Forbes: Fannie, Freddie Could Need as Much as $126 Billion in Crisis

Posted on August 9, 2016 by Neil Garfield

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“[It was] the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” – Benjamin Franklin

Fannie and Freddie have reportedly been cash-cows for the federal government who have allegedly held the quasi-governmental guarantors hostage during eight-years of government receivership.   Fannie and Freddie have returned to the Treasury over $60 billion more than they received in the bailout. But the amount they owe to the government remains outstanding.  It is likely that the tax payer is being prepped to dole out another bail-out for the profitable GSE’s that insure trusts that are empty or no longer exist.

Fannie and Freddie are antiquated dinosaurs that contributed to the foreclose melt-down.  As nothing more than guarantors for empty trusts, they routinely attempt to foreclose on homes they don’t own and loans that failed to exist years ago.  The GSE’s business model is to hire servicers to fabricate documents to create the illusion of ownership so they can foreclose.

The true GSE story is yet to be told, but why would two profitable corporations need bailouts?  Where have all the profits from the past seven years gone?  One thing is assured, the federal government couldn’t operate a worm farm even with the best worm cultivators in the world consulting.

http://www.bloomberg.com/news/articles/2016-08-08/fannie-freddie-could-need-126-billion-in-crisis-test-shows

By Joe Light

Fannie Mae and Freddie Mac could need as much as $125.8 billion in bailout money from taxpayers in a severe economic downturn, according to stress test results released Monday by their regulator.

The Federal Housing Finance Agency said that the government-controlled companies, which back nearly half of new mortgages, would need at least $49.2 billion.

The annual test, required by the Dodd-Frank Act, is likely to be used both by proponents of allowing Fannie Mae and Freddie Mac to build capital and by those who think there’s not an urgent need for the government to take that move.

 Under the terms of the companies’ bailout agreements, Fannie Mae and Freddie Mac must send nearly all of their profits to the U.S. Treasury and wind down their capital buffers until they reach zero dollars in 2018. After that point, any loss at either company would require a draw from taxpayers.

Rescue Funds

 Monday’s stress test results showed that the funds that the U.S. Treasury Department is authorized to use in a bailout are more than enough to cover the billions that Fannie Mae and Freddie Mac would likely lose in a crisis. The companies would have between $132.2 billion and $208.9 billion in available bailout money from the Treasury after the period of financial duress passed, according to FHFA.

The stress tests assumed an extreme adverse scenario, designed by the Federal Reserve, in which real U.S. gross domestic product dove 6.25 percent by the first quarter of next year, unemployment doubled to 10 percent by the third quarter of 2017 and inflation rose to 1.9 percent.

“A stress test for an entity that is not allowed to retain capital is an exercise in stupidity,” Tim Pagliara, chief executive officer of CapWealth Advisors, said in an e-mail.  “The only way you can fix it is to retain capital.”

Pagliara is also head of Investors Unite, a Fannie Mae and Freddie Mac shareholder group.

‘Serious Risk’

Fannie Mae and Freddie Mac buy mortgages from lenders, wrap them into securities and make guarantees to investors in case borrowers default. The companies have been in a conservatorship helmed by the FHFA since 2008 and received $187.5 billion in bailout money from the U.S. Treasury.

Last week, Fannie Mae reported a profit of $2.9 billion for the second quarter, while Freddie Mac reported a profit of $993 million. Freddie Mac has reported a loss in two of the past four quarters.

FHFA Director Melvin Watt in a February speech warned that the companies’ falling capital buffers could one day cause investors to doubt their guarantees of mortgage-backed securities. Such uncertainty would cause mortgage rates to go up.

“The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital,” Watt said.

