“The Federal Government Is Moving Comprehensively and Quickly”

Something has been nagging me about this HuffPo description of HUD Secretary Shaun Donovan’s briefing on the foreclosure crisis the other day. It’s the revelation that, in a review started in May, the government had found that foreclosure servicers are not complying with FHA requirements that servicers attempt to modify loans before they foreclose on them.

Donovan said the administration had yet to complete its review, which began in May. Thus far, though, it had found “significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.” Donovan said the findings were limited to firms that deal with FHA loans. He declined to single out servicers. Other HUD officials likewise declined, despite repeated requests.

When it came to the larger issue of what some legal experts describe as a fundamentally-flawed and fraud-ridden mortgage market — fraudulently-underwritten loans that passed through a maze of institutions that failed to properly maintain basic paperwork or follow legal procedures in bundling, securitizing and ultimately selling those mortgages to investors — Donovan said that, thus far, all is well.

“The primary issue that’s been the focus of the moratoria is, is the foreclosure process being followed correctly? Are affidavits being filed correctly, and are notarizations and other things being done correctly? That is one set of issues,” he said. “A second set of issues — and we think this is very important — that we look more broadly at, ‘Are servicers taking steps to help keep people in their homes?'”

The lesser, third issue that has been raised, Donovan said, is whether the process underlying the securitization of mortgages is “in question.”

“So that’s the point that I’m trying to make, is that the issues that we are finding … that we’re focused on are, ‘Are there particular servicers that are not following these processes?'”

Donovan added that “we have not found any evidence at this point of systemic issues in the underlying legal or other documents that have been reviewed.”

Keeping in mind that this review started five months ago, watch this video of Donovan from Wednesday. In it, Donovan seems intent on declaring the overall system of mortgage finance–including MERS–to be sound, even while he reveals that the review showed some servicers were not making the required effort to modify loans before foreclosing on people.

This is not a systematic issue, according to Donovan, but some servicers that he declines to name (as he did in the briefing HuffPo describes) are not following processes to keep people in their homes. Oh, and “the Federal government is moving comprehensively and quickly to ensure that servicers are complying with the law and that they are taking the actions they’re required to take and they should take to keep people in their homes.”

Well over a million homes have been foreclosed on since the government began its review of the foreclosure process. At some point in that time, the government determined that certain servicers were not complying with federal rules about modifications.

So why are we just hearing about it now after those million families have lost their homes?

I appreciate that the government–by refusing to call this systemic fraud systemic–acquires new leverage over servicers to actually do something about their refusal to modify loans. But why have we heard nary a peep out of the government about this before now? And why is the government refusing to make public which deadbeat banks are breaking the rules on loan modifications?

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  1. JTMinIA says:

    As to “So why are we just hearing about it now….,” my guess is that it was about to leak in some way, so they had to admit it.

    Or were you wondering why it took so long? tee hee

  2. nomolos says:

    Well over a million homes have been foreclosed on since the government began its review of the foreclosure process. At some point in that time, the government determined that certain servicers were not complying with federal rules about modifications.

    Should there not be some review as to just who the purchasers of the foreclosed homes are? I would be wiling to bet, although have absolutely no proof whatsoever, that a number of these deals were “insider” deals.

    I was speaking with a real estate agent last evening while at a political function and she said that she has had a number of legitimate, cash, offers for homes and has lost the deal by being “out bid” with no chance of continuing the bidding process. She was concerned that all was not quite kosher and was intent on finding out if “straw” buyers were being used by the banks.

    The banks wouldn’t do anything illegal would they?

    • thatvisionthing says:

      I quoted a commenter at Zero Hedge the other day here in DDay’s diary Banks Sold the Same Mortgage Over and Over to Investors:

      There is another angle on this. According to Catherine Austin Fitts Solari site, the CIA and possibly other government agencies, have been raising money for years by buying a house and getting up to 10 mortgages with different banks. The banks sell the loans to Freddie and Fannie, they go into default and the government pays off.

