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In the S&L scandals more than 800 bankers went to jail, why not now?

EDITOR’S ANALYSIS: As you read the article below regarding NovaStar Financial, think about buying the book it came from. Gretchen and Joshua have spent a lot of time not just taking notes and reporting in catchy terms, they have been analyzing, pouring over the details to see WHY the mortgage meltdown occurred. One of the reasons, as pointed out in this article is that wherever there was leverage, there was Wall Street taken advantage of it. Wall Street has always been morally neutral at best. But the last 10 years+ with deregulation tried at a virtual evangelical level, morality, legality and even common sense went out the window.

The kind of leverage discussed here basically revolves around the concept of a term known as “price-earnings ratio” which once had a meaning and now is used as spuriously as the AAA rating Moody’s Fitch and S&P gave to bogus mortgage bonds. The “price” suggests a value that is independently determined by market forces based upon symmetry of knowledge. NO such thing exists anymore. The “earnings” suggest that the company actually had any real earnings as you and I would think of it. Accounting rules have been changed such that a company on the verge of bankruptcy or which already is bankrupt in the lay sense, can be portrayed as a healthy vibrant company with great prospects. The “ratio” is the relationship between “price” and “earnings” which is to say that it is a scientific sounding term meant to mislead anyone who hears it.

ENTER LEVERAGE: “Leverage” is a term to describe a way of controlling more assets than you can afford. Using leverage on Wall Street is considered to be proper and even good. But if the average Joe tries to use it in the marketplace, say, in buying a house, it is an immoral unjustified act for which he must bear the full weight of all responsibility even if he did it in reliance on lies that Wall Street told.

Thus the average Joe is a dumbbell and morally bankrupt because he is an average Joe. Meanwhile on Wall Street not only are leveraged companies deemed good from a moral standpoint, they are considered sophisticated and contributing to the liquidity of capital and the prosperity of our nation.

In truth, the average Joe is on a morally higher ground than the Wall Street banker. The average Joe is both a player and one of the victims whereas on Wall Street the investment banker is the player and the investors and all the pension-holders depending upon the the funds manager for the investors, are the victims. Wall Street makes money by lying with complete  disregard for their own reputation. For reasons that defy explanation, investors go back to buy the same crap that they did before even thouhg they know the last group of “pooled assets” never existed and the consequences of that fraud are working their way through the courts.

Witness NovaStar. Or any other company on Wall Street. Their stock value is seen as a function, in large part, of their price earnings ratio. The fact that they have no assets to support the figures reported on their balance sheet and therefore have only the prospect of being broken up and “resolved” as the FDIC puts it when it closes a bank, seems to have escaped most people who invest in such stocks. But the important thing to remember in all of this is that the motivation, the intent, the plan behind Nova Star was the same as the megabanks — increase the wealth of management at thee expense of shareholders, and inflate the apparent value of the stock to keep the shareholders quiet.

They did this by overstating results turning losses into earnings. Since the price earnings ratio supposedly bears some relationship to the return one might get on a CD or other income investment, the stock sells at a multiple of the earnings reported. How the SEC qualified auditors could ever have issued an opinion letter without exceptions defies explanation as well. They should have said that the attached financial statements represent a fair and accurate representation of the financial condition of the company as of the date they were prepared IF YOU BELIEVE MANAGEMENT WHOSE BELIEFS ARE NOT SUPPORTED BY ANY OTHER INDEX OR VALUE OUTSIDE THE COMPANY ITSELF.

This is important to homeowners and borrowers because (1) they are also investors, directly or indirectly both in the bank stocks and the bogus mortgage bonds and (2) if they are alleging fraud for which there was reckless disregard of the consequences or even intentional acts with full knowledge of the consequences, you should know that this is not a blind accusation: it comes from the fact that by reporting fictitious earnings, the stock would rise by multiples of anywhere from 12-30 times the amount reported as earnings in expectation of ever rising earnings from a company that in truth never turned a profit. They accomplished this feat by cheating and lying to homeowners who bought financial products that were difficult to understand and which failed to describe the transaction as it was represented to the homeowner — in short, the exact same thing now alleged by investors in their suits against the investment banks — which brings me to my final point —- why isn’t the  victim (homeowner) suing the investment bank, same as the investor? They were both screwed by the same parties using the same general fraudulent scheme using the same exact pot of money that involved both the homeowners and the investors.


