Sheila Bair Had a Plan to Make Banks Pay for Dishonest Dealing Causing the 2008 Crash

Sheila Bair (ex FDIC Chairwoman) has always understood. She was fired for understanding. It’s hard to understand that the TBTF banks were NOT speculating and never lost any money. Harder still to understand how they stole trillions of dollars from the US economy. And finally harder still to understand how “lenders” could cause a crash.

It’s really quite simple. Usually prices and values are within the same range. Fair market value has always been closely related to the ability of people to pay for housing — i.e., household income. Prices rise when demand becomes high OR, and this is the big one, when the big banks flood the market with money.

Like the 2008 crisis if you look at the Case Schiller Index, you will see that prices went through the roof by unprecedented increases while fair market value was flatlined. The crash was thoroughly predictable and was predicted on these pages and by many other economists and financial analysts.

For more than two decades, maybe three, the housing market has been floating on a sea of unsustainable debt because the investment banks became the “source” of funds in a marketplace where their principal objective was movement of money instead of management of risk. That is because investment banks do that while commercial banks and other lenders don’t — unless they are paid to act as though they are the lender in a transaction where they have no risk. Then they will advertise to people with low FICO scores and anyone else whose loan is likely to fail. They bet on the failure of the loan and the collapse of certificates issued as derivatives.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consent to many people and lawyers so they can spot the key elements of a scam. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORM WITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

Hat tip Greg da Goose

https://www.huffingtonpost.com/entry/why-does-wells-fargo-still-exist_us_5b80148ee4b0729515126185

From Huffington Post:

“Wells Fargo may not even be the worst big bank out there. Citigroup, another merger monstrosity, is so poorly pieced together that today, Wall Street investors don’t even believe the bank is worth its liquidation price. JPMorgan Chase has notched 52 fines and settlements since the crash. Goldman Sachs has 16, three of them this year.

In a revealing interview with New York Magazine earlier this month, former FDIC Chair Sheila Bair said she wished regulators had broken up a bank after the crisis, probably Citigroup. [Editor’s note: Obama initially gave that order but Tim Geithner refused]. Forcing at least one institution to pay the ultimate corporate price would have put pressure on other major firms to clean up their acts.

Both the Bush and Obama administrations rejected Bair’s plan. And so today, the American banking system ― rescued by taxpayers a decade ago to protect the economy ― has transformed into a very large, very profitable criminal syndicate.”

So I ask the question again: “Why are foreclosure defense lawyers not more aggressive about challenging legal presumptions upon which the banks and judges rely?”
Legal presumptions are ONLY supposed to be used in cases where (1) the source of the document or testimony is credible and has no interest in the outcome of the litigation and (2) it serves “judicial economy.”
The banks have been publicly humiliated for acting like thieves, liars, fabricators, and the source of sophisticated mechanical forgeries. Neither they nor their puppet “servicers” are entitled to a presumption of anything. If they want to proffer a fact, make them prove it. These people are so not credible that we regularly talk about robosigners, robowitnesses and other people who are hired to say or write something about which they have no knowledge or understanding. Where is the credibility in that?
And equally where is the judicial economy? In all cases where the presumptions are used and the homeowner contests the foreclosure it would take FAR LESS time for the so-called lender to prove its case with actual facts (not presumed facts) than to spend years changing servicers, changing recorded documents, changing Power of Attorney, etc.
Where is the prejudice?  If the Defense raises issues as to the standing and facts alleged in the complaint or initiation of foreclosure proceedings, then the obvious answer is to have the “lender” prove their case with real facts in the real world that do not rely upon jsut testimony from robowitnesses or documents that have been robosigned.

Forbes: TBTF Banks have $3.8 Trillion in Reported Loan Portfolios — How much of it is real?

The five largest U.S. banks have a combined loan portfolio of almost $3.8 trillion, which represents 40% of the total loans handed out by all U.S. commercial banks.

See Forbes: $3.8 Trillion in Portfolio Loans

I can spot around $300 billion that isn’t real.

Let us help you plan your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

Purchase now Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar including 3.5 hours of lecture, questions and answers, plus course materials that include PowerPoint Presentations. Presenters: Attorney and Expert Neil Garfield, Forensic Auditor Dan Edstrom, Attorney Charles Marshall and and Private Investigator Bill Paatalo. The webinar and materials are all downloadable.

Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

When interviewing the FDIC receiver back in 2008 he told me that WAMU had originated around $1 Trillion in loans. He also told me that most of them were subject to claims of securitization (i.e., they had been sold). Then when I asked him how much had been sold, he said that Chase had told him the total was around 2/3. Translation: With zero consideration, Chase was about to use the agreement of October 25, 2008 as an excuse to claim ownership and servicing rights on over $300 billion in loans. Chase was claiming ownership when it suited them. By my count they foreclosed on over $100 billion of those “WAMU” loans and, for the most part, collected the proceeds for itself.

Point One: If there really were $300 Billion in loans left in WAMU inventory, there would have been no receivership nor would there have been any bankruptcy.

Point Two: If there were $300 Billion in loans left in WAMU inventory, or even if there was 1/10th that amount, neither the FDIC receiver nor the US Trustee in WAMU bankruptcy would have allowed the portfolio to be given to Chase without Chase paying more than zero. The receiver and the US Trustee would have been liable for civil and even criminal penalties. But they were not liable because there were no loans to sell.

So it should come as no surprise that a class action lawsuit has been filed against Chase for falsely claiming the payments from performing loans and keeping them, and for falsely claiming the proceeds on foreclosure as if they were the creditor when they were most clearly not. whether the lawyers know it or not, they might just have filed the largest lawsuit in history.

see Young v Chase Class Action – WaMu Loans – EDNY June 2018

This isn’t unique. Chase had its WAMU. BofA had its Countrywide. Wells Fargo had its Wachovia. Citi had lots of alter egos. The you have OneWest with its IndyMac. And there are others. All of them had one thing in common: they were claiming ownership rights over mortgages that were falsely claimed to have been “acquired through merger or acquisition using the FDIC (enter Sheila Bair screaming) as a governmental rubber stamp such that it would appear that they purchased over a trillion dollars in residential mortgage loans when in fact they merely created the illusion of those loans which had been sold long ago.

None of this was lost on the insurers that were defrauded when they issued insurance policies that were procured under false pretenses on supposedly non-securities where the truth is that, like the residential loans themselves, the “securities” and the loans were guaranteed to fail.

Simplistically, if you underwrite a loan to an family whose total income is less than the payments will be when the loan resets to full amortization you can be sure of two things: (1) the loan will fail short-term and (2) the “certificates” will fail along with them. If you know that in advance you can bet strong against the loans and the certificates by purchasing insurance from insurers who were inclined to trust the underwriters (a/k/a “Master Servicer” of nonexistent trust issuing the certificates).

see AMBAC Insurance Case vs U.S. Bank

The bottom line is that inside the smoke and mirrors palace, there is around $1 Trillion in loans that probably were sold (leveraged) dozens of times where the debt is owned by nobody in particular — just the TBTF bank that claims it. Once they get to foreclosure, the presumption arises that everything that preceded the foreclosure sale is valid. And its very hard to convince judges that they just rubber stamped another theft.

New Jersey Court Invokes Golden Chicken of Law

Not only did this court get it wrong, it apparently knew it was getting it wrong and so ordered that the case could not be used as precedent.

Steve Mnuchin, now Secretary of our Treasury, was hand picked by the major banks to lead a brand new Federal Savings Bank, called OneWest, which was literally organized over a single weekend to pick up the pieces of IndyMac. By the time of its announced failure in the fall of 2008 IndyMac was a thinly capitalized shell  conduit converted from regular commercial banking to a conduit to support the illusion of securitization.

The important part is that in terms of loans IndyMac literally owned as close to nothing as you could get. OneWest consisted of a group of people who don’t ordinarily invest in banks. But this was irresistible. Over the shrieking objections of FDIC chairwoman who lost her job, OneWest was allowed to claim (a) that it owned the loans that IndyMac and “originated” and (b) to claim 80% of claimed losses which the FDIC paid.

see OneWest “Wins” Again

Thus OneWest claimed losses vastly exceeding the “investment” by certain members of the 1% whom I won’t name here. This enabled them to do 2 things. Claim 80% of the fictitious losses from loans that were not owned by Indymac and the foreclose to collect the entire amount.

