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US, France Knew In 2007 Financial Collapse Was Imminent Due To Wall Street Fraud

US, France Knew In 2007 Financial Collapse Was Imminent Due To Wall Street Fraud


#WikiLeaks- PAULSON DISCUSSES FINANCIAL MARKETS, IRAN WITH SARKOZY, LAGARDE

Alexander Higgins-

In 2007 top US and France officials knew rampant fraud being committed by regulators, rating agencies and Wall Street Banks would soon cause a global financial collapse.

While investors and nations around the world were happily giving trillions of dollars away to crooked Wall Street bankers top officials in the United States and France knew the market would soon collapse and people would be robbed of millions.

While raising the issue that the role of government regulators and rating agencies needed to be reviewed in the wake of the upcoming crisis, US officials ignored calls from the French government to enact necessary regulation to stop the rampant fraud that would soon result in investors losing tens of trillions of dollars they had invested into the markets.

The cable reveals that while discussing the ability of the French banks to survive the crisis, French President Sarkozy was pushing the US to enact regulations to forestall the crisis. Instead, Henry Paulson responded by telling Sarkozy not to overreacted because the” it would take months, not weeks, for credit to be re-priced” telling France this is “not a major crisis.”

Paulson went on to warn that the major problem was with the German banks and which would require a bailout from the taxpayer while warning that the assets held by banks but covered up from investors by being held off-balance sheet presented systematic risk to banks and to sovereign wealth.

The cable clearly reveals that taxpayer bailouts would be needed.  Paulson further up sticks up for the Wall Street hedge fund saying they were not to blame for the crisis while acknowledging there were major Wall Street transparency issues.

To summarize, the cable reveals that top government officials in France and the US knew Wall street banks were committing fraud in the origination and packaging of sub-prime mortgage and lying to investors about the resulting securities they were creating and selling. Officials knew banks were also lying about their own liabilities and hiding them from investors by keeping the assets off their balance sheets.  The government also knew that both regulators and ratings agencies were participating in the scheme.

Remember as you read this cable, these conversations all took place over a year before the 2008 financial collapse when taxpayers around the world were forced into giving up trillions of dollars for banker bailouts. Also keep in mind that while the cable discusses “systemic risk”, “bailouts” and “market turbulence”, none of these had happened yet. They were discussing what would soon happen in the future.

The discussion of “systemic risk”, “market turbulence” and “taxpayer bailouts” over a year before the markets actually collapsed and those events actually occurred, show they knew a global financial collapse. Not only did they know it would occur but knew what the consequences would be for the investors and the governments who were fleeced by Wall Street. As the cable reveals, Paulson chose to deal with the crisis by letting it continue and urging France to keep the issue underwaps  by  urging Sarkozy not  to “over react”, hence allowing the scandal to the continue which just postponed the inevitable.

Also remember when we were forced into these bailouts, it was  under the guise that our governments had no idea the banks were doing this and this was a sudden and unforeseeable crisis. Finally, remember that – while there have been plenty of accusations from “conspiracy theorists”,  “fringe economists” and “wing nut” politicians such as Ron Paul – there still has been no admission from our government that financial regulators or the ratings agencies played a role in the crisis.

[ALEXANDER HIGGINS]

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Bank of America’s “Tasmanian Devil” says we shouldn’t be thinking of our homes as “assets”

Bank of America’s “Tasmanian Devil” says we shouldn’t be thinking of our homes as “assets”


via Mandelman

It should be readily apparent that there are an overabundance of reasons for Bank of America’s CEO, Bryan Moynihan, to be regarded as a massive rear end in a province undeniably replete with rear ends of utterly mammoth proportion.  Even the adjectives in that last sentence don’t begin to do the nature of his posterior justice.

To begin with, let’s just acknowledge that Moynihan is a corporate lawyer.  He graduated in 1981 from Brown University… a history major that co-captained the rugby team.  He then went on to Notre Dame Law School.

In 1993 he went to work at Fleet Boston as deputy general counsel, but after Bank of America acquired Fleet in 2004 Moynihan became the bank’s president of global wealth and investment management, and from October 2007 to December 2008, he served as the bank’s president of global corporate and investment banking.  But from December 2008 to January 2009, Moynihan once again returned to his roots, serving as general counsel for Bank of America, and he became CEO of Merrill Lynch after its oh-so-well-thought-out-and-executed sale to Bank of America in September 2008.


