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  1. #1
    dangerous floater Winehole23's Avatar
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    Why Foreclosure Fraud Is So Dangerous to Property Rights



    By Barry Ritholtz - October 12th, 2010, 8:00AM



    There seems to be a misunderstanding as to why the rampant and systemic foreclosure fraud is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the WSJ Editorial Board) excusing horrific conduct by the banks. Others are excusing endemic property right destruction out of genuine ignorance.


    This morning, I want to explain exactly why this RE fraud is so dangerous, and explain the significance of the rights that are currently being trampled. I also want to demonstrate that the only way the nation could have the quan y and magnitude of errors we see is by willful, systemic fraud.
    Perhaps this commentary will allow for a more intelligent debate of this issue, and focus on what can be done to fix the problems, rather than the blind parroting of talking points.
    ~~~
    The process of purchasing a home in America culminates with an event called “the Closing.” It is an hour plus long contract signing that ensures the buyer is legitimately taking le, possession and legal ownership of a unique parcel of land and any structures upon it. The process gives any buyer specific rights to that property that cannot be abrogated under the laws of the United States.


    At the closing, buyers sign and initial numerous do ents. The goal is to accomplish the following:
    1) Papers are signed that will be filed with the County Clerk (or appropriate officer) along with recording fees, for the official transfer of le from the prior owner to the new owner. The enabling purchase loan (i.e., mortgage note) is also filed with the Clerk.
    2) The buyer receives le (ownership) of the land;
    3) The mortgage lender establishes a new interest in that property contingent upon their mortgage note;
    4) All other claims, liens, tax obligations and prior mortgages, home equity lines or second notes are satisfied and extinguished before le passes to the new owner.
    5) Third party claims of any interest in that property superior to the buyer are eliminated;
    6) le Insurance is purchased and issued so the buyer has a recourse in case of defects in ownership occurs.
    Every step of the process is designed to protect the property rights of all parties. The result is more than a mere transaction selling property from one party to another; rather, this has created a system where ownership interests are clearly defined; where le history can be reviewed going back decades and centuries. There is a certainty to the purchasers of this property against all future claims.


    Everything about this process has been created to make sure the transfer goes off perfectly. In a nation of laws, contract and property rights, there is no room for errors. Indeed, even small technical flaws can be repaired via a process called “perfecting le.”


    As we noted previously, esteemed economists such as Hernando de Soto have identified that the respect for le, proper do entation, contract law and private property rights are the underlying reason capitalism works in Western nations, but seems to flounder elsewhere.


    We cannot have free market capitalism without this process. So what does it mean if banks have been systemically, fraudulently and illegally undermining this process?

    ~~~
    The closing process described above took place with all parties participating voluntarily. The buyer wants the house, the seller wants the transaction, the financing bank wants to make the mortgage loan.


    What happens during a proper foreclosure? The prior closing is essentially reversed, only its done involuntarily. The process requires another RE closing, only this time, the Note holder is exercising their right to repossess the house if the borrower has failed to uphold the terms of the mortgage note. It typically states that if a borrower fails to make the requisite payments, they become delinquent. After an extended period of delinquency, they go into default. That allows the note holder to exercise their rights to foreclose on the property, and take le and possession.


    The same care and attention to detail that occurred during the initial closing must also occur in the foreclosure process. All of the steps noted in our initial closing must occur here also. But since it is an involuntary process for the (soon-to-be former) property owner, extra care must be taken to make sure that property rights are being maintained and respected. The entire process is, if anything, is even more rigorous.
    The law does not tolerate any errors in this process. What does the foreclosure process legally require? It varies by state and mortgage note, but the following is a good outline:
    1) Notice of Delinquency is sent to a borrower who has fallen behind his payment schedule;


    2) Notice of Default is sent to a delinquent borrower who has missed the requisite number of mortgage payments;


    3) Notice of Foreclosure is sent to the defaulted borrower, and the process begins;


    4) Affadavit by the bank’s representative are signed attesting to: Ownership of the note, who the borrower is, the property in question, the date of last mortgage payment, amount of delinquency, tax escrow owed, other payments (such as homeowners insurance);


    5) Notarized do ents: A Notary Public affirms that the affidavit was actually signed by the signatory, and this allows it to be entered into the court as do entary evidence;


    6A) Notice of Pendency (Lis Pendens) is filed with the County Clerk putting the world on notice as to the foreclosure action;


    6B) Summons and Complaint are prepared by bank attorneys, who further verify the specific information attested to by the bank executives. The attorneys then file the Complaint, commencing the Foreclosure Action;


    7) Service of Process is filed, either hand delivered to the home owner, or nailed to the door of the home;


    8) Referee is Appointed to review and process the case; calculate the amount owed, and report back to the Court; The Referees report is also notarized;


    9) Judgment of Foreclosure is moved for by Note holder;


    10) Court orders the property auctioned. The court specifies a notice of the auction, publicizing the property auction;


    11) Bidders must Close on the auctioned house in 30-90 days; In the event of no sale, the bank takes possession (REO);
    The fraud that has come to light are primarily occurring in steps 4, 5, 6 and 7. The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).