Mnuchin was put in charge of “operations.” He ran nothing and basically did as he was told. He knew that the IndyMac residential loan portfolio was at practically zero, he knew that the 80% claim was fictitious, and he knew that neither IndyMac nor OneWest, its supposed successor owned the loans. Nonetheless the “foreclosure king” was entirely happy with foreclosing on homeowners who were caught in a world of spin.

The investors in the OneWest deal split the spoils of war. To be fair they didn’t actually know the truth of the situation. Mnuchin painted a very rosy profit picture that would happen over the short-term and he was right.

As with WAMU, Countrywide et al, the business of IndyMac was largely run through remote vehicles posing as mortgage brokers, originators or just sellers. These entities did exactly what IndyMac told them to do and in so doing IndyMac was doing exactly what it was told to do by the likes of Merrill Lynch, and indirectly Bank of America, Chase, Goldman Sachs, and Citi.

As the descriptive literature on securitization says, all vehicles are remote and special purpose so as to protect everyone else against allegations of wrongdoing. But there was nothing remote about these companies. Yet here in this decision in New Jersey the court predicated its ruling on the proposition that none of the players were liable for any of the unlawful activities of their predecessors.

It’s decisions like this that leave us with the knowledge that we have a long way to go before the courts get curious enough to apply the law as it is — not as the courts and others say it is.

FDIC Employee Quits and Goes Public With Complaint Against Chase, WAMU, Citi and two law firms

For further information and assistance please call 954-495-9867 or 520-405-1688

=======================

See Eric Mains Federal Complaint

see Mains – Table of Contents.petition 2 transfer

On Monday Eric Mains resigned from his employment with the FDIC. He had just filed a lawsuit against Chase, Citi, WAMU-HE2 Trust, Cynthia Riley, LPS, WAMU, and two law firms. Since he felt he had a conflict of interest, he believed the best course of action was to resign effective immediately.

His lawsuit, told from the prospective of a true insider, reveals in astonishing detail the worst of the practices that have resulted in millions of illegal foreclosures. Some of his allegations cast a dark shadow over claims of Chase Bank on its balance sheet, as reported to the public and the SEC and the reporting of both Chase and Citi as to their potential liability for wrongful foreclosures. If he is right, and he proves these allegations, much of what Chase has reported as its financial condition will vanish from its financial statements and the liability side of the balance sheets of both Citi (as Trustee) and Chase (as servicer and “owner’) will increase exponentially. This may well have the effect of bringing both giants into the position of insufficient reserve capital and force the government to take action against both entities. Elizabeth Warren might have been right when she said that Citi should have been broken into pieces. And the same logic might apply to Chase.

He has also penned the phrase “wild goose Chase” referring to discovery of the true creditors and processing of applications for modification of loans. And he has opened the door for RICO actions against the banks and individuals who did the bidding of the banks as well as the individuals who directed those actions.

His Indiana lawsuit is filed in federal court. He alleges that

1. WAMU was not the actual lender in his own loan
2. That the loan was part of an illegal scheme from the start
3. That his loan was subject to claims of securitization but that those claims were false
4. That the REMIC Trust was never funded and therefore never had the capacity to originate or buy loans
5. That the intermediaries never followed the law or the documents for securitization of his loan
6. That the REMIC Trust never did purchase his loan
7. That Citi was therefore “trustee” for an unfunded trust
8. That Chase never purchased the loans from WAMU
9. That Chase could not have been the legal servicer over the loan because the loan was not in the trust
10. That Chase has filed conflicting claims as to ownership of the loans
11. That the affidavit of Robert Schoppe, whom Mains worked for, as to ownership of the loans was false when it states that Chase owned the loans
12. That the use of WAMU’s name on the loan documents was a false representation
13. That his loan may have been pledged several times by various parties
14. That multiple payments from multiple parties were likely received by Chase and others on account of the Mains “loan” but were never accounted for to the investors whose money was being used as though it was the Banks themselves who were funding originations and a acquisitions of loans
15. That the industry practice was to reap multiple payments on the same loan — and the foreclose as though there was balance due when in fact the balance claimed was entirely incorrect
16. That the investors were defrauded and that foreclosure was part of the fraudulent scheme
17. That Mains name and identity was used without his consent to justify numerous illegal transactions in which the banks repeated huge profits
18. That neither WAMU nor Chase had any rights to collect money from Mains
19. That Citi had no right to enforce a loan it did not own and had no authority to represent the owner(s) of the loan
20. That the modification procedures adopted by the Banks were used intentionally to force the borrower into the illusions a default
21. That Sheila Bair, Chairman of the FDIC, said that Chase and other banks used HAMP modifications as “a kind of predatory lending program.”
22. That Mains stopped making payments when he discovered that there was no known or identified creditor.
23. The despite stopping payments, his loan balance went down, according to statements sent to him.
24. That Chase has routinely violated the terms of consent judgments and settlements with respect to the processing of payments and the filing of foreclosures.
25. That the affidavits filed by persons purportedly representing Chase were neither true nor based upon personal knowledge
26. That the note and mortgage are void from the start.
27. That Mains has found “incontrovertible evidence of fraud, forgery and possibly backdating as well.” (referring to Chase)
28. That the law firms suborned perjury and intentionally made misrepresentations to the Court
29. That Cynthia Riley “is one overwhelmingly productive and multi-talented bank officer. Apparently she was even capable of endorsing hundreds of loan documents a day, and in Mains’ case, even after she was no longer employed by Washington Mutual Bank. [Mains cites to deposition of Riley in JPM Morgan Chase v Orazco Case no 29997 CA, 11th Judicial Circuit, Florida.
30 That Cynthia Riley was laid off in November 2006 and never again employed as a note review examiner by WAMU nor at JP Morgan Chase.
30. That LPS (now Black Knight) owns and operates LPS Desktop Software, which was used to create false documents to be executed by LPS employees for recording in the Offices of the Indiana County recorder.
31. That the false documents in the mains case were created by LPS employee Jodi Sobotta and signed by her with no authority to do so.
32. Neither the notary nor the LPS employee had any real documents nor knowledge when they signed and notarized the documents used against Mains.
33. Chase and its lawyer pursued the foreclosure with full knowledge that the assignment was fraudulent and forged.
34. That LPS was established as an intermediary to provide “plausible deniability” to Chase and others who used LPS.
35. That the law firms also represented LPS in a blatant conflict of interest and with knowledge of LPS fraud and forgery.

Some Quotes form the Complaint:

“Mains perspective on this case is a rather unique one, as Main is an employee of the FDIC (hereinafter, FDIC) who worked in the Dallas field office of the FDIC in the Division of Resolutions and Receiverships (hereinafter DRR), said division which was the one responsible for closing WAMU and acting as its receiver. Mains worked with one Robert Schoppe in his division, whom the defendant Chase Bank often cites to when pulling out an affidavit Robert signed. This affidavit states that Chase Bank had purchased “certain assets and liabilities” of WAMU in the purchase transaction from the FDIC as receiver for WAMU in 2008. Chase Bank uses this affidavit ad museum to convince the court system in foreclosure cases that this affidavit somehow proves that Chase Bank purchased “every conceivable asset” of WAMU, so it must have standing in all cases involving homeowner loans originated through WAMU, or to put it simply that this proves Chase became a holder with rights to enforce or a holder in due course of the loan as defined by the Uniform Commercial Code. Antithetically, when it wants to sue the FDIC for a billion dollars… due to mounting expenses from the WAMU purchase transaction, it complains that the purchase agreement it signed didn’t really entail the purchase of “every asset and liability” of WAMU… Chase Bank claims this when it is to their advantage in a lawsuit to do so.

Mains worked as team leader in the DRR Dallas field office

[The] violation of REMIC trust rules occurred because the entities involved, for reasons of control, speed of transaction, and to hide what they were actually doing with the investors money

Unfortunately for the investors, many of the banks involved in the securitization process (like Wahoo) failed to perform the securitizations properly, hence as mentioned above, the securitizations were botched and ineffective as to passing ownership of the notes or underlying collateral. The loans purchased were not purchased THROUGH the REMIC. … The REMIC trust entity must be the one actually purchasing the mortgages directly.