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FDIC OIG Report: Evaluation of Federal Regulatory Oversight of Washington Mutual Bank, Department of the Treasury, Federal Deposit Insurance Corporation, Report No. EVAL-10-002 April 2010

FDIC OIG Report: Evaluation of Federal Regulatory Oversight of Washington Mutual Bank, Department of the Treasury, Federal Deposit Insurance Corporation, Report No. EVAL-10-002 April 2010


April 9, 2010

John E. Bowman, Acting Director
Office of Thrift Supervision

Sheila C. Bair, Chairman
Federal Deposit Insurance Corporation

This report presents the results of our review of the failure of Washington Mutual Bank (WaMu), Seattle, Washington; the Office of Thrift Supervision’s (OTS) supervision of the institution; and the Federal Deposit Insurance Corporation’s (FDIC) monitoring of WaMu for insurance assessment purposes. OTS was the primary federal regulator for WaMu and was statutorily responsible for conducting full-scope examinations to assess WaMu’s safety and soundness and compliance with consumer protection laws and regulations. FDIC was the deposit insurer for WaMu and was responsible for monitoring and assessing WaMu’s risk to the Deposit Insurance Fund (DIF). On September 25, 2008, FDIC facilitated the sale of WaMu to JPMorgan Chase & Co in a closed bank transaction that resulted in no loss to the DIF.

Section 38(k) of the Federal Deposit Insurance Act requires the cognizant Inspector General to conduct a material loss review (MLR) of the causes of the failure and primary federal regulatory supervision when the failure causes a loss of $25 million to the DIF or 2 percent of an institution’s total assets at the time the FDIC was appointed receiver. Because the FDIC facilitated a sale of WaMu to JPMorgan Chase & Co without incurring a material loss to the DIF, an MLR is not statutorily required. However, given WaMu’s size, the circumstances leading up to WaMu’s sale, and non-DIF losses, such as the loss of shareholder value, the Inspectors General of the Department of the Treasury and FDIC believed that an evaluation of OTS and FDIC actions could provide important information and observations as the Administration and the Congress consider regulatory reform.

Click image to contiue…

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DBR | FORECLOSURE FALLOUT Firm spin-off could fold within 2 months

DBR | FORECLOSURE FALLOUT Firm spin-off could fold within 2 months


David J. Stern to shut foreclosure practice

by Paola Iuspa-Abbott
piuspa@alm.com

This article is reprinted with permission from the Daily Business Review.

[ipaper docId=50499353 access_key=key-hprcn818s9x0ozhdr05 height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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DJSP Enterprises Lets Go of 90 employees, Sells Luxury Assets

DJSP Enterprises Lets Go of 90 employees, Sells Luxury Assets


According to a SEC filing form 8K on February 15, 2011, the Company’s subsidiary, DJS Processing, LLC, informed affected employees of an immediate reduction in its total work force by 90 employees.

A few days after on February 18, 2011, the Florida SunSentinel broke news that David J. Stern is unloading his Hillsboro Beach Estate up for sale along with perhaps his mega yacht called  ‘MisUnderstood”.

from the Sentinel:

What is reported to be Stern’s 130-foot yacht, Misunderstood, is listed for sale for $18 million at The Yacht & Brokerage Show on Miami Beach. The side-by-side properties on Hillsboro Beach are listed for a total of nearly $20 million. And a vacation chalet outside the ski-resort town of Vail, Colo., has been for sale for $6.9 million since last year.

Photobucket

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Usage of Federal Reserve Credit and Liquidity Facilities “BAILOUT FUNDS”

Usage of Federal Reserve Credit and Liquidity Facilities “BAILOUT FUNDS”


This section of the website provides detailed information about the liquidity and credit programs and other monetary policy tools that the Federal Reserve used to respond to the financial crisis that emerged in the summer of 2007. These programs fall into three broad categories–those aimed at addressing severe liquidity strains in key financial markets, those aimed at providing credit to troubled systemically important institutions, and those aimed at fostering economic recovery by lowering longer-term interest rates.