    It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.


    This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).


    The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent do ents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).


    Law firms preparing the legal do ents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).


    Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).


    There are multiple failsafes and checkpoints along the way to insure that this system has zero errors. Indeed, one can argue that the entire system of property rights and contract law has been established over the past two centuries to ensure that this process is error free. There are multiple checks, fail-safes, rechecks, verifications, affirmations, reviews, and attestations that make sure the process does not fail.


    It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.


    And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.


    That it is being done for expediency and to save a few dollars on the process is why the full criminal prosecution must occur.


    ~~~
    The approach of most Western nations to property is an important legacy. In the United States, it has been enshrined in the Cons ution. Even the rare exercise by the State to take private property during Eminent Domain requires an extensive and proper process. The Fifth Amendment to the US Cons ution guarantees that no “private property be taken for public use, without just compensation.” The Supreme Court has detailed the process required for the State to seize any citizen’s private property without the owner’s consent.


    There is simply no reason we should tolerate unlawful property seizure merely when it is done by banks. They are not the State, not the King, and not above the law.

  2. #2
    Cogito Ergo Sum LnGrrrR's Avatar
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    The author seems to have gotten most of this right on the money. As I've said before, the financial industry seems to have been infiltrated by morons and crooks. One guy starts betting on CDS's, and greedy firms decided they need to make as many profits as the other guy, so they all start using CDS, chopping them up, etc etc.

    Is it really that much of a surprise when we found out that bank attorneys are cutting corners in other areas? These are the exact areas where we shouldn't deregulate, where deregulation means that hundreds or thousands of people can be foreclosed upon incorrectly and are forced to sue for their own homes, because banks are just trying to cut corners to make some extra cash.

    The fact that Dems and Repubs are willing to help out the financial industry is ing amazing.

  3. #3
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    Too Big To Fail

    Too Big To Jail

    Too Numerous to Prosecute

    This is how banks roll, forever. Lend money with tiny reserves, often at usurious rates, cause a financial crisis, grab the property and collateral (hard capital) paying little or nothing.

    This is just like the BP blowout. There wasn't a single point of failure checked by others working points in the chain, but a willful and/or negligent cheap-skate/corner-cutting SYSTEM of failures/frauds.

    America is ed. The VRWC/capitalist coup d'etat est un fait accompli, enabled and pushed by the Repugs, as the less, equally corrupted Dems stood by.

    The diseased, lard-assed, celebrity-ogling, reality TV watching Americans are passive dumb s.

    There's been a few good articles how the passive, bad-ass Americans take getting buggered by the ruling/capitalist class by shrugging their shoulders and bending over grabbing their ankles, while millions of cheese-eating surrender monkeys are demonstrating all over France.

    ============

    In the Great American Tradition, CRIME PAYS:

    About three dozen of the top publicly held securities and investment-services firms—which include banks, investment banks, hedge funds, money-management firms and securities exchanges—are set to pay $144 billion in compensation and benefits this year, a 4% increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms[...]

    Overall, Wall Street is expected to pay 32.1% of its revenue to employees, the same as last year, but below the 36% in 2007. Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis. But the estimated 2010 profit of $61.3 billion for the firms surveyed still falls about 20% short from the record $82 billion in 2006. Over that same period, compensation across the firms in the survey increased 23%.

    http://thinkprogress.org/2010/10/12/...-compensation/

  4. #4
    🏆🏆🏆🏆🏆 ElNono's Avatar
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    The author seems to have gotten most of this right on the money. As I've said before, the financial industry seems to have been infiltrated by morons and crooks. One guy starts betting on CDS's, and greedy firms decided they need to make as many profits as the other guy, so they all start using CDS, chopping them up, etc etc.

    Is it really that much of a surprise when we found out that bank attorneys are cutting corners in other areas? These are the exact areas where we shouldn't deregulate, where deregulation means that hundreds or thousands of people can be foreclosed upon incorrectly and are forced to sue for their own homes, because banks are just trying to cut corners to make some extra cash.

