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Aug
16

Countrywide settlement pays fraction to investors – Shell Game Continues

By | Foreclosure Blog News, Homeowner Resources, Weidner

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EDITOR’S NOTE: The shell game continues. While the media picks up stories about “settlements” giving rise to the presumption that Countrywide Home Loans and Bank of America and the rest of the securitization players committed various violations of statutes, duties, rules and regulations, the main point gets lost. Where is this money going and WHY? What is the tacit or express admission in paying that money and what effect does it have on the average homeowner sitting with a loan whose obligation is being paid in these settlements?

Think about it. If Bank of America, which now owns Countrywide, is paying “fractions” to investors who purchased mortgage bonds then who is it that owns the underlying mortgages and loans? Did Bank of America pay the investors do it under a reservation of rights (subrogation) to enforce the underlying loans? If not, then why are they foreclosing? All evidence is to the contrary. There is no subrogation under these purchases, insurance, credit default swaps or any other contract — not that I ever saw and not that my sources in the industry tell me was ever even contemplated much less executed. The same holds true for all those bonds the Federal Reserve is holding.

If Bank of America is paying “fractions” to investors who purchased mortgage bonds, why was it a fraction? Is it because the value of the bond was much lower than the price paid by the investor? Is it just a convenient settlement? Or is it because the investors have also received funds from other sources?

This is what I am referring to when I address “factual constipation.” How are these payments being allocated? Did the owners of the bonds actually have any definable interest in the underlying mortgage loans? If they did, why are these payments not being allocated to the obligations or payments due under those underlying mortgage loans? If they didn’t, why did they get paid anything? How will we ever know without getting a full accounting from all the parties that claim some stake or ownership interest or receivable interest in me is underlying mortgage loans?

It is black letter law as well as common law dating back centuries that nobody can collect the same debt more than once. If they do collect more than once there is a clear right of action by the borrower to collect the excess payment through a lawsuit for unjust enrichment, breach of contract and other causes of action. Here we have an intentional act designed to collect the same debt multiple times. In my opinion this does not merely indicate the presence of an action for fraud, it clearly shows an interstate pattern of racketeering that at one time in our history had the Department of Justice and the FBI busy putting people in jail.

Only in America where the news has turned into an entertainment blitz used by those with the most power and the most money to get their message across, even if it is a total lie. Somehow many if not most people have the impression that the borrowers and the securitized mortgages executed between 2001 and 2009 are not entitled to the relief that any other debtor is entitled to receive––that is the obligation has been reduced for any reason, the borrowers should get credit and if any party receives money in excess of the net amount due after credits, the creditor becomes the debtor owing money to the former borrower.

The bullet point that is being used to distort the perception of our citizens and policymakers is that these borrowers should not get a  “free house.” Without getting a full accounting from all parties that advanced funds to and from the original investors who purchased mortgage bonds or collateralized debt obligations and related hedge products, there is no way of knowing the amount of the credit which is due to the borrower. Yes, it is possible that the amount received by the various intermediaries in the securitization chain exceeded the original obligation due from the borrower.

In that case, the borrower owes nothing to the originating lender or the successors to that lender. But if there is still a class of investor or institution that can prove a loss resulting from the nonpayment of the obligation by the borrower (as opposed to non-payment from other parties in the securitization chain) then the law allows that party to recover the loss from those that caused it.  That probably includes the borrower, which means that we are not seeking a free house, we are seeking a truthful accounting.

BUT the fact that this obligation theoretically exists does not mean and never did mean under any legal decision in existence that the obligation should be paid to anybody who claims it. By all substantive and procedural law, the obligation is payable to one who proves the obligation and to one who proves it is owed to them and nobody else.

Yet in the view of many judges the challenge by the borrower is viewed as a delay tactic or an attempt to use technical deficiencies to a gain a free house on a lawn that the borrower sought but could not pay.  No doubt this is true in some cases. But in nearly all the cases, armies of salespeople using names like “loan expert” pounded on doors and rang the phones of people who had no thought of borrowing money on homes, in many cases, that were debt-free and had been in the family for generations. Now many of those homes are bank owned property.

The simple question that needs to be posed to anyone who looks at the borrower as anything other than a victim is which is more likely? Did the owners of 20 million homes enter into a conspiracy to defraud the financial system, half society and our taxpayers? Did these people have the sophistication, education, knowledge, experience or training to pull off such a caper? Or is it more likely that the Wall Street titans stepped over the line and instead of increasing liquidity for the benefit of consumers and small businesses, used their position to deplete the resources of unsuspecting citizens, pension funds, financial institutions and governmental units from the top federal levels down to the smallest local geographical areas?