This violation of REMIC trust rules occurred because the entities involved, for reasons of control, speed of transaction, and to hide what they were actually doing with the investors funds once received, held the investor funds in the “lender” banks owned subsidiary accounts, instead of funding the REMIC trusts with the money so that the trust could then purchase the loan from the “lender”, making it an actual buy and sell transaction.”

Innovative Lawsuits Test the Credibility of Securitized Loans

For further information or assistance please call 954-495-9867 or 520-405-1688.

———————————————

see http://dealbook.nytimes.com/2014/11/27/u-s-backed-mortgages-put-to-test-in-a-lawsuit/

If you ever saw the movie “The Firm” from the book by John Grisham, you know the ending. The whole system was rigged but what finally produced a result was mail fraud, which is generally off the radar screen for any lawyer combating powerful opponents. The lesson for the perpetrators of crimes, predatory loans and so forth is that they can’t cover everything. There are too many ways that they faked the deals from top to bottom. Mail fraud might be one of them. And as you will see, talking to the borrower might be another. One lawsuit against US Bank shows that anyone who really does their homework might be able to take down Goliath with just such an innocuous provision.

A word of caution here  — these strategies are predicated in part on the assumption that the entire loan process was fraudulent, where there were dozens of undisclosed entities taking undisclosed fees from a large pool of investor money used in part to fund mortgage that were not tied to any documents signed at closing. The documents that were signed had no connection to the actual lender and the entity identified as the lender was a pretender paid to act as though it was loaning money. The reason I mention this is not to hammer down on the reality of those mortgages, but to suggest that a judge who still thinks that the borrower is a deadbeat trying to get out of legitimate loan, is likely to find problems with “innovative strategies.” But it is also true that there are a variety of things that bother many judges more and more about these loans and the foreclosures.

The article in the New York Times by Peter Eavis goes into some detail, but the essence is in this quote:

Not engaging with borrowers who have missed payments may not seem like the strongest grounds for litigation against a bank. Yet that is the basis for an innovative lawsuit against U.S. Bank, a division of U.S. Bancorp, one of the largest banks in the country. The legal action could mean fresh legal problems for other big mortgage banks, as well. It is the latest threat to emerge from a barrage of cases that have forced big banks to pay tens of billions of dollars in recent months.

The lawsuit focuses on a popular type of government-guaranteed mortgage that in fact requires that banks take distinct steps — like trying to arrange a meeting — when borrowers stop paying.

The lawsuit is being brought by Advocates for Basic Legal Equality, a legal aid group. In a twist, the group is suing U.S. Bank in federal court in Ohio on behalf of the United States government, using the False Claims Act. This legislation, which dates to the Civil War, allows private citizens and groups to pursue legal action against companies and other entities for receiving payments from the government on false grounds.

The more you drill down on the existing laws, rules and regulations the more violations you will find. And when it comes to foreclosing, anyone watching this nightmare unfold must get to to wondering about why all of these deals went to foreclosure instead of workouts. The answer is that the foreclosure judgment and the foreclosure sale is part of a massive cover-up of massive fraud. And for the most part, the government has decided to (a) not prosecute real claims for real damages and real crimes and (b) not provide individual homeowners with information already obtained about their homes, their mortgages and their foreclosures that would shut the process down if known. The latter is what most irks Elizabeth Warren who now officially speaks for the average American and who seeks a level playing field in the Senate of the U.S. Congress.

People like Senator Warren, Sheila Bair, former FDIC chief, and others who have been outspoken about the out right fraud — i.e., nonexistence of the loans being used as a basis for foreclosure — keep getting stepped on, but the recent “promotion” of Warren is at least somewhat encouraging in that it shows that the leadership of the Democratic party recognizes they can no longer ignore her or the issues she speaks about. She speaks at gathering that attract voters from across the political spectrum and she is proving what I said years ago a constantly ever since — if you want to win by a landslide, run against the banks  and the people they own in our government.

People Who Were Wrong Are the Winners — SO FAR

First of all I don’t think Geithner caused the financial crisis. He certainly contributed to it but it probably would have happened even if he had not undercut Sheila Bair at every opportunity; and yes he should have listened to other people who were saying that the corruption on Wall Street had reached epic proportions.

Second, I think that neither Geithner nor his predecessor, Hank Paulson, as Treasury secretaries, had a real understanding of the crisis at any time up through today. And their bosses, Presidents Bush and Obama were even more clueless. And while they are probably culpable for their negligence and mismanagement of the crisis, the foreclosure madness would have occurred anyway.

Third, it is my belief that the culprits on Wall Street with all their tentacles stretched out across the globe were unstoppable by anyone except a good government with the resources to actually get to the bottom of it. What was missing was the desire to get rid of the problem and the naivete of the leaders in government in failing to notice that the entire banking industry was engaged in faking transactions and documents — and failing to ask why that was necessary.

Fourth my opinion is that the fault lies with the failure of anyone in government to learn anything relevant about the industries they were supposed to be regulating. If they had done so, starting in 1983 when derivatives became adolescent, the adult would have been far more tame and the crises would have been averted entirely.

Homeowners did not create the crisis. Tens of millions of homeowners did not congregate in a room thinking up 450 loan products when there were only 4 or 5. And saying they had bad judgment would absolve almost any perpetrator of economic crime because his victim was too stupid.

The laws were already in place. It was knowledgeable people that were missing. We needed and had faithful servants of the people — but as a society and as a nation each country contributed to the enormous problem that has now been created. And we will keep paying for it as banks take over all commodities we hold dear and “legally” corner the markets with stolen cash and property.

In Nocera’s article on Bankrupt Housing Policy, he points out that ” in the course of perusing another new book about the financial crisis, “Other People’s Houses,” by Jennifer Taub, an associate professor at Vermont Law School, I was reminded of an effort that took place in the spring of 2009 that could have made an enormous difference to homeowners, one that would have required no taxpayer money and might well have become law with a little energetic lobbying from the likes of, well, Tim Geithner. That was an attempt, led by Dick Durbin, the Illinois senator, to change the bankruptcy code so that homeowners who were underwater could modify their mortgages during the bankruptcy process. The moment has been largely forgotten; Taub has done us a favor by putting it back on the table.”

He goes on to say that he had correspondence with Sheila Bair who was undermined and stomped on by the Obama administration for even thinking about relief to homeowners. She was head of the FDIC and prevented from doing her job by a bankrupt policy of save the banks and damn the homeowners. “Because, as Bair told me in an email, “It would have been a powerful bargaining chip for borrowers.” Without the ability to file for bankruptcy, underwater homeowners unable to pay their mortgages were helpless to prevent foreclosures. With it, however, servicers and banks were far more likely to negotiate the debt load. And if they weren’t, a bankruptcy judge would rule on the appropriate debt to be repaid. For all the talk about the need for principal reduction, this change would have been the easiest way to get it.”

According to Adam Levitin, in the same article by Nocera, this should have been a “no-brainer.” I take that too mean that as I have explained above, brains were in short supply during the worst of what we have yet seen of the economic crisis that most of us think is not even half over. Obama may be leaving the crisis as his legacy not because he caused it but because he didn’t do anything about it — or at least anything right.

And I obviously agree with Nocera’s ending comment — “Why is it that the fear of moral hazard only applies to homeowners, and not to the banks?”

Gretchen Morgenson says Geithner admitted he was inept at times. ““We were human.” But this fails to address head-on the possibility that he was a captured regulator, a man locked into the mind-set of the very bankers he was supposed to oversee.”

Gretchen reports without objection from Geithner — “Last week, I asked Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, for her recollection of these events. She replied with an email recalling that in 2006, she attended her first Basel Committee meeting, the international negotiations that Mr. Geithner was referring to. While there, she pushed unsuccessfully to raise bank capital levels.

Why was she unsuccessful? “I was actively undermined by the Fed, the New York Fed and the comptroller of the currency,” she said. “I later complained to Tim about the way his representative on the Basel Committee had undermined me. He was unapologetic.”

Gretchen has not been given the resources to prove the corruption on Wall Street, but she knows it is there and as the fourth estate the NY Times should have provided her with a blank check for what would have been a Pulitzer or even a Nobel prize. for now we can only agree with her — “We were the lenders of last resort and should have been paid an enormous premium for the use of our money. We were not.”

There are suddenly a spate of articles on what went wrong because Geithner wrote a book and is selling it enhancing his own fortunes while he presided over the worst hit the middle class has had in our history.

