Morning News - HSBC on the move

The first Article is about
some compliance/law issues. Good if anyone knows anyone who will be
getting into investment law/corporate finance law. But the article of
more interest might be the HSBC one below the first article (scroll down to skip the first article if not interested). HSBC is
definitely on the move! Something big is a stirring I would love to get
your banker opinions on this (Dan and Son). I want to know the fact
that HSBC is selling off some of its prime real estate because they are
fundamentally weak or because they really wish to focus on the Asia
Region. In other words are they trying to save face (save some dignity), by saying they wish to be more Asia oreinted or are they really hurting bad for cash for business. These sell offs makes sense if they are re-investing in Asia, and also the fact that Geoghagen is moving from London to Hong Kong might mean this is a legit move on HSBC's part.



Last Year HSBC execs called that the recovery was going to be Asian
led; to an extent this was true for early part of the rally seen from
march (Asian/Chinese demand led story). Now CEO Michael Geoghagen is
saying the economy recovery will be more W shaped. Contrastingly
Roubini comes out with a statement this morning saying the recovery
will be more U shaped and investors are more optimistic. Now I don't
know how many more letters we can come up with to describe the
recovery, but I would love to see who you guys think is more right and
why?

Also, if we could get some fundamental analysis on HSBC that would be great. [/size]



------------------------







MERS v. Kansas

from Calculated Risk by CalculatedRisk

CR Note: This is a guest post from albrt.

MERS v. Kansas

Although
the internet discussion has died down considerably, I thought it might
be helpful to offer some background and some explanation of what
happened in the recent Kansas MERS case. I am not involved in the case,
but I used to read Tanta’s posts about this sort of thing and I did
some research, so I guess I am well-qualified to opine.

What is MERS?

MERS
is part of an attempt by bankers to homogenize mortgages so they can be
traded among banks more easily. In many cases the ultimate goal is to
bundle the mortgages into bonds. From the MERS website:

About MERS

MERS
was created by the mortgage banking industry to streamline the mortgage
process by using electronic commerce to eliminate paper. Our mission is
to register every mortgage loan in the United States on the MERS
System.

* * *

MERS acts as nominee in the county land
records for the lender and servicer. Any loan registered on the MERS
System is inoculated against future assignments because MERS remains
the nominal mortgagee no matter how many times servicing is traded.
MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie
Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance
Agencies, as well as all of the major Wall Street rating agencies.

Got it? I didn’t think so. MERS’ claim that its loans are “inoculated
against future assignments” is an unmixed, but also unenlightening
metaphor. Inoculation most commonly means exposing someone to a
pathogenic organism or other immunologically active material in order
to promote the development of antibodies. I can’t think of anything in
the MERS process that can be profitably compared to either a pathogen
or an antibody.

What actually happens is that a MERS mortgage
is recorded once, usually with MERS shown as the “nominee” of the
lender. MERS then tracks loan assignments, including both repayment
rights and servicing rights. The output of the tracking system is
approximately as good as the input from the lenders. When something
happens, MERS is supposed to notify the interested parties.

In
some cases MERS will act for the interested parties in lawsuits. If a
MERS lender wants MERS to file a foreclosure suit, the lender is
supposed to find the original note, endorse it in blank, and give it to
a certifying MERS officer before the foreclosure is filed. That makes
MERS a “holder” of the note, even if MERS is not actually the owner of
the note. Being a holder is generally sufficient to allow MERS to
foreclose.

Tanta explained how endorsement works here.
MERS apparently has more computers involved, but when it comes time to
produce the note in litigation it still amounts to pretty much the same
thing. Pathogens and antibodies aside, MERS can’t really provide
protection from all the potential errors and problems that came up when
loans were being traded and securitized at warp speed all over the
country. Many of the cases where MERS has gotten in trouble involved a
misplaced note, but it is generally not clear that the problem was
MERS’ fault, and it is not all that much different from what happens
when a non-MERS lender files a foreclosure suit without having the
original note handy.

This should be enough background to understand what happened (and did not happen) in the recent Kansas Supreme Court case.

The Kansas Supreme Court case

In Landmark National Bank v. Kesler
, Landmark held a first mortgage and foreclosed on Mr. Kesler’s
property. Landmark obtained a default judgment and was able to sell the
property for more than the balance due on the first mortgage.

There
was also a second mortgage on the property. The document for the second
mortgage showed an outfit called “Millennia” as the lender, and showed
MERS as the lender’s nominee. The document said notice should be sent
to the lender, and did not say much about the nominee. Landmark sent
notice of the foreclosure suit to Millennia, but not to MERS.

