On Saturday, joined by hundreds of friends, family and colleagues on a snowy December day in Yonkers, NY, we celebrated the life of Mark Pittman. Readers of The IRA who wish to express their thanks to Mark and show support for his family may make contributions to the Pittman Children’s College Fund, c/o Dr. William Karesh, 30B Pondview Road, Rye, NY 10580.
Bob Ivry from Bloomberg News gave a remembrance of Mark, including reading the letter that his daughter Maggie Pittman posted on zerohedge to dispel rumors that her dad might have been murdered. Some members of the zerohedge family thought that Mark was killed by the banksters for his diligent pursuit of the disclosure of the Fed’s many bailout loans to Wall Street firms.
Ivry also told a great story of how, when asked by a younger reporter why she should give Pittman her scoops instead of giving them to CNBC’s Charlie Gasparino, Mark replied: “I’m taller than Charlie and can see above the bullshit.” We miss Mark a lot.
Coming together with the friends of Mark Pittman ended a grim week. Many of us in the financial community were wading hip-deep through barnyard debris as we watched Federal Reserve Chairman Bernanke dodge and weave in front of the television cameras during his Senate confirmation hearing. We have to believe that Mark would have been pleased as Senators on both sides of the aisle asked questions that came directly from some of his reporting — and a few of our own suggestions.
To us, the confirmation hearings last week before the Senate Banking Committee only reaffirm in our minds that Benjamin Shalom Bernanke does not deserve a second term as Chairman of the Board of Governors of the Federal Reserve System. Including our comments on Bank of America (BAC) featured by Alan Abelson this week in Barron’s, we have three reasons for this view:
First is the law. The bailout of American International Group (AIG) was clearly a violation of the Federal Reserve Act, both in terms of the “loans” made to the insolvent insurer and the hideous process whereby the loans were approved, after the fact, by Chairman Bernanke and the Fed Board. The loans were not adequately collateralized. This is publicly evidenced by the fact that the Fed of New York (FRBNY) exchanged debt claims on AIG itself for equity stakes in two insolvent insurance underwriting units. What more need be said?
As we’ve noted in The IRA previously, we think the AIG insurance operations are more problematic than the infamous financial products unit where the credit default swaps pyramid scheme resided. And we doubt that any diligence was performed by Geither and/or the FRBNY staff on AIG prior to the decision taken by Tim Geithner to make the loan. We’ll be talking further about AIG in a future comment.
Of interest, members of the Senate Banking Committee who want more background on the AIG fiasco, particularly who did what and when, need to read the paper by Phillip Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, Spring 2009, The Brookings Institution.
We hear in the channel that Fed officials were furious when Swagel, who served at the US Treasury with former Secretary Hank Paulson, published his all-to-detailed apology. We understand that several prominent members of the trial bar also are interested in the Swagel document.
Last week the Senate Banking Committee spent a lot of time talking with Chairman Bernanke about why payouts were made to AIG counterparties like Goldman Sachs (GS) and Deutsche Bank (DB), but the real issue is why Tim Geithner and the GS-controlled board of directors of the FRBNY were permitted to make the supposed “loans” to AIG in the first place. The primary legal duty of the Fed Board is to supervise the activities of the Reserve Banks. In this case, Chairman Bernanke and the rest of the Board seemingly got rolled by Tim Geithner and GS, to the detriment of the Fed’s reputation, the financial interests of all taxpayers and due process of law.
Martin Mayer reminded us last week that the Fed is meant to be “independent” from the White House, not the Congress from which its legal authority comes by way of the Constitution. Nor does Fed independence mean that the officers of the Federal Reserve Banks or the Board are allowed to make laws. None of the officials of the Fed are officers of the United States. No Fed official has any power to make commitments on behalf of the Treasury, unless and except when directed by the Secretary. Given the losses to the Treasury due to the Fed’s own losses, this is an important point that members of the Senate need to investigate further.
The FRBNY not only used but abused the Fed’s power’s under Section 13(3) of the Federal Reserve Act. In AIG, the FRBNY under Tim Geithner invoked the “unusual and exigent” clause again and again, but there is a serious legal question whether the then-FRBNY President and the FRBNY’s board had the right to commit trillions without any due diligence process or deliberate, prior approval of the Fed Board in Washington, as required by law. The financial commitments to GS and other dealers regarding AIG were made always on a weekend with Geithner “negotiating” alone in New York, while Chairman Bernanke, Vice Chairman Donald Kohn and the rest of the BOG were sitting in DC without any real financial understanding of the substance of the transactions or the relationships between the people involved in the negotiations.
Was Tim Geithner technically qualified or legally empowered to “make deals’ without the prior consent of the Fed Board? We don’t think so. Shouldn’t there have been financial fairness opinions re: the transactions? Yes.
We understand that the first order of business in any Fed audit sought by members of the Senate opposed to Chairman Bernanke’s re-appointment is to review the internal Fed legal memoranda and FRBNY board minutes supporting the AIG bailout. These documents, if they exist at all, should be provided to the Senate before a vote on the Bernanke nomination. Indeed, if the panel established to review the AIG bailout and related events investigates the issue of how and when certain commitments were made by the FRBNY, we wouldn’t be surprised if they find that Geithner acted illegally and that Bernanke and the Fed Board were negligent in not stopping this looting of the national patrimony by Geithjner, acting as de facto agent for the largest dealer banks in New York and London.
The second strike against Chairman Bernanke is leadership. In an exchange with SBC Chairman Christopher Dodd (D-CT), Bernanke said that he could not force the counterparties of AIG to take a haircuts on their CDS positions because he had “no leverage.” Again, this goes back to the issue of why the loan to AIG was made at all.
Having made the first error,Bernanke and other Fed officials seek to use it as justification for further acts of idiocy. Chairman Dodd look incredulous and replied “you are the Chairman of the Federal Reserve,” to which Bernanke replied that he did not want to abuse his “supervisory powers.” Dodd replied “apparently not” in seeming disgust.
We have been privileged to know Fed chairmen going back to Arthur Burns. Regardless of their politics or views on economic policies, Fed Chairmen like Burns, Paul Volcker and even Alan Greenspan all knew that the Fed’s power is as much about moral suasion as explicit legal authority. After all, the Chairman of the Fed is essentially the Treasury’s investment banker. In the financial markets, there are times when Fed Chairmen have to exercise leadership and, yes, occasionally raise their voices and intimidate bank executives in the name of the greater public good. AIG was such as test and Chairman Bernanke failed, in our view.
Chairman Bernanke does not seem to understand that leadership is a basic part of the Fed Chairman’s job description and the wellspring from which independence comes. The handling of AIG by Chairman Bernanke and the Fed Board seems to us proof, again, that Washington needs to stop populating the Fed’s board with academic economists who have no real world leadership skills, nor operational or financial experience. Just as we need to end the de facto political control of the banksters over America’s central bank, we need also to end the institutional tyranny of the academic economists at the Federal Reserve Board...
To read the entire article click here.
Monday, December 7, 2009
Friday, December 4, 2009
Junk mortgages: It just gets worse
In 2007 we dissected one toxic issue. The horror story continues, but can we still learn from our mistakes?
NEW YORK (Fortune) -- Back two years ago when the mortgage meltdown was heating up, we wrote an article called "Junk Mortgages Under the Microscope" dissecting a particularly wretched mortgage-backed securities issue peddled by Goldman Sachs.
We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities.
We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted. Two of the three original AAA -rated tranches (French for "slices") are facing losses of about 90%, and even the "super senior," safer-than-mere-AAA slice is facing losses of 25%. How could this happen? And what lessons can we take away from it?
Let's revisit the way this security was put together, and how and why it fell apart. And for the first time, we can even estimate the value -- low -- of the mortgages backing it, thanks to a new service called ABSNet Loan HomeVal.
Our tale begins in April 2006, when Goldman Sachs (GS, Fortune 500) sold $494 million of securities to institutional investors seeking yields somewhat above those that were available on U.S. Treasuries or high-rated corporate bonds.
It was an especially hinky offering, because it was backed by second mortgages rather than by traditional first mortgages. A first mortgage rarely becomes completely worthless, because a house is usually worth something.
But often all it takes is a decline of 20% in a home's value to wipe out a second mortgage, which is typically piled on top of an 80% first mortgage. In our case, borrowers' stated equity in their homes averaged less than 1% -- 0.71%, to be precise. Even that was doubtless overstated because a majority of the mortgages were low-documentation and no-documentation.
Despite these problems, the formulas used by Moody's and S&P allowed Goldman to market the top three slices of the security -- cleverly called A-1, A-2 and A- 3 -- as AAA rated. That meant they were supposedly as safe as U.S. Treasury securities.
But of course they weren't. More than a third of the loans were on homes in California, then a superhot market, now a frigid one. Defaults and rating downgrades began almost immediately. In July 2008, the last piece of the issue originally rated below AAA defaulted -- it stopped making interest payments. Now every month's report by the issue's trustee, Deutsche Bank, shows that the old AAAs -- now rated D by S&P and Ca by Moody's -- continue to rot out.
As of Oct. 26, date of the most recent available trustee's report, only $79.6 million of mortgages were left, supporting $159.9 million of bonds. In other words, each dollar of bonds had a claim on less than 50¢ of mortgages.
But even worse, those mortgages aren't worth anything like their $79.6 million of face value, according to ABSNet Loan HomeVal. ABSNet, unveiled in October, combines a database from Lewtan Technologies of Waltham, Mass., that has a list of every mortgage underlying every mortgage-backed issue, with data from Collateral Analytics of Honolulu, which tracks individual home values. It gives you a snapshot of the value of the collateral backing a mortgage security.
As of Sept. 26 -- a slightly different date from what we're using above -- ABSNet valued the remaining mortgages in our issue at a tad above 20% their face value. Now, watch this math. If the mortgages are worth 20% of their face value and each dollar of mortgages supports more than $2 of bonds, it means that the remaining bonds are worth maybe 10% of face value.
If all the originally AAA -rated bonds were the same, they'd all be facing losses of 90% or so in value. However, they weren't the same. The A-1 "super senior" tranche was entitled to get all the principal payments from all the borrowers until it was paid off in full. Then A-2 and A-3 would share the repayments, then repayments would move down to the lower-rated issues.
But under the security's rules, once the M-1 tranche -- the highest-rated piece of the issue other than the A tranches -- defaulted in July 2008, all the A's began sharing in the repayments. The result is that only about 28% of the original A-1 "super seniors" are outstanding, compared with more than 98% of A-2 and A-3. If you apply a 90% haircut, the losses work out to about 25% for the "super seniors," and about 90% for A-2 and A-3.
This was an especially bad issue, which we picked (on advice of some bond mavens who aren't competitors of Goldman Sachs) precisely because it was so awful. According to Bloomberg LP, recent trades in the A's were at less than 7% of face value. So the market is saying the losses are even greater than our estimates.
Goldman and Moody's declined to discuss this security. S&P told us that it had toughened its standards in 2005 and had discontinued rating second-mortgage securities in 2008. "Had we anticipated fully the severity of the declines in these markets at the time we issued our original ratings, many of those ratings would have been different," a spokesman said.
Now to the investment lessons: The first is, Don't put your faith in rating agencies, even though some branches of the federal government, including the Federal Reserve, use ratings to determine whether certain securities qualify as collateral under federal loan programs to financial institutions.
To read the entire article click here
NEW YORK (Fortune) -- Back two years ago when the mortgage meltdown was heating up, we wrote an article called "Junk Mortgages Under the Microscope" dissecting a particularly wretched mortgage-backed securities issue peddled by Goldman Sachs.
We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities.
We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted. Two of the three original AAA -rated tranches (French for "slices") are facing losses of about 90%, and even the "super senior," safer-than-mere-AAA slice is facing losses of 25%. How could this happen? And what lessons can we take away from it?
Let's revisit the way this security was put together, and how and why it fell apart. And for the first time, we can even estimate the value -- low -- of the mortgages backing it, thanks to a new service called ABSNet Loan HomeVal.
Our tale begins in April 2006, when Goldman Sachs (GS, Fortune 500) sold $494 million of securities to institutional investors seeking yields somewhat above those that were available on U.S. Treasuries or high-rated corporate bonds.
It was an especially hinky offering, because it was backed by second mortgages rather than by traditional first mortgages. A first mortgage rarely becomes completely worthless, because a house is usually worth something.
But often all it takes is a decline of 20% in a home's value to wipe out a second mortgage, which is typically piled on top of an 80% first mortgage. In our case, borrowers' stated equity in their homes averaged less than 1% -- 0.71%, to be precise. Even that was doubtless overstated because a majority of the mortgages were low-documentation and no-documentation.
Despite these problems, the formulas used by Moody's and S&P allowed Goldman to market the top three slices of the security -- cleverly called A-1, A-2 and A- 3 -- as AAA rated. That meant they were supposedly as safe as U.S. Treasury securities.
