Ritholtz: Why foreclosure fraud is so dangerous to property rights

[Winehole23]

a long read, but the con was complex.

here's a deep dive on the bailout of the financial sector that followed the epochal bust of 2008:

https://syntheticassets.wordpress.co...ake-you-angry/

[Winehole23]

what was going on in 2007 and 2008 is that the market was recognizing that the “Non-Agency MBS” in the chart below was going to perform very badly, because it was so full of loans that should never have been made.


In many cases the originators who were theoretically on the hook for the reps and warranties they had made when they sold the loans to Wall Street had been driven into bankruptcy by – you guessed it – claims based on their reps and warranties. The bag they had in theory been holding had most definitely been passed on to someone else, but it wasn’t clear yet to whom. The obvious candidate was the issuers who had packaged these loans – with utterly inadequate due diligence – into securities for investors to buy. The catch was that the issuers were all the big banks: Bank of America, JP Morgan Chase, Citibank, Goldman Sachs, etc.

And we had financial regulators who were like deer in the headlights, transfixed by terror, when they heard that one of the big retail banks might be in danger. These regulators threw themselves headlong into the project of rescuing the big banks from their failure to perform the due diligence necessary to issue mortgage-backed securities according to the terms in their securities do entation. While I suspect that Ben Bernanke never quite wrapped his head around these issues (he had plenty of other things to worry about), it seems fairly clear that Hank Paulson and Timothy Geithner worked consciously to “save the financial system” by hiving loans that should never have been made off onto the Government

[Winehole23]

David Dayen, who wrote "Chain of le", is one of the best commentators on the 2008 financial panic:

What Terrie later found out from her lawsuit is that Wells Fargo had already told the investor in the loan, Fannie Mae, that they would be foreclosing on the house, despite the fact that she was current on the mortgage at the time. The bank conducted four hard credit checks to take Terrie’s credit score down to 660, making her ineligible for alternatives like refinancing. The whole thing was a pretext, using a government mortgage program to trap the borrower and capture the home.


Fannie Mae actually extended a loan modification offer to Terrie, which Wells Fargo never let her see. Instead, Wells Fargo gave her a “special forbearance” agreement, allowing her to freeze payments for a trial period. But Wells Fargo never made the modification permanent, asking her for the skipped mortgage payments after the trial period ended. Terrie pre-emptively sued Wells Fargo in 2011, the bank took her to court for foreclosure, and three attorneys later, she’s still locked in battle.


Terrie has been telling this story for years, and it’s at once unique and totally normal activity during the foreclosure crisis. Rampant fraud plucked homes from millions of borrowers who encountered struggle through no fault of their own and tried to do the right thing.

http://inthesetimes.com/working/entr...rs_anniversary

[boutons_deux]

Is there a solution to Capital's oppressive, extractionary, criminal hold on the USA?

[Winehole23]

Barry Ritholz nets out the biggest misconceptions about the bust:

https://www.bloomberg.com/view/artic...ar-anniversary

[Winehole23]

finger pointed at Tim Geithner:

Failing to hold anyone accountable for causing the Great Recession as the economy struggled to regain its footing generated significant public resentment, from the Tea Party on the right to Occupy Wall Street on the left. The same urgency and ingenuity was simply not adopted to save homeowners drowning in mortgage debt, which weighed down the overall recovery. Obama fired the CEO of GM, but no bank executive suffered for a moment. And people noticed.

The statistics of the era speak to this inequity. In Obama’s first term, the top one percent took more than all of the gains from the economy after the crisis. Meanwhile, at least 9.3 million families lost their homes to foreclosure due to the mortgage meltdown. For many Americans, the financial and psychological damage will be lifelong. But banks weathered the storm well, and this year posted record profits.

Propping up the existing system instead of overhauling it made it easier for Big Finance to pull off its comeback. Geithner’s stress tests are now seen as weak and easily gamed; Summers recently called them “comically absurd.” Banks like Wells Fargo continue tobreak the law with impunity, because virtually nothing is done to them when they get caught. A shocking number of those who wrote the Dodd-Frank financial reform now work for the financial firms succeeding at chipping away at it, including Geithner himself, who now runs a private equity firm that owns a predatory lender.

https://newrepublic.com/article/1511...administration

[Winehole23]

what’s important to understand is that the financial crisis was a full-scale assault on the longstanding social contract linking Americans with the financial system through their house.