      She found out about this from a bank executive, even before the mortgage mess, who figured it out from analysing Fannie and Freddie’s loss data.

      I went over to Fitts’ website to see if I could find out more. Came across this, from 2009, re Clinton admin era:

      The Fed Did Indeed Cause the Housing Bubble

      My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book, Dillon Read & the Aristocracy of Stock Profits (http://www.dunwalke.com).

      One story, for example, is the following:
      “In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.

      She also links this to CIA narcotrafficking, money laundering, economic warfare on minority communities here and globally:

      One of the dirty little secrets behind the housing bubble is the long standing partnership of narcotics trafficking and mortgage fraud and the use of the two in combination to target and destroy minority and poor communities with highly profitable economic warfare. This model is global. It is operating in counties throughout the world as well as in US communities.

      I hope better minds than mine look at this.

      • bmaz says:

        And Williams is a useless asshat. I just want to say that again for the record.

        Oh, and where were all these folks so up in arms about Williams when Helen Thomas was fired? Oh, wait, they were the ones demanding she be fired. What a hypocritical pile of crap.

  3. klynn says:

    The government is party to the malfeasance by not naming the servicers. “Who knew it and when” will become part of a lawsuit. If people have gone to bad servicers in the last five months and at some point end up hurt, and the government failed to protect consumers through refusing to revealing the names of bad servicers, the government has assumed a liability.

    But IANAL.

      • klynn says:

        As if Reynolds wasn’t enough…

        If the government receives absolute immunity then how can the government be in the role of consumer protections? Does not absolute immunity create a conflict of interest for the government as the third party in consumer protection?

    • thatvisionthing says:

      and the government failed to protect consumers through refusing to revealing the names of bad servicers,

      Name them? Why not prosecute them?

  4. parsnip says:

    FDN reports that loan mods have been used as a mechanism to ensure people default, and the foreclosures then follow, regardless:

    THE “DELAYED/LATE PAYMENT” SCAM TO RAILROAD BORROWERS INTO FORECLOSURE

    The fact pattern is always the same: the “lender”, servicer, etc. reaches out, at least on paper, to the borrower facing or in a foreclosure as to a possible workout with a payment schedule. There is an agreement made, and the borrower makes the first payment on time, receipt and delivery confirmed (e.g. certified mail RRR, Fedex, etc.), but the “lender”, servicer, or whoever made the offer then intentionally sits on the borrower’s payment, does not post it until after the “due date”, and then claims that the borrower defaulted on the agreement and proceeds to foreclosure. To add insult to this injury, many of the so-called “workout” agreements contain waiver of defenses clauses where the borrower gives up the right, by contract, to later contest or challenge the foreclosure.

    The foreclosures are snowballing despite the PR, therefore it must be the plan to continue foreclosing. This must mean that the banks, or private equity firms, insist.

    I’d like to know what the long-range plan is for the millions of homes, once all the big wigs get their profit from each layer of this shit scheme they’ve been perpetrating, taking a profit, which is then tacked onto the mortgage, at each step, including each time a servicer has any contact with the borrower they tack on fees for giving them the time of day.

    Read this amazingly persistent effort by GMAC to foreclose on this couple who are fighting the third attempt to foreclose, yet have never missed a payment, and the judge at the second foreclosure trial awarded them an amount that completely covered their mortgage, but GMAC decided to charge them for their own lawyer bills (despite having to pay the homeowners’ lawyers’ bill as part of the judgment), and are demanding over $300,000 or foreclose!

    This kind of maniacal harassment is probably not rare. Most people would have already given up long ago. So why is our government supporting this? This is why I think there’s something way deeper we just don’t ‘get’ yet.

    • bobschacht says:

      I’d like to know what the long-range plan is for the millions of homes, once all the big wigs get their profit from each layer of this shit scheme they’ve been perpetrating, taking a profit, which is then tacked onto the mortgage, at each step, including each time a servicer has any contact with the borrower they tack on fees for giving them the time of day.

