FedUpUSA

Archive for the ‘Mortgages’ Category

You done lefyer fingerprints all over, YOU ARE SO DUMB, You are really DUMB. For Real.   There is a MASTERPIECE of journalism that spells out the particular things that have recently occurred that clearly point to what is about to happen.

You must read this article, because it brings all of the recent  chaos together in once place so you can attempt to get your arms around the catastrophe that approaches on the horizon.

Read it HERE.

I get so tired of the FOX network commentators with their eye-rolling comments about this all blowing over pretty soon, and if only those deadbeats hadn’t bought houses they couldn’t afford…

For all those who are living in a vacuum:

The crisis was caused by herculean fraud perpetrated by wall street executives and their hedge fund co-horts and the big banks.  They cooked up a scheme to leach money from the largest consumer/government supported cash-cow they could think of, which turned out to BE the mortgage market.  There is NO ARGUMENT that a FEW people made poor decisions, even willfully lied to get a bigger loan so that they could have a really nice house, in an act of huge PERSONAL GREED FOR MORE FOR THEMSELVES.  Shame on them, and they should lose their house.

But these decisions, NOT ONE OF THEM, were made with the consideration that, “GEE, this MIGHT destroy my country and even national economy and bring financial armageddon!” Many Wall Street Firms CANNOT SAY THE SAME THING.  Remember this about Wall Street Criminals:

IN FULL AWARENESS OF THE POTENTIAL CATASTROPHIC NATIONAL CONSEQUENCES THEIR ACTIONS WOULD LIKELY CAUSE:

• THEY CAUSED people to take out mortgages they couldn’t afford. They plotted elaborate marketing campaigns to capture people’s trust and to inspire false expectations about what they were able to have for themselves.
• THEY CONVINCED people to take chances they couldn’t take and falsely allayed their fears of financial consequences of these chances by making FALSE CLAIMS about what they were (and WERE NOT) signing themselves up for.
• They reassured people that this was the financially SMART thing to do: “Pay of your credit card debt with a tax-deductible mortgage!!”
• They lobbied congress to pass laws and loopholes to allow them to conduct illegal business without fear of regulators shutting them down.
• They exploited the public trust in our financial regulators in that the loan broker must be telling me the truth, because he would get into BIG TROUBLE if he didn’t! {it sickens me to write this after what happened to me with Paramount Equity Mortgage}

They built a financial HINDENBERG in a great, secret hangar on Wall Street, sucked greedily on the toxic helium teat and dreamed up even bigger profit schemes… and the balloon grew and it grew and it grew… Unconscienable wealth was had by individuals who couldn’t believe their genius at scamming BOTH the US Government AND the American Public.  One of these Executives even said that the only thing they needed to fear was: PUBLIC AWARENESS.

It is now, finally, inevitably, about to explode.

They are starting to cannibalize each other now. They are turning, wild-eyed to the “Judicial System” to protect them after they have thoroughly corrupted it.  They are scattering like roaches beneath the glaring gaze of an ever-more-informed American Consumer who, like a recovering drug addict has realized that they were sold something that was known to be addictive and would destroy them, but would enrich the person selling to them.

They are angry. They want blood, and BLOOD THEY SHALL HAVE.

Wall Street yells: “It will cause an economical meltdown! There will be hardship!”

***HARDSHIP???!***

Have you been paying attention?

We have been enduring hardship and loss for TWO YEARS NOW! We have nothing left to LOSE!

We stand together with our torches and our pitchforks and we are coming for you.  Our voice has to be awfully loud to drown out the BIG GUYS on Wall Street… but eventually, we will drown them out.

Your worst enemy: PUBLIC AWARENESS has arrived, and we have an invitation for you…

Social Apocalypse

All I can say is No, really?

The Federal Housing Agency, which oversees U.S. mortgage giants Fannie Mae and Freddie Mac is preparing to file suit against “more than a dozen” big banks, the New York Times reported..

The suits — which seek billions in compensation — allege that lenders including Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank inaccurately represented the mortgage securities they put together and sold during the housing bubble.

The report sent Asian and European equity markets lower and was weighing on U.S. stock futures. Shares in Deutsche Bank fell more than four percent in Frankfurt, dragging the German DAX 30 index down 2.7 percent, MarketWatch reported.

• Why now?  Specifically, I have repeatedly pointed out that Citifinancial’s former chief risk officer testified under oath before the FCIC that the firm knew in 2006 that the majority of the loans it was packaging up and selling did not meet their own stated quality standards and written evidence of communication of this knowledge (emails) to the upper levels of the organization was presented to the committee.  So why sit on this until the ability to sue is about to expire?  What are the political considerations?
• Who knew yesterday about this and was shorting bank stocks?  They were ridiculously weak yesterday and the fact that Goldman is spinning off Ocwen and similar and had reached a settlement on similar issues with state regulators hardly accounts for the broad, across-the board sell-off in the banking sector.  To go with this series of lawsuits I’d like to see some insider trading ones.

