News, Research & Insights for American Homeowners, Patriots & Constitutional Conservatives
Europe to Qaddafi: Surrender.
After a day of almost uninterrupted good news for Libyan rebels in Tripoli, CNN now reports that some have begun to pull back. Moammar Qaddafi’s troops have apparently started a counteroffensive, but Qaddafi himself is nowhere to be found: The 42-year rule of Moammar Gadhafi appeared on the verge of collapse Monday, with rebel supporters making [...]
Any day now
The opening paragraph pretty much says it all. The reign of the Tea Party may be coming to an end in Washington, according to academic political experts who say polls show a backlash against the conservative movement. So what data are we drawing our conclusions from this time? The CNN poll showed the Tea Party’s [...]
Crisis of confidence.
Note well: It’s a poll of adults, not a poll of voters, so it’s no predictor of how next year’s vote will shake out. But I want you to see it anyway because it corroborates other recent polls showing a historic collapse of Congress’s standing among the public. Never in modern times, through the financial [...]
Collapse.
“The consensus has been that for all his problems, Obama is so skilled a politician — and the eventual GOP nominee so flawed or hapless — that he’d most likely be reelected. “Don’t buy into it. “This breezy certitude fails to reckon with how weak his fundamentals are a year out from the general election. [...]
I field countless emails and phone calls from consumers all across the country who suffer abuses at the hands of the banks. I have given up any hope that our government or regulatory agencies will do anything to stop the abuses…or even slow them down for that matter…they have just grown too powerful, and our government…at every level…is just too corrupt.
We live in a totalitarian, corrupt police-state. We will just muddle along here in this country in a sort of suspended-animation until some event throws us into chaos. We flit now from chaos to calamity, constantly moving between brinkmanship and collapse. Something has to give and it will eventually. We cannot just moonwalk away from $14 trillion in debt. We cannot just ignore the fact that our states and local governments are bankrupt.
The Corporations exist with one purpose in mind….to consolidate their power. There are no limits to check their abuses. The most dramatic example of this comes later this week when the feds announce their settlement with the major banks. They’re all going to get totally off the hook with not so much as slap on the wrist. There will continue to be outrageous outrages. Every single day. Things will get worse. Much worse. There is no stopping them.
Read on for today’s Outrage of the Day!
I thought you would enjoy this, as part of the continuing saga of me vs. the Banks.
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It should be a requirement that every American watch The Inside Job. The award-winning movie is chilling and offers detailed analysis of the epic and continuing collapse of the United States economy.
What I find most chilling are the profiles and interviews with the architects of the collapse, the bankers, the politicians and the academics. Pure evil.
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Next week is Florida’s Sunshine Week, a week where media and the Florida First Amendment Foundation focus on helping people understand the vital need for people to support their press and the requirements that our government keep information open and accessible to the public.
Please follow this link and learn more about the Florida First Amendment Foundation, and all the things that will happen next week.
But more importantly, please sit down and take the time to watch this very, scary video
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The domestic, internal battles in these foreclosure wars are not many, many years old. There still exists much confusion by legislators, judges, policy makers and the American people about the details leading up to the slow speed crash of the United States Economy that continues on even today. People need to wake up and look at the much bigger and much scarier picture about what’s happening in this country.
THIS IS WAR PEOPLE. WHAT DOES THIS MEAN FOR FRAUDCLOSUREGATE? WHAT ARE THE LARGER AND FAR MORE PROFOUND IMPLICATIONS FOR OUR ENTIRE COUNTRY?
Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.
“There is sufficient justification to question whether outside forces triggered, capitalized upon or magnified the economic difficulties of 2008,” the report says, explaining that those domestic economic factors would have caused a “normal downturn” but not the “near collapse” of the global economic system that took place.
Suspects include financial enemies in Middle Eastern states, Islamic terrorists, hostile members of the Chinese military, or government and organized crime groups in Russia, Venezuela or Iran. Chinese military officials publicly have suggested using economic warfare against the U.S.
Read Washington Times Article Here
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Fannie Mae has just released it’s Quarterly National Housing Survey and the results are… well, in some cases predictable… and in others just bizarre. I’m not entirely sure, but I’m think some of the problem comes from the methodology, and it’s not at all hard for me to believe that at least some of the questions are phrased poorly. But, overall… it is a real survey and the results are something I track each quarter or two.
Here’s what Fannie Mae has to say about the survey and its purpose:
“Our purpose was to gauge the public’s current attitudes toward housing, especially in light of the current housing crisis. This comprehensive research project asked more than 3,000 consumers about their confidence in homeownership as an investment, the current state of their household finances, their views on the U.S. housing finance system and their overall confidence in the economy.”
One of the things that I’ve been watching for two years is American attitudes about foreclosures. And there’s no question that those attitudes have been shifting, slowly perhaps, but in the right direction… as the foreclosure crisis has continued to worsen. I’ve always understood one thing about the crisis that I think many other observers have missed… as the pain increases, and as more and more people are directly affected by the foreclosure crisis… more will start to question what caused this terrible tragedy. And as that happens, as more and more people start to realize that it wasn’t the borrowers over-borrowing… it was the bankers over-borrowing that caused the collapse of our financial and credit markets and left our housing markets in a literal free fall.
When that is understood by the majority of Americans, I believe we will finally be ready to throw away the meaningless distinctions, “responsible homeowners and irresponsible homeowners,” and we’ll return to just being American homeowners. Because only then will we be ready to reclaim our democracy from then corrupt oligarchy that has taken control of the legislative and executive branches of our government. Only then will we start to heal the shame that has needlessly bound millions of our fellow citizens, who were not at fault… but were blamed for too long.
The truth about my blog, Mandelman Matters, is that I started it back in 2008 because I wanted to do whatever I could to accelerate that learning and then the healing process, and I know my efforts, while not entirely satisfying as I always wish to do more, have not gone unnoticed. And, along with the others who’ve dedicated their efforts to exposing and educating our society… I’m quite proud to say we are gaining on it. In fact, based on where we began our journey into the worst economic meltdown in 70 years, I’d say we’ve got no more than 2-3 years to go… tops.
Here are some of the most telling outcomes of Fannie’s Q4 Homeowner Survey… along with some that provide proof that there’s still much work to be done… the order of what’s presented is mine alone…
1. Americans are split on whether banks should foreclose if the owners are unable to pay their mortgage:
48 percent of respondents say YES… 43 percent say NO.
2. Slightly more than half (53 percent) believe homeowners bear the responsibility for a home loan they can’t afford.
This number must change and isn’t changing fast enough, for my tastes. The foreclosure crisis, however has not yet directly impacted 20% of American homeowners as yet, but when it does… this number will change dramatically.
3. When asked if financial distress makes stopping payments on an underwater mortgage acceptable:
15 percent of respondents said YES.
4. Respondents ranked negative impact on credit score (35 percent) and moral qualms (33 percent) as more likely factors for motivating them to pay their mortgage.
5. Underwater borrowers were more than twice as likely to be behind on their mortgage payments and were more than twice as likely to believe stopping payments was acceptable as compared with borrowers not underwater.
6. A surprising 44 percent of respondents expect their personal financial situation to improve in the next year.
7. Understandably, 62 percent of respondents believe U.S. economy is on wrong track. But, 65 percent of respondents also think that now is a good time to buy a house.
Or, another way you might phrase that: 65% of respondents in the Fannie Mae National Housing Survey think that a good time to buy a house is when the economy is on the wrong track.
8. Amazingly, 78 percent of respondents think home prices will stay the same or go up over the next year.
However, broken down into distinct groups, only 26 percent of Americans believe home prices will go up over the next 12 months, 56 percent believe they will remain the same.
