FBI investigating for fraud at Fannie Mae, Freddie Mac, Lehman Brothers and AIG
 

and that's not all...the total is 26 firms.


http://money.cnn.com/2008/09/23/news...ex.htm?cnn=yes

It's about time.

I second that "it's about time"

..a little late now.....barn door's wide open!

Ahhhhh....finally you say something with which i can agree.

Fraud in mortgages from 2003-2007 was systemic and PROMOTED all the way up and down the line.

Mortgage fraud was bipartisan. You can point the finger at the democrats for promoting many of the community homebuyer iniiatives through Major banks (acorn) and the GSE's that became sespools of fraud and corruption.

You can point the finger at the republicans for the lax regulation in securitization by the wall st investment banks. Ever heard of the Ninja? Yes a wall st creation. Had to fill those CDO tranches.

Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??

Well they knowingly offered people loans that they couldn't afford. For a short period of time, the loans had moderate interest rates, but then would switch to interest rates that people couldn't afford to make the payments on. They got people to take on these loans by telling them they could quickly refinance the loans with lower interest rates. That worked when the price of the house went up, but not when they went down. Well, they went down. Because people couldn't refinance, they couldn't afford it when their loans switched to high interest rates. So, they would lose the house. The mortgage company originally gave these people they bought the house from like say 500k. Now, the mortgage company owns a house worth 400k, and they paid 500k for it. They want you to bail them out for the 100k they lost. Your asking what was fraudulent, and obviously they were making loans to people who shouldn't of been getting those loans. They often lied about the income of the borrowers etc. Fake cosignors etc. They(knowingly) didn't secure loans properly at all.

Scuds is right and that was a portion of it. But there is a bigger part of it.

Securitization combined with deregulation combined with complex financial instruments equalled lack of transparency with no responsibility. In plain English?

In the past if someone wanted a mortgage, he would go to the bank and get a loan and send his payments to that bank every month. It was the George Bailey/Mr. Potter relationship like on Its a wonderful life. Securitization changed that.

In the age of securitization, you go to a bank to get a loan. That loan is then packaged and pooled and sold to investors in a mortgage backed security. The type of MBS (mortgage backed security) that are getting all of the attention right now are CDO's (collateralized debt obligation). Without going into too deep of an explanation, CDO's allowed crappy loans to be mixed in with qaulity loans in a way. At the end of the day, the liablity was passed on to unwitting investors who had no idea what they were buying. The originator of the loan (the bank) really didnt care if the loan performed or not because ultimately they didnt own the loan anymore as it was sold in a pool right after it closed. The bottom line idea was that A. there was little risk because values were going up. B. Whatever risk there was, it was someone else's. Risk was passed off till it eventually ended up at the end of the Ponzi scheme and into the hands of the poor investor(s) that wanted a "safe" return with a good yield.

So you ask why would a bank want to do a fraudulent loan? In simple English, it was good profit and they thought they would never have to pay the piper. Wall St. aided and abetted by creating products that just asked for fraud. Ninja loans to 100%? No income, no asset, NO JOB verification with no money down. It didnt matter...it was someone else's money.

Wow...thanks for the clarification.

It actually goes so far beyond what i described especially with the CDO part but I am not smart enough to explain it in less than a book.

I do want to add that not nearly all of the problems are due to fraud. I would say a good portion of our problems were based on what Scuds touched on which was faulty risk assessment.

Help me out with this one. What part is all those loans where the first 5 years were interest only that people were getting playing in this? Knew some people that went that route and all I could do was shake my head at the time.

It plays a part but a.r.m resets arent as big of a deal as people thought it would be because most are based on LIBOR and that hasnt adjusted terribly. Libor is the index most arms switched to back in the early part of the decade. When an A.R.M (adjustable rate mortgage) "adjusts", its based on an index plus a margin. Most arms used Libor as an index and used a margin of 2.25%. So, fully indexed, the new rate is only 5.25% if it were adjsusting today. Thats not a bad rate and people can still "hang on" with the adjustment. The people that are having the problems are ones who qualified based on the interest only payment at 4%. Those people shouldnt have been buying in the first place. Again, it was systemic. Wall St. created these products, loan officers/brokers sold the product and many a customer (some knowing the risk and some NOT) bit off on the chance to buy into a real estate market that was returning up to 50% yearly.

The lowest rates for arms were between 2003-05. Five year arms are adjusting this year and seven year arms from 03 in 2010. The 2003 vintage probably have equity built in. The 2005 vintage will present yet another shoe dropping as that was the top of the market and there is no equity to refinance. Hopefully, the market will stabilize by then.

