Blog on the Run: Reloaded

Friday, September 13, 2013 7:10 pm

Dean Baker on why the Wall Street criminals walked

Shorter Dean: Because the Justice Department let them:

[In a real investigation] [t]he people who put together some of the worst mortgage backed securities would be asked if they were really dumber than rocks and had no idea that many of the mortgages being put into the packages were fraudulent. If the prosecutors could demonstrate evidence of intelligent life at Goldman Sachs and Morgan Stanley they would then ask the lower level people whether they wanted to spend years in jail or would rather explain why they thought it was a good idea to put tens of millions of dollars of fraudulent mortgages into mortgage backed securities. This would presumably lead to testimony against higher ups at these investment banks. …

There is no guarantee that these sorts of efforts would have landed top executives of financial firms behind bars. However there is no evidence that the Justice Department even began this sort of investigation. At the least, such an investigation would have resulted in prosecutions of lower level actors who clearly violated the law in issuing and passing on fraudulent mortgages.

As [Neil] Irwin said [link added -- Lex], bad business judgement is not a crime. However, it is a crime to allow bad business judgement to lead to fraud. Clearly fraudulent mortgages were a major factor in propping up the housing bubble. No one went to jail for this crime.

Monday, June 24, 2013 6:12 pm

“This is a uniquely bad time to buy a house.”

I’m not in the market, and if Mike Whitney’s reporting is accurate, you shouldn’t be, either:

… nearly 5 million homes are either seriously delinquent or in some stage of foreclosure. This unseen backlog of distressed homes makes up the so called “shadow inventory” which is still big enough to send prices plunging if even a small portion was released onto the market.   In other words, supply vastly exceeds demand in real terms. Now check this out from Zillow:

“13 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally —where the loan-to-value ratio is more than 80%, making it difficult for a homeowner to afford the down payment on another home — is 43.6% of homeowners with a mortgage.” (Zillow)

This might sound a bit confusing, but it’s crucial to understanding what’s really going on. While many people know that 13 million homeowners are underwater on their mortgages,  they probably don’t know that nearly half (43.6%) of the potential “move up” buyers (who represent the bulk of organic sales) don’t have enough equity in their homes to buy another house.  Think about that. Like we said,  housing sales depend almost entirely on two groups of buyers; firsttime homebuyers and move up buyers. Unfortunately, the number of potential move up buyers has been effectively cut in half.  It’s simply impossible for prices to keep rising with so many move up buyers on the ropes.

So, if “repeat” buyers cannot support current prices, then what about the other “demand cohort”,  that is, first-time home buyers?

It looks like demand is weak there, too. According to housing analyst Mark Hanson: “First-timer home volume hit a fresh 4-year lows last month and distressed sales 6-year lows”.

So, no help there either. First-time homebuyers are vanishing due to a number of factors, the biggest of which is the $1 trillion in student loans which is preventing debt-hobbled young people from filling the ranks of the first-time homebuyers. Given the onerous nature of these loans, which cannot be discharged through bankruptcy, many of these people will never own a home which, of course, means that demand will continue to weaken, sales will drop and prices will fall.

Now, despite these appalling numbers, he notes, foreclosures are down by a third from this time last year. Is it because the housing market is really any better? Nope. It’s because the fewer foreclosures the banks follow through on, the fewer losses they have to report, the more profitable they seem and the bigger the bonuses their executives can then claim. The technical term for this behavior is “securities fraud,” and it looks as if every major bank is involved to a greater or lesser degree.

But by all means, let’s reduce enforcement on banks and mortgage companies. Free markets! Murca, hail yeah! Who cares if millions of homeowners and would-be homeowners get hurt?

Wednesday, December 5, 2012 7:29 pm

Brian Moynihan can say only one thing to keep himself out of prison, and it’s a lie.

This one’s for my friends and family in Charlotte.