      During the Bush administration, there was a massive wealth transfer from the Middle Class to the Upper Class that is well known. We’re now into the second chapter of this wealth transfer: the transfer of real estate. Who is being foreclosed? Mostly lower Middle Class occupants. Who is buying? I’d guess that speculators are snapping up foreclosed homes en masse at firesale prices. We are rapidly moving in the direction of a growing landed aristocracy, and a shrinking Middle Class.

      Bob in AZ

  5. parsnip says:

    nomolos @ 2

    I’ve read numerous times about insiders buying the REOs. There’s also a comment on a dday post wherein the commenter witnessed HUD buying foreclosed homes at the courthouse for more than the value of the mortgage, then reselling them at a huge loss.

    Private equity firms are undoubtedly winding up with many homes. How they plan on making any honest money from selling them I’d like to know. I think the government just keeps creating programs under thin pretexts that are used to enrich the banks and private equity many times over for pretending to ‘clean up the mess’ which requires ever more people to be foreclosed, so that money can be made off of the foreclosures and the REOs.

  6. pjdj56 says:

    This caught my attention as well. He was declaring, “no problem here” even before the state AG’s began their work.

    What is pretty clear now is that the economy is dependent upon housing sales and that means Fannie and Freddie need to pump out mortgages. Any downward pressure on this is detrimental to the fragile state of the two mortgage creators and the economy as a whole. So Fannie and Freddie have in fact threaten deep lawsuits against the banks. This leaves banks and the gov’t with a choice: a) incur a bigger fight with F and F as they struggle to survive the outcome either way will push the economy into a double dip recession, or b) incur the wrath of state AGs and hundreds of foreclosure judges. If they take the first course, stopping foreclosures and fighting F and F all big banks move a significant step closer to bankruptcy. If banks and the govt take the second path, everything gets spread out for years, and who knows most foreclosure judges who have already chosen to turn their heads to the absence of a mortgage just may continue to do so. As the banks and govt would say, ‘the moral hazards of following state foreclosure laws is just too great!’

  7. Mary says:

    why have we heard nary a peep out of the government about this

    It’ didn’t make good “hopey changey” copy?

    So, is this kind of the Obama admin version of an “It gets better” video for the impoverished, homeless created on their watch?

  8. tjbs says:

    But why have we heard nary a peep out of the government about this before now?

    That’s the thing about these studies and investigations, like Durham’s(?),they go on forever.

    Why isn’t Eric’s incredible Justice dept. at this investigating table and churning out indictments ?

    It’s a wide country lane we’re kicking all these cans down. This one can’t end good, the thing is the original con men left long time ago with all the loot.

  9. PeasantParty says:

    I can tell you the answer to all those questions!

    The banks are foreclosing on all the homes because they have bungled the process so badly the documents cannot be found. If they foreclose and become the defacto owner of the home with new documentation they can then re-sale the home the correct way and be free of the mess they made.

    Not only will they be free of their stinking bags of bulldung, they would have made money at least 8 times off of one single home!

    Got it now? They want the houses and are not one bit interested in modification for the homeowners. They don’t want the homeowner to be there anymore. PERIOD!

    • PeasantParty says:

      And another note on the process:

      If the Administration steps in and makes this process stop, then the banks will fall on their faces, Wall Street will crumble, and what is left of our savings and money in the banks/investments will DISAPPEAR!

      That is why the investigations are all just okay, fine and dandy.

      • PeasantParty says:

        Wall Street should give me a bonus. I could show them how to fix this and not lose anymore money.

        The asshats!

  10. Bluetoe2 says:

    OT
    For anyone that thinks President Bipartisan has earned a primary challenge in 2012 might want to listen to Peter DeFazio of Oregon. He’ll be on the Thom Hartmann radio program a little later. Right now he’s interviewing Bernine Sanders.

    http://620kpoj.com/main.html

  11. bayofarizona says:

    Obama is doing his best to destroy the Democratic Party brand and make government look evil. A decade’s worth of work by progressives flushed in less than 2 years.