9. In January of 2010, it’s worth noting, 37 percent of respondents said they believed home prices would go up over the next 12 months.
So, that means 78% of respondents think that when the economy is on wrong track, home prices rise.
10. Respondents said that they expect home prices to increase by 0.4 percent, but I would really love to see how this question was asked, because obviously the respondents didn’t actually say 0.04 percent.
11. The percentage of respondents who believe that buying a home is a safe investment has fallen from 70 percent to 64 percent. And this is down from 83 percent in 2003.
12. Among delinquent borrowers, the perception that buying a home is a safe investment has fallen significantly from 65 percent in January 2010, to 53 percent of respondents to this survey.
Fannie Mae’s presentation of this latest survey data is found below in its entirety… It’s clear that while we are gaining on it, we have much work yet to be done…
National Housing Survey 040610
METHODOLOGY
From December 12, 2009 – January 12, 2010, Penn Schoen Berland, in partnership with Oliver Wyman, conducted 3,451 telephone interviews with Americans age 18 and older.
This included a random sample of 3,051 members of the general population, including 887 homeowners, 1,110 mortgage borrowers, 908 renters, and 338 underwater borrowers (those who report owing at least 5% more on their mortgage than their home is worth). The overall margin of error for the general population sample is +/- 1.77% and larger for subgroups.
An additional oversample of 400 random national delinquent borrowers was also polled. The margin of error for the delinquent oversample is +/- 4.9% and larger for subgroups. Delinquency was defined as not having made a mortgage payment in the past 60 or more days.
Last week, the Justice Department decided to end the criminal investigation of former Countrywide Financial CEO Angelo Mozilo. People close to the case say that the overall collapse in the mortgage market has made it too difficult to prosecute the actions of any one particular executive.
So, in other words, Mozilo got off for his role in creating the housing market bubble and sub-prime implosion that fed into the global financial meltdown of 2008, precisely because the meltdown was so large? Well, that’s certainly nice to hear, don’t you think?
I’m not going to attempt to write some scathing or potentially insightful commentary about Mr. Mozilo, I’m sure that’s been done many times before, and frankly… he bores me to no end. But, at the same time I felt like I had to say something about a financial criminal of his stature picking up a get out of jail free card… it simply could not go by without at least a mention.
So, here’s sort of a highlights reel in print… I give you Angelo Mozillo, the man behind Countrywide, IndyMac, two of the most spectacular banking and mortgage industry failures in U.S. history. And not only that, but he also managed to eviscerate Bank of America as he made his way to the exit, retiring in 2008.
Here we go… join me, it’ll be quick, and then you’ll want to throw-up, so stay close to a bathroom is my best advice.
When the mortgage crisis started in October 2006, Mozilo filed a stock trading plan to sell 350,000 shares a month. He revised the plan twice, first in December so he could sell 465,000 shares per month, and then on February 2, 2007, the day Countrywide stock it a record high of $45 a share, he revised it again to sell 580,000 shares per month. En total, Mozillo sold 5.8 million shares for roughly $150 million between November 26, 2006 and the end of 2007.
Mozillo claimed he was only selling shares of his company’s stock according to a prearranged retirement schedule, but during that same time period, Countrywide’s shareholders lost all of the $2.5 billion the company had just spent on repurchasing shares.
The man has impeccable timing, no question about that. Countrywide’s exceptionally high 18% mortgage payment failure rate first appeared in 2006.
In the fall of 2007, Democratic Senator Chuck Schumer wrote a letter to the Federal Housing Finance Board warning its chairman, Ronald A. Rosenfeld about the Federal Home Loan Bank’s $51 billion in cash advances to Countrywide that were collateralized by $64 billion in bad mortgages.
In that letter Sen. Schumer wrote:
“I find these numbers alarming as reports continue to emerge about how Countrywide’s reckless and predatory lending practices were a leading contributor to today’s foreclosure crisis.”
Last October, Mozilo agreed to pay $67.5 million to settle the U.S. Securities and Exchange Commission’s accusations that he misled investors about Countrywide’s health and risk-taking, and generating roughly $140 million of improper gains from insider stock sales. Mozilo neither admitted nor denied any wrongdoing… (Want the actual SEC complaint, CLICK HERE.)
Mozilo’s internal emails, obtained by the SEC, show him referring to a sub-prime product as “toxic” and saying “the company was flying blind.” (Want to read the rest of the emails obtained by the SEC, CLICK HERE.)
California recently settled a predatory lending case against Mozilo (and another ex-Countrywide executive) for $6.5 million.
When the deal to sell Countrywide to Bank of America was struck in mid-January of 2008, Countrywide was valued at $4 billion and Bank of America’s share price was $38.50. Two weeks later, Countrywide posted a loss of $422 million for the fourth quarter of 2007. By the time the acquisition was completed on July 1, 2008, the deal’s value had fallen to $2.5 billion.
After eight months, $46 billion of TARP funds, $118 billion in government-backed asset guarantees, and an incredibly stupid merger with Merrill Lynch, Bank of America was $3.14 per share in March of 2009.
By then, Countrywide was being sued by everyone imaginable… homeowners, shareholders, municipal employee pension funds, and they were alleging everything from insider trading to inflated fees being charged to homeowners, to unlawful actions, collusion and mortgage fraud, and let’s not forget deceptive advertising having to do with a variety of predatory lending claims brought by Attorneys General from 11 states and led by Illinois and California on October 6, 2008.
Countrywide ultimately settled by agreeing to modify $8.4 billion in principal and interest rates on over 400,000 loans it had initiated, but the company neither admitted nor denied any wrong doing and no fines were levied. Following that, the company settled other predatory lending claims for about an additional $3 billion. But, these settlements led to a class action lawsuit brought by investors who argued that Bank of America didn’t have the right to modify Countrywide’s agreements.
Between July of 2003 and June 30, 2008, Mozilo had taken home more than $470 million in compensation and stock sales, which represents the third highest pay package of any financial or homebuilding executive during that time. If you’d like to see Mozilo’s employment agreement, as taken from the company’s 8K filing with the SEC in 2004, CLICK HERE.
“Mozilo’s fingerprints are all over the economic catastrophe we are living. He was the Typhoid Mary of the mortgage business, spreading the exotic-loan disease far and wide,” said Dan Pedrotty, director of the AFLCIO’s Office of Investments. “He was also grossly overpaid, especially considering the fact that he drove his company off a cliff.”
Time Magazine called Mozilo the #1 Culprit of the Financial Crisis.
Mozilo’s lawyers argued that “Countrywide’s problems were caused by the general collapse of the mortgage market nationally and not by any misdeeds by company executives,” according to the Wall Street Journal.
Best of all, I was dumbfounded to learn that Bank of America is writing the checks for all of these settlements… including one for $22.5 million, another for $45 million, a $60-some million settlement, and even $600 million to settle a class action suit brought by shareholders… even the recent $6.5 million to the State of California… all because BofA agreed to purchase Countrywide, indemnifying Mozilo and his ace lieutenants against legal costs.
So, very well done there.
Okay, that’s all I can take… I just learned something that I had always hoped wasn’t true… Crime Pays!
Mandelman out.
There are people poking around, some brave, some uninformed who are buying foreclosed property. THEY COULD BE BUYING INTO TROUBLE.
Think title insurance will protect you? Think again. There are so many complex reasons why this simply is not so in the context of foreclosure cases, but the bottom line is…..YOU CANNOT COUNT ON TITLE INSURANCE TO PROTECT YOU FROM A FAULTY TITLE.
Think your realtor or title company will protect you? NEITHER YOUR TITLE COMPANY OR REALTOR CAN BE HELD LIABLE IN MOST CASES FOR TITLE PROBLEMS.