Brian Moynihan is the CEO of Bank of America. Last May, unbeknownst to most of us, he was deposed by lawyers for insurance companies suing Bank of America and Countrywide, the “mortgage” company that BofA acquired. The insurance companies lost a metric shit-ton of money because Countrywide spent years originating a boatload of mortgages to anyone with a pulse, mortgages that were doomed to fail, and then packaged and sold them as AAA-grade bonds, which were even more attractive investments at the time because MBIA and other prominent companies had insured them.

When BofA acquired Countrywide, for no small amount of money despite the company’s obvious worthlessness at that point, Moynihan famously promised to make good on all his company’s new acquisition’s misdeeds, a promise that, if kept, could render BofA so much more insolvent that even the government wouldn’t be able to ignore it any longer. And I haven’t kept close track, so this may all be over and done with, but Moynihan also may have legal problems with BofA stockholders who have claimed they weren’t fully informed of  Countrywide’s problems at the time of the acquisition, as securities law requires.

Anyway, this little Q&A between MBIA lawyers and Moynihan  runs on to 223 pages, and if we are to take its protagonist at his word — a dangerous thing to do, as we shall see in a moment — then he not only has no business serving as the CEO of anything more important than watching moss grow, he also desperately needs full-time dementia care. (And having had friends and relatives with Alizheimer’s, I don’t throw that metaphor out  lightly.)

Moynihan essentially had three choices in answering these questions. He could tell the truth and, in all likelihood, admit under oath to securities fraud, conspiracy and a host of other crimes. Or he could lie and say these things did not happen on his watch when they manifestly did, and face perjury charges. Or he could say he didn’t recall. (I suppose he had a fourth possibility, taking the Fifth Amendment, but a quick scan suggests he either didn’t do that or else did it very obliquely.)

Well, to absolutely no one’s surprise, Brian the Job Creator chose Door No. 3. At the moment, if you Google the phrase “great amnesiacs of history” in quotes, you get no hits. I suspect that’s about to change, as Matt Taibbi of Rolling Stone comments:

If you’re a court junkie, or have the misfortune (as some of us poor reporters do) of being forced professionally to spend a lot of time reading legal documents, the just-released Moynihan deposition in MBIA v. Bank of America, Countrywide, and a Buttload of Other Shameless Mortgage Fraudsters will go down as one of the great Nixonian-stonewalling efforts ever, and one of the more entertaining reads of the year.

In this long-awaited interrogation – Bank of America has been fighting to keep Moynihan from being deposed in this case for some time – Moynihan does a full Star Trek special, boldly going where no deponent has ever gone before, breaking out the “I don’t recall” line more often and perhaps more ridiculously than was previously thought possible. Moynihan seems to remember his own name, and perhaps his current job title, but beyond that, he’ll have to get back to you. …

Taibbi’s account alone is both hilarious and outrageous. Now that the semester is over, I can’t wait to read the actual deposition. (Hey, it’s how I roll.)

In the deposition, attorney Peter Calamari of Quinn Emmanuel, representing MBIA, attempts to ask Moynihan a series of questions about what exactly Bank of America knew about Countrywide’s operations at various points in time.

Early on, he asks Moynihan if he remembers the B of A audit committee discussing Countrywide. Moynihan says he “doesn’t recall any specific discussion of it.”

He’s asked again: In the broadest conceivable sense, do you recall ever attending an audit committee meeting where the word Countrywide or any aspect of the Countrywide transaction was ever discussed? Moynihan: I don’t recall.

Calamari counters: It’s a multi-billion dollar acquisition, was it not?

Moynihan: Yes, it was.

[Q:] Well, isn’t that the kind of thing you would talk about?

Moynihan: not necessarily . . .

This goes on and on for a while, with the Bank of America CEO continually insisting he doesn’t remember ever talking about Countrywide at these meetings, that you’d have to “get the minutes.” Incredulous, Calamari, a little sarcastically, finally asks Moynihan if he would say he has a good memory.