But of course they weren't. More than a third of the loans were on homes in California, then a superhot market, now a frigid one. Defaults and rating downgrades began almost immediately. In July 2008, the last piece of the issue originally rated below AAA defaulted -- it stopped making interest payments. Now every month's report by the issue's trustee, Deutsche Bank, shows that the old AAAs -- now rated D by S&P and Ca by Moody's -- continue to rot out.
As of Oct. 26, date of the most recent available trustee's report, only $79.6 million of mortgages were left, supporting $159.9 million of bonds. In other words, each dollar of bonds had a claim on less than 50¢ of mortgages.
But even worse, those mortgages aren't worth anything like their $79.6 million of face value, according to ABSNet Loan HomeVal. ABSNet, unveiled in October, combines a database from Lewtan Technologies of Waltham, Mass., that has a list of every mortgage underlying every mortgage-backed issue, with data from Collateral Analytics of Honolulu, which tracks individual home values. It gives you a snapshot of the value of the collateral backing a mortgage security.
As of Sept. 26 -- a slightly different date from what we're using above -- ABSNet valued the remaining mortgages in our issue at a tad above 20% their face value. Now, watch this math. If the mortgages are worth 20% of their face value and each dollar of mortgages supports more than $2 of bonds, it means that the remaining bonds are worth maybe 10% of face value.
If all the originally AAA -rated bonds were the same, they'd all be facing losses of 90% or so in value. However, they weren't the same. The A-1 "super senior" tranche was entitled to get all the principal payments from all the borrowers until it was paid off in full. Then A-2 and A-3 would share the repayments, then repayments would move down to the lower-rated issues.
But under the security's rules, once the M-1 tranche -- the highest-rated piece of the issue other than the A tranches -- defaulted in July 2008, all the A's began sharing in the repayments. The result is that only about 28% of the original A-1 "super seniors" are outstanding, compared with more than 98% of A-2 and A-3. If you apply a 90% haircut, the losses work out to about 25% for the "super seniors," and about 90% for A-2 and A-3.
This was an especially bad issue, which we picked (on advice of some bond mavens who aren't competitors of Goldman Sachs) precisely because it was so awful. According to Bloomberg LP, recent trades in the A's were at less than 7% of face value. So the market is saying the losses are even greater than our estimates.
Goldman and Moody's declined to discuss this security. S&P told us that it had toughened its standards in 2005 and had discontinued rating second-mortgage securities in 2008. "Had we anticipated fully the severity of the declines in these markets at the time we issued our original ratings, many of those ratings would have been different," a spokesman said.
Now to the investment lessons: The first is, Don't put your faith in rating agencies, even though some branches of the federal government, including the Federal Reserve, use ratings to determine whether certain securities qualify as collateral under federal loan programs to financial institutions.
To read the entire article click here
Thursday, December 3, 2009
Not much help for desperate short sellers in new rules
Homeowners struggling to stave off foreclosure too often encounter stonewalling from banks and other lenders when trying to do short sales.
It ranks as one of the most tragic elements of the current foreclosure crisis.
I’ve heard my share of stories on this blog from homeowners who complain they have been strung along for months or longer, unable to get an answer back from their bank in time to close a proposed short sale.
Even more maddening, the banks are likely to take a bigger hit in the end foreclosing on the home or condo and then letting it fall into disrepair as it sits empty on the market.
Enter the Obama Administration, which has issued new rules it contends will help speed along short sales and help prevent needless foreclosures.
There are clearly some helpful elements in the Treasury Department’s proposal. Overall, it attempts to bring some order to what too often appears to be a nebulous process, establishing timetables and formal documents.
But there are some troubling aspects as well that leave me wondering whether this is a real effort to help or just an industry approved public relations gimmick. (For a different take on the new rules, check out this afternoon's post by real estate attorney Richard D. Vetstein.)
Frankly, I’m skeptical
For starters, there appears to be a reliance on trying to use little bribes to get mortgage companies to comply, rather than the big stick of regulation.
Mortgage companies can get $1,000 for administrative costs, which seems strikingly similar to the Obama Administration’s efforts to use modest cash incentives to prod lenders to head off foreclosures by modifying loans.
Of course, that $75 billion initiative has been a dismal failure. Just check the foreclosure rates – they are soaring.
The new program is also voluntary for lenders who hold a second mortgage on a home - half of all homeowners in default fall into this category.
These lenders can stand to make up to $3,000 for agreeing to bow out – not much incentive for the holder of a $100,000 to $200,000 loan.
Of course, there's a small carrot for homeowners here as well - they get $1,500 to pay for moving expenses.
Thanks Uncle Sam.
But the icing on the cake? The new rules won’t kick in until April 5th.
I am sure that’s just what the banking and mortgage industry lobbyists ordered up.
No need to rush things here, let’s just take our sweet old time.
But that’s not much help for homeowners on the edge of losing it all.
To read the original article click here
Other articles of interest...
Injunction Ordering Web Site To Remove Improperly Leaked Document
This raises pretty serious First Amendment questions, as well as other questions.
Democrats Threaten to Bypass Republican Changes on Health Bill
Senate Democrats threatened to bypass Republican amendments to hasten debate over U.S. health-care legislation as delays jeopardized the goal of passage this year.
World markets buoyed by Bank of America move
World markets buoyed by Bank of America move ahead of European Central Bank policy decision
FHA wants more "skin in the game' on mortgages
The Federal Housing Administration is about to beef up the borrowing requirements for home buyers, a move that could dampen the fragile housing market's recovery.
It ranks as one of the most tragic elements of the current foreclosure crisis.
I’ve heard my share of stories on this blog from homeowners who complain they have been strung along for months or longer, unable to get an answer back from their bank in time to close a proposed short sale.
Even more maddening, the banks are likely to take a bigger hit in the end foreclosing on the home or condo and then letting it fall into disrepair as it sits empty on the market.
Enter the Obama Administration, which has issued new rules it contends will help speed along short sales and help prevent needless foreclosures.
There are clearly some helpful elements in the Treasury Department’s proposal. Overall, it attempts to bring some order to what too often appears to be a nebulous process, establishing timetables and formal documents.
But there are some troubling aspects as well that leave me wondering whether this is a real effort to help or just an industry approved public relations gimmick. (For a different take on the new rules, check out this afternoon's post by real estate attorney Richard D. Vetstein.)
Frankly, I’m skeptical
For starters, there appears to be a reliance on trying to use little bribes to get mortgage companies to comply, rather than the big stick of regulation.
Mortgage companies can get $1,000 for administrative costs, which seems strikingly similar to the Obama Administration’s efforts to use modest cash incentives to prod lenders to head off foreclosures by modifying loans.
Of course, that $75 billion initiative has been a dismal failure. Just check the foreclosure rates – they are soaring.
The new program is also voluntary for lenders who hold a second mortgage on a home - half of all homeowners in default fall into this category.
These lenders can stand to make up to $3,000 for agreeing to bow out – not much incentive for the holder of a $100,000 to $200,000 loan.
Of course, there's a small carrot for homeowners here as well - they get $1,500 to pay for moving expenses.
Thanks Uncle Sam.
But the icing on the cake? The new rules won’t kick in until April 5th.
I am sure that’s just what the banking and mortgage industry lobbyists ordered up.
No need to rush things here, let’s just take our sweet old time.
But that’s not much help for homeowners on the edge of losing it all.
To read the original article click here
Other articles of interest...
Injunction Ordering Web Site To Remove Improperly Leaked Document
This raises pretty serious First Amendment questions, as well as other questions.
Democrats Threaten to Bypass Republican Changes on Health Bill
Senate Democrats threatened to bypass Republican amendments to hasten debate over U.S. health-care legislation as delays jeopardized the goal of passage this year.
World markets buoyed by Bank of America move
World markets buoyed by Bank of America move ahead of European Central Bank policy decision
FHA wants more "skin in the game' on mortgages
The Federal Housing Administration is about to beef up the borrowing requirements for home buyers, a move that could dampen the fragile housing market's recovery.
Wednesday, December 2, 2009
Anatomy of a Government-Abetted Fraud: Why Indymac/OneWest Always Forecloses
Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.
I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.
What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.
History
Indymac was a national bank in the U.S. It was insured by the FDIC. On July 11, 2008, Indymac failed and was taken over by the FDIC.
Indymac offered mortgage loans to homeowners. A large number of these loans were Option ARM mortgages using stated income programs. The loans were offered by Indymac retail, and also through Mortgage Bankers would fund the loans and then Indymac would buy them and reimburse the Mortgage Banker. Mortgage Brokers were also invited to the party to sell these loans.
During the height of the Housing Boom, Indymac gave these loans out like a homeowner gives out candy at Halloween. The loans were sold to homeowners by brokers who desired the large rebates that Indymac offered for the loans. The rebates were usually about three points. What is not commonly known is that when the Option ARM was sold to Wall Street, the lender would realize from four to six points, and the three point rebate to the broker was paid from these proceeds. So the lender “pocketed” three points themselves for each loan.
When the loans were sold to Wall Street, they were securitized through a Pooling and Servicing Agreement. This Agreement covered what could happen with the loans, and detailed how all parts of the loan process occurred.
Even though Indymac sold off most loans, they still held a large number of Option ARMs and other loans in their portfolio. As the Housing Crisis developed and deepened, the number of these loans going into default or being foreclosed upon increased dramatically. This reduced cash and reserves available to Indymac for operations.
In July, 2008, the FDIC came in and took over Indymac. The FDIC looked for someone to buy Indymac and after negotiations, sold Indymac to One West Bank.
OneWest Bank and its Sweetheart Deal
OneWest Bank was created on Mar 19, 2009 from the assets of Indymac Bank. It was created solely for the purpose of absorbing Indymac Bank. The principle owners of OneWest Bank include Michael Dell and George Soros. (George was a major supporter of Barack Obama and is also notorious for knocking the UK out of the Euro Exchange Rate Mechanism in 1992 by shorting the Pound).
When OneWest took over Indymac, the FDIC and OneWest executed a “Shared-Loss Agreement” covering the sale. This Agreement covered the terms of what the FDIC would reimburse OneWest for any losses from foreclosure on a property. It is at this point that the details get very confusing, so I shall try to simplify the terms. Some of the major details are:
OneWest would purchase all first mortgages at 70% of the current balance
OneWest would purchase Line of Equity Loans at 58% of the current balance.
In the event of foreclosure, the FDIC would cover from 80%-95% of losses, using the original loan amount, and not the current balance.
How does this translate to the “Real World”? Let us take a hypothetical situation. A homeowner has just lost his home in default. OneWest sells the property. Here are the details of the transaction:
The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000
The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.
‘FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.
Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an “investment” of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.
At this point, it becomes readily apparent why OneWest Bank has no intention of conducting loan modifications. Any modification means that OneWest would lose out on all this additional profit.
Note: It is not readily apparent as to whether this agreement applies to loans that IndyMac made and Securitized but still Services today. However, I believe that the Agreement does apply to Securitized loans. In that event, OneWest would make even more money through foreclosure because OneWest would keep the “excess” and not pay it to the investor!
Pooling And Servicing Agreement
When OneWest has been asked about why loan modifications are not being done, they are responding that their Pooling and Servicing Agreements do not allow for loan modifications. Sheila Bair, head of the FDIC has also stated the same. This sounds like a plausible explanation, since few people understand the Pooling and Servicing Agreement. But…
Parties Involved
Here is the”dirty little secret” regarding Indymac and the Pooling and Servicing Agreement. The parties involved in the Agreement are:
The Sponsor for the Trust was…………Indymac
The Seller for the Trust was……………Indymac
The Depositor for the Trust was………..you guessed it………….Indymac
The Issuing Entity for the Trust was……………….(drumroll)……………….Indymac
The Master Servicer for the Trust was……..once again………Indymac
In other words, Indymac was the only party involved in the Pooling and Servicing Agreement other than the Ratings Agency who rated these loans as `AAA’ products.
To make matters worse, Indymac wrote the Agreement in order to protect itself from liability for these garbage loans. By creating separate Indymac Corporations — which the Depositor, Sponsor, and other entities were — Indymac created a bankruptcy-remote vehicle that could not come back to them in terms of liability. However, they did not count on certain MBS securities and portfolio loans coming back to bite them and force them under.
Now, the questions become:
If Indymac was responsible for Securitization at every step in the Process, and was responsible for writing the Pooling and Servicing Agreement, can they be held accountable for the loans that they are foreclosing on?
Since Indymac was the Issuing Entity, can they actually modify loans, but refuse to do so because they can make money for OneWest Bank by refusing to do so?
Does Indymac have to “buy back” the loan from the Indymac Trust in order to do a loan modification?
