An AP Lie

August 13th, 2011

An August 13 AP story on the FBI and its mortgage fraud investigations is deceptive and misleading. That it is published throughout the nation is vexing. The AP, through the FBI, claims mortgage fraud in the billions is continuing, but that it is too hard to stop.

Yes, mortgage fraud continues unabated. Yes it continues to cost the US billions. But, no, mortgage  fraud is not hard to catch, not hard to investigate, and not hard to stop. The FBI and the Justice Department have made it a practice to reflect the political will of two administrations to refrain from investigating, indicting, and convicting the nation's largest and most powerful financial institutions for their criminal conduct in committing, aiding, and abetting mortgage fraud.

The average prosecution by the FBI involves low level home buyers, low level brokers, appraisers, and the like. High end
originators, investment banks, and commercial banks have not been touched by Grand Jury investigations and prosecutions.

This article misleads the public into thinking there is some difficulty in proving mortgage fraud. Nothing could be
further  from the truth. Readers here and of You the Jury know the details. The AP needs to do better research.

FNMA and GNMA - From Fools to Tools

August 4th, 2011

The enmity cast upon FNMA and GNMA knows few bounds. These quasi-governmental institutions have been the whipping boys for Congress, the White House, pundits of all persuasions, and many who know nothing abrent collectionot their roles in the mortgage markets.

While it is absolutely true that these organizations were part of the housing collapse, it is also true that they were slaves to their Congressional masters and did Congressional bidding to insure housing was available to the least qualified among us; that is, those who could not afford home ownership under almost any circumstances, but who became "qualified" either by lying or by the conscious avoidance or reckless disregard of underwriters and originators who were bound and determined to collect fees and commissions and sell loans, relying for their market on FNMA and GNMA, who were required to buy predictably bad loans.

You the Jury lays out the role of Wall Street investment banks in this sorry tale. The volume of mortgages needed to populate Wall Street securities virtually guaranteed failure, but nobody cared. Now the next step has been proposed. Instead of selling the inventory held because of thousands of foreclosures, FNMA and GNMA are being told not to sell the properties, but to RENT them!  The federal government, through its financial control of FNMA and GNMA (tax dollars, all), will now be in the business of Landlord. They will  be in the business of maintenance and repair, insurance, rent collection, eviction litigation, and all the day to day problems of home ownership faced by landlords every day.  And taxpayers will front the costs.

This is being proposed as a way to "keep people in homes."  Just as Congress has been unable or unwilling to cut its spending on things we'd all like to be handed, but simply cannot afford, Congress and the Obama Administration is now looking for more ways to fleece the American  taxpayer and give away assets taxpayers have already bought and paid for to people who couldn't or wouldn't pay their mortgages, but who now, miraculously, will pay their rent.  And if they don't?  What politician will be first to endorse eviction of "the poor?"

Added to the $50,000 give away housing program this Administration has put in place,  $50,000 taxpayer dollars freely handed to people who didn't pay their mortgages, but who are now "reformed", taxpayers are being saddled with potentially trillions in distributions to the very people who  were at the root of the housing collapse and the strangulation of the economy.

Because this is a "mortgage" area, it is not sexy, and will slip past the major media.  Voices are needed to shed light on this extravagant waste of resources, and put an end to the pimping of FNMA and GNMA as instruments of Socialist policy. Let them resume their roles in the housing market without placing them under the burdens of Landlordship, and allow them to repay the American people with the money to be realized from the sale of foreclosed properties. The US Government as a mass Landlord is nothing less than Communism/Socialism at their worst. It must not be allowed to happen.

SEC Slaps Wrist-With Cotton Candy

July 21st, 2011

The SEC has approved a deal that allows Bank of America to settle mortgage fraud claims against it by the SEC for an admitted 5 cents on the dollar of the real liability B of A faces. In conjunction with the continued lack of prosecution of major Wall Street and Banking fraudsters, this is just another example of the misguided, if not intentionally corrupt, behavior of the current Administration toward moneyed interests. The hypocrisy of this favored treatment, compared to the rhetoric of class warfare put out by the President, is truly astounding.

I will not get into the politics of all this. you can do that on your own. But, I will assert that this callous lack of law enforcement is a serious cause of a failed economy and a harbinger of worse times to come.

