Wednesday, October 20, 2010

Mortgages: Multiple Scams, Obvious Fraud by Wall Street

First there is this:
Mortgage Electronic Registration System: the private corporation built by the mortgage lending industry, whose tool for electronically trading mortgages has thrown the entire housing market into turmoil. In the name of saving a buck, the mega-banks used this tiny company with almost no employees and entrusted it with 60 million of the nation’s mortgages on its system – 60% of all mortgages in the United States – to predictable results.

Starting in the early 1990s, the mortgage lending industry, seeking speed and the evasion of land title costs, decided to bypass the state and county registrars which would normally track and assign the title ownership of properties. Instead they created and used MERS, which operates a database to track that ownership. And they list MERS as the “mortgagee of record” with the county recorder – so that all the sales and resales and securitization of the mortgages will not result in the fees that follow the recording of mortgage assignments. Peterson explains that this saves the servicers a measly $22 a loan, which of course adds up when you consider the number of loans and trades per year.

Once again, MERS does not actually advance any loan principal to the homeowner, does not have the right to receive any payments from the borrower, and is not the actual party in interest in any foreclosure proceeding. Nevertheless, the actual mortgagee pays a fee to MERS to induce MERS to record the mortgage in MERS’s name. By eliminating the reference to an actual mortgagee or the actual assignee, MERS estimated it would save the originator an average of $22.00 per loan.

This saves the industry money in recording, but basically shields the county recorders from actually divining the owner of the loans. When a loan falls into delinquency and then foreclosure, MERS carries out the foreclosure process in their own name – despite the fact that they don’t own legal title to the mortgages on its database, and therefore lack standing to foreclose. MERS also doesn’t have the personnel (they have almost no employees) to engage in millions of these foreclosure operations or perform any of the other legal duties required of a mortgage owner. So they outsource this capacity in just about the most fraudulent manner possible, relying on the lack of public records and their role as a masked agent for the servicers.

This sure sounds like some sort of CIA shell company scam... and whether it is or not, it is outrageous. Unfortunately, the mortgage mess gets worse, in terms of the foreclosure crisis.
In the crazed frenzy to get as many mortgages securitized during the Oughts, banks took shortcuts with the paperwork necessary for the Mortgage Backed Securities. The reason was because everyone in the chain of this securitization mania got a little piece of the action—a little slice of the MBS pie in the shape of commissions.
So in the name of “improved efficiencies” (and how many horror stories are we finding out, carried out in the name of “improved efficiencies”), banks digitized the mortgage notes—they didn’t physically endorse them, like they were supposed to by the various state and Federal laws.

Plus—once the wave of foreclosures broke, and the holes in this bureaucratic paperwork became evident and relevant—some of the big law firms handling the foreclosures for the banks started doing some document fabrication and signature forgery, in order to cover up the mistakes—which is definitely illegal.

Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO’s they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
And then there is this older but still relevant story about how Wall Street ignored clear signs of mortgage problems:
As the mortgage market grew frothy in 2006 — leading to a housing bubble that nearly brought down the banking system two years later — ratings agencies charged with assessing risk in mortgage pools dismissed conclusive evidence that many of the loans were dubious, according to testimony given last week to the Financial Crisis Inquiry Commission.

The commission, a bipartisan Congressional panel, has been holding hearings on the origins of the financial crisis. D. Keith Johnson, a former president of Clayton Holdings, a company that analyzed mortgage pools for the Wall Street firms that sold them, told the commission on Thursday that almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors.

Yet, Clayton found, Wall Street was placing many of the troubled loans into bundles known as mortgage securities.

Mr. Johnson said he took this data to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service.

“We went to the ratings agencies and said, ‘Wouldn’t this information be great for you to have as you assign tranche levels of risk?’ ” Mr. Johnson testified last week. But none of the agencies took him up on his offer, he said, indicating that it was against their business interests to be too critical of Wall Street.
Yes, wouldn't want to be too critical of Wall Street. Jesus. Wasn't that their fucking job?

Saturday, October 2, 2010

NYTimes Alters and Sugar Coats AIG Repayment News

Final article: "A.I.G. Reaches Deal to Repay Treasury and Fed for Bailout":
A.I.G.’s exit agreement, announced Thursday, includes a number of steps that must be taken by early 2011, when the Federal Reserve Bank of New York will officially sever its ties to the company and the Treasury Department will expand its stake to 92.1 percent, then convert all of its preferred shares to common.

For many months if not years afterward, the Treasury will retain an A.I.G. exposure as it slowly sells off its stake on the public markets. A rapid sell-off would spoil the taxpayers’ recovery by driving down the share price.

The exit plan does leave open the possibility that the taxpayers will ultimately be made whole for the assistance they extended to A.I.G., by far the most offered to any nongovernmental company during the financial crisis of 2008. But taxpayers could end up in the red if A.I.G.’s stock price falls before the Treasury can finish selling its shares. Market-moving events, like big jury awards or hurricane losses, are at the heart of the insurance business.

Treasury officials said that as long as A.I.G.’s stock remains above $28.75, they will consider the taxpayers to be in the black on the company’s bailout. The stock closed Thursday at $39.10.
Pretty amazing if the company actually pays back everything. Oddly, the NYTimes article was originally very different, as noted here:
A.I.G. has been busy at the Glenn Beck Chalkboard, devising a plan to repay American taxpayers the hundreds of billions of dollars it borrowed all those many years ago. Hooray! According to the New York Times, “Under the plan, the Federal Reserve Bank of New York would be repaid the nearly $20 billion that it is owed and the Treasury Department would convert the $49.1 billion in preferred stock that it holds into 1.66 billion common shares. Over all, A.I.G. received a bailout package of nearly $180 billion.” Wait, what? What about the other $160 billion? Good grief. [NYT]
The final NYTimes piece does NOT have the quote about the actual price of the $180 billion AIG bailout-- kind of important info. That info appears in this more obscure NYTimes blog post.

So, to recap, the NYTimes originally writes up the AIG repayment agreement and notes the actual USGovt price tag-- then later completely edits that out! I wonder who was behind this sugar-coating.