Liput Group Financial News Blog

The new mortgage crisis, fraud in the foreclosure process, is being downplayed by the media big time. The news articles talk about "document errors" as if this is simply someone filing the wrong paper by mistake. What is going on is far more insidious and troubling. It involves the very nature of the mortgage securitization scam, bundling mortgage loans into a security called "trusts" to sell to individual and insitutional investors in certificates around the world, and not planning for or caring what would happen if the loans themsleves which make up the corpus of these "trusts" went bad. When the mortgage market collapsed because the banks were writing fraud loans, knowing full well that the borrowers could not afford them, the big banks-Wells, BOA, Deutche Bank, Chase-all faced sudden and immediate calamity because the trustees were putting back these loans in huge numbers under the terms of the agreements wherein the loans were placed into the trusts...the reps and warranties that guaranteed the quality of the loans required them to be repurchased, that is their full face value paid back, if they went bad. After writing millions of these crappy loans, the idea that these banks, as big as they are, would have to fork over the cash to repurchase their bad product created a fear of the financial market collapse. This is why the government rushed to give them Trillions of dollars in TARP money, although they failed to fully explain the real reason to the public. Now the government bail out was supposed to help the banks pay off the investors who bought their bad loans right? But where did this money actually go? Some surmise that the banks never used the money for that purpose (maybe thats how they could still pay out big bonuses even after they were begging for taxpayer relief) and instead they told the trustees to wait on their money. Suppose instead of using their own money or the federal dollars (which they would have to pay back) to pay the investors, the banks came up with a better idea....they would engage in a little "self-help" loss mitigation. Even though they no longer owned the notes nor held the mortgages in their name, they would start foreclosure actions on the bad loans forcing property owners into REO sales, and then using the money to....pay off the investors pressuring them to buy back the crappy loans. But how to do that without having the notes and mortgages wind their way back through a chain of title into their hands, which could only happen with payment in full? Perhaps by creating false assignments of mortgage, falsely stating that the loans were in their hands (assigned back to them when the notes had never even been delivered) and hoping no one would be the wiser? If that was the case, then what about all those foreclosure actions...could they be invalidated? Would they have to withdraw them and start over again only after proving the notes were endoresd back to them, marked paid, and proper mortgage assignemts delivered and recorded? But no the White House said...we cannot have that because it would "stall the economic recovery" because we need to "get those properties back on the market and sold", and so BOA announced today that foreclosures are "back on track"....perhaps the WH knows that the banks need the money from foreclosure sales to pay of the investors and avoid collapse? Also, is that why banks accept mortgage modification applications from people in default and never make them permanent? Because they cannot modify a loan they do not legally own, and/or they prefer foreclosure because they need cash, not a modified loan that is already in default and being put back to them by an investor? That might help explain why 4 Million people have applied for mortgage modifications and only 100,000 have had them permanently granted. And also why when you apply, they lose your documents 6 times, and after 10-12 months cannot get you a decision when it takes them 30-45 days to originate a brand new loan. But what about all those "trial modifications" people are getting? And those 3 month trial modifications everyone was getting?....well maybe because the government agreed to pay banks $6000 per loan for trial modifications but zero for permanent modifications, banks were able to finagle millions if not billions from the government doing something on a "temporary basis" they had no intention, nor ability to do on a permanent basis?

We all may find out soon because at 3:46 pm today it hit the wires that the NY Fed and 8 large instiutional investors that own these mortgage backed securities are suing BOA because of a "breach of their agreements"....I guess BOA never really bought back those bad loans after all. So then how do they explain foreclosing on them? HHMMMM...the plot thickens. Look for politicians in Washington to rush through legislation to "fix things" in the lame duck Congress...that's how business is done between Wall Street and Washington. And the poor shmucks on Main Street get left holding the bag....by the way, an average of 10 months later, I'm still waiting to hear a decision about more than a dozen of my clients' loan modifications. Any word BOA?.... Anyone, anyone....(sounds of crickets chirping).

Unemployment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July. Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday.

Credit: Gallup Organization

Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.

Bank of America isn't able to estimate how many homeowners' cases will be affected, Dan Frahm, a spokesman for the Charlotte, N.C.-based bank, said Friday.

The move adds the nation's largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.

Two other companies, Ally Financial Inc.'s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public.

A Bank of America official acknowledged in a legal proceeding in February that she signed up to 8,000 foreclosure documents a month and typically didn't read them. The Associated Press obtained the document Friday.

The official, Renee Hertzler, said in a deposition in a Massachusetts homeowner's bankruptcy case that she signed 7,000 to 8,000 foreclosure documents a month.

"I typically don't read them because of the volume that we sign," Hertzler said.

Credit: Washington Post