Financial Reform: Mortgage Fraud Continues to Boom

Who paid $300,000 for this "structure".

Special report: Flipping, flopping and booming mortgage fraud

(Reuters) – The house on the 53rd block of South Wood Street in Chicago’s Back of the Yards doesn’t look like a $355,000 home. There is no front door and most of the windows are boarded up.

Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.

To Emilio Carrasquillo, head of the local office of non-profit lender Neighborhood Housing Services of Chicago (NHS), the numbers don’t add up. He believes this is a case of mortgage fraud.

It may not make the blood boil like murder or rape, but mortgage fraud is a crime that cost an estimated $14 billion in 2009 and could be hampering an already fragile recovery in the housing market. The FBI has been fighting back, assembling its largest ever team to fight it. They have their work cut out for them, though, as a tsunami of foreclosures is making classic scams easier and spawning new ones to boot.

“There’s no way any property in this neighborhood should sell for that kind of money,” said Carrasquillo, standing outside the house on Wood Street in this poor, predominantly black area of Chicago’s South Side. “Even if it was in great condition.”

Carrasquillo has identified a number of properties in Back of the Yards that sold for between $5,000 and $30,000 last year and then came back on the market for up to $385,000. He said property prices are being artificially inflated, allowing fraudsters to walk away with vast profits and making it harder for honest local people to buy a home.

Mortgage fraud takes many forms, but a well-organized scam frequently involves a limited liability company (LLC) or a “straw buyer.” In

Who paid $355,000 for this structure?

 this scheme, fraudsters use a fake identity or that of someone else who allows them to use their credit status in return for a fee. The seller pockets the money the buyer borrows from a lender to pay for the home. The buyer never makes a mortgage payment and the property goes into foreclosure.

In other words, the money simply disappears, leaving the lender with a large loss. Since the U.S. government is now backing much of the mortgage market in the absence of private investors, that means “taxpayers are ultimately on the hook for fraud,” said Ann Fulmer, vice president of business relations at fraud-prevention company Interthinx.

Back of the Yards was hit by fraud during the housing boom and Carrasquillo says the glut of foreclosures is now making it easier for scammers to pick up properties for a song and flip them for phenomenal profits.

Drug dealers and gang members have taken over abandoned houses, many adorned with spray-painted gang signs. Prior to touring the area, Carrasquillo attached two magnetic signs touting the NHS logos on his minivan’s doors to show he is not a police officer. He said he also prefers touring in the morning, as drug dealers and “gangbangers” tend not to be early risers.

“These properties are just going to sit there, boarded up, broken into and a magnet for crime,” he said. “And that makes our job of trying to stabilize this neighborhood so much harder.”

CRACKDOWN NETS MORE REPORTS OF FRAUD

The U.S. Federal Bureau of Investigation said in a report released on June 17 that suspicious activity reports (SARs) related to mortgage fraud rose 5 percent in 2009 to around 67,200, up from 63,700 the year before. The number had tripled from 22,000 in 2005 and the number of SARs for the first three months of 2010 hit nearly 38,000.

“We don’t see the number declining while foreclosures remain so high,” said Sharon Ormsby, section chief of the FBI’s financial crimes section.

Robb Adkins, executive director of the Financial Fraud Enforcement Task Force, is known as U.S. President Barack Obama’s financial fraud czar. He describes mortgage fraud as “pervasive” and fears it is exacerbating the nation’s real estate woes. “That, in turn, could act as an anchor on the economic recovery,” he said.

For the housing market to recover, potential homeowners need confidence in home prices and investors need confidence to get back into the secondary mortgage market, Adkins explained.

Since the subprime meltdown, a wide variety of scams have come to the fore. They include big cases like that of Lee Farkas, the former head of now bankrupt mortgage lender Taylor, Bean & Whitaker Mortgage Corp, charged in June with fraud that led to billions of dollars of losses. The scheme involved the misappropriation of funds from multiple sources, including a lending facility that had received funding from Deutsche Bank and BNP Paribas.

That appears to be the scam of choice. On July 22, for instance, seven defendants were indicted in Chicago in a $35 million mortgage fraud scheme involving 120 properties from 2004 to 2008 using straw buyers. Of the half dozen properties listed in the indictment, two were in Back of the Yards.

In the mid-2000s, the availability of easy money, poor due diligence by lenders and low- or no-documentation loans, acted as a magnet for fraudsters, who used identity theft and other scams to bag large sums of cash.

“During the boom it was almost like people in the real estate market could do no wrong,” said Ohio Attorney General Richard Cordray. “As ever more money rushed in, it attracted a lot of people who engaged in shady behavior.”

Instead of leaving them without a market, the crash has instead provided fraudsters with a glut of foreclosures, stricken borrowers and desperate lenders to take advantage of.

“There were plenty of opportunities for fraud on the way up and there are plenty on the way down,” said Clifford Rossi, a former chief credit officer at Citigroup and now a teaching fellow at the University of Maryland in College Park.