These are questions that I have no answer for. All I know is that at every step of the way, Indymac was involved in the process, and have taken steps to protect themselves from liability for loans that should never have been made.
Loan Modifications
As referred to earlier, the Agreement covers all aspects of the Securitization Process. With respect to Loan Modifications, the Agreement for Indymac INDA Mortgage Loan Trust 2007 – AR5, states on Page S-67:
Certain Modifications and Refinancings
The Servicer may modify any Mortgage Loan at the request of the related mortgagor, provided that the Servicer purchases the Mortgage Loan from the issuing entity immediately preceding the modification.
Page S-12 states the same “policy”:
The servicer is permitted to modify any mortgage loan in lieu of refinancing at the request of the related mortgagor, provided that the servicer purchases the mortgage loan from the issuing entity immediately preceding the modification. In addition, under limited circumstances, the servicer will repurchase certain mortgage loans that experience an early payment default (default in the first three months following origination). See “Servicing of the Mortgage Loans—Certain Modifications and Refinancings” and “Risk Factors—Risks Related To Newly Originated Mortgage Loans and Servicer’s Repurchase Obligation Related to Early Payment Default” in this prospectus supplement.
These sections would appear to suggest that the only way that OneWest could modify the loan would be as a result of buying the loan back from the Issuing Trust. However, there may be an out. Page S-12 also states:
Required Repurchases, Substitutions or Purchases of Mortgage Loans
The seller will make certain representations and warranties relating to the mortgage loans pursuant to the pooling and servicing agreement. If with respect to any mortgage loan any of the representations and warranties are breached in any material respect as of the date made, or an uncured material document defect exists, the seller will be obligated to repurchase or substitute for the mortgage loan as further described in this prospectus supplement under “Description of the Certificates—Representations and Warranties Relating to Mortgage Loans” and “—Delivery of Mortgage Loan Documents .”
The above section may be the key for litigating attorneys to fight Indymac. If fraud or other issues can be raised that will show a violation of the Representations and Warranties, then this could potentially force Indymac to modify the loan.
HAMP
At this point, it becomes important to note that Indymac/OneWest signed aboard with the HAMP program in August 2009. Even though they became a part of the program, they are still refusing to do most loan modifications. Instead, they persist in foreclosing on almost all properties. And even when they say that they are attempting to do loan modifications, they are fulfilling all necessary requirements so that they can foreclose the second that they “decide” the homeowner does not meet HAMP requirements, — which, since they can make more money by foreclosing on the property, meets the HAMP requirements for doing what is in the best interests of the “investor”.
Why did Indymac even sign up for HAMP, if they have no intention of executing loan modifications? Clearly, just for appearances.
One Final Question
It now becomes incumbent upon me to ask one final question. The Shared-Loss Agreement states the following:
2.1 Shared-Loss Arrangement.
(a) Loss Mitigation and Consideration of Alternatives. For each Shared-Loss Loan in default or for which a default is reasonably foreseeable, the Purchaser shall undertake, or shall use reasonable best efforts to cause third-party servicers to undertake, reasonable and customary loss mitigation efforts in compliance with the Guidelines and Customary Servicing Procedures. The Purchaser shall document its consideration of foreclosure, loan restructuring (if available), charge-off and short-sale (if a short-sale is a viable option and is proposed to the Purchaser) alternatives and shall select the alternative that is reasonably estimated by the Purchaser to result in the least Loss. The Purchaser shall retain all analyses of the considered alternatives and servicing records and allow the Receiver to inspect them upon reasonable notice.
Such agreements are usually considered to be interpreted to the benefit of the homeowner, as with HAMP and other programs. In legalese, it is called “Intent”.
What was the “Intent” of the Shared-Loss Agreement? Was the intent to provide OneWest Bank solely with a profitable incentive to take over Indymac Bank? If so, then OneWest has been truly successful in every manner.
Or was the intent to offer to OneWest Bank a way to be compensated for losses for foreclosures, but with the primary goal to assist homeowners in trouble? If this was the intent, then OneWest has failed miserably in its actions. And if so, could OneWest be actionable by the Federal Government for fraud?
In fact the true “Intent” was to limit losses to the Treasury Department. Each and every loan modification done would save the Treasury, and the tax payer, from 80-95 cents on every dollar.
Since, technically, One West would get 5-20 cents of any savings, it should have been an incentive to use foreclosure alternatives. But the reality is that the quick turnaround on foreclosure seems to give OneWest a better return. As a result, OneWest appears to simply ignore the intent and just foreclose (as far as I can tell).
So, OneWest’s failure to modify loans may actually amount to fraud on the Treasury and US taxpayers.
Conclusion
I have presented the story of Indymac/OneWest and what is happening today. But the story does not end with OneWest. There are over 50 different lenders and servicers who have Shared-Loss Agreements executed with the FDIC. Each Agreement offers essentially the same terms. Though other Lenders do not appear to be acting as flagrantly as OneWest, they are all still engaging in the same actions.
What is the solution for this problem? ...
To read the entire article click here
I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.
What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.
History
Indymac was a national bank in the U.S. It was insured by the FDIC. On July 11, 2008, Indymac failed and was taken over by the FDIC.
Indymac offered mortgage loans to homeowners. A large number of these loans were Option ARM mortgages using stated income programs. The loans were offered by Indymac retail, and also through Mortgage Bankers would fund the loans and then Indymac would buy them and reimburse the Mortgage Banker. Mortgage Brokers were also invited to the party to sell these loans.
During the height of the Housing Boom, Indymac gave these loans out like a homeowner gives out candy at Halloween. The loans were sold to homeowners by brokers who desired the large rebates that Indymac offered for the loans. The rebates were usually about three points. What is not commonly known is that when the Option ARM was sold to Wall Street, the lender would realize from four to six points, and the three point rebate to the broker was paid from these proceeds. So the lender “pocketed” three points themselves for each loan.
When the loans were sold to Wall Street, they were securitized through a Pooling and Servicing Agreement. This Agreement covered what could happen with the loans, and detailed how all parts of the loan process occurred.
Even though Indymac sold off most loans, they still held a large number of Option ARMs and other loans in their portfolio. As the Housing Crisis developed and deepened, the number of these loans going into default or being foreclosed upon increased dramatically. This reduced cash and reserves available to Indymac for operations.
In July, 2008, the FDIC came in and took over Indymac. The FDIC looked for someone to buy Indymac and after negotiations, sold Indymac to One West Bank.
OneWest Bank and its Sweetheart Deal
OneWest Bank was created on Mar 19, 2009 from the assets of Indymac Bank. It was created solely for the purpose of absorbing Indymac Bank. The principle owners of OneWest Bank include Michael Dell and George Soros. (George was a major supporter of Barack Obama and is also notorious for knocking the UK out of the Euro Exchange Rate Mechanism in 1992 by shorting the Pound).
When OneWest took over Indymac, the FDIC and OneWest executed a “Shared-Loss Agreement” covering the sale. This Agreement covered the terms of what the FDIC would reimburse OneWest for any losses from foreclosure on a property. It is at this point that the details get very confusing, so I shall try to simplify the terms. Some of the major details are:
OneWest would purchase all first mortgages at 70% of the current balance
OneWest would purchase Line of Equity Loans at 58% of the current balance.
In the event of foreclosure, the FDIC would cover from 80%-95% of losses, using the original loan amount, and not the current balance.
How does this translate to the “Real World”? Let us take a hypothetical situation. A homeowner has just lost his home in default. OneWest sells the property. Here are the details of the transaction:
The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000
The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.
‘FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.
Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an “investment” of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.
At this point, it becomes readily apparent why OneWest Bank has no intention of conducting loan modifications. Any modification means that OneWest would lose out on all this additional profit.
Note: It is not readily apparent as to whether this agreement applies to loans that IndyMac made and Securitized but still Services today. However, I believe that the Agreement does apply to Securitized loans. In that event, OneWest would make even more money through foreclosure because OneWest would keep the “excess” and not pay it to the investor!
Pooling And Servicing Agreement
When OneWest has been asked about why loan modifications are not being done, they are responding that their Pooling and Servicing Agreements do not allow for loan modifications. Sheila Bair, head of the FDIC has also stated the same. This sounds like a plausible explanation, since few people understand the Pooling and Servicing Agreement. But…
Parties Involved
Here is the”dirty little secret” regarding Indymac and the Pooling and Servicing Agreement. The parties involved in the Agreement are:
The Sponsor for the Trust was…………Indymac
The Seller for the Trust was……………Indymac
The Depositor for the Trust was………..you guessed it………….Indymac
The Issuing Entity for the Trust was……………….(drumroll)……………….Indymac
The Master Servicer for the Trust was……..once again………Indymac
In other words, Indymac was the only party involved in the Pooling and Servicing Agreement other than the Ratings Agency who rated these loans as `AAA’ products.
To make matters worse, Indymac wrote the Agreement in order to protect itself from liability for these garbage loans. By creating separate Indymac Corporations — which the Depositor, Sponsor, and other entities were — Indymac created a bankruptcy-remote vehicle that could not come back to them in terms of liability. However, they did not count on certain MBS securities and portfolio loans coming back to bite them and force them under.
Now, the questions become:
If Indymac was responsible for Securitization at every step in the Process, and was responsible for writing the Pooling and Servicing Agreement, can they be held accountable for the loans that they are foreclosing on?
Since Indymac was the Issuing Entity, can they actually modify loans, but refuse to do so because they can make money for OneWest Bank by refusing to do so?
Does Indymac have to “buy back” the loan from the Indymac Trust in order to do a loan modification?
These are questions that I have no answer for. All I know is that at every step of the way, Indymac was involved in the process, and have taken steps to protect themselves from liability for loans that should never have been made.
Loan Modifications
As referred to earlier, the Agreement covers all aspects of the Securitization Process. With respect to Loan Modifications, the Agreement for Indymac INDA Mortgage Loan Trust 2007 – AR5, states on Page S-67:
Certain Modifications and Refinancings
The Servicer may modify any Mortgage Loan at the request of the related mortgagor, provided that the Servicer purchases the Mortgage Loan from the issuing entity immediately preceding the modification.
Page S-12 states the same “policy”:
The servicer is permitted to modify any mortgage loan in lieu of refinancing at the request of the related mortgagor, provided that the servicer purchases the mortgage loan from the issuing entity immediately preceding the modification. In addition, under limited circumstances, the servicer will repurchase certain mortgage loans that experience an early payment default (default in the first three months following origination). See “Servicing of the Mortgage Loans—Certain Modifications and Refinancings” and “Risk Factors—Risks Related To Newly Originated Mortgage Loans and Servicer’s Repurchase Obligation Related to Early Payment Default” in this prospectus supplement.
These sections would appear to suggest that the only way that OneWest could modify the loan would be as a result of buying the loan back from the Issuing Trust. However, there may be an out. Page S-12 also states:
Required Repurchases, Substitutions or Purchases of Mortgage Loans
The seller will make certain representations and warranties relating to the mortgage loans pursuant to the pooling and servicing agreement. If with respect to any mortgage loan any of the representations and warranties are breached in any material respect as of the date made, or an uncured material document defect exists, the seller will be obligated to repurchase or substitute for the mortgage loan as further described in this prospectus supplement under “Description of the Certificates—Representations and Warranties Relating to Mortgage Loans” and “—Delivery of Mortgage Loan Documents .”
The above section may be the key for litigating attorneys to fight Indymac. If fraud or other issues can be raised that will show a violation of the Representations and Warranties, then this could potentially force Indymac to modify the loan.
HAMP
At this point, it becomes important to note that Indymac/OneWest signed aboard with the HAMP program in August 2009. Even though they became a part of the program, they are still refusing to do most loan modifications. Instead, they persist in foreclosing on almost all properties. And even when they say that they are attempting to do loan modifications, they are fulfilling all necessary requirements so that they can foreclose the second that they “decide” the homeowner does not meet HAMP requirements, — which, since they can make more money by foreclosing on the property, meets the HAMP requirements for doing what is in the best interests of the “investor”.
Why did Indymac even sign up for HAMP, if they have no intention of executing loan modifications? Clearly, just for appearances.
One Final Question
It now becomes incumbent upon me to ask one final question. The Shared-Loss Agreement states the following:
2.1 Shared-Loss Arrangement.
(a) Loss Mitigation and Consideration of Alternatives. For each Shared-Loss Loan in default or for which a default is reasonably foreseeable, the Purchaser shall undertake, or shall use reasonable best efforts to cause third-party servicers to undertake, reasonable and customary loss mitigation efforts in compliance with the Guidelines and Customary Servicing Procedures. The Purchaser shall document its consideration of foreclosure, loan restructuring (if available), charge-off and short-sale (if a short-sale is a viable option and is proposed to the Purchaser) alternatives and shall select the alternative that is reasonably estimated by the Purchaser to result in the least Loss. The Purchaser shall retain all analyses of the considered alternatives and servicing records and allow the Receiver to inspect them upon reasonable notice.
