FedUpUSA

Archive for the ‘Foreclosures’ Category

Remember folks, Gary Johnson along with Barack Obama said that “nobody committed any crimes.”

Of course that didn’t count the millions of crimes alleged in this complaint, right?

And neither of these clowns knew of those allegations, right?

Oh wait — this “robosigning” thing has been going on in the press and AG offices now for well over a year…. which means they both did know, and both were and are liars.

This is what your Federal and State Governments sold you out over folks — it’s a litany of theft, fraud, deception and lies, and instead of prosecution and imprisonment what we have here is a tiny little fine that is just another cost of doing business that you, as the harmed (homeowners with mortgages) are forced customers of these enterprises, will simply wind up paying!

This is exactly like being robbed and then when the perpetrator is caught you, as the victim, are not only expected to pay for the prosecution you are also assessed for your own “restitution!”

AG Settlement Complaint

The Market-Ticker

I have to be wrong eventually with one of these calls, you know…

So if you’re a bank, told to write down $5 billion worth of mortgages (your “share” of the total) and given discretion as to which ones you write down, on which loans do you “write down” the principal?

You write down those on which you hold a second, because it increases the value of the second in actual terms on a dollar-for-dollar basis!

Note that this does not change the balance sheet numbers, since you’re already claiming that these loans are good when they are not.  But it does help to “rescue” your bad paper.  This would be a circle-jerk and of no consequence if the funds for the write-downs were coming from the banks.  But they’re not — they are instead largely coming from Treasury, that is you and I as a taxpayers, via HAMP and HARP.

And who’s going to take it in the ass?

The bad news is that the paper holders will take it in the back door again.  Not so much by defaults, but rather by prepays into a world where the only replacement paper yields half of what they were getting before. Since the major holders in the US of this paper are pension funds and insurance companies, all we’re doing here when you analyze this on a macro-level balance-sheet basis is creating a detonation in pension funding a few years out.  I’ve been talking about that too for a while, but once again nobody wants to hear it, and I’m sure in five or ten years when all these pension funds blow sky high we’ll be told once again “nobody could have seen it coming.”

And now, confirmation….

The banks that service about half the nation’s mortgages on behalf of investors will be able to share losses on their junior loans with bondholders and get credit toward the cash they pledged to spend in the settlement, said an Obama administration official involved in drafting the $25 billion agreement. Second liens would typically be wiped out before senior-mortgage investors take a loss, said Laurie Goodman, managing director at Amherst Securities Group LP in New York.

It’s “a gift to the banks, at investors’ expense,” said Goodman, a member of the Fixed Income Analysts Society’s Hall of Fame. “A proportionate write-down of the first and second represents a reversal of normal lien priority.”

There it is.

Once again….

Incidentally, if you didn’t parse the above completely, let me do it again — it is you who will get the short straw on this.  Your insurance premiums will be going up and your pension funds will be going up too — up in smoke, that is.

Thank President Obama and that little weasel Geithner for this.  This is entirely, 100%, without exception their personal responsibility.

The stupid, the stupid, make it stop!

The $25 billion mortgage settlement negotiated on Feb. 9 by the administration and 49 state attorneys general with five big banks has been greeted with considerable political suspicion. Conservatives see a shakedown and liberals dismiss it as too little. The biggest loser is the rule of law.

True.  If we had the rule of law then there would be 100,000+ felony counts working their way through the courts on the admitted acts of perjury, and hundreds of thousands more for various acts of fraud along the way from origination to alleged “conveyances” that never happened to banks making credit bids at property auctions when they are not the real party at interest, which is flatly illegal (you can’t bid an interest you don’t have — check your state laws on this.)

But in this case the attorneys general do not seem to have done any meaningful investigation. Instead of interviewing witnesses and reviewing documents, they treated the case as an opportunity for photo-ops and high-level negotiations. The settlement terms have little to do with the allegations.

Really?  You did read the report out of California, right?  80+% of the foreclosures have indications of fraud and nearly half of the so-called resales of homes (where title changes hands) appears to have had a grantor that didn’t have an interest in the title itself (read: the transfer was in fact a transfer of nothing, as the seller had no interest to convey!)

Only a small number of the robo-signed documents seem to have involved borrowers capable of paying their mortgages. The vast majority of the money changing hands has nothing to do with robo-signing or unnecessary fees.

Immaterial.  The Rule of Law is first and foremost all about due process.  The reason criminal laws, including perjury laws, result in charges of “The People v. Scumbag” (and not “Joe v. Jane” as with a lawsuit) is because it is The Rule of Law and thus the people who are damaged when a crime is committed.

We therefore prosecute in the name of the people, not in the name of the aggrieved.  If you’re aggrieved personally you sue.  But when society is aggrieved by a breach of the peace, which is what forgery and perjury (“robosigning”) is, you’re supposed to wind up with a prosecution out of it — not a lawsuit.