What does this mean? From the Huffington Post:
Buyers of property at foreclosure are looking for a bargain, but that risk now must include the possibility that the title will be defective. One unsuspecting family purchased a home at foreclosure, intending to sell it to their daughter, only to have a title company question whether they acquired good title after they’d already invested $100,000 in renovations. (Nightmare in Land Court, Mass. L.J.) In the wacky world of securitized mortgages, who owns the mortgage is a ‘shell game’ worthy of the most accomplished back-street hustler. How securitized mortgages caused the collapse of the American economy is an oft-told tale that needn’t be repeated here.
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There are people poking around, some brave, some uninformed who are buying foreclosed property. THEY COULD BE BUYING INTO TROUBLE.
Think title insurance will protect you? Think again. There are so many complex reasons why this simply is not so in the context of foreclosure cases, but the bottom line is…..YOU CANNOT COUNT ON TITLE INSURANCE TO PROTECT YOU FROM A FAULTY TITLE.
Think your realtor or title company will protect you? NEITHER YOUR TITLE COMPANY OR REALTOR CAN BE HELD LIABLE IN MOST CASES FOR TITLE PROBLEMS.
What does this mean? From the Huffington Post:
Buyers of property at foreclosure are looking for a bargain, but that risk now must include the possibility that the title will be defective. One unsuspecting family purchased a home at foreclosure, intending to sell it to their daughter, only to have a title company question whether they acquired good title after they’d already invested $100,000 in renovations. (Nightmare in Land Court, Mass. L.J.) In the wacky world of securitized mortgages, who owns the mortgage is a ‘shell game’ worthy of the most accomplished back-street hustler. How securitized mortgages caused the collapse of the American economy is an oft-told tale that needn’t be repeated here.
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The collapse of the Law Offices of David J. Stern is causing chaos and costing taxpayers millions of dollars. Clerks of Court, judicial assistants and judges across this state are left sorting through files and processing Stipulation to Withdraw paperwork and generally left to try and sort out the mess. That costs every single taxpayer money. Multiply that by hundreds of thousands of files in counties all across the state and you’re talking a massive burden on this state’s taxpayers. Meanwhile, the clients, including Fannie and Freddie, must now go through each of their files to assess just what kind of a mess they have on their hands. The resulting time and attorneys fees will add many months and millions of dollars into the mess.
When the general public and taxpayers are paying for all of this, I have a real problem when the Fat Cats that caused all of this are not forced to pay the costs….where is any justice, any equality, any fundamental fairness in all of this? Where are all the managers and lawyers and bright financial people that put all of this together? I bet they’re still driving their obscenely expensive cars, living in obscene castles, with obscene boats.
How do our government leaders allow this to continue? Why no handcuffs? When will Florida’s Attorney General step up, speak out and release findings from the on-going investigation? Many mechanism exist to try and reclaim some of the costs, but the most black and white immediate way is to dismiss all pending David J. Stern cases which are not verified and force them to be refiled under the rules mandated by the Florida Supreme Court to protect all consumers.
HOW CAN OUR COUNTRY EVERY REGAIN OUR PROWESS IF WE HAVE LOST THE WILL TO METE OUT JUSTICE?
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The collapse of South Florida based Bank United was one of the most explosive banking events in this region. The fallout is still being felt across the state as lawyers are suing on the mortgages formerly held by the failed institution. Now the question remains….who owns the assets of Bank United? Who are the ultimate beneficiaries of the litigation? Read the spectacular Office of Inspector General Report below then the FDIC Purchase Agreement. As we continue to slog through this mess, we’re all still paying the price–a very real price as detailed in the FDIC purchase agreement- while the banksters continue with little or no consequences…..
bank united hughes hubbard letter 050110546269
bankunited – FDIC Purchase Agreement 5-21-09_P_and_A
bankunited – Office of Inspector General audit report (BankUnited MLR)
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Fraudclosuregate was not caused by attorneys defending homeowners, The Constitution, our courts and our judges. Fraudclosuregate was caused by polluted, flawed and fatally corrupt industries and business models. They created bad paper and bad business when they started with all these loans in 200-2007 that led to the subprime collapse in 2008.
Rather than learn the lesson and carefully review all the paper and practices presented by these industries, we’ve just allowed the same flawed business model and practices to infect our court system.
The problem, as indicated in the attached article and supporting report, is the bulk of our court’s entire funding comes from filing fees in civil cases….this problem is not going away……
A sharp drop in foreclosure filings has resulted in a steep decline in money available to fund Florida’s court system, although it’s not certain if that reduction in filings is only temporary, a state Senate committee has been told.
One senator on the panel said the Legislature and others should look at ways of speeding up civil cases as an alternative to spending more on the courts.
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The stock market is up. Unemployment is “only” 10%. There are “only” 25 percent of homes in foreclosure. I just came back from New York City and things really are booming. The malls are full. Restaurants are packed. So Matt, why are you screaming that the sky is falling?
This is an argument I find myself frequently engaged in. Some of my closest friends don’t get at all where I’m coming from with my “paranoid delusions” and dire predictions of collapse. First, none of the numbers that are being quoted by anyone mean anything anymore. They’re all lies or fraud or hopelessly optimistic estimations or purposeful misstatements. I don’t trust one word coming out of anybody, especially anyone associated with our government at any level and I damn sure don’t trust anyone associated with Wall Street, the banks or institutions.
I’m not the only one that’s bubbling over with anger and rage….the word is out now and everyday Americans all over this country are becoming increasingly angry at what has been done to all of us. If you’re one of the few who are not yet angry, you’re just not getting it. You’re not reading. You’re not thinking. Because you need to be informed first, then angry, then ready to do something about it.
In the coming years we’re going to continue to be treated to more and more details of the Greatest Fraud That’s Ever Been Committed on a Society. One of the latest examples is the current Bank of America/Countrywide litigation. The bottom line is Bank of America/Countrywide sold millions of loans to institutional investors all around the world. The investors didn’t look at each loan, they relied upon the representations made in the prospectuses that were prepared by Bank of America/Countrywide. Now the investors have taken the time to actually look at the loans and they’re accusing Bank of America/Countrywide of lying in the documents…..
Please read the following link from ZeroHedge for details. The banks and institutions engage in widespread patterns of abusive behavior, lies, mistreatment and fraud….but not the first one has ever been prosecuted….not one has been put in handcuffs…..
SO MUCH FOR EQUALITY.
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By now, the cat’s out of the bag, pandora’s box is blown open, the horse has left the barn….The Law Offices of David J. Stern processed tens of thousands of foreclosure cases all across the state. Earlier it was reported that many of Stern’s clients had pulled their files from his office, next it was reported that there are countless numbers of sales that are continuing to occur across the state even though the files were not ready for foreclosure. The whole situation has caused even more chaos in courtrooms all across this state and EVERY SINGLE TAXPAYER IS PAYING FOR THIS CHAOS.
How do you calculate the amount of court, staff and judge time that is being spent in trying to deal with all this chaos? It’s certainly difficult to put a number on this figure, but it makes me very angry to know that Florida’s Foreclosure Baron still has his multi million dollar yacht and insane and obscene homes, while every day taxpayers are paying to try and clean up his mess.
And that’s not all. As you read from the article below, there are major other problems that must be investigated….and that too costs us all money. When will it stop?
Recently out of law school and looking for work, scores of young Florida attorneys found steady paychecks in burgeoning firms whose business is based on repossessing the American dream.
Today, more than 260 attorneys work at four of Florida’s largest foreclosure firms, and 48 percent of them have been practicing law for less than three years, according to Florida Bar records obtained by The Palm Beach Post.
Of 156 attorneys who started the year churning out foreclosures at the massive Plantation-based operation of David J. Stern but have since left or been laid off, half had been practicing law for less than four years.
