Foreclosure News in Review

Posted on October 10, 2014 by Neil Garfield

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PRETENDER MENDERS: GOVERNMENT IGNORES THE ELEPHANT IN THE LIVING ROOM — DOW HEADED FOR 8,000?

Starting with the Clinton and Bush administration and continued by the Obama administration (see below), the public, the media, the financial analysts, economists and regulators are uniformly ignoring the obvious pointed out originally by Roubini, myself and many others (Simon Johnson, Yves Smith et al). We are pretending the fix the economy, not actually doing it. The fundamental weakness of world economies is that the banks caused a drastic reduction in household wealth through credit cards and mortgages. Credit was used to replace a living wage. That is a going out of business strategy. The economies in Europe are stalling already and our own stock market has started down a slippery path. The prediction in the above-linked article seems more likely than the blitzkrieg of planted articles from pundits for Bank of America, and other banks pushing their common stock as a great investment. The purpose of that blitzkrieg of news is simple — the more people with a vested interest in those banks, the more pressure against real regulation, real enforcement and real correct.

As the facts emerge, there were no actual financial transactions within the chain of documents relied upon by foreclosing parties. That cannot change. So the foreclosures are simply part of a larger fraudulent scheme. If the government regulators and the Federal reserve would tell the truth that they definitely know is the truth, the the mortgages would all be recognized as completely void and the notes would not only be void but subject to civil and potentially criminal charges of fraud. Most importantly it would eliminate foreclosures, for the most part, and allow borrowers to get together with their real (even if reluctant) lenders and settle up with new mortgages., This would restore at least some of house hold wealth and end the policy of making the little guy bear the burden of this gross error in regulation and this gross fraudulent scheme of non-securitization of mortgage debt, student debt, auto loan debt, credit card debt and other consumer debt.

It is ONLY be restoration of a vibrant middle class that our economy and the world economic marketplace can avoid the coming and recurring disaster. This is a matter of justice, not relief. See also Complete absence of mortgage and foreclosures are the largest component of our problems

What happens to restitution and why is the government ignoring the obvious benefits from restitution? NY Times

So a trader no longer needs to be subject to a requirement of restitution because he has already entered into civil agreement to restore creditors who bought bogus mortgage bonds that were issued by REMIC Trusts that were never funded by any cash or any assets. Since the “securitization fail” originated as a fraudulent scheme by the world’s major banks, and restitution is the primary remedy to defrauded victims, it follows that restitution should be the principal focus of enforcement actions, civil suits and criminal prosecutions. Meanwhile some restitution is occurring, just like this case.

The question is, assuming the investors who were in fact the creditors, how are the proceeds of settlement posted in accounting for the recovery of potential losses? If, as is obviously the case, the payments reduce the losses of the investors, then why are those settlements not credited to the books of account of those creditors and why isn’t that a matter subject to discovery of what the “Trust” or “Trust beneficiaries” are showing as “balance due” and what effect does that have on the existence of a default — especially where servicer advances are involved, which appears to be most cases.

The courts are wrong. Those judges that rule that the accounting and posting on the actual creditors’ books and records are irrelevant are succumbing to political and economic pressure (Follow Tom Ice on this issue) instead of calling balls and strikes like they are supposed to do. If third party payments are at least includable in discovery and probably admissible at trial, then the amount that the creditor is allowed to expect would be reduced. In accounting there is nothing more black letter that a reduction in the debt affects both the debtor and the creditor. So a principal reduction would occur by simple application of justice and arithmetic — not some bleeding heart prayer for “relief.”

Why the economy can;t budge — consumers are not participating in greater productivity caused by consumers as workers

Simple facts: our economy is driven by, or was driven by 70% consumer spending. Like it or not that is the case and it is a resilient element of U.S. Economics. Since 1964 workers wages have been essentially stagnant — despite huge gains in productivity that was given ONLY to management and shareholders. I know this is an unpopular position and I have some misgivings about it myself. But the fact remains that when unions were strong EVERYONE was getting paid better and single income households were successful with even some padding in savings account.

By substituting credit for a proper wage commensurate with merit (productivity), the country has moved most of the population in the direction of poverty, burdened by debt that should have been wages and savings.

But the big shock that is not over is the sudden elimination of household wealth and the sudden dominance of the banks in the economy, world politics and our national politics. Proper and appropriate sharing of the losses imposed solely on borrowers in a mean spirited “rocket docket” is not the answer. (see above) The expediting of foreclosures is founded on a completely wrong premise — that the debts, notes and mortgages are, for the most part, valid. They are not valid as to the parties who seek to enforce them for their own benefit at the expense and detriment to both the creditors (investors) and borrowers.

GDP of the United States is now composed of a virtually dead heat between financial “services” and all the rest of real economic activity (making things and doing services). This means that trading paper based upon the other 50% of real economic activity has tripled from 16% to nearly 48%. That means our real economic activity is composed, comparing apples to apples, of about 1/3 false paper. A revision of GDP to 2/3 of current reports would cause a lot of trouble. But it is the truth and it opens the door to making real corrections.

The Basic Premise of the Bailout, TARP, Bond Purchases was Wrong

Now that Bernanke, Geithner, Paulson and others are being forced to testify, it is apparent that they had no idea what they were really doing because they were proceeding on false information (from the banks) and false premises (from the banks). Most revealing is that both Paulson and Bernanke were relying upon Geithner while he was President of the NY Fed. Everyone was essentially asleep at the wheel. Greenspan, former Federal Reserve chairman, admits he was mistaken in believing that while his staff of 100 PhD’s didn’t understand the securitization scheme, market forces would mysteriously cause a correction. Perhaps that would have been painfully true if market forces had been allowed to continue — resulting in the failure of most of the major banks.