    The fact that Dems and Repubs are willing to help out the financial industry is ing amazing.
    They're certainly not morons, and it's a lot easier to be a crook when you're hiding behind the structure of a corporation.

  5. #5
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    "morons and crooks"

    Are you fricking kidding me?

    The financial sector seduces with signinng bonuses and high salaries, the best and brightest of the top schools, across all disciplines, America's Got Talent. No morons need apply.

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    And the chicken /Wall St-owned White House can't even see, even with investment banker Rahm Emmanuel gone and Wall ST financed Summers on the way out, the huge electoral advantage they would gain with a foreclosure moratorium now, until (for many months, even not years), the foreclosure fraud was stopped, sorted out, and prosecuted.

  7. #7
    Mr. John Wayne CosmicCowboy's Avatar
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    And the chicken /Wall St-owned White House can't even see, even with investment banker Rahm Emmanuel gone and Wall ST financed Summers on the way out, the huge electoral advantage they would gain with a foreclosure moratorium now, until (for many months, even not years), the foreclosure fraud was stopped, sorted out, and prosecuted.
    You are kidding, right? Wall Street and Goldman Sachs in particular OWNS Obama.

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    Did I indicate anything differently?

  9. #9
    Cogito Ergo Sum LnGrrrR's Avatar
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    They're certainly not morons, and it's a lot easier to be a crook when you're hiding behind the structure of a corporation.
    I'd say the people who ended up taking the fall were morons, anyone who got away with it were criminal masterminds.

  10. #10
    🏆🏆🏆🏆🏆 ElNono's Avatar
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    I'd say the people who ended up taking the fall were morons, anyone who got away with it were criminal masterminds.
    Who took the fall? All I hear is that the process has been suspended and politicos talking how it was 'just a mistake'. That's why articles like the one above are being written.

    The most I expect of this is banks stopping the practice, and going to do things by the book. But I wouldn't bet that they're not going to wait a year or two and go back at it.

  11. #11
    I am that guy RandomGuy's Avatar
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    Who took the fall? All I hear is that the process has been suspended and politicos talking how it was 'just a mistake'. That's why articles like the one above are being written.

    The most I expect of this is banks stopping the practice, and going to do things by the book. But I wouldn't bet that they're not going to wait a year or two and go back at it.
    The banks are going to be stuck with MUCH higher realized losses because of this.

    I will dig up some articles on it, but it is looking more and more as if some portion of the promissary notes that should have been passed around actually got shredded, because it was too bersome to deal with (gasp) real paperwork.

    If that is the case, you will start to see people challenging their mortgages.

    "produce the note".

    You want of your bank? Ask them to do this. If they can't, stop paying them, and see what ultimately happens.

    If they can't provide the piece of paper you signed saying you will pay the mortgage lender (and their successors as the loan is passed around like a cheap between sailors on shore leave), then they can't prove in a court that they have the legal standing to evict you.

    I am not sure what the ultimate procedure for clearing a lien on a property le is, but if the bank can't then prove it has a lien when you take them to court, that' is that. You then have a free le to your house.

    You can remove any lien on a property by challenging the underlying claim that created the lien.

    Normally when you buy a house, the lender files with the appropriate governmental body (county where property is located in Texas, if memory serves) a lien that must be cleared upon sale, if you want to find out.

  12. #12
    dangerous floater Winehole23's Avatar
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    The really scary thing is all he investors lining up for their piece, after the robo-signing issue is settled. The related derivatives were considerable, and a lot of em were rated AAA.

  13. #13
    dangerous floater Winehole23's Avatar
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    There's a few people feel they were misled and will say so in court.

  14. #14
    I am that guy RandomGuy's Avatar
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    The really scary thing is all he investors lining up for their piece, after the robo-signing issue is settled. The related derivatives were considerable, and a lot of em were rated AAA.
    Eyup.

    That is one of the reasons that I think this will get ugly for the banks.

    If as much of the paperwork is ed up as it appears to be, that gives investors who lost money when these toxic assets tanked cause to recover money from the banks who packaged the loans and sold them as bonds.

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    Jamie Dimon is whining that there'd be NO PROBLEM if the homeowners were paid up, and that they are 100% responsible for the mess.

    The paper work problems are merely procedural. HE LIES, they're criminal fraud.

    Expect the Repugs to try to exonerate retroactively the Wall St's crimes, like they retroactively exonerated the telcos for illegal spying.