Crime, But No Punishment

July 8th, 2011

Once again Morgenson and Story from the New York Times have broken the news that the Justice Department has been soft on white collar crimes, particularly those committed by the financial industry. See their story from July 8, 2011. The authors have been leading to this disclosure for 5 years. I have been leading to it for 6, and warning about it for 11. You the Jury was written long  before the current surge in interest in why mortgage fraud has gone unpunished. The short answer is that there has been, is not, and will not be any political will to punish major executives or financial institutions for the crimes they have committed. This Adminisration, and the last, were bought and paid for, period.
Any suggestion that the economy will crumble if institutions are prosecuted is nonsense, designed to use fear to justify inaction. The lack of deterrence is deliberate. The notion that these crimes are "hard to prove" is a deliberate distortion of reality. I prosecuted these cases as a federal prosecutor. They require diligence and hard work, but in the end, they are relatively easy to win. The fact that civil fraud settlements are reached every day, for amounts which are costs of doing business, is evidence that violations are proveable. The extra burden of criminal prosecutions is an excuse for this government to do what it wants: to keep its friends in power, and to keep the contributions rolling in.
I have long since declared the abrogation of the rule of law in this country. This article simply confirms the obvious. Now, what are we going to do about it?

Is It A Payoff?

July 3rd, 2011

JP Morgan Chase and Bank of America are reported by the NYT to be voluntarily reducing mortgage obligations of variable rate mortgage holders because of "their extraordinary risk." Maybe now we are seeing the explanation why no bank or investment bank has been prosecuted for mortgage fraud. Is it possible the non-prosecution is conditioned on this sort of bailout? Is anyone checking to see if these loans were based on fraudulent applications? I think not. Just a way to look good, keep foreclosures to a minimum, and declare success for failed government programs.

Big Sentence, Big Deal-Farkas the Scapegoat

July 1st, 2011

On June 30, 2011 Ben Protess of the New York Times reported the 30 year sentence for mortgage fraud of Lee Farkas, a Florida mortgage banker. Mr. Farkas committed bank fraud by using fictitious and then toxic mortgages to collaterize loans from Century Bank to keep his mortgage business afloat. The mortgages, of course, were no good, and the bank failed to the tune of over $2 Billion.
The Times said, "Other than Mr. Farkas and a string of small fry mortgage fraud prosecutions, no senior financial executives have been imprisoned. Even now, federal prosecutors have yet to bring charges against an executive who ran a large Wall Street institution leading up to the crisis." Now where have you read that before? This blog and my book have not only observed that fact, but predicted it for years now. While observations such as these are a step forward, they are not likely to inspire action from the Obama Justice Department.
The article quotes a former federal prosecutor who said that prosecutors don't like to risk bringing hard cases.What is really stupid there, what is, in fact, outrageous, is the myth that prosecuting mortgage fraud is extraordinarily difficult. I know it is not, because I did it,successfully, at a very high level.
The whitewash of Countrywide and a plethora of Wall Street firms is a national disgrace. The truth is that there has been, and is now, no political will to punish wrongdoers on a serious level. No loss of licenses, franchises, or, even, financial capital. Just wrist slaps and vacuuous generalities such as the one quoted in the Times article. People are beginning to figure this out. But it is getting very very late to do anything about the abrogation of law practiced by the Justice Department since at least 2007, and long before.

The SEC Strikes Again-With a Wet Noodle

June 22nd, 2011

It goes on and on. Shamelessly, and with an arrogance that says, "Let's see if we can keep putting this stuff over on you.“ The SEC has settled a civil suit against Morgan Keegan, a mortgage brokerage owned by Regions Financial, an entity that owes $3.5 Billion in TARP funds.
Rob Khuzami, chief of enforcement for the SEC and a former Wall Street Investment Banking lawyer, hailed the $200 million settlement, and chastized the company, saying, "The falsification of fund values misrepresented critical information exactly when investors needed it most – when the subprime mortgage meltdown was impacting the funds...Such misconduct does grievous harm to investors.”, according to the New York Times. All Morgan Keegan did was lie about the value of securities populated by toxic mortgages.
Notice that, once again, there is no criminal culpability even attempted. The fine consists, once again, of a cost of doing business. No license lost. No franchise threatened or, god fordid, closed. In other words, no deterrent effect, or intent to deter, whatsoever. Goldman Sachs has been hired to sell Morgan Keegan. Foxes and henhouses.
Our system is broken. It is run by a cabal of malefactors who are protecting friends, protecting fortunes, and protecting everybody but the people. When this will end is a very open question.