Here is what investigators should have been looking for:

Behind door number 1 were the fools. These are the money managers who for reasons the defy explanation did no due diligence and bought empty mortgage bonds issued by a trust that was never going to receive the money, the loans or the property.

Behind door number 2 were the wolves of Wall Street including all the different brokers, dealers, banks, rating agencies and insurers, all the mortgage brokers, real estate brokers, and closing agents and title companies all in league to take as much money as they could out of the system and the hide it behind shadow money equivalent to ten times all the actual money in the world.

Behind door number 3 are the victims. These are the people who knew nothing about mortgages, derivatives or anything else. In the end they were convinced by super salespeople that they could never understand how they could afford the loan nor could they even understand why they must do it anyway. In Florida alone 10,000 such sales people were convicted felons. And yet when we talk of moral hazard we speak of people, and not banks. Why is that?

Sheila Bair Paints Picture of President concerned with borrowers vs Team Concerned with Banks

Editor’s Note: Sheila Bair might have been thrown under the bus but she is still alive. Get her book if you really want to know about Obama and his team — it was a war in the White House. When Obama gets a second term I think we are going to see a large shakeout of old economic advisers who care about banks and new economic advisers who care about the country the people who live in it.

Sheila Bair Bashes Obama’s Economic Team — Here’s What She Has To Say About The President
http://www.businessinsider.com/sheila-bair-on-barack-obama-2012-9

Everything Built on Myth Eventually Fails

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

The good news is that the myth of Jamie Dimon’s infallaibility is at least called into question. Perhaps better news is that, as pointed out by Simon Johnson’s article below, the mega banks are not only Too Big to Fail, they are Too Big to Manage, which leads to the question, of why it has taken this long for Congress and the Obama administration to conclude that these Banks are Too Big to Regulate. So the answer, now introduced by Senator Brown, is to make the banks smaller and  put caps on them as to what they can and cannot do with their risk management.

But the real question that will come to fore is whether lawmakers in Dimon’s pocket will start feeling a bit squeamish about doing whatever Dimon asks. He is now becoming a political and financial liability. The $2.3 billion loss (and still counting) that has been reported seems to be traced to the improper trading in credit default swaps, an old enemy of ours from the mortgage battle that continues to rage throughout the land.  The problem is that the JPM people came to believe in their own myth which is sometimes referred to as sucking on your own exhaust. They obviously felt that their “risk management” was impregnable because in the end Jamie would save the day.

This time, Jamie can’t turn to investors to dump the loss on, thus drying up liquidity all over the world. This time he can’t go to government for a bailout, and this time the traction to bring the mega banks under control is getting larger. The last vote received only 33 votes from the Senate floor, indicating that Dimon and the wall Street lobby had control of 2/3 of the senate. So let ius bask in the possibility that this is the the beginning of the end for the mega banks, whose balance sheets, business practices and public announcements have all been based upon lies and half truths.

This time the regulators are being forced by public opinion to actually peak under the hood and see what is going on there. And what they will find is that the assets booked on the balance sheet of Dimon’s monolith are largely fictitious. This time the regulators must look at what assets were presented to the Federal Reserve window in exchange for interest free loans. The narrative is shifting from the “free house” myth to the reality of free money. And that will lead to the question of who is the creditor in each of the transactions in which a mortgage loan is said to exist.

Those mortgage loans are thought to exist because of a number of incorrect presumptions. One of them is that the obligation remains unpaid and is secured. Neither is true. Some loans might still have a balance due but even they have had their balances reduced by the receipt of insurance proceeds and the payoff from credit default swaps and other credit enhancements, not to speak of the taxpayer bailout.

This money was diverted from investor lenders who were entitled to that money because their contracts and the representations inducing them to purchase bogus mortgage bonds, stated that the investment was investment grade (Triple A) and because they thought they were insured several times over. It is true that the insurance was several layers thick and it is equally true that the insurance payoff covered most if not all the balances of all the mortgages that were funded between 1996 and the present. The investor lenders should have received at least enough of that money to make them whole — i.e., all principal and interest as promissed.

Instead the Banks did the unthinkable and that is what is about to come to light. They kept the money for themselves and then claimed the loss of investors on the toxic loans and tranches that were created in pools of money and mortgages — pools that in fact never came into existence, leaving the investors with a loose partnership with other investors, no manager, and no accounting. Every creditor is entitled to payment in full — ONCE, not multiple times unless they have separate contracts (bets) with parties other than the borrower. In this case, with the money received by the investment banks diverted from the investors, the creditors thought they had a loss when in fact they had a claim against deep pocket mega banks to receive their share of the proceeds of insurance, CDS payoffs and taxpayer bailouts.

What the banks were banking on was the stupidity of government regulators and the stupidity of the American public. But it wasn’t stupidity. it was ignorance of the intentional flipping of mortgage lending onto its head, resulting in loan portfolios whose main characteristic was that they would fail. And fail they did because the investment banks “declared” through the Master servicer that they had failed regardless of whether people were making payments on their mortgage loans or not. But the only parties with an actual receivable wherein they were expecting to be paid in real money were the investor lenders.

Had the investor lenders received the money that was taken by their agents, they would have been required to reduce the balances due from borrowers. Any other position would negate their claim to status as a REMIC. But the banks and servicers take the position that there exists an entitlement to get paid in full on the loan AND to take the house because the payment didn’t come from the borrower.

This reduction in the balance owed from borrowers would in and of itself have resulted in the equivalent of “principal reduction” which in many cases was to zero and quite possibly resulting in a claim against the participants in the securitization chain for all of the ill-gotten gains. remember that the Truth In Lending Law states unequivocally that the undisclosed profits and compensation of ANYONE involved in the origination of the loan must be paid, with interest to the borrower. Crazy you say? Is it any crazier than the banks getting $15 million for a $300,000 loan. Somebody needs to win here and I see no reason why it should be the megabanks who created, incited, encouraged and covered up outright fraud on investor lenders and homeowner borrowers.

Making Banks Small Enough And Simple Enough To Fail

By Simon Johnson

Almost exactly two years ago, at the height of the Senate debate on financial reform, a serious attempt was made to impose a binding size constraint on our largest banks. That effort – sometimes referred to as the Brown-Kaufman amendment – received the support of 33 senators and failed on the floor of the Senate. (Here is some of my Economix coverage from the time.)

On Wednesday, Senator Sherrod Brown, Democrat of Ohio, introduced the Safe, Accountable, Fair and Efficient Banking Act, or SAFE, which would force the largest four banks in the country to shrink. (Details of this proposal, similar in name to the original Brown-Kaufman plan, are in this briefing memo for a Senate banking subcommittee hearing on Wednesday, available through Politico; see also these press release materials).

His proposal, while not likely to immediately become law, is garnering support from across the political spectrum – and more support than essentially the same ideas received two years ago.  This week’s debacle at JP Morgan only strengthens the case for this kind of legislative action in the near future.

The proposition is simple: Too-big-to-fail banks should be made smaller, and preferably small enough to fail without causing global panic. This idea had been gathering momentum since the fall of 2008 and, while the Brown-Kaufman amendment originated on the Democratic side, support was beginning to appear across the aisle. But big banks and the Treasury Department both opposed it, parliamentary maneuvers ensured there was little real debate. (For a compelling account of how the financial lobby works, both in general and in this instance, look for an upcoming book by Jeff Connaughton, former chief of staff to former Senator Ted Kaufman of Delaware.)

The issue has not gone away. And while the financial sector has pushed back with some success against various components of the Dodd-Frank reform legislation, the idea of breaking up very large banks has gained momentum.

In particular, informed sentiment has shifted against continuing to allow very large banks to operate in their current highly leveraged form, with a great deal of debt and very little equity.  There is increasing recognition of the massive and unfair costs that these structures impose on the rest of the economy.  The implicit subsidies provided to “too big to fail” companies allow them to boost compensation over the cycle by hundreds of millions of dollars.  But the costs imposed on the rest of us are in the trillions of dollars.  This is a monstrously unfair and inefficient system – and sensible public figures are increasingly pointing this out (including Jamie Dimon, however inadvertently).

American Banker, a leading trade publication, recently posted a slide show, “Who Wants to Break Up the Big Banks?” Its gallery included people from across the political spectrum, with a great deal of financial sector and public policy experience, along with quotations that appear to support either Senator Brown’s approach or a similar shift in philosophy with regard to big banks in the United States. (The slide show is available only to subscribers.)