Most of the REALLY toxic stuff is already on the table meaning already in foreclosure or already foreclosed upon. I mean the subprime when i say that. The rest of the subprime will be DONE by spring of 2009 as most were done in 2 year arms and spring of 2007 was the end of those products.
Speculators are pretty much done and the rush will subside with them in the coming months as it already has been.

Interest only loans are NOT bad loans...for the right people. This is NOT a new instrument. They have been around for years but only used by the rich in the past. What people dont talk about and get lumped in with interest only are the Option Arms which are negatively amortizing. Many of those come do in the next year.

Option Arms are going to present a real challenge IF rates start to go up in the next two years.

An even simpler explanation is the reward was completely separated from the risk. Wall St. was compensated (rewarded) by the transaction (bundling and selling pools of loans - MBS) but held little to no risk. They just kept getting paid on the transaction. The risk was spread throughout the economy by the institutions that purchased the product (MBS). Which is, in part, why this housing crisis is roiling the U.S. and, arguably, the international economy. Once again, the Coase theorum on transaction costs proves correct, i.e. the greater the transaction costs the more inefficient the outcome. I'd say it is all pretty inefficient right about now.

Churn 'em,baby!

You sound like a well educated, responsible fellow mortgage lender. All of your points are spot on. Fortunately I work for a responsible lender that chose not to offer option ARMs (probably the only responsible large lender in the industry). What amazes me is that recently I have heard of other lenders still offering mortgages that they should not be doing especially in times like today. Unfortunately there needs to be a ton of regulation especially against mortgage brokers and irresponsible institutions. I am never a fan of more regulation, but it needs to happen unfortunately. About 2 yrs ago we were joking asking when some one was going to offer a stated FICO loan.

I work for a small bank and one of my duties (when we actually had money!) was risk assesment for a tiny set of portfolio products that we had along with cherry picking a select group of notes that we wanted to keep. let me tell you that when its your signature signing off on the risk, that pen gets a ton heavier. Needless to say, our portfolio products had guidelines that most lenders would just laugh at because they were so strict. Although even the clean loans weigh on banks during this liquidity crisis, at least they aren't actual losses.

Regulation needs to be tighter on the broker/lender level but at the same time they need not go overboard. I think the market is really doing the Fed's work in terms of regulation in the mortgage industry. How easy is it to cheat now? You want to use a lease? Fine...show us the cancelled rent check and demonstrate equity. You want to inflate an appraisal? Fine...we are going to run a corelogic and then perhaps a review before we buy your note. The market is dictating all of this. The feds havent done anything yet. But you probably have a point in terms of weeding out the bad apples.

I dont think Option Arms are necessarily a bad product but again, there is only a tiny segment of the population that it could work well for. Option Arms were indeed the crack cocaine in recent years because they were profitable to every rung of the ladder. Now? You should see the execution on Option Arms. No one wants them. The government doesnt need to ban them because the market already has. That, along with low documentation and high LTV's. The market doesnt want them thus you cant sell them.

My God...you republicans out there are probably having a heart attack. Maybe this liberal, democrat wench might have a few conservative ideas yet. ;)

The stated Fico thing is hilarious. By saying that you didnt offer any neg am, it is easy to figure who you work for. The only risks you took were on seconds and community housing iniatives that the govt forced your hand on.

Show tits.

You are right on. The unfortunate problem is that no one is buying Jumbo mortgages and the banks can't afford to keep them due to liquidity issues. We are keeping the cream of the crop via portfolio, but a lot of customers with good credit, good income, etc are getting hurt by the lack of investors for these products.

Yes I am sure you know who I work for and yes you are correct in the only risk that we took on.

You are lucky in that your balance sheet is so massive you can still shelf the arm products and subsidize the lower spreads with the cross sells. But even the biggest banks can't afford to do that with the fixed rate jumbos for fear of what going yield will be when there finally is liquidity. Regardless of what anyone says, there are no true large scale portfolio lenders. The loans on the books right now are being "held for investment" and it is catch 22. If you are lucky enough to find a vulture fund or private investor that will buy your non agency paper, most often you are going to get scalped. But that isnt the worst problem. After you sell, you have to mark to market and the rest of the loans on your shelf are given a massive haircut.

To put it simply, you need to sell the loans for money but if you sell them you are going to take a huge paper bath. So what do you do? You wait...and wait...and wait. If you are wells, b of a, chase or citi, you have a zillion dollars in deposits to cover things while your loans sit in purgatory. If you are a small bank, you only have so long to wait. It doesnt take that many realized losses before you are insolvent and such is the dangers of borrowing short and lending long. Even if you are perfect and didnt make any mistakes on who you lent to, you're still going to have solvency issues because of the leverage ratios.