The amount in question – $30 billion according to reports – is not particularly large, when one looks across a dozen banks.  But the precedent may be important.

I have long argued that until and unless the institutions responsible for knowingly selling off bad paper are brought to justice and forced to eat their cooking – that is, absorb the losses due to them for their conduct – we cannot claim that “market discipline” has returned in any meaningful way.  This is a non-trivial problem, because as of today banks, especially in Europe, are running with very thin capital irrespective of their protests that everything is fine.  It is not, as evidenced that there is no mark to the market and if there were they would all be instantly rendered insolvent.  As such they are insolvent whether they wish to admit it or not, as the only value that any asset has is that which someone is willing to pay you.

Pretending otherwise may be politically expedient but it is factually bankrupt.

There has been much digital ink spilled on the Foreclosuregate (or if you prefer, Fraudclosuregate) story over the last couple of years, but one thing has been only touched upon lightly – if at all.

That is the underlying “low-level” fraud that is unspoken in many of these actions.

There’s a general principle under the law when one desires to bring a lawsuit – the principle of injury.  That is, you can’t sue me because you think I’m ugly.  You need to show actual economic damage in order to obtain the relief you seek.  There are many examples where civil courts have reached a conclusion that indeed the facts support the case but there’s been no showing of economic harm and thus the plaintiff gets awarded one penny.

There has been an astounding lack of credulity on this matter of economic injury in these foreclosure suits.  In fact, I’ve yet to see a foreclosure complaint that alleges actual economic injury.

Instead, they all allege it’s cousin, lack of payment.

But lack of payment isn’t necessarily economic injury.

Let’s say that you hit me in your car.  You have insurance and so do I.  My medical treatment costs $20,000, and you’re ruled entirely at fault in the collision.  We’ll assume for the moment I have no “pain and suffering” damages nor lost time at work and thus no lost income – that is, we have a neat and tidy case where the total economic harm is $20,000.  I cannot sue you unless my economic injuries are not paid for through some other means.

If your insurance company pays the medical bill, I no longer have economic harm, thus I cannot win anything in a lawsuit.  Likewise if my insurance company covers the bill (unless it jacks up my insurance rates or somehow otherwise damages me.)  Finally, you might just hand me $20,000, which moots my pending lawsuit immediately as once again, I have no economic harm.

When a mortgage loan is packaged into one of these “securities” and then all sorts of protection and credit enhancement are taken against it, it is no longer a simple matter of saying that because you didn’t pay, there are economic damages in the amount of your lack of payment.  In fact, there may be no economic damage sustained by the entity that is suing you at all!

Take the instance of a “credit default swap.”  Remember that a CDS is not an insurance contract.  That is, it typically will not contain things like a right of subrogation or set-aside (the ability to go after the cause(s) of the payment under the CDS contract or pursue other assets of the defaulter in court) but rather is a pure “payment for event” sort of agreement.  Well, if that CDS payment moots the economic damage, does the alleged foreclosing party still have standing to eject you from your house?

Let’s follow this through an MBS.  For simplicity sake we will assume it is comprised of 1,000 loans.  Let us further presume that 10% of those loans default.

Ok, can you foreclose on those homeowners?

Remember, to be able to sue for a remedy in civil court, you must show economic harm.  A breach without economic harm brings no right of recovery!  Being pissed off is not economic harm, and neither is non-payment unless the party suing you, directly or through an agent, suffers a loss.

Well, in the base case you’d probably say “yes”.  But who can sue?  Normally the PSA delegates this authority to the servicer or their agent.  Again, however, the underlying facts to be pled in a lawsuit that permit recovery must demonstrate economic harm.

The key question: Were the certificate holders economically harmed when all of the payment flows are accurately accounted for?

Well, that does depend now, doesn’t it?  The super-senior holders might not be, because of their credit protection.  More-junior holders might be harmed, but then the question turns on an accounting – was there credit protection bundled with the tranche or did they purchase it individually?  Was their position actually damaged as a consequence of your non-payment?

Hmmmm…. looks like we need an accounting here of the trust and the actual economic harm, right?  This does not mean, by the way, that one must show any particular amount of harm, beyond the general threshold of “materiality”, to sustain a foreclosure.

But what if there is no harm at all because of these credit enhancements and swaps, and in fact foreclosure is actually a double-dip – that is, double recovery?

In that case all such foreclosures are fraudulent.  Not because of a lack of paperwork and not because someone “should” or “should not” get a free house – but simply because the entity bringing the suit not only didn’t suffer a loss, they stand to gain rather than recover a loss through doing so.

Can I ask why we don’t see both pleadings where a securitized loan defaults alleging actual economic harm and an accounting of how that’s arrived at, rather than its surrogate – the allegation that you didn’t pay?

A power play is underway in the foreclosure arena, according to the New York Times.