May 21, 2011

It Teetered, It Tottered, It Was Bound to Fall Down


This article was adapted from “Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon,” by Gretchen Morgenson, a business reporter and columnist for The New York Times, and Joshua Rosner, a managing director at the independent research consultant Graham Fisher. The book is to be published on Tuesday by Times Books.

MARC COHODES had heard the stories.

Heard how these guys would give a mortgage to anyone — even to a corpse, the joke went. How the place was run like a frat house.

You wouldn’t believe the things that go on there, his brother-in-law had told him.

So Mr. Cohodes, a money manager in Marin County, Calif., decided to bet against one of the big names of the subprime age: NovaStar Financial.

NovaStar was part of a crop of new lenders that had sprung up in the 1990s. It had been founded by two hard-charging entrepreneurs, Scott F. Hartman and W. Lance Anderson.

The two men had complementary skills. Handling the financial operations, working with Wall Street — that was Mr. Hartman’s job. Mr. Anderson, a born salesman, was the glad-hander. From the start, the pair was paid handsomely. Each man received almost $700,000 in 1997, even though their company was losing money.

Like others in the subprime industry, NovaStar used aggressive accounting that obscured its increasingly precarious finances. As far back as the 1990s, it had to underwrite loads of new loans to offset losses on older mortgages.

But unlike many of its peers, NovaStar had already survived at least one brush with death. Now, in 2003, Mr. Cohodes was betting that it would not be so lucky again.

Although NovaStar was not a household name in lending, in 2003 the company boasted 430 offices in 39 states. With headquarters on the third floor of an office building in Kansas City, Mo., it was fast becoming one of the top 20 home lenders in the country.

NovaStar was also becoming a Wall Street darling, its shares trading at $30, up from $9.50 in late 2002. Typing NovaStar’s stock symbol into his Bloomberg machine, Mr. Cohodes did a double take. Thirty dollars? Must have used the wrong stock symbol, he thought.

He hadn’t. NovaStar was on a trajectory that would take the shares above $70. Thanks to aggressive management, unscrupulous brokers, inert regulators and a crowd of Wall Street stock promoters, NovaStar’s stock market value would soon reach $1.6 billion.

A beefy, street-smart man fond of sports and sports metaphors, Mr. Cohodes knows every trick executives use to make their companies look better than they are. He prides himself on being able to spot trouble.

Most investors are optimists and believe that companies will increase in value. Short-sellers are the opposite.

And because they challenge company spin, short-sellers are often criticized and refused access to management.

RARE is the corporate executive with an appreciation for naysayers, and NovaStar’s founders were no different. Mr. Anderson and Mr. Hartman had contempt for short-sellers. A Web site sponsored by NovaStar backers, called, published a picture of a cockroach next to a discussion about investors who had bet against the company’s stock.

But Mr. Cohodes was relentless, and he often shared his research with regulators at the Securities and Exchange Commission.

He figured that if he was right about NovaStar, and he was certain he was, investors everywhere would be better off if he shared his findings with investigators. The sooner the S.E.C. put a stop to improprieties, the better.

The short-sellers would benefit too, of course, if an S.E.C. investigation and civil suit confirmed what Mr. Cohodes and others had found. Even the simple disclosure that an investigation into a company’s practices had been started could crush its stock.

So in February 2003, Mr. Cohodes started corresponding with the S.E.C. about NovaStar. He began “throwing things over the wall,” as he put it, to Amy Miller, a lawyer in the division of enforcement. By this time, loan production at NovaStar was clocking $600 million a month, up from $48 million a month five years earlier.

Among the questionable practices that are the easiest to find are those that appear in a company’s own financial statements. With a little determination and expertise, accounting practices that burnish financial results or make earnings appear out of nowhere can often be spotted in these documents.

Taking his pencil to NovaStar’s statements, Mr. Cohodes found a raft of red flags. “They made their numbers look however they wanted to,” he recalls. “Not even remotely realistic.”

One tactic gave the company lots of leeway in how it valued the loans held on its books. Another allowed it to record immediately all the income that a loan would generate over its life, even if that was decades. This accounting method ignored the possibility that some of the company’s loans might default. NovaStar assumed that losses on all of its loans would be nonexistent.

This was the same stratagem that killed off almost all subprime lenders when the Russian debt crisis rocked the world’s financial markets in 1998.

NovaStar’s rosy assumption not only padded its profitability but also encouraged the company to make more mortgages, regardless of quality. The more loans it made, the more fees and income the company could record.