Such agreements are usually considered to be interpreted to the benefit of the homeowner, as with HAMP and other programs. In legalese, it is called “Intent”.
What was the “Intent” of the Shared-Loss Agreement? Was the intent to provide OneWest Bank solely with a profitable incentive to take over Indymac Bank? If so, then OneWest has been truly successful in every manner.
Or was the intent to offer to OneWest Bank a way to be compensated for losses for foreclosures, but with the primary goal to assist homeowners in trouble? If this was the intent, then OneWest has failed miserably in its actions. And if so, could OneWest be actionable by the Federal Government for fraud?
In fact the true “Intent” was to limit losses to the Treasury Department. Each and every loan modification done would save the Treasury, and the tax payer, from 80-95 cents on every dollar.
Since, technically, One West would get 5-20 cents of any savings, it should have been an incentive to use foreclosure alternatives. But the reality is that the quick turnaround on foreclosure seems to give OneWest a better return. As a result, OneWest appears to simply ignore the intent and just foreclose (as far as I can tell).
So, OneWest’s failure to modify loans may actually amount to fraud on the Treasury and US taxpayers.
Conclusion
I have presented the story of Indymac/OneWest and what is happening today. But the story does not end with OneWest. There are over 50 different lenders and servicers who have Shared-Loss Agreements executed with the FDIC. Each Agreement offers essentially the same terms. Though other Lenders do not appear to be acting as flagrantly as OneWest, they are all still engaging in the same actions.
What is the solution for this problem? ...
To read the entire article click here
Tuesday, December 1, 2009
Housing Rescue Operations a Boon to Mortgage Fraudsters
It is really a shame to see what has happened to the FHA. Prior to the subprime bubble, the FHA has a good record with providing low down payment loans to borrowers. Before readers scoff, it had a simple secret: it screened borrowers. And the old-fashioned process was sufficiently time-consuming that the prospective homeowners also had to grapple with whether they could make the payments.
The FHA’s experience of yore is not unique. Not for profits that provide loans to low income borrowers also have shown default rates in line with prime borrowers. It is possible to make sound loans to homebuyers who look risky on paper…provided you do real due diligence.
But now the FHA has been assigned a role in the “save the housing market” game plan, which means notions of prudence get compromised. A story in Washington Monthly details some of the side effects. And the troubling bit is that while this activity isn’t wide scale, the Treasury proposals to streamline the short sale process will play right into this particular type of fraud.
From Washington Monthly:
Interthinx, which analyzes mortgage fraud nationally….found a continuing shift to schemes involving bank-owned foreclosed homes, and short sales…The firm also reported that real estate agents and other professionals increasingly are involved in the schemes, which are growing in popularity due to the abundant supply of foreclosures, and the fact that appraisals frequently aren’t required in order to sell distressed properties.
As fraud picks up, a typical scheme increasingly works like this: A homeowner underwater on a mortgage, owing more than the home is worth, arranges a short sale ….The home then gets deeded back or gifted to the troubled borrower shortly after the sale. Or, the bank unwittingly accepts a lowball short sale offer, allowing the new owner to quickly flip the property to a buyer already on standby, willing to pay a higher price. Such schemes amount to fraud because buyers and sellers lie to the bank about the true nature of the transactions…
Flipping foreclosures and short sales is taking off as the latest real estate craze, with numerous web sites popping up to market advice on turning quick profits on distressed properties. And short sales also are expected to only increase as loan modification efforts continue to falter, and borrowers facing foreclosure have few other options. Interthinx expects fraud involving a “straw” borrower – a deceptive stand-in used as cover for a questionable transaction – to also become more frequent as a result….
increasingly, people involved in fraud schemes are finding ways to finance them through taxpayer-backed Federal Housing Administration loans, an agency already dealing with delinquency problems and and mortgage fraud, said Robert Simpson, president of Investors Mortgage Asset Recovery Co. in Irvine, Calf., a firm that analyzes mortgage fraud. The FHA’s loan volume has quadrupled since 2006, and FHA-backed loans have been beset by rising defaults…
“Anytime there’s money out there, someone will begin trying to figure out a way to get to it,” Simpson said. “Right now, the fraud gets shipped over to the FHA. We’ve got to hope they are being very diligent, because if they are not, the damage will be irreversible.”…
Short sales at first seem an unlikely target for fraud, because they can be a lengthy and difficult process, with banks often taking months to approve sales, if they do at all. For that reason, Cecala said, he believes short sales – at least for now – comprise only a small piece of the mortgage fraud picture. But the Treasury Department is expected to issue guidelines soon on streamlining short sales and offering financial incentives to borrowers and lenders. The push for more short sales, combined with a backlog of foreclosed homes, distressed homeowners, and banks anxious to get foreclosures off their books, will likely make short sale and REO flipping fraud more prevalent.
To read the original article click here
Other articles of interest...
The Truth! The Truth? Bankers Can't Handle the Truth!!!
If you thought things looked bad last year or this spring, they are getting worse
The world’s largest guilt trip
Brent White shows that underwater homeowners across America are signally failing to take my advice (or that of Mark Gimein) and walk away from their homes:
Bank of America Has "Good Excuse" for Not Offering Mortgage Modifications; HAMP a Spectacular Failure
The Obama Administration is pressing for more home modifications, so why the high failure rate, especially at Bank of America?
WaMu Is Gone, but the Parent Is Fighting On
Washington Mutual sank more than a year ago in the biggest bank failure in U.S. history. A fight still is raging over the carcass of its parent company.
The FHA’s experience of yore is not unique. Not for profits that provide loans to low income borrowers also have shown default rates in line with prime borrowers. It is possible to make sound loans to homebuyers who look risky on paper…provided you do real due diligence.
But now the FHA has been assigned a role in the “save the housing market” game plan, which means notions of prudence get compromised. A story in Washington Monthly details some of the side effects. And the troubling bit is that while this activity isn’t wide scale, the Treasury proposals to streamline the short sale process will play right into this particular type of fraud.
From Washington Monthly:
Interthinx, which analyzes mortgage fraud nationally….found a continuing shift to schemes involving bank-owned foreclosed homes, and short sales…The firm also reported that real estate agents and other professionals increasingly are involved in the schemes, which are growing in popularity due to the abundant supply of foreclosures, and the fact that appraisals frequently aren’t required in order to sell distressed properties.
As fraud picks up, a typical scheme increasingly works like this: A homeowner underwater on a mortgage, owing more than the home is worth, arranges a short sale ….The home then gets deeded back or gifted to the troubled borrower shortly after the sale. Or, the bank unwittingly accepts a lowball short sale offer, allowing the new owner to quickly flip the property to a buyer already on standby, willing to pay a higher price. Such schemes amount to fraud because buyers and sellers lie to the bank about the true nature of the transactions…
Flipping foreclosures and short sales is taking off as the latest real estate craze, with numerous web sites popping up to market advice on turning quick profits on distressed properties. And short sales also are expected to only increase as loan modification efforts continue to falter, and borrowers facing foreclosure have few other options. Interthinx expects fraud involving a “straw” borrower – a deceptive stand-in used as cover for a questionable transaction – to also become more frequent as a result….
increasingly, people involved in fraud schemes are finding ways to finance them through taxpayer-backed Federal Housing Administration loans, an agency already dealing with delinquency problems and and mortgage fraud, said Robert Simpson, president of Investors Mortgage Asset Recovery Co. in Irvine, Calf., a firm that analyzes mortgage fraud. The FHA’s loan volume has quadrupled since 2006, and FHA-backed loans have been beset by rising defaults…
“Anytime there’s money out there, someone will begin trying to figure out a way to get to it,” Simpson said. “Right now, the fraud gets shipped over to the FHA. We’ve got to hope they are being very diligent, because if they are not, the damage will be irreversible.”…
Short sales at first seem an unlikely target for fraud, because they can be a lengthy and difficult process, with banks often taking months to approve sales, if they do at all. For that reason, Cecala said, he believes short sales – at least for now – comprise only a small piece of the mortgage fraud picture. But the Treasury Department is expected to issue guidelines soon on streamlining short sales and offering financial incentives to borrowers and lenders. The push for more short sales, combined with a backlog of foreclosed homes, distressed homeowners, and banks anxious to get foreclosures off their books, will likely make short sale and REO flipping fraud more prevalent.
To read the original article click here
Other articles of interest...
The Truth! The Truth? Bankers Can't Handle the Truth!!!
If you thought things looked bad last year or this spring, they are getting worse
The world’s largest guilt trip
Brent White shows that underwater homeowners across America are signally failing to take my advice (or that of Mark Gimein) and walk away from their homes:
Bank of America Has "Good Excuse" for Not Offering Mortgage Modifications; HAMP a Spectacular Failure
The Obama Administration is pressing for more home modifications, so why the high failure rate, especially at Bank of America?
WaMu Is Gone, but the Parent Is Fighting On
Washington Mutual sank more than a year ago in the biggest bank failure in U.S. history. A fight still is raging over the carcass of its parent company.
Monday, November 30, 2009
Audit the Fed: Bernanke and the Bankers Are Running Scared
Ben Bernanke, Federal Reserve mob boss, is running scared. He is deathly afraid an audit of his criminal organization.
“These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,” Bernanke wrote in the CIA’s favorite newspaper, The Washington Post.
Maybe Bernanke is worried he will be obliged to wear an orange jumpsuit in the wake of an audit.
Bernanke penned his tribute to central banking and globalism prior to his scheduled testimony before a Senate panel on his renomination to serve a second four-year term as Fed mob boss.
Bankster tool Barney Frank, chairman of the House Financial Services Committee, tried to derail an effort to audit the Fed but failed. A proposal to audit the Fed’s monetary policy deliberations won a committee vote recently over Frank’s objections.
In his Mockingbird media editorial, Bernanke “conceded the Fed had missed some of the riskiest behavior in the lead up to the crisis. But he said the Fed had helped avoid an even more damaging economic meltdown and has stepped up its policing of the financial system.”
In fact, the Fed was specifically designed to create financial crises. It was all plotted in 1910 when minions of J.P. Morgan, John D. Rockefeller, the Rothschilds and Warburgs met on Jekyll Island off the coast of Georgia. In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Said Congressman Charles Lindbergh on the midnight passage of the Federal Reserve Act: “From now on, depressions will be scientifically created.”
In order to scientifically create an economic depression, the Fed prompted irresponsible speculation by expanding the money supply sixty-two percent between 1923 and 1929. The so-called Great Depression followed. This depression “was not accidental. It was a carefully contrived occurrence,” declared Congressman Louis McFadden, Chairman of the House Banking Committee. “The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all.”
In March of 1929, Paul Warburg issued a tip that the scientifically created crash was coming. Before it did, John D. Rockefeller, Bernard Baruch, Joseph P. Kennedy, and other banksters got out of the market.
A few years later, the banksters and their minions met in Bretton Woods, New Hampshire, and plotted the creation of the International Monetary Fund and the World Bank. The purpose of these two criminal organizations was to set-up a global Federal Reserve system and wage economic warfare on billions of people. The weapon they used was debt and the loss of sovereignty that follows.
In 1971, then president Nixon fit one of the last pieces into the puzzle — he signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. It was a great day for the banksters and the global elite. The gold standard ensured predictability and regularity in the economy and the banksters wanted to put an end to that. For the bankers, order and control is realized out of chaos and misery.
Fast-forward to the present day. Bernanke’s Fed has meticulously sabotaged the economy in order to create a crisis in classic Hegelian fashion. The corporate media tells us the crisis is the result of ineptitude and mismanagement at the Federal Reserve. Au contraire. Like the Great Depression, the even Greater Depression now on the horizon was scientifically created.
The Fed is the primary instrument the bankers are now using to destroy the middle class, hand over all public assets and resources to them, implement a crushing austerity, usher in a new era of global corporatist feudalism and build a sprawling planet-wide slave plantation based on China’s totalitarian model.
It is the ultimate dream of the banking cartel. It will be used as the foundation to build world government. Destroying the dollar as the world’s reserve currency is only the beginning.
Bernanke knows Ron Paul and the audit the Fed movement are extremely dangerous. That’s why he is pushing this facile “oops” theory. In order to fix things, the Fed will use its “knowledge of complex financial institutions” in order to supervise them, he writes in his Mockingbird editorial. Allowing audits of Federal Reserve monetary policy would increase the perceived influence of Congress on interest rate decisions, he says.
To read the entire article click here
Other articles of interest...
law school professor advises underwater homeowners to walk away from mortgages
The LA Times is reporting Brent T. White, a University of Arizona law school professor, says that it's in the homeowners' best financial interest to stiff their lenders and that it's not immoral to do so. I commented on this story twice before but it's worth another recap
'I Stopped Denying People': Ex-Bank Of America CSR Tells All
“These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,” Bernanke wrote in the CIA’s favorite newspaper, The Washington Post.
