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Thread: Banks' mortgage troubles mount as everyone seeks payback

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    Banks' mortgage troubles mount as everyone seeks payback

    Banks vs. Banks.


    McClatchy Washington Bureau
    Posted on Wed, Oct. 20, 2010

    Banks' mortgage troubles mount as everyone seeks paybackGreg Gordon | McClatchy Newspapers
    last updated: October 20, 2010 08:15:32 PM

    WASHINGTON — Major U.S. banks are facing a double whammy from the subprime mortgage debacle: They're under siege over their mishandling of home loan foreclosures and confronting mounting investor demands that they repurchase billions of dollars in failed mortgage securities.

    Amid revelations of the banks' potentially massive legal problems, Housing and Urban Development Secretary Shaun Donovan said Wednesday that 11 federal agencies are examining aspects of the home foreclosure and financing messes that have stalled the U.S. economy. He said the inquiries would ensure that banks, loan servicers and other institutions follow the law.

    If investigators find that people were wrongly evicted from their homes, Donovan said, "We will take actions to ensure that banks make them whole and make sure that their rights have been protected and defended."

    Donovan said an initial review of the Federal Housing Administration's five largest loan servicers found that some had breached the agency's foreclosure procedures, but that nationwide reviews so far haven't identified "systemic issues."

    The HUD secretary addressed a White House news briefing after he and Treasury Secretary Timothy Geithner led an inter-agency meeting to address the latest fallout from the subprime mortgage meltdown that sent the economy reeling.

    While revelations about loan servicers' use of phony affidavits and failure to transfer loans properly have dominated the headlines, major banks appear to be facing far bigger perils.

    Not only could they be blocked from evicting delinquent borrowers, but some also face the possibility they'll be forced to buy back billions of dollars in mortgage bonds that have since sunk in value.

    Analysts at J.P. Morgan Chase estimated this week that banks that underwrote more than $3 trillion in risky mortgage bonds will be compelled to repurchase $55 billion to $120 billion in securities over the next few years because the underlying loans are defective.

    "Banks are trying to put a good face on this," said James Cox, a Duke University law professor who specializes in securities. However, he said, the dimensions are "potentially catastrophic" from blunders in documenting the chain of custody of the mortgages, and bondholders' demands for repayment appear to have "tremendous value."

    Effectively, banks are being punished for their treatment of both the marginally qualified borrowers of their subprime mortgages and the investors who bought securities backed by those loans.


    Bondholders are pursuing massive claims against Bank of America and other big banks, alleging that they were sold defective products.

    Bank of America owes most of its risks to its purchase of Countrywide Financial, one of the largest issuers of subprime mortgages.

    On Monday, bondholders with more than 25 percent of the voting rights on $47 billion in Countrywide mortgage securities notified the Charlotte-based bank that Countrywide's loan servicing had failed to perform, the first step toward declaring a default. The bondholders complained that the underlying loans didn't meet the guidelines that were laid out when they invested.

    Among the bondholders: the Federal Reserve Bank of New York, which wound up owning Countrywide-originated mortgage securities as part of the federal rescue of the giant insurer American International Group.

    Underscoring the extent of the legal tangle, some government agencies are suing the banks, and some of the bondholders are suing the Federal Deposit Insurance Corp.

    Germany's Deutsche Bank, a trustee for pension funds, municipalities and other investors facing huge losses on these bonds, sued the FDIC because it served as receiver for Washington Mutual and IndyMac Federal Bank, two giant lenders that failed in 2008.

    Deutsche Bank alleges that the FDIC took the place of the two banks in purchase contracts and agreements with the investors, even though it turned their deposits over to successor institutions.

    The FDIC has filed motions to dismiss the two suits in federal district courts in the District of Columbia and Los Angeles.

    Some hedge funds, such as Greenwich Financial Services, have begun buying the mortgage bonds at depressed values, in the belief that they can collect huge returns in suits against the big banks. William Frey, Greenwich's chief executive, said his investor group controls $600 billion in mortgage-backed securities.

    Cox said he thinks the suits, even those pursuing taxpayers, have strong potential "settlement value," because "there is a lot of uncertainty about the law, as we've never seen anything like this."

    As for the bungled paperwork that forced Bank of America and some other banks to halt foreclosure proceedings temporarily, Cox said: "I'm still waiting to get a sense about whether this is just a hiccup in the system or whether this is an embolism."

    Donovan, appearing two weeks before the midterm elections, sounded a stern note in describing ongoing reviews by agencies ranging from the Federal Reserve Board to the Federal Trade Commission and state attorneys general.

    "Throughout our reviews, as we uncover bad practices, cutting corners or sloppy processes that disregard or ignore the rights and protections of any homeowners, we're committed to forcing institutions to change the way that they conduct business," he said.