Alongside familiar scams like property flipping, the crash has added new terms to the lexicon: short sale fraud, builder bailouts and flopping. Rescue scams targeting struggling homeowners with false promises of help are also on the rise.

If some of the mechanisms are new, a lot of the fraudsters are not: in many cases, they turn out to be mortgage brokers, appraisers, real estate agents or loan officers. “Because they’re insiders, they see exactly what’s happening and they’re able to stay one step ahead of the game,” said Todd Lackner, a fraud investigator in San Diego. “They’re the same people who were committing fraud during the boom and they were never caught or prosecuted.”

BACK TO THE YARDS

Just a stone’s throw from downtown Chicago, Back of the Yards is the setting for Upton Sinclair’s classic 1906 novel “The Jungle,” a tale of grueling hardship and worker exploitation at the city’s stockyards. The book includes an act of mortgage fraud against an unsuspecting Lithuanian family.

“Mortgage fraud is nothing new,” said Christopher Wagner, co-managing attorney of the Ohio Attorney General’s Cincinnati office. “It’s been around for a long time.”

Saul Alinsky, considered the founder of modern community organizing, started out in Back of the Yards in the 1930s. Decades later, a young community organizer named Obama got his start near here.

The neighborhood has always been poor, but south of the old railway tracks at W 49th St, the housing crisis’ legacy of empty lots and boarded-up homes is evident on every block. There are few stores and services available — in four separate visits for this story, no police vehicles were sighted.

“This is what we refer to as a ‘resource desert,'” Carrasquillo said. “When no one pays attention to an area like this, it makes it easier to get away with fraud.”

Marni Scott, executive vice president for credit at Troy, Michigan-based lender Flagstar Bancorp, says there are virtually no untainted sales in the area. “There are no cases of Mr and Mr Jones selling to Mr and Mrs Smith.”

“We see cases of mortgage fraud around the country,” she added. “But there’s nothing out there that could match the mass-production, assembly-line fraud that’s going on here.”

In 2008 Flagstar instituted a rule whereby any loan applications here and in parts of Atlanta — another fraud hot spot — must be approved by Scott and the lender’s chief appraiser. In a Webex presentation, Scott rattles through a number of properties snapped up for pennies on the dollar in 2009 and then sold for around $360,000.

She provides an underwriter’s-eye-view of one property, on the 51st block of South Marshfield Avenue, sold in foreclosure in July 2009 for $33,000. In January of this year Flagstar received a loan application to buy the house for $355,000.

The property appraisal — compiled by an appraiser who Scott believes never visited the area — showed four nearby comparable properties of around the same age (100 plus years) sold recently for around $360,000. The trick to this kind of scheme is engineering the sale of the first few fraudulently overvalued properties to get “comps” — comparable values — to fool appraisers and underwriters alike.

“Miraculously, all of these properties were all within a very narrow price range,” Scott said with weary sarcasm. “This is a perfect appraisal for an underwriter. If you are an underwriter sitting in Kansas or California it all looks fairly straightforward so you can just hit the button and approve it.”

Using a $5 product called LoanIQ from U.S. title insurer First American Financial Corp called LoanIQ, Flagstar determined the application itself was fraudulent and there was a foreclosure rate in the area of nearly 60 percent. What is more, property prices here spiked 84 percent last year after 44 percent and 26 percent declines in 2008 and 2007.  [How mant times have you heard the MSM report that “Housing prices recovered 1% last month”]

“No neighborhood should look like this,” said Scott, who declined the application.

Last April, however, another lender approved a loan application for $335,000 on the same property from the same people.

FORECLOSURE MAGNET

Reports this year from Interthinx, CoreLogic Inc and the Mortgage Asset Research Institute (MARI) — which all provide fraud prevention tools for lenders — show foreclosure hotspots Florida, California, Arizona and Nevada are also big mortgage fraud markets.

MARI said in its April report that reported mortgage fraud and misrepresentation rose 7 percent in 2009, adding fraud “continues to be a pervasive issue, growing and escalating in complexity.”

Denise James, director of real estate solutions at LexisNexis Risk Solutions and one of the author’s reports, said reported fraud will continue to rise throughout 2010.

In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.

Congressman Barney Frank

According to various estimates, the 30310 ZIP code in Atlanta is one of the worst in the country. An analysis of that ZIP prepared for Reuters by Interthinx showed a fraud index of 414, making it the eighth worst ZIP code in the country. Back of the Yards — ZIP code 60609 — had an index of 309.

“In some neighborhoods in Atlanta there hasn’t been a clean transaction in 10 years,” Interthinx’s Fulmer said.

In 2005 local residents here formed the 30310 Fraud Task Force. Members sniff out potential signs of fraud — such as repeated property flipped — and report them directly to the FBI and local authorities. Information from the task force led to the arrest of a 12-member mortgage fraud ring on September 15, 2008 — better known in the annals of the financial crisis as the day Lehman Brothers filed for Chapter 11 bankruptcy protection.