According to American Banker, we now have in the “break up the banks” corner (in order of appearance in that feature): Richard Fisher, president of the Federal Reserve Bank of Dallas; Sheila Bair, former chairman of the Federal Deposit Insurance Corporation; Tom Hoenig, a board member of the Federal Deposit Insurance Corporation and former president of the Federal Reserve Bank of Kansas City; Jon Huntsman, former Republican presidential candidate and former governor of Utah; Senator Brown; Mervyn King, governor of the Bank of England; Senator Bernie Sanders of Vermont; and Camden Fine, president of the Independent Community Bankers of America. (I am also on the American Banker list).

Anat Admati of Stanford and her colleagues have led the push for much higher capital requirements – emphasizing the particular dangers around allowing our largest banks to operate in their current highly leveraged fashion. This position has also been gaining support in the policy and media mainstream, most recently in the form of a powerful Bloomberg View editorial.

(You can follow her work and related discussion on this Web site; on twitter she is @anatadmati.)

Senator Brown’s legislation reflects also the idea that banks should fund themselves more with equity and less with debt. Professor Admati and I submitted a letter of support, together with 11 colleagues whose expertise spans almost all dimensions of how the financial sector really operates.

We particularly stress the appeal of having a binding “leverage ratio” for the largest banks. This would require them to have at least 10 percent equity relative to their total assets, using a simple measure of assets not adjusted for any of the complicated “risk weights” that banks can game.

We also agree with the SAFE Banking Act that to limit the risk and potential cost to taxpayers, caps on the size of an individual bank’s liabilities relative to the economy can also serve a useful role (and the same kind of rule should apply to non-bank financial institutions).

Under the proposed law, no bank-holding company could have more than $1.3 trillion in total liabilities (i.e., that would be the maximum size). This would affect our largest banks, which are $2 trillion or more in total size, but in no way undermine their global competitiveness. This is a moderate and entirely reasonable proposal.

No one is suggesting that making JPMorgan Chase, Bank of America, Citigroup and Wells Fargo smaller would be sufficient to ensure financial stability.

But this idea continues to gain traction, as a measure complementary to further strengthening and simplifying capital requirements and generally in support of other efforts to make it easier to handle the failure of financial institutions.

Watch for the SAFE Banking Act to gain further support over time.

Current Bank Plan Is Same as $10 million Interest Free Loan for Every American

MOST POPULAR ARTICLES

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

CUSTOMER SERVICE 520-405-1688

“I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.” Matt Taibbi

From Rolling Stone’s Matt Taibbi on Sheila Bair’s Sarcastic Piece

I hope everyone saw ex-Federal Deposit Insurance Corporation chief Sheila Bair’s editorial in the Washington Post, entitled, “Fix Income Inequality with $10 million Loans for Everyone!” The piece might have set a world record for public bitter sarcasm by a former top regulatory official.

In it, Bair points out that since we’ve been giving zero-interest loans to all of the big banks, why don’t we do the same thing for actual people, to solve the income inequality program? If the Fed handed out $10 million to every person, and then got each of those people to invest, say, in foreign debt, we could all be back on our feet in no time:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Every time I watch a Republican debate, and hear these supposedly anti-welfare crowds booing the idea of stiffer regulation of Wall Street, I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.

Considering that we now know that the Fed gave out something like $16 trillion in secret emergency loans to big banks on top of the bailouts we actually knew about, you might ask yourself: How are these guys in financial trouble? How can they not be making mountains of money, risk-free? But they are in financial trouble:

• We’re about to see yet another big blow to all of the usual suspects – Goldman, Citi, Bank of America, and especially Morgan Stanley, all of whom face potential downgrades by Moody’s in the near future.

We’ve known this was coming for some time, but the news this week is that the giant money-managing firm BlackRock is talking about moving its business elsewhere. Laurence Fink, BlackRock’s CEO, told the New York Times: “If Moody’s does indeed downgrade these institutions, we may have a need to move some business around to higher-rated institutions.”

It’s one thing when Zero Hedge, William Black, myself, or some rogue Fed officers in Dallas decide to point fingers at the big banks. But when big money players stop trading with those firms, that’s when the death spirals begin.

Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk. But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said.

• Meanwhile, Bank of America reported its first-quarter results yesterday. Despite that massive ongoing support from the Fed, it earned just $653 million in the first quarter, but astonishingly the results were hailed by most of the financial media as good news. Its home-turf paper, the San Francisco Chronicle, crowed that BOA “Posts Higher Profits As Trading Results Rebound.” Bloomberg, meanwhile, summed up results this way: “Bank of America Beats Analyst Estimates As Trading Jumps.”

But the New York Times noted that BOA’s first-quarter profit of $653 million was down from $2 billion a year ago, and paled compared to results of more successful banks like Chase and Wells Fargo.

Zero Hedge, meanwhile, posted an amusing commentary on BOA’s results, pointing out that the bank quietly reclassified nearly two billion dollars’ worth of real estate loans. This is from BOA’s report:

During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming.

In other words, Bank of America described nearly two billion dollars of crap on their books as performing loans, until the government this year forced them to admit it was crap.

ZH and others also noted that BOA wildly underestimated its exposure to litigation, but that’s nothing new. Anyway, despite the inconsistencies in its report, and despite the fact that it’s about to be downgraded – again – Bank of America’s shares are up again, pushing $9 today.

60 MINUTES: SECURITIZATION PROPERTY TITLES ARE A “TRAIN WRECK”

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

GET LUMINAQ COMBO TITLE AND SECURITIZATION REPORT

PAYMENT TO HOMEOWNERS TO BACK OFF LITIGATION PROPOSED

30,000 QUIET TITLE ACTIONS ALREADY FILED AND NUMBERS ARE CLIMBING SHARPLY

SHEILA BAIR: A Flood of Litigation from Homeowners is Swamping the Court System.

60 MINUTES; SECOND CRISIS IN THE MAKING

60 MINUTES OVERTIME: WHO OWNS YOUR MORTGAGE

Scott Pelley did a strong pice on the securitization scam last night on 60 minutes (see above links and watch the video). BUT THE SECURITIZATION MYTH WAS NEVERTHELESS PERPETUATED. According to Pelley, we don’t know who owns the mortgages AND THE TITLE IS CORRUPTED so people won’t be able to sell or refinance their house. The clear implication is that we don’t know who owns the house. But the answer is as simple Property Law 101. There is no mystery here. The fact that the securitizers intentionally or unintentionally screwed up the paperwork and the closings is not the homeowners’ problem.

WHO OWNS THE HOUSE? THE HOMEOWNER OF COURSE. THAT WOULD BE THE PERSON OR PERSONS IN THE PROPERTY RECORDS OF COUNTY RECORDERS OFFICE WHO WERE PROPERLY REGISTERED AS THE GRANTEE OF DEED FROM THE FORMER PROPERTY OWNER. The implication that the securitizers actually have some right to the house is wrong, and CBS was unintentionally carrying the message from Wall Street that this is just a paperwork mess that could be cleaned up. But as we have repeatedly said, if it were that simple, it COULD be corrected legally and they wouldn’t have need to have $10 per hour clerical people signing as vice-president of 20  different lending institutions, most of which they never heard of, were never employed by and who didn’t even know of their existence.

The reason why the paperwork is so screwed up is that Wall Street tried the usually successful practice of burying the opposition in paper. But the paper is meaningless. What Pelley missed in his focus on robo-signing was that the closing with the homeowner was defective in the first place and the only “correction” that is possible is to get another signature from the borrower. Good luck. The fact that Federal and state lending laws require that the lender be identified and that the fees and costs all be disclosed before the closing required that information to be on the promotional information given to the buyer, the Good Faith estimate, and the closing statement as well as the promissory note and mortgage or deed of trust. None of that was done.

SO THE QUESTION OF WHO OWNS THE MORTGAGE IS IRRELEVANT. There is no mortgage or deed of trust that can be enforced. The liability for the loan runs from the borrower to the lender. The party on the documents was not the lender. THAT is why this can’t be corrected without the cooperation of the borrowers who are now going to be presented with various proposals to induce them to sign off on paperwork that will make the initial filing of a mortgage valid and legal. It is highly unlikely, without a very significant payment estimated between $20,000 and $100,000 that any homeowner or former homeowner is going to sign such a document.