After some digging, Mr. Cohodes found that NovaStar’s lending practices were lax and rife with hidden fees.

Promotional memos NovaStar sent to its 16,400 unsupervised mortgage brokers across the country told the tale of easy credit terms. “Did You Know NovaStar Offers to Completely Ignore Consumer Credit!” one screamed. “Ignore the Rules and Qualify More Borrowers with Our Credit Score Override Program!” boasted another.

Mr. Cohodes and other NovaStar critics believed that they had found a company whose success was built on deceptive practices. What they did not recognize was that NovaStar was a microcosm of the nationwide home-lending assembly line that would lead directly to the credit crisis of 2008.

IN Atlanta, Patricia and Ricardo Jordan learned the hard way how NovaStar’s freewheeling lending practices imperiled unsuspecting borrowers.

The Jordans had bought their three-bedroom home in a middle-class section of southwestern Atlanta in 1983 for $30,000. Ms. Jordan had made many improvements on the property, putting up a fence and installing an attic fan and air-conditioning. The sole breadwinner in the family, she supported her husband, a physically and mentally disabled Vietnam veteran. In 2000, she retired and they lived on Social Security and veteran benefits.

In 2004, she had a 9 percent adjustable-rate mortgage that she wanted to change to a fixed-rate loan. She received an offer in the mail from NovaStar and called the toll-free number.

“I told them I wanted to come out of the adjustable and they said they would give me the fixed rate if I would accept it at 10 percent,” Patricia said. “I could have stayed where I was but I told them definitely a 30-year fixed rate.”

The Jordans were more or less perfect targets for a lender like NovaStar. They were financially unsophisticated, and they were trusting.

Unbeknownst to the Jordans, their NovaStar loan was one of the most punitive out there: an adjustable-rate mortgage with an initial interest rate of 10.45 percent that would soon explode to 17.25 percent. Even the initial monthly housing payment, including taxes and insurance, was barely affordable: $1,215.33. As documented in their loan file, the Jordans’ total monthly net income was only $2,697. Their monthly housing and other debt costs totaled $1,642, so after they paid their debts each month, the Jordans had only $1,055 to live on.

And that was just the beginning. Two years after signing up for the loan, its interest rate was set to ratchet up. Only then did Ms. Jordan learn that NovaStar had put her into an adjustable loan, not the fixed rate she had been promised.

“I got duped,” she contended.

The Jordans sued NovaStar in 2007. As part of the lawsuit, their lawyer found that their loan had been placed in a mortgage securitization trust assembled by NovaStar and sold to investors in November 2004. More than half of the loans in the pool were provided with no documentation or limited documentation of borrowers’ financial standing.

But the Jordans had given NovaStar bank statements and other documentation of their income. The lawsuit would show that NovaStar had inflated their monthly income by $500 to make the loan work. The lender had given the Jordans a loan that went against its own underwriting guidelines and that overrode federal lending standards.

The Jordans’ was just one loan. There were literally thousands more like it. (NovaStar settled with the Jordans in 2010. The terms were undisclosed.)

Because NovaStar was not a bank, its lending practices were largely lost on state and federal regulators. Traditional banks operate under the scrutiny of financial regulators like the Federal Deposit Insurance Corporation, which was set up to protect depositors after the huge bank failures of the Great Depression. But for companies like NovaStar, the closest thing to an overseer was an occasional state regulator who took action when it discovered that the company’s independent salespeople were unlicensed.

Massachusetts was one state whose regulators recognized the threats posed by the likes of NovaStar. In October 2003, the state’s commissioner of banks filed a cease-and-desist order against NovaStar, concluding that the company engaged in “acts or practices which warrant the belief that the corporation is not operating honestly, fairly, soundly and efficiently in the public interest.”

Nevada followed with its own order in early 2004. NovaStar started closing operations in Massachusetts and Nevada, but only belatedly told the public about its regulatory reprimands.

As the housing bubble inflated, NovaStar was able to convince many of its shareholders that its mistakes were honest ones and were immaterial to its growing business. The company hired Lanny Davis, a well-connected lobbyist and public relations operative, to run interference. Mr. Davis was used to operating in a crucible; he had been special counsel to President Bill Clinton during the Monica Lewinsky scandal.