The wrong premise was the TBTF assumption — the fall of AIG or the banks would have plunged into a worldwide depression. That would only have been true if government didn’t simply step in, seize bank assets around the world, and provide restitution to the victims — pension funds, homeowners, insurers, guarantors, et al. We already know that size is no guarantee of safety (Lehman, AIG, Bear Stearns et al). There are over 7,000 community banks and credit unions, some with more than $10 billion on deposit, that could easily pick up where bank of America left off before its own crash. Banking is marketing and electronic data processing. All  banks, right down to the smallest bank in America, have access to the exact same IT backbone for transfer of funds, deposits and loans. Iceland showed us the way and we ignored it. They sent the bad bankers to jail and reduced household debt by more than 25%. They quickly recovered from the “failed” banks and things are running quire smoothly.

JDSUPRA.COM: What good is the statute of limitations if it never ends?

A word of caution. In the context of a quiet title action my conclusion is that it should not be available just because the statute of limitations has run on enforcement of the note. But it remains on the public records as a lien. The idea proposed by me, initially, and others later that a quiet title action was the right path is probably wrong. documents in the public records may not be eliminated without showing that they never should have been recorded in the first place. Thus the mortgage or assignment of record remains unless we prove that those documents were void and therefore should not have been recorded.

That said, I hope the Supreme Court of Florida makes the distinction between the context of quiet title, where I agree that it should not easy to eliminate matters in the public record, and the statute of limitations, where parties should not be permitted to bring repeated actions on the same debt, note and mortgage after they have lost. Both positions cause uncertainty in the marketplace — if quiet title becomes easy to allege due to statute of limitations and statute of limitations becomes  harder to raise because despite choosing the acceleration option, and despite existing Florida law and precedent, the court decides that the the foreclosing party is estopped by res judicata, collateral estoppel and the statute of limitations.

JDSUPRA.COM: Association Lien Superior to 1st Mortgage

As I predicted years ago and have repeated from time to time, one strategy that is absent is collaboration between the homeowner and the association whose lien is superior to the 1st Mortgage which can be foreclosed out of existence. This was another area of concentration in my prior practice of law. We provide litigation support to attorneys. We will not make any attempt nor accept direct engagement of associations. But I can show you how to use this to advantage of our law firm, your client’s interests and avoid an empty abandoned dwelling unit.

What a surprise?!? Servicers are steering unsophisticated and emotionally challenged borrowers into foreclosure

by string them along in modifications. This is something many judges are upset about. They don’t like it. More motions to compel mediation (with a real decider) or to enforce a settlement that has already been approved (and then the NEXT servicer says they are not bound by the prior agreement.

Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses | Tagged: , , , , | 6 Comments »

Will the Findings from the Brief “Foreclosure Review” Process Be Released?

Posted on July 26, 2013 by Neil Garfield

“The truth is that they stopped the review process and “Settled” because the regulators were under a mandate to protect the banks. They were finding far too many wrongful and illegal foreclosures. The investigator testified that the small sampling they used was not random but rather designed to show how few foreclosures were illegal. But even that showed that at least 6500 homeowners had been illegally foreclosed and evicted. The banks and regulators were sitting on a time bomb so they swept it under the rug with “settlements” to cover up the widespread pandemic rush to illegal, wrongful foreclosures where strangers to the transaction took title to property at a foreclosure sale by submitting a “Credit bid” in which they had absolutely no interest or authority.”  —- Neil F Garfield Livinglies.me

Not long ago, if someone told you that the government would review the foreclosure process, find that many people were foreclosed illegally and wrongfully — perhaps up to 90% — and then step in to protect the banks with a pennies on the dollar settlement WITHOUT TELLING THE FAMILIES THAT WERE WRONGFULLY FORECLOSED THAT IT HAD BEEN DETERMINED THAT THEY WERE ILLEGALLY AND WRONGFULLY FORECLOSED — you might have said, it can’t be true — things are not that bad.

Besides, you might say, how could the foreclosures have been illegal and wrongful to the point that the banks would agree to pay any settlement, even if it was pennies on the dollar. After all, as Judges are want to say “You took the loan, you didn’t pay, you lose your house.”

But in open session sworn testimony before the Senate Committee on banking and finance, under questioning from Senator Warren (see recent post for the video) that is exactly what the investigator admitted. In fact, it gets worse — they entered into the settlement to get this out of the way fast and sweep it under the rug.  And, the investigator admitted that they had not yet notified those whom the agency had already found had definitely been illegally and wrongfully foreclosed and evicted from their homes. Worse, the investigator admitted that no decision had been made when or if those families would be notified.

So here we have the government withholding information of civil and perhaps criminal wrongdoing, not informing the victims that they not only have a cause of action for damages, but that the proof is already in the hands of the regulatory agencies. And perhaps worse, this admission comes AFTER Bernanke assured Senator Warren that the victims would be notified.

So Judges, lawyers, borrowers and investors across the land and indeed across the world are still laboring under the misapprehension that when the dust settles the home will still be foreclosed. Not so.

If the real creditor has not stepped up to enforce the debt there can only be one reason — they have already been paid. And if they have already been paid, then the balance due from the borrower to that creditor is zero. And if someone else paid it, the most they COULD have is an action in contribution or unjust enrichment against the borrower; but they don’t have that right because they expressly waived it. Nonetheless, the Federal reserve is “buying” these mortgage bonds, supposedly backed by mortgage loans that we have now seen were paid or unenforceable at the rate of $85 Billion per month.