    • perrylogan says:

      There’s also the long-term damage. Republicans will be able to argue for decades–wrongly but effectively–that liberal and progressive policies don’t work. Thank you, Obamacrats!

  12. BMcGarth says:

    Gawd!the best thing is to throw Obama & his Admin out in 2012.What he has done you expect form the GOP not A Democratic Prez..

    Absolutely pathetic.And he has his wife running around now selling the same half-dollar,”when we said change we didn’t mean it would happen in 4 yrs”.The problem is he didn’t even try to change anything…..the same backroom deals with corporations screwing ordinary Americans of yrs past are still in place.

  13. liberaldem says:

    That story is a complete nightmare. It’s as if this couple was thrown into the Twilight Zone.

    Hello-is anybody in authority paying attention? This kind of thing is not supposed to happen when people play by the rules.

    Whoops-I forgot, rules are only for we,the little people.

    • BMcGarth says:

      fact of the matter they don’t give a damn…..this is eventually what’s going to happen to most of us.

      One by one…they are going to pick us off.

      And I hope most people don’t by into the regular bullshit that Rachel Maddow is selling, of Dems vs GOP….cuz with a Dem Prez & huge margins in both houses of congress Ordinary Americans are being screwed.

  14. RoyalOak says:

    Does anyone else find this Donovan dude extremely oily? He feels to me like he should sell used cars.

    • PeasantParty says:

      Oily? Why of course!

      He is selling used cars. Clunkers to be exact! He is trying to sell us all a one-wheeled shiny piece of crap.

  15. DeafByPills says:

    At this point, I think if the Government just sat and did absolutely nothing, they’d do less damage.

    Governments that govern closest to the people, govern best.

  16. Watt4Bob says:

    Does everybody understand that the different tranches in MBSs share losses in different ways depending on whether the loss is due to default, or to loan modification?

    If the loss is due to default, top tranches escape with no impact.

    However;

    If the loss is due to loan modifications, all tranches share the loss equally.

    Also, loan mods result in fewer fees for the servicers.

    Can you spell perverse incentives?

    • Synoia says:

      Can you post a link or a specific example of the documents that spell this out?

      I don’t doubt what you say, but would like to read the words for myself.

      • Watt4Bob says:

        The following excerpts are from FixedIncomeColor.com;

        Refering to how losses are handled in foreclosure (Servicer is advancing the mortgage payments to the trust as if the homeowner was paying);

        Servicer Advancing: Obligations and Options

        The above discussions and examples assume that servicers will continue to advance through the entire period that the loans remain in foreclosure. However, servicers often have the option to cease advancing when they deem the advances to be “non-recoverable.” It does not appear that there are any uniform standards with respect to the non-advancing option, which can vary by issuer, vintage, and product. (For example, older deals typically contain less flexible language; in many such cases, the servicer must continue to advance until the underlying home is sold.) The decision to cease advancing based on the servicer’s inability to recover is based, in large part, on a loan’s current LTV ratio. (Higher current LTVs mean that advanced payments are less likely to be recovered after the underlying property is liquidated. Deals that allow for servers to stop advancing typically base the option on a good-faith estimate of the likelihood of recoveries.)

        Note that the servicer’s advancing decision does not impact the ultimate dollar loss experienced by the trust. If the servicer continues to advance until the property is sold and the loan liquidated, advances are paid back to the servicer from the proceeds of the sale. If the servicer stops advancing, the trust does not have advances to repay from that point forward. For example, if the servicer advanced $5,000 against a delinquent loan with a $100,000 balance and the sale netted $75,000, the trust received a total of $80,000; reimbursing the servicer for the $5,000 leaves the same $75,000 for the trust that it would have if the servicer made no advances.