    Among the agencies involved:




    •The Justice Department-led Financial Fraud Enforcement Task Force, which is coordinating a state and federal effort to share information about foreclosure and loan servicing practices, including so-called "robo-signing" practices in which notarized signatures were allegedly faked.


    •The FHA, which is reviewing loan servicers' practices to ensure that they comply with the agency's requirements that they take all possible steps to avoid foreclosures, including modifying loans.


    •The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC, which are reviewing the conduct of loan servicers.


    •The FTC, which is monitoring the market for fraud or foreclosure scams.
    http://www.mcclatchydc.com/2010/10/2...-mount-as.html

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    This is what happens when government guarantees something in the free market. Abolish Fannie and Freddie.

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    Quote Originally Posted by southparkcpa View Post
    This is what happens when government guarantees something in the free market. Abolish Fannie and Freddie.
    Yup, all the gov't's fault.

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    Quote Originally Posted by cr726 View Post
    Yup, all the gov't's fault.
    This whole debacle started with a government "mandate" of home ownership.

    Without those guarantees...tjhis probably doen't get started.

    plenty of greed and blame but a fire starts with a match. In this case....congress, Fannie and Freddie. That is indisputable.

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    Quote Originally Posted by cr726 View Post
    Yup, all the gov't's fault.
    Getting warmer. Because if you're not part of the solution ...

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    Quote Originally Posted by southparkcpa View Post
    plenty of greed and blame but a fire starts with a match.
    Please continue. I'd like to hear more...

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    Quote Originally Posted by southparkcpa View Post
    This is what happens when government guarantees something in the free market. Abolish Fannie and Freddie.
    never happen....

    Barney Frank rakes in $40G from bailed out banks
    ... despite vow to shun bailed-out lenders


    U.S. Rep. Barney Frank, in an intensifying clash with GOP upstart Sean Bielat, has pledged not to take campaign cash from lenders that got federal bailouts — yet has raked in more than $40,000 from bank execs and special interests connected to the staggering government loans, a Herald review found.

    Frank vowed in February 2009 that he wouldn’t accept campaign donations from banks that received money under the $700 billion Troubled Asset Relief Program (TARP) or political action committees tied to such institutions.

    But Frank has hauled in thousands from top execs at Bank of America, Citizens Bank, Wainwright Bank, JP Morgan Chase and other institutions that received billions in TARP money.

    Just yesterday, Frank made new campaign finance disclosures showing he received $17,000 from top executives of Bank of America — including $2,000 from CEO Brian Moynihan. B of A received $45 billion in bailout money. In all, Frank has hauled in at least $27,000 since 2009 from bank execs — and $13,000 from PACs — connected to banks that received TARP funding, including:

    • $5,000 earlier this month from the Bank of America Corp. Federal PAC;

    • $10,000 in August and September from the Bipartisan PAC/Bank of New York Mellon Corp.; Mellon received $3 billion from TARP;

    • $2,000 in June 2009 from the Financial Services Roundtable PAC, which counts TARP recipients B of A, JP Morgan Chase and Wells Fargo among its members; and

    • $1,000 in March from U.S. Bancorp PAC; the Minnesota-based bank received more than $6 billion in TARP funds.

    “Now that he’s in the political fight of his life, Barney Frank tossed aside his phony pledge and lined his pockets with cash from his closest allies — Wall Street executives,” said National Republican Congressional Committee spokesman Tory Mazzola. “He made a promise to voters, but obviously he cares more about saving his career as a politician than with keeping his word.”

    In a statement last night, a Frank spokesman said the congressman has declined to take contributions only from the top 10 TARP recipients, but he noted he would accept donations from those institutions once they repaid their debts. The spokesman said none of the donations cited by the Herald violated that policy.

    Meanwhile, in a release responding to a Herald report yesterday that Bielat is tapping Wall Street bigwigs in a bid to force Frank into a Martha Coakley-style collapse, Frank said, “Mr. Bielat’s eagerness to serve as the agent of those wealthy Wall Streeters who seek to undo the financial reform bill explains why this race has become so expensive and why it is so important in order to prevent another economic crisis.”

    The 15-term Democratic congressman pumped $200,000 of his own cash into his campaign this week and has spent $700,000 in the first two weeks of October. His war chest has $650,000 to Bielat’s $420,000. Bielat, a 35-year-old Marine, reported he has raised $650,000 so far in October, records show.

    In a Feb. 23, 2009, article in the Washington publication Roll Call, Frank is quoted saying, “I won’t take any PAC money from banks that took TARP funds, nor would I take it from the top executive.” The article made no mention of the policy only applying to the top 10 TARP fund recipients. Frank said he floated the loan to his campaign to counter an expected flood of right-wing attack ads, including from the national Tea Party.
    http://www.bostonherald.com/news/pol...icleid=1290601

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    Quote Originally Posted by southparkcpa View Post
    This whole debacle started with a government "mandate" of home ownership.