But NovaStar’s problems were not limited to a few aggressive state regulators. In the summer of 2004, the inspector general for the Department of Housing and Urban Development produced a damning report on NovaStar’s practices. HUD’s inspector general determined that the company’s branch system did not comply with federal regulations; among the deficiencies HUD cited was the company’s practice of hiring independent contractors as loan officers. NovaStar’s branch system, HUD said, was designed to shift risk from the company to the federal government. HUD recommended that NovaStar pay penalties in the case.

NovaStar did not disclose the HUD report to investors. All the while, Mr. Cohodes was continuing to talk to Ms. Miller and others at the S.E.C. about NovaStar. He sent them information about the company, including the NovaStar fliers indicating its anything-goes lending practices. He annotated the transcript of one of NovaStar’s conference calls with analysts and investors, pointing out to the investigators the many inaccurate statements made by the company’s executives.

Although some of the S.E.C. people he spoke with seemed to recognize the problems in NovaStar’s operations, their investigation did not appear to be gaining traction.

The phone calls with the regulators went over the same material repeatedly, Mr. Cohodes recalls, leading him to conclude that Ms. Miller and her colleagues did not understand what was happening at NovaStar.

“Whenever they seemed to get it, they would either call up or make contact frantically saying, ‘Can you please go over this again?’ ” Mr. Cohodes said. “It was almost like someone was presenting a case to the higher-ups and they would say, ‘Are you sure? Go back and make sure.’ ”

One matter whose importance the agency would surely recognize, Mr. Cohodes thought, was a lawsuit showing that NovaStar’s leading mortgage insurer, the PMI Group, had stopped insuring the lender’s loans. He passed his information along to the S.E.C., including names and phone numbers of people to talk to at PMI.

Mr. Cohodes also gave the agency information about some NovaStar branches that were either nonexistent or questionable. Opening new offices helped the company persuade investors that business was booming. But some strange stuff turned up when Mr. Cohodes and some colleagues took a road trip to see NovaStar’s offices.

“A posse of us went to Vegas, which was their growth market,” he recalls. “We found one branch in a massage parlor, another in a guy’s house,” he says. “After that, I wrote to the S.E.C. again and basically said, ‘Someone should go in here and make sure these numbers are right.’ ”

To most outsiders, NovaStar’s operations seemed to be running on all cylinders. During 2004, the company wrote $8.4 billion in mortgages; that September, the amount of loans held on its books had reached $10 billion. NovaStar ended that year with 600 offices.

It was time for Mr. Hartman and Mr. Anderson to take a victory lap. “The $10 billion mark is a tribute to NovaStar associates and our many partners in the mortgage community,” Mr. Hartman told a reporter at Origination News, an industry publication. But while NovaStar executives high-fived each other, a unit of Lehman Brothers, Wall Street’s largest packager of residential mortgage loans sold to investors, was discovering serious problems in a review of NovaStar mortgages. The findings were so troubling to the Lehman executives overseeing the firm’s purchases of NovaStar loans that they ended their relationship with NovaStar in 2004.

According to documents filed in a borrower lawsuit against NovaStar, Aurora Loan Services, a Lehman subsidiary, studied 16 NovaStar loans for quality-control purposes. What the analysis found: more than half of the loans — 56.25 percent, to be exact — raised red flags. “It is recommended that this broker be terminated,” the report concluded.

Among the problems turned up by the Aurora audit were misrepresentations of employment by the borrower, inflated property values, transactions among parties that were related but not disclosed, and unexplained payoffs to individuals when loans closed.

The details uncovered by Aurora were alarming. One NovaStar loan on a property in Ohio totaled $77,500 even though the average sales price for the neighborhood was $31,685, and the same house had been purchased two months earlier for $20,000.

S.E.C. rules require the disclosure by company management of information considered material to the company’s prospects or an investor’s analysis. In a 1999 S.E.C. bulletin, the commission defined materiality this way: “A matter is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” Two Supreme Court cases use the same standard.

Surely, Aurora’s findings that more than half of the sampled NovaStar loans were questionable would have been an important consideration for the S.E.C.’s “reasonable person.”

Still, NovaStar failed to alert investors or the public at large to the Aurora analysis. Nor did NovaStar publicize the fact that Lehman Brothers had stopped buying its loans.

Increasingly frustrated, Mr. Cohodes and the other NovaStar short-sellers kept throwing information over the wall at the S.E.C. But the inquiry soon seemed moribund.

“We kept going to the government from the time the company had a $300 million market cap, a $600 million market cap until it had a $1 billion market cap,” Mr. Cohodes said, referring to NovaStar’s rising stock price.