The way Geithner orchestrated this was through a two-tiered series of policy choices. During the crisis, everyone needed money from the government, but Geithner offered money to the big guy, and not the little guy. First, he found mechanisms, all of them very technical—and well-reported in Adam Tooze’s new book Crashed—to throw unlimited amounts of credit at ins utions controlled by financial executives in the United States and Europe. (Eric Holder, meanwhile, also de facto granted legal amnesty to executives for possible securities fraud associated with the crisis.) Second, Geithner chose to deny money and credit to the middle class in the midst of a foreclosure crisis. The Obama administration supported this by neutering laws against illegal foreclosures.

The response to the financial crisis was about reorganizing property rights. If you were close to power, you enjoyed unlimited rights and no responsibilities, and if you were far from power, you got screwed.

https://www.vice.com/en_us/article/gynbw9/the-bailouts-for-the-rich-are-why-america-is-so-screwed-right-now

[Winehole23]

crimes were committed:

1. Prosecutors were terrified: I have said this before, but it is worth repeating:

“The greatest innovation of the financial sector is not the ATM machine or interest-bearing checking accounts or securitization: It was convincing the powers that be that prosecuting them for their actual crimes would bring the economy to the edge of the abyss.”

During the crisis and its immediate aftermath, the idea that enforcing the law would somehow have an economic impact scared the living out of Department of Justice prosecutors, local U.S. Attorneys, and even State Attorneys General. Prosecute the banks and/or their executives, went the claim, and the entire system would crash again – and right after we spent all that money bailing them out!


But you know what? That decision is not the jurisdiction of Prosecutors. It is nottheir jobs to pass judgment about potential economic impacts indictments might have. They lack the expertise to asses and analyze that — and, as it turned out, so did the people making those claims. But they successfully bamboozled the prosecutors into ignoring their oaths of office. The proper job of prosecuting attorneys is to identify and prosecute crimes, not play macro-tourist in the field of crisis-economics.

While I was researching and writing Bailout Nation, it was apparent to me that there was abundant AND systemic criminality7 across four broad categories:

Mortgage underwriting: There were obvious crimes committed in mortgage underwriting, where defects were knowingly ignored. The FBI investigated these cases early on, but investigators never moved forward with prosecutions.
Perhaps the scale of the financial penalties bank agreed to pay had something to do with this inaction. Keefe, Bruyette and Woods, tallied the financial-crisis related regulatory penalties — the total was a “staggering $243 billion.”


Accounting fraud: We could spend months discussing how some executives at banks cooked their books, but look no further then Lehman Brother’s infamous Repo 105. That was a textbook example of defrauding the investing public by hiding the conditions of your insolvency.


Insider Trading: Take a close look at insider stock sales during the period right before the crisis. Sure seems like a lot of selling an a hurry . . . I wonder why?
David DeBoskey, a San Diego State University professor of Accountancy (and a KPMG Faculty Fellow), found total compensation for top executives at just 4 of the firms that collapsed – Lehman, AIG, Fannie Mae and Freddie Mac – was in excess of $1.4 billion dollars from 2003 to 2007.8 That much stock being sold before share prices collapsed was apparently a mere coincidence.9

Foreclosure fraud: There was a huge paper train showing fabricated do ents, falsified paperwork, and other perjury. Of all the crimes committed duri
ng the financial crisis and in its aftermath, this is one that should have been the easiest to identify and prosecute.

http://ritholtz.com/2018/09/crimes-were-committed/

[Winehole23]

Bank CEO Compensation, Pre Crisis

[Winehole23]

I miss coyotes_geek

Yep. Just get what money you can out of the banks as fast as you can and dispense it to as many people......errr....voters as you can.

It's a settlement for illegally forclosing on people. Yet the people who actually got illegally foreclosed on only get a $2,000 check and a bunch of people who were not illegally foreclosed on get principal writedowns and refi's? Looks to me like the deal is to write down mortgages at the expense of people who were illegally foreclosed on.

[Winehole23]

Michael Hudson squarely blames Obama for the failure of the economy to recover (for the 90%) after 2008:

President Obama doublecrossed his voters and said, I’m not representing you, I’m representing my donors. He invited the bankers to the White House and said, don’t worry, folks, I’m the only guy standing between you and the mob with pitchforks. Just like Hillary called Donald Trump supporters “deplorables,” he called his supporters the mob with pitchforks. And he stuck it to them.

In my book Killing the Host you have Barney Frank saying that he got the agreement of Secretary of the Treasury Hank Paulson to write down the mortgages to realistic charges: namely, number one, what the mortgage borrowers could afford out of their income, and number two, the carrying charge of the mortgage would be the going rent rate, which is what mortgages historically have tended to approximate.


