FedUpUSA

Archive for January 15th, 2010

Congress Could Need $1.6 Trillion-$2 Trillion Debt-Ceiling Increase

By Corey Boles, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Lawmakers need to increase the U.S. borrowing?limit between $1.6 trillion to $2 trillion to support the federal?government’s borrowing through 2010, private budget analysts said Friday.

The Senate will debate an increase to the debt?ceiling when lawmakers return from the holiday recess next week. In December, Congress approved a $290 billion increase to the cap to support the government’s borrowing through February. This lifted the total amount the federal government can borrow to $12.4 trillion.

In late December, House leaders said they were seeking an increase of between $1.8 trillion to $1.9 trillion in the cap to carry them through 2010.

If that estimate was accurate, then Congress needs to increase the borrowing limit by around $1.6 trillion, said Robert Bixby, executive director of the Concord Coalition.

By another calculation, the increase would have to be even higher, another economist said. Last August, the Obama administration forecast total debt to stand at around $14 trillion at the end of fiscal 2010.

Chris Edwards, director of tax policy at the Cato Institute, a right-of-center think tank, said using this forecast, the debt ceiling might have to be hiked by closer to $2 trillion.

Senior aides to House and Senate leadership declined to comment.

Initially, the Senate will bring up legislation that would hike the debt ceiling by around $635 billion, which was an increase passed by House lawmakers last year, minus the $290 billion lift Congress approved in December.

But Senate Majority Leader Harry Reid (D., Nev.) said he reserves the right to bring forward an amendment, which many analysts believe he will use to push for a broader increase in the debt ceiling.

A move to increase the debt ceiling is largely symbolic, as it represents money already spent by the federal government. In the unlikely scenario that Congress failed to increase the cap however, the consequences for global markets would be grave. The U.S. could lose its prized top-shelf credit rating, and be forced to pay substantially more in interest payments to its creditors, which could send the already weak dollar plummeting further.

The debate over the debt-increase will see several votes on measures aimed at reining in federal government spending.

These include trying to freeze discretionary spending for five years, immediately end the Treasury’s Troubled Asset Relief Program and canceling unused stimulus plan funds.

Most of those votes are likely to be unsuccessful, as they are Republican measures, but it will allow the party’s lawmakers to shine a light on the fiscal situation.

“We think it’s good ground for us to be fighting on the debt,” Sen. John Thune (R., S.D.), a member of the Senate Republican leadership, said Friday in an interview.

More tricky for the Democrats is a measure backed by several members of the party to create a commission mandated to provide solutions to the long-term fiscal imbalances the country faces.

A vote to create such a commission is expected to fail, but several Democrats have threatened to vote against any increase to the debt ceiling unless action is taken on the issue.

“Most of our group is not going to vote for any long-term extension to the debt without a credible commission” to tackle the long-term fiscal situation, Sen. Kent Conrad (D., N.D.) said Friday. Conrad is one of around a dozen moderate Democrats who have become increasingly concerned about the size of the federal debt.

In an interview, Conrad said he was open to alternatives to the commission, but he would insist on a commitment to take action to reduce the debt over the long term before agreeing to vote for a debt-ceiling increase.

Given that the December vote on the short-term debt limit increase needed every Democratic vote to be approved, Conrad’s threats of withholding support are being taken seriously by the leadership.

A spokeswoman for Reid said Friday that the majority leader shares Conrad’s concerns and is committed to finding a solution to the situation.

-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com

Darrell Issa Seeks To Expand AIG Disclosure Inquiry To Ben Bernanke, Hank Paulson And Goldman’s Friedman

Submitted by Tyler Durden

It is about time someone asked for this: Darrell Issa has finally demanded that which is on everyone’s mind – the testimony of the kingpins of the bailout: Bernanke and Paulson.

Bernanke and Paulson should provide statements about the decision to fully reimburse New York-based AIG’s bank counterparties for $62.1 billion in derivatives and efforts to limit disclosure about the payments, Darrell Issa, ranking member of the House Oversight and Government Reform Committee, said today in a letter. Treasury and the Federal Reserve should be subpoenaed for documents tied to the rescue, Issa said.
“This committee’s investigation will not be complete until we gain the perspective of all the most senior government officials responsible for the AIG bailout,” Issa said in the letter to Edolphus Towns, the New York Democrat who is chairman of the panel. “The perspective of Ben Bernanke and Hank Paulson and documents in the possession of the Federal Reserve Board and the Treasury Department are necessary.”

We applaud Congressman Issa’s persistence in this matter. In addition to the above, the WSJ now reports that Goldman’s Stephen Friedman, who was chairman of the NY Fed at the time, has also been “invited.” Zero Hedge petitioned a week ago that Mr. Friedman should not be forgotten in the hustle and bustle to blame everything on Tim. We are happy that the former Goldman Board member will be willing and able to discuss any potential impropriety that may have arisen from selling CDS protection on AIG to fund the difference from the collateral margin to par (in essence making them whole and half) in a time when public disclosure on the government’s attachment to AIG was limited to a select few.

New Short Sale Fraud Allegations: Second Liens

Posted by Karl Denninger

During the bubble we had banks that knew (because the FBI had warned them in 2004, there were stories in the media in 2006, and in 2007 HUD published a study) that virtually ALL stated and reduced-documentation loans were fraudulent.

They wrote ‘em and securitized ‘em anyway and I have not been able to find ONE prospectus from that period in which the above fact was disclosed to buyers of that securitized debt.  Not one.

This was a major contributor to the bubble and subsequent bust.  Indeed, without it the “home price appreciation” that occurred could not have, as there were insufficient numbers of people with incomes to support the prices being asked.  The bubble would not have happened and neither would have the bust without this active fraudulent activity up and down the line.  If the actual character of the loans in these securitized instrument had been disclosed to buyers these securities would have been absolutely unmarketable and the bubble would have instantly stopped inflating.

But we know for a fact that these disclosures were not made, this debt was sold, and literally hundreds of billions of dollars of losses were taken by investors who believed that the loans in these securitized instruments were “good” when they were not.  There have been ZERO investigations or prosecutions thus far related to this practice.

Now when stuck homeowners are trying to execute a short sale we have allegations that the banks are illegally trying to get something for their second liens (HELOCs and “silent seconds”) which in fact are worth NOTHING in a short sale for less than the outstanding first mortgage balance.

As Diane Olick has reported:

But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.

“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”

This is blatantly illegal.  It is a violation of RESPA, the law that specifies that all compensation that changes hands on a real estate transaction irrespective of form must be disclosed on the HUD-1.

STOP THE DAMN LOOTING AND START PROSECUTING!

Big Banks Accused of Short Sale Fraud

fotog | Getty Images

Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.

I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he’s been receiving all kinds of questions and complaints about trouble with second lien holders.

As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.

That’s all legal.

But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.

“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”

(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).

I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, “That’s a red flag!”

Clearly illegal.

Brandt told me he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage [C  3.43    -0.08  (-2.28%)   ] , JP Morgan Chase [JPM  43.77    -0.92  (-2.06%)   ] , Bank of America [BAC  16.255    -0.565  (-3.36%)   ] and other large banks.

Most agents wouldn’t go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”
Gentry says she has had the requests made three times and claims she lost one sale because of it.

“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”

JP Morgan Chase simply answered, “No Comment,” when I relayed the charge to their media representative.

Bank of America denied the practice to CNBC in a written statement:

“Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”

Citi ‘s reply was a bit more complicated:

“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”

“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.

I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.

The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”

I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they’d be very interested to see my story.

Questions?  Comments?  RealtyCheck@cnbc.com