The presumption ought to be, based upon the filings of the regulatory agencies, the settlements and the sworn testimony before Congress, that the foreclosure is suspect and Judges should stop ramming these wrongful foreclosures down the throat of lawyers whose objections and arguments are dismissed without a thought. We don’t have to wait for the evidence before we decide. The time to decide is now because the evidence IS in.

And even if you can’t get the information from the regulatory agencies who claim the results to be confidential even though they admit what is in them, aggressive lawsuits against the pretender lenders should lead to huge awards to borrowers and their attorneys. What are you waiting for? Stop wasting time by delaying the cases so that the client gets another month of free rent and start being the aggressor in discovery, pleading and litigating.

Watch Elizabeth Warren Grill Regulators Over Illegal Foreclosures

A Brief Refresher on Glass Stegal From Barry Ritholtz

http://www.housingwire.com/fastnews/2013/07/18/bernanke-regulators-will-release-some-details-foreclosure-reviews

Filed under: foreclosure | Tagged: , , , , , , , , , | 86 Comments »

Why the Fed Can’t Get it Right

Posted on December 26, 2012 by Neil Garfield

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Editor’s Analysis and Comments: Bloomberg reports this morning that “Fed Flummoxed by Mortgage Yield Gap Refusing to Shrink.” (see link below)

In normal times lowering the Fed Funds rate and providing other incentives to banks always produced more lending and more economic activity. Bernanke doesn’t seem to understand the answer: these are not normal times and the cancerous fake securitization scheme that served as the platform for the largest PONZI scheme in human history is still metastasizing.

Why wouldn’t banks take advantage of a larger spread in the Fed funds rate versus the mortgage lending rates. Under the old school times that would automatically go to the bottom line of lending banks as increased profits. If we put aside the conspiracy theories that the banks are attempting to take down the country we are left with one inevitable conclusion: in the “new financial system” (sounds like the “new economy” of the 1990’s) the banks have concluded there would be no increase in profit. In fact one would be left to the probable conclusion that somehow they would face a loss or risk of loss that wasn’t present in the good old days.

Using conventional economic theory Bernanke is arriving at the conclusion that the spread is not large enough for banks to take on the business of lending in a dubious economic environment. But that is the point — conventional economic theory doesn’t work in the current financial environment. With housing prices at very low levels and the probability that they probably won’t decline much more, conventional risk management would provide more than enough profit for lending to be robust.

When Bernanke takes off the blinders, he will see that the markets are so interwoven with the false assumptions that the mortgage loans were securitized, that there is nothing the Fed can do in terms of fiscal policy that would even make a dent in our problems. $700 trillion+ in nominal derivatives are “out there” probably having no value at all if one were the legally trace the transactions. The real money in the U.S. (as opposed to these “cash equivalent” derivatives) is less than 5% of the total nominal value of the shadow banking system which out of sheer apparent size dwarfs the world banks including  the Fed.

As early as October of 2007 I said on these pages that this was outside the control of Fed fiscal policy because the amount of money affected by the Fed is a tiny fraction of the amount of apparent money generated by shadow banking.

Oddly the only place where this is going to be addressed is in the court system where people bear down on Deny and Discover and demand an accounting from the Master Servicer, Trustee and all related parties for all transactions affecting the loan receivable due to the investors (pension funds). The banks know full well that many or most of the assets they are reporting for reserve and capital requirements or completely false.

Just look at any investor lawsuit that says you promised us a mortgage backed bond that was triple A rated and insured. What you have given us are lies. We have no bonds that are worth anything because the bonds are not truly mortgage backed. The insurance and hedges you purchased with our money were made payable to you, Mr. Wall Street banker, instead of us. The market values and loan viability were completely false as reported, and even if you gave us the mortgages they are unenforceable.

The Banks are responding with “we are enforcing them, what are you talking about.” But the lawyers for most of the investors and some of the borrowers are beginning to see through this morass of lies. They know the notes and mortgages are not enforceable except by brute force and intimidation in and out of the courtroom.

If the deals were done straight up, the investor would have received a mortgage backed bond. The bond, issued by a pool of assets usually organized into a “trust” would have been the payee on the notes at origination and the secured party in the mortgages and deeds of trust. If the loan was acquired after origination by a real lender (not a table funded loan) then an assignment would have been immediately recorded with notice to the borrower that the pool owned his loan.

In a real securitization deal, the transaction in which the pool funded the origination or purchase of the loan would be able to to show proof of payment very easily — but in court, we find that when the Judge enters an order requiring the Banks to open up their books the cases settle “confidentially” for pennies on the dollar.

The entire TBTF (Too Big to Fail) doctrine is a false doctrine but nonetheless driving fiscal and economic policy in this country. Those banks are only too big if they are continued to be allowed to falsely report their assets as if they owned the bonds or loans.

Reinstate generally accepted accounting principles and the shadow banking assets deflate like a balloon with the air let out of it. $700 trillion becomes more like $13 trillion — and then the crap hits the fan for the big banks who are inundated with claims. 7,000 community banks, savings banks and credit union with the same access to electronic funds transfer and internet banking as any other bank, large or small, stand ready to pick up the pieces.

Homeowner relief through reduction of household debt would provide a gigantic financial stimulus to the economy bring back tax revenue that would completely alter the landscape of the deficit debate. The financial markets would return to free trading markets freed from the corner on “money” and corner on banking that the mega banks achieved only through lies, smoke and mirrors.

The fallout from the great recession will be with us for years to come no matter what we do. But the recovery will be far more robust if we dealt with the truth about the shadow banking system created out of exotic instruments based upon consumer debt that was falsified, illegally closed, deftly covered up with false assignments and endorsements.