If the home is STILL worth less than the proposed mortgage, a significant number of homeowners simply won’t sign.

The bottom line is that the liability exists — only to the initial investor or successors who purchased mortgage bonds — and even there, such rights would only be valid if established i courts of equity where the “creditor” would come in with “clean hands” and a credible claim about how they are suffering a loss. Such parties might be and probably would be subject to answers, affirmative defenses, set-off, counterclaims and especially suits for quiet title, which are the last thing that pension funds, sovereign wealth funds, the Federal Reserve and U.S. Treasury want to get involved with.

THE REAL BOTTOM LINE IS THAT NEARLY ALL THE LOANS WERE UNDISCLOSED TABLE-FUNDED LOANS MEANT FOR THE SECURITIZATION MARKET, VIOLATING FEDERAL AND STATE LENDING LAWS. AT LEAST 96% OF ALL “LOAN TRANSACTIONS” HAD MONEY CHANGE HANDS BUT NONE OF THOSE HAD ANY VALID DOCUMENTATION.

PELLEY CALLED THIS A TRAIN WRECK. I disagree. I CALL IT JUSTICE AND THE APPLICATION OF LAW INSTEAD OF THE RULE OF WEALTHY MEN. When Xerox forgot to patent their document copying process, nobody said we should treat it as though they had the patent. Quite the contrary. When bankers, who have been doing this for hundreds of years, “forget” to document their liens and prioritize them, nobody should be saying we should give it to them anyway. Why? Because we already know they sold the same thing multiple times. In many cases, perhaps most, the “creditor has been paid, and perhaps over paid.

The consequences of homeowners getting an unintended collateral benefit from Wall Street’s screw-ups is unusual only because it is the little guy who is getting the benefit. But it is also society at large, where the attempted transfer of wealth did not succeed. Homeowners are realizing that they actually didn’t lose their house and are not at risk of losing their homes and that if they have any liability they have no burden of finding out the amount due or the identity of the creditor to whom it is due. The world is realizing that the mortgage bonds were empty pieces of paper and they have trading spit balls instead of proprietary currency.

The opportunity presented by this turn of events is enormous in terms of our ability to rebuild infrastructure, upgrade education, and level the playing field of what we want as a free market without domination by giants that are too big too fail and too big to manage or regulate.



INDYMAC EXECS SUED BY THE FDIC

Well you have to give credit to Sheila Baer> She gets it. Here she is going after the IndyMac executives for making loans to developers that they knew would not be repaid. It is the first time that an important agency has recognized the link between the malfeasance of the originating lenders, the securitization intermediaries and the developers.

It is central to the issue of appraisal fraud. Anyone who moved into a new development knows that the developer was raising prices like crazy to create a a sense of urgency on the part of borrowers. Those prices from the developers were used an excuse to inflate the appraisals ona continual basis, so that a house of exactly the same model and features would be appraised one month for $350,000 and then a month later for $375,000 or more.

The developers knew they could do this because they knew the “lender” would approve it. It was a classic dysfunctional dance in which everyone was lying to everyone else. And everyone, except the borrower and the investor-lender knew it. Thus suits against the developer, especially those with mortgage offices on premises, can be expected to rise by both private actions and public actions from regulatory agencies and law enforcement. It was fraud.

INDYMAC EXECS SUED BY THE FDIC
Posted on July 13, 2010 by Foreclosureblues
latimes.com/business/la-fi-indymac-fdic-20100714,0,4893259.story

latimes.com
FDIC sues four former IndyMac executives
The agency accuses the managers of the defunct bank’s Homebuilder
Division of acting negligently by granting loans to developers who
were unlikely to repay the debts.
By E. Scott Reckard, Los Angeles Times

July 14, 2010

Launching a new offensive against leaders of failed financial
institutions, federal regulators are accusing four former executives
of Pasadena’s defunct IndyMac Bank of granting loans to developers and
home builders who were unlikely to repay the debts.

The lawsuit by the Federal Deposit Insurance Corp. alleges that the
IndyMac executives acted negligently and seeks $300 million in
damages.

It is the first suit of its kind brought by the FDIC in connection
with the spate of more than 250 bank failures that began in 2008.
Regulators said it wouldn’t be the last.

“Clearly we’ll have more of these cases,” said Rick Osterman, the
deputy general counsel who oversees litigation at the agency.

The FDIC has sent letters warning hundreds of top managers and
directors at failed banks — and the insurers who provided them with
liability coverage — of possible civil lawsuits, Osterman said. The
letters go out early in investigations of failed banks, he added, to
ensure that the insurers will later provide coverage even if the
policy expires.

The four defendants in the FDIC lending negligence case, who operated
the Homebuilder Division at IndyMac, collectively approved 64 loans
that are described in the 309-page lawsuit.

They are:

•Scott Van Dellen, the division’s president and chief executive during
six years ending in its seizure;

•Richard Koon, its chief lending officer for five years ending in July 2006;

•Kenneth Shellem, its chief credit officer for five years ending in
November 2006;

•William Rothman, its chief lending officer during the two years
before the seizure.

Through their attorneys, they vigorously denied the allegations.

“The FDIC has unfairly selected four hard-working executives of a
small division of the bank … to blame for the failure of IndyMac,”
said defense attorney Kirby Behre, who represents Shellem and Koon.
“We intend to show that these loans were done at all times with a
great deal of care and prudence.”

Defense attorney Michael Fitzgerald, who represents Van Dellen and
Rothman, said no one at the company or its regulators foresaw the
severity of the housing crash before it struck, and that IndyMac was
one of the first construction lenders to pull back when trouble struck
the industry in 2007.

Fitzgerald added that the FDIC thought Van Dellen trustworthy enough
that it kept him on to run the division after the bank was seized.

The suit naming the IndyMac executives was filed this month in federal
court in Los Angeles, two years after the July 2008 failure of the
Pasadena savings and loan. The bank is now operated under new
ownership as OneWest Bank.

IndyMac, principally a maker of adjustable-rate mortgages, was among a
series of high-profile bank failures early in the financial crisis
that were blamed on defaults on high-risk home loans and the
securities linked to them.

But the majority of failures since then have been at banks hammered by
losses on commercial real estate, particularly loans to residential
developers and builders — and IndyMac had a sideline in that business
as well through its Homebuilder Division.

The suit alleges that IndyMac’s compensation policies prompted the
home-building division to increase lending to developers and builders
with little regard for the quality of the loans.

“HBD’s management pushed to grow loan production despite their
awareness that a significant downturn in the market was imminent and
despite warnings from IndyMac’s upper management about the likelihood
of a market decline,” the FDIC said in its complaint.

An investigation of IndyMac’s residential mortgage lending practices
could lead to another civil suit, potentially naming higher-up
executives, attorneys involved in the case said.

Separately, a criminal grand jury investigation into the actions of
IndyMac executives continues, according to a knowledgeable federal
official who was not authorized to publicly discuss the investigation.

The bank, known mostly for providing home loans without requiring
proof of income from borrowers, had operated its builder-loan division
since 1994.

The lawsuit said IndyMac had about $900 million in land acquisition,
development and construction loans on its books when the bank
collapsed. Losses on the portfolio are expected to total $500 million
— minus whatever the FDIC can recover through litigation.

The FDIC’s Osterman said the government recovered about $5.1 billion
from former bank and thrift executives and their outside professional
advisors after the last major financial crisis devastated the savings
and loan industry in the 1980s. Most of the money came from insurers
that had written policies covering bank directors and officers against
negligence or other misdeeds.

Because the warnings of possible lawsuits are mailed out during the
early stages of investigations, it’s frequently decided later that the
cases aren’t strong enough to bring or aren’t likely to be
cost-effective and so are dropped, Osterman said.

FDIC spokesman David Barr said the agency generally had three years
from the date of a failure to file civil cases.

More Bank failures, More Foreclosures, More Homes Under Water

Editor’s Note: Home sales will continue to drop, home prices will continue to drop, banks will continue to fail until principal reduction is recognized as the reality of the situation. More than 11 million homeowners are reportedly under water. The real number is closer to 20 million. see Modifications Pushing More Homes Underwater. Our economy cannot withstand this pressure. It is a false pressure because the real loss is on Wall Street but they have managed to shift the loss to homeowners and investors and of course, the U.S. Taxpayer. Yet it is will be real as long as we treat it as real.

see also Bloomberg – Home Sales Drop

February 24, 2010

At F.D.I.C. , Bracing for a Wave of Failures

The Federal Deposit Insurance Corporation is bracing for a new wave of bank failures that could cost the agency many billions of dollars and further strain its finances.