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    W4A1 143 43CK? Nbadan's Avatar
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    dangerous floater Winehole23's Avatar
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    dangerous floater Winehole23's Avatar
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  19. #19
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    This way too long for right-wingers, but the you other three people:

    Bank of America Mortgage Settlement Fiasco

    In fact, the settlement has functioned more as loss mitigation for BofA and investors in mortgage-backed securities than as recompense for victims of predatory lending, says Alan White, an associate professor of law at Valparaiso University and an expert on the subprime crisis. "You are not actually asking [Bank of America] to give up money," says White, who frequently testifies before Congress on mortgage issues. "You are asking them to do something that will make them more money or mitigate their losses. It is a weird way to have somebody pay for past misconduct."

    "The state attorneys general have done far more than anyone else, and they were under tremendous pressure not to act," says William Black, an associate professor of economics and law at the University of Missouri, Kansas City, and a federal fraud investigator during the savings and loan scandal. "That said, the settlement does not go to the basic problem, which was fraud by Countrywide."

    The lawsuits described a vast "conspiracy" in which Countrywide provided financial incentives to large networks of brokers in exchange for their duping borrowers into taking out toxic loans. In violation of state law, brokers concealed or misrepresented the steep monthly payment increases borrowers faced when mortgage rates readjusted a year or two down the road.

    ( "Honesty from corporations is privilege, not a right" -- WC

    and

    "Individuals deserve to be defrauded by corps if they can't spot it" )

    the scam worked. Countrywide grew from originating $62 billion in loans in 2000 to more than $463 billion in 2006, while the lender's securities trading volume more than quintupled, from $647 billion in 2000 to $3.8 trillion in 2006. The company's CEO, the flashily dressed and perma-tanned Angelo Mozilo, became one of the highest-paid executives in the nation, with an influence on markets approaching that of Alan Greenspan.

    By the end of 2007, according to Countrywide's own estimates, a staggering 27 percent of the lender's subprime loans were delinquent.

    public employee pension funds that invested heavily, and disastrously, in Countrywide's mortgage-backed securities.

    Only about 12 percent of the first-lien loans initiated by Countrywide remain on BofA's books. Investors in mortgage-backed securities, including major pension funds like CalPERS (the California Public Employees' Retirement System), own the other 88 percent, and it is these investors who will bear most of the expense of complying with the settlement, in the form of permanently reduced principal and interest payments on their bond holdings.

    etc, etc, etc

    "BofA press release. "Our ongoing assessment shows the basis for our past foreclosure decisions is accurate. We continue to serve the interests of our customers, investors and communities. Providing solutions for distressed homeowners remains our primary focus." "

    aka "fraudulent corporate bull "

    http://readersupportednews.org/off-s...ca-isnt-saying

    ===========

    So let's all give the supposedly empty and bankrupt Social Security fund to Wall St. Wall St always pays off big to public pension funds.

    And let's not regulate Wall St or any corporation. They're completely and effectively self-regulating, self-policing and completely trustworthy.

    And of course, Countrywide was a Bad Apple, a Rogue Operator. The rest of the financial sector is sweet-smellingly, virginally pure, and scrupulously honest.
    Last edited by boutons_deux; 10-20-2010 at 05:28 AM.

  20. #20
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    a new financial euphemism to learn: PUT-BACK

    Citi Could Face A $22 Billion Loss On Put-Back Mortgage Bonds

    So how large is Citigroup’s exposure? Using some figures from Citi’s earning’s presentation and financial analyst Bove, I’ve concluded that as much as $58 billion in bubble-era home loans packaged in mortgage backed securities serviced by Citi have or will likely default. Citi may be liable for buying back as much as $35 billion of the loans. After recovering some of that through foreclosure sales, Citi may be looking at a loss of $22 billion.

    http://www.cnbc.com/id/39737924

    ======

    Freddie and Fannie could destroy all the big banks and lenders by demanding put-backs for all the toxic mortgages F&F were defrauded with.

  21. #21
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    A CNBC financial sector cheerleader:

    Sorry Folks, The Put-Back Apocalypse Ain't Gonna Happen

    Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.

    There’s a big difference between the financial crisis of 2008 and the new crisis. In 2008, banks were destabilized by the growing realization that they were over-exposed to the real estate market. Huge portions of their balance sheets were committed to mortgage-linked investments that were no longer generating the expected revenues or producing losses. That was a problem of economics that could only be solved by recapitalizing banks or letting some of the biggest banks in the U.S. fail.