The biggest problem with the so-called “mortgage settlement” is that most of it won’t come from the parties who did the harm at all — it will instead come from the taxpayer.  By twisting the language in HAMP and HARP, existing Treasury programs, these programs will wind up funding most of the “individual” mortgage relief.  By allowing banks to choose which loans to write down, they will choose those in which they have an indirect pecuniary interest.

Let me explain the latter, since Mr. Skeel, who claims the title “Professor”, didn’t bother mentioning this (we can have the debate over whether that was intentional or out of his lack of understanding later.)

Banks have a few hundred billion of second lines — HELOCs and “Silent Seconds” — on their books.  The huge majority of dollar volume of these loans during the bubble were in the sand states — Florida, California, Arizona and Nevada.  All four have had monstrous drops in house values, as all four were the land of froth and bubble.  These bubble valuations were driven by fraudulent underwriting and resale of the firsts (as admitted under oath before the FCIC) along with various other misdeeds, including appraisal tampering that goes back to the early part of the decade (and which generated a petition from appraisers at that time — which was ignored.)  The banks made a crapload of bogus “profits” by churning these firsts into alleged trusts (“mortgage backed securities”), many of which on even cursory investigation did not comply with either their own PSAs (the legal documents governing their formation and operation) and in many cases appear to have violated NY and Deleware Trust Law (where nearly all of them are sited for legal reasons.)  There is enough material there for hundreds of thousands of felony criminal charges — well, there was anyway before the Statute of Limitations began to run, and soon it will be too late for all of them to be brought.

No, that delay was not an accident.  Indeed, it’s my position that all of this arm-waving has been for the explicit purpose of delaying justice until said time has expired, at which point it becomes justice denied.

But the seconds were never securitized; nearly all of those are in fact on bank balance sheets.  They are, almost to an individual bank, being held at valuations in the mid to high 90% of face value range.  This is farcical in that a second line has no recovery in the case of foreclosure until and unless the first is entirely satisfied, and with somewhere around half of the homes in these states with notes from that time being underwater and a large percentage delinquent, the odds of these loans performing “as agreed” is vanishingly small.

This problem, incidentally, is one of the reasons that getting approval for a short sale is often nearly impossible.  The second holder has to approve the sale but has zero incentive to do so, as the sale forces recognition of what has up until now been an intentionally hidden loss.  This “mark to myth” game is part and parcel of what came out of the early 2009 Kanjorski hearing.  Indeed, but for that hearing and the arm-twisted FASB rule changes one could make a quite-cogent argument that these balance sheet games amount to bank fraud — by the bank itself.

So if you’re a bank, told to write down $5 billion worth of mortgages (your “share” of the total) and given discretion as to which ones you write down, on which loans do you “write down” the principal?

You write down those on which you hold a second, because it increases the value of the second in actual terms on a dollar-for-dollar basis!

Note that this does not change the balance sheet numbers, since you’re already claiming that these loans are good when they are not.  But it does help to “rescue” your bad paper.  This would be a circle-jerk and of no consequence if the funds for the write-downs were coming from the banks.  But they’re not — they are instead largely coming from Treasury, that is you and I as a taxpayers, via HAMP and HARP.

The bad news is that the paper holders will take it in the back door again.  Not so much by defaults, but rather by prepays into a world where the only replacement paper yields half of what they were getting before.  Since the major holders in the US of this paper are pension funds and insurance companies, all we’re doing here when you analyze this on a macro-level balance-sheet basis is creating a detonation in pension funding a few years out.  I’ve been talking about that too for a while, but once again nobody wants to hear it, and I’m sure in five or ten years when all these pension funds blow sky high we’ll be told once again “nobody could have seen it coming.”

Welcome to Washington where the spin machine is that the banks will “pay a penalty for their bad conduct” when in fact you, dear reader, will get it up the back door once again in that you will be forced to pay for someone else’s bad conduct – twice.

You knew this was coming…

Feb. 6 (Bloomberg) — Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last minute demand that New York drop claims filed against them Feb. 3 as a condition of a $25 billion nationwide settlement over foreclosure abuses, a person familiar with the matter said.

The deadline for states to sign the proposed deal is today. The push by the three banks raised a new obstacle in getting New York Attorney General Eric Schneiderman’s support for the deal, said the person. Schneiderman, along with the attorneys general of California, Nevada and Delaware, has voiced concerns about the terms of the accord.

Now we’ll see what sort of balls Schneiderman has.

This is what should happen — Schneiderman should tell them to go to hell.  If the other states want to settle, that’s fine, but for the banksters to play this sort of hostage game — well, it simply can’t be allowed to stand.

One would hope that Nevada’s AG, which recently passed a law that requires foreclosing parties to certify under penalty of felony indictment that they have the proper paperwork and chain of title before foreclosing, would also erect the middle finger.