Maybe Bernanke is worried he will be obliged to wear an orange jumpsuit in the wake of an audit.
Bernanke penned his tribute to central banking and globalism prior to his scheduled testimony before a Senate panel on his renomination to serve a second four-year term as Fed mob boss.
Bankster tool Barney Frank, chairman of the House Financial Services Committee, tried to derail an effort to audit the Fed but failed. A proposal to audit the Fed’s monetary policy deliberations won a committee vote recently over Frank’s objections.
In his Mockingbird media editorial, Bernanke “conceded the Fed had missed some of the riskiest behavior in the lead up to the crisis. But he said the Fed had helped avoid an even more damaging economic meltdown and has stepped up its policing of the financial system.”
In fact, the Fed was specifically designed to create financial crises. It was all plotted in 1910 when minions of J.P. Morgan, John D. Rockefeller, the Rothschilds and Warburgs met on Jekyll Island off the coast of Georgia. In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Said Congressman Charles Lindbergh on the midnight passage of the Federal Reserve Act: “From now on, depressions will be scientifically created.”
In order to scientifically create an economic depression, the Fed prompted irresponsible speculation by expanding the money supply sixty-two percent between 1923 and 1929. The so-called Great Depression followed. This depression “was not accidental. It was a carefully contrived occurrence,” declared Congressman Louis McFadden, Chairman of the House Banking Committee. “The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all.”
In March of 1929, Paul Warburg issued a tip that the scientifically created crash was coming. Before it did, John D. Rockefeller, Bernard Baruch, Joseph P. Kennedy, and other banksters got out of the market.
A few years later, the banksters and their minions met in Bretton Woods, New Hampshire, and plotted the creation of the International Monetary Fund and the World Bank. The purpose of these two criminal organizations was to set-up a global Federal Reserve system and wage economic warfare on billions of people. The weapon they used was debt and the loss of sovereignty that follows.
In 1971, then president Nixon fit one of the last pieces into the puzzle — he signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. It was a great day for the banksters and the global elite. The gold standard ensured predictability and regularity in the economy and the banksters wanted to put an end to that. For the bankers, order and control is realized out of chaos and misery.
Fast-forward to the present day. Bernanke’s Fed has meticulously sabotaged the economy in order to create a crisis in classic Hegelian fashion. The corporate media tells us the crisis is the result of ineptitude and mismanagement at the Federal Reserve. Au contraire. Like the Great Depression, the even Greater Depression now on the horizon was scientifically created.
The Fed is the primary instrument the bankers are now using to destroy the middle class, hand over all public assets and resources to them, implement a crushing austerity, usher in a new era of global corporatist feudalism and build a sprawling planet-wide slave plantation based on China’s totalitarian model.
It is the ultimate dream of the banking cartel. It will be used as the foundation to build world government. Destroying the dollar as the world’s reserve currency is only the beginning.
Bernanke knows Ron Paul and the audit the Fed movement are extremely dangerous. That’s why he is pushing this facile “oops” theory. In order to fix things, the Fed will use its “knowledge of complex financial institutions” in order to supervise them, he writes in his Mockingbird editorial. Allowing audits of Federal Reserve monetary policy would increase the perceived influence of Congress on interest rate decisions, he says.
To read the entire article click here
Other articles of interest...
law school professor advises underwater homeowners to walk away from mortgages
The LA Times is reporting Brent T. White, a University of Arizona law school professor, says that it's in the homeowners' best financial interest to stiff their lenders and that it's not immoral to do so. I commented on this story twice before but it's worth another recap
'I Stopped Denying People': Ex-Bank Of America CSR Tells All
Wednesday, November 25, 2009
FDIC’s List of ‘Problem’ Banks Grows 33% in Q309
Banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) posted aggregate net income of $2.8bn in Q309 despite net quarterly losses reported by more than 26% of all insured institutions, according to the FDIC’s quarterly report on insured institutions.
Provisions for loan losses totaled $62.5bn in the quarter, an $11.3bn or 22.2% increase over the year-ago quarter. Realized losses on securities and other assets were $4.1bn — $3.8bn lower than last year.
“Today’s report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” said FDIC chairman Sheila Bair.
Forty-seven institutions were absorbed through mergers while 50 banks failed in the quarter — the largest number of failures in a single quarter since Q492 when 55 firms failed. The FDIC’s Deposit Insurance Fund (DIF) balance fell below zero for the first time since Q392. As of September, the DIF was at negative $8.2bn.
The FDIC’s “problem” bank list swelled nearly 33% to 552 from 416 banks in the previous quarter. The total assets of these “problem” firms grew little more than 15% to $345.9bn from $299.8bn during the same time.
Both the number of banks and the volume of assets on the FDIC’s “problem” list are at their highest level since the end of 1993.
To read the original article click here
Other articles of interest...
Wary consumers, rising unemployment snag recovery
Nervous consumers, rising joblessness weigh on recovery as economic growth slows
Mortgage Bankers Say Risk Retention Will Force Them Out of Business
The Community Mortgage Lenders of America (CML America) warned today that risk retention provisions in the “Restoring American Financial Stability Act” will force them out of business.
Strong banks, weak credit: Treasury rethinks TARP
At crisis' edge last year, they are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won't recoup the full sum of the government's unprecedented infusion to the financial sector, but the returns are ahead of schedule.
Lending Declines as Bank Jitters Persist
U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.
Provisions for loan losses totaled $62.5bn in the quarter, an $11.3bn or 22.2% increase over the year-ago quarter. Realized losses on securities and other assets were $4.1bn — $3.8bn lower than last year.
“Today’s report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance,” said FDIC chairman Sheila Bair.
Forty-seven institutions were absorbed through mergers while 50 banks failed in the quarter — the largest number of failures in a single quarter since Q492 when 55 firms failed. The FDIC’s Deposit Insurance Fund (DIF) balance fell below zero for the first time since Q392. As of September, the DIF was at negative $8.2bn.
The FDIC’s “problem” bank list swelled nearly 33% to 552 from 416 banks in the previous quarter. The total assets of these “problem” firms grew little more than 15% to $345.9bn from $299.8bn during the same time.
Both the number of banks and the volume of assets on the FDIC’s “problem” list are at their highest level since the end of 1993.
To read the original article click here
Other articles of interest...
Wary consumers, rising unemployment snag recovery
Nervous consumers, rising joblessness weigh on recovery as economic growth slows
Mortgage Bankers Say Risk Retention Will Force Them Out of Business
The Community Mortgage Lenders of America (CML America) warned today that risk retention provisions in the “Restoring American Financial Stability Act” will force them out of business.
Strong banks, weak credit: Treasury rethinks TARP
At crisis' edge last year, they are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won't recoup the full sum of the government's unprecedented infusion to the financial sector, but the returns are ahead of schedule.
Lending Declines as Bank Jitters Persist
U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.
Tuesday, November 24, 2009
Mary Landrieu Only Charged Harry Reid $100 Million for Her Health Care Vote
The big news from the weekend, of course, is that the Senate voted 60-39 along purely partisan lines to allow debate on this health care legislation. Can you even imagine? Sixty whole Democrats agreeing to debate a bill, that they wrote, about things that affect the country. Whatever will they do next, tie their shoelaces?
Because the Democrats needed all 60 votes to proceed, Harry Reid spent last week "wooing" (ew!) Mary Landrieu of Louisiana, his party's last holdout and a very coy lady. How coy is she? Try $100 million coy…
[Landrieu], one of three lawmakers being wooed by Democratic leaders to back health-care legislation, won the inclusion of an extra $100 million in federal aid for low-income people in her state.
Landrieu, a Democrat, has championed federal aid for rebuilding Louisiana since Hurricane Katrina devastated the New Orleans area in 2005.
With those funds secured for her state Landrieu voted with the rest of the Dems, and she is so grateful for this consideration that she will spend the rest of the session telling the press that she's just not going to let Harry Reid have that public option he wants so much…
"I believe it's going to be very clear at some point very soon that there are not 60 votes for the [public option] provision in the bill, and that the leader and the leadership are going to have to make a decision and I trust that they will figure out how to do that," Landrieu told reporters.
To read the entire article click here
Other articles of interest...
Owners' 'strategic defaults' on mortgages depend largely on how far underwater they are
Wells Fargo Takes Over Deed to Sea Island’s Frederica Community
Luster Of First-Time Buyer Credit Is Going To Wear Off
Bank of America Becomes Top Mortgage Lender
Because the Democrats needed all 60 votes to proceed, Harry Reid spent last week "wooing" (ew!) Mary Landrieu of Louisiana, his party's last holdout and a very coy lady. How coy is she? Try $100 million coy…
[Landrieu], one of three lawmakers being wooed by Democratic leaders to back health-care legislation, won the inclusion of an extra $100 million in federal aid for low-income people in her state.
Landrieu, a Democrat, has championed federal aid for rebuilding Louisiana since Hurricane Katrina devastated the New Orleans area in 2005.
With those funds secured for her state Landrieu voted with the rest of the Dems, and she is so grateful for this consideration that she will spend the rest of the session telling the press that she's just not going to let Harry Reid have that public option he wants so much…
"I believe it's going to be very clear at some point very soon that there are not 60 votes for the [public option] provision in the bill, and that the leader and the leadership are going to have to make a decision and I trust that they will figure out how to do that," Landrieu told reporters.
To read the entire article click here
Other articles of interest...
Owners' 'strategic defaults' on mortgages depend largely on how far underwater they are
Wells Fargo Takes Over Deed to Sea Island’s Frederica Community
Luster Of First-Time Buyer Credit Is Going To Wear Off
Bank of America Becomes Top Mortgage Lender
Monday, November 23, 2009
Analysis: Fed under fire as public anger mounts
Suddenly the Federal Reserve is everybody's punching bag.
Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.
The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.
Former Fed chairman William McChesney Martin Jr. famously said that the central bank's job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signalled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.
The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year's midterm elections.
Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama's nomination of Bernanke to a second four-year term as chairman.
Many economists and Fed watchers say congressional efforts to rein in the Fed's powers could interfere with the central bank's ability to help guide the fragile economy to recovery.
The Fed's very independence and its unique ability among U.S. institutions to create money out of thin air enabled it to act quickly to stabilize the nation's financial system after it froze up last September after the bankruptcy of the Lehman Brothers investment house, Fed backers say.
"It might have been the Fed's finest moment when it had to jump into the market," said David M. Jones, a former Fed economist and president of DMJ Advisors, a Denver-based consulting firm. "We still have to wait to see how effective the Fed is in its exit strategy and whether it can keep inflation in check. But this badgering by Congress, even if there is populist sentiment, is inappropriate."
The Fed's aggressive intervention also set the stage for the current criticism. Many lawmakers question whether the Fed's money machine has mainly benefited financial markets and not the broader economy. Lamakers are also peeved that the central bank acted without congressional involvement when it brokered the 2008 sale of failed investment bank Bear Stearns and engineered the rescue of insurer American International Group.
Bernanke, first appointed by President George W. Bush, has worked closely with both Treasury Secretary Timothy Geithner and Bush Treasury Secretary Henry Paulson in confronting the worst financial crisis in decades. Geithner also has gotten his share of congressional wrath, mainly for his administering of the $700 billion bank bailout fund.
"In the past, the Federal Reserve was held in very high esteem," said Rep. Ron Paul, R-Texas, a libertarian who ran a quixotic third-party presidential campaign in 2008. Now, it's "the source of our problem," suggests Paul, author of the bestseller "End the Fed."++
Usually an outlier, Paul suddenly has found an army of at least 307 House colleagues and 30 senators marching behind his legislation to subject the Fed to intense scrutiny by Congress' Government Accountability Office. The House Financial Services Committee endorsed Paul's approach 43-26 last week over objections from its chairman, Rep. Barney Frank, D-Mass.
The bill would authorize Congress to audit not only the Fed's lending programs but its basic decisions to set monetary policy by raising or lowering interest rates. Paul has been introducing a version every year since the early 1980s, but this is the first time it has garnered any serious attention.
Senate Banking Committee Chairman Chris Dodd, D-Conn., who will preside over Bernanke's confirmation hearings, has proposed legislation that would strip the Fed of its bank-regulation authority and give the Senate a role in selecting the 12 regional Federal Reserve bank presidents.
Dodd says his measure would return the Fed to its core mission of setting monetary policy, claiming it proved itself "an abysmal failure" by not cracking down on risky lending practices that led to the financial meltdown.
Dodd is in an extremely tight battle for re-election, even though he has served in Congress for 35 years.
"I don't think it ever hurts to have a member of Congress stand up and denounce the Fed. There is a lot of anger out there, and this is basically a therapeutic gesture," said Ross Baker, a political scientist at Rutgers University.