Countrywide settlement pays fraction to investors

By ALAN ZIBEL (AP) – Aug 3, 2010

WASHINGTON — Former shareholders of fallen mortgage giant Countrywide Financial Corp. are in line to recoup a fraction of their investments now that a Los Angeles judge has approved a settlement worth more than $600 million settlement.

The payoff doesn’t come close to compensating for the money lost by investors. But it could prompt more lenders to settle legal disputes at the center of the housing bust.

Bank of America, which bought Countrywide two years ago, agreed to pay $600 million to end a class-action case filed against the company. KPMG, Countrywide’s accounting firm, will pay $24 million.

Several New York pension funds who served as lead plaintiffs alleged that Countrywide hid how risky its business had become during the housing market’s boom years. Calabasas, Calif.-based Countrywide was once the nation’s largest mortgage lender.

The agreement stands to return about 40 cents per share of Countrywide’s common stock, before legal fees and expenses. Consider that the stock peaked at $45 a share in February 2007, before the financial crisis. So an investor who held 100 shares could bank on receiving $40 for an investment that was once worth $4,500.

Shareholders did receive 0.1822 shares of Bank of America’s stock for each share of Countrywide they owned when Bank of America acquired Countrywide. That worked out to about one share for every 5.5 shares of Countrywide stock. Shares of Bank of America closed at $14.34 on Tuesday. So that same 100 shares of Countrywide would be worth about $261 today in Bank of America stock.

Add the $40 from the settlement and those shares are now worth little more than $300.

Lawyers for the pension funds are requesting $56 million, or 4 cents per share, for fees and other costs.

Investors “will be compensated for a significant portion of the legal damages that they suffered as a result of what we believe was a violation of the securities laws,” said Joel Bernstein, a lawyer for the pension funds. “They won’t be compensated for every penny of that.”

Bank of America has been trying to put Countrywide’s legal problems behind it. In June, the Charlotte, N.C.-based company agreed to pay $108 million to settle the Federal Trade Commission’s charges that Countrywide collected outsized fees from about 200,000 borrowers facing foreclosure.

It reached a settlement Monday primarily to keep legal fees from escalating, a bank spokeswoman said.

“Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws,” said Shirley Norton, a spokeswoman for Bank of America. “We agreed to the settlement to avoid the additional expense and uncertainty associated with continued litigation.”

Plaintiffs attorneys have pursed lawsuits against numerous lenders and investment banks in the wake of the housing market’s devastating downturn, and the Countrywide settlement could encourage even more such cases, said Paul Hodgson, a senior research associate at The Corporate Library, an independent corporate governance research firm.

“There are a lot of suits out there waiting to get launched,” Hodgson said. “I think this is the opening of the floodgates.”

Former Countrywide CEO Angelo Mozilo, former President David Sambol, former CFO Eric Sieracki and former board members were named in the litigation but are not contributing to the settlement.

But it does not end their legal problems. More than a year ago the Securities and Exchange Commission brought civil fraud charges against Mozilo and the two other former executives. Mozilo, the most high-profile individual to face charges from the government in the aftermath of the financial crisis, has denied any wrongdoing.

For Countrywide, “This is only a chapter and not the end of the book,” said John Coffee, a securities law professor at Columbia University.


Filed under: bubble, CASES, CDO, CORRUPTION, education, evidence, expert witness, foreclosure, foreclosure mill, foreign relations, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Servicer, trustee Tagged: ALAN ZIBEL, AP, Bank of America, countrywide, Joel Bernstein, KPMG, New York pension funds
Jul
29

Mass Extinction of Pools Becomes Clearer

By | Foreclosure Blog News, Homeowner Resources

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Our good friend “Anonymous” has piped up with more vital information and expressed it more succinctly than I did.