To keep its money machine running, NovaStar regularly issued new shares to the public. Between 2004 and 2007, for instance, the company raised more than $400 million from investors. To those critical of NovaStar’s practices, this was money the company should never have been allowed to raise from investors who were kept in the dark by the company’s disclosure failings.

Mr. Cohodes reckons that over roughly four years, he conducted hundreds of phone calls with the S.E.C. about NovaStar. Each time, he would walk them through his points. Sometimes, a higher-up would get on the phone and contend that while NovaStar’s practices were indeed aggressive, the company did not appear to be breaking the law. NovaStar’s selective disclosures — it was quick to report good news but failed to own up to problems on many occasions — seemed to be infractions that the S.E.C. should have dealt with. But its investigation went nowhere.

In any case, by 2006, the wheels had started to come off the NovaStar cart. The company’s net income that year was less than half what it earned in 2005. The company faced a number of lawsuits, including a class action filed in Washington State in December 2005 alleging that NovaStar failed to disclose to borrowers the fees earned by brokers. Plaintiffs contended that NovaStar had violated consumer protection laws. In 2007, NovaStar agreed to pay $5.1 million to resolve the claims of about 1,600 Washington borrowers.

Its stock was falling, too. By late 2006, NovaStar was trading at around $30; but in the first few months of 2007, as the money for subprime lenders began drying up and these companies started closing their doors, it plummeted to $5. The company halted mortgage lending and stopped paying its dividend.

In March 2007, Mr. Anderson dismissed as insignificant the HUD report and the lawsuits the company had attracted. “Clearly we’re going through a tough time right now,” he told a reporter. “But we think the loans we are originating today will perform very well. We were surprised by the speed and severity of the downturn, but I think NovaStar will be a survivor.”

He was wrong. NovaStar’s shares collapsed, wiping out roughly $1 billion in market value from the peak of the stock price. Despite the implosion, between 2003 and 2008, Mr. Anderson and Mr. Hartman each made about $8 million in salary, bonuses and stock grants.

Neither man was ever sued by the S.E.C. or any other regulator. As is its custom, the S.E.C. declined to comment on the NovaStar inquiry or the agency’s discussions with short-sellers. But documents supplied by the S.E.C. under the Freedom of Information Act show the extensive communications between Mr. Cohodes and the agency. Ms. Miller, still at the S.E.C., declined to comment.

“It would be interesting to see who exactly dropped the ball, and why,” Mr. Cohodes said. “It would be interesting why nothing was ever brought. The S.E.C. should have sent a plane for us to come to D.C. and say: ‘How do we make sure this doesn’t happen again?’ ”

NOVASTAR no longer underwrites mortgages. Its shares were delisted by the New York Stock Exchange and now trade for about 41 cents a share. The company, a shadow of its former self, runs a property appraiser and a financial services unit that provides banking services “to meet the needs of low- and moderate-income-level individuals.”

In a 2010 report to shareholders, Mr. Anderson reported that the company had “several interesting initiatives under way.” Mr. Hartman has left the company. At the end of 2009, NovaStar management concluded that the company’s financial reporting was “not effective.”

NovaStar had, in essence, confirmed what Mr. Cohodes had been telling the S.E.C. all along. The company’s financial reports just couldn’t be trusted.

38 Responses

  1. Actually I was talking to myself.. Justhiss a major butt whoopin in AZ district court and a pop at my character. Which was factually totally incorrect…onward.

  2. Leverage, they leveraged the us of a
    jobs gone homes gone college Ed gone 401k …very funny …we have “someone” who made money we have a seller and a buyer and a better who bet on default.
    then we have a winner and a looser.
    Loosers get up stand up you only loose if you give up

  3. indio007,

    Yes. I agree– my point is, so many have already suffered – their lives turned upside down. And, this includes children, elderly, sick, veterans – etc.
    How do they ever restore what has been lost? Not even some restitution will repair the harm. .


    Hmmmmm…..very interesting…

  5. @ Anon

    Too late for many? I don’t think so.Even if you lost your house for 20 years .

    Time doesn’t cure a fraudulent conveyance.

  6. California creating mortgage fraud task force
    The team of 17 lawyers and eight special agents from the state Department of Justice will pursue corporate fraud, scams and fraudulent lending practices, Atty. Gen. Kamala Harris says.,0,1196882.story

    who ever can please comment on the latimesblog.