“I would – I could remember things, yes,” Moynihan deadpans. “I have a good memory.”

Calamari presses on, eventually asking him about the state of Countrywide when Moynihan became the CEO, leading to the following remarkable exchange, in which the CEO of one of the biggest companies in the world claims not to know anything about the most significant acquisition in the bank’s history (emphasis mine):

Q: By January 1st, 2010, when you became the CEO of Bank Of America, CFC – and  I’m using the initials CFC, Countrywide Financial Corporation – itself was no longer engaged in any revenue-producing activities; is that right?

Moynihan: I wouldn’t be the best person to ask about that because I don’t know.

There are no sound effects in the transcript, but you can almost hear an audible gasp at this response. Calamari presses Moynihan on his answer.

“Sir,” he says, “you were CEO of Bank Of America in January, 2010, but you don’t know what Countrywide Financial Corporation was doing at that time?”

In an impressive display of balls, Moynihan essentially replies that Bank of America is a big company, and it’s unrealistic to ask the CEO to know about all of its parts, even the ones that are multi-billion-dollar suckholes about which the firm has been engaged in nearly constant litigation from the moment it acquired the company.

“We have several thousand legal entities,” is how Moynihan puts it. “Exactly what subsidiary took place [sic] is not what you do as the CEO. That is [sic] other people’s jobs to make sure.”

The exasperated MBIA lawyer tries again: If it’s true that Moynihan somehow managed to not know anything about the bank’s most important and most problematic subsidiary when he became CEO, well, did he ever make an effort to correct that ignorance?  “Do you ever come to learn what CFC was doing?” is how the question is posed.

“I’m not sure that I recall exactly what CFC was doing versus other parts,” Moynihan sagely concludes.

The deposition rolls on like this for 223 agonizing pages. The entire time, the Bank of America CEO presents himself as a Being There-esque cipher who was placed in charge of a Too-Big-To-Fail global banking giant by some kind of historical accident beyond his control, and appears to know little to nothing at all about the business he is running.

In the end, Moynihan even doubles back on his “we’ll pay for the things Countrywide did” quote. Asked if he said that to a Bloomberg reporter, Moynihan says he doesn’t remember that either, though he guesses the reporter got it right.

Well, he’s asked, assuming he did say it, does the quote accurately reflect Moynihan’s opinion?

“It is what it is,” Moynihan says philosophically.

There’s nothing surprising about any of this – it’s natural that a Bank of America executive would do everything he could to deny responsibility for Countrywide’s messes. But that doesn’t mean it’s not funny. By about the thirtieth “I don’t recall,” I was laughing out loud.

It’s also more than a little infuriating. In the pre-crash years, Countrywide was the biggest, loudest, most obvious fraud in a marketplace full of them …

One of the biggest indictments you can level against U.S. news media is that U.S. financiers were engaging in this level of world-historical theft, fraud and conspiracy right out in the open for a decade and more, and yet no one of consequence has done any hard time for it.

If we are to take Moynihan at his word, the only way you could have been more delusional and out of touch than he was to have believed on election night that Mitt Romney was going to win big. But as the deposition makes clear, taking Brian Moynihan at his word  would make a box of rocks look like a Davidson valedictorian.

Monday, December 12, 2011 8:52 pm

Quote of the day, American Psycho edition

Filed under: Evil,Journalism — Lex @ 8:52 pm
Tags: , , , , , ,

Atrios:

There are people who have the job of being political hacks. Of being [jerks].  I get that. I don’t have a problem with these people. It’s their jobs to argue for things based on what the politics is. I don’t think they should be obeyed, but their existence doesn’t bother me.

The problem isn’t that people listen to political hacks, the problem is that they assume they’re right. You know, “the politics of mortgage relief is bad” trumped “the politics of people being thrown out of their homes and the economy being horrible is bad” based on this kind of advice.