    Without those guarantees...tjhis probably doen't get started.

    plenty of greed and blame but a fire starts with a match. In this case....congress, Fannie and Freddie. That is indisputable.
    Mandated home ownership? Minimizing everyone but the gov't is a great move on your part.

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    Quote Originally Posted by Come Back to NY View Post
    I am shocked! Barney Frank should be voted out and then everything will change.

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    Quote Originally Posted by cr726 View Post
    Mandated home ownership?
    More specificly, the mandate that lenders must give loans to those who would not otherwise qualify (i.e. risky high-default % loans) due to Social Engineering by Government.

    In an attempt to cover their butts (and make some money too) over these laons, the market turned them into something worse.

    If one wishes to find fault for this crisis, it comes down to Government. For playing social engineering, and for allowing the market to make it worse. Democrats on one side, Republicans on the other, both at fault.

    Thats the story none of teh partisans want to think about, that they BOTH failed, and failed in serious ways that led to this problem.

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    Quote Originally Posted by Warfish View Post
    More specificly, the mandate that lenders must give loans to those who would not otherwise qualify (i.e. risky high-default % loans) due to Social Engineering by Government.

    In an attempt to cover their butts (and make some money too) over these laons, the market turned them into something worse.

    If one wishes to find fault for this crisis, it comes down to Government. For playing social engineering, and for allowing the market to make it worse. Democrats on one side, Republicans on the other, both at fault.

    Thats the story none of teh partisans want to think about, that they BOTH failed, and failed in serious ways that led to this problem.
    The numbers do not back up your theory.

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    Quote Originally Posted by cr726 View Post
    The numbers do not back up your theory.
    And hence a perfect example of why nothing ever gets fixed.

    A clear cut case of Govt. **** up, and all folks want to do is prattle on about how "their side" wasn't at fault at all, it was the OTHER side, and here is my (horribly manipulated, selctive, often outright dishonest) stats from a totally biased and unteustworthy source to back up my claim".

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    Quote Originally Posted by Warfish View Post
    And hence a perfect example of why nothing ever gets fixed.

    A clear cut case of Govt. **** up, and all folks want to do is prattle on about how "their side" wasn't at fault at all, it was the OTHER side, and here is my (horribly manipulated, selctive, often outright dishonest) stats from a totally biased and unteustworthy source to back up my claim".
    You want to claim that the housing crash occurred because of low income people getting home loans and that simply isn't true.

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    Quote Originally Posted by cr726 View Post
    You want to claim that the housing crash occurred because of low income people getting home loans and that simply isn't true.
    No, as I said it was one major factor, of many (an assortment of) major factors.

    But please, by all means contineu to cite your talking points that it was all "Evil Corporations Only" who caused the Housing market problems.

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    Quote Originally Posted by Warfish View Post
    No, as I said it was one major factor, of many (an assortment of) major factors.

    But please, by all means contineu to cite your talking points that it was all "Evil Corporations Only" who caused the Housing market problems.
    Don't be silly is was the poor and the gov't who caused all of this and it will get a lot worse in the future when the poor join a union.

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    Quote Originally Posted by cr726 View Post
    Yup, all the gov't's fault.

    in 99.999% of the cases.....it's people not making mortgage payments & getting foreclosed on- this is the media & politics- I GUARANTEE you this doesnt adversely effect the banks in the long run.

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    Quote Originally Posted by cr726 View Post
    Don't be silly is was the poor and the gov't who caused all of this and it will get a lot worse in the future when the poor join a union.
    /facepalm.

    Thank you for so perfectly proving my point in this thread.

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    Quote Originally Posted by cr726 View Post
    Don't be silly is was the poor and the gov't who caused all of this and it will get a lot worse in the future when the poor join a union.
    So far you have had several cites of government inteferance in the free market yet you still don't want the truth.

    NOBODY said it was poor people...what was said was "unqualified" people.


    You are wrong here.... very simple.

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    My USDA Guaranteed Loan is the shiz-nit

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    Quote Originally Posted by southparkcpa View Post
    So far you have had several cites of government inteferance in the free market yet you still don't want the truth.

    NOBODY said it was poor people...what was said was "unqualified" people.


    You are wrong here.... very simple.
    Even after this mess the reality is the Government has a huge incentive to encourage banks to lend to unqualified borrowers.

    How can a bank lend even 80% to a qualified borrower when the possability of more than a 20% fall in prices is still very possible and borrowers who can pay their mortgages are walking away from their obligations?

    The reality is in today's market banks shouldn't be giving any mortgages out unless they come with a minimum of 30% down. We may well have another huge leg down in housing even with the dollar devaluation and the price of assests inflating.

    The government is going to have to get involved in a big way or the housing market will be DOA.

    In today's housing market there is no such thing as a qualified buyer.

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