As
it turned out, the second mortgage had been sold to an outfit called
“Sovereign,” so Millennia no longer had an interest in the case. After
the foreclosure judgment and sale, but before the distribution of the
proceeds from the sale, Sovereign entered the case and tried to set
aside the foreclosure judgment. Sovereign’s problem was that it never
recorded anything to show that it held an interest in the property, so
it really didn’t have much of an argument that it was entitled to
notice of the foreclosure.

In order to address this problem,
MERS joined in the case a couple of months later. MERS was essentially
on Sovereign’s side, arguing that even if Sovereign wasn’t entitled to
notice, MERS was on the original mortgage and was entitled to notice,
and MERS would have notified Sovereign if MERS had received notice.

Not
surprisingly, the judge held Sovereign was not entitled to notice
because it didn’t register the assignment of the loan in the public
records. The judge also held MERS was an agent of the lender at most,
and did not have a sufficient interest to be able to show up late and
overturn the judgment.

The Kansas Supreme Court upheld the
judge’s decision, based in part on the conclusion that MERS didn’t own
an interest in the note or the mortgage. This is what got a lot of
attention on the internets, but most commentators seem to have missed
the point. The court did not say the mortgage was invalidated because
MERS separated the mortgage from the note. The court said MERS did not
appear to own either the mortgage or the note. Part of the reason for
the court’s conclusion was that you can’t separate a mortgage from the
note it secures.

The key to the Kansas decision, like most
judicial decisions, is in the details. The actual mortgage document
required notice to the lender, not to MERS. The mortgage document
listed MERS as a “nominee,” but never really defined what a nominee was
or provided any basis for arguing that a nominee is entitled to notice
above and beyond the notice given to the lender.

The only
broad effect of this decision is that the court refused to make a
special exception for MERS mortgages and require precautionary notice
to MERS regardless of what the document said. Most MERS mortgages do
say that MERS should get notice. If the mortgage document says that,
most courts will enforce it.

There are other cases discussing
MERS, some of which provide more general information than the Kansas
case. One I would recommend is a decision by bankruptcy judge Linda
Riegle on a group of bankruptcy cases in Nevada. The essence of Judge
Riegle’s decision is that MERS isn’t entitled to any special status,
and needs to have the note in order to take any action on it. The
decision is available on Westlaw under the name Hawkins at 2009 WL
901766. Substantially the same decision is publicly available under the
case name Mitchell, No. BK-S-07-16226-LBR .

What is the problem?

Mortgages
are complicated. Most mortgage primers start with the distinction
between states maintaining a “title” theory of mortgages and states
maintaining a “lien” theory. This is mostly nonsense, as summed up by
an eminent commentator nearly a hundred years ago: “There is no
complete adoption of a logical theory in any of the American
jurisdictions.” Manley O. Hudson, Law of Mortgages Real & Chattel,
in 8 Modern American Law, at 297 (E. A. Gilmore & W. C. Wermuth
eds. 1917).

So there are really two basic problems reflected in
the MERS cases: (1) mortgages are complicated, and (2) the creation of
MERS did not really reduce the complications, it just papered over
them.

1. Mortgages are complicated

Mortgages
are not homogenous. Not at any level. The borrowers are different, the
mortgaged real estate is different, the practices of the banks are
different, state laws are different, and federal government involvement
is different for different types of lenders and borrowers. An important
corollary of principle number one is that whatever a lender does, and
whatever MERS does on behalf of lenders, will have different effects in
different cases.

As Tanta wisely noted a few years ago, it is
very difficult to see how an increasingly centralized industry can deal
with all these details, and do it cheaply enough to make a profit when interest rates are at five percent and spreads are thin. In order to do it cheaply enough, the industry got rid of most of its Tanta-caliber people and replaced them with inexperienced temps,
or perhaps with MERS. The main reason it worked for a few years was
because problem mortgages could be refinanced so easily, and fees could be charged for each refinancing.

2. The creation of MERS did not really reduce the complications.

MERS
undoubtedly provides some useful services to banks, but it does not
“inoculate” them from dealing with necessary administrative costs. The
administrative costs, especially in a lousy market, will probably make
high-velocity mortgage loan trading and securitizing an unprofitable
venture. As Tanta said, “the true cost of doing business is belatedly showing up.”

The
goal of the people who created MERS was to design a system that has
traction in local recording systems, and is flexible enough that it
could be made to work under the law of every state. The MERS system
probably meets this goal when it is done right. In theory, using the
term “nominee” gives MERS flexibility in defining the duties and
obligations of the relationship. It may also give MERS some flexibility
in explaining how the court should treat a nominee after something has
gone wrong, as the law of the jurisdiction or the facts of a particular
case seem to require. Unfortunately for MERS, experienced judges are
wise to this trick and will most likely to continue placing reasonable
limits on the ability of MERS to claim it is all things to all lenders.