        However, servicer advancing decisions can have a major impact on different bondholders within the deal. Consider, for example, a mortgage ABS deal where principal and interest payments each have separate waterfalls. If the servicer continues to advance until delinquent loans are liquidated, the trust continues to receive interest to pay to bondholders. If the servicer stops advancing, however, interest payments to the trust are reduced, to the point where some bonds (starting with the lower-rated tranches) will not have enough interest to make the full interest payment. This results in the creation and accumulation of interest shortfalls.By contrast, the net amount recovered upon liquidation is typically characterized as principal, and is therefore distributed to the bondholders based on the principal waterfall. In this case, the subordinate holders will receive no interest, and little (if any) principal from recoveries, irrespective of the amount of shortfall accrued by the tranches. Therefore, a decision by the servicer to stop advancing would hurt the holders of so-called credit IOs (i.e., subordinate bonds expected to receive no principal and are valued based solely on the amount and duration of interest payments).

        Compare with how losses are distributed when the underlying loan is modified.

        Loan Modifications

        An in-depth discussion of modifications is well beyond the scope of this article; the issues are quite complex and controversial, and policies and practices are still evolving. However, a few issues related to recoveries and loss severities are worth noting.

        The issues raised in the earlier discussion of the complexities associated with deals’ payout provisions are magnified when modifications are brought into play if the modified loans eventually re-default. As with the earlier discussion of servicer advances, the question is not how much is lost by the trust but what happens to the interests of different bondholder classes.

        As an example, the Administration’s HAMP modification program allows for loans to receive substantial reductions in note rate – typically down to 1-2% – in order to reduce the borrowers’ debt/income (DTI) ratio. This has the greatest impact on loans with high accrual rates, such as subprime loans. Since the handling of note-rate reductions is generally not addressed in PSAs, trustees are forced to make decisions on how they are treated within the structure. One interpretation would view the change as a reduction in the deal’s WAC, with resulting shortfalls considered to be “basis risk.” Under this treatment, all bonds in the structure are theoretically at risk, depending on how much the deal’s WAC is ultimately reduced and whether it remains above each tranche’s coupon rate. Alternatively, the reduced interest payments is considered an under-collection of interest, which is a loss absorbed by the subordinates.

        This is very complicated, but careful reading of the affect that advances by the servicer have on the payments to the various tranches reveals that the lower tranches benefit temporarily from the servicers advances until the loss actually happens, but then are harder hit by the eventual loss due to foreclosure and liquidation, with the highest level tranches possibly taking no hit.

        On the other hand, the losses due to loan mods are most often treated as ‘basis risk’ with all tranches lossing.

      • knowbuddhau says:

        Raising the question, how, exactly, were these perverse incentives designed? By the forces of nature, or just the present class of old school disaster capitalism?

        How this dynamic becomes known by the public at large, I suggest, will largely determine the reaction.

        IMO, the trillion dollar question (for only this hour, mind you ; ] ), which could determine the response of the body politic to this insult, is akin to asking, when a circus elephant goes rogue, what just happened? Is it the rogue, or the trainer, or the circus?

        When a dementia patient lashes out at a caregiver, what just happened?

        Have all these shocks been right as rain, or are we getting hosed en masse?

        If it’s the former, then opposing market forces would make as much sense as trying to change the weather. If it’s the latter, then stopping the man-made deluge at the source would be the smart thing to do.

        Back in the day, the priests, who noticed that the motions of the stars in the sky and the weather here on earth were intimately related, soon came to mistake their calendars and zodiacs, chants and incantations, and such for control mechanisms. What’s old is new again.

        The Brahmans of ancient India did it, too, reasoning that, if it was their technology that controlled the gods, then that makes them more powerful than the gods, manifestations of the forces of nature, themselves.

        IOW, not content to sit back and be done by Mother Nature and the Great Cosmic Organ, practitioners of this hubristic manner of weather control, and thus control of dynastic succession, began the process that led to the practice of manufacturing consent.

        These days, we see it in the absurd conflation of our military men with weather men. That’s how we make shit happen, that’s how we control events on the ground, right? We master Mother Nature with our control technology, never the other way around.

        History shows that a gov’t that can’t rescue its citizens from the creatively destructive forces of our common Mother forfeits the Mandate of Heaven. Is this the Katrina moment for our MOTU? I sure as I’m in financial hell hope so.