    The put-back crisis is not driven by economics. It is driven by legal rights. And there’s simply zero probability that the politicians in Washington are going to let Bank of America or Citigroup or JP Morgan Chase fail because of a legal issue.

    http://www.cnbc.com/id/39686897
    Last edited by boutons_deux; 10-20-2010 at 05:44 AM.

  22. #22
    🏆🏆🏆🏆🏆 ElNono's Avatar
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    Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.
    Completely agree this is what we're looking at. There will probably be a few cases settled, then legislation will pass that will 'loosen up' the requirements outlined in OP under the guise of more 'flexibility' while eroding property rights in the process.
    It's simply a better investment for the bank to spend on lobbying to legalize the practice than simply writing-down the loses, and losing what I would think they consider an 'important tool' in their toolbox. They're already freaking out after losing the credit card penalties and rate hikes, I don't think they're going to be the loser on this one.

  23. #23
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    Foreclosuregate Fallout: How Bad Can It Get For Wall Street?

    URL to article: http://blogs.alternet.org/speakeasy/...paign=alternet

    Foreclosure fraud is ruffling a lot of feathers on Wall Street, and while the full scope of losses remains unclear, even major banks are now acknowledging that this is a multi-billion-dollar disaster, not just a set of minor paperwork headaches.

    So how bad will it get for Wall Street? There are several disaster scenarios in which the housing market simply shuts down, where the potential losses for Wall Street are simply incalculable. But even situations that do not directly rip apart the basic functioning of the mortgage system could be enough to shut down one or more big banks, creating serious trouble for the financial system, and a major test of the recent Wall Street reform bill.

    JPMorgan Chase loves using its research department to push its political agenda, and the bank is currently characterizing the foreclosure fraud outbreak as a set of “process-oriented problems that can be fixed.” That makes them the rosy optimists for this crisis, and they’re projecting a total of $55 billion to $120 billion in losses for the entire industry, spread out over a few years.

    But take a look at the analysts’ methodology. The actual scope of losses gets drastically larger if you just change a few arbitrary assumptions.

    JPMorgan’s analysts look at about $6 trillion in mortgages issued between 2005 and 2007—this is the height of the bubble, but it excludes plenty of lousy loans issued in 2003, 2004 and 2008. They then estimate defaults of $2 trillion and losses of $1.1 trillion on those defaults.

    So far, these estimates are reasonable. According to Valparaiso University Law School Professor Alan White, banks lose about 58 percent of the value of a subprime loan at foreclosure. JPMorgan is estimating 55 percent. The notion that one-third of mortgages issued at the height of the bubble will default may seem extreme, but the analysis includes both first-lien mortgages and second-lien mortgages (home equity loans). For houses with multiple mortgages, there’s going to be a double-hit when the first lien goes bad. Right now, the official statistics from Mortgage Bankers Association indicate that 14 percent of first mortgages are delinquent or in foreclosure. The longer unemployment stays near 10 percent, the higher that figure will go.

    Things don’t get out of control until JPMorgan’s analysts start deploying their assumptions. First, they assume that Fannie and Freddie will attempt to sack banks with losses from 25 percent of the defaults they see. Of those 25 percent, they assume Fannie and Freddie will successfully force banks to eat losses on 40 percent, leading to total losses of 10 percent. Why 25 percent? Why 40 percent? The analysts don’t say. For lawsuits brought by private-sector investors, JPMorgan expects just 5 percent to be successful, citing a host of technical legal hurdles that make it hard for investors to have their cases heard in court.

    So JPMorgan’s loss projections are nothing more than a guess—and a low-ball guess at that. JPMorgan is assuming that only five to 10 percent of looming foreclosure losses will actually hit big banks. Change that assumption—20 percent, 60 percent, 80 percent—and things get far worse for Wall Street than JPMorgan’s “worst-case” scenario predicts.

    Let’s consider the exposures of a single bank to put things in context, and let’s pick Bank of America, since analysts seem to agree that BofA has the most to worry about right now. They were a big issuer of mortgages themselves, but they also purchased the notoriously predatory Countrywide Financial and also picked up securitization behemoth Merrill Lynch in 2008, giving them far more problems (hilariously, BofA actually paid cash to acquire these balance-sheet-busters).

    The most dire estimates for losses on Fannie and Freddie loans at BofA have come from Christopher Whalen at Ins utional Risk Analytics and Branch Hill Capital. Whalen has estimated $50 billion in Fannie and Freddie losses for the megabank, while Branch Hill has estimated $70 billion.