Brent Brewer, a civil engineer and task force member, said the arrests had a noticeable impact on fraud in the area. “It made a statement that if you come here to commit fraud there’s a good chance you’ll get caught,” he said.

But Brewer harbors no illusions the fraudsters are gone. “There’s no way they can catch everyone who’s involved in fraud. But if you’re dumb, greedy or desperate, you’re going to get caught.”

FBI GETTING INTERESTED

Law enforcement has come a long way in combating mortgage fraud, though officials freely admit that’s not saying much.

Senator Chris Dodd

Ben Wagner, U.S. attorney for the eastern district of California, said as mortgages are regulated at the state and local level, for years there was little federal interference. Prior to the recent boom, he said, fraud simply “was not identified as a huge problem.”

“There has been a little bit of a learning curve,” Wagner said. “This was not something federal prosecutors had much familiarity with. Now we’re getting pretty good at it.”

Half of Wagner’s 50 or so criminal prosecutors focus on white-collar crime including fraud. Two new prosecutors will be dedicated solely to mortgage fraud.

Now mortgage fraud is a known quantity, Wagner said all U.S. prosecutors tackling it are linked by Internet groups. The May edition of the bi-monthly “United States Attorneys’ Bulletin” (published by the Executive Office for United States Attorneys) was devoted entirely to mortgage fraud.

The FBI has more than 350 out of its 13,000 agents devoted to mortgage fraud. There are also now 67 regular mortgage fraud working groups and 23 task forces at the federal, state and local level. “This is the broadest coalition of law enforcement ever brought together to fight fraud,” Adkins said. He admitted, however that limited resources to fight fraud still pose a challenge.

Attorney General Eric Holder

In June U.S. authorities said 1,215 people had been charged in a joint crackdown on mortgage fraud. Many of the charges were for crimes committed years ago.

Latour “LT” Lafferty, the head of the white-collar crimes practice at law firm Fowler White Boggs in Tampa, Florida, said fraud in the boom was so pervasive that many crimes will go undetected and unprosecuted. “Everyone had their hands in the cookie jar during the boom,” he said. “Lenders, brokers, Realtors, homeowners … everyone.”

OLD DOG, NEW TRICKS

A new mortgage scam born out of the housing crisis is short sale fraud. Short sales are a way for stricken homeowners to get out of their homes, whereby in agreement with their lender they sell their home for less than they paid for it and are forgiven the remainder.

But they have also proven a tempting target for fraudsters, usually involving the Realtor in the deal. Lackner, the fraud investigator in San Diego, described a typical scheme: “Let’s say you have a property up for short sale that you know as a Realtor you can get $350,000 for,” he said. “But you arrange a low-ball appraisal of $200,000 and have someone make an offer of that amount.”

Tont Rezko - Convicted Felon - Real Estate "Development"

“The Realtor says to the bank this is the best offer you’re going to get, take it or leave it,” he added. “Then they turn around and flip it immediately for $350,000. In cases like this, the lender is probably already stuck with a lot of foreclosed properties and doesn’t want more. So they go for it.”

Where the process of fraudulent appraisals overvaluing a property for sale is “flipping,” deliberately undervaluing them has become known as “flopping.”

Bob Hertzog, a designated real estate broker at Summit Home Consultants in Scottsdale, Arizona, says he gets emails from unknown firms offering to act as a “third-party negotiator” between the seller and the bank with what turns out to be a grossly undervalued bid.

Hertzog has tried tracing some of the LLCs, but describes a chain of front companies leading nowhere.

“The problem is it is so cheap and easy to set up an LLC online that sometimes they are set up for just one transaction,” Flagstar’s Scott said. “And if they’re set up using fake information or a stolen identity, it’s very hard to trace who’s behind them.”

Many web sites boast they can help you form an LLC online for under $50.

Another common target for fraud is the reverse mortgage. Designed for seniors to release equity from a property, according to financial fraud czar Adkins, they have been used to commit a “particularly egregious type of fraud.”

Fraudsters commonly forge their victims’ signatures and, without their knowledge or consent, divert funds to themselves. The scam is worst in Florida, a magnet for American retirees.

“Unfortunately it is often not until the death of the victim that their heirs realize that all of the equity has been stripped out of the property by fraudsters,” Adkins said.

But Arthur Prieston, chairman of the Prieston Group, which sells mortgage fraud insurance and has launched a patented system to rate lenders on the quality of their loans, said most mortgage fraud he comes across consists of ordinary people fudging figures to get a loan. “The vast majority of the fraud we see is where people intend to occupy a property, but can’t qualify for a loan,” he said. “They’ll do anything to get that loan approved.”

He added this is achieved with the active collusion of Realtors, brokers and lenders looking to make a sale and keep the market moving. Before his firm issues fraud insurance it reviews a lender’s loans and between 20 percent and the 30 percent of the loans reviewed so far have had “red flags.”