While we wait for the shoe to drop when Bernanke and his associates can no longer ignore the short plain facts of this monster storm, we have no choice but to save homes, one home at a time, still fighting a battle in which the borrower is more often the losing party because of bad pleading, bad lawyering and bad judging. If you admit the debt, the note and the mortgage and then admit the default, no  amount of crafty arguments are going to give you the relief you need and to which you are entitled.

Fed Confused by Lack of Response from Banks on Yield Spread Offered

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , | 64 Comments »

BERNANKE: RECOVERY COULD TAKE 4-5 YEARS

Posted on January 8, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

AS USUAL OVERLY OPTIMISTIC PROJECTIONS TO PACIFY THE PUBLIC

DOES OBAMA WANT TO BE A ONE-TERM PRESIDENT?

EDITOR’S ANALYSIS: Bernanke is clearly back-peddling from the rosy predictions everyone was making earlier, thus corroborating what we have been saying on these pages for years. The recovery, if it comes at all under current policies will take decades. That’s a fact. But a different policy in which the Obama administration pursues pro-consumer policies, will change the entire outcome. The disappointing drift of the Obama administration brings us nearer to a second collapse that will be worse than the last one in 2007-2009. We almost collapsed then but he brought us back from the brink. Arguments can be made for against the bailout in 2008-2009 — but there is no credible argument for continuing the bailout now.

The simple fact is that the American economy has been driven by domestic consumption and exports. Both have dried up. 70% of our demand is endangered and reduced by the lack of money, wealth, savings, jobs, prospects, and credit. Nothing has been done by the government to materially alter the trajectory of the American economy. Any by allowing agents of a mythological securitization scheme to create two obligations or multiple obligations out of one, and then allow any one of the holders of those “obligations” to enforce by a roll of the dice, we have lost credibility in the international community which in turn is reflecting on the strength and reputation of the U.S. dollar.

To be sure, three are short-term scenarios under which the dollar might be sustained or even gain strength. But the end of this story is obvious — America becomes an unsafe partner in business, with an unsafe economic and legal structure, and an unreliable currency. The effects on all of us are chilling and we don’t want to look at the monster, which is understandable. The judicial branch is our last chance and fortunately they are turning the corner and forcing the issue — we are a nation of laws and those laws and the sanctity of the courtroom are not negotiable.

Every economist worth his salt across all ideology and political spectrums agrees the economy needs a series of major jolts from a stimulus. The last stimulus was far too small as Rubini and Krugman and Johnson pointed out multiple times with nobody listening. Doing it by printing more money is politically impossible and for good reason — it isn’t the answer and it will produce yet more problem in the short-term, mid-term, and long term.

The elephant in the living room is the gigantic stimulus that would result if black letter law was applied to the defective mortgages and foreclosures. Trillions of dollars in wealth could be returned to homeowners and investors under the right program. Yes the megabanks would suffer, and the 7,000 other banks that are not part of what is now the inner elite that meets the third Wednesday of every month, would be required to pick up the enormous burden of all those deposits. I doubt if the community banks and credit unions would actually have any problem with that.

Slow Job Growth Dims Expectation of Early Revival

By MICHAEL POWELL and SEWELL CHAN

The year 2010 ended on a disappointing note, as the economy added just 103,000 jobs in December, suggesting that economic deliverance will not arrive with a great pop in employment.

Signs still point to a long slog of a recovery, with the unemployment rate likely to remain above 8 percent — it sits at 9.4 percent after Friday’s report — at least through the rest of the president’s four-year term.

President Obama is not unaware of the political dangers posed by high unemployment. On Friday he appointed a new head of his National Economic Council, Gene Sperling, to replace the departing Lawrence H. Summers.

The latest report was also a let-down for some within the White House, as recent economic data had suggested that the recovery would gain speed going into 2011. The political stakes are high, as Democrats and Republicans wrestle over who should take credit for the progress of the jobs market, or the blame for its failure to ignite.

“We need collective patience,” said William C. Dunkelberg, chief economist for the National Federation of Independent Business. “You can’t recover quickly from a disaster like we’ve been through.”

With local governments continuing to shed some jobs, all of December’s gain came from private employers. In fact, private employment grew each month last year. The unemployment rate, which is based on a separate survey of households, fell from 9.8 percent in November, though a substantial part of that drop is caused by Americans leaving the work force.

Long-term unemployment, however, remains a malady without an easy cure. The percentage of the unemployed who have been without work 27 weeks or longer edged up last month to 44.3 percent, virtually unchanged from a year ago. Other indicators, such as the length of the workweek, remained stagnant.

The challenge, still unsolved, is how to add enough accelerant to light an employment fire. The Federal Reserve chairman, Ben S. Bernanke, said Friday that he expected economic growth to be “moderately stronger” this year.

“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” Mr. Bernanke told the Senate Budget Committee in his first testimony to the new Congress.

He was less optimistic about employment, noting that the job market had “improved only modestly at best.” And he added a cautionary forecast: “It could take four to five more years for the job market to normalize fully.”

Mr. Bernanke noted that housing, an enormous potential driver of middle- and working-class jobs, continued to edge downward. The Fed, he emphasized, plans to proceed with its plans to buy $600 billion worth of government bonds, in hopes of stirring more growth.

President Obama, in a speech at a factory in Landover, Md., accentuated the positive, which was a year of private sector job growth. “That’s the first time that’s been true since 2006,” he said. “The economy added 1.3 million jobs last year.”

Left unsaid, however, was the fact that job growth was not enough to absorb people entering the work force in the United States, much less to shrink the unemployment rolls.