The point is, I get that the sociopaths are in the room. But don’t necessarily obey them, and more than that … don’t necessarily assume they really know what they’re doing. They’re sociopaths, after all.

I’m not sure whether Atrios intended his remark to cover American “journalism” or just the political sphere, but, believe me, it covers a lot of the D.C. media establishment at least as much as it covers politicians and their minions.

Wednesday, February 16, 2011 8:31 pm

Why am I not surprised?

My junior senator, Kay Hagan, appears hell-bent on topping predecessor Elizabeth Dole’s world land speed record for pissing away credibility.

You’ll recall that apparently she has some issues with investigating and prosecuting war crimes (and more about that later). Now, she’s apparently decided to join the criminals by becoming a co-chair of Third Way, a bogus corporate “think tank” that recently advanced the novel idea that banks ought to be able to foreclose on property to which they do not, in fact, have clear title.

Geez, Kay, why not just legalize cocaine trafficking and money laundering and call it Miller Time.

Tuesday, February 8, 2011 8:14 pm

Want to see something you won’t see on a big bank’s balance sheet?

Filed under: We're so screwed — Lex @ 8:14 pm
Tags: , ,

Voila! A housing market even worse than in the Depression:

Along with the snow and cold, November brought continued declines in home values. In fact, the Zillow Home Value Index has now fallen 26% since its peak in June 2006. That’s more than the 25.9% decline in the Depression-era years between 1928 and 1933.

November marked the 53rd consecutive month of home value declines, with the Zillow Home Value Index (ZHVI) falling 0.8% from October to November, and falling 5.1% year-over-year.

But wait! Some good news!

Foreclosures, however, took a tumble in November, with fewer than one out of every 1,000 homes being foreclosed.

Awesome! That’s way down!

Unfortunately, that is an effect of the bank moratoriums that took place after the robo-signing issues came to light. Foreclosures are expected to rise again once that effect wears off.

Oh.

Crud.

Now, you might think that a housing market this bad would mean that a lot of mortgages that are listed as “assets” on various balance sheets are only assets if, by “assets,” we mean, “instruments worth half or less of what we say they’re worth.” And you would be correct. However, the banksters got to Congress and so Congress got to the FAAB and so now banks and their accountants are allowed to lie about how big their assets are and stay in business, rather than being liquidated in orderly fashion with their executives, stockholders and bondholders made to take the haircut.

In the financial Super Bowl, the refs are all being paid off. And you, mon ami, are not a ref.

Friday, January 14, 2011 8:09 pm

Third Way: The rule of law is great, except when we get caught breaking it, and then it’s not

The bogus corporate think tank Third Way, which just spawned the new White House Chief of Staff, all of a sudden has decided that maybe requiring banks to actually have the legal right to foreclose on properties they’re trying to foreclose on might be a little excessive.

Look, we’re in the mess we’re in because banks committed nontrivial amounts of fraud. They sold stuff they didn’t own, pure and simple. If I try that with a hubcap or a stereo, I go to prison. You can’t put a bank in prison, more’s the pity, but you can make them eat the cost of stuff they claim to own but actually don’t. And if that bankrupts them, well, that’s what we have a Federal Deposit Insurance Corporation for. So the CEOs and stockholders and bondholders take it in the teeth? No reason they should be any different from the rest of us.

Saturday, January 30, 2010 12:29 am

Odds and ends for 1/29

I’ve already called for impeaching Obama. Looks like we can now add Holder to the mix: A draft report from the Justice Department’s Office of Professional Responsibility that originally found that Bush officials Jay Bybee (now a federal judge) and John Yoo (now a “law” “professor” at Berkeley) committed professional misconduct (which would constitute grounds for impeaching Bybee), the final version was cleaned up to say they showed “poor judgment” only. Granted, fabricating a legal justification for torture out of whole cloth does show “poor judgment,” but it shows criminal intent as well.