With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993.

Not all of those banks are destined to founder, and F.D.I.C. officials said Tuesday that they expected failures to peak this year. But they also warned that the fund might have to cover $20 billion in additional losses by 2013 — a bill that could be even greater if the economy worsens.

F.D.I.C. officials say the fund has ample resources to cope with its projected losses.

“We think that we have the cash we need,” Sheila C. Bair, the F.D.I.C. chairwoman, said in an interview on Tuesday. She said it was unlikely the F.D.I.C. would need to tap its emergency credit line with the Treasury Department, although she did not rule out such an action.

Despite resurgent profits and pay at the giants of American finance, many of the nation’s 8,000 banks remain under stress, according to a quarterly report the F.D.I.C. released Tuesday.

About 140 banks failed in 2009, and Ms. Bair said she expected even more than that to go under this year. The F.D.I.C. does not disclose which banks it considers at risk.

Bad credit card, mortgage and corporate loans escalated in the final months of 2009 — the 12th consecutive quarterly increase — albeit at a slower pace. During the fourth quarter, the banking industry as a whole turned a mere $914 million profit. “We’ve gone from the eye of the hurricane to cleaning up after the hurricane,” said Frederick Cannon, a banking analyst at Keefe, Bruyette & Woods in New York.

Still, with so many banks failing, the federal deposit insurance fund has been severely depleted. At the end of 2009, it carried a negative balance of $20.9 billion.

The insurance fund is in better shape than such numbers might suggest, however. Officials estimate that bank failures would drain about $100 billion from the fund from 2009 through 2013. But of that amount, a total of roughly $80 billion in losses were recognized last year or projected for 2010. By that math, the agency is expecting an additional $20 billion of losses over the next three years.

After slipping into the red last fall, the F.D.I.C. moved swiftly to refill its coffers. The agency imposed a special assessment on banks that gave it an immediate $5.6 billion cash infusion. That assessment was in addition to the ordinary payments that banks make to the F.D.I.C. fund.

In September, the F.D.I.C. ordered banks to prepay quarterly assessments that would have otherwise been due through 2012. That provided an additional $46 billion to restore the fund to normal. For accounting purposes, the agency will add that money to the fund in small doses over the next 13 quarters, which explains the current negative balance.

Together, these moves buy time for the agency to determine its next steps in the event its losses worsen. In such a case, banks might be called on to chip in more money, either through new special assessments, prepaid fees or premium increases. F.D.I.C. officials said no such plans were in the works.

“The good news is that the industry will power through this,” said Bert Ely, a longtime banking industry consultant in Washington. The fund has “taken a lot of hits along the way, but I still don’t expect the taxpayer to ride to the rescue.”

To protect the fund, the F.D.I.C. also has found creative ways to bring in more money. On Tuesday, Ms. Bair said that the agency would soon issue bonds backed by the assets of failed banks and guaranteed by the government. The program aims to attract nontraditional buyers of bank assets, like insurance companies, pension funds and mutual funds.

“We would like to test the market to see if we can get better pricing,” Ms. Bair said. “We may or may not succeed, but we thought we should try it.”

The F.D.I.C. has also tried to entice private equity firms and other investment groups to bid for insolvent banks, with mixed success. The agency is betting that more potential buyers will ultimately result in higher prices.

Head in the Sand: 4 Big Mortgage Backers Swim in Ocean of Debt

 Editor’s Note: Nobody wants to hear it. The housing market is dragging the government and the economic future of this country down the drain. For decades the FDIC has followed a model of dismantling failed banks by letting healthy banks take over the assets. Despite the calls from Sheila Bair at FDIC, we are clearly avoiding the model that works. We have 7,000 banks and credit unions that could easily absorb the accounts of the banks that have failed but are “too big to fail.” We have at least 50 million recorded documents that are defective in the chain of title of American homes. By all normal indicators, housing prices may still have another 20% drop.

The profits and bonuses announced by Wall Street confirm my prediction over a year ago that the losses were fictional and that the real profits were stashed off shore and in other esoteric vehicles waiting to be released in continual bursts of apparent “recovery.” You might as well allow a bank robber open a new bank next door with the money stolen from the first bank. Now we have the nose-dive of the main mortgage backers who insured mortgages and who insured each other and who let the investment banks play in the insurance playground.

The truth is that all the players in the securitization chain made a lot of money that was unreported, untaxed and illegal. It amounts to many trillions of dollars representing all the alleged financial problems of the American government and the U.S. Economy. The money still exists (insofar as money ever exists).

The truth is that like any balance sheet you can boil it down to a single collective entry: debit American homeowners $13 trillion, credit Wall Street investment banks with $13 trillion. Change the accounting rules and allow the so-called “off balance sheet” trades and positions and poof! You have $13 trillion in “losses” on the books while the profits are still happy and healthy off-shore. Where does the $13 trillion come from? The U.S. Taxpayer. Who benefits? The Wall Street investment banks who get to keep the profits, go after the property, and keep most of the government assistance that was too complicated to report, but which amounts to far more than the TARP money.

Who lost? Virtually every American homeowner and every taxpayer. How does it get corrected? Simple: return all “assets” to their real value and disregard the distortion caused by Wall Street. They are calling that principal reduction. It isn’t. It is merely a return to normalcy. Give the homeowners back their equity, their stake in the American dream and the economy will recover, albeit slowly (we do have other problems).

Avoid that remedy and we will have decades of misery, social chaos, and even governmental changes. Without taking ruthless inventory of the truth and returning wealth from whence it was stolen, the government is without value, except to the perpetrators who continue to scare the regulators and buy the legislators with their myths of why they are more important than the millions of homeowners who are losing their homes, their lives, and their futures to the greed of a few lucky people who have the ear of government.

NY Times
December 17, 2009

4 Big Mortgage Backers Swim in Ocean of Debt

Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.

These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.

And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.

Though the four are not in all the same businesses, they were caught in one of the same traps: They sold mortgage guarantees — in some cases to each other. Now when homeowners default, as they are doing in record numbers, these companies are covering the losses. Essentially, taxpayer money to these companies is being used partly to protect banks and other investors who own the mortgages.

Like the big banks, these four companies would no doubt prefer to be free of government assistance, which comes with pay and other restrictions on their executives. But they appear at risk of getting onto a debt merry-go-round, where they have to draw new money from the government just to keep up with their existing government debts.

Fannie Mae recently warned, for example, that it could not pay the dividends it owes the Treasury, so “future dividend payments will be effectively funded with equity drawn from the Treasury.”

All the companies have recently drawn new government money or are in talks to do so:

¶Fannie Mae and Freddie Mac, which buy and resell mortgages, have used $112 billion — including $15 billion for Fannie in November — of a total $400 billion pledge from the Treasury. Now, according to people close to the talks, officials are discussing the possibility of increasing that commitment, possibly to $400 billion for each company, by year-end, after which the Treasury would need Congressional approval to extend it. Company and government officials declined to comment.

¶GMAC, which finances auto sales, already has $13.4 billion from the Troubled Asset Relief Program, and has been in talks with the Treasury about getting up to $5.6 billion more, because a government “stress test” showed it was still too weak.

¶A.I.G., the insurance conglomerate, recently drew $2 billion from a special $30 billion government facility, which was created in the spring after a $40 billion infusion proved inadequate.

Those capital commitments from the Treasury do not capture the full scale of government assistance to the companies. The government has also bought mortgage-backed securities and guaranteed corporate bonds, while the Federal Reserve Bank of New York has made an emergency loan.

Timothy F. Geithner, the Treasury secretary, welcomed the repayment plans by Citigroup and Wells Fargo this week. Although Citi later ran into difficulty with the share sale to raise money for the repayment, Mr. Geithner said the actions meant that taxpayers were “now on track to reduce TARP bank investments by more than 75 percent.” That means that of the $245 billion awarded to banks, more than $185 billion is either recovered or about to be.