The problem with assessing the extent of the damage caused by mortgage fraud is that it’s not just the dollar amount of the fraud itself. It also hits property values, property taxes and often causes crime to rise.

“Most people interpret white collar crime as a victimless crime, where the bank pays the price and no one else,” said Andrew Carswell, associate professor of housing and consumer economics, University of Georgia. “This is a mistaken perception … neighborhoods and homeowners pay the price.”

UNCOVERING THE SCAMS

Companies like Interthinx, CoreLogic and DataVerify all have data-driven fraud prevention tools for lenders. Interthinx’s program, for instance, identifies some 300 “red flags” including a buyer’s identity and recent sales in a neighborhood, while CoreLogic uses pattern recognition technology. CoreLogic also aims to bring a short sale fraud product to the market soon.

Interthinx’s Fulmer said regardless of the source, on average solid fraud prevention tools can be had for as little as $10 to $15 per loan. “The tools out there enable us to see what’s going on out there right now in real time,” she said.

Apart from fraud insurance, Prieston Group’s new credit rating system for lenders should have enough data within the next year to start providing valid ratings.

Prieston said the firm’s insurance product is growing at more than 100 percent per month, while CoreLogic’s Tim Grace said the firm’s fraud prevention tool business was booming.

Many lenders are also sharing more information about bad loans, though LexisNexis’ James said it is not nearly enough. “If lenders don’t start to share more information then fraudsters will continue to go from bank to bank to bank until they’re caught,” she said.

The University of Maryland’s Rossi said what the industry needs is a “central data warehouse” to combat fraud. “There has been a failure of collective data warehousing across the industry,” he said.

Mortgage Bankers Association (MBA) spokesman John Mechem said members have no plans for a central database, but added “we view our role as being to facilitate and encourage information sharing in the industry.”

The U.S. Patriot Act of 2001 allows lenders a safe harbor to share information, but does not mandate it. “We always encourage more information sharing,” said Steve Hudak, a press officer at the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCen. “As of now, however, this is an entirely voluntary process.”

But Rossi said the government should step in. “The Federal government is probably going to have to take the initiative because I don’t see the industry doing this one on its own,” he said. “I am personally not a fan of big government, but we need more information sharing.”

Ultimately, the expectation is lenders will be forced either to improve due diligence, or face being pushed out of business as investors burned by sloppy underwriting during the boom urge them to adopt fraud prevention tools.

“Investor scrutiny is going to be higher than it ever has been,” Rossi said. “The days of a small amount of due diligence are gone.”

Many investors are also investigating their losses and forcing lenders to repurchase bad loans. This is resulting in “thousands of repurchases a month,” according to Prieston.

“When it comes to small lenders with only a few million dollars of loans, ten repurchases will absolutely put some of them out of business,” he said.

The government now guarantees more than 90 percent of the mortgage market and forms almost the entire secondary mortgage market, as private investors have not returned. The FHA, Fannie Mae and Freddie Mac are thus seen as playing an instrumental role in pushing improved due diligence to clean up the government’s multi-trillion dollar portfolio.

FHA commissioner David Stevens was appointed in July 2009. Since then the FHA has shut down 1,100 lenders, after decades in which the government closed an average of 30 lenders annually. He says most lenders he deals with are of a “very high quality,” but that “there are still lenders that either don’t have controls in place or are proactively engaging in practices that pose a risk to the FHA.”

Stevens does not expect to shut down lenders at the same rate as the past year, but added “the number will be much higher than the historical average.”

CoreLogic’s Grace said most large lenders have the tools in place to combat mortgage fraud, but admitted he was concerned about some smaller lenders. “The next shakeout of weak lenders will take place over the next 12 to 24 months,” he said.

The MBA’s Mechem said the U.S. mortgage market must be cleaned up if it is ever to return to normal. “The one thing private investors need to get back into the secondary market is confidence,” he said. “And investors won’t risk buying mortgages if they don’t have confidence in the quality of the loans. Restoring that confidence is going to play a pivotal role in restoring the markets.”

In the meantime, mortgage fraud is expected to cause more problems in areas like Back of the Yards in Chicago.

Three doors down from the boarded-up, foreclosed property that has aroused Carrasquillo’s suspicions, father-of-three Oti Cardoso says he and his neighbors try to cut the grass at the abandoned properties on his block and to keep thieves out. But he has heard most empty houses end up occupied by gang members.

“I want my children to be safe, I don’t want drug dealers here,” he said. “I have tried to find the owner of these houses so I can work with them to help keep their homes clean.”

“If they only knew what was happening here,” he added, “I’m sure they would want to do what was right.”

http://www.reuters.com/article/idUSTRE67G1S620100817

Investors Row - half million dollar houses in a row ...

