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‘Whistleblower’ Lan Pham Says Mortgage Securitization Still an Issue for U.S. Homeowners

‘Whistleblower’ Lan Pham Says Mortgage Securitization Still an Issue for U.S. Homeowners


Lan Pham, an economist fired by the Congressional Budget Office two years ago, is still asking whether the watchdog agency appeared to “diminish or deny” the problem of foreclosure fraud while providing analysis to Congress.

As lawmakers enter budget season in Washington D.C. and wrangle over House Republicans’ new budget blueprint, Pham is hoping to draw more attention to the housing market’s woes.

“Why is one of the most powerful government agencies that can determine the direction of the nation’s policies appearing to diminish or deny that the issue of mortgage securitization is a problem?” she said. “If it is a problem, we have a $7 trillion in mortgage-backed securities that has brought chaos to homeowners, whether or not they are in foreclosure.”


[ipaper docId=86245951 access_key=key-1qbo0nggi3s0p30uthwk height=600 width=600 /]


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Read Lan Pham’s letter to Sen. Chuck Grassley re: MERS/Securitization

Read Lan Pham’s letter to Sen. Chuck Grassley re: MERS/Securitization


February 23,2011

Senator Chuck Grassley
Ranking Member
United States Senate Judiciary Committee
135 Hart Senate Offrce Building
Washington, DC 20510

Re: Inquiry into Reprisal Action by the Congressional Budget Office

Dear Ranking Member Grassley:

At the suggestion of Mr. Gary Aguirre, I describe below the circumstances of my
discharge by the Congressional Budget Office and request your assistance to the extent you
believe there is something appropriate you could do on my behalf.

As the Congress grapples with the economic and budgetary challenges facing the nation,
the Congress relies on the Congressional Budget Office (CBO) to provide “objective” and “nonpartisan”
analyses to inform its policy decisions.l This mandate gives the CBO a unique status
and confers upon the agency an impression of credibility and authority, as its analyses can alter
the course of national policies. The CBO cultivates this image internally and externally, and
enjoys the protection ofthe press.

Yet, my brief time as a senior staffer financial economist at the CBO suggests that there
is room for doubt about this perception of an objective and non-partisan CBO. Alternative view
points are suppressed or questioned as “pessimistic” by CBO Director Doug Elmendorf.
Economic facts inconvenient to the CBO’s forecasts of economic growth, recovery and other
estimates are omitted or suppressed so the desired message may be delivered. For providing
truthful and correct analyses of the issues, I was abruptly fired after 2.5 months at the CBO.

Suppression of Alternative Views

In October 2010,I wrote about the conditions and developments in the banking sector
and mortgage markets. The events surrounding the collapse of the housing market triggered what
many consider to be the worst economic and financial crisis in 80 years since the Great
Depression. The effects from this market with $10 trillion in residential mortgage debt
outstanding exposed systemic risks and put into question the solvency of financial institutions
worldwide. In addition to the global response, the U.S. government and Federal Reserve have
responded with trillions of dollars in extraordinary fiscal and monetary stimulus, the bulk of
which was aimed at shoring up the banks and financial institutions.

I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas, in charge of
the Financial Analysis Division to not write nor discuss issues in the banking sector and
mortgage markets that might suggest weakness in these sectors and their consequences on the
economy and households. Assistant Director Deborah Lucas explicitly sought assurances from
the Assistant Director in charge of the Macroeconomic Analysis Division that the issues I raised
would not lower the CBO’s forecasts of economic growth. More broadly, what emerges is a
pattern of suppression by the CBO to prevent public writings about the damage brought on by
the banking and financial sector and housing collapse. While disregardingfactual and empirical
evidence, the CBO leadership insisted:

  • o Statements could not be made attributing the decline in property tax revenues to
    foreclosures and the decline in home prices, which runs counter to common sense and
    the findings by the U.S. Senate Joint Economic Committee of the U.S. Congress.
  • o Foreclosures had no impact on home prices (negative extemalities, spillover effects).
    This runs counter to common sense, and a prominent national home price index by
    Corelogic in the CBO’s key database subscription showing clearly the distressed
    homes component of the index worsens home price declines.
  • o The decline in home prices had no impact on household wealth, which runs counter
    to common sense and the fact that the home is a significant asset or source of ‘wealth’
    for most households. According to the Federal Reserve, about $7 trillion in home
    equity evaporated in the housing collapse.
  • o The emerging foreclosure fraud problems in September 2010 were due to media
    “sensationalism”, “the kind of event of the moment where we should be adding
    skepticism, not just repeating the hype in the press” and discussingit “laclcs judgment
    about what is important’.

Let’s take a closer look at the implications of the unknown risks and liabilities of the
foreclosure fraud problems unfolding through the legal process, which led the nation’s largest
banks to suspend foreclosures nationwide. Issues at the heart of the foreclosure problems pertain
to securitization (pooling of mortgages that collateralize mortgage-backed securities “MBS”) and
the Mortgage Electronic Registration System (MERS), which purports to have legal standing on
electronic records of ownership on about 65 million or half of all mortgages in the country.