Well, OK, it’s a first step: Pravda, of all places, reports that Francis A. Boyle, a professor at the University of Illinois College of Law in Champlain, Ill., has requested arrest warrants from the International Criminal Court in The Hague for the arrests of Bush, Cheney, Rumsfeld, Tenet, Rice and Gonzalez for “crimes against humanity” under the Rome Statute, which established the court. For all I know this is an Eastern Hemisphere version of an Onion article, but, hey, a citizen can dream.

Well, this bites: More than 30% of Triad mortgages will be under water by 1Q2011, Deutsche Bank estimates.

Historians finally weigh in Jonah Goldberg’s “Liberal Fascism.” Only two years after the fat, lying putz laughed his way to the bank. Thanks a ton, guys.

Banksters organize protest of their treatment … indoors, because it was too cold to go outside. Power to the people!

Bloomberg’s David Reilly asks a good question about this week’s bankster-related developments: Where’s the anger? (Besides Chez Blog on the Run, of course.)

Major-league media?: The Los Angeles Times’ Andrew Malcolm keeps using the phrase “discretionary spending.” I do not think that phrase means what he thinks it means.

Every little bit helps: Somali “pirates” pledge aid to Haiti. (Somali pirates’ est. 2008 income: $150MM+).

Possibly the most entertaining appeals court ruling of the year, and it’s still only January: Gender discrimination in the workplace as manifested by rude language (Oh, so NSFW, by the ruling’s own standards).

What’s stopping the Senate from ramming through a public option in reconciliation? I’m just askin’, on account of 51 breathing senators are on records as supporting one. Seriously, Joe Lieberman can go to hell.

Party of fiscal responsibility, my butt: Every single Republican senator voted Thursday against a new pay-as-you-go rule. Every single Democratic senator voted for it. Remind me again, please, who the grownups are. Quoth commenter Chad N. Freude at Balloon Juice: “They are opposed to pay-as-you-go because they are opposed to go.”

Whoux Dat?; or, There’s a reason they call it the No Fun League: Because you can’t abbreviate No Brains League as NFL. No Frontal Lobe, maybe. (h/t: DivaGeek)

The U.S. economy shrank 2.4% in 2009, the worst calendar-year performance since 1946.

California Senate approves single-payer health-care system; the Governator vetoes it on the laughable grounds that the state “can’t afford it.” Dude, you pay either way, and with single payer, there’s an excellent chance you’d pay less.

Terrorist convicted: The jury deliberated only 37 minutes before finding Scott Roeder guilty of first-degree murder for shooting abortion provider Dr. George Tiller in the head at point-blank range. Roeder admitted the shooting and also testified that he considered only chopping off Tiller’s hands instead of killing him. What a great humanitarian. Memo to New York: If Wichita can try a terrorist, so can you. Memo to the Republicans: Americans are beyond tired of government by incontinence.

I’m probably the last person to find this out, but the free audio-editing program Audacity can record streaming audio from, apparently, any Web site. This makes me insanely happy.

So Obama got together with some Congressional Republicans today. And it’s John Cole of Balloon Juice, who, despite humerus- and-clavicle- and scapula-scraping surgery a couple of days ago, is flying without painkillers, For The Win: “If Mike Pence really is regarded as one of the deep thinkers for the GOP, I’m beginning to understand why they refused to admit Terri Schiavo was brain-dead.” Although the prez himself does nicely with the runner-up: “I would have implemented those ideas had I found a credible economist who agreed with them …”

Monday, December 21, 2009 10:40 pm

Odds and ends for 12/21

Let God sort ‘em out: A new book makes both Bill Clinton and the FBI that went after him look bad.

Release the e-mails: There’s more to know about AIG before we let it off the taxpayers’ hook, and the taxpayers deserve to know it. (More interestting but depressing details here.)

Relatedly: How ’bout we claw back some of that taxpayer money that went through AIG to Goldman Sachs at 100 cents on the dollar, thankyouverymuch?? Goldman was pretty much the only bank in such dire straits at the time that didn’t end up settling for 10 to 13 cents on the dollar from AIG, and now it wants to take that tax money and pay it out in employee bonuses. Homey don’ play dat.

