colorado
V.I.P. Treatment: Seven-eighths of a point waived ($15,000)

4. July 30, 2002
Loan type: Home-equity loan
Amount: $2 million
Rate: 3.75 percent
Property: Vacation home, Vail, Colorado

 

8.  Donna Shalala

Former secretary, Health and Human Services; currently president, University of Miami

1. October 7, 2002
Loan type: Refinance
Amount: $338,685
Rate: 5.13 percent
Property: Washington property
V.I.P. Treatment: Received free float-down from 5.375


2. September 27, 2002
Loan type: Purchase
Amount: $202,300
Rate: 6.00 percent
Property: Florida condo
V.I.P. Treatment: Received free float-down from 6.25; received owner-occupied status on a second residence

 

9.  Franklin Raines

Former chairman and C.E.O., Fannie Mae

1. July 31, 2003
Loan type: Refinance
Amount: $986,340
Rate: 4.13 percent
Property: Washington residence
V.I.P. Treatment: No points (one waived)

2. April 30, 2003
Loan type: Refinance
Amount: $982,253
Rate: 5.13 percent
Property: Washington residence

 

10.  Henry Cisneros

Former secretary, H.U.D. (1993 to 1997); former Countrywide director (2001 to 2007)
                
1. November 26, 2003
Loan type: Home-equity line of credit
Amount: $60,000
Rate: 6.50 percent