Filed under: foreclosure | Tagged: , , , , , | 6 Comments »

The Big Cover-Up in Our Credit Nation

Posted on May 5, 2014 by Neil Garfield

Regulators have confirmed that there were widespread errors by banks but that the errors didn’t really matter. They are trying to tell us that the errors had to do with modifications and other matters that really didn’t have any bearing on whether the loans were owned by parties seeking foreclosure or on whether the balance alleged to be due could be confirmed in any way, after deducting third party payments received by the foreclosing party. Every lawyer who spends their time doing foreclosure litigation knows that report is dead wrong.

So the government is actively assisting the banks is covering up the largest scam in human history. The banks own most of the people in government so it should come as no surprise. This finding will be used again and again to say that the complaints from borrowers are just disgruntled homeowners seeking to find their way out of self inflicted wound.

And now they seek to tell us in the courts that nothing there matters either. It doesn’t matter whether the foreclosing party actually owns the loan, received delivery of the note, or a valid assignment of the mortgage for value. The law says it matters but the bank lawyers, some appellate courts and lots of state court judges say that doesn’t apply — you got the money and stopped paying. That is all they need to know. So let’s look at that.

If I found out you were behind in your credit card payments and sued you, under the present theory you would have no defense to my lawsuit. It would be enough that you borrowed the money and stopped paying. The fact that I never loaned you the money nor bought the loan would be of no consequence. What about the credit card company?

Well first they would have to find out about the lawsuit to do anything. Second they could still bring their own lawsuit because mine was completely unfounded. And they could collect again. In the world of fake REMIC trusts, the trust beneficiaries have no right to the information on your loan nor the ability to inquire, audit or otherwise figure out what happened tot heir investment.

It is the perfect steal. The investors (like the credit card company) are getting paid by the borrowers and third party payments from insurance etc. or they have settled with the broker dealers on the fraudulent bonds. So when some stranger comes in and sues on the debt, or sues in foreclosure or issues of notice of default and notice of sale, the defense that the borrower has no debt relationship with the foreclosing party is swept aside.

The fact that neither the actual lender nor the actual victim of this scheme will ever be compensated for their loss doesn’t matter as long as the homeowner loses their home.  This is upside down law and politics. We have seen the banks intervene in student loans and drive that up to over $1 trillion in a country where the average household is $15,000 in debt — a total of $13 trillion dollars. The banks are inserting themselves in all sorts of transactions producing bizarre results.

The net result is undermining the U.S. economy and undermining the U.S. dollar as the reserve currency of the world. Lots of people talk about the fact that we have already lost 20% of our position as the reserve currency and that we are clearly headed for a decline to 50% and then poof, we will be just another country with a struggling currency. Printing money won’t be an option. Options are being explored to replace the U.S. dollar as the world’s reserve currency. No longer are companies requiring payments in U.S. dollars as the trend continues.

The banks themselves are preparing for a sudden devaluation of currency by getting into commodities rather than holding their money in US Currency. The same is true for most international corporations. We are on the verge of another collapse. And contrary to what the paid pundits of the banks are saying the answer is simple — just like Iceland did it — apply the law and reduce the household debt. The result is a healthy economy again and a strong dollar. But too many people are too heavily invested or tied to the banks to allow that option except on a case by case basis. So that is what we need to do — beat them on a case by case basis.

Filed under: AMGAR, CORRUPTION, currency, discovery, education, evidence, foreclosure defenses, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, Servicer, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , | 55 Comments »

Foreclosures on Nonexistent Mortgages

Posted on April 7, 2014 by Neil Garfield

I have frequently commented that one of the first things I learned on Wall Street was the maxim that the more complicated the “product” the more the buyer is forced to rely on the seller for information. Michael Lewis, in his new book, focuses on high frequency trading — a term that is not understood by most people, even if they work on Wall Street. The way it works is that the computers are able to sort out buy or sell orders, aggregate them and very accurately predict an uptick or down-tick in a stock or bond.

Then the same investment bank that is taking your order to buy or sell submits its own order ahead of yours. They are virtually guaranteed a profit, at your expense, although the impact on individual investors is small. Aggregating those profits amounts to a private tax on large and small investors amounting to billions of dollars, according to Lewis and I agree.