The Fannie Freddie Factor

June 21st, 2011

Fannie Mae and Freddie Mac are often blamed for the mortgage mess. I recently spoke with two former US Senators who certainly felt they were in large part to blame for the collapse.
I don't get into this in You the Jury, but it is worth mentioning here that blaming these quasi government entities may be convenient, but, in my view, unjust. As a creature of the Federal Government, in particular the US Congress, how could Fannie or Freddie possibly have denied their master's bidding in continuing the market making of thousands of mortgages pushed by a liberal Congress and falsified by a corrupt Wall Street? Their orders were to make a market. They were not told to investigate fraudulent origination practices, nor were they required to, nor was it even desired, that they analyze the inherent imposibility of repayment of loans made to highly unqualified borrowers.
In historical context, they were merely "following orders."
Congress wanted home ownership by everybody and anybody. Wall Street was more than happy to comply. Mortgage companies were willingly pushed into ridiculous volume in order to populate securities being sold for billions and billions. Risk was pushed upstream. Fannie and Freddie did as they were told.
While not entirely innocent in the bubble making/bubble bursting that has helped destroy the economy, neither Freddie nor Fannie was an initiator. They were merely tools of those whose agenda it was to profit from mortgage making, regardless of the cost.
And now, of course, we all pay.
Fannie and Freddie are due to be forced out of business in about 18 months. Don't look now, but if and when that happens be prepared for yet another housing crash. With no alternative market makers in sight, there will be no place for mortgages to be sold. The capital put into mortgages will remain static, and there will be a decided drop in available funds to lend. Just think of what that will do to home values.
Think about it.

Foreclosure Numbers-Politics and Truth

June 17th, 2011

As much as I want to keep politics out of trying to inform change in how real estate is bought, sold, and financed in America, the reality is that politics will determine whether change will ever occur for the common good. As I read headlines on June 16, 2011 that "foreclosures are down" I understood that the Obama Administration will do anything to make it look like there is really a housing market in this country.
The idea that foreclosures starts are down is supposed to be an indicator of economic recovery. People must be doing better, it is assumed, if new foreclosures are down. Jobs must have been created if new foreclosures are down. There must be a chicken in every pot!
Nonsense. Of course new foreclosures can be down in any given period! Considering that we have set new foreclosure records month after month for almost three years, a drop in new starts is inevitable. The real number, however, has to be a comparison with whatever the "lower" number is with the number of foreclosures in a period of real economic prosperity and growth. Even though there were fewer foreclosures last month, the fact is that there were still an unacceptable number of foreclosures in the period.
Combined with the fact that housing starts are lower, resales are down, construction jobs are down, materials sales are down, and the real estate business is basically starving, it is naive at best, and deceptive at worst, for anyone in the Administration to crow when a negative event is only slightly less negative than it has been for months.
The fact is that mortgages are harder to get than ever. Real underwriting is going on. People who can actually afford to buy a home are being vetted like never before. Subprimes are virtually non-existent. In an environment like this there can be no flipping. Scams are hard to pull off. In other words, many of the elements that led to the housing bubble have been removed, fraud is harder to commit, momentarily, fewer mortgages are out there to default, and, as a result, there are fewer foreclosures. First, there are still too many. Second, what long lasting reform has there been?
Already Fred Berhenke has called for an easing of mortgage criteria. Can the politicians be far behind? With the economy the dominant topic in the 2012 elections, is there any doubt that Obama will try to create the illusion of recovery, prosperity, and successful economic stewardship?
The reality is far more ominous. National headlines that "foreclosures are down" are misleading and dangerous. Not until there is real change in the culture of the real estate industry and its cohorts on Wall Street will there be economic growth and recovery. I fear that will be a long time coming, and bogus announcements of meaningless statistics will only slow the process.

Is New York Serious? Tune In.

May 17th, 2011

New York's Attorney General has announced a wide ranging investigation into, of all things, Wall Street mortgage fraud. Having been calling for this for over 4 years, you'd think I'd be ecstatic. Given that criminal statutes of limitation have long since run out on thousands of crimes, I'm not surprised the AG didn't specify whether his investigation is civil or criminal. In addition, Elliot Spitzer, when AG, was famous for announcing these kinds of investigations, getting big headlines, and then settling with bad guys who paid cost of doing business fines (actually paid by consumers), admitted no wrong doing, and proceeded doing business mostly as usual. Is this different? I hope so. But I won't hold my breath.
A companion story shared the news. Timothy Geithner,our esteemed Treasury Secretary, and a true friend to Wall Street, announced the end of the US's full faith and credit unless a debt limit bill is passed. The same story reports that "Democratic House leaders were in New York...speaking with financial executives [on] deficit reduction.", and that, "House Speaker John Boehner addressed Wall Street leaders....". What do you suppose the chances are that any Wall Street institution or major executive who participated in the mortgage fraud now being "investigated" by the NY Attorney General will actually face criminal charges?
Stay tuned, but don't hold your breath. I suspect there will be none. I want to be wrong. Am I?

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