With this fall’s allegations of forged foreclosure documents, fraudulent notarizations and questionable affidavits submitted in tens of thousands of foreclosure cases, those nascent lawyers are now under a cloud of suspicion.
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The reports and investigations will continue to roll in…but will there be any relief for the homeowner who was victimized by such practices? How many more families will be thrown into the streets while these investigations play out?
The first sign of legal problems for LPS emerged earlier this year, when the company disclosed that federal prosecutors in Florida had opened a criminal investigation into apparently forged signatures on foreclosure documents prepared by DocX, the shuttered subsidiary located in a small office park in Alpharetta, Georgia.
Fidelity National Financial, LPS’s former parent, had bought DocX in 2005. The unit soon became a high-speed mill, churning out mortgage assignments — many of which are now known to be of doubtful validity — on behalf of banks and investor trusts, helping them to foreclose on homeowners.
Few firms benefited more from the collapse of the U.S. housing boom than LPS. Spun off as an independent company in 2008, the company has seen its profits, with big help from its mortgage default services business, reach $232 million for the first nine months of 2010. That is a nearly 15 percent increase from the same period in 2009. Its revenue last year was $2.4 billion, up from $1.8 billion in 2008.
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Just last week, the Palm Beach Post reported on hundreds of foreclosure sales that occurred, but which are a catastrophic mess, to put the term politely….
Scores of Palm Beach County homes were sold to investors at foreclosure auction this month for as low as $200 following the collapse of the David J. Stern law firm and ensuing confusion as thousands of its cases are reassigned.
It’s yet another muddle for the already overwhelmed foreclosure courts to sort out as former Stern cases went to auction with no bank representation, bids or proper public notice.
Today’s Bradenton Herald likewise reports on a larger scope of problems with foreclosure cases that plague their court system
there’s been no concerted, effective effort to solve the crisis because it defies easy solutions and is merely a symptom of broader economic issues.
“The magnitude of the problem is so severe that no one can wrap their minds, their heads, their jurisdictions, their enforcement powers around it,” he said. “This is a problem of such profound magnitude that our best minds … simply can’t fathom a solution.”
The larger world is starting to grasp that this effects us all. Every last one of us. It hits us all right in the pocketbooks. Log onto those stories and leave comments….our press is our only hope.
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It’s time for all Floridians and in fact all Americans to wake up and understand the enormous price we’re all playing for the chaos the lenders and criminals from Wall Street have caused us all.
The most specific example comes from yesterday’s Palm Beach Post…..foreclosure sales still going through…..what a mess….a mess that will further strain court resources and waste taxpayer dollars. My sense of equality and responsibility to taxpayers demands that I would dismiss these cases and allow them to start all over again….with a new filing fee…
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It’s important to note just how quickly we’ve gone past arguments over widespread breakdowns, fraud and abuse. For years attorneys and advocates have been making these allegations and many have faced criticisms, threats of ethics complaints and objections from judges and opposition attorneys who disputed that the abuses we reported were real.
IT IS NOW WIDELY ACCEPTED THAT THE MAJORITY OF THESE ALLEGATIONS ARE REAL AND HAVE BEEN REAL
Our economy has collapsed and it will continue to collapse, but much of this could have been avoided had our warnings been heeded long ago. Despite the collapse of American economy and the distress of the everyday American, the banks and Wall Street institutions have profited obscenely. To add insult to catastrophic economic injury, the banks have doubled down on the abuse, slurping up billions in additional taxpayer dollars then doing nothing for the Americans that gave them this money.
This is not just my opinion, please click on the December 2, 2010 link below to hear a hearing before the House Judiciary Committee for a four hour long discussion on these issues.
AS YOU CONTINUE YOUR OUTREACH AND DISCUSSIONS WITH JUDGES, PRESS AND THE GENERAL PUBLIC, IT’S IMPORTANT TO REMIND THEM THAT YOUR ALLEGATIONS OF FRAUD, ABUSE AND LACK OF STANDING ARE NO LONGER YOUR OPINIONS, THEY ARE RECORD AND ESTABLISHED FACT THAT HAS BEEN ENTERED INTO THE CONGRESSIONAL RECORD.
Open the link below and keep it running in the background as you go about your work
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Scridb filter
MERS is a corporate creature created to fulfill the objectives of the securitization marketplace. As the securitization model has unraveled, focus again shifts to the role of MERS in the debacle that is the American system of property ownership. The attached exhibits offer insight into the legal gymnastics required to perpetuate the MERS scheme which was developed, as Judge Walt Logan noted, without formal legislative approval. It really is astonishing that this entire construct was implemented and tacitly consented to without formal intervention…astonishing….
If you believe, like I do, that the whole mortgage securitization system is in disarray and that the disarray will produce collapse, you really want to go back and read these transcripts and orders. It would be very interesting to consider where we would all be today if we had all paid heed to the concerns raised by these judges way back when….long before all this mess was allowed to proliferate. Wouldn’t it be interesting to talk to these judges today to find out what they think of the current fix we’re in?
MERS v. Azize – Appellant’s Brief
MERS v. Cabrera (Gordon) – MERS is a sham
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There is a much larger picture here than any of us can possibly comprehend. Did we all just get too smart for our own good? Is it at all possible that all of this crashing and billions of dollars sloshing around if just accidental or random occurrences?
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The attached lawsuit provides important and valuable information about Indymac generally that can be useful in every Indymac case. Now I didn’t read the entire 317 page lawsuit, but I poured through the first hundred or so pages. It provides very detailed insight into the corporate culture that led to the collapse of Indymac.
Remember as you are engaged in foreclosure litigation on behalf of homeowners that the federal government, through the FDIC, concocted a sweetheart deal where yet another group of fat cat Wall Street types will undoubtedly make obscene profits while you and I (and the homeowner being sued for foreclosure) will absorb all the risk and loss. It is with this in mind that Indymac/Onewest homeowner foreclosure cases sting me so badly. In my equitable world, if you’ve got an Indymac foreclosure they would be forced to accept a most generous modification or short sale in order to set off the phenomenal deal that’s already been done…..but then that’s the fantasy world I live in…..
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A misrepresentation is fraudulent if the maker (a) knows or believes that the matter is not as he represents it to be, (b) does not have the confidence in the accuracy of his representation that he states or implies, or (c) knows that he does not have the basis for his representation that he states or implies.
Inflated values were a solution to a lack of borrowers. Demand was so great for the pools that they had to find a way to expand the market, and trigger the defaults.
The appraisal is not undertaken to determine the value of the property so much as to satisfy the underwriter that the risk is acceptable.
From Stephen Bishop
Op-Ed: The Role of Appraisal Inflation in Loan Securitization
By George W. Mantor Print Article
RISMEDIA, July 13, 2010—Street level appraisers have been getting a lot of heat for their role in the rise and collapse of real estate values and most of it is unfair. Without exception, every appraiser I have ever met was professional, direct, and considered the facts when arriving at his or her opinion of value.
That isn’t to say that there aren’t dishonest appraisers. I’m certain that just like any occupation, the percentage of bad apples probably mirrors the population in general.
And, there is no question that there is pressure, both subtle and not so subtle, to hit the “right number.” Opportunities certainly exist for appraisers to profit from either inflating or deflating values. But, blaming them or suggesting that they were responsible for the crash, fails to acknowledge the parties who had the most to gain from inflating values—like Wall Street.
Much of the misunderstanding emanates from an inaccurate view of the residential appraisal and its role in financing. The appraisal is not undertaken to determine the value of the property so much as to satisfy the underwriter that the risk is acceptable.
People are often shocked to discover that the appraiser already knows the contract price. But, the appraiser’s purpose is simply to verify that on the day in question, comparable properties were selling for similar prices.