As Lewis points out, the trader knows nothing about what happens after they place an order. And it is the complexity of technology and practices that makes Wall Street behavior so opaque — clouded in a veil of secrecy that is virtually impenetrable to even the regulators. That opacity first showed up decades ago as Wall Street started promoting increasing complex investments. Eventually they evolved to collateralized debt obligations (CDO’s) and those evolved into what became known as the mortgage crisis.

in the case of mortgage CDO’s, once again the investors knew nothing about what happened after they placed their order and paid for it. Once again, the Wall Street firms were one step ahead of them, claiming ownership of (1) the money that investors paid, (2) the mortgage bonds the investors thought they were buying and (3) the loans the investors thought were being financed through REMIC trusts that issued the mortgage bonds.

Like high frequency trading, the investor receives a report that is devoid of any of the details of what the investment bank actually did with their money, when they bought or originated a mortgage, through what entity,  for how much and what terms. The blending of millions of mortgages enabled the investment banks to create reports that looked good but completely hid the vulnerability of the investors, who were continuing to buy mortgage bonds based upon those reports.

The truth is that in most cases the investment banks took the investors money and didn’t follow any of the rules set forth in the CDO documents — but used those documents when it suited them to make even more money, creating the illusion that loans had been securitized when in fact the securitization vehicle (REMIC Trust) had been completely ignored.

There were several scenarios under which property and homeowners were made vulnerable to foreclosure even if they had no mortgage on their property. A recent story about an elderly couple coming “home” to find their door padlocked, possessions removed and then the devastating news that their home had been sold at foreclosure auction is an example of the extreme risk of this system to ALL homeowners, whether they have or had a mortgage or not. This particular couple had paid off their mortgage 15 years ago. The bank who foreclosed on the nonexistent mortgage and the recovery company that invaded their home said it was a mistake. Their will be a confidential settlement where once again the veil of secrecy will be raised.

That type of “mistake” was a once in a million possibility before Wall Street directly entered the mortgage loan business. So why have we read so many stories about foreclosures where there was no mortgage, or was no default, or where the mortgage loan was with someone other than the party who foreclosed?

The answer lies in how these properties enter the system. When a bank sells its portfolio of loans into the system of aggregation of loans, they might accidentally or intentionally include loans for which they had already received full payment. Maybe they issued a satisfaction maybe they didn’t. It might also include loans where life insurance or PMI paid off the loan.

Or, as is frequently the case, the “loan” was sold after the homeowner was merely investigating the possibility of a mortgage or reverse mortgage. As soon as they made application, since approval was certain, the “originator” entered the data into a platform maintained by the aggregator, like Countrywide, where it was included in some “securitization package.

If the loan closed then it was frequently sold again with the new dates and data, so it would like like a different loan. Then the investment banks, posing as the lenders, obtained insurance, TARP, guarantee proceeds and other payments from “co-obligors” on each version of the loan that was sold, thus essentially creating the equivalent of new sales on loans that were guaranteed to be foreclosed either because there was no mortgage or because the terms were impossible for the borrower to satisfy.

The LPS roulette wheel in Jacksonville is the hub where it is decided WHO will be the foreclosing party and for HOW MUCH they will claim is owed, without any allowance for the multiple sales, proceeds of insurance, FDIC loss sharing, actual ownership of the loans or anything else. Despite numerous studies by those in charge of property records and academic studies, the beat goes on, foreclosing by entities who are “strangers to the transaction” (San Francisco study), on documents that were intentionally destroyed (Catherine Ann Porter study at University of Iowa), against homeowners who had no idea what was going on, using the money of investors who had no idea what was going on, and all based upon a triple tiered documentary system where the contractual meeting of the minds could never occur.

The first tier was the Prospectus and Pooling and Servicing Agreement that was used to obtain money from investors under false pretenses.