Interestingly enough since that law went into effect rendering any false or robosigned filing a criminal felony (and $5,000 fine for each document) offense new foreclosure filings have effectively ceased by these very same banks. Never mind the 606 count indictment that came out of the Nevada AG’s office shortly thereafter.

Is that an admission that the banks don’t have proper title to the notes and can’t document proper procedure?  Good question.

But this much is certain — Schneiderman, California AG Kamala Harris and Deleware’s Beau Biden, along with Nevada and New York all ought to tell these banks to stick it.

Why?

That’s simple — those who were illegally foreclosed won’t get much if anything at all out of this deal, and the so-called “principal forgiveness” isn’t worth the paper it’s written on.  Those deals will be preferentially handed out to protect the banks’ second lines, doing little or nothing for the vast majority of the borrowers.

Worse, none of the proposed settlement will do a damn thing to address the harm that has been done or extract punishment.  And it is punishment that is needed — punishment so severe that nobody will ever think of doing it again.  We already have a so-called “settlement” with regard to wrongful foreclosures and similar with regard to Countrywide, and while it was supposed to grant billions in relief to homeowners it has both brought almost no actual help and not been enforced.

One of the key un-addressed issues is the fact that our land title system has been corrupted beyond belief by these institutions.  This must be fixed, and it is the banks who must fix it and spend whatever it takes to do so.  Every single assignment and mortgage has to be audited and cleared through either to the trust it is in or an admission must be made that it was never forwarded and the trusts are in fact empty artifices.  If the latter has occurred en-masse, and it certainly appears it has, people need to go to prison and those who bought these instruments in good faith and are holding empty boxes must be made whole.  If this collapses the major financial institutions in this country then so be it — we cannot have a nation where being a “big company” means you can literally blow farts at the law any time you please.

The worst part of this is not just that the FBI warned early in the decade of an epidemic of fraud, or that property appraisers sent a petition warning of the same thing.  Oh no, there was actually an investigation at Fannie that showed these practices were rampant — including robosigning — in 2003.

This is a decade-long, and perhaps longer, outrage. The entities involved must be held to account.  A decade or more of abuse of the public is not compensated for with $25 billion, with the firms involved going about their business in the usual “cost of doing business” sort of handslap.  This apparent organized set of actions, recklessly (at best) or even intentionally taken calls for recession of banking licenses and revocation of corporate charters, along with indictments where still possible under the statute of limitations.

Nothing less will do.

Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg

A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6^th; but it is still not clear if all the AGs will sign.  California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle. 

That is good.  She and the other AGs should not sign until a thorough investigation has been conducted.  The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008.  It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

The details of the robo-signing scam were spelled out in my last article, here.  The robo-signing fraud and its implications are expanded on below.

Why All the Robo-signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services.  MERS is a smokescreen behind which mortgages were sold to trusts that sold them to investors.  The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market.  That meant the investors could sell them in the money market at any time on a day’s notice.  Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in.  Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case.  Why?  Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors.  The investors are not interested in making 30 year loans.  They want something short-term with immediate rights of withdrawal like a deposit account.

The Hazards of Borrowing Short to Lend Long

The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30 year mortgage loans, rendering the banks insolvent.  And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt.

According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds.  A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments.  The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.

The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years.  It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time.

The Shadow Banking System Is Still Unregulated

Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933.  But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest.  The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response.  But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008.  The Dodd-Frank banking “reforms” barely touched it.  As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:

In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors.  The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.

When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.

However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.

Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.

We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on.  The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table.  It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.

The Way Out

There is another way to design a banking system.  The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all).  The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work.  Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself.

Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do.  But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money.  Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.

Ellen Brown – Global Research

You have to wonder….

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

You mean like, for example, Nevada deciding to actually treat perjury as the felony that it is, and issue a 606 count indictment (along with materially beefing up laws that criminalize this practice.)

It seems to me that perhaps — just perhaps — banks are coming to the conclusion that recovering something on an improperly-documented loan beats recovering nothing, and the latter is becoming increasingly likely.

The better question however is what sort of title is something who buys such a short sale getting?  Is the chain of title any good and did they actually get marketable title?  If not, and they bought owner’s title insurance, is that insurance able to pay (and is the defect not excluded)?

For homeowners who are dramatically underwater and not paying, however, these sorts of “bribes” do make sense.  Recovery value is going to be dramatically impaired if the person in the house is uncooperative and simply sits and waits for the sheriff to show up.  It’s also often that person’s best move if their credit is already trashed, and if they haven’t paid in a year, it is.

One item I’ve noted in the local area is that banks are stringing along short-sale buyers for months, often allegedly telling them they’ll approve a deal in 60 or 90 days and then when there’s a week or two left they ask for more time — usually another month.  Not only does that prevent the house from becoming part of the “cleaning” in the market it also holds the proposed buyer off the market — they are neither a homeowner or looking for another, conventional deal!

To the extent that we’re actually getting decisions and clearing of the market, even as a small incremental step, this is a positive development — even if the motive of the bank making the offer is questionable at best.