On the one side is Eric Schneiderman, the New York Attorney General, who is conducting his own investigation into the era of securitizations – the practice of chopping up assets like mortgages and converting them into saleable securities – that led up to the financial crisis of 2007-2008.

On the other side is the Obama administration, the banks, and all the other state attorneys general.

This second camp has cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.

The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.

This is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with cost certainty, so that they know exactly how much they’ll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.

This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would “toward loan modifications and possibly counseling for homeowners,” as Gretchen Morgenson reported the other day.

The banks, however, apparently “balked” at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.

To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.

So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup, will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.

But Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR.

In addition to the global settlement, Schneiderman is also blocking an individual $8.5 billion settlement for Countrywide investors. He has sued to stop that deal, claiming it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses.”

If Schneiderman thinks $8.5 billion is an insufficient, fractional payoff just for defrauded Countrywide investors, then you can imagine how bad a $20 billion settlement for the entire industry would be for the victims.

In that particular Countrywide settlement deal, it looks like Bank of New York Mellon, the New York Fed, Pimco and other players negotiated on behalf of defrauded investors. They told the Times they were happy with the deal, but investors outside the talks told Gretchen they weren’t happy with the settlement.

Schneiderman apparently listened to those voices instead of the Mellon-Fed-BofA crowd, which infuriated the insiders who struck the actual deal. In a remarkable quote given to the Times, Kathryn Wylde, the Fed board member who ostensibly represents the public, said the following about Schneiderman:

It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.

This, again, is coming not from a Bank of America attorney, but from the person on the Fed board who is supposedly representing the public!

This quote leads one to wonder just what Wylde would consider “indefensible,” given that stealing is pretty much the worst thing that a bank can do — and these banks just finished the longest and most orgiastic campaign of stealing in the history of money. Is Wylde waiting for Goldman and Citi to blow up a skyscraper? Dump dioxin into an orphanage? It’s really an incredible quote.

The banks are going to claim that all they’re guilty of is bad paperwork. But while the banks are indeed being investigated for “paperwork” offenses like mass tax evasion (by failing to pay fees associated with mortgage registrations and deed transfers) and mass perjury (a la the “robo-signing” practices), their real crime, the one Schneiderman is interested in, is even more serious.

The issue goes beyond fraudulent paperwork to an intentional, far-reaching theft scheme designed to take junk subprime loans and disguise them as AAA-rated investments. The banks lent money to corrupt companies like Countrywide, who made masses of bad loans and immediately sold them back to the banks.

The banks in turn hid the crappiness of these loans via certain poorly-understood nuances in the securitization process – this is almost certainly where Scheniderman’s investigators are doing their digging – before hawking the resultant securities as AAA-rated gold to fools in places like the Florida state pension fund.

They did this for years, systematically, working hand in hand in a wink-nudge arrangement with clearly criminal enterprises like Countrywide and New Century. The victims were millions of investors worldwide (like the pensioners who saw their funds drop in value) and hundreds of thousands of individual homeowners, who were often sold trick loans and hustled into foreclosure when unexpected rate hikes kicked in.

In a larger sense, even the (often irresponsible) people who simply bought more house than they could afford were victims of this scam. That’s because in many of these cases, credit simply would not have been available to those people had the banks not first discovered a way to raise vast sums of money dumping crap loans on an unsuspecting market.

In other words: if Bank of America hadn’t found a way to sell worthless subprime loans as AAA paper to the Chinese and the Scandavians in May, you can be sure that it wouldn’t be going back to Countrywide in June to lend out more money for more subprime loans.

And Countrywide, in turn, wouldn’t then have been sending masses of reps out into the ghettoes to offer juicy home loans to undocumented immigrants and refis to confused old ladies on social security.

This is as bad as white-collar crime gets. But to Wylde, it doesn’t rise to the level of being “indefensible.” Until they do something worse than this, we apparently should support the banks, and make sure they don’t have to pay more than a fraction of what they made off of this kind of crime.

What is most amazing about Wylde’s quote is the clear implication that even a law enforcement official like Schneiderman should view it as his job to “do everything we can to support” Wall Street. That would be astonishing interpretation of what a prosecutor’s duties are, were it not for the fact that 49 other Attorneys General apparently agree with her.

In Schneiderman we have at least one honest investigator who doesn’t agree, which is to his great credit. But everyone else is on Wylde’s side now. The Times story claims that HUD Secretary Shaun Donovan and various Justice Department officials have been leaning on the New York AG to cave, which tells you that reining in this last rogue cop is now an urgent priority for Barack Obama.

Why? My theory is that the Obama administration is trying to secure its 2012 campaign war chest with this settlement deal. If Barry can make this foreclosure thing go away for the banks, you can bet he’ll win the contributions battle against the Republicans next summer.

Which is good for him, I guess. But it seems to me that it might be time to wonder if is this the most disappointing president we’ve ever had.

Matt Taibbi for Rolling Stone Magazine