The emergency liquidity programs that the Federal Reserve set up provided secured and mostly short-term loans. Over time, these programs helped to alleviate the strains and to restore normal functioning in a number of key financial markets, supporting the flow of credit to businesses and households. As financial markets stabilized, the Federal Reserve closed most of these programs. Indeed, many of the programs were intentionally priced to be unattractive to borrowers when markets are functioning normally and, as a result, wound down as market conditions improved. The programs achieved their intended purposes with no loss to taxpayers.

The Federal Reserve also provided credit to several systemically important financial institutions. These actions were taken to avoid the disorderly failure of these institutions and the potential catastrophic consequences for the U.S. financial system and economy. All extensions of credit were fully secured and are in the process of being fully repaid.

Finally, the Federal Reserve provided economic stimulus by lowering interest rates. Over the course of the crisis, the Federal Open Market Committee (FOMC) reduced its target for the federal funds rate to a range of 0 to 1/4 percent. With the federal funds rate at its effective lower bound, the FOMC provided further monetary policy stimulus through large-scale purchases of longer-term Treasury debt, federal agency debt, and agency mortgage-backed securities (agency MBS). These asset purchases helped to lower longer-term interest rates and generally improved conditions in private credit markets.

The links to the right provide detailed information about the programs that were established in response to the crisis. Details for each loan include: the borrower, the date that credit was extended, the interest rate, information about the collateral, and other relevant terms. Similar information is supplied for swap line draws and repayments. Details for each agency MBS purchase include: the counterparty to the transaction, the date of the transaction, the amount of the transaction, and the price at which each transaction was conducted. The transaction data are provided in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Federal Reserve will revise the data to ensure that they are accurate and complete.

No rules about executive compensation or dividend payments were applied to borrowers using Federal Reserve facilities. Executive compensation restrictions were imposed by statute on firms receiving assistance through the U.S. Treasury’s Troubled Asset Relief Program (TARP). Dividend restrictions were the province of the appropriate supervisors and were imposed by the Federal Reserve on bank holding companies in that role, but not because of borrowing through the facilities discussed here.

Additional information about the Federal Reserve’s credit and liquidity programs is available on the Credit and Liquidity Programs and the Balance Sheet section.

Facilities and Programs

Source: federalreserve.gov

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Foreclosure Mills and The 4 Minute Foreclosure

Foreclosure Mills and The 4 Minute Foreclosure


For you to understand a little more about “the 4 minute foreclosure” you first have to know some key players in the controversy surrounding the foreclosure process today. I included a few excerpts from an article written by Gerlad B. Alt for DS News March of 2007 that you will find at the end. I only wish MERS was included in this article because without this device none of this would have been made possible.

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government sponsored enterprise (GSE), headquartered in the Tyson’s Corner CDP in unincorporated Fairfax County, VirginiaFreddie Mac, one of America’s biggest buyers of home mortgages, is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of home-ownership and rental housing.

Freddie Mac was the first investor to improve on the so-called standard timeframes by tightening the noose and imposing what seemed at the time like draconian and arbitrary standards for completion of legal actions for foreclosure and bankruptcy. To reinforce its point, the Federal Home Loan Mortgage Corporation adopted a designated counsel program under which the attorneys chosen to participate were expected to meet and be graded against these more stringent dates.

LOGS Network is a multi-state network of title companies and law firms and connecting them via a proprietary web-hosted software system. They developed a proprietary statistical program called ASAP (Attorney Scorecard and Performance) to help manage the more than 250 law firms its outsourcing division. By introducing , invented the field counsel industry that serves residential mortgage banking. LOGS Network was co-founded by Gerald M. Shapiro of Shapiro & Fishman PA a law firm who handles foreclosures for the financial industry. His network held a virtual monopoly on all foreclosure and bankruptcy work nationwide until the early 1990s. In addition, he preempted the entire industry by creating the “cradle to grave” concept through business developments in title, closing, document preparation, foreclosures, REO, outsourcing, collection, and debt acquisition businesses.

Fidelity National, a national default outsourcing and information provider, was one of the first in the industry to implement time-frames a high priority instead of a guideline standards. It instituted a policy recognizing and rewarding those attorneys who did work for its clients in a consistently shorter time than their competition. Fidelity mentality was the faster the better and by publicizing and comparing the time to completion of various legal tasks among the hundreds of law firms doing work for its client base. It created a demand for attorneys to keep up with their business practices in the same sequence that other industries have had to in the sense of “recreating the wheel” so to speak to keep up with growing competition.