Obama said, no, I’m representing the bankers, not the debtors. He appointed bank lobbyists such as Tim Geithner as Secretary of the Treasury. Obama basically followed everything that President Clinton’s Secretary of the Treasury Rubin recommended to him. He was handed a list of the people that Wall Street wanted to appoint. And then he washed his hands of it. Instead of doing what normally happens in a crisis – writing down the debts, and writing off the bad savings and the bad loans as a counterpart to the debts, and taking over the insolvent banks – he kept the bad debts on the books.

https://www.nakedcapitalism.com/2018...y-recover.html

[Winehole23]

There was a big argument in the administration. Surprisingly enough, the good guys were the Republicans in this. Sheila Bair was a Republican from the Midwest, and she said, look, Citibank is not only insolvent, it’s a basically a financial fraud organization. We should take it over. It doesn’t have any money. But Obama said, wait a minute, Geithner is a protege of Rubin, and he’s become head of Citigroup. We’ve got to bail out Citigroup. So what Obama did was take the banks that have been the most fraudulent, that have paid the largest amount of civil fines for financial fraud, and said, these are the banks we want to be the leaders. We’re going to make them the biggest banks, and we’re going to make them stronger. And we’re not going to forgive any loans. We’re going to leave the loans in place, unlike what’s happened for the last few hundred years and crashes.

So this crash of 2008 was not a crash of the banks. The banks were bailed out. The economy was left with all the junk mortgages in place, all the fraudulent debts. Then, to further help the banks recover, the Federal Reserve came in and pushed quan ative easing, lowering the interest rates so much that banks could make the widest profit they ever made in history – the margin between the lending rate on mortgages, 5-6 percent; student loans, 9 percent; credit card loans, 11-29 percent; and the banks’ borrowing charge, which is 0.1 percent. The banks became enormous profit centers, leading the stock market gains.

[Winehole23]

Quan ative easing occurs when the Federal Reserve spent $4.3 trillion on buying the bad debts and the bank assets and creating bank reserves. Essentially it’s like printing money. You’ve heard the phrase ‘money-dropping helicopters.’ But the helicopters only fly over Wall Street. So the Federal Reserve created $4.3 billion on the accounts of the banks, and let the banks get through the fact that they’d made recklessly bad loans and suffered reckless losses. Sheila Bair, in her autobiography, wrote about how Citibank was the most mismanaged bank in America. Not quite as fraudulent as Countrywide or Bank of America, but simply incompetent by making bad gambles under Prince, who ran the thing. They were bailed out and then subsidized. The larger the fines for fraud, the more subsidy they got and the bigger they grew. Crime pays.

[Winehole23]

what Hudson is talking about here isn't so radical. it's essentially how we dealt with the S&L crisis in the 1990s

The federal government could have bought the junk mortgage loans in default for maybe a quarter of the value. Let’s say 25 percent, $25,000 for a $100,000 junk mortgage. This is essentially what Blackstone Realty did, and what private equity people did, buying foreclosed properties. The government could have bought from the banks their bad loans. And instead of foreclosing, they’d write down the loans to the realistic market price that the market was pricing the property and the loans at. The inflated housing prices would have been recalculated at the market rate. There would be a lower mortgage, there would be lower interest rates and no penalty payments.


This $4.3 trillion could have spurred an enormous takeoff. It could have left the 9 million families that were evicted in place. It could have kept the housing prices low for the country. It could have kept the purchasing power of homeowners available to be spending on goods and services. And the economy would have recovered instead of stagnating. That wasn’t done because the financial sector was running the Democratic Party’s policy and politics, not the voters.

[Winehole23]

what was rescued was the volume of debt, instead of writing it down like you did in the 1930s.


So essentially we’re not in a recovery at all. We can’t get into recovery until you write down the debt. Otherwise you’re going to have the economy looking like Greece. You’re going to have austerity. Basically we’re on an austerity budget now, not so much because of tax policy but because of the debt overhead that is owed to the banks and other major creditors.

[Winehole23]

this is a pretty good nuts of predatory capitalism:

Debt grows exponentially. The interest charges grow year after year. If you have a savings account you can see it mount up, like if you have a retirement account you’ve seen the stocks go up. If you have it in bonds you see those go up. But the economy doesn’t go up anywhere near as much as the stock market. That means that the financial sector and the debt volume grows much faster than the economy can grow. So people – the economy, families – have to spend more and more of their money every month on their mortgage debt for housing, on their credit card debt, on their student loan debt, on their automobile debt, and also in health insurance. They have less and less money to spend on goods and services.