But that is just a fraction of the money that the four troubled debtors have received or may still get. Together, they have been offered nearly $600 billion, and that lifeline could climb to nearly $1 trillion if the commitment to Fannie and Freddie is doubled, as some predict. What’s more, the companies seem short on persuasive strategies for extricating themselves from the government’s embrace.

A spokeswoman for GMAC pointed out that the company had made all its scheduled dividend payments to the Treasury, as had Freddie Mac. While Fannie Mae has said it will have trouble paying its dividends, A.I.G. does not have to pay dividends.

A spokeswoman for A.I.G. said that the insurance company was committed to repaying taxpayers, but repayment would depend on market conditions. A Freddie Mac spokesman said that the company was dependent on continued support from the Treasury to stay solvent. A.I.G.’s latest request for money offers an example of why it needs more government aid to pay its debts. The company has a big aircraft leasing unit, International Lease Finance Corporation, which is considered a valuable asset but not a core part of its business.

Ever since the company announced in 2008 that it would dismantle itself and sell subsidiaries to pay back the government, analysts have expected International Lease to be sold.

But there is a big catch. A.I.G. does not own International Lease outright. A big block of the unit’s stock is actually held by an insurance subsidiary, which uses the shares to secure its promises to pay claims. If A.I.G. sold International Lease and gave the proceeds to the Fed to pay down debt, it would strip too much money out of the insurer, making it insolvent.

So A.I.G. used part of the $2 billion that it recently received from the Treasury to buy back the International Lease shares. That way, when a buyer finally appears, A.I.G. can sell the leasing business and pay the Fed.

“The irony is, for the government to recoup its value, it has to keep its support behind A.I.G.,” said a former company executive, who requested anonymity because of the delicacy of the matter. “The thing is a total Catch-22.”

A.I.G. said it also recently used some money from the Treasury to restructure its mortgage-guaranty business — something GMAC, Fannie and Freddie are struggling to do as well.

All four of the companies had businesses that provided mortgage guarantees. When defaults began soaring in 2007, they all suffered big losses. In some cases, they have insured each other; in other cases, banks or investors have to be paid.

Although GMAC’s main business is financing auto sales, its executives have said its biggest problem is containing the troubles in its mortgage business, known as Residential Capital. “What we want to do, to the best we’re able to, is draw a box around it and say that it is contained,” Michael Carpenter, the new chief executive, told a trade publication in November.

For its mortgage guarantee unit, A.I.G. used some Treasury money to reinsure $7 billion of obligations through a Vermont subsidiary. The terms call for the unit, United Guaranty of Greensboro, N.C., to pay the claims that it can afford and send the rest to the Vermont affiliate.

Little is known about the Vermont unit because the state does not require that type of company to file annual reports. If the Vermont company needs additional money, it presumably could turn to A.I.G., which can draw more from the Treasury.

Amy Schoenfeld contributed reporting and analysis.

FDIC Weighs Loan Principal Cuts to Fight Foreclosure

Sheila Bair has finally let the trial balloon out of the bag. Just watch what Wall Street does to position Bair as some kind of kook. In truth, she ought to be running the financial part of this recovery although the FDIC is supposed to insure deposits, not necessarily write offs of bad loans. Bottomline, there will be no recovery without principal reduction. This will never be over without a sharing of the losses created by Wall Street. If you are looking for a non-litigation method, and I am not sure there is one,  to reach out and touch everyone in distress look no further than my first entries back in October 2007 under the heading “Amnesty for Everyone” or read Brad Keiser’s post right here from June 2008 entitled “Mortgage Meltdown: Fingers of Blame” where he predicted that homeowners would be the last group to be granted any “amnesty.”

It’s not about ideology. It’s about practicality. In a mess this big you fix it and stop arguing about it. Leave the argument till later. Divide the losses amongst ALL the players based upon their ability to withstand it and yes, that DOES include the taxpayer now that we have so totally screwed up this recovery. Nothing real has occured. No regulation, no turning over the upside down ship of finance, no sharing of the losses —- that has simply been turned onto the taxpayer past,present and future. Municipalities, cities, counties, state budgets and yes many non-profits and charitable foundations and organizations whose budgets or investment base have been wrecked even if they were not invested with Bernie Madoff. Folks we are in this together.

EVERYONE is effected by the housing crisis in one form or another. Let the justice system take care of the criminal enterprises through law enforcement. We are finding inertia through finding blame of borrowers, blame of title companies, mortgage brokers, appraisers, rating agencies, investment banks …  et al.

Everyone knows it but only a few people are willing to say it: principal reduction. Hundreds of thousands who are not in foreclosure are $100k-$300k underwater, are they supposed to continue to pay on their mortgage for 10 years and hope they break even? Questionable business decision when you look at it mathematically. They have been damaged and no one has a program for them…wait until this part of the populace starts making noise. The financial sector shoulders SOME of the losses not just arguably because they should but because they can. It means that borrowers shoulder SOME of the losses not because they should but because they must. It means that where borrowers cannot withstand the burden even after principal reduction, the GOVERNMENT steps in with Taxpayer money and shoulders SOME of the losses not because it should but because it must. Property values in entire cities and regions are at stake, which gets to tax base, which impacts school systems…which impacts our children and grandchildren.

ALL the players who were intermediaries in the securitization chain from originating lenders, to underwriters that sold the MBS to state retirement systems, insurers who issued default insurance, ratings agencies…they all made a KILLING with little or no capital at risk, they should but because they were part of the problem, they got paid to play and now that the game didn’t turn out so well they get to share SOME of the losses.

By Alison Vekshin

Dec. 3 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

The FDIC, which has taken over 124 failed banks this year, may seek to have lenders that sign loss-sharing agreements when acquiring the assets do more than cut interest rates or defer the loan’s principal, Bair said today in an interview at Bloomberg’s Washington office.

“We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”

Bair, 55, is stepping up her effort to prevent U.S. home foreclosures, using the agency’s relationship with lenders to make change. She has pressed mortgage-servicing companies to modify loan terms for struggling borrowers and unsuccessfully lobbied last year to have the Treasury Department use the Troubled Asset Relief Program to curb foreclosures.

The FDIC set up a foreclosure-relief program last year at IndyMac Federal Bank, a failed California mortgage lender, to be a model for the banking industry. The program, using a combination of interest-rate reductions, term or amortization extensions and principal forbearance, led to agreements to modify about a third of IndyMac’s eligible loans.

Rising Unemployment

In September, Bair urged banks that are sharing losses with her agency to temporarily reduce mortgage payments for out-of- work borrowers. U.S. unemployment soared to a 26-year high of 10.2 percent in November.

The agency now is considering whether lenders that acquire banks should share a larger portion of the losses on loans whose principal is cut and whether the FDIC will recover the additional subsidy through reduced foreclosure rates.

“I think we’re going to gain by reducing re-default rates or delinquencies with people walking away,” Bair said. “We’ll obviously lose by providing loss-share for principal writedowns.”

Under the average loss-sharing agreement, the FDIC pays as much as 80 percent of losses on a residential mortgage up to a set threshold, with the acquiring bank absorbing 20 percent. Any losses exceeding the threshold are reimbursed at 95 percent of the losses booked by the acquirer.

$80 Billion

The FDIC has loss-sharing agreements on $109.1 billion of failed-bank assets, including $44.7 billion for single-family home loans, spokesman Andrew Gray said.

“For the acquiring banks, it’s great because now they get more protection for the assets that they’re picking up and they have more flexibility in dealing with the problems,” John Douglas, who leads the bank regulatory practice at Davis Polk & Wardwell LLP in New York and is a former FDIC attorney, said in a telephone interview.

Principal reductions will help borrowers who are “underwater” on their payment-option adjustable-rate mortgages, whose principal expands over time, said Julia Gordon, senior policy counsel at the Center for Responsible Lending.

“In order to make those loans affordable and give those homeowners a reason to stay rather than walk away, principal reduction is going to be key,” Gordon said.

The U.S. Treasury Department plans to pressure lenders to complete modifying home loans to troubled borrowers under a $75 billion program. Almost 651,000 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of October, up from 487,080 as of September, according to the Treasury.

The Washington-based FDIC insures deposits at 8,099 institutions with $13.2 trillion in assets. The agency is charged with dismantling failed banks and manages an insurance fund it uses to reimburse customers for deposits of as much as $250,000 when a lender collapses.

%d