MERS, with Fannie Mae and Bank of America as founding members, facilitated Wall
Street’s ability to expedite the pooling of subprime mortgages into MBSs by bypassing standard
ownership transfer procedures as the housing bubble escalated, the collapse of which devastated
the economy and households. The CBO leadership suppressed and minimized concerns about
these issues, viewing these concerns in October 2010 as media “sensationalism” and “hype.”
Such statements if made public would raise serious questions about the credibility and
objectivity of the CBO, and the kinds of analyses that would be provided to Congress and
allowed to be made known to the public. This “hype” has entered the nation’s courtrooms:

  • o On January 7,2011, the Supreme Court of Massachusetts agreed with a lower court
    decision that invalidated the foreclosures actions of two of the largest banks on
    mortgages that were in MBSs; the legal right to foreclose was not proven.
  • o Courts in Florida have also followed suit.
  • On February 14,2011, U.S. Bankruptcy Judge Robert E. Grossman in Central Islip,
    New York rendered the MERS system invalid. ln rendering his decision, Judge
    Grossman acknowledged that his decision would have “significant impact.”
  • o On February 16,2011, MERS released a statement, an exce{pt which reads:
    “The proposed amendment will require Members to not foreclose in MERS’
    name…During this period we request that Members do not commence foreclosures in

The implications have profound financial and economic consequences that would be of
compelling interest to Congress and the public, but the CBO sought to silence a discussion of
such risks, that in reality, have been mateiralizing. These risks put into question the ability of
investors or bondholders to make claims on the collateral (the homes) that underlies trillions of
dollars in MBSs, the bulk of which are now guaranteed by the govemment-sponsored enterprises
(“GSEs” Fannie Mae and Freddie Mac). This affects $10 trillion in residential mortgage debt
outstanding, of which $7 trillion in mortgage-backed securities (MBSs) are backed by about 65
million homes, and roughly $3 trillion is in the form of mortgage loans on bank balance sheets.

The $7 Trillion MBS Problem -Foreclosure Problems and Buy Backs

Banks, Private Label MBSs. About $1.5 trillion MBSs are bank-issued, private label
MBSs that were collateralized by primarily subprime mortgages, $330 billion of which is
delinquent. Banks have publicly acknowledged these risks by recently increasing reserves
against repurchase of bad mortgages from investors and litigation costs. As of third quarter 2010,
the nation’s largest four banks – Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo
– have reserved about $10 billion for potential mortgage buy back demands,l a “miniscule”
amount given the $330 billion in delinquent mortgages. The combined net worth of the largest
four banks is about $700 billion.

The foreclosure problems may put even greater pressure on banks as some state courts
and legislation have made dents into the legal foundation of MERS. The implication is that
investors may be holding trillions in MBSs that are unsecured, which places even gteater
pressure on banks for mortgage buy-backs. Banks may also face greater losses in not having the
legal authority under MERS to foreclose and liquidate the collateral. These issues (among others)
are concentrated among a handful of the largest banks that hold about three quarters of the
nation’s banking assets, a concentration that has been deemed a systemic risk to the nation’s
economic and financial system. The CBO dismissing such issues prevents an analysis of the
risks, so that the public may be forced again to shoulder the consequences for which they have
not been a given a voice or a choice.

GSEs, Agency MBSs. The other $5.5 trillion MBSs are issued or guaranteed by Fannie
Mae and Freddie Mac, whose fate is currently being debated by policy makers. During the first
nine months of 2010, Fannie Mae repurchased about $195 billion in delinquent loans from its
MBSs;2 Freddie Mac faced $5.6 billion in buy back demands.3 The amount of these repurchases
in less than one year alone would wipe out Bank of America, the largest bank in the country.

The GSEs hold $266 billion in bank-issued private label MBSs, which have experienced the
highest rates of default. Recently, Bank of America paid $2.8 billion to the GSEs to settle $7
billion in mortgage buy-back requests, a private transfer of loss to the public that remains
unbeknownst to the public.

A discussion of these and other issues were not acceptable to the CBO leadership, but
unrealistic assumptions are encouraged and significant facts inconsistent with their
predetermined views are overlooked in providing economic analyses and estimates to Congress.
For instance, the CBO leadership appeared panic-stricken when I suggested that interest rates
were likely to rise in early November 2010 despite the Federal Reserye’s quantitative easing
programs, and what that may mean for example, to an already weakened housing market. Indeed,
interest rates have risen sharply since then from 4.3Yoto 5.}Yo onthe 30 year fixed-rate mortgage
“FRM” (as of 2117111). Providing a correct assessment did not seem to matter.

For presenting a truthful and correct assessment of where things stood, I was fired. I
know other economists who have been pressured to fall in line with the leadership, but are afraid
to voice their concerns for fear that it could endanger their careers. I am prepared to identify
them, but only with your assurance that their identities will be remain confidential at this time.

I deeply appreciate your taking the time to consider the information I have placed before


Lan T. Pham, Ph.D.


New York Times Article
Time Line
Mortgage Forecast Memo
Banking Forecast Memo
Banking Forecast Memo: Revision of Key Points

[ipaper docId=86245951 access_key=key-1qbo0nggi3s0p30uthwk height=600 width=600 /]

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

Posted in STOP FORECLOSURE FRAUDComments (0)

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