To read the entire article click here
Other articles of interest...
Rep. Alan Grayson on the Fed Bailing Out Big Banks:
"You Don't Give Scholarships to Kids Who Fail"
Late payments on credit cards drop in 3rd quarter
More consumers make credit card payments on time in 3Q; 1st time in 10 yrs 3Q improves over 2Q
BofA May Name Stopgap Chief If Board Needs More Time for Search
Bank of America Corp.’s board may extend its search for a permanent new chief executive officer into 2010 if directors can’t settle on a candidate in the next three days, according to people familiar with the matter.
Obama in Wonderland: Hu’s On First
You know President Obama’s hat in hand pilgrimage to the U.S. government’s biggest lender, Communist China, was a failure when even the slavishly leftist New York Times editorialists are critical.
Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.
The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.
Former Fed chairman William McChesney Martin Jr. famously said that the central bank's job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signalled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.
The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year's midterm elections.
Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama's nomination of Bernanke to a second four-year term as chairman.
Many economists and Fed watchers say congressional efforts to rein in the Fed's powers could interfere with the central bank's ability to help guide the fragile economy to recovery.
The Fed's very independence and its unique ability among U.S. institutions to create money out of thin air enabled it to act quickly to stabilize the nation's financial system after it froze up last September after the bankruptcy of the Lehman Brothers investment house, Fed backers say.
"It might have been the Fed's finest moment when it had to jump into the market," said David M. Jones, a former Fed economist and president of DMJ Advisors, a Denver-based consulting firm. "We still have to wait to see how effective the Fed is in its exit strategy and whether it can keep inflation in check. But this badgering by Congress, even if there is populist sentiment, is inappropriate."
The Fed's aggressive intervention also set the stage for the current criticism. Many lawmakers question whether the Fed's money machine has mainly benefited financial markets and not the broader economy. Lamakers are also peeved that the central bank acted without congressional involvement when it brokered the 2008 sale of failed investment bank Bear Stearns and engineered the rescue of insurer American International Group.
Bernanke, first appointed by President George W. Bush, has worked closely with both Treasury Secretary Timothy Geithner and Bush Treasury Secretary Henry Paulson in confronting the worst financial crisis in decades. Geithner also has gotten his share of congressional wrath, mainly for his administering of the $700 billion bank bailout fund.
"In the past, the Federal Reserve was held in very high esteem," said Rep. Ron Paul, R-Texas, a libertarian who ran a quixotic third-party presidential campaign in 2008. Now, it's "the source of our problem," suggests Paul, author of the bestseller "End the Fed."++
Usually an outlier, Paul suddenly has found an army of at least 307 House colleagues and 30 senators marching behind his legislation to subject the Fed to intense scrutiny by Congress' Government Accountability Office. The House Financial Services Committee endorsed Paul's approach 43-26 last week over objections from its chairman, Rep. Barney Frank, D-Mass.
The bill would authorize Congress to audit not only the Fed's lending programs but its basic decisions to set monetary policy by raising or lowering interest rates. Paul has been introducing a version every year since the early 1980s, but this is the first time it has garnered any serious attention.
Senate Banking Committee Chairman Chris Dodd, D-Conn., who will preside over Bernanke's confirmation hearings, has proposed legislation that would strip the Fed of its bank-regulation authority and give the Senate a role in selecting the 12 regional Federal Reserve bank presidents.
Dodd says his measure would return the Fed to its core mission of setting monetary policy, claiming it proved itself "an abysmal failure" by not cracking down on risky lending practices that led to the financial meltdown.
Dodd is in an extremely tight battle for re-election, even though he has served in Congress for 35 years.
"I don't think it ever hurts to have a member of Congress stand up and denounce the Fed. There is a lot of anger out there, and this is basically a therapeutic gesture," said Ross Baker, a political scientist at Rutgers University.
To read the entire article click here
Other articles of interest...
Rep. Alan Grayson on the Fed Bailing Out Big Banks:
"You Don't Give Scholarships to Kids Who Fail"
Late payments on credit cards drop in 3rd quarter
More consumers make credit card payments on time in 3Q; 1st time in 10 yrs 3Q improves over 2Q
BofA May Name Stopgap Chief If Board Needs More Time for Search
Bank of America Corp.’s board may extend its search for a permanent new chief executive officer into 2010 if directors can’t settle on a candidate in the next three days, according to people familiar with the matter.
Obama in Wonderland: Hu’s On First
You know President Obama’s hat in hand pilgrimage to the U.S. government’s biggest lender, Communist China, was a failure when even the slavishly leftist New York Times editorialists are critical.
Friday, November 20, 2009
Ron Paul, Alan Grayson Audit The Fed Bill Approved In House Finance Committee
In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.
The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.
Backers of the Watt amendment pressed their case on Wednesday by sending a letter from a "political cross section of prominent economists" backing a measure like Watt's. HuffPost reported, however, that those economists might well have be prominent, but they certainly aren't a "political cross section." Seven of the eight economists in question have extensive connections to the Fed -- and half of them are currently on the Fed payroll. Those affiliations were not noted in the letter.
The playbook in Washington often goes like this: When a measure that threatens the establishment builds enough momentum that it must be dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."
And it particularly rankles the center that a pair of "wingnuts" are behind a successful effort to challenge the prevailing order. [See Grayson Called "Wingnut" By New York Times].
For anyone remaining confused, the debate was further clarified by the central bank itself: Federal Reserve Vice Chair Don Cohn and General Counsel Scott Alvarez spent much of the day calling committee members, urging them to oppose the Paul-Grayson amendment in favor of Watt's, a member of Congress who asked for confidentiality told HuffPost.
Paul's opponents also placed a letter from former Fed chairmen Alan Greenspan and Paul Volcker on the seats of every committee member. Such a move is in violation of House rules and Grayson was able to have the letters removed.
As the day wore on and support held for the Paul-Grayson side, the Fed still could hope that both would pass. Watt's amendment, which included additional restriction, would then trump Paul's.
To counter that possibility, the Paul-Grayson side moved to fully replace Watt's amendment with theirs, leaving only one amendment to vote on. The motion carried and the amendment passed in a landslide.
Frank said he was opposing the Paul amendment because it could be perceived as influencing monetary policy, which can have inflationary pressure. "Perception is very important in monetary policy," said Frank.
He urged a no vote, yet 15 Democrats bucked him, voting with Paul.
"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.
To read the original article click here
Other articles of interest...
Fed Makes Monitoring Capital Foremost Concern Amid Bubble Talk
Federal Reserve officials are stepping up scrutiny of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter.
14.41 Percent of All Mortgages Late or in Foreclosure
A staggering 14.41 percent of all residential mortgages were either delinquent or in some stage of foreclosure as of the end of the third quarter, according to the latest survey from the Mortgage Bankers Association.
Why No One’s Watching Fannie and Freddie
An arcane legal matter has left the agency charged with overseeing Fannie Mae and Freddie Mac without an independent inspector general for nearly one year,
White House at odds with bishops over abortion
The White House is on a collision course with Catholic bishops in an intractable dispute over abortion that could blow up the fragile political coalition behind President Barack Obama's health care overhaul.
The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.
Backers of the Watt amendment pressed their case on Wednesday by sending a letter from a "political cross section of prominent economists" backing a measure like Watt's. HuffPost reported, however, that those economists might well have be prominent, but they certainly aren't a "political cross section." Seven of the eight economists in question have extensive connections to the Fed -- and half of them are currently on the Fed payroll. Those affiliations were not noted in the letter.
The playbook in Washington often goes like this: When a measure that threatens the establishment builds enough momentum that it must be dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."
And it particularly rankles the center that a pair of "wingnuts" are behind a successful effort to challenge the prevailing order. [See Grayson Called "Wingnut" By New York Times].
For anyone remaining confused, the debate was further clarified by the central bank itself: Federal Reserve Vice Chair Don Cohn and General Counsel Scott Alvarez spent much of the day calling committee members, urging them to oppose the Paul-Grayson amendment in favor of Watt's, a member of Congress who asked for confidentiality told HuffPost.
Paul's opponents also placed a letter from former Fed chairmen Alan Greenspan and Paul Volcker on the seats of every committee member. Such a move is in violation of House rules and Grayson was able to have the letters removed.
As the day wore on and support held for the Paul-Grayson side, the Fed still could hope that both would pass. Watt's amendment, which included additional restriction, would then trump Paul's.
To counter that possibility, the Paul-Grayson side moved to fully replace Watt's amendment with theirs, leaving only one amendment to vote on. The motion carried and the amendment passed in a landslide.
Frank said he was opposing the Paul amendment because it could be perceived as influencing monetary policy, which can have inflationary pressure. "Perception is very important in monetary policy," said Frank.
He urged a no vote, yet 15 Democrats bucked him, voting with Paul.
"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.
To read the original article click here
Other articles of interest...
Fed Makes Monitoring Capital Foremost Concern Amid Bubble Talk
Federal Reserve officials are stepping up scrutiny of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter.
14.41 Percent of All Mortgages Late or in Foreclosure
A staggering 14.41 percent of all residential mortgages were either delinquent or in some stage of foreclosure as of the end of the third quarter, according to the latest survey from the Mortgage Bankers Association.
Why No One’s Watching Fannie and Freddie
An arcane legal matter has left the agency charged with overseeing Fannie Mae and Freddie Mac without an independent inspector general for nearly one year,
White House at odds with bishops over abortion
The White House is on a collision course with Catholic bishops in an intractable dispute over abortion that could blow up the fragile political coalition behind President Barack Obama's health care overhaul.
Thursday, November 19, 2009
Warren Buffett Increases Stake in Wells Fargo (NYSE:WFC) Via Berkshire Hathaway (BRK:A) – Is it Ethical?
In its most recent regulatory filing, Berkshire Hathaway (BRK:A) increased its stake in Wells Fargo (NYSE:WFC) by over 10 million shares in the third quarter.
To me, this does raise ethical questions on the part of the actions and comments of Warren Buffett, who has been backing up the bailout of banking and other institutions on the one hand, while investing millions in one of those institutions, which has largely benefited from the use of taxpayer dollars.
Not only will those benefits help Buffett and Berkshire Hathaway short-term through their huge stake in Wells Fargo, but it will also, more significantly, help them over the long term as a small number of financial institutions emerge from the rubble of the bailouts and become more powerful and dominant in their industry; something Warren Buffett seeks and looks for to invest in when deciding on the best companies. This is well documented from hundreds of comments from Buffett in regard to that strategy through the years.
The reason I call attention to possible ethics issues is Buffett knows full well that every word he speaks is taken as financial gospel by not only his followers and adherents, but many of those that recognize him as an investing celebrity. So when he says we needed the bailouts, he was positioning himself in a way that was setting his holding company Berkshire Hathaway up for a profit. To say that Buffett would have been ignorant of this would be to deny his sharpness in evaluating and investing in companies throughout the decades. He knew it, and that’s troubling to me.
I’ve always respected Warren Buffett as an investor, and I believe he has helped hundreds of thousands of people build wealth through his particular system and way of investing. But his moving on to the public stage in a political manner in order to shore up the Obama administrations bailout efforts can’t be just looked upon as a personal political philosophy espoused by Buffett, as he lost that right a long time ago to make statements in that manner when he knows it’ll move the market.
So when Warren Buffett backed up the bailouts with his huge interest in Wells Fargo, he and others had to know that Berkshire Hathaway and Buffett would wildly profit from it. And he has.
The results of the more dominant market position of Wells Fargo after being bailed out by taxpayers will be positively felt for years to come; far beyond Buffett’s time on earth. Was it fair and ethical for Warren Buffett to spew out his support of bailouts and then wildly benefit from it. I don’t believe so.
While this doesn’t surprise me on the part of Buffett as to his political leanings, which can be found in his Berkshire Hathaway reports easily, it is disappointing to see him take advantage of publicly communicating that in order to build up the wealth of Berkshire Hathaway, his shareholders, and himself.
To read the original article click here
Other articles of interest...
Call for Worldwide Minimum Mortgage Standards
Comptroller of the Currency John C. Dugan today called on regulators around the world to adopt minimum mortgage standards to address the ongoing mortgage crisis.
Moody’s May Cut Goldman Debt in $450 Billion Review
Debt sold by Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. is among the $450 billion of securities that Moody’s Investors Service said it may downgrade.
Calling for Blankfein's Resignation
Ahead of the Bell: Jobless claims
Wall Street economists expect slight rise in unemployment claims; benefits run out Dec. 31
To me, this does raise ethical questions on the part of the actions and comments of Warren Buffett, who has been backing up the bailout of banking and other institutions on the one hand, while investing millions in one of those institutions, which has largely benefited from the use of taxpayer dollars.