But setting all the cleverness of the MERS system aside, the
system still requires the last lender in the chain to endorse the note
over to MERS before the foreclosure can begin. If the lenders have been
ignoring their paperwork because they think they are “inoculated
against future assignments,” it is possible the lenders are worse off
than they would have been without MERS. From what I can see, that is
not the case. The way lenders were acting in 2005, if left to their own
devices they would probably have lost about 90% of everything. With
MERS, they probably did better than that.

So is this a nothingburger?

Sort
of. MERS isn’t obscuring land titles in a way that will interfere with
future transactions. If a mortgage is paid off, it should be released
in the local public records. The odds that somebody screwed something
up may go up a little or down a little, but a title company should be
able to insure any subsequent sale.

We can also be reasonably
certain the MERS cases are not going to invalidate millions of
mortgages at one swipe. Because mortgages are complicated, whatever a
lender does and whatever MERS does on behalf of lenders will have
different effects in different cases. Most of the problems can be
attributed to non-standard mortgage documents, poorly drafted
foreclosure complaints, or foreclosure complaints filed prematurely
without verifying the status of the mortgage and who is holding the
note. These problems affect non-MERS lenders in more or less the same
way they affect MERS lenders. Having MERS involved might help get
things straightened out in some cases, or it might make the problem
worse in some cases.

I think the important question is
whether, on balance and in the aggregate, the MERS system works well
enough to allow lenders to re-start the private label securitization
money machine in a few years. I think the answer is probably no.

Of
course, since the residential lending industry has effectively been
nationalized, it would not be particularly surprising to see
fundamental change on a national level that would allow the resumption
of securitization. But that would probably bring us back to something
like the plain vanilla Fannie and Freddie system that existed before 2000, not the insanely profitable liar loan system that Wall Street had created by 2005.

This
post is intended as a tribute to Tanta, who already wrote pretty much
everything you need to know to understand these issues, and did it much
more cleverly than I can. I have not been able to read all the comments
recently, so I apologize if I have inadvertently stolen anyone’s ideas
besides Tanta’s.

---------------

HSBC to Sell New York Building for $330 Million (Update1)






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By Calev Ben-David and Jeran Wittenstein















Oct. 5 (Bloomberg) -- HSBC Holdings Plc, Europe’s largest
bank, agreed to sell its New York City headquarters for $330
million in cash to a company controlled by Israeli businessman
Nochi Dankner.


The London-based lender will lease back the tower at 452
Fifth Avenue, according to a company statement. HSBC agreed on
the transaction with 452 Fifth Owners LLC, a company owned by
Koor Industries Ltd. and Property & Building Corp., both
controlled by Danker’s IDB Holding Corp.


HSBC is selling some of its landmark office buildings to
raise cash. South Korea’s National Pension Service said Sept. 28
it’s interested in HSBC’s headquarters in London’s Canary Wharf.


Chief Executive Officer Michael Geoghegan told the Financial
Times in an interview published today he expects the economic
recovery to be ‘W’ shaped. “I’m not as convinced we’re through
the worst as others are,” the FT cited him as saying. HSBC
shares slipped 1.4 percent today at 12:30 p.m. in Hong Kong.


HSBC Bank USA agreed to a leaseback for the entire New York
building for one year and floors one to 11 for 10 years,
according to the release from the bank. The transaction is
expected to close in the first quarter of 2010.


The Israeli companies announced the deal in a statement to
the Tel Aviv Stock Exchange. Koor holds a 1.71 percent stake in
Credit Suisse Group AG, and Dankner’s buying and selling of his
shares in the Swiss bank has netted the company at least 750
million shekels ($199 million) of profit.


‘Good Signal’


The deal is a “good signal” for the local investment
market because it’s all cash and involves a foreign investor,
said Robert White, president of Real Capital Analytics, a New
York-based property research company.


HSBC sold the Canary Wharf skyscraper to Spain’s Metrovacesa
SA in June 2007 for 1.09 billion pounds ($1.74 billion). The
lender then bought the building back in December 2008 for 838
million pounds after the Spanish developer failed to refinance a
loan from the bank, making a profit of 250 million pounds.


The bank said in April it may sell three of its landmark
buildings. At the time, real estate brokers said the properties
might fetch 2.7 billion pounds.


HSBC said last month Geoghegan will move to Hong Kong from
London as the global bank increases its focus on emerging markets
such as China, India and Brazil.

To contact the reporter on this story:
Calev Ben-David in Jerusalem at
cbendavid@bloomberg.net;
Jeran Wittenstein at
jwittenstei1@b

--
Alexander Lê
Fordham University
Tel: +001 862 432 2793
Email: le.alex48@gmail.com

Analyze Capital LLC
Tel: +001 8624322793(US)
web: http://www.GroupANLZ.blogspot.com/