It is but one piece of the financial intermediaries’ efforts at controlling risk. If the ability to collect on credit default swaps was contingent on a certain percentage of loans failing within a particular pool, then controlling risk is vital.
The appraisal is also part of the documentation used to support the quality of loans in a securitized pool. The financial intermediary wants the investor to believe that the value of the security is sufficient to justify the risk.
Comparable properties or “comps” are the meat and potatoes of the vast majority of residential appraisals.
There are other types of appraisal methods employed by lenders depending on either the uniqueness or complexity of the property being offered as security. But, for most residential lending purposes, underwriters rely on the comparable property method.
Most of the housing stock of the last fifty years has been tract development, both vertical and horizontal, offering only a few variations among thousands of homes.
Large areas of homogeneous housing make valuing homes fairly simple. They are a commodity. If they are clustered together, one can quickly see what a buyer in that area has to choose from.
That’s it. No complex algorithms or cryptic equations, just the principle of substitution. And that can change overnight if certain events occur.
Anything that brings more homes to market than the natural pace of activity can absorb will drive down the prices that buyers will negotiate.
One of the remarkable things about the period from 2004 to 2007 was the buyer’s willingness to pay more and more, and doing so because they believed that the replacement cost, i.e. the price of new construction was rising dramatically.
It is no mystery why the states that had the greatest amount of large scale new home construction also had the fastest appreciation rate despite the fact that you would think that all that over-building would keep prices flat or drive them down—but, no.
But, Wall Street had even more to gain than builders. Inflated values were a solution to a lack of borrowers. Demand was so great for the pools that they had to find a way to expand the market, and trigger the defaults.
They keep getting away with saying they didn’t know this would happen, and I keep saying that every consequence of this financial debacle was not only known to them, it was planned for, lobbied for, implemented by them in contravention of so many laws and regulations that run the gamut from local, city, county, state and federal that it suggests that there is literally nothing they would not do to make a buck.
They absolutely knew the consequences and got rich from them.
Remember, risk analysis is what they do. They are researchers, social scientists, accountants and lawyers.
They analyze risk and, as part of their business model, they are always keenly aware of value trends. They knew that one of the factors that would influence defaults would be a steep drop in values that would prevent the refis they promised and contribute to defaults across all pools of loans.
You may wonder, what difference does it make if they knew or didn’t know the consequences? It’s an element of proving fraud.
A misrepresentation is fraudulent if the maker (a) knows or believes that the matter is not as he represents it to be, (b) does not have the confidence in the accuracy of his representation that he states or implies, or (c) knows that he does not have the basis for his representation that he states or implies.
We keep forgetting the tool in all of this was information. The financial intermediaries had it and they studied it, and their denials that they knew this would happen fail in the face of their own research.
I found an interesting piece of that research, a little 20 page document called innocuously enough, “Global Economic Paper No. 177.”
It is produced by none other than Goldman Sachs Research Staff and its subject is Home Prices and Credit Losses.
“Regarding mortgage credit performance, feeding the predictions from the home price sales model into the mortgage loss model…”
Did you get that? They actually have pricing and default models. They know exactly what a home is really worth and they don’t even need an appraiser.
They knew exactly what circumstances were contributing factors to default.
They knew that the inclusion of certain terms in mortgage loan documents would cause foreclosure rates, which historically ran around 1% annually, to skyrocket to over 10%. Currently, as of mid-July 2010, nearly 13% of home loans are in default.
As a result, about a quarter of American homeowners have negative equity in their homes. Had the values been real, they would have held.
They knew that there were not nearly enough borrowers to place into loan pools to satisfy the demand.
They knew that wages had stagnated and affordability was becoming prohibitive to further lending.
The key to it all—inflated appraisals.
George Mantor is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.His articles have also recently appeared in Real Estate Finance, The Real Estate Professional, National Real Estate Investor, Broker Agent News, and Realty Times. His blog is http://www.realtown.com/gwmantor/blog.
RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.
I’ll tell you what… there are times in life when you’ve just got to love Texas. People in Texas just don’t like getting misled, lied to, pushed around, and generally abused, so it’s not a great place for banks to do what banks do. But apparently, Bank of America is just as abusive to the homeowners in Texas as they are to the homeowners in the other 49 states, and they’re being treated to a little Texas hospitality as a result.
The Texas Housing Justice League and 15 Texas homeowners have filed suit against Bank of America N.A. and its subsidiary, BAC Home Loans Servicing, alleging abusive servicing practices. I’m not saying that homeowners in other states aren’t just as upset about being abused by the banks, but it’s the homeowners in Texas that aren’t just complaining, they’ve banded together to file the suit, and I’m guessing that not only is this going to be interesting, but it’s probably only the beginning of these types of actions.
I’ve said it before, I’ve even told bankers before… the banks may have taken an early lead against homeowners in this crisis, and they may think they’re winning, but in this country, if you push people far enough, they’re going to fight back. And in the long run, Americans have a long history of coming out on top, as in… would you like a torch or a pitchfork?
The lawsuit, filed in US District Court, Southern District of Texas, Victoria Division, describes:
“… a systematic home loan servicing scheme that includes hours of telephone runaround, misleading and inconsistent information, lost correspondence, verbal abuse, and extensive delay, all of which have documented costs not only in terms of money, but in health. The facts in this case reveal the harsh reality that underlies the loan servicer’s press statements about loan modifications and forbearance agreements following collapse of the U.S. housing market.”
Yeah, that sounds about right. I’d recognize Bank of America anywhere.
I’m no lawyer, but is Bank of America going to dispute these allegations, or just stipulate to them and go from there? Because I would think even the judge would have to suppress the urge to snicker if the Bank of America lawyer started out by saying the bank didn’t do what the homeowners are alleging.
As in: “It’s not true, your honor.” HAHAHAHAHAHAHAHA… “Order in the court, this court will come to order.” Isn’t that about how that would go?
Here are some of the highlights from the complaint:
“Many of the Plaintiffs were told that they were eligible for loan modifications or other workout assistance, only to spend months being shuffled through Defendant BAC’s “Home Retention,” “HOPE”, “Foreclosure,” “Bankruptcy” and “Collections” departments with no resolution.”
Okay, so that’s standard operating procedure at Bank of America, right? I mean, they probably have a manual that describes that runaround, wouldn’t you think?
“Others simply wanted to know that they had been reviewed accurately for eligibility in any available programs, that a denial of assistance was final, and that their arrearage had been correctly calculated. Instead of providing Plaintiffs with basic information about the servicing of their loans and providing timely screenings for workout assistance, however, Defendant BAC misrepresented material information to the Plaintiffs about their loans, and forced them into a scheme of operation so dysfunctional that the constant barrage of misinformation, misdirection, and deliberate inactivity amounted to abuse and harassment.”
“Plaintiffs describe feeling “harassed,” “like a yo-yo,” and “blocked at every turn.”
Are you loving this as much as I am? A yo-yo, huh? I like it… I might have used a different metaphor, but I suppose in court you can’t just say what you’d want to say.
“When Plaintiffs called Defendant BAC the information they received over the telephone often conflicted with written statements or prior telephone conversations. In many of the telephone calls Defendant BAC spun Plaintiffs in a labyrinth of transfers from one department to another and back again. Plaintiffs spent hundreds of hours on the telephone, explaining their stories to a different person each time they called; often they were transferred between departments, knowing they would never speak to the same person again, and wondering if the information being provided would be contradicted by the next person they spoke with. Often, it was.”
Oh my God, I wish I made money at this, because I’d love to be able to go to Texas and watch this case proceed in person. It’s going to be one for the books, that’s for sure. I’m thinking there would have to be some stand up and cheer moments. And I wonder how much trouble I’d get in for throwing rotten tomatoes at Bank of America’s lawyer in the parking lot. I know, so immature, but guess what? I know you are, but what am I?