Not only will those benefits help Buffett and Berkshire Hathaway short-term through their huge stake in Wells Fargo, but it will also, more significantly, help them over the long term as a small number of financial institutions emerge from the rubble of the bailouts and become more powerful and dominant in their industry; something Warren Buffett seeks and looks for to invest in when deciding on the best companies. This is well documented from hundreds of comments from Buffett in regard to that strategy through the years.
The reason I call attention to possible ethics issues is Buffett knows full well that every word he speaks is taken as financial gospel by not only his followers and adherents, but many of those that recognize him as an investing celebrity. So when he says we needed the bailouts, he was positioning himself in a way that was setting his holding company Berkshire Hathaway up for a profit. To say that Buffett would have been ignorant of this would be to deny his sharpness in evaluating and investing in companies throughout the decades. He knew it, and that’s troubling to me.
I’ve always respected Warren Buffett as an investor, and I believe he has helped hundreds of thousands of people build wealth through his particular system and way of investing. But his moving on to the public stage in a political manner in order to shore up the Obama administrations bailout efforts can’t be just looked upon as a personal political philosophy espoused by Buffett, as he lost that right a long time ago to make statements in that manner when he knows it’ll move the market.
So when Warren Buffett backed up the bailouts with his huge interest in Wells Fargo, he and others had to know that Berkshire Hathaway and Buffett would wildly profit from it. And he has.
The results of the more dominant market position of Wells Fargo after being bailed out by taxpayers will be positively felt for years to come; far beyond Buffett’s time on earth. Was it fair and ethical for Warren Buffett to spew out his support of bailouts and then wildly benefit from it. I don’t believe so.
While this doesn’t surprise me on the part of Buffett as to his political leanings, which can be found in his Berkshire Hathaway reports easily, it is disappointing to see him take advantage of publicly communicating that in order to build up the wealth of Berkshire Hathaway, his shareholders, and himself.
To read the original article click here
Other articles of interest...
Call for Worldwide Minimum Mortgage Standards
Comptroller of the Currency John C. Dugan today called on regulators around the world to adopt minimum mortgage standards to address the ongoing mortgage crisis.
Moody’s May Cut Goldman Debt in $450 Billion Review
Debt sold by Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. is among the $450 billion of securities that Moody’s Investors Service said it may downgrade.
Calling for Blankfein's Resignation
Ahead of the Bell: Jobless claims
Wall Street economists expect slight rise in unemployment claims; benefits run out Dec. 31
Wednesday, November 18, 2009
Lender That Really Does God’s Work Is Slowed by Funding Decline
Mark Holbrook helped fuel a church construction boom by originating more than $3 billion of mortgages in the past decade, transforming a $2 million credit union he joined after Bible college into the largest U.S. evangelical lender.
Evangelical Christian Credit Union, run by Holbrook since 1979, was the leading force behind the increase in credit flowing to churches in the form of five-year commercial mortgages with minimal monthly payments and lower initial costs than bond sales, the other widely used form of financing. Unlike the banks that joined the trend, ECCU catered exclusively to evangelical ministries, putting 83 percent of its assets in loans on churches and religious schools.
Now, the Brea, California-based company’s delinquency rate has more than doubled since the end of 2007 and mortgage originations have slumped because of a decline in financing. Commercial church mortgages are coming due with so-called balloon payments, replacement loans have disappeared and the highest unemployment rate in 26 years has cut congregant donations.
About 145 churches have gone into bankruptcy since the credit crunch accelerated in 2008, an upheaval in a lending niche that bankers once ranked among the safest in real estate.
“We have seen more church foreclosures and bank-pressured sales, if you will, in this last year than we have seen in 20 years,” said Matthew Messier, a principal at CNL Specialty Real Estate Services Corp., a broker in Orlando, Florida, that caters to religious and educational clients. “A lot of people think commercial is going to get worse before it gets better, and it could be the same for many churches.”
‘Unsettling Rumors’
Rising delinquencies have led to speculation about ECCU’s financial health, the company said. Chief Financial Officer Brian Scharkey, appearing in a video discussing the company’s third-quarter finances, said there were “some unsettling rumors floating around” among ministry leaders, including the possibility that ECCU might go bankrupt.
“ECCU is one of the healthiest institutions in the country,” Holbrook said in the video on ECCU’s Web site, citing a capital ratio of 11 percent that he called among the highest in the industry. “We don’t see any even remote possibility of bankruptcy on the horizon.”
Still, some ministries are having trouble repaying ECCU. As of Sept. 30, about 10.7 percent of the $943 million of first mortgages held by ECCU were more than 30 days overdue, according to a filing with the National Credit Union Association. That’s an increase from 6.9 percent a year earlier and 4.2 percent at the end of 2007.
Losses Remain Low
In comparison, Bank of the West, a unit of France’s BNP Paribas SA with $1.2 billion of church loans, has a 30-day delinquency rate of less than 1 percent, according to spokesman John Stafford. The delinquency rate for commercial real estate loans held by all U.S. banks was 7.7 percent at the end of June, according to data from the Federal Reserve.
The rising delinquencies haven’t resulted in substantial write-offs, in part because ECCU loans on average equal 58 percent of underlying property values, providing a buffer against potential losses on the sale of foreclosed mortgages, according to Mark Johnson, an ECCU vice president. The company, which had never charged off a church mortgage prior to 2007, has since had about $4.3 million in losses, including $3.14 million during the first nine months of this year.
That equals about 0.39 percent of average loans, compared with a charge-off rate of 2.24 percent for commercial lenders overall, according to Federal Reserve data for the end of June.
“These churches are broadly and significantly keeping their commitments,” Johnson said in an interview. ECCU works with congregations to restructure their finances and avoid foreclosure, Holbrook said in the video.
Construction Boom
Holbrook, 59, landed a job at ECCU’s predecessor credit union in 1975, about a year after graduating from Biola University, formerly known as the Bible Institute of Los Angeles. He was running the company within four years, and positioned it to feed an expansion in which annual spending on houses of worship would rise to $6.3 billion in 2007 from $3.8 billion in 1997, according to estimates by the U.S. Census Bureau in Washington.
Holbrook in 1987 shifted ECCU’s lending to evangelical ministries from individual customers, and in 1998 hired the lobbying firm William D. Harris & Associates to successfully obtain an exemption from legislation that bars credit unions from having more than 12.25 percent of assets in business loans. At the end of 2008, about 123 credit unions had been granted the exemption, which allows ECCU to write more loans for churches. There are about 7,770 credit unions in the U.S.
Ministry as Bank
“We are a ministry structured as a credit union that functions as a commercial bank” said Jac La Tour, a spokesman for ECCU.
Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., created a stir when he told the Sunday Times of London that he’s just a banker “doing God’s work.” Lucas van Praag, a spokesman for the New York-based bank, later said Blankfein’s comment was “an obviously ironic, throwaway response.”
At ECCU, whose mission is to “increase the effectiveness of evangelical ministries,” first-mortgage originations soared to $661 million in 2008 from $50 million in 2000, according to company filings with the credit union administration in Alexandria, Virginia.
Market Leader
That’s more than half of the combined $1 billion in mortgages written annually by the top 10 church lenders, including Bank of the West in San Francisco and Bank of America Corp. in Charlotte, North Carolina, said David Dennison, principal at Church Mortgage Solutions, a Colorado Springs, Colorado, company that helps ministries obtain financing.
ECCU has originated almost $3.2 billion in first mortgages overall since 2000.
“ECCU had the largest share of the market, probably by a lot,” Holbrook said in a telephone interview.
The credit union long prospered, according to company documents that show its return on assets averaged 1.66 percent during the past decade, compared with 0.75 percent for peers.
Now, ECCU has curtailed lending because the credit unions that financed its operations have pulled back, according to Holbrook. Its mortgage originations fell to $130.6 million in the first nine months of 2009 from $579.1 million a year earlier, filings show. This comes at a time when many churches face balloon payments on maturing five-year mortgages provided by ECCU earlier in the decade.
To read the entire article click here
Other articles of interest...
GMAC’s Carpenter, Survivor of Wall Street Crises, Takes Wheel
Michael Carpenter, named Nov. 16 as the new head of GMAC Inc., is no stranger to executive suites, distressed financial firms or the ailing auto and home lender.
Residential Capital, LLC* - Subsidiary of GMAC
GMAC's Board of Directors, independent of any federal influence, forced the resignation of GMAC Financial Services' CEO Alvaro de Molina on Monday according to a report in the Wall Street Journal
FBI looking into mortgage firm's closure
The sudden closure of a Meredith mortgage company last week is now the subject of a criminal probe by the FBI, the state attorney general said last night.
U.S. to aid some local mortgage programs
Plan is to buy bonds from state housing finance agencies
Evangelical Christian Credit Union, run by Holbrook since 1979, was the leading force behind the increase in credit flowing to churches in the form of five-year commercial mortgages with minimal monthly payments and lower initial costs than bond sales, the other widely used form of financing. Unlike the banks that joined the trend, ECCU catered exclusively to evangelical ministries, putting 83 percent of its assets in loans on churches and religious schools.
Now, the Brea, California-based company’s delinquency rate has more than doubled since the end of 2007 and mortgage originations have slumped because of a decline in financing. Commercial church mortgages are coming due with so-called balloon payments, replacement loans have disappeared and the highest unemployment rate in 26 years has cut congregant donations.
About 145 churches have gone into bankruptcy since the credit crunch accelerated in 2008, an upheaval in a lending niche that bankers once ranked among the safest in real estate.
“We have seen more church foreclosures and bank-pressured sales, if you will, in this last year than we have seen in 20 years,” said Matthew Messier, a principal at CNL Specialty Real Estate Services Corp., a broker in Orlando, Florida, that caters to religious and educational clients. “A lot of people think commercial is going to get worse before it gets better, and it could be the same for many churches.”
‘Unsettling Rumors’
Rising delinquencies have led to speculation about ECCU’s financial health, the company said. Chief Financial Officer Brian Scharkey, appearing in a video discussing the company’s third-quarter finances, said there were “some unsettling rumors floating around” among ministry leaders, including the possibility that ECCU might go bankrupt.
“ECCU is one of the healthiest institutions in the country,” Holbrook said in the video on ECCU’s Web site, citing a capital ratio of 11 percent that he called among the highest in the industry. “We don’t see any even remote possibility of bankruptcy on the horizon.”
Still, some ministries are having trouble repaying ECCU. As of Sept. 30, about 10.7 percent of the $943 million of first mortgages held by ECCU were more than 30 days overdue, according to a filing with the National Credit Union Association. That’s an increase from 6.9 percent a year earlier and 4.2 percent at the end of 2007.
Losses Remain Low
In comparison, Bank of the West, a unit of France’s BNP Paribas SA with $1.2 billion of church loans, has a 30-day delinquency rate of less than 1 percent, according to spokesman John Stafford. The delinquency rate for commercial real estate loans held by all U.S. banks was 7.7 percent at the end of June, according to data from the Federal Reserve.
The rising delinquencies haven’t resulted in substantial write-offs, in part because ECCU loans on average equal 58 percent of underlying property values, providing a buffer against potential losses on the sale of foreclosed mortgages, according to Mark Johnson, an ECCU vice president. The company, which had never charged off a church mortgage prior to 2007, has since had about $4.3 million in losses, including $3.14 million during the first nine months of this year.
That equals about 0.39 percent of average loans, compared with a charge-off rate of 2.24 percent for commercial lenders overall, according to Federal Reserve data for the end of June.
“These churches are broadly and significantly keeping their commitments,” Johnson said in an interview. ECCU works with congregations to restructure their finances and avoid foreclosure, Holbrook said in the video.
Construction Boom
Holbrook, 59, landed a job at ECCU’s predecessor credit union in 1975, about a year after graduating from Biola University, formerly known as the Bible Institute of Los Angeles. He was running the company within four years, and positioned it to feed an expansion in which annual spending on houses of worship would rise to $6.3 billion in 2007 from $3.8 billion in 1997, according to estimates by the U.S. Census Bureau in Washington.
Holbrook in 1987 shifted ECCU’s lending to evangelical ministries from individual customers, and in 1998 hired the lobbying firm William D. Harris & Associates to successfully obtain an exemption from legislation that bars credit unions from having more than 12.25 percent of assets in business loans. At the end of 2008, about 123 credit unions had been granted the exemption, which allows ECCU to write more loans for churches. There are about 7,770 credit unions in the U.S.
Ministry as Bank
“We are a ministry structured as a credit union that functions as a commercial bank” said Jac La Tour, a spokesman for ECCU.
Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., created a stir when he told the Sunday Times of London that he’s just a banker “doing God’s work.” Lucas van Praag, a spokesman for the New York-based bank, later said Blankfein’s comment was “an obviously ironic, throwaway response.”