The second tier consisted of a whole subset of agreements, contracts, insurance, guarantees all payable to the investment banks instead of the investors.

And the third tier was the “closing documents” in which the borrower, contrary to Federal (TILA), state and common law was as clueless as the investors as to what was really happening, the compensation to intermediaries and the claims of ownership that would later be revealed despite the borrower’s receipt of “disclosure” of the identity of his lender and the terms of compensation by all people associated with the origination of the loan.

The beauty of this plan for Wall Street is that nobody from any of the tiers could make direct claims to the benefits of any of the contracts. It has also enabled then to foreclose more than once on the same home in the name of different creditors, making double claims for guarantee from Fannie Mae, Freddie Mac, FDIC loss sharing, insurance and credit default swaps.

The ugly side of the plan is still veiled, for the most part in secrecy. even when the homeowner gets close in court, there is a confidential settlement, sometimes for millions of dollars to keep the lawyer and the homeowner from disclosing the terms or the reasons why millions of dollars was paid to a homeowner to keep his mouth shut on a loan that was only $200,000 at origination.

This is exactly why I tell people that most of the time their case will be settled either in discovery where a Judge agrees you are entitled to peak behind the curtain, or at trial where it becomes apparent that the witness who is “familiar” with the corporate records really knows nothing and ahs nothing about the the real history of the loan transaction.

Filed under: AMGAR, CDO, CORRUPTION, discovery, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, securities fraud, Servicer, STATUTES, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , | 64 Comments »

Bailout Treachery Sequel?

Posted on September 29, 2013 by Neil Garfield

BUSINESS DAY | Five Years Later, Poll Finds Disapproval of Bailout

The simple answer is yes, there will be another bailout attempt and it appears likely that the Banks will continue to confuse things enough so that it again happens only “this time” there will be some “stern regulations”. The reason is not some esoteric financial mumbo jumbo, nor does it take brilliant economic insight — and shame on Democrats who “concede” the bailout was necessary. A little realism from my fellow Democrats in joining with Republicans on this pervasive issue might just be the stepping stone to loosening the idiotic gridlock being engineered by Republicans, who are dead right about the last bailout, and dead right about the next one.

The reason the attempt will be made is because the last one worked. The banks got trillions of dollars as compensation for creating the illusion that they had lost the entire economy. It was a lie then, it is a lie now and it will be a lie when they try it again. I agree that magicians as entertainers are worth whatever the market will bear. But I don’t agree that Wall Street bankers are entertainers and I agree with the vast majority of Americans who say the bankers or gangsters. They belong in jail. They won’t go to jail because of agreements made by law enforcement under Political pressure.

The last bailout worked because nobody understood securitization other than the investment bank collateral debt obligation (CDO) managers. If your sole source of information, analysis and interpretation is the perpetrator, it should come as no surprise that they lead you down a path that belongs in fiction, not reality. The result was we turned over the control of our currency to the bankers and we have never retrieved it. We gave them the country and indeed the world because our leaders were ignorant of the true facts and failed to ferret out the real ones, and therefore never had a chance to refute or corroborate the narrative from Wall Street.

Things haven’t changed much. Even the witnesses and lawyers for the banks in Foreclosures don’t understand securitization. When they say this is a Fannie Mae loan, everyone but me thinks that is the end of it. Nobody can answer my questions because they don’t understand them. Fannie is not a lender. If the statement is that “this is a Fannie Mae loan”, the question is how did it get that way? There are only one of two possibilities: (1) it was guaranteed by Fannie and then sold into the secondary market to a REMIC pool where in the master Trustee is Fannie and the individual trustee is the manager of the asset pool or (2) Fannie paid the loan or the loss off and is considered to own the loan even though the documents are absent showing the transfer. Either way you want to see reality — the movement of money to determine who is the lender, and to determine the real balance owed rather than the fabricated story of the subservicer.