“The senior tranches have largely already been paid and closed. Since the junior tranches are paid only if there is left over current payment – after the senior tranches have been paid. Thus, junior tranches are paid nothing (this is evident in investor lawsuits – damages do not deduct foreclosure recovery). If anything remains today from the toxic mortgage loan securitizations, it is the residual tranche – which has likely been resecuritized into a separate Trust – that is not a current pass-through security – but, rather, synthetically derived from a dismantled original Trust structure. “

Editor’s Note: In other words, if you have a high quality loan wherein you have a high credit score and received relatively good terms, it was in the “senior tranches.” The senior tranches were paid and closed. They were paid from the meager proceeds of the junior tranches, from insurance, credit default swaps etc. Bottom Line: If you got one of those mortgages, it has almost certainly been paid in full. So why are they still collecting your payments? Because they can.

Your obligation has most likely been satisfied long ago without any rights of subrogation. If you are in foreclosure now with one of these loans, the “Trustee” is in actuality out of the picture because the “Trust” was closed out (IF IT EVER LEGALLY EXISTED). All of this leads to the politically incorrect conclusion that people gt their houses for “nothing.” But that is not true.

ALL THE MONEY THAT WAS OWED ON THAT LOAN HAS BEEN PAID. WHY SHOULD ANYONE COLLECT ANYTHING FURTHER?

More comments from “Anonymous”

This is a very important post. I have been aware of cases where the defendant is sent to mediation without first identifying the real creditor. Some here have stated that the real party issue is not relevant because eventually the plaintiff will get his “ducks in a row” and proceed with the foreclosure under the real party name.

Not identifying the real party in court is not only fraud but also deprives the defendant of direct and timely negotiation with the real party true creditor. Thus, damages accrue to the defendant.

Although real party, in my opinion, is the single most important issue, I am not seeing courts enforce discovery to ascertain the real party. Once it can be established that the real party is not before the court, all the produced documents are also subject to question. I have seen cases where the real party is at issue – but most of the cases simply state that the plaintiff does not have standing – without attempting to demonstrate why the plaintiff is not the real party.

Since foreclosure cases most often are indicative of securitization, knowing the chain of sale/assignment in a securitization is crucial. Also, knowing what the “investors” are entitled to is important. Again, while I think this post is very important – i disagree with “there is nothing left to pay the investors who advanced money into a pool from which some mortgages were funded” 1) any investors who indirectly funded a “pool” – did not directly fund mortgages and 2) tranche “investors” – for which there a limited number of tranches – were only entitled to current income pass-through – not foreclosure recovery (which is not current and not passed on to pass-through security investors. (However, the residual tranche is not a pass-through – and is usually held by the servicer – who may -or may not be the current creditor). 3) the Trust is likely dissolved.

The fact that mediation is being conducted without identification of the current creditor – in whose name any modification must be contracted – is simply additional fraud upon the borrower defendant. This fraud is akin to “loan modification” scams that are being currently investigated by some state Department of Justices.

How and why the courts are allowing this to happen – and actually promoting it – is beyond me.

Editor’s Note: Legally this puts us at the horns of a dilemma. If we want to travel the path of “PAID IN FULL” then we are treading on the thin ice of accepting or admitting that the loan was actually legally and correctly assigned and indorsed into the pool, in addition to the usual “free house” talk.  If we travel the path of UNSUCCESSFUL ATTEMPTED ASSIGNMENT then we get to the conclusion that the loan is still owned by the originating lender, who was PAID IN FULL at the time of the loan closing, but still is the owner of record. If we travel both paths, we are presenting a highly complex argument that most judges won’t understand. This is why the winners out there are not making big splashes with exotic legal arguments (even though they would be right), the winners are getting down to the details that any Judge would understand — SHOW ME THE TRUST DOCUMENT, SHOW ME THE NOTE, SHOW ME THE ASSIGNMENT, SHOW ME THE INDORSEMENT, SHOW ME THE ACCOUNTING, SHOW ME THE CREDITOR ETC.

MANY THANKS, ANONYMOUS!!!


Filed under: bubble, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee Tagged: creditor, fraud, mediation, REAL PARTY IN INTEREST
Jul
14

Bank of America Says $10.7 Billion of Trades Wrongly Classified

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The bank transferred mortgage-backed securities to a trading partner with the idea of receiving different securities later and classifying the deals as sales, the Wall Street Journal reported yesterday. The securities the bank received were similar to those it got rid of, meaning the transactions can’t be considered sales, the newspaper said.

Bank of America had disclosed in a March 31 financial filing that “certain sales of agency mortgage-backed securities should have been recorded as secured borrowings rather than sales,” bank spokesman Jerry Dubrowski said. “The handful of transactions did not have a material impact on the company’s balance sheet or earnings. They need to be viewed in the context of our $2.3 trillion balance sheet.”