Bottom line? Deposits are king!



Small banks like mine are getting killed

No wonder all the banks are going belly up...they are all posting on DT
;)

Let me ask you people something. This money they want our taxpayers to inject into the financial system? I don't get why we have to do that. This money didn't go into a fireplace. People have this money already. It just not in the hands of people that sell loans. It's in the hands of speculators that sold their homes to people that got bad loans. They need to basically sell these homes back to these same speculators at low prices. They will then have money to loan again, but the financial companies will have to take a loss. You know what that is? Tough s-h-i-t. Don't be such greedy fkrs next time. I say no to the bail out, and yes to selling these homes right now to the highest bidders(people who have the loan companies money right now.) That is capitalism. The way I see this is the loan companies fkd up, and are refusing to take the responsibility that anybody else has to take for fkn up at capitalism. Bailing these people out is bullshit. They can get money in the next 30 days if forced to sell these homes for bargain prices to those people that kicked their a-s-s in the 1st place. People that sold high have this money. Don't come to us for it. Get it back from the sellers you gave the money to. FK OFF.

I'm 100% with you, Scuds. But I'm an economic novice, I hope your summary is correct.

I say "Just say no" to the bailout-it's welfare for the rich

It isn't that simple. without the bailout there would be HUUUUGE problems including a possible depression and it would affect the consumers/individuals, etc. in many ways. The government actually has a good chance to get paid back on a lot of the $ that they are using for the bailout. If the banking system,insurance,financial companies fail you would have a worldwide crisis and you would have problems in every aspect of business thus everyone would feel it. Unemployment at historic levels, etc. I don't like government stepping in and taking care of businesses issues any more than the next guy, but the ramifications of not doing something at this point would be devastating. If you would like a good chuckle on the mortgage crisis pm your email and I can send you a nice power point on the mortgage crisis.

Mussolini made the trains run on time....the feds saved PennCentral.





I don't know much about houses,though.

That's what would happen if they aren't forced to sell these houses to the highest bidders. If they knew they had to sell them, they would. They would rather wait for a sweet government bail out. They've been counting on getting bailed out(if they hadn't been, then they would of started selling these homes at bad prices to the highest bidders, and they would have money to loan again.) There is a money freeze, because they refuse to cash in their chips low. Force them to sell these homes to get money from people that have their money. Of course it's in their best interest not to sell them at low prices(and wait for a bail out.) They have a product. Make them sell their product in the open market. People will buy, but they don't want to sell low. Too fkn bad. Don't bail them out. Make them sell these houses.

Even if the taxpayers have to inject this money, it should be given to somebody new to make loans with. How can you give it to people that made bad loans already? Make them sell their homes for the market value. Yea, they have to feel the pain. If the Gov't has to provide money to make new loans with..o.k., but don't buy other people's bad loans. Why is it that the only way to inject money into this is to bail out bad loaners? People seem to often have the creativity of a gnat.

Dannie called you "honey"...didn't she?

Scuds-

You are attempting to simplify something that is infinitely more complex. This isnt about "selling homes back". You are viewing loans with the "george bailey/mr potter" mentality and mortgages arent done like that anymore. They are pooled, packaged and sold as securities...or were.

Loans that are "on the shelf" and being held for investment cant be sold. That is the issue. There arent many buyers or Sellers out there for a number of reasons:

1. Who wants to buy an asset backed security when you arent sure of the rating but more importantly backed by a declining asset?

2. If you sell an asset backed security at a firesale price you have to "mark to market" the other loans in your portfolio. Basically, you are devaluing everything to sell a little bit.

3. No one knows what the next step is going to be for the govt.



Individual mortgage companies ARE buying back fraudulent investments sold to unwitting investors. What do you think happened to countrywide and AHM? The problem i, what are they going to do next? Go after the broker? He is out of business and probably snorted the profit anyway.

You want to know what happened to the money? Well, some of it filtered into other segments of the economy. Beyond that? Read up on deflation.

Is the air n' water around the "mistake by the lake" so bad as to make you act like this constant irritant?

To clarify, the plan isnt to "give" anyone money. The plan is to use up to 700 million dollars to buy distressed assets that are rotting on bank shelves and clogging up the flow of liquidity.

To put it simply: The govt is BUYING ASSET backed securites. Just like they would buy a bomb or a plane or a missille. They are NOT simply giving money to banks.

Now, some of the securities are probably going to be pretty toxic and go bad. If they do, you can sell the asset and recoup some of the 700 billion. Remember, they are not paying full value for the ABS's. So even if the market continues to decline you can still recoup most of your costs.

If the market stabilizes from here on out, the govt can actually make money. A lot of money.