So as long as ignorance prevails in government, there will be yet another bailout for losses that never happened on fictional transactions. Regulators will see no choice because they see no facts and have learned nothing from the last round of securitization. The new round is already underway and the stealing, lying, and treachery continues while pensioners’ money is flushed down the toilet for processing at the Wall Street money conversion plant where losses are turned into pure profit.

Filed under: AMGAR, bubble, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, investment banking, Investor, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer | Tagged: , , , , | 10 Comments »

The Banker That Used Bailout to Buy a Condo

Posted on August 28, 2013 by Neil Garfield

Just a short note on this. Think about it. Why would he have taken the money and used it for a condo when he had to cover bank losses on mortgage loans that were in default?

Answer: the bank had no losses, so there was nothing to account for.

This money wasn’t income. It couldn’t be booked as capital contribution, but his use of it to buy a condo didn’t harm the bank one bit. Their balance sheet is unchanged.

My guess is that if he asked an attorney familiar with accounting for banks, he would have suggested that the bank use the money to buy something that can be capitalized on the balance sheet.

Otherwise the financial statements look cooked by the receipt of “bailout” money when there were no losses to bailout. There were no losses to bailout because his bank never assumed the risk of loss on the subject securitized loans.

His bank never advanced any funds for the loans. His bank never used its credit to fund the loans. His bank was most probably an originator who was paid for services rendered. What services? The service of acting as though they were the lender when they were not. My guess is that unless they get him on some technicality his prosecution and sentence, if any, will be light.

Banker Used Bailout Money To Buy Luxury Condo


http://breakingnewsusa.com/2013/08/banker-bailout-money-buy-luxury-condo/

Filed under: CDO, CORRUPTION, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , | 13 Comments »

Reuters: Mortgage Bonds Were “Rotten from the Start.”

Posted on August 12, 2013 by Neil Garfield

We have come a long way in six years. Back in 2007 almost everyone thought that the mortgage bonds were valid instruments issued by a valid entity that owned valid mortgages.

Now we have Reuters news service reporting that “home loans underlying securities were rotten from the start.” Thus we are crossing that line where the critical mass of thinking is changing the assumptions and presumptions about whether the mortgage bonds were real and about whether the mortgage loans were real. It is becoming increasingly apparent that neither the mortgage bonds nor the mortgage loans had any basis in reality.

Paperwork was all fabricated for the purpose of allowing the banks to pretend ownership over the bonds and the underlying loans plus justifying the purchase of insurance and other hedge products and justifying the claim of a loss on investments the banks never made. The government rescued the banks from a loss they never incurred — basically money that should have been refunded to the investors and lowering or negating the balance due on any loans made to homeowners. Currently the banks are selling these nonexistent investments consisting of nonexistent mortgage bonds issued by nonexistent trusts with nonexistent assets based upon nonexistent loans.

The largest buyer of this crap is the Federal Reserve. This would be the same agency that declared that the collapse in the mortgage markets was “contained.” That was in 2007. The question could legitimately be asked whether the government officials were stupid or simply lying. And the same question could be asked now.

So we really have several issues that are now due to go in reverse despite the apparent drumbeat of foreclosures that continue to be rubberstamped by judges who don’t know or don’t care to know the truth about mortgage loans today.  The two main issues are ownership of the alleged loan and the actual balance of the unpaid account receivable.

Regulators and officers of law enforcement are just on the cusp of understanding that the money that showed up at the time of the closing with the borrower/homeowner  was stolen and that the theft was covered up under layers of paperwork. Alan Greenspan, who was chairman of the Federal Reserve at the time the banks were on a spree of highway robbery, admitted that neither he nor the 100 economists employed by the Federal Reserve understood one word of the so-called securitization instruments. It was his opinion that the “free market” would correct whatever was wrong. He now concedes that he was wrong to conclude that the market was “free” and he was wrong to conclude that any self correction mechanism could or would work.