What’s interesting about this case is that they’re using RESPA, the Real Estate Settlement and Procedures Act, as the basis for the complaint. As in…
RESPA Count: Part A
Plaintiffs each sent Defendant BAC written applications for a loan modification, including a hardship affidavit, and written submissions of financial information that were “qualified written requests” within the meaning of RESPA, in that Plaintiffs sought information about their eligibility for a loan modification or other methods to minimize their losses.
The complaint also describes how special it is to call Bank of America on the phone.
“Requests to speak with supervisors or managers were met with resistance. During the course of telephone calls to Defendant BAC, Plaintiffs often found themselves disconnected after waiting on hold to speak to a supervisor, or were told that no supervisors were available. Some Plaintiffs sought out face-to-face interviews by contacting Bank of America branch offices, but simply found themselves on speakerphones with the same unaccountable departments that had previously been providing them with misinformation by telephone.”
Well, wait a minute… maybe they should have tried communicating with Bank of America in writing, instead of just by phone. Could be… right? Maybe they just don’t have good phone skills.
“Written communications did not fare better. Plaintiffs’ written submissions were often lost or misplaced. Plaintiffs were asked to sign the same documents three, four or even five times, and were asked to provide the same information repeatedly. Many of the Plaintiffs were assigned multiple “negotiators” who would not return telephone calls, or provide timely information to Plaintiffs.”
Oh well, I guess not. So, maybe Bank of America is hoping that the judge will think that it’s all just an isolated incident, and that it’s not something that happens to everyone.
“Plaintiffs’ experiences are not isolated incidents, but instead reveal a pattern and practice by Defendant BAC of deliberately misinforming borrowers in default or at risk of default, and refusing to respond to Plaintiffs’ legitimate, written and oral requests for information.”
Whoops… I guess that’s not going to be an easy case to make either. So, what about the damages?
Damages
Plaintiffs suffered damages including, but not limited to loss of credit, foreclosure, emotional harm, embarrassment and humiliation. Plaintiffs’ damages were proximately caused by Defendant BAC’s noncompliance with the requirements of the mortgage servicer provisions of RESPA.
Defendant BAC has engaged in a pattern and practice of non-compliance with the requirements of the mortgage servicer provisions of RESPA, and Plaintiffs seek $1,000 in statutory damages per violation.
Plaintiffs seek attorney fees under 12 U.S.C. § 2605(f)(3).
So, anyway… there’s of course a lot more involved and I’m not going to include it all in this article, or it will be longer than my usual articles, and that would make it REALLY LONG, I realize. Here are the other Counts listed in the complaint, but I’ll provide a link at the bottom to the actual complaint, so the attorneys reading this can dive right in to the details. But here’s the overview:
Count Two: Breach of Contract – Loan Modification Agreement
Count Three: Breach of Contract – Forbearance Agreement
Count Four: Breach of Contract-Promissory Note and Deed of Trust
Count Five: Violation of the Texas Property Code
Count Six: Breach of Oral Contract-HAMP Trial Modification
Count Seven: Unreasonable Collection Efforts
Count Eight: Intentional Misrepresentation
Count Nine: Texas Debt Collection Act
Here’s how the complaint wraps up, with that wonderful Request for Relief section that always asks for the order, as they say in the sales biz. And this one’s a good read.
REQUEST FOR RELIEF
A home is uniquely valuable. It is the largest investment many low income Texans will make in their lifetimes, and provides one of the few opportunities for low income Texans to build wealth. But a home is also where many of the Plaintiffs and other low income Texans raise their children and accumulate their memories. Misrepresentations that jeopardize a borrower’s home are unconscionable and the damage is irreparable. Defendant BAC’s misrepresentations to borrowers are systemic in nature and widespread in practice. Plaintiffs therefore ask that this court:
(1) Enter a temporary and permanent injunction that Defendant BAC, including its agents employees and contractors, refrain from practices, policies, and plans that result in or increase Defendants’ misrepresentations, errors, falsehoods, barriers to timely, accurate communication with Plaintiffs which are identified by the Court through the course of this litigation;
(2) Award each individual Plaintiff their actual, statutory, and exemplary damages;
(3) Award Plaintiffs their costs and attorney fees; and
(4) Grant such other relief as Court finds necessary and just.
Here’s a link to the actual complaint: 15 Texas Homeowners v. Bank of America.
Although for lawyers, I’m sure I’m stating the obvious, but for others… RESPA is a federal statute so I would think that this sort of thing could be happening all over the place… like in all 50 states. And it’s also worth mentioning that what Bank of America is accused of here, is every bit as true for Chase, Wells, One West, US Bank, Aurora, Saxon… are you feeling me here? Come on, multiply the number of banks and servicers times fifty states, and before you know it we could be having a national block party… I’ll bring the beer.
So, let’s all keep an eye on this, okay? And not throw in the towel just yet. There’s a lot going on around this country related to the foreclosure crisis. We’re in a river, not a lake… the water we’re standing in today, won’t be the same water we’ll stand in tomorrow.
We have to win this eventually, we just have to. We cannot just let this country deteriorate into a depressed land of inequality, lacking in opportunity, rife with corruption, besieged by poverty and dominated by a small oligarchy of immensely wealthy bankers and corporate executives who drive our elected officials like slaves. Think that’s too dramatic? Do you? Which part, specifically?
We cannot lose this. I have a daughter.
What We Know (and Don’t Want to Know) About Housing Today, June 16, 2010, 34 minutes ago | noreply@blogger.com (Charles Hugh Smith) The housing market is doomed in the U.S., and the causal factors are all well-known. But we don’t want to know, because that knowledge would re-order the American culture and economy.
Yesterday I suggested that what we don’t want to know is as important as what we know/don’t know. We know housing values are artificially and unsustainably high, but we don’t want to know this.
About two-thirds of U.S. households own a house (75 million); 51 million have a mortgage and 24 million own homes free and clear (no mortgage). Most of the other 36 million households are moderate/low income and have limited or no access to credit and limited or no assets.
Who benefits from a housing market propped up by massive government subsidies? The homebuilders, lenders and real estate industries, of course, but the 75 million “stakeholders” in the housing market also want to believe the market is “fairly priced” and bound to recover its bubble-era heights.
Why? As I reported in Housing and the Collapse of Upward Mobility (April 16, 2010), the stupendous equity extraction of the bubble years left U.S. homeowners with little equity in their homes. The bursting of the housing bubble thus effectively destroyed most of the middle-class wealth held in housing:
If we look up all the gory details in theFed Flow of Funds, we find that household real estate fell from $23 trillion in 2006 to $16.5 trillion at the end of 2009. That is a decline of $6.5 trillion, more than half the total $11 trillion lost in the credit/housing bust.
Home mortgages have fallen a negligible amount, from $10.48 trillion in 2007 to $10.26 trillion at the end of 2009. As of the end of 2009, total equity in household real estate was a paltry $6.24 trillion of which about $5.25 trillion was held in free-and-clear homes (32% of all household real estate, i.e. 32% of $16.5 trillion).
That leaves about $1 trillion–a mere 1.85% of the nation’s total net
worth– of equity in the 51 million homes with mortgages.
The orgy of speculation, leverage and debt incentivized by the credit/housing bubble of 2000-2006 has, in the aftermath of the bubble’s bursting, destroyed most of the nation’s middle-class wealth.
In effect, three generations of accumulated equity was blown off in “wannabe wealthy” consumption and speculation.
That $6 trillion in wealth is gone. For many households, that was the majority of their wealth. Naturally, all of us who saw the value of our property skyrocket in the bubble years want those valuations (and all that equity/wealth) back.