It sounds so benign, doesn’t it? What this means is that BofA was, as we all have been saying for years now, trading interests in mortgage backed securities (i.e., indirect or derived interests in the actual loans) for other mortgage backed securities. The real intent was to distance themselves from the original transactions. Who were they trading with? In all probability one of the other banks that wanted to do the same thing. Bottom Line: You can ONLY state with certainty that a pool exists that CLAIMS ownership of the loan and that the owners were at that point in time the investors who created the pool of money that was used to fund mortgages, along with enormous profits and fees that were both unearned and unreported. The current owners of the actual receivables from the loan payments, the receivables from insurance, credit defaults swaps etc., cannot be known without discovery or compliance with the QWR. These trades are not on any exchange where you can go look them up. They are secret.

And that is why the note, assignment and indorsements don’t show up until moments before a hearing. It is because they never existed up until that moment. And often the note is a color printout rather than the original. Look at the other side of the paper to see if there are any indentations. In plain language they said they were transferring the loan but never did. So if you have a performing loan, you’ll wait forever to see an assignment because they don’t want to create it, until some final resting place is required. They are keeping their options open until they MUST show the chain of ownership.

Bank of America Says $10.7 Billion of Trades Wrongly Classified

By David Mildenberg and Dakin Campbell – Jul 10, 2010

Bank of America Corp., the largest U.S. bank by assets, said it wrongly classified as much as $10.7 billion of short-term repurchase and lending transactions as sales from 2007 to 2009 to reduce its end-of-quarter assets.

Bank of America said the inaccuracies aren’t material and “don’t stem from any intentional misstatement of the Corporation’s financial statements and was not related to any fraud or deliberate error,” according to a May 13 letter released yesterday from the U.S. Securities and Exchange Commission.

“A $10.7 billion accounting error would be a material event for about 99.9 percent” of U.S. banks, said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University School of Law. “It’s hard to see how the SEC can accept BofA’s rejoinder as being sufficient.”

SEC spokesman John Nester declined to comment.

The SEC sent letters to finance chiefs at about two dozen firms in March asking whether they employed accounting strategies like those at Lehman Brothers Holdings Inc. The bankrupt securities firm was accused of using repurchase agreements called Repo 105s to move assets off its balance sheet to hide leverage, thereby improving its capital ratios.

$2.3 Trillion

Bank of America had disclosed in a March 31 financial filing that “certain sales of agency mortgage-backed securities should have been recorded as secured borrowings rather than sales,” bank spokesman Jerry Dubrowski said. “The handful of transactions did not have a material impact on the company’s balance sheet or earnings. They need to be viewed in the context of our $2.3 trillion balance sheet.”

In April, the SEC asked Bank of America to disclose whether its transactions were intentionally mislabeled, and to prove that the trades were immaterial. The Charlotte, North Carolina- based bank said in an April 13 letter that it stopped the transactions after the first quarter of 2009, the SEC said.

The Bank of America transactions involved six so-called dollar-roll trades completed during 2007, 2008 and 2009. The amount of the trades represented 0.1 percent of total assets in the December 2008 quarter and improved the company’s Tier 1 capital leverage ratio by one basis point, or one-hundredth of a percentage point, during the September 2008 quarter, the bank said.

Bank Review

The bank said in its May 13 letter it did an “extensive review” of repurchase agreements and similar transactions and didn’t find more errors. The mistakes didn’t affect credit ratings or management compensation, hide any failure to meet analysts’ consensus estimates, “mask” other trends or put the bank out of compliance with loan and capital requirements, the bank said.

Bank of America was led by Chief Executive Officer Kenneth D. Lewis from 2001 through the end of 2009, when he retired and was succeeded by Brian Moynihan. In January, Moynihan moved Joe Price, the chief financial officer since January 2007, to run the company’s consumer banking unit. In May, the bank hired former Northrup Grumman Corp. executive Charles Noski as CFO.