R. Glenn Hubbard, dean of Columbia University’s business school and former chairman of the council of economic advisers for President Bush, remains a guarded optimist. He sees signs of the economy gaining speed.

“We could run as high as 200,000 per month this year, but keep in mind that might only bring the unemployment rate down to 9 percent,” Mr. Hubbard said. “That does very little for the person who is long-term unemployed.”

The so-called real unemployment rate, which includes those workers who are discouraged or have given up looking for work, stands at 16.7 percent.

Daniel Alpert, managing partner at Westwood Capital, pointed to a disturbing fact in Friday’s report. “We are seeing what appears to be evidence of structural unemployment,” he said, “among those in the prime, higher-earning 35- to 44-year-old demographic, where unemployment actually increased in December.”

The president’s advisers dispute this. Austan Goolsbee, the chairman of the council of economic advisers, agrees that long-term employment poses a great challenge, but he says there are few signs of European-style structural unemployment, in which job seekers essentially surrender hope.

“We are not cutting them off and dumping them out the door,” he says. “The biggest help for them is to drive down the overall employment rate.”

In the days leading up to the Friday report, economists pointed to hopeful signs. Consumer spending was on the rise, businesses were spending more, car sales nosed upward. And private surveys pointed to the possibility of a sharp, even explosive increase in hiring by small and midsize businesses.

Mr. Dunkelberg, however, noted that surveys of his membership showed no strong trend toward such hiring. Fifty percent reported they had no need to seek bank loans, as they had little intention of hiring.

“The consumer still has way too much debt and our members are very cautious,” he said. “Their only capital spending going on is to fix a leaking roof.”

Employment growth decelerated a bit toward the end of the year, with the biggest increases coming in October — the Bureau of Labor Statistics revised that number upward by 38,000 jobs on Friday.

Adam Hersh, an economist with the liberal-leaning Center for American Progress, recently ran a calculation to see when, at the current pace, the nation would regain the number of jobs lost during the great recession. The answer was 2037.

“Look, we have a huge employment crisis,” Mr. Hersh said.

Much of the growth last month came in the hospitality sector, which added 47,000 jobs. Such jobs, however, tend to provide lower wages and uncertain prospects for long-term employment.

Manufacturing, a source of encouragement earlier this year, added 10,000 jobs. And health services added 36,000, continuing a year-long rise in that area, fed in part by the aging of the American population.

Local governments shed 10,000 workers, fewer than in some past months, and state employment held more or less steady.

For the longer term, economists see hopeful signs. Some take the view that, in retrospect, the recovery of early last year was a false spring, reflecting only the bounce-back from the deep gloom of 2009. Real signs of recovery, including a pickup in shipping and manufacturing, took hold this autumn, they say.

“It’s pretty clear the economy went into a swoon last summer,” said Steve Blitz, senior economist for ITG Investment Research. “Now the real recovery is beginning, and I expect to see improvement.”

But, he acknowledged, he could as easily point to a glass still half empty. American corporations, sitting atop nearly $2 trillion of cash, are not doing much hiring, even as the president and Congress add the carrots of tax cuts and investment incentives. “The most disturbing fact is that you’re not seeing any breadth in the hiring,” Mr. Blitz said. “It’s looking to be a slow climb.”

Christine Hauser contributed reporting.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , | 16 Comments »

Talk About a Guy Who Gets It – “Anonymous?”

Posted on July 2, 2010 by Neil Garfield

As some of you knew or probably have guessed, livinglies is a lightening rod for information. We have posts like the one below on the comments and emails sent with details that are neither for attribution or publication. In addition, several people in sensitive government positions use livinglies as a method of getting the real information out. Take a close look at this comment posted from “Anonymous” a frequent contributor. While succinctly stated his points are pearls.

Yeah – searching Maiden Lane is good. But, it will only tell you what “toxic” tranches the government took off the books of the banks that held them. These are the tranches that were NOT paid by the swap protection.

My point is that if the upper tranches were paid via swap protection, then the bottom tranches – held by the government (Maiden Lane) are simply worthless tranches. This is because the pass-through tranche structure has been paid and is no longer existent.

Lower tranches are only paid current payout – if – and only if – the upper tranches have been paid. But, this payment must be current. If a swap payout has occurred, the upper tranches are NO LONGER current. They are done – there is nothing left for for the subordinate tranches to receive. Purchasing worthless toxic assets, by the government, was only a ploy to aid the financial institutions that held worthless “toxic” assets – that are no longer part of the originated “waterfall” structure payout. Worthless assets from a dissolved and dismantled Trust.

You must remember, the REMICs were set up for current pass through of receivables ONLY. Nothing more. Foreclosures cannot be assigned to REMICs with knowledge of default.

My anger is – the government knows this – and what the heck are they doing? They claim to be promoting modifications – and at the same time – are the investor in the toxic securities that are dead. Thus, ironically, the government is the one denying a loan modification and/or principal reduction – and, forcing foreclosure – despite their own law – including the 2009 TILA Amendment and .Federal Reserve Interim Opinion.

But, listen to Mr. Ben Bernanke – he wants short sales. This is their goal. And, for anyone who knows of someone purchasing a new home – ask them their terms – ask them the size of their mortgage, ask them their down payment. These people are going to be in trouble. All is simply a transfer of wealth of from you – to them (new home buyers). I cannot figure out how this ever came to be – except politics in the worst possible way.

Filed under: bubble, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, GTC | Honor, HERS, investment banking, MODIFICATION, Mortgage, securities fraud, STATUTES, trustee | Tagged: , , , , , , | 32 Comments »

Credit Default Swaps Must Go

Posted on March 2, 2010 by Neil Garfield

The fact is that credit default swaps and other complex derivatives that have proved to be instruments of mass destruction still remain entrenched in our financial system three years after our economy was almost brought to its knees.