  7. The system is taking so much that most people no longer have a stake in the system, and a lot of those don’t know it yet.
    When you no longer have a stake, it’s free to fight back with everything you have because anything else is an improvement.

  8. Don’t know if anyone has posted this very graphic satellite view of foreclosed homes. The density of these groupings is profoundly indicative of the extent to which the economy has fallen. The staggering numbers here should be equaled only by the number of people who should be in jail.

  9. The FBI is a day late n a dollar short
    just received a letter from FBI 2 yrs After gettin screwed for $4500 loan mid scam
    we have I think 6 yrs statute of limitations and less( depending on where you place the blame) so since the end if the works didn’t happen the other day as some thought the truth may just prevail. Eventually!

  10. To BSTL

    I found your post very powerful.

    To think of the power these money players have had to wreck everything, wipe out a generation’s wealth. I never thought it would touch me but it did. I was a target. They got me. Like a drone dropping a little smart bomb; it had my name on it

  11. A MUST READ!! 911

    State attorneys general are stepping up their investigations of mortgage-industry practices by probing for potential misdeeds when banks originated home loans and packaged them into securities, according to people familiar with the examinations.

    New York State Attorney General Eric Schneiderman has issued subpoenas to four bond-insurance companies as part of his expanding probe of mortgage-securitization practices, people familiar with the matter said.

    At the same time, California Attorney General Kamala D. Harris is expected to announce Monday a new law-enforcement effort aimed at mortgage-industry practices, people familiar with the initiative said.

    The effort will cover a range of activities, from loan origination to the packaging of mortgages into securities, and will include both civil and criminal prosecutions, these people said.

    New York Attorney General Eric Schneiderman
    Mr. Schneiderman has issued subpoenas to units of Ambac Financial Group Inc., Assured Guaranty Ltd., MBIA Inc. and Syncora Holdings Ltd., people familiar with the investigation said.

    The bond insurers aren’t the subject of the investigation, these people added, but have been asked to provide information about their dealings with banks that packaged mortgage loans into securities.

    Bond insurers provided guarantees on a variety of mortgage-related products and have suffered heavy losses as a result of the mortgage meltdown.

    Mr. Schneiderman’s office has asked the bond insurers for information regarding claims paid to bond investors and about litigation and settlements the insurers have entered into with banks that packaged loans into securities, these people said.

    An MBIA spokesman said the company plans to comply with the subpoena, which focuses on lawsuits filed by MBIA against banks that packaged loans into securities guaranteed by the company.

    “Syncora did receive a subpoena from the New York Attorney General to provide certain information relating to mortgage loans, payments and potential settlements,” said a company spokesman, who declined to comment further.

    A spokeswoman for Assured Guaranty declined to comment on whether the company had received a subpoena. “We support the Attorney General with their investigation, which will hopefully accelerate the resolution of mortgage-origination, -securitization and -servicing problems,” she said.

    A spokesman for Ambac declined to comment.
    The subpoenas are the latest sign of how state and federal officials are stepping up their scrutiny of the mortgage machine. Federal prosecutors, for instance, are using tools such as the Civil War-era False Claims Act in an effort to recoup government losses on soured mortgage loans.

    The tools available to Mr. Schneiderman include the state’s Martin Act, which doesn’t require prosecutors to prove intent to defraud. The Martin Act has been used by Mr. Schneiderman’s predecessors to address a variety of alleged misconduct by Wall Street.

    Bond insurers have argued they were deceived by banks about the quality of the loans they guaranteed. They have pushed banks to repurchase troubled mortgages and gone to court when that effort has failed.

    MBIA, for instance, has filed eight mortgage-related lawsuits, most involving guarantees on home-equity loans and lines of credit that were packaged into bonds.

    These lawsuits generally allege the banks breached contracts and committed fraud by including loans in the bond deals that didn’t conform with guidelines outlined in documentation related to the deals.

    In some cases, “as many as 90% of the loans reviewed didn’t conform with underwriting guidelines,” an MBIA spokesman said.
    In its most recent securities filing, Ambac said it has used the results of detailed loan-file examinations “to make demands for loan repurchases…and, in certain instances, as part of the basis for litigation filings.”

    Bank of America Corp. in April agreed to a $1.6 billion settlement to resolve repurchase claims filed by Assured Guaranty. Assured Chief Executive Dominic Frederico told investors in May that the company “will pursue fraud claims where applicable”

    in situations where banks don’t agree to repurchase defective loans. In announcing the April deal, Bank of America called the agreement “an important step towards resolving” repurchase issues related to its purchase of Countrywide Financial Corp.