But it is not to be, for fundamental, undeniable reasons.
1. There is a gargantuan oversupply of homes. U.S. vacant housing hits record 19 million:
The number of vacant housing units in the United States increased to a record
19 million in the first quarter of the year, up from 18.9 million in the fourth quarter. In the past year, the housing inventory rose by
1.14 million to 130.9 million, while occupied homes increased by 1.07 million to 111.9 million.
According to Census data, perhaps 4-5 million of these are truly second/vacation homes. We can estimate that several million other houses might be located in places no one wants to live any more, or they are no longer habitable. Deduct as many millions as you plausibly can, and you still have 10+ million vacant dwellings.
In the best-case scenario, it will take nine years to unload current inventory:
104 months to clear housing inventory, shadow inventory.
Basic supply and demand suggests that prices must fall as supply far exceeds demand.
Since Baby Boomers will be downsizing and defaulting for years to come, the supply of homes for sale could easily expand beyond today’s inventory.
2. The generations following the Baby Boomers are not numerous enough to provide demand for more housing. I reported the unyielding facts of demographics in Housing Headwinds and Baby Boom Demographics (April 13, 2010). As the baby Boom downsizes and defaults en masse, there aren’t enough potential buyers to soak up all the suburban homes and second homes that the Boomers will be selling.
3. The entire mortgage market has been socialized by the Federal government, which is poised to lose hundreds of billions of dollars propping up the housing market.
Wake-Up Time for a Dream:
As wards of the state, Fannie and Freddie are insuring three out of every four mortgages. Most of the remaining 25 percent are being guaranteed by the F.H.A. As much as you might resent the fact that the taxpayers now have to pick up behind new Fannie and Freddie, the sad truth is that without them, no one in America would be able to buy a home.
Literally 99% of the mortgages are government-backed: With a big boost from the Feds, investors again like securities backed by assets:
(In 2009), government-backed loans have accounted for 99%, or $1.5 trillion, of mortgage securities. Banks and other private firms have issued a mere $15 billion. In addition, the Federal Reserve and Treasury have spent nearly $1.25 trillion buying those bonds to support the housing and broader credit markets. “The government is literally plowing trillions of dollars into the U.S. mortgage market to keep it afloat,” says Guy D. Cecala, publisher of Inside Mortgage Finance.
Meanwhile, the costs of this unprecedented subsidy of housing may cost
$1 trillion in losses on Fannie and Freddie alone.
4. The Roots of the Housing Bubble Remain Unchanged: moral hazard, unregulated risk, extreme leverage, fraud, you name it–nothing’s changed.
5. Defaults and foreclosures will dump millions more homes on the market.
The default rate on low-down-payment FHA loans is a staggering 20% on loans written in 2008–after the housing bust had already unfolded and the risk was undeniable: F.H.A. Problems Raising Concern of Policy
Makers:
F.H.A. commissioner, David H. Stevens, acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure.
The problem with that willingness to absorb risk for the sake of incentivizing borrowing for home ownership is that next year another 20% will default, and then the following year another 20% will default, and by year Five the vast majority of those loans backed by FHA will be in default.
FHA Facing “Cataclysmic” Default Rates:
The Federal Housing Administration (FHA) has guaranteed about 25% of all new U.S. mortgages written in 2009, up from just 2% in 2005.
6. Mortgage re-sets will trigger additional defaults. The chart says it all:
Not knowing and/or not believing will not change the negative dynamics of the housing market.
It was like a hidden passage on Wall Street, a secret channel that enabled billions of dollars to flow through Lehman Brothers.
In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.
While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.
None of this was disclosed by Lehman, however.
Entities like Hudson Castle are part of a vast financial system that operates in the shadows of Wall Street, largely beyond the reach of banking regulators. These entities enable banks to exchange investments for cash to finance their operations and, at times, make their finances look stronger than they are.
Critics say that such deals helped Lehman and other banks temporarily transfer their exposure to the risky investments tied to subprime mortgages and commercial real estate. Even now, a year and a half after Lehman’s collapse, major banks still undertake such transactions with businesses whose names, like Hudson Castle’s, are rarely mentioned outside of footnotes in financial statements, if at all.
The Securities and Exchange Commission is examining various creative borrowing tactics used by some 20 financial companies. A Congressional panel investigating the financial crisis also plans to examine such deals at a hearing in May to focus on Lehman and Bear Stearns, according to two people knowledgeable about the panel’s plans.
Most of these deals are legal. But certain Lehman transactions crossed the line, according to the account of the bank’s demise prepared by an examiner of the bank. Hudson Castle was not mentioned in that report, released last month, which concluded that some of Lehman’s bookkeeping was “materially misleading.” The report did not say that Hudson was involved in the misleading accounting.
At several points, Lehman did transactions greater than $1 billion with Hudson vehicles, but it is unclear how much money was involved since 2001.
Still, accounting experts say the shadow financial system needs some sunlight.
“How can anyone — regulators, investors or anyone — understand what’s in these financial statements if they have to dig 15 layers deep to find these kinds of interlocking relationships and these kinds of transactions?” said Francine McKenna, an accounting consultant who has examined the financial crisis on her blog, re: The Auditors. “Everybody’s talking about preventing the next crisis, but they can’t prevent the next crisis if they don’t understand all these incestuous relationships.”
The story of Lehman and Hudson Castle begins in 2001, when the housing bubble was just starting to inflate. That year, Lehman spent $7 million to buy into a small financial company, IBEX Capital Markets, which later became Hudson Castle.
From the start, Hudson Castle lived in Lehman’s shadow. According to a 2001 memorandum given to The New York Times, as well as interviews with seven former employees at Lehman and Hudson Castle, Lehman exerted an unusual level of control over the firm. Lehman, the memorandum said, would serve “as the internal and external ‘gatekeeper’ for all business activities conducted by the firm.”
The deal was proposed by Kyle Miller, who worked at Lehman. In the memorandum, Mr. Miller wrote that Lehman’s investment in Hudson Castle would give the bank and its clients access to financing while preventing “headline risk” if any of its deals went south. It would also reduce Lehman’s “moral obligation” to support its off-balance sheet vehicles, he wrote. The arrangement would maximize Lehman’s control over Hudson Castle “without jeopardizing the off-balance sheet accounting treatment.”
Mr. Miller became president of Hudson Castle and brought several Lehman employees with him. Through a Hudson Castle spokesman, Mr. Miller declined a request for an interview.
The spokesman did not dispute the 2001 memorandum but said the relationship with Lehman had evolved. After 2004, “all funding decisions at Hudson Castle were solely made by the management team and neither the board of directors nor Lehman Brothers participated in or influenced those decisions in any way,” he said, adding that Lehman was only a tenth of Hudson’s revenue.
Still, Lehman never told its shareholders about the arrangement. Nor did Moody’s choose to mention it in its credit ratings reports on Hudson Castle’s vehicles. Former Lehman workers, who spoke on the condition that they not be named because of confidentiality agreements with the bank, offered conflicting accounts of the bank’s relationship with Hudson Castle.
One said Lehman bought into Hudson Castle to compete with the big commercial banks like Citigroup, which had a greater ability to lend to corporate clients. “There were no bad intentions around any of this stuff,” this person said.
But another former employee said he was leery of the arrangement from the start. “Lehman wanted to have a company it controlled, but to the outside world be able to act like it was arm’s length,” this person said.
Typically, companies are required to disclose only material investments or purchases of public companies. Hudson Castle was neither.
Nonetheless, Hudson Castle was central to some Lehman deals up until the bank collapsed.