Editor’s Note: Credit default swaps were the glue that held the mortgage meltdown scheme together. If there had been transparency on an open exchange so that government regulators and other investors could easily determine what was happening, the predatory tactics and fraud might have ground to a halt. One thing is sure — allowing banks to use consumer deposits and taxpayer money to play with as they wish was a bad idea and we have now made it worse. Maintaining a hands off policy to credit default swaps is a guarantee of even worse results than we have already seen for the world economy. Just watch as Greece crumbles in broad daylight.

February 28, 2010
Fair Game

It’s Time for Swaps to Lose Their Swagger

“USING these instruments in a way that intentionally destabilizes a company or a country is — is counterproductive, and I’m sure the S.E.C. will be looking into that.”

That’s what Ben S. Bernanke, chairman of the Federal Reserve, said last week when lawmakers asked him about credit default swaps during his Congressional testimony. Concerns are growing about such swaps — securities that offer insurance-like protection and helped tip over the American International Group in 2008 when it couldn’t pay mounting claims on the contracts.

Now, there are fears that the use of these swaps may also help propel entire countries — think Greece — to the precipice.

First, Greece employed swaps to mask its true debt picture, with the help of Wall Street bankers, of course. And now it appears that some traders are using swaps to bet that Greece won’t be able to meet its debt payments and will face a possible default.

Mr. Bernanke is undoubtedly an intelligent man. But his view that it’s “counterproductive” to use credit default swaps to crash an institution or a nation exhibits a certain naïveté about how the titans of finance operate now.

High-octane trading may be counterproductive to taxpayers, for sure. But not to the speculators who win big when such transactions pay off. And in the case of A.I.G., the speculators got their winnings from the taxpayers.

The certainty that Mr. Bernanke expressed about the S.E.C.’s inquiry into credit default swaps is quaint as well. If the past is prologue, we might see a case or two emerge from that inquiry five years from now. The fact is that credit default swaps and other complex derivatives that have proved to be instruments of mass destruction still remain entrenched in our financial system three years after our economy was almost brought to its knees.

DERIVATIVES are responsible for much of the interconnectedness between banks and other institutions that made the financial collapse accelerate in the way that it did, costing taxpayers hundreds of billions in bailouts. Yet credit default swaps have been largely untouched by financial reform efforts.

This is not surprising. Given how much money is generated by the big institutions trading these instruments, these entities are showering money on Washington to protect their profits. The Office of the Comptroller of the Currency reported that revenue generated by United States banks in their credit derivatives trading totaled $1.2 billion in the third quarter of 2009.

Congressional “reform” plans for credit default swaps are full of loopholes, guaranteeing that another derivatives-fueled financial crisis awaits us. According to the Bank for International Settlements, credit default swaps with a face value of $36 trillion were outstanding in the second quarter of 2009, the most recent figures available.

Credit default swaps are “a way to increase the leverage in the system, and the people who were doing it knew that they were doing something on the edge of fraudulent,” said Martin Mayer, a guest scholar at the Brookings Institution and author of 37 books, many of them on banking. “They were not well-motivated.”

Mr. Mayer has been critical of credit default swaps almost since they arrived on the scene. In 1999, for example, he wrote an opinion piece for The Wall Street Journal entitled “The Dangers of Derivatives.”

“These ‘over the counter’ derivatives — created, sold and serviced behind closed doors by consenting adults who don’t tell anybody what they’re doing — are also a major source of the almost unlimited leverage that brought the world financial system to the brink of disaster last fall,” he wrote, referring to the market turmoil of 1998. “The derivatives dealers’ demands for liquidity far exceed what the markets can provide on difficult days, and may exceed the abilities of the central banks to maintain orderly conditions.”

Calling credit derivatives “the most dangerous instrument yet,” Mr. Mayer concluded in his article that neither banks nor bank examiners have any idea how to handle them. “The system is easily gamed, and it sacrifices the great strength of banks as financial intermediaries — their knowledge of their borrowers, and their incentive to police the status of the loan,” he wrote.

Pointing to a study by the Federal Reserve Bank of New York, he said: “In the presence of moral hazard — the likelihood that sloughing the bad loans into a swap will be profitable — the growth of a market for default risks could lead to bank insolvencies.”

How’s that for prescient?

His predictions having come true, I asked Mr. Mayer for solutions to the problems that credit default swaps have created. He had several.

First, he said, those trading in swaps must be forced to put up more capital to back them so that if a client asks for payment, the issuer actually has the funds on hand to do so.

“This is an insurance instrument and it must be regulated on an insurance basis with minimum reserves, instead of making deals that don’t even have maintenance margin on them,” he said. “And I think it is an instrument that insured depositories ought not to be allowed to hold or trade.”

And yet United States commercial banks, those with insured deposits, held $13 trillion in notional value of credit derivatives at the end of the third quarter last year, according to the Office of the Comptroller of the Currency. The biggest players in this world are JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

All of those firms fall squarely into the category of institutions that are too politically connected to fail. Because of the implicit taxpayer backing that accompanies such lofty status, derivatives become exceedingly dangerous, said Robert Arvanitis, chief executive of Risk Finance Advisors, a corporate advisory firm specializing in insurance.

“If companies were not implicitly backed by the taxpayers, then managements would get very reluctant to go out after that next billion of notional on swaps,” he said. “They’d look over their shoulder and say, ‘This is getting dangerous.’”