By having a goal of recovering nonconforming assets for the servicers this put pressure on the time frames they had in order to recover title.

Of course, when the only acceptable
test for quality becomes a simple test
of speed, it is inevitable that some of
the participants will feel compelled
to cut corners to stay in the game.

Click Image For PDF

DSN_FORE2_March07

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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Full Deposition of Residential Funding/GMAC JUDY FABER: US BANK v. Cook

Full Deposition of Residential Funding/GMAC JUDY FABER: US BANK v. Cook


Make sure you read this carefully…This is a transcript of an employee of Residential Funding Company who is in charge of record keeping of original documents. Don’t miss the full deposition down below.

Follow the assets, don’t get lost in the trail…

17 Q. Now, when you said you’re the Director of
18 Records Management for the Minnesota office?

19 A. Uh-huh.

20 Q. Are there other offices of Residential
21 Funding that maintain records that you are
22 not responsible for?

23 A. There are records services sites in Iowa and
24 in Pennsylvania. Those deal mostly with the
25 GMAC mortgage assets.

<snip>

11 Q. And what, if anything, is your responsibility
12 with regard to those records?

13 A. To track the physical paper for those
14 assets — or that asset.

15 Q. Are you what you consider to be the keeper of
16 the records for those documents?

17 A. Sure, yep.

5 Q. Okay. And then when somebody wants to view
6 specific records from your system, is that
7 something that you’re responsible for
8 obtaining as part of your day-to-day
9 responsibilities?

10 A. The people that report to me, yes, or the
11 vendor that — that we have retained to do
12 those functions, yes. I don’t do that
13 myself.

14 Q. Who’s the vendor that you retain to do that?

15 A. A company called ACS.

16 Q. ACS?

17 A. Yep.

18 Q. And what does ACS do with regard to the
19 records?

20 A. They fulfill the request. So if somebody
21 needs a credit folder or a legal folder, they
22 research where those documents are, obtain
23 the documents and then provide that requestor
24 with either the paper documents or images.

<snip>

21 Q. There’s a file folder that shows it came from
22 the outside vendor?

23 A. Yes. Their sticker is affixed to the front
24 of the folder, so I know it came from them.

25 Q. Okay. And then is there anything on the
1 documents themselves that show where they
2 came from?

3 A. No.

4 Q. And by the outside vendor, do you mean ACS?

5 A. No. Actually, the vendor that stores the
6 actual folder is Iron Mountain.

7 Q. So there’s a sticker on that file that shows
8 it came from Iron Mountain?

9 A. Correct, yes.

10 Q. Does Iron Mountain maintain your system or do
11 they just maintain hard copies of documents?

12 A. They maintain the hard copies of the
13 documents.

14 Q. Not any records on your computer system,
15 correct?

16 A. No.

17 Q. Is that correct?

18 A. Correct.

<snip>

18 Q. What’s the relationship between Residential
19 Funding Company, LLC and U.S. Bank National
20 Association?

21 A. In — in this instance, U.S. Bank is the
22 trustee on the security that this loan is in.
23 And RFC was the issuer of the security that
24 was created.

25 Q. Who was the issuer of the security?

1 A. RFC was the issuer of the security.

2 Q. Oh, RFC is what you call Residential Funding
3 Company?

4 A. Yes.

5 Q. So RFC issued the security?

6 A. Right.

7 Q. Can you explain to me what that means?

8 A. No, I can’t.

9 Q. Okay. How do you know RFC issued the
10 security?

11 A. It’s the normal course of business as to how
12 our — our business works. RFC is in the
13 business of acquiring assets and putting them
14 together into securities to sell in the — in
15 the market.

16 MR. SHAW: I would like to
17 register a general objection to this line of
18 questioning. There’s not been a foundation
19 laid for Judy Faber being competent to reach
20 some of these conclusions that are being
21 stated on the record.

22 BY MR. HOLLANDER:
23 Q. So in this particular instance, do you have
24 any personal knowledge of the relationship
25 between RFC and U.S. Bank National
1 Association as trustee?