The main issue is going to be determing buy prices. They have already stated that they are going to pay MORE than the firesale price. But how are they going to determine that?

The last point is the main issue.

With all due respect, take the loss. Put new money into the market another way. We have to have money available to loan? Fine, but we don't have to buy their fk ups. Sorry, but they fkd up, and this idea that capitalism doesn't hurt (those who lose) is wrong. They need to lose, and if new money needs to be put in, it doesn't have to be put in to bail them out of their mistakes. Money needs to be available to loan, yes, but not in the way they have proposed to do it. That is welfare for the rich who fkd up. Take the hit. These market funds that are getting hurt are the same ones this a-s-s hole wanted people to "invest" their Social Security money in. When are people gunna realize just how much an a-s-s this guy has been? In July he was giving a speech about how stable the financial system was. O.K.? In F'n JULY. That is a maggot with a suit.

I'm getting a dala woody.




This is great!!

I know what you are saying. But...how do you "put new money into the market"? Where does that money go? How would you propose to do it? And the last question isnt facetious(sp?). I want to know how anyone else would fix this.

Regadless of what any one of us wants to admit, our economy is based on credit pure and simple. It rolls when credit is cheap and easy and it gets really slow (like now) when it tightens up.

Something has to be done to fix the locked up credit markets. Injecting massive amounts of cash hasnt worked. Lowering fed funds rates hasnt worked. What else can the govt do at this point?

And remember, the govt isnt spending 700 billion dollars.

If all this were easy there would not be so many
experts disagreeing on how to fix the problem.
They still dont have a clear picture on exactly where
some of these firms stand.

Shareholders of these financial companies are also
to blame. They ask the CEO's why a competitive investment
bank is making more money. So the competent, reasoning
CEO says our competition is making complex financial instruments
that are very murky and hard to figure out, but the bottom line
is they are building a house of cards, because everyone should
own a home... You tell that to your shareholders when the
competition is making money hand over fist and they fire you.

These guys just hid numbers in complex packages and played
top of the pyramid then got out. And oh yes... everyone should
own a home, even if they cant afford it... remember?

I don't want the people who made these decisions to be given new money. In no way can we give new money to these rats who made bad loans (in order to make quick interest off of people who couldn't afford to get these loans.)If we put new money in, we need to make sure it's for new loans, and those loans need to be well secured, and it needs to be regulated. We did it the way the free market capitalists wanted, and they fkd it up, and all want to be bailed out now. I totally disagree with you about this not being a bail-out. They made loans they shouldn't have made. Now they want help to overcome those mistakes. That's a bail out. I don't think we should do it. If we do it, then don't let these same people in charge of money loaning. Don't give them new money to loan. I wouldn't trust either Bush or Paulson . Paulson was making 40 million a year off this industry, and now you get him to be in charge of a solution? He is gunna want to bail his crooked friends out. Have some sort of program, but don't let any of these crooks draw it up. Yes, these 2 have been lying all year, and now they come clean. F BUSH, F PAULSON(liar scum.) I can't believe he came in front of the country and told us it's so messed up. How do you do that after denying it all year?

isn't part of the bailout supposed to be new regulations? seems that the finished product that congress will pass will be nothing like what bush originally proposed-thankfully! i've seen partial ownership mentioned, as well as exec salaries...quite a bit included, not just throwing money at the problem.

And do you realize what our economy will do IF there isnt some sort of help from the fed/taxpayer? Do you realize what a full blown credit lock up will do?

Do you realize what was happenning just last week before Paulson/bernanke came out with their RTC proposal? Did you see what Libor did? Did you see what the cost of short term commercial paper spiked to? Do you know what happened in the year 1929?

While we are all sitting here debating all of this, the economy sits on the precipice. This is not bu.l.l.sh.t.

The damage of a full blown credit siezure would be catastrophic. It is on our door step.

Paulson stated that he knew that his plan would be altered when he submitted it. He just knew that speed was important so he gave a bear outline.

SCUDS it would appear that you are aligned with the GOP Conservatives on this issue or am I missing your point. Because at the moment it appears that the DEM's are the ones propping up the Bush bail-out.

A lot of the points you have made seem to be more in line with Ron Paul.

What a salient point. The world is upside down. Bush...the socialist. Hank Paulson...HANK PAULSON..is a socialist.

Okay, for a little levity, watch this clip. It got me out of my depressive state earlier:

http://www.cbsnews.com/video/watch/?id=4479049n

Let's not forget these classic hits

http://www.youtube.com/watch?v=yFag_BXhG6s

I wish I could find the one where he thought FDR was president in 1929 and FDR warned the nation in a TV address.

No wonder the polls think Palin is more qualified that Joe.