Economic Recovery on Tax Day 2010? In The 4th Year of Democratic Control Of Congress – Unemployment And Home Foreclosures Continue To Soar

“The worst economy on our lifetime” screamed the Democratic political ads back in 2005 as we moved towards the 2006 election when the Democrats took control of both Houses of Congress. http://uspolitics.about.com/od/usgovernment/l/bl_party_division_2.htm

After winning control of Congress the Democrats acellerated Government spending and the reckless mortgage practices of Fannie & Freddie.

The month before the Democrats took control of Congress in November 2006 the National unemployment rate stood at  4.4%. http://www.laworks.net/Downloads/LMI/Data_for_November_2006.pdf

The aveage unemployment rate during Bush’s 8 years as President was 4.8%.

Unemployment stands at 9.7% today (04-15-2010) and 1st time unemployment claims continues to set records and remains above 425,000 first time claims, week after week. (Jobless Claims Rise to 484,000 First-Time Claims, Associated Press: Jobs are still hard to come by as first-time requests for jobless benefits rose to 484,000 last week. http://www.foxnews.com/politics/2010/04/15/jobless-claims-rise-time-claims/?loomia_ow=t0:s0:a4:g4:r2:c0.000000:b0:z5 ) 

Mortgage foreclosures continue at a record pace. (Foreclosure Rates Surge, Biggest Jump in 5 Years.  Associated Press: A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace. http://www.foxnews.com/us/2010/04/15/foreclosure-rates-surge-biggest-jump-years/?loomia_ow=t0:s0:a4:g4:r3:c0.000000:b0:z5 )

Nearly two years ago Obama launched his $75 Billion Dollar mortgage program during a speech in Nevada. The President promised his program would help 9 million American Homeowners. To date less than 100,000 familes have been helped at a cost to taxpayers of more than $1 million per mortgage. 1 out of every 33 houses in Nevada has received a foreclosure notice in 2010. In a normal suburban neighborhood that means 8 to 10 houses on every street are in foreclosure. In November 2006 one out of every 389 households in Nevada were in foreclosure. 1 in 33 versus 1 in 389? http://efinancedirectory.com/articles/Home_Foreclosures_Increase_Across_the_Nation.html   http://www.foxnews.com/us/2010/04/15/foreclosure-rates-surge-biggest-jump-years/?loomia_ow=t0:s0:a4:g4:r3:c0.000000:b0:z5

Nationwide, one home in every 759 was in foreclosure in November 2006, and that number represented a doubling of the number in foreclosure in 2005 (1 home in every 1500 in 2005 – but would Congress listen when the Regulators warned about Fannie & Freddie – heck no – the Congresspeople claimed the “Regulators” findings were racially motivated and biased …. Congress played the race card rather than face facts). How does the 2006 foreclosure rate of 1 home out of every 759 compare with today? “In all, more than 900,000 households, or one in every 138 homes, received a foreclosure-related notice, in the first 3 months of 2010, RealtyTrac said. The firm based in Irvine, Calif., tracks notices for defaults, scheduled home auctions and home repossessions”. http://www.cbsnews.com/stories/2010/04/15/business/main6398303.shtml

For every 1 home foreclosure in 2006 there are 6 home foreclosures in 2010. 

At the current rate 9 million homes will face foreclosure by 2012. http://minnesotaindependent.com/39184/nine-million-foreclosed-homes-by-2012

Didn’t the Obama Adminstration tell us that an economic recovery was dependent on a recovery in the housing market? http://www.silvar.org/index.cfm/article_392.htm   Wait a minute, wasn’t an economic recovery dependent on the auto industry? http://change.gov/agenda/economy_agenda/ , or pension relief , http://www.necanet.org/index.cfm?fa=newsAboutNecaItem&articleID=4210 and of course, we can’t have a recovery without a Government take over of health care …….     

As the Democrats “feed” the Government with your tax dollars it continues to grow and as Government grows so does the unemployment rate and the number of homes in foreclosure ……\

The Democrats have been leading us down this path since 2006 …… now they are running down that  path at full speed ……. running with their eyes closed and at full speed …..

By the way …. has anyone else noticed the strange coincidence that seems to occur month after month …..  that the Administration saves or creates just enough jobs that when the number of jobs “saved” is combined with the “number of unemployed Americans who give up looking for work” – that the unemployment rate remains constant. Week after week, we have 400,000 plus new unemployment claims and yet the unemployment rate remains stuck at 9.7%.

Yeah, I believe it is just a coincidence.

Wait, let me guess …. it is all George’s fault ……….. George was in office for 8 years and the Democrats have been “in charge” the last 4. Yeah, blame it on George ….. don’t take any responsibility but please admit the obvious – you’ve been in charge the last 4 years and things have gotten a heck of a lot worse …..

On The Road To Economic Recovery Or On The Eve Of A Great Depression

The following claims can be confirmed at these sites:

http://stockcharts.com/charts/historical/djia19201940.html                                                                                                           http://seansrant.com/ive-said-it-before-and-ill-say-it-again-the-decline-still-isnt-over-and-heres-why-im-short-the-djia/

The DJIA high in 1929 was 381.17. After the 1929 “crash” the DJIA stood at 198.69, a 48% drop.