But taxpayers remain decidedly on the hook for future bailouts because Congress has done nothing to eliminate the once-implied but now explicit government guarantees backing large and interconnected companies. And on derivatives trading, lawmakers’ moves have been depressingly incremental.

Mr. Mayer, for one, believes that credit default swaps must be exchange-traded so that their risks would be more evident. He dismisses the contention of big institutions in this arena that many credit default swaps cannot be traded on an exchange because they are tailor-made for particular customers.

“These are generic risks and can be traded generically,” Mr. Mayer said. “You are not insuring against a very individual risk.”

AND what of the argument that increased regulatory oversight of credit default swaps will crimp financial innovation?

“This insistence that you mustn’t slow the pace of innovation is just childish,” Mr. Mayer said. “Innovation has now cost us $7 trillion,” he added, referring to the loss in household wealth that has resulted from the crisis. “That’s a pretty high price to pay for innovation.”

Couldn’t agree more. Too bad Washington doesn’t see it that way.

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Foreclosure Defense: New Fed Rules Admit Abuses

Posted on July 9, 2008 by Neil Garfield

If you look at the proposed rules, you can see that the Fed has already established, as a matter of fact, a widespread pattern of predatory lending, bad underwriting, etc.You can use this as further proof of your arguments, that the government itself found these things to be true because they are taking the trouble to revamp the lending practices that happen coincinde with every one of your allegations.

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Fed plans new rules to protect future homebuyers

By JEANNINE AVERSA, AP Economics WriterTue Jul 8, 4:47 PM ET

The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.

Fed Chairman Ben Bernanke spoke of the much-awaited rules in a broader speech Tuesday about the challenges confronting policymakers in trying to stabilize a shaky U.S. financial system. To that end, Bernanke said the Fed may give squeezed Wall Street firms more time to tap the central bank’s emergency loan program.

To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.

The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.

Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

“These new rules … will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending,” Bernanke said.

Consumer groups have complained that the proposed rules aren’t strong enough, while mortgage lenders worry that they are too tough and could crimp customers’ choices.

In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.

“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.

The Fed’s decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed’s lending powers since the 1930s.

Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.

Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.

Bernanke, in appearances on Capitol Hill has said he doesn’t believe taxpayers will suffer any losses.

In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn’t intervene, he said, problems in financial markets would have snowballed, imperiling the country.

“Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy,” Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.

The Fed’s consideration of giving Wall Street firms more time to tap the Fed’s emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.

Policymakers — in the White House, in Congress and other federal agencies — will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.

Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday’s hearing.

The Bush administration has proposed revamping the nation’s financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.

The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.

Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.

Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC’s oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , | 2 Comments »

Mortgage Meltdown: Credit Crisis Spreads

Posted on May 14, 2008 by Neil Garfield

 

Credit Crisis Over? — Not by a Long Shot

 

As you can imagine I get emails and comments from hundreds of people seeking help and whose houses are going into sale or foreclosure, most of whom are completely unaware that they have rights superior to the lender, if they can find someone to help them like www.repairyourloan.com. 

 

Lawyers won’t help you until you get the mortgage audit completed. It is then that you will know the extent of your claims and what you do to stop the foreclosure, the eviction or even extinguish the mortgage and release yourself from liability on the mortgage note. 

 

Here is an article which illustrates why you need to beware of both the government and the lenders. They are trying to give the impression that the credit crisis is (a) not as bad as people thought and (b) over. What they are really trying to do is pivot your attention away from the fact that the massive mortgage meltdown has caused a meltdown in all the credit markets. It has caused a massive meltdown in asset values for individuals, corporations and government entities. 

 

This is not the beginning of the end. It is, as Winston Churchill said in World War II “the end of the beginning.” We have years to go before this shakes out just in terms of education of the public. And we have decades to go to recover from this utter failure of government to do its job — to referee between those who know things and those who don’t. 

 

In the process the government, the corporations and the individuals owning houses or doing their jobs have all been smacked in the face, really hard and have snapped out of their wishful confidence in their government and in the “good faith” of a good faith estimate before closing on a loan.

 

Credit Crisis

Congress And The Credit Crisis

Joshua Zumbrun 05.14.08, 6:00 AM ET

 

Washington, D.C. – 

A congressional panel meets Tuesday morning looking to answer two big questions about the economy: Is the credit crisis over? And can anything be done to prevent another crisis in the future? 

 

To both questions, the answer is “No. And proceed with great caution.”

 

For the credit crisis, reasons for optimism are emerging. Monday morning, Federal Reserve Chairman Ben Bernanke outlined positive signs: confidence between banks has risen, the market for repurchase agreements of Treasury securities has improved, secondary markets even for troubled mortgage-backed securities have more liquidity than they did in May.

 

“These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal,” Bernanke cautioned. (See “Recovery: Are We There Yet?”)

 

Still, the battered housing market continues to drag. Data released Monday from the National Association of Realtors showed that home prices are still falling. In the first quarter of this year, the median home price dropped 7.7% from a year ago–the biggest decline in the 29 years NAR has compiled the prices.

 

The number of borrowers who owe more than their house is worth is still growing. Loan defaults and foreclosures are likely to continue, as will losses to the lenders. Foreclosures tend to drag down the prices of their entire neighborhoods. But even here, Lawrence Yun, chief economist of the National Association of Realtors, sees some signs of optimism: “Neighborhoods with little subprime exposure are holding on very well.” And at least banks are not originating new subprime loans.

 

Now for the second question: How to prevent risk in the future. That’s what makes Tuesday morning’s hearing significant. The early advice Congress receives could shape regulation of banks and the financial market for years or even decades. And, as Treasury Secretary Henry Paulson noted in proposing a series of regulatory reforms in March, “few, if any, will defend our current balkanized system as optimal.”