The bank transferred mortgage-backed securities to a trading partner with the idea of receiving different securities later and classifying the deals as sales, the Wall Street Journal reported yesterday. The securities the bank received were similar to those it got rid of, meaning the transactions can’t be considered sales, the newspaper said.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net David Mildenberg in Charlotte at dmildenberg@bloomberg.net


Filed under: foreclosure
Jun
09

AFTER THE SALE: PART I

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Submitted by Charles Koppa. 6/9/2010

Editor’s Note: We are starting to look at events AFTER the sale has taken place and we are discovering a number of things:

  • CREDIT BID: Only the Creditor can submit a credit bid. All others must pay actual money. If a non-creditor submitted a credit bid (essentially bidding the “amount due” which as we have seen from the FTC action against BOA is incorrectly stated) then the procedure has been violated, the sale has not legally occurred. At least that is my interpretation.
  • Also the submission of a credit bid locks in the position of the parties. So if you are suing for wrongful or fraudulent foreclosure, they no longer have the option of fabricating documents as you raise one objection after another.
  • The obligation to return money rightfully owed to the homeowner continues but it is ignored. Thus even if the property is not sold to a bonafied purchaser for value without notice of defects, the net accounting due is the same. So the receipt of third party insurance, credit default swaps, or other credit enhancement payments is still required to be allocated to this loan. Hence there is a damage claim against the participants in the foreclosure and sale.
  • More later. For now read Charles’ comments below

REO’s and OREO’s have NO MERS Identification Numbers.

1.  Loan Servicer (as a MERS member) initiates the NOD and NOTS.
2.  When the auctioneer pronounces “Back To Beneficiary”, the securitized bond trust receives the MinBid at averages of 46% below the NOTS amount posted the day before.  Bondholder “paper certificate losses”  are unconscionably assigned against the Real Estate asset. “The Paper Trust” gains an untitled transfer of the Real Estate Asset which it NEVER Wanted!
3.  The Auction extinguishes the Toxic Security on Wall Street.  Counterparties collect on their bets.  Investor lose their investments” and the monthly cash interest streams are terminated.
4.  Simultaneously, the Servicer (and MERS) are extinguished from all public records.  Servicer collects on MGIC or other mortgage insurance to cover ALL their contrived losses and costs.
5.  When the re-sale is completed, “The Bookkeeping Trust” ALSO disappears from County Property RECORDS!!!
6.  Until re-sold, the real property travels at ZERO book value into an off balance sheet private entity (mostly controlled by the BHC) which was the SIV “depositor” (as an off balance entity) in setting up the REMIC and/or the Investment Trust in the first place.


Filed under: CASES, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, marketing, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop Tagged: Auction, bookkeeping trust, credit bid, fabricating documents, foreclosure, foreclosure sale, fraudulent foreclosure, Identification Numbers, Lehman Brothers, MERS, MIN, NOD, NOTS, OREO, property records, REO, sale, servicer
May
13

What Do Those Losses at Fannie and Freddie Mean?

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Editor’s Note: While the courts hear arguments and decide this way and that about standing and real party in interest, the elephant in the living room is that we have highly publicized reports of LOSSES associated with more than $5 trillion in loans bought or guaranteed by Fannie and Freddie. That amounts to around 25 million loans more or less. So I ask myself, “Self, if those loans were bought or guaranteed by Freddie or Fannie, what’s left?”

If they were bought, did they keep them or sell them into the secondary market for securitization?

If they own them, why are they not at least nominal plaintiffs or beneficiaries in foreclosure sales?

If they guaranteed them, and they show a loss, doesn’t that mean they paid?

If they paid, it was presumably the loss or full balance of the loan, so which is it?

If they paid, what did they get in return?

If they paid, who owns the loan now?

If they report an “inventory” of foreclosed property, who actually is named as the owner and who gets the proceeds of sale?

If property is “inventory” were Freddie and Fannie involved on any level of the foreclosure or sale?

Did Freddie or Fannie get the benefit of any credit enhancements, insurance, credit default swaps etc.?

Who makes modification decisions for Fannie and Freddie?

Do some or all of these loans fall under the category of unsecured debt, the enforcement of which is subject to pennies on the dollar debt collection?

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May 10, 2010, 4:46 am

<!– — Updated: 11:47 am –>

Ignoring the Elephant in the Bailout

From Gretchen Morgenson’s latest Fair Game column:

If you blinked, you might have missed the ugly first-quarter report last week from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state.

Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.

But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.

That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.

The company’s inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion.

When Freddie sells properties, either before or after foreclosure, it generates losses of 39 percent, on average.

There is a bright spot: new delinquencies were fewer in number than in the quarter ended Dec. 31.

Freddie Mac said the main reason for its disastrous quarter was an accounting change that required it to bring back onto its books $1.5 trillion in assets and liabilities that it had been keeping off of its balance sheet.