The DJIA “rebounded in 1930 to a high of  294.07, a gain of 95.38 points, a nearly 50% recovery, a recovery very similar to our current recovery in 2009/2010.

The real “crash” of the Great Depression began in late 1930 when the DJIA began a decline to a level of 41.22 in 1933. Between 1930 and 1933 there were several sharp “spikes” upward, followed by precipitous drops of the DJIA.

Does our current “spike” indicate a recovery? Certainly not!

The toxic assets are still on the Bank’s books, yet the financial marklets are leading the recovery. Commercial real estate is on the brink of collapse, home mortgage foreclosures continue to climb – while the Obama mortgage assistance program has resulted in less than 2000 permanently modified mortgages – the President pledged to help 9,000,000. Credit card defaults and personal bankrupties continue to climb and the unemployment rate – incorrectly called a “lagging indicator” – continues to climb. Unemployment doesn’t lag – it is “current” – unemployment can only be said to “lag” other indicators which are actually “predicting” future activity. The DJIA current level is “predciting” that “profits” and associated dividends will be better six months from now -that ”prediction” is based on a set of “assumptions”, one of the assumptions is that unemployment will improve and not worsen. The unemployment rate predicts nothing – it is a number that “understates” a current condition.

The DJIA is not predicative of economic health.  

The following from: http://www.online-stock-trading-guide.com/great-depression-stock-chart.htm

1929-1930 Stock Chart 1   
 
If you changed the dates from 1929 – 1930 to 2007 – 2009 you’d have an almost identical set of charts. http://seansrant.com/ive-said-it-before-and-ill-say-it-again-the-decline-still-isnt-over-and-heres-why-im-short-the-djia/

1930 Stock Chart
 
1932 Stock Chart
 
 
1928-1933 Stock Chart
 
1928-1955 Stock Chart
 
 The DJIA has “zero” value in predicting whether our economic health has “turned” the corner.

AP - CHANGES headline and intro text; graphic shows total foreclosure filings for past 13 months ...

AP – CHANGES headline and intro text; graphic shows total foreclosure filings for past 13 months …The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.

Unemployment is the main reason homeowners are falling into trouble. While the economy is likely out of recession, the unemployment rate — now at a 26-year high of 9.8 percent — isn’t expected to peak until the middle of next year.  

http://www.charter.net/news/read.php?id=15958748&ps=1011&srce=news_class&action=1&lang=en&_LT=HOME_USNWC00L1_UNEWS 

This is after an 81% increase in mortage foreclosures between 2007 and 2008. http://www.thestandard.com.hk/breaking_news_detail.asp?id=11900

Credit card defaults up at major lenders

Over the past few months, banks had been releasing some promising figures regarding credit card defaults – but new data suggests that any signs of improvement may not be lasting.

The latest figures from major lenders implies that previous progress could be more accurately credited to seasonal factors and Americans paying down credit card debt with their tax refunds, according to Bloomberg.

Banks including JPMogan Chase, Bank of America, Citigroup and Discover all reported an increase in credit card defaults – also known as charge-offs – during August. Charge-offs reflect credit card accounts that issuers deem uncollectable.

In particular, BofA reported that charge-offs climbed from 13.8 percent to 14.5 percent last month, while Citigroup saw a rise from 10 percent to 12.1 percent during the same period.

http//www.credit.com/news/credit-debt/2009-09-16/credit-card-defaults-up-at-major-lenders.html  

What is the truth about the underlying fundamentals is our economy ……

At foreclosure auctions, broken dreams on sale

On 11:52 am EDT, Thursday October 15, 2009

CHICAGO (Reuters) – The seven-bedroom, three-bath house in this city’s West Garfield Park neighborhood had once been someone’s American Dream.

But at a recent auction of about 100 foreclosed houses and condos, it was just Property No. 20 — and drawing no bids from a roomful of buyers despite its bargain-basement price.

“Any interest in this home at $7,000?” fast-talking auctioneer Renee Jones asked the crowd. “If not, we’ll move on.”

 http://finance.yahoo.com/news/At-foreclosure-auctions-rb-853906128.html?x=0&.v=1

 Foreclosures rise 5 percent from summer to fall

US foreclosures keep soaring as unemployment remains main cause of housing woes

By Alan Zibel, AP Real Estate Writer

On 1:59 pm EDT, Thursday October 15, 2009

WASHINGTON (AP) — The number of U.S. households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.

 

AP Reports, “Rising unemployment accelerates foreclosure crisis”, Economy continues downward spiral. Credit Default Rates Up.

WASHINGTON – Relentlessly rising unemployment is triggering more home foreclosures, threatening the Obama administration’s efforts to end the housing crisis and diminishing hopes the economy will rebound with vigor.

In past recessions, the housing industry helped get the economy back on track. Home builders ramped up production, expecting buyers to take advantage of lower prices and jump into the market. But not this time.