So the starting point should be how are we going to bring the debt payments back in line so that the economy has room to grow? The only way to do this in any society is by writing down debt. Germany did that in 1948 with its economic miracle. They wrote down nearly all the domestic debt. Normally the function of a crisis like the Great Depression is to wipe out the bad debts. But when you wipe out the debts, you wipe out the savings, mainly of the One Percent. And the question is, who is the government going to make its policy for? The one percent of creditors, or the 99 Percent that the One Percent holds in debt?


Well, obviously the One Percent is the donor class, and they’re writing the laws. The result of their leaving this debt in place is a rising debt-income ratio. That is, the proportion of corporate earnings that has to pay for debt service has been soaring because corporate raiders have gone to the banks, borrowed money and taken over corporations. Instead of using the corporate earnings to invest in more equipment, they’ve bought their own stock by stock buybacks that push up stock prices instead of investing.


So the financial management philosophy that we have is diametrically opposed to what’s needed for economic growth. That should be what people are talking about, because more and more economists are warning that given the rising debt ratios, there’s going to be another crisis. What we should be talking about when we look back on the anniversary of Lehman’s bankruptcy is how to handle the next crisis in a way that doesn’t bail out banks, that bails out the economy by writing down the debts.


If banks have bad debts, they’ve made bad loans. Banks used to be conservative and prudent. But if they make imprudent loans and they say, we don’t care the borrower can’t pay because we’ve sold the whole loan off to a pension fund or a German Landesbank, and somebody else is going to take the loss, you have to restructure the banking system and the financial management, and take it out of the hands of bankers to manage.


If you leave the Treasury Department and the Justice Department and the bank regulators in the hands of bankers, they’re going to loot the rest of the economy. They’re going to take everything they can. So you want someone who’s not a banker to actually do the regulation.


But how are you going to get such a group? Well, you have people like Paul Krugman who came out on the anniversary saying, debt is not the problem. He that the people are all wrong, they’re nutty to believe that debt’s the problem. All we need to do is run a bigger budget deficit, so that we can spend money into the economy to make it grow enough so that the home owners and workers will have enough extra money to be able to pay this exponentially growing debt. In other words, the whole economy should be run in order to enable it to pay off debt that it’s run up.


This is crazy. The economy should be run to help people’s living standards, not to help the bankers and the one percent who own the banks, the bondholders.

[DMC]

I know someone who went for a home loan on a new house. They didn't qualify under normal conditions, because their debt to income ratio was too high. However the builder offered to put 10K into the bank account of the buyer and jack the price up 10K, then ask for 10K as a down payment. The buyer wouldn't have had the money on record to pay the increased down payment required to overcome the debt to income ratio issue. In order for this to work, the money would have to go through another account and be transferred by someone other than the builder. The builder said they do this all the time with the banks to qualify people for loans.

This kind of shady happens everywhere from car dealers to home builders. Even Wells Fargo creates fake accounts to meet stupid quotas and bonus goals that rarely if ever take into account the long term effect. Car dealers don't get penalized if someone defaults on their loan because creative jargon and paperwork qualified them. Same with student loans for people who are taking classes that don't equate to marketable skills, or people who are dating buying homes with joint income totals as if they are roommates. It's the USA. Everyone "deserves" a standard level of living, and that standard includes owning a home, 2 cars and taking vacations to places they cannot afford...oh and having 2 or 3 kids as well as a bunch of dogs. If you don't allow them to have this, you're an elitist and you're the problem.

[Winehole23]

recurring to the topical emphasis, if shareholders or bondholders had had to pay for all the crappy loans, there'd be a rational basis now not to do it again.

instead of letting irresponsible lenders crap out, the USG saved them then and implicitly backstops them now.

so then, the rational calculation based on self-interest is to repeat the cycle.

[Winehole23]

Adam Tooze and Qunin Slobodian reviewed here:

https://bookforum.com/inprint/025_03/20170

[Winehole23]

In an unprecedented and underappreciated move that Crashed sheds important light on, in the months after the 2008 crisis the Federal Reserve essentially turned itself into the lender of last resort not just to American banks, but to almost the entire global banking system. This lending spree meant virtually every European country was reliant on the fire hose of American-issued money. “The foundation of the global dollar was the private banking and financial market network, materialized in the Wall Street–City of London nexus,” Tooze writes. If the US was the one making these new rules, it found plenty of desperate adherents in the private sector who did not think to complain. “This was a cocreation of American and European finance, deliberately erected beyond state control.”