Another banking shock: What determines how suitable a bank is for a federal bailout? Size? Nature of its business? Try … wait for it … political ties to the Federal Reserve. Yup, and there’s gambling going on in this casino, too. So can we just audit the damn thing already?

Decade of (self-) deception: Farewell to the ’00s, in which we begged to be suckered and found no shortage of those eager to accommodate us, from “compassionate conservatism” and Enron to Goldman Sachs and Tiger Woods. One other parallel: None of the hucksters, besides maybe Ken Lay, has been held accountable.

Democrats throwing women under the bus. Again: Tbogg on Twitter, for the win: “Bart Stupak will not be happy until he has had a close personal relationship with more vaginas than Tiger Woods.”

Boulevard of broken dreams promises: Jon Walker walks us past the mileposts of broken Obama campaign promises that constitute the current Senate version of health-care reform.

He just can’t quit you: Jon Walker, who apparently has no commitments in life besides health care reform, offers 35 ways to fix the current Senate bill. I’d say it’s unlikely at best that more than one or two will happen, and quite possibly none of them will. But if nothing else, this is a good road map of the kind of crappy legislation that comes out of unified GOP opposition and an undemocratic Senate hidebound by the filibuster.

Speaking of the filibuster, here’s some interesting background on how its use has grown of late. Memo to the mainstream media: Guilt is not equitably distributable.

Ask and ye shall receive: LA Times blogger Andrew Malcolm wants a caption for this picture. OK, here’s mine: “Andrew Malcolm is such an idiot that I could grab his head and smash it into this table like this and the experience would actually make him smarter.”

Memo to Ceci Connolly: Defining being “smart” in Washington as “disagreeing with what two-thirds of the country wants” doesn’t make you look, well, smart.

Related: Time was, and not all that long ago, a David Broder column, whether you agreed with it or not, would be undergirded by some reporting. Now, not so much. (Besides which, on the substance, what appears to be surprising him is that Congressional Democrats are opposing something that Obama himself opposed. This is wrong, or surprising, or even news, how, exactly?)

John McCain fought Teh Stoopid and Teh Stoopid won: He goes on the teevee to claim, laughably, that Ted Kennedy wouldn’t have liked that health-care reform passed on a partisan vote. He crowns that particularly serving of Teh Stoopid topped with whipped Teh Stoopid with this maraschino Teh Stoopid: “There has never been a major reform accomplished in the history of this country that wasn’t bipartisan.” Uh, John, that’s because there has never before been a major reform that one party unanimously rejected purely on partisan grounds.

Top 10 reasons to kill the Senate health-care bill, from Firedoglake, with background links on each. I don’t know whether the bill should be killed, but I do know there are a lot of things about it I absolutely do not like. (One “bug,” starting the taxes before the benefits take effect, could be sold as a way of reducing the deficit. But I’m unsure of the exact math over the long haul, and whether you choose to look at that item as a bug or a feature, I don’t think it makes much difference in the big picture.)

How I would decide on whether or not to pass the health-care bill (Senate version), if I had a vote: Which saves more lives, passing it or killing it? And by killing it, I mean, “killing it,” not, “killing it and immediately passing some fantasy better version that in the real world may or may not ever happen within my lifetime.” Anyone with a documentable answer to this question is welcome to weigh in.

Conservative of the year: Human Events picks Dick Cheney, although, as more than one pundit has pointed out, the actual, substantial policy differences between Cheney and, say, Barack Obama on foreign-policy and civil-liberties issues are much less than meets the eye.

Kentucky legislator wants to prosecute mothers of alcohol- and drug-addicted newborns: Because treating addicts like criminals instead of people with health problems has done so much to reduce addiction over the years.