    Write to Ruth Simon at

  12. TONY,

    I understand. Lots of proof out there — but truth still not coming out. It will — but too late for many.

  13. This article was well done! Narrowing down the fraud.

    Look at your originators, servicers and insurance at yahoo finance 5 year and max stock charts. Novastar was not alone.

    American Home Mortgage (bankrupt) 2007 $33 today .04 cents

    Triad Guaranity Inc. 1995 steady around $4.85, 2005 $60. today .29 cents

    Not only were they writing bad loans. They probably stock in it.

  14. Remember when B. Madoff said “The government’s a Ponzi scheme…”

  15. Wow. Greatly-written article.

    The SEC didn’t do anything about Madoff, either, until way late in the game, if you recall.

  16. The thing that makes me more angry than anything else are the people that don’t or didn’t know how to fight—they just trusted…and their lives were shattered all this crap…having to put their pets in a shelter (like giving up family members), just to move into an apartment or a shelter or their car, with kids…what a waste…some had to leave a home they had forever—all the health issues from all the stress…for what? So these ***holes can drive a bitchin’ car and buy a friggin’ yacht…

  17. “…why isn’t the victim (homeowner) suing the investment bank, same as the investor? They were both screwed by the same parties using the same general fraudulent scheme using the same exact pot of money that involved both the homeowners and the investors.”

    WHY??? Because we’re all friggin’ DEAD BROKE from all this CRAP!!! I fought like HELL to get a loan mod, finally got a “trial”—then realized THAT was FRAUD, TOO!!! Now I realize these ***holes used my house like a credit card—the hell with any kind of title or county recording laws—and now they want to STEAL my house—threatening me if I don’t give them money—I hope to God we get the last laugh—in this lifetime!!!

  18. “Where the hell is the FBI in all this????” Monitoring the TSA feeling up grandmas from Kentucky and Arkansas and WASP children getting off trains at the end of their trips from all over the country and cross checking those suspect travelers against terrorist watch lists…
    Make no mistake, the FBI is buzy!!!!!!

  19. Where the hell is the FBI in all this???? Are they behind the scenes building evidence and cases—waiting for the right time–or are all law enforcement entities really that slow and stupid???????????????

  20. In the beginning and forever is the decision, and the decision is to be.

    Let me be a lawyer, a judge, a banker, a baseball player, joe six pack, mr. firefighter, ms secretary……………….


    but it’s all so SERIOUS. Pin strip suits, black ropes……………they all go home, they are all just people with a pretense.

  22. it’s all a pretense.

    pretending or feigning; make-believe: My sleepiness was all pretense.
    a false show of something: a pretense of friendship.
    a piece of make-believe.

  23. thus Bankrupcy law is possible.

  24. so if somebody lent you money from leverage, what are they out, what harm has been done to them?

  25. The few who could understand the system will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.

    Rothschild quote above.



  26. The borrowers are left to heir own devices. aka pro se

  27. “For reasons that defy explanation, investors go back to buy the same crap that they did before even thouhg they know the last group of “pooled assets” never existed and the consequences of that fraud are working their way through the courts.”


    I will tell you WHY…………

    edgetraderplus explains it here:

    Are the markets manipulated?

    Yes, of course they are………….

    And that is the game, HOW TO BEAT THE MARKET.

    It’s all in the MANIPULATION of people.

    once again, a definition of manipulation:

    2. to negotiate, control, or influence (something or someone) cleverly, skilfully, or deviously

    deviously means: Deviating; not straightforward, not honest, not frank; not standard.




    Friend: a person who gives assistance; patron; supporter

    I believe a friend is somebody who wishes to help you, not trick you into some deal.

  28. TONY, what do you have in mind? My state AG already has a 3 inch file. Can’t seem to get local news on the case. Lamestream media won’t allow the truth to get out.

    “Tonight at 9!!! Could your mortgage really be unsecured? 64 Million other borrowers think so…. Find out WHY……..and……..

    National Banks going BROKE?

    We’ll investigate…….!”

  29. I’m so sick of people playing tag and games. I’m not A great Fraud was committed and I’m not gonna stop till it is KNOWN nation wide what the hell anyone gonna do, lie to the judges pay off Attorneys and make up documents that they Know u can prove DID NOT exist by their own admission.