At ECCU, whose mission is to “increase the effectiveness of evangelical ministries,” first-mortgage originations soared to $661 million in 2008 from $50 million in 2000, according to company filings with the credit union administration in Alexandria, Virginia.
Market Leader
That’s more than half of the combined $1 billion in mortgages written annually by the top 10 church lenders, including Bank of the West in San Francisco and Bank of America Corp. in Charlotte, North Carolina, said David Dennison, principal at Church Mortgage Solutions, a Colorado Springs, Colorado, company that helps ministries obtain financing.
ECCU has originated almost $3.2 billion in first mortgages overall since 2000.
“ECCU had the largest share of the market, probably by a lot,” Holbrook said in a telephone interview.
The credit union long prospered, according to company documents that show its return on assets averaged 1.66 percent during the past decade, compared with 0.75 percent for peers.
Now, ECCU has curtailed lending because the credit unions that financed its operations have pulled back, according to Holbrook. Its mortgage originations fell to $130.6 million in the first nine months of 2009 from $579.1 million a year earlier, filings show. This comes at a time when many churches face balloon payments on maturing five-year mortgages provided by ECCU earlier in the decade.
To read the entire article click here
Other articles of interest...
GMAC’s Carpenter, Survivor of Wall Street Crises, Takes Wheel
Michael Carpenter, named Nov. 16 as the new head of GMAC Inc., is no stranger to executive suites, distressed financial firms or the ailing auto and home lender.
Residential Capital, LLC* - Subsidiary of GMAC
GMAC's Board of Directors, independent of any federal influence, forced the resignation of GMAC Financial Services' CEO Alvaro de Molina on Monday according to a report in the Wall Street Journal
FBI looking into mortgage firm's closure
The sudden closure of a Meredith mortgage company last week is now the subject of a criminal probe by the FBI, the state attorney general said last night.
U.S. to aid some local mortgage programs
Plan is to buy bonds from state housing finance agencies
Tuesday, November 17, 2009
The new flipping: short sales
Untold millions of dollars that banks could have recovered from the sale of distressed Florida homes have instead been pocketed as profits by a new breed of property flipper.
These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say.
No one knows how widespread the scheme has become. But a national glut of short sales -- pre-foreclosure sales in which the lender agrees to let the house sell for less than the mortgage owed -- has spawned a small industry of short-sale flippers, some of whom use these questionable tactics, experts say.
The Herald-Tribune examined nearly 18,000 property sales that occurred in Sarasota and Manatee counties in 2009. The review showed that:
And flips involving short sale properties can be legitimate if repairs are made to a property, or the original buyer pays one price in good faith and later finds another buyer willing to pay more.
In fact, some professional flippers are outspoken in defending flipping as aiding both homeowners and banks.
"Who cares if someone is making a spread on flipped properties," said Marc Pelletz, a real estate investor and agent with Hook & Ladder Realty in Sarasota. "Banks are getting money. Someone gets a deal. As long as everything is disclosed to everyone, what's wrong?"
But fraud experts warn that some of the real estate flipping they see today involves the same kind of insider deals and manipulated sale prices that plagued the housing bubble.
The FBI recently added short sale flipping, dubbed "flopping" by some mortgage fraud experts, to its list of recognized real estate fraud.
In a June 2009 report on mortgage fraud, FBI officials described various forms of short sale flipping fraud. Each type involves misrepresenting the value of a house to a lender.
Banking experts point out that those losses trickle down to taxpayers, who have bailed out the banking industry.
"These middle men are making a huge profit at the expense of banks, which means they are often making huge profits at the expense of taxpayers," said Anne Weintraub, a real estate attorney with the Syprett Meshad law firm in Sarasota.
LUCRATIVE BUSINESS
The evidence that short sale flippers are finding ways to benefit from bank losses can be found in deed records filed along Florida's Gulf Coast.
Some individual investors and small groups of flippers have bought dozens of properties at discount prices and resold them within days, each time for thousands of dollars in profit.
Since September 2008, Tampa real estate agent Joe Wright and accountant Kevin Byrne have worked together to buy more than 30 pre-foreclosure houses and condos, with Wright's brokerage as the listing agent and Byrne's company as the buyer.
In each case, the men arranged a short sale and quickly resold the property at a higher price. Of their 33 deals, 22 properties resold within 24 hours of purchase. The median one-day price increase was $25,000.
Byrne and Wright did not return repeated calls seeking comment.
To read the entire article click here
Other articles of interest...
Consumers to be Notified When Mortgage Changes Hands
The Federal Reserve today approved an interim final rule that requires consumers to be notified in writing when their home loan changes hands.
America's Newest Land Baron: FDIC
In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets.
Mortgage delinquencies hit another record in 3Q
Mortgage delinquencies peak again in 3rd qtr, but pace of growth slows for 3rd straight period
These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say.
No one knows how widespread the scheme has become. But a national glut of short sales -- pre-foreclosure sales in which the lender agrees to let the house sell for less than the mortgage owed -- has spawned a small industry of short-sale flippers, some of whom use these questionable tactics, experts say.
The Herald-Tribune examined nearly 18,000 property sales that occurred in Sarasota and Manatee counties in 2009. The review showed that:
At least 250 properties have been sold multiple times at escalating prices so far this year. Nearly 50 of those properties were bought then resold within 24 hours, suggesting that banks were underpaid for properties that already had a buyer willing to pay more.- Just the most suspicious sales, where properties flipped within a day, have cost banks $1.7 million in Sarasota and Manatee counties so far this year. On houses bought and resold within a month, the bank short sales were $3.2 million less than the houses fetched just a few days or weeks later.
Real estate professionals are a key part of short sale flipping. Of about 120 short sale properties that sold twice within a month in the Sarasota area, more than half of the buyers or sellers were real estate agents, real estate attorneys or mortgage brokers.
Questionable short sales accounted for 1.4 percent of all property sales in Sarasota and Manatee counties this year.
At the peak of the housing bubble, 2 percent of all sales statewide raised suspicions, based on criteria used by fraud investigators.
Bankers and some organizations that regulate the real estate industry have taken steps to curb the latest form of flipping. But the measures, including restrictions on writing mortgages for flipped properties, have not halted questionable transactions. Experts warn the number of short sale flips is likely to continue growing nationwide.
And flips involving short sale properties can be legitimate if repairs are made to a property, or the original buyer pays one price in good faith and later finds another buyer willing to pay more.
In fact, some professional flippers are outspoken in defending flipping as aiding both homeowners and banks.
"Who cares if someone is making a spread on flipped properties," said Marc Pelletz, a real estate investor and agent with Hook & Ladder Realty in Sarasota. "Banks are getting money. Someone gets a deal. As long as everything is disclosed to everyone, what's wrong?"
But fraud experts warn that some of the real estate flipping they see today involves the same kind of insider deals and manipulated sale prices that plagued the housing bubble.
The FBI recently added short sale flipping, dubbed "flopping" by some mortgage fraud experts, to its list of recognized real estate fraud.
In a June 2009 report on mortgage fraud, FBI officials described various forms of short sale flipping fraud. Each type involves misrepresenting the value of a house to a lender.
Banking experts point out that those losses trickle down to taxpayers, who have bailed out the banking industry.
"These middle men are making a huge profit at the expense of banks, which means they are often making huge profits at the expense of taxpayers," said Anne Weintraub, a real estate attorney with the Syprett Meshad law firm in Sarasota.
LUCRATIVE BUSINESS
The evidence that short sale flippers are finding ways to benefit from bank losses can be found in deed records filed along Florida's Gulf Coast.
Some individual investors and small groups of flippers have bought dozens of properties at discount prices and resold them within days, each time for thousands of dollars in profit.
Since September 2008, Tampa real estate agent Joe Wright and accountant Kevin Byrne have worked together to buy more than 30 pre-foreclosure houses and condos, with Wright's brokerage as the listing agent and Byrne's company as the buyer.
In each case, the men arranged a short sale and quickly resold the property at a higher price. Of their 33 deals, 22 properties resold within 24 hours of purchase. The median one-day price increase was $25,000.
Byrne and Wright did not return repeated calls seeking comment.
To read the entire article click here
Other articles of interest...
Consumers to be Notified When Mortgage Changes Hands
The Federal Reserve today approved an interim final rule that requires consumers to be notified in writing when their home loan changes hands.
America's Newest Land Baron: FDIC
In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets.
Mortgage delinquencies hit another record in 3Q
Mortgage delinquencies peak again in 3rd qtr, but pace of growth slows for 3rd straight period
Monday, November 16, 2009
Roubini: For unemployment "the worst is yet to come"
Nouriel Roubini, writing in the New York Daily News , said on Sunday that “unemployed Americans should hunker down for more job losses” given the likelihood of a job less recovery. This was as gloomy a piece as I have seen from Roubini in the past few months. He has clearly become more downbeat about the long-term picture for the U.S. economy.
The article begins:
Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%…
…we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
This sounds dire. As a result, Roubini goes on to call on the Obama Administration to take direct action on jobs. Extending unemployment benefits is not going to cut it. Roubini says we need:
a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.
With statistics showing that the rate of long-term joblessness is at the highest since the Great Depression, Roubini joins an increasing number of economists who are calling on the Obama Administration to take the employment situation more seriously.
Paul Krugman has said that we are now in a liquidity trap. Therefore, we need to subsidize jobs and promote work sharing as Germany is doing.
I have made similar arguments about quantitative easing for the past year. Monetary policy is effectively useless – and is merely creating bubbles.
The Obama Administration is moving into deficit hawk mode at the wrong time as this will only worsen the jobs situation and lead to a double dip recession. Instead, I have called for a payroll tax cut or a job subsidy.
Randall Wray, a professor at the University of Missouri-Kansas City, has also offered a unique job solution.
All of this is urgent, as Roubini indicates:
Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession…
The damage will be extensive and severe unless bold policy action is undertaken now.
The Obama Administration is taking an ‘indirect’ approach. They do so for three reasons. First, they are afraid of being boxed in politically by taking more direct measures. They also see a need to defend their previous policy decisions. But, Mark Thoma thinks part of the resistance to more direct measures is ideological. In a post earlier today, he says:
Growth policy is an attempt to make the economy grow faster, and stabilization policy attempts to keep the economy as close as possible to that trend, i.e. to avoid business cycles.
When Republicans had the political microphone, they emphasized growth policy (because it allowed them to argue for what they really wanted, lower taxes, growth policy was simply the vehicle that allowed them to get there), and this was supported by academic work from people such as Robert Lucas who claimed that, from a welfare perspective, stabilization was of second order concern, growth policy was where policymakers should focus their effort if they wanted to enhance welfare. Summers’ remarks reflect this type of thinking.
The Obama Administration’s approach of focusing on deficit reduction without enough direct job measures is sure to keep unemployment elevated. In looking at the politics of economics I said recently: ...
To read the original article click here
The article begins:
Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%…
…we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
This sounds dire. As a result, Roubini goes on to call on the Obama Administration to take direct action on jobs. Extending unemployment benefits is not going to cut it. Roubini says we need:
a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.
With statistics showing that the rate of long-term joblessness is at the highest since the Great Depression, Roubini joins an increasing number of economists who are calling on the Obama Administration to take the employment situation more seriously.
Paul Krugman has said that we are now in a liquidity trap. Therefore, we need to subsidize jobs and promote work sharing as Germany is doing.
I have made similar arguments about quantitative easing for the past year. Monetary policy is effectively useless – and is merely creating bubbles.
The Obama Administration is moving into deficit hawk mode at the wrong time as this will only worsen the jobs situation and lead to a double dip recession. Instead, I have called for a payroll tax cut or a job subsidy.
Randall Wray, a professor at the University of Missouri-Kansas City, has also offered a unique job solution.
All of this is urgent, as Roubini indicates:
Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession…
The damage will be extensive and severe unless bold policy action is undertaken now.
The Obama Administration is taking an ‘indirect’ approach. They do so for three reasons. First, they are afraid of being boxed in politically by taking more direct measures. They also see a need to defend their previous policy decisions. But, Mark Thoma thinks part of the resistance to more direct measures is ideological. In a post earlier today, he says:
Growth policy is an attempt to make the economy grow faster, and stabilization policy attempts to keep the economy as close as possible to that trend, i.e. to avoid business cycles.
When Republicans had the political microphone, they emphasized growth policy (because it allowed them to argue for what they really wanted, lower taxes, growth policy was simply the vehicle that allowed them to get there), and this was supported by academic work from people such as Robert Lucas who claimed that, from a welfare perspective, stabilization was of second order concern, growth policy was where policymakers should focus their effort if they wanted to enhance welfare. Summers’ remarks reflect this type of thinking.
The Obama Administration’s approach of focusing on deficit reduction without enough direct job measures is sure to keep unemployment elevated. In looking at the politics of economics I said recently: ...
To read the original article click here
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