None of the grim numbers at Freddie are surprising, really, given that it and Fannie have pretty much been the only games in town of late for anyone interested in getting a mortgage. The problem for taxpayers, of course, is that the company’s future doesn’t look much different from its recent past.

Indeed, Freddie warned that its credit losses were likely to continue rising throughout 2010. Among the reasons for this dour outlook was the substantial number of borrowers in Freddie’s portfolio that currently owe more on their mortgages than their homes are worth.

Even as its business suffers through a sour real estate market, Freddie must pay hefty cash dividends on the preferred stock the government holds. After it receives the additional $10.6 billion it needs from taxpayers, dividends owed to Treasury will total $6.2 billion a year. This amount, the company said, “exceeds our annual historical earnings in most periods.”

In spite of these difficulties, Freddie and Fannie are nowhere to be seen in the various financial reform efforts under discussion on Capitol Hill. Timothy F. Geithner, the Treasury secretary, offered a vague comment to Congress last March, that after some unspecified reform effort someday in the future, the companies “will not exist in the same form as they did in the past.”

Fannie and Freddie, lest you’ve forgotten, have been longstanding kingpins in the housing market, buying mortgages from banks that issue them so the banks could turn around and lend even more. After both companies overindulged in the lucrative but riskier end of home loans, they nearly collapsed, prompting the federal rescue. Since then, the government has continued to use the firms as mortgage buyers of last resort, to help stabilize a housing market that is still deeply troubled.

To some, the current silence on what to do about Freddie and Fannie is deafening — as is the lack of chatter about Freddie’s disastrous report last week.

“I don’t understand why people are not talking about it,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, referring to Freddie’s losses. “It seems to me the most fundamental question is, have they on an ongoing basis been paying too much for loans even since they went into conservatorship?”

Michael L. Cosgrove, a Freddie spokesman, declined to discuss what the company pays for the mortgages it buys. “We are supporting the market by providing liquidity,” he said. “And we have longstanding relationships with all the major mortgage lenders across the country. We’re in the business of buying loans, and we are one of the few sources of liquidity available.”

But Mr. Baker’s question gets to the heart of the conflicting roles that Freddie and Fannie are being asked to play today. On the one hand, the companies are charged with supporting the mortgage market by buying loans from banks and other lenders. At the same time, they must work to minimize credit losses to make sure the billions that taxpayers have poured into the firms don’t disappear.

Freddie acknowledged these dueling goals in its quarterly report. “Certain changes to our business objectives and strategies are designed to provide support for the mortgage market in a manner that serves our public mission and other nonfinancial objectives, but may not contribute to profitability,” it noted. Freddie said that its regulator, the Federal Housing Finance Agency, has advised it that “minimizing our credit losses is our central goal and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the goals of the conservatorship.”

Mr. Baker’s concern that Freddie may be racking up losses by overpaying for mortgages derives from his suspicion that the government might be encouraging it to do so as a way to bolster the operations of mortgage lenders.

That would make Fannie’s and Freddie’s mortgage-buying yet another backdoor bailout of the nation’s banks, Mr. Baker said, and could explain the government’s reluctance to include them in the reform efforts now being so hotly debated in Washington.

“If they are deliberately paying too much for mortgages to support the banks,” Mr. Baker said, “the government wants them to be in a position to keep doing that, and that would mean not doing anything about their status until further down the road.”

It’s no surprise that the government doesn’t want to acknowledge the soaring taxpayer costs associated with these mortgage zombies. The truth about Fannie and Freddie has always been hard to come by in Washington, and huge piles of money seem to circulate silently around both firms.

Remember last Christmas Eve? That’s when the Treasury quietly decided to remove the $400 billion limit on federal borrowings available to Fannie and Freddie through 2012.

That stealth move didn’t engender much confidence in either the companies or their government guardian.

But because taxpayers own Freddie and Fannie, we should know more about their buying habits, as Mr. Baker points out. Unfortunately, if the government’s past actions are any indication of what we can expect, then don’t hold your breath waiting for the facts.

Go to Column from The New York Times »
Go to Freddie Mac Quarterly Report »


Filed under: bubble, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Servicer, STATUTES, trustee Tagged: bailout, Debt Collection, Fair Game, Fannie, Freddie Mac, Gretchen Morgenson’s, losses on loans, REAL PARTY IN INTEREST, standing, unsecured debt
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