As the stench rises from the mortgage bonds and the details are revealed as to how the banks handled the money one might be convinced that this awareness will “trickle down” to the homeowners and borrowers. Don’t hold your breath. Most people in the marketplace and most judges have somehow reached the conclusion that they can lift a stick that is burning on one end and still say “the stick is not burning” because they are holding the end that is not burning.

It may be years yet before there is general consensus that the entire mortgage process was rotten from top to bottom. Thus it is an absolute requirement to litigate, admit nothing, and seek discovery from each key point in the illusion that was called the “securitization chain.” On nearly all “self evident” points there is a lack of corroboration, evidence or truth despite all appearances to the contrary that were carefully constructed by the banks. This illusion is what keeps lawyers from feeling comfortable about denying the documents that were apparently signed, about the default on a loan that was apparently made, and consigning themselves and their clients to the inevitability of the foreclosure.

In the end, when the accounting is done in accordance with generally accepted accounting principles, it will be understood that millions of people were forced out of homes they owned based upon loans with no balance due — documented by loan documents with no validity possessed by strawmen who were covering for the Wall Street banks as they diverted investor money from mortgages to insurance and from loans to credit default swaps. These strawmen were covering for the Wall Street banks as they diverted the loan documents from the investors to the banks themselves, enabling the banks to sell counterfeit bonds based on counterfeit mortgages securing counterfeit notes referencing counterfeit account receivables —  all for 100 cents on the dollar and then another hundred cents on the dollar and then another hundred cents on the dollar.

With Wall Street banks sucking up all the money existence somebody had to lose a lot of money. The answer was of course the investors who were tricked and deceived into buying investments that the investment bank would never buy for its own account, based on loans that the investment bank would never have approved if they were using their own money. In fact, the investment bank would never have approved the loans even if they were  not using their own money —  but for the fact that they were making 100 cents on the dollar several times over on each loan regardless of whether it was a good loan or a bad loan.

And the investment banks knew for a fact that the fund managers of pension funds and other investors would not and indeed could not invest in high risk securities. So they it look like these were low risk securities exempt from securities regulation when in fact they were running a PONZI scheme that diverted the money from the investment vehicle to the pockets of the bankers.

In the end it is the little guy, the common man, who suffers the consequences. If he owns a house he’s going to lose it even though there is no balance due on the loan he received. If he manages to keep the house he’s going to pay a loan that does not exist to a creditor that never loaned him the money but who received payment on the fictitious loan several times over. It is not just the taxpayers who are getting hit and who are entitled to restitution from the financial services industry. It is everyone who lives and works (or who wants to work) who pays the price. It is a society based upon freedom and fair play that has turned into debt bondage and foul play.

ROTTEN FROM THE START: REUTERS

AG: Lawyer e-mails indicate collusion to control foreclosure billing


http://www.denverpost.com/realestatenews/ci_23833815/ag-lawyer-e-mails-indicate-collusion-control-foreclosure

BANKS NOW OWNERS IN COMMODITIES BUSINESSES JUST LIKE THE OWNERS OF REAL PROPERTY CHANGED

Federal Reserve Board Announces Additional Foreclosure Review Settlement


http://www.jdsupra.com/legalnews/federal-reserve-board-announces-addition-78136/

You Will Survive! How to Overcome the Emotional Trauma of Foreclosure


http://realtytimes.com/rtpages/20130812_traumaofforeclosure.htm

Filed under: CDO, CORRUPTION, Eviction, evidence, foreclosure, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, Mortgage, Servicer | Tagged: , , , , , , , , , , , , , | 24 Comments »

Posted on November 12, 2012 by Neil Garfield

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: Among the unsung culprits in the false securitization scheme were the developers who conspired to raise prices to unconscionably high levels and the Wall Street funding that loaned the money for construction of new residential palaces. The reason the developer did it was once again, no risk and all profit, knowing that no matter how high the price, the appraisal would be approved. And the reason why IndyMac and other fronts for Wall Street’s tsunami of money did it was the same, no risk and all profit.