    The trick is, BofA has $2.1 trillion in total exposure to Fannie and Freddie, according to Whalen. That means even Branch Hill’s massive loss projection only amounts to a loss rate of about 3.5 percent.

    As of July 2010, Fannie Mae had a serious delinquency rate of 4.82 percent—these are loans where families have missed at least three payments, but haven’t been evicted. For Freddie Mac, the number is 3.83 percent. Not all of those losses can be pushed back on the banks, but those numbers will go up as the unemployment rate stays high. Tip the scales just a few percentage points and it’s easy to envision catastrophic losses for banks.

    But there’s reason to believe that Bank of America is in even worse shape with regard to Fannie and Freddie than any of its peers. Countrywide was the single largest provider of loans to Fannie Mae during the housing bubble. Literally 28 percent of the loans Fannie Mae bought up in 2007 came from Countrywide. Fannie even featured a full-page, smiling photograph of Countrywide CEO Angelo Mozilo in their 2003 Annual Report (.pdf, see page 16).

    It’s much easier for banks to lose money on bad loans they sold to the GSEs than it is for them to lose money on securities they sold to purely private-sector investors. The fact that Bank of America’s most notorious wing was the top provider to Fannie Mae during the peak years of the housing bubble does not bode well for the bank’s balance sheet.

    But this is just exposure to Fannie and Freddie. The private sector is angry about all kinds of things—from wronged borrowers to deceived investors. Investors are already organizing against both mortgage servicers—for improperly handling troubled loans—and against investment banks—for selling them garbage. They aren’t just angry about fraudulent foreclosures—evidence is mounting that mortgage servicers can’t even handle the profits from mortgages correctly, and aren’t sending investors reliable, verifiable payments.

    Yesterday investors sent a letter pressuring Countrywide’s servicing arm to push losses from bad mortgage bonds back on the bank that sold them. Legally, it’s a complicated maneuver, since Countrywide itself issued those bonds—but that just shows the multiple levels at which megabanks like BofA are exposed to fraud losses. Their original sale of mortgages to borrowers, the packaging of those mortgages into securities, the handling of payments and foreclosures, and the accounting for all of these activities—all of this is about to be subjected to serious fraud examinations by people who are trying to make money.

    Up until yesterday, big banks thought they had a get-out-of-jail free card on investor lawsuits. Investors have to bring together 25 percent of the buyers of any mortgage bond in order to sue the bank that issued it—even if the actual lawsuit is an open-and-shut fraud case. Investors had not been cooperating. But yesterday’s letter to Countrywide is a big deal—even though it’s not (yet) a lawsuit, some of the biggest names in finance were going after Countrywide’s cash: BlackRock, PIMCO and even the New York Federal Reserve.

    Bill Frey, who runs the hedge fund Greenwich Capital, has organized a massive clearinghouse of mortgage investors for the express purpose of bringing lawsuits against big banks that issued bogus mortgage-backed securities. He told me this afternoon that he’s about to move: In the next couple of weeks Greenwich and other investors will bring big lawsuits against major banks.

    Will these combined troubles be enough to sink any big banks? If investors can win a couple of lawsuits, easily.

    ============

    Holy .

  24. #24
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    Regulator for Fannie Set to Get Litigious

    The federal regulator overseeing Fannie Mae and Freddie Mac hired a law firm specializing in litigation as the agency considers how to move forward with efforts to recoup billions of dollars on soured mortgage-backed securities purchased from banks and Wall Street firms.

    The Federal Housing Finance Agency, which in July issued 64 subpoenas to issuers of mortgage securities, bank servicing companies and other en ies, is working with Quinn Emanuel Urquhart & Sullivan LLP, a Los Angeles-based firm that specializes in business litigation, to coordinate its investigations.

    http://online.wsj.com/article/SB1000...html#printMode

    ========

    Will they have the balls to cram down Wall St's throat these toxic mortgages?

  25. #25
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    Richard M. Bowen, former chief underwriter for Citigroup’s consumer-lending group, said he warned his superiors of concerns that some types of loans in securities didn’t conform with representations and warranties in 2006 and 2007.


    “In mid-2006, I discovered that over 60 percent of these mortgages purchased and sold were defective,” Bowen testified on April 7 before the Financial Crisis Inquiry Commission created by Congress. “Defective mortgages increased during 2007 to over 80 percent of production.”
    http://www.bloomberg.com/news/2010-1...omeowners.html

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