These days, homeowners who got fixed-rate prime mortgages because they had good credit can’t make their payments because they’re out of work. That means even more foreclosures and further declines in home values.

The initial surge in foreclosures in 2007 and 2008 was tied to subprime mortgages issued during the housing boom to people with shaky credit. That crisis has ebbed, but it has been replaced by more traditional foreclosures tied to the recession.

Unemployment stood at 9.5 percent in June and is expected to rise past 10 percent and well into next year. The last time the U.S. economy was mired in a recession with such high unemployment was 1981 and 1982.

But the home foreclosure rate then was less than one-fourth what it is today. Housing wasn’t a drag on the economy, and when the recession ended, the boom was explosive. (The economic recovery of the 1980’s was fueled by Reagan’s tax cuts and a shrinking of Government – a formula we won’t see from this Administration).

No one is expecting a repeat. The real estate market is still saturated with unsold homes and homes that sell below market value because they are in or close to foreclosure.

“It just doesn’t have the makings of a recovery like we saw in the early 1980s,” says Wells Fargo Securities senior economist Mark Vitner, who predicts mortgage delinquencies and foreclosures won’t return to normal levels for three more years.

Almost 4 percent of homeowners with a mortgage are in foreclosure, and 8 percent on top of that are at least a month behind on payments — the highest levels since the Great Depression.

In the last 12 months, 15% of mortgages have had forclosure completed.

http://news.yahoo.com/s/ap/20090716/ap_on_re_us/us_foreclosure_crisis_unemployment

Obama’s Trillion Dollar Mortgage Modification Program, which he promised would help 9,000,000 (9 Million), has in fact provided temporary relief to less than 75,000 (Seventy Five Thousand). Many of the 75,000 have, after receiving a modification, now slipped into foreclsoure anyway. 

Credit card defaults keep climbing

Default rates in May continue to rise as borrowers struggle with the weak job market.

NEW YORK (CNNMoney.com) — Banks continue to write off credit card debt as consumers hurt by record high unemployment default at an increasing rate.

Regulatory forms filed this week by some of the nation’s largest banks showed default rates on credit cards rose in May. The default rate is a measure of loans that the bank does not expect to be repaid.

“Data from May showed continued signs of stress for card issuers, reflective of worsening unemployment trends and deteriorating macro [economic] conditions,” analysts at Bernstein Research said in a report Tuesday.

Bank of America the nation’s largest bank, said its default rate jumped to 12.5% in May from 10.5% the month before. Other major banks, including Citigroup, JPMorgan Chase and Capital One also reported increases in May default rates.

http://money.cnn.com/2009/06/16/news/companies/credit_card_losses/index.htm?section=money_latest

Despite 90 Day Mortgage Moratorium in 2009 – Foreclosures Up 15%

Foreclosures rise 15 percent in first half of 2009

Foreclosures keep soaring as unemployment becomes main cause of housing woes

ap

WASHINGTON (AP) — The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills.

The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc.

The data show that, despite the Obama administration’s plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation’s housing woes continue to spread. Experts don’t expect foreclosures to peak until the middle of next year.

Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said.

“Despite all the efforts to date, we clearly haven’t got a handle on how to address the situation,” said Rick Sharga, RealtyTrac’s senior vice president for marketing.

More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm’s report. That works out to one in every 380 U.S. homes.

http://finance.yahoo.com/news/Foreclosures-rise-15-percent-apf-516022846.html?x=0

Since the election in November one home in every 76 has received at least one foreclosure notice.

Here We Go Again – Obama & Democrats Push For Increase In The Worst Of Risky Mortgages

I can hardly believe it when I read it.

As we all know the were two things that created our current economic turmoil, reckless government spending that we couldn’t afford and reckless lending in the mortgage market.  The bad mortgages were then packaged and sold as investment securities destroying 401’s and bank accounts all over the world.

Every day you’ll hear about the need for more regulation – That simply isn’t so – what we need is less Government spending and an end to reckless mortgage lending.

Get ready for the next round of “sub-prime mortgages”, Obama and the Democarts want to “double down” and increase the number of “high risk” mortgages funded through Fannie Mae and Freddie Mac.

Freddie Mac and Fannie Mae were the first of the bailout babies – you and I and all of the other taxpayers in this Country have been gouged for about 7 Trillion dollars to buy up the earlier batch of “bad mortagges” these entities created.

So what is Fannie Mae and Freddie Mac up to now?