Gathering storm: The “shadow pool,” the nation’s pool of homes that haven’t yet gone on the market but are about to because of delinquency/foreclosure, has increased more than 50% in just one year, to about 1.7 million. A lot of those homes are or will be vacant, which spells trouble for their neighbors, too.

Some good news for a change: Obama signed the military appropriations bill, which is good because it contained Al Franken’s amendment barring contractors from forcing employees into arbitration when they get raped. Which, in turn, is good not only for those employees but also because it gives candidates who give a damn about rape victims, be they competing in the GOP primary or in the general election, a big ol’ hammer with which to hit the 40 current incumbent Republican senators over the head.

And more good news: The signed consolidated appropriations bill DIDN’T ban federal funding for needle-exchange programs, the first such bill since 1988. Now that a smidgen of common sense has crept into the War on Some Drugs, expect the end of the world before lunchtime tomorrow.

I don’t know who Drew Westen is, and I don’t know if he’s right. But I do know that his perceptions are remarkably similar to mine.

Thumbsucker: Long journalism pieces that raise lots of Big, Serious Questions — often without offering answers, sometimes because no answers can be found — are known in the journalism biz as “thumbsuckers.” In the era of dying print and shorter attention spans, thumbsuckers are a dying breed, in part because the form is attempted far more often than it is mastered. But here’s a good one, asking whether the GOP has any relevant ideas to contribute to discussion of some of the biggest issues that face us. (My short answer: Yes, but to find them you’ll have to listen to the party members who, right now, aren’t doing most of the talking the public hears.)

Quote of the day, by Jonathan Chait of The New Republic in the thumbsucker linked above: “If government intervention appears to be the answer, [Republicans] must change the question.”

Monday, August 17, 2009 7:35 pm

Can’t anybody here play this game?

Filed under: You're doing WHAT with my money?? — Lex @ 7:35 pm
Tags: , ,

Or is the real problem that the game is being played only too well?

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.”

The IG also fears that the recent “surge in FHA loans is likely to overtax the oversight resources of the FHA, making careful and comprehensive lender monitoring difficult.” And it warned that the growth in FHA mortgage volume could make the program “vulnerable to exploitation by fraud schemes . . . that undercut the integrity of the program.” The 19-page IG report includes a horror show of recent fraud cases.

If housing values continue to slide and 10% of FHA loans end up in default, taxpayers will be on the hook for another $50 to $60 billion of mortgage losses. Only last week, Taylor Bean, the FHA’s third largest mortgage originator in June with $17 billion in loans this year, announced it is terminating operations after the FHA barred the mortgage lender from participating in its insurance program. The feds alleged that Taylor Bean had “misrepresented” its relationship with an auditor and had “irregular transactions that raised concerns of fraud.”

Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards.

Spend all you want, we’ll print more, I guess.

(h/t: Fec)

Thursday, December 11, 2008 9:57 pm

Wrecking an economy, 90 houses at a time

Filed under: We're so screwed — Lex @ 9:57 pm
Tags: , , , ,

The housing bubble that led to the current economic collapse has a lot of complex, interlocking causes, from unqualified buyers to unscrupulous lenders to undiligent mortgage repurchasers to ignorant investment bankers to inattentive (or worse) regulators.

This article in the St. Petersburg (Fla.) Times focuses on one guy who traded in houses in the Tampa Bay area and whose deals, multiplied across the country, illustrate how a significant part of the crisis came to be. Fun fact: One buyer, who worked for a car wash, reported his income as $40,000. A month.

Also depressing, but not surprising: the level of ignorance in the comments.

Monday, December 8, 2008 8:10 pm

Scratch one suspect

“We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA [Community Reinvestment Act] has contributed to the erosion of safe and sound lending practices.”

So the CRA, created in part to ameliorate the effects of decades of redlining by banks, isn’t to blame for the mortgage-based mess in which we find ourselves. But don’t take my word for it. Take this guy’s, inasmuch as he might actually be in a position to know.

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