“This should have been disclosed, given how critical this relationship was,” said Elizabeth Nowicki, a professor at Boston University and a former lawyer at the S.E.C. “Part of the problems with all these bank failures is there were a lot of secondary actors — there were lawyers, accountants, and here you have a secondary company that was helping conceal the true state of Lehman.”
Until 2004, Hudson had an agreement with Lehman that blocked it from working with the investment bank’s competitors, but in 2004, that deal ended, and Lehman reduced its number of board seats to one, from five, according to two people with direct knowledge of the situation and an internal Hudson Castle document. Lehman remained Hudson’s largest shareholder, and its management remained close to important Lehman officials.
Hudson Castle created at least four separate legal entities to borrow money in the markets by issuing short-term i.o.u.’s to investors. It then used that money to make loans to Lehman and other financial companies, often via repurchase agreements, or repos. In repos, banks typically sell assets and promise to buy them back at a set price in the future.
One of the vehicles that Hudson Castle created was called Fenway, which was often used to lend to Lehman, including in the summer of 2008, as the investment bank foundered. Because of that relationship, Hudson Castle is now the second-largest creditor in the Lehman Estate, after JPMorgan Chase. Hudson Castle, which is still in business, doing similar work for other banks, bought out Lehman’s stake last year. The firm’s spokesman said Hudson operated independently in the Fenway deal in the summer of 2008.
Hudson Castle might have walked away earlier if not for Fenway’s ties to Lehman. Lehman itself bought $3 billion of Fenway notes just before its bankruptcy that, in turn, were used to back a loan from Fenway to a Lehman subsidiary. The loan was secured by part of Lehman’s investment in a California property developer, SunCal, which also collapsed. At the time, other lenders were already growing uneasy about dealing with Lehman.
Further complicating the arrangement, Lehman later pledged those Fenway notes to JPMorgan as collateral for still other loans as Lehman began to founder. When JPMorgan realized the circular relationship, “JPMorgan concluded that Fenway was worth practically nothing,” according the report prepared by the court examiner of Lehman.
And THAT is why you are entitled to compel discovery, compel answers to your QWR, DVL and other requests. If the losses were not real, if the pools were marked down solely on the say-so of the financial institutions that created them, if the default rate was really much lower than the declared defaults, if AMBAC, AIG and others made payments on those pools, and if the investors, as the creditors in the loan transactions received payments directly or indirectly (through their agents) then some part of those payments were allocatable and should be allocated to your loan. Thus all loans in the pool should be credited pro rata with the amounts received from third party payments. Homeowner obligations declared in default would then be either premature or incorrectly stated in the amount due. Other loans that were not delinquent should have had the principal reduced — none of which was accounted for because the intermediary pretender lenders kept the money for themselves.
Editor’s Note: Ambac’s Profit Surge is the result of illusory losses that are now being recaptured. The “game” was to declare huge losses, take in taxpayer dollars and then gradually filter the money back into the company thus creating guaranteed earnings rising steadily and thus providing an increase in the price-earnings ratio. The investment houses are doing the same thing. They made trillions of dollars is cash profits, declared trillions in paper losses and scared the public and government into giving them money to prevent the collapse of the financial system.
Since trust and confidence in the system is the foundation, it didn’t matter whether they were telling the truth as long as most people believed the lie. The taxpayer bailout was necessary as a symbolic gesture to assure the world that there was always backing by the U.S. Federal government.
The question for these institutions is whether the defaults in home loans were declared prematurely (or falsely) or even caused by policies designed to give credence to the big lie and to provide them with yet another source of windfall profits by picking up homes that are sold in foreclosure at a fraction of the original loan amount. As stated in numerous articles before on this blog, the ONLY people who actually lost money are the investors who advanced the real money into a pool that was used to fund mortgage closings (and also used to fund absurd profits on fees, yield spread premiums etc.) and the homeowners who advanced their homes as collateral on loan products that were sold to them under false pretenses. Both the mortgage backed securities and the loans were sham financial transactions.
And THAT is why you are entitled to compel discovery, compel answers to your QWR, DVL and other requests. If the losses were not real, if the pools were marked down solely on the say-so of the financial institutions that created them, if the default rate was really much lower than the declared defaults, if AMBAC, AIG and others made payments on those pools, and if the investors, as the creditors in the loan transactions received payments directly or indirectly (through their agents) then some part of those payments were allocatable and should be allocated to your loan. Thus all loans in the pool should be credited pro rata with the amounts received from third party payments. Homeowner obligations declared in default would then be either premature or incorrectly stated in the amount due. Other loans that were not delinquent should have had the principal reduced — none of which was accounted for because the intermediary pretender lenders kept the money for themselves.
By Alistair Barr & John Spence, MarketWatch
SAN FRANCISCO (MarketWatch) — Ambac Financial Group Inc. shares surged 71% on heavy volume Friday, after the bond insurer said it swung to a fourth-quarter net profit.
Ambac (ABK 1.10, +0.46, +71.47%) said late Thursday that quarterly net income was $558.1 million, or $1.93 a share. That compares with a net loss of $2.34 billion or $8.14 a share in the same period a year earlier.
The improvement was mainly driven by a $472 million tax benefit, the company said, as well as by lower expenses from losses in its main financial-guarantee business.
Total net loss and loss expenses were $385.4 million in the fourth quarter of 2009, down from $916.4 million in the final quarter of 2008, Ambac reported.
Ambac, one of the world’s largest bond insurers, has been hit hard by losses from mortgage-related guarantees it sold during the housing-market boom of the last decade. When the real-estate market collapsed, Ambac was left paying big claims on those guarantees.
Last month, the regulator of Ambac’s main bond-insurance subsidiary, Wisconsin’s Office of the Commissioner of Insurance, seized a big chunk of its business to protect hundreds of billions of dollars in guarantees on municipal bonds. See Read about Ambac “amputation.”
Ambac also has been settling some of its obligations at large discounts, partly because counterparties worry that the bond insurer is too financially precarious to pay anywhere near 100 cents on the dollar on its guarantees.
“The transfer of structured finance obligations to the state regulator and the subsequent payment at a discounted rate is a de-facto default,” said Egan-Jones Ratings, a rating agency that’s paid by investors rather than issuers, on Friday. “However, credit quality of the remaining corpus is enhanced.”
Egan-Jones affirmed its rating on Ambac at BB+, but noted this rating only applies to the business units that aren’t seized by the Wisconsin regulator.
Shares of Ambac dropped after the seizure was announced, and recently traded near 50 cents. The company’s stock traded close to $100 before the financial crisis.
On Friday, the stock surged 71% to close at $1.10 as almost 200 million shares changed hands. The average weekly trading volume is 72 million shares, according to FactSet data.
Still, Jim Ryan, an equity analyst at Morningstar, said Ambac’s quarterly results weren’t as strong as suggested by the company’s reported net income of $1.93 a share.
“For all the favorable accounting benefits, the fact remains that Ambac has not written any new business in more than a year and continues to exist in runoff mode,” Ryan wrote in a note to investors on Friday.
When analyzing insurers in “runoff,” investors should try to work out whether there are enough reserves to settle claims on existing policies, Ryan explained.
Ambac’s qualified statutory capital fell almost 70% in 2009 while total claims paying resources dropped 20% for the year, he noted.
“With little improvement in the housing market (Ambac’s primary source of claims) and the potential for a double dip in housing prices on the horizon, which could contribute to the growing inventory of potential foreclosures, we think the future remains opaque, to say the least,” Ryan wrote.
Alistair Barr is a reporter for MarketWatch in San Francisco. John Spence is a reporter for MarketWatch in Boston.
Privately-held real estate company Fairfield Residential LLC filed for bankruptcy protection on Sunday, saying that the collapse of the U.S. real estate and capital markets has made it difficult to continue without restructuring.
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