2 A. No.

3 Q. For whom is U.S. Bank National Association
4 acting as the trustee?

5 A. I believe it would be for the investors of
6 the — that have bought the securities.

7 Q. I’m sorry. Something happened with the phone
8 and I didn’t hear your answer. I’m sorry.

9 A. I believe it would be for the different
10 investors who have bought pieces of that
11 security that was issued.

12 Q. Are there different investors that have
13 purchased the Peter Cook note?

14 A. I don’t think I’m qualified to answer that.
15 You know, I can tell you from what my basic
16 understanding is from the process, but I’m
17 not an expert.

18 MR. SHAW: Once again, I’d like to
19 raise a continuing general objection that she
20 being — testifying with respect to what her
21 job is, and I believe you’re getting into
22 areas that is other than what her job is and
23 you’re asking for possibly even legal
24 conclusions here. So I would like to raise
25 that objection again.

[…]

[ipaper docId=39156662 access_key=key-hxfsobk1503f3iza8sn height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in assignment of mortgage, bifurcate, conspiracy, deposition, foreclosure, foreclosure fraud, foreclosures, GMAC, mbs, securitization, STOP FORECLOSURE FRAUD, trade secrets, trustee, Trusts, us bankComments (2)

“Foreclosure Mill” David J. Sterns’ (DJSP) OTHER $17 MILLION MEGA ESTATE

“Foreclosure Mill” David J. Sterns’ (DJSP) OTHER $17 MILLION MEGA ESTATE


TampaBay.com recently exposed how some foreclosure mills are striving with wealth. In particular one law firm in the Fort Lauderdale area.

Here is another ‘Mega Estate’ under a “CERTAIN TRUST AGREEMENT” c/o  The Law Offices of David J. Stern, PA 900 S. Pine Island Rd., Suite 400, Plantation Florida 33324. This is not far from his other $15,000,000.00 dollar “Mega Estate” and his $5 million dollar Ft. Lauderdale Beach condo.

This Hillsborough Estate, like his Ft. Lauderdale Estate also features a tennis court. According to BCPA.net this double lot MEGA ESTATE was purchased for a combined total of $17,000,000.00 in 2008.

Mr. Stern’s ‘nonlegal’ company DJSP Enterprises, Inc recently filed their Form S-8 with the SEC. I wonder where all these SHARES are going?

SOURCE: BROWARD COUNTY PROPERTY APPRAISERS

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in djsp enterprises, foreclosure, foreclosure mills, Law Offices Of David J. Stern P.A.Comments (2)

Banks and their RIDICULOUS Foreclosure tabs…Mills, REO's etc.

Banks and their RIDICULOUS Foreclosure tabs…Mills, REO's etc.


You know from the ridiculous fees these banks pay from the Mills to the keeping up with the REOS’ (if they keep up with maintenance).

Does it make any $en$e why they DO NOT work it out with the homeowners?

I mean if you take a look at what they end up selling for at auction or in a short sale…Does it make any $en$e??

Again, does it make any freaking $en$e?

Now take a look at Foreclosure Mill Law Offices of David J. Stern in Plantation (DJSP) for example Small Foreclosure Firm’s Big Bucks: Back Office Grossed $260M in 2009:

and his assets below:

Source: AmericansUnitedForJustice.org

http://AmericansUnitedForJustice.org is working on Law Offices Of David J. Stern’s #2 Cheryl Samons stay tuned

DOES THIS MAKE ANY $EN$E?

DOJ are you watching?


© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in djsp enterprises, foreclosure, foreclosure millsComments (2)

Move Over Fannie Mae…Revealing the "TRIPLETS" Maiden Lane, Maiden Lane II and Maiden Lane III

Move Over Fannie Mae…Revealing the "TRIPLETS" Maiden Lane, Maiden Lane II and Maiden Lane III


Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue (Bloomberg)

By Craig Torres, Bob Ivry and Scott Lanman

April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time.

“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”

The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.

‘Panic’ Cause

“Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.”

Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok, chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey.

Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank.

Early Failure

“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”

The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.

The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.

More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.

Lending Standards

For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.

The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.

CDO Holdings

Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash.

Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible.

The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings.

CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc.

“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.

Bernanke Defense

Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility.

“The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions.

Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said.

Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III.

Market Value

Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.

Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.

“The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement.

Deal With Chase

The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios.

Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.

In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.

Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.

The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.

The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.

Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: April 1, 2010 01:34 EDT

Posted in bernanke, bloomberg, countrywide, foreclosure fraud, washington mutualComments (0)


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