        Long comment summed up: looks to me like our common course is going to be guided by the center of thrust that develops from our many splendid answers to this perennial conundrum: is it the weather, or are we getting hosed by Execs-Gone-Wild once again?

  17. Synoia says:

    Donovan on Foreclosure Fraud: “The Federal Government Is Moving Comprehensively and Quickly”

    A statement of intent without stating the objective. Deliberately Misleading.

    Quickly and Comprehensively to do what? Conceal the problem? Support the Banks? Help Citizens (LMAO)?

  18. parsnip says:

    Watt4Bob @ 26

    I see what you explained as fitting in with how Karl Denninger described the tranching as devised in order to prevent or delay the 25% requirement for standing to sue for a putback from the MBS to the originator of the crap loans. He says that only 20% of each MBS is junior tranches, while 8% would be the senior tranche, who would have no motivation to sue for putback no matter how many foreclosures there are, up to the limit. And if you read this post by Yves Smith you can see where an excerpt from The Greatest Trade Ever describes how the MBS were being manipulated. The mortgages were switched in and out of MBS, or modified or not, in order to produce the desired effect.

  19. RoyalOak says:

    There is something going on that we just don’t get yet, as many commenters have stated. HAMP and other negotiations are being used to kick people out of their homes, by having people pay lower mortgage payments while the paperwork is being approved. Of course, it is not approved and by then the mortgagee is thousands of dollars in arrears and payment of the arrears is demanded immediately. Now we have people who cannot even buy back their foreclosed homes –

    http://abclocal.go.com/wls/story?section=news/local&id=7738820

  20. knowbuddhau says:

    I’m watching Prof. Black’s presentation at the Hammer Museum. It’s Black hammer time! (Sorry, couldn’t resist)

    @0:44, he shows a slide of a response, from an S&P senior exec to a subordinate, to review loan tapes in order to form a more perfect credit rating. It says, in full, all formatting and emphasis original:
    ~~~~~~~~~~~~~~~~~~~~~

    Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to pride those credit estimates and your responsibility to devise some method for doing so.

    So, my loyal lackey, get busy cooking the books!

    Black goes on to ask the trillion dollar question: “But why is it totally unreasonable? The stated reason is, that the investors…that are buying these subprime mortgages, pooling them together and creating these derivatives, don’t even have the loan information themselves. In other words, they did zero due diligence before they bought this toxic waste.

    They’re now bringing it to the rating agency, and they’re going to do how much due diligence? Zero. Because the boss is furious that the professional guy actually wants to look.

    Now what rating do you think they’re going to end up giving? Triple a. What is a triple a rating supposed to mean? Zero credit risk. Right? On stuff that has immense credit risk. Not just a little credit risk, but immense credit risk.

    [Here’s the crucial question.]

    Now how is the guy supposed to find a way to sy something that has immense credit risk has zero credit risk? What’s his boss directing him to do?

    [Audience member:] Make it up.

    Thaaat’s right, make it up.
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Isn’t that the exact job description of Perkinsian economic hit men? They’re moving comprehensively and quickly, implementing what looks to me like one of the greatest economic hit jobs of all time. And it’s self-inflicted!

    [Can’t seem to get the darn thing formatted right.]

  21. odin007 says:

    And if you believe in the snake oil that Shaun Donovan is peddling, I have John McCain’s Arizona oceanfront Condo up for sale at a discount price to sell ya……………

  22. knowbuddhau says:

    Edit function doesn’t like me today. Pardon my repost.

    @0:44, he shows a slide of a response, from an S&P senior exec to a subordinate, to review loan tapes in order to form a more perfect credit rating. It says, in full, all formatting and emphasis original:

    Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to pride those credit estimates and your responsibility to devise some method for doing so.

    So, my loyal lackey, get busy cooking the books!

    Black goes on to ask the trillion dollar question: “But why is it totally unreasonable? The stated reason is, that the investors…that are buying these subprime mortgages, pooling them together and creating these derivatives, don’t even have the loan information themselves. In other words, they did zero due diligence before they bought this toxic waste.