Obama Seeks To Refinance More Underwater Mortgages    

July 1, 2009 1:04 PM EDT

According to various reports, the Obama administration is stepping up their efforts to stem foreclosures and will start refinancing mortgages with a loan-to-value of as much as 125% through Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). The previous loan-to-value was 105%.
President Obama’s Making Home Affordable program sought to help up to 5 million mortgage holders refinance, but to date only 80,000 have been refinanced. (Sadly, of the 80,000, close to 50,000 have already  re-defaulted – what a failure). http://www.streetinsider.com/Economic+Data/Obama+Seeks+To+Refinance+More+Underwater+Mortgages/4767278.html
Consider this example – straight from the White House press release:
REFINANCING EXAMPLE
If your loan is held by Fannie Mae or Freddie Mac and you are current on your mortgage payments, you may be eligible to refinance your mortgage loan even if your LTV is up to 125%. LTV, or loan-to-value-ratio, is a measurement that compares the principal balance of your loan (the amount you currently owe) to the actual value of the house. For example, if your loan amount is $300,000 and the current value of your home is $240,000, your LTV is 300/240, or 125%. http://www.streetinsider.com/Economic+Data/FHFA+Releases+Details+Of+Plan+To+Allow+Refinances+Up+to+125%25+LTV/4767700.html
So, now the Government plans on leneding up to $300,000 on homes worth only $240,000. (Plesae note that the average price of a U.S. home this month is $178,000).
 
Where does this money come from – Your Tax Dollars.
 
For those of you who are asking, “So what does this mean?”, the answer is this. The Government will now fund mortgages to those who are underwater or indefault, with taxpayer funds, and allow the individuals to obtain loans that are, as the example above states, worth substantially more than the homes being mortgaged are worth.
 
The riskiest of all of the sub-prime mortgages were those made with no down payment and where the loan to value was above 80%. The very worst were the 125% LTV loans.  
 
Are you asking, and what happens when the person re-defaults in 6 months and walks away with the $60,000 above the home’s value? Answer – THE AMERICAN TAXPAYER IS ON THE HOOK FOR THE MORTGAGE.
 
This is a receipt for deepening the current crisis – not resolving it. 
 
The answer isn’t additional “regulation”. The Government is “regulating” that this be done.
 
The answer is in electing Politicians with an ounce of common sense.    

Countrywide Bank CEO Charged With Fraud – Mazilo’s Emails Reveal Complete Understanding Of Pending Mortgage Crisis & Its Causes

The following emails from Countrywide Bank CEO Angelo Mazilo, released as part of a report concerning the charges brought by the SEC against Mazilo, clearly show that Mazilo understood the causes of the current mortgage crisis before it occurred ……

Excerpts of E-Mails From Angelo Mozilo

Sept. 26, 2006 – following up a meeting with Sambol the previous day about the Pay-Option ARM loan portfolio:

We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is FICO (Credit Score). In my judgement [sic], as a long time lender, I would always trade off FICO for equity. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.

… pay options are currently mispriced in the secondary market, and that spread could disappear quickly if there is an foreseen [sic] headline event such as another lender getting into deep trouble with this product or
because of negative investor occurance [sic].

“timing is right” … to … “sell all newly originated pay options and beginrolling off the bank balance sheet, in an orderly manner, pay optionscurrently in their port[folio].”

April 17, 2006 – to Sambol concerning Countrywide’s subprime 80/20 loans:

In all my years in the business I have never seen a more toxic prduct [sic].

It’s not only subordinated to the first, but the first is subprime. Inaddition, the FICOs are below 600, below 500 and some below 400[.]

With real estate values coming down…the product will become increasingly worse. There has [sic] to be major changes in this program,including substantial increases in the minimum FICO. … Whether you consider the business milk or not, I am prepared to go without milk irrespective of the consequences to our production.

 

April 13, 2006 to Sambol, Sieracki, and others to address issues relating to the 100 percent subprime second business in light of the losses associated with the HSBC buyback:

Loans had been originated … “through our channels with disregard for process[and] compliance with guidelines.”

He “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan [sic].”

“[i]n my conversations with Sambol he calls the 100% sub prime seconds as the ‘milk’ of the business. Frankly, I consider that product line to be the poison of ours.”

On March 28, 2006 – to Sambol and others:

Directed them to implement a series of corrective measures to “avoid the errors of both judgment and protocol that have led to the issues that we face today caused by the buybacks mandated by HSBC.” …

… The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the
circumstances.”

McAuleys World: At the insistence of Fannie Mae and The Federal Reserve these “toxic loans” continued for another 2 years after these emails, right up until the collapse of the financial system last fall. These very same loan products have been repackaged, renamed and continue to be marketed today.

You might note that at the same point in time that Mazilo prepared this email, Senator Chris Dodd was “accepting” “special treatment” in his loan processing with Countrywide Bank. Senator Dodd was one of a select few to belong to a group called the “FOAs” or “Friends Of Angelo”, referring, of course, to Angelo Mazilo.   

http://www.foxbusiness.com/story/markets/countrywide-ceo-mozilo-charged-fraud/    

For more info on the “Friends of Angelo” watch this NBC report:

 If you want to understand the history of how the Federal Government “mandated” the creation of the “toxic mortgage products” discussed in Mazilo’s emails read these articles:

1) From The Boston Globe: http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/

2). Article by John Lott, Senior Research Scientist at the University of Maryland. http://johnrlott.tripod.com/op-eds/FoxNewsMortgagesReg091808.html

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