Despite the perception that neoliberal ideologies are about restraint and austerity, when the system was under siege “we lived in an age not of limited but of big government . . . of interventionism that had more in common with military operations or emergency medicine than with law-bound governance.” What the financial industry demanded “was the mobilization of all of the resources of the state to save society’s financial infrastructure from a threat of systemic implosion.” The result of this mobilization was bailing out banks and letting ordinary people suffer. Freedom was never free. It came explicitly at the expense of justice. Just as Slobodian’s neoliberal economists had imagined, there was no friction between the state and the global financial order—only complicity from the top down and the bottom up.

[Winehole23]

Michael Hudson squarely blames Obama for the failure of the economy to recover (for the 90%) after 2008:

Adam Tooze points out that the USA is still recovering from two recessions:

[boutons_deux]

When establishment Dems like "progressive" Obama (or it could have been Hillary, equally) prioritize the oligarchy/BigFinance over citizens, then all y'all should admit that

America is ed and un able.

"both sides" are pro-oligarchy, with Dems making head feints like ACA.

I don't expect Dem Congress, esp under millionaire Pelosi, even try to do anything progressive (they would be blocked anyway by the Repug Senate)

[boutons_deux]

Repeated errors cost hundreds of people their homes—now Wells Fargo wants to buy their silence

A class-action lawsuit alleges that Wells Fargo screwed up the same exact way almost 900 times, costing over 500 people their homes.

As with most of Wells Fargo’s previous “errors” that caused widespread devastation,

the horse-and-wagon bank has made an insufficient attempt to make good with its victims by pleading ignorance and

throwing not nearly enough money at the problems it created.

Wells Fargo says an internal review found the bank denied help to hundreds of homeowners after fees charged by foreclosure attorneys were improperly used when the bank determined whom to offer mortgage help.

The computer error began in 2010 and was not corrected until last April, the bank said.


Overall, 870 homeowners were denied help for which they qualified, including 545 who lost their homes to foreclosure.

Wells Fargo says it has reached most of the customers affected and set aside $8 million to compensate them, though industry analysts say that number is likely to increase.

In the race to the bottom for Worst Major Bank In America, Wells Fargo has long been a frontrunner.

The nation’s fourth largest bank, founded in 1852 by the same fellas who brought the world American Express, appears to be made of rubber and corruption (and a seemingly endless well of money set aside for punitive fines). How else can NRA-preferred Wells Fargo continue to bounce back

after being caught in scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal
after scandal?

How, exactly, does an evil bank make good with someone like Michaela Christian, who bought her Las Vegas home in 1998, at age 24, only to lose it in 2013, after the economy crashed and she was devastated by a brutal car accident?

When the bank refused to modify her mortgage, Christian moved in with a friend and scrambled to rebuild her life.

Five years later, Wells Fargo admits it made a mistake. Christian, 46, qualified for the kind of mortgage help that may have saved her home after all.

Christian tells the Los Angeles Times that she first found out about the “error” when she received a letter from Wells Fargo in September, along with a $15,000 payoff.

Christian estimates she had about $30,000 in equity in her then-home, on top of a $20,000 pool she’d installed.

She narrowly escaped foreclosure by selling her house for $135,000 in 2013.

Just five years later, the house is estimated to be worth a quarter of a million.

https://www.dailykos.com/stories/1823002

[Winehole23]

hard to avoid the conclusion that ripping customers off is the business model.

[Winehole23]

Taibbi guts Glenn Kessler's WaPo fact check on the financial sector bailout, but first his recap:

“The Fed is not a Federal Agency” he writes, and insists its bailout facilities made profits and were a social necessity. For instance, he says, they unfroze the commercial paper market, which was “essential for meeting liabilities such as workers’ payroll.” Had the Fed not acted, he says, “the U.S. economy would have ground to a halt.”

This is basically the history of the bailouts as written in self-congratulatory tomes like Ben Bernanke’s The Courage To Act (revised, probably, from My Courage To Act) and Timothy Geithner’s Stress Test. It’s Wall Street’s one-sentence summary of the bailouts: they weren’t that big, but if they were, they were necessary, and made a profit, and even though they made us rich again, they were done for you, the ordinary person!

https://www.rollingstone.com/politic...ailout-809731/