 

The March collapse of Bear Stearns exposed a weakness in the Gramm-Leach-Bliley Act, a 1999 law that removed the barriers between commercial banks, investment banks and insurance companies. The amount of systemic risk was not recognized until too late.

 

After Gramm-Leach-Bliley, banks and insurance companies were allowed to undertake the same activities, but they still answered to their old regulators. Five federal regulators oversee deposits, in addition to regulation from state governments. Futures and securities are regulated by separate agencies. Insurance regulation is spread across more than 50 regulators.

 

The result was a confused alphabet soup–SEC, CFTC, OCC, NCUA, FDIC–with muddled boundaries or, as SEC Chairman Christopher Cox described the result, “a statutory no-man’s land.”

 

But regulation presents pitfalls as well. It must be considered not in terms of more or less regulation but rather in terms of flexibility and efficiency. 

 

“In the wake of a bust, there is always a predictable series of political activities,” says Alex Pollock, former president of the Federal Home Loan Bank of Chicago, who will testify before the committee. “First, the search for the guilty; second, the fall of previously esteemed heroes; and third, legislation and increased regulation to ensure that ‘this will never happen again.’ But, with time, it always does happen again.”

 

The guilty have been identified as the twin bogeymen of the subprime underworld: “speculators” and “unscrupulous lenders,” enabled by banks unable to price risk and an irrational belief that home prices would always rise. The esteemed heroes have fallen: the collapse of Bear Stearns, disappointing results from Wall Street’s banks. Even Alan Greenspan has lost some of his luster.

 

The third act at the boom and bust theater is well under way. This week the Senate is ironing out its companion legislation to the House’s Foreclosure Prevention Act, which passed last week with a 266-154 margin. The president has indicated he would veto the bill’s current incarnation but could support a toned-down version. All that remains is the predictable regulatory overhaul and then a long wait for the inevitable cycle to begin in the future. 

 

 

Filed under: bubble, Bush, CDO, community banks, CORRUPTION, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, inflation, interest rates, Investor, McCain, Mortgage, Obama, politics, securities fraud | Tagged: , , , , , , , , | 2 Comments »

Personality not Plans

Posted on March 5, 2008 by Neil Garfield

What we know is that nothing constructive is happening now, the usual ideological gridlock is preventing progress, and that the curiosity about a brilliant new face might just get the right people to the right table at the right time.  

Bernanke is completely right that the ONLY way out of this mess is not throwing more money at it, further damaging the credibility and value of the dollar. The real answer, the one that that actually reverses the crisis is admitting the simple fact that a $250,000 house was sold for $400,000. 

And the solution lies not in legislation but in executive leadership. The key component of the solution is a reduction of the principal balance of the mortgage loans out there — and that includes virtually all loans that were initiated over the last 5 years. All homes were affected by the appearance of rising prices that turned out to be false.

The only way this is going to happen is with persuasive executive leadership. Teddy Roosevelt said speak softly and carry a big stick. That is pretty much what need to happen here but somehow you need to get all the players into the room and sitting at the same table. 

McCain won’t do it out of stubborn ideology. Clinton can’t do it because of resistance just to her name let alone credibility in her policies. That leaves Obama — an untested but brilliant strategist who not only survived but prospered in highly contentious environments consisting of diverse antagonists and rivals.  His credentials are necessarily sparse but still solid in this respect. If Obama can’t get everyone to the table, nobody will. And if they don’t come, the economy will sink like a stone. 

Bernanke could be the one but he isn’t. Paulson could be the one but he isn’t. And of course Bush is in the right position, but is so out of touch with the reality of the situation that he is worse than useless.  

Consensus that offers olive branches and incentives to everyone CAN solve these issues. Lower the mortgage balance but give the lenders a chance to participate in the comeback on a contingent basis. State the reduction as a contingency so the capital requirements of banks can be met without begging for money around the world. This will also minimize the write-downs of investment banking houses and restore investment value to balance sheets.

Avoid criminal and civil prosecutions and even offer immunity of there is cooperation. Strengthen regulation and abandon the new round of loosening regulations in Basel II in favor of tighter standards with oversight on risk assessment. Strengthen disclosure requirements and enforcement of violations by the SEC using the methods employed in the CDO fraud as the template.

These are the a few of the important things that need to be done. In order for Republicans, Democrats, Independents, businessmen, Wall Street executives, Bankers, borrowers and investors to play nice together though, it will take executive leadership of a type we haven’t seen since Jack Kennedy talked down steel prices. 

There is no guarantee that anyone including Obama will be successful at staunching the bleeding. What we know is that nothing constructive is happening now, the usual ideological gridlock is preventing progress, and that the curiosity about a brilliant new face might just get the right people to the right table at the right time. 

Obama, like any president, will need advice and counsel dealing with the complexities of currency, derivative securities, arcane, conflicting mortgage laws and provisions in notes that defy explanation. 

He has an advantage in perception, however, His campaign is clearly not owned by one large interest group over another. And there is no perception that runs to the contrary. Enmity between ankle biting bankers and investment bankers won’t be mixed with suspicion that they are being led into a trap. 

It will be 10 months before Obama can use his powers of the Presidency to start this process. But there IS something he can do now. Start acting like a President and fill the void. His backing includes people of enormous political power who can help invite the decision-makers to secret meetings now. Win or lose, he should do that now without regard to whether it is politically expedient. 

Filed under: bubble, Bush, community banks, credit unions, currency, Eviction, foreclosure, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics | Tagged: , , , , , , | Leave a comment »

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