So what we have going on is that a few bankers are being thrown under the bus to take the blame for “isolated”instances of malfeasance. Their defense bespeaks of the widespread nature of this crime and how it created its own context of right and wrong. Many of them are saying they were following industry standards. Here’s the rub: they are right. The problem is that the new industry standards were illegal, fraudulent and disgraceful.

So here we have three IndyMac executives — out of thousands of people who did the exact same thing they did — accused of approving unworkable loans that were never repaid because in every Ponzi scheme the result is the same: when people stop putting in new money, the scheme collapses.

The question is not why these three are being charged in a civil action. The real questions are why are they not being charged with criminal fraud, and why thousands of other individuals who engaged in identical behavior are not being charged both civilly and criminally.

Then we have an interesting question: if it was improper for these three IndyMac execs to approve bad loans to developers, why are there no charges pending for approving bad loans and misleading homeowners?

DOJ keeps saying that they did not accumulate enough evidence to prove a criminal case, which as we all know, must be proven beyond a reasonable doubt. But I say the DOJ simply went for the low-hanging fruit, intimidated by the complexity of securitization. But if they take two steps back and get their heads out of the thickets, they will see a simple Ponzi scheme that can be prosecuted easily.

Other than a criminal environment, what bank or other organization would set bonuses based upon the number of loans or the amount of money they moved? In the real world where right and wrong are inserted into the equation, bonuses, salary and employment is based upon the perception of management that an individual is contributing to a profit center. Here the bank is said to have “lost money” much of which was off set by insurance, Federal bailout and gigantic fees paid tot he bank for pretending to be a lender when they were not.

Criminal larges are way overdue against both the corporate mega banks and the titans who ran them, right down the line to anyone who had enough knowledge to realize the acts they were committing were wrong. But the money was too damn good — getting paid 4-10 times usual compensation was enough for them to keep their mouths shut — but not in all cases. Some people did quit or blow whistles. They are buried in the mounds of documents and statements taken by law enforcement all over the country.

It is not the lack of evidence that keeps the prosecutions, even the civil ones, from becoming a wave, it is the will of the people charged  with law enforcement decisions whose opinions were guided by political pressures. The Obama administration owes a better explanation of what is happening in the housing market and how it can be fixed. Without taking economists seriously on the importance of housing and prosecuting those who break the rules, the economy will continue to drag.

Japan just announced they had an annual GDP decline of 3.5%. Remember when we afraid japan’s money would take over the world? Their shrinking economy is due to the fact that they ideologically stuck to their guns and refused to stimulate the economy, protect their currency, and reign in the big money people. All they needed was a philosophy that the common man doesn’t matter. Hopefully our election which broke in favor of the democrats because of demographics, will teach a lesson — that without the success and hopes and good prospects for the common person entering the workforce, the economy can stall for decades.

FDIC seeks damages from three former IndyMac executives

Trial begins on a civil lawsuit that accuses them of negligence in approving loans that developers and home builders never repaid.

By E. Scott Reckard, Los Angeles Times

When the Federal Deposit Insurance Corp. seized Pasadena housing lender IndyMac Bank four years ago, the scene resembled the grim bank failures of the 1930s.

Panicked depositors, seeking to reclaim their money, lined up outside branches of the big savings and loan, whose collapse under the weight of soured mortgage and construction loans helped usher in the financial crisis and biggest economic downturn since the Great Depression.

As those memories fade, the government’s effort to reclaim losses stemming from the financial debacle grinds on, with one IndyMac case winding up this week before a federal jury in Los Angeles.

Test your knowledge of business news

The civil lawsuit seeks damages from three former IndyMac executives, accusing them of negligence in approving 23 loans that developers and home builders never repaid, costing the bank almost $170 million.

The executives approved ill-advised loans because they earned bonuses for beefing up lending to developers and builders, said Patrick J. Richard, a lawyer representing the FDIC.