    They’re now bringing it to the rating agency, and they’re going to do how much due diligence? Zero. Because the boss is furious that the professional guy actually wants to look.

    Now what rating do you think they’re going to end up giving? Triple a. What is a triple a rating supposed to mean? Zero credit risk. Right? On stuff that has immense credit risk. Not just a little credit risk, but immense credit risk.

    [Here’s the crucial question.]

    Now how is the guy supposed to find a way to sy something that has immense credit risk has zero credit risk? What’s his boss directing him to do?

    [Audience member:] Make it up.

    Thaaat’s right, make it up.

    • knowbuddhau says:

      Just to be clear, it doesn’t take one omnipotent Wizard of Shocks and Awes for a Gresham’s Dynamic to occur. Thanks to that notorious Revolving Door (btw, where would Cerberus stand to guard those gates of hell?), the very same people who were official EHM soon went private, just as the IIC & MIC have cross-fertilized.

      I’m not at all suggesting some sort of unified field theory of fraud. Just noting that this is, after all, how we’ve done to others that voodoo economics we do so well.

      Just so, with all the discussion of the Chamber of Electoral Horrors offshore funding, someone should note that we, the taxpayers, have been funding the goddamn National Endowment for Democracy to jack elections all over the world since the early 90s.

      Economic hit jobs? Foreign influence in elections? It’s our goddamn regular trademark. You know what the Athenians used to say, right? “For Athens, democracy; for the rest, empire.” As Chalmers Johnson always points out, our founders deliberately modeled our republic after Greece and Rome, so it should come as no surprise that we face the same problems.

      Fela Kuti: Sorrow, Tears, and Blood (dem regular trademark)

    • thatvisionthing says:

      That ratings agency supervisor’s message was one of two documents Bill Black referenced in his 2009 article: The Two Documents Everyone Should Read to Better Understand the Crisis. The other one was a report by Fitch ratings agency that looked back through original files and found them full of blatant fraud.

      Black’s conclusion:

      These two documents are enough to begin to understand:

      * the FBI accurately described mortgage fraud as “epidemic”

      * nonprime lenders are overwhelmingly responsible for the epidemic

      * the fraud was so endemic that it would have been easy to spot if anyone looked

      * the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a “don’t ask; don’t tell” policy

      * willful blindness was essential to originate, sell, pool and resell the loans

      * willful blindness was the pretext for not posting loss reserves

      * both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed

      * the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses

      * the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation

      * many of the big banks are deeply insolvent due to severe credit losses

      * those big banks and Treasury don’t know how insolvent they are because they didn’t even have the loan files

      * a “stress test” can’t remedy the banks’ problem — they do not have the loan files

  23. Bobster33 says:

    I would love to see an AG start throwing a couple of these robo-signers and their bosses ( and their bosses’ bosses) in jail for fraud. That would really shake up the industry.

  24. knowbuddhau says:

    Black and a colleague are now calling for the BOA hosemonster to be seized. And they didn’t even have to dress up like Hercules or Xena, for which favor I’m esp. grateful, to make a stab at slaying that dragon.

    Via Dan Froomkin/HuffPo:
    Foreclose on the fraudsters!

    William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that it’s time to “foreclose on the foreclosure fraudsters”. They write:

    The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.

    They argue that, far from being a coincidence, massive foreclosure fraud “is the necessary outcome of the epidemic of mortgage fraud that began early this decade.” The reason for that:

    The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents… Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents…. Foreclosure fraud is the only thing standing between the banks and Armageddon.”

    See also
    http://www.huffingtonpost.com/william-k-black/foreclose-on-the-foreclos_b_772434.html

    This control fraud of biblical proportions has been powered by usurping the power of the American dream and turning it against us. Our own so-called professionals and public servants decided to make private heavens for themselves by “converting” home-ownership into a living homeless hell for the rest of us. Isn’t that special?