  30. I hope I didn’t sound like I was attacking u , cause I wasn’t . It just really pisses me off that some of these entries are about people spouting off things that seems to me they have no intention of really doing anything about but running ther mouth . When U call their bluff they got nothing to say and they really know no one just trying to make a name … Know what I mean

  31. @ ANONYMOUS:

    The reason I said what I did is because for some reason nobody really wants the truth of the matter they just want to have an opinion.. I HAVE PROOF. Not just what I assume , I have DOCUMENTS to prove what I say.

  32. TONY,

    Working. Do not assume anything.

    Agree– no theories without proof.

    Would not waste my time without it.

  33. I’m sorry everyone talks a good game.. But when you say hey i have evidence of SECURITIES FRAUD and can PROVE IT, and continued to get ignored . I say you must be in the game as well just to say you told everyone of what u had a theory of . But when someone can provide evidence as in the original documents that prove without a doubt that crimes were committed and continued to get ignorged I have to wonder do you really want to know or your just guessing in hopes someone else will take the risk to report the truth from someone who can provide the documents.IF YOU want National news Media , email me I will share Let’s Get this FRAUD A ‘ROLLING I anit scared are YOU !

  34. Quote — “The average Joe is both a player and one of the victims.”

    Umm – the average Joe — is WHO???

    Quote — “pension-holders depending upon the the funds manager for the investors, are the victims”

    #1 – Pension holders should NOT have been investing in subprime mortgage “loans” – to begin with. The real “investors” in the subprime fraud were — the perpetrators — and many continue to be the perpetrators. The victims are not security investors — non-diligent pension security investors — who have been paid in full.

    #2 — Accounting is the tip the of iceberg — it goes deeper — because — the bogus accounting was based upon bonus records to start with. Fraud, fraud, and more fraud. Delinquent?? find out when you were actually placed in delinquency. If subprime refinance, it is before you were actually delinquent!!!.

    Accounting fraud ? Yes — but need to go way back – to ascertain false records that falsely demonstrate—– false accounting/manufactured defaults — before “Joe” — ever defaulted.

    This will surface.

    Victims — the average homeowner — was NEVER a “player.” The average Joe homeowner was a victim from the onset of subprime refinance fraud.

    Time for the truth.

    “Investors” trying to continue fraud —- has to stop.

    Game is over.

  35. Looking forward to this book…
    PE ratios were wiped out in the last internet bubble when all the third party accounting firms that were cooking the books for Enron, WorldCom and all the rest went belly up. After all, if you can’t trust third party accounting firms, who can you trust?
    On leverage….f$%^&*ing amazing, contrary to what any Senator or agency official claims that leverage HAD NO ROLE in the collapse of the financial system. Bullsh%^&*t, and they knew it. There was an IMF study and report on housing bubbles back in about ’04 that looked at housing bubbles in over a dozen countries over twenty years or more and concluded that 40% exploded outright. I don’t recall the details, or how many occurred before current era financial products, but it should have caused at least that much prudence to anyone who would listen or care. In spite of that a Senate Financial Committee (I believe) at the request of lobbying from Paulsen at the time allowed an increase in leverage among the top five financial institutions from 10 or 12:1 to 40:1, and someone is one the record for some ominous remarks at the time.
    40:1 leverage is certifiable insanity in a of itself, not counting the fact that there was probably no one in government who really knew the complexities of the layers of derivatives that were already in play. So from that point to the end you had 40:1 leverage +derivatives+more 40:1 leverage + more derivatives of the derivatives ad infinitem. Imagine giving an insane asylum the Treasury…that’s what we got, and now we are told that we the people need to honor the bonds…and the gov is not a solution now because they were part of the problem then–allowing 40:1 leverage no less.

    I worked with trading software that would allow one to factor in leverage at any percentage (1-100) from 1999-2002 and it was quite easy to watch trading strategies blow up in your face with a modest 5-10% leverage compared to tolerable even high risk results with no leverage.

    The US Government allowed the financial system to go to 40:1 leverage at the peak no less of the housing bubble.

    I say let Wall St and the Fed rot in hell. Give no quarter and take no prisoners. Fight for every property, cost them money, sue them, screw them, do it all, because they did it to us and now expect us to just honor the rules of their game.

    This is it. There will be no struggle after this, because it will be all over.

  36. Here we have a new form of entrapment, illegally luring borrowers into collusion to commit felonies!

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