“They violated their duties to the bank,” Richard said in his opening statement to the jury Tuesday. “They violated standards of safe and reasonable banking.”

The bankers deny wrongdoing, contending that they made solid business decisions, which at the time were well-considered and approved by regulators and higher-ups at IndyMac.

“This case,” defense attorney Damian J. Martinez said in his opening statement Wednesday, “is about the government evaluating these loans with 20/20 hindsight after the greatest recession we’ve had since the Depression in the 1930s.”

The defendants — Scott Van Dellen, Richard Koon and Kenneth Shellem — ran IndyMac’s Homebuilder Division, a sideline to the thrift’s main business of residential mortgage lending. Court filings show the FDIC settled its case against a fourth former executive at the builder operation, William Rothman, by agreeing to a $4.75-million settlement to be paid by IndyMac’s insurance companies.

The trial, playing out before U.S. District Judge Dale S. Fischer, highlights how federal authorities — often stymied at bringing criminal cases against major players in the financial crisis — have pursued civil damages on a number of fronts.

One high-profile example involved the Securities and Exchange Commission‘s investigation of Countrywide Financial Corp. of Calabasas. The SEC exacted a $67.5-million settlement from former Chief Executive Angelo Mozilo, who ran Countrywide as it expanded to become the nation’s largest purveyor of subprime and other high-risk mortgages.

A Justice Department probe of Mozilo had found too little evidence to support a criminal prosecution. Admitting no wrongdoing, Mozilo paid $22.5 million of the SEC settlement himself, with corporate insurance policies covering most of the balance.

On another front, federal and state prosecutors have filed a series of civil lawsuits accusing major home lenders including Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and JPMorgan Chase & Co. of fraud and recklessness that cost taxpayers and investors billions of dollars.

Taking a different approach, the FDIC suits aim to recover losses in its insurance fund, which compensates depositors when banks fail. The agency says it has authorized lawsuits against 665 insiders at 80 institutions seized during the recent crisis, with 33 suits already filed.

The IndyMac case now going to trial, filed in July 2010, was the first of those suits.

Recoveries typically are modest compared with the losses.

IndyMac’s failure cost the federal insurance fund more than $13 billion, the largest loss among the 463 banks that have failed since 2008. But the FDIC is seeking only $170 million in the suit that has gone to trial in L.A., plus $600 million in a separate suit against former IndyMac Chief Executive Michael Perry.

(Perry contends that the pending lawsuit, accusing him of negligently allowing $10 billion in dicey mortgages to pile up on IndyMac’s books, is without merit.)

The FDIC is proceeding with the IndyMac case despite a setback in its efforts to collect from IndyMac’s insurance. U.S. District Judge Gary Klausen ruled July 2 that IndyMac officer and director insurance policies at the time of its failure cannot be used to cover any damages the agency wins against former bank insiders.

An appeal of that ruling is before the U.S. 9th Circuit Court of Appeals. If the ruling stands, the FDIC could only try to recover damages by attaching the defendants’ personal assets.

The IndyMac defendants’ earnings were modest by the standards of executives running large financial firms, such as Mozilo, whose take during the housing bubble has been estimated at nearly $470 million. But their compensation — in the $500,000 annual range for Koon and Shellem and well over $1 million for Van Dellen, who headed the Homebuilder Division — merited note by the FDIC.

Richard, the lawyer making the FDIC’s opening statement, noted that Van Dellen had rejected a suggestion by Perry in July 2006, as cracks appeared in the housing markets, that IndyMac take a cautious approach in its lending to home builders.

Van Dellen replied in an email that “now is the time to pounce,” Richard told the jury. “So what was his motivation? His bonus for 2006 production was 4 1/2 times his base salary — $914,000 — tied to production” of more builder loans.

scott.reckard@latimes.com

la-fi-indymac-trial-20121110,0,3796443.story

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , | 21 Comments »

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