Keep rewarding these dead beats, making them serve no jail time and they shall continue buying their settlements for as long as they go unpunished!
BLOOMBERG-
Four years after rotten mortgages helped trigger a global financial crisis, Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.
Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify.
THRIVE is an unconventional documentary that lifts the veil on what’s REALLY going on in our world by following the money upstream — uncovering the global consolidation of power in nearly every aspect of our lives. Weaving together breakthroughs in science, consciousness and activism, THRIVE offers real solutions, empowering us with unprecedented and bold strategies for reclaiming our lives and our future.
INTERVIEWS in THRIVE
Duane Elgin, Nassim Haramein, Steven Greer, Jack Kasher, Daniel Sheehan, Adam Trombly, Brian O’Leary, Vandana Shiva, John Gatto, John Robbins, Deepak Chopra, David Icke, Catherine Austin Fitts, G. Edward Griffin, Bill Still, John Perkins, Paul Hawken, Aqeela Sherrills, Evon Peter, Angel Kyodo Williams, Elisabet Sahtouris, Amy Goodman, and Barbara Marx Hubbard.
#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.
Sit down and relax… you’re going to need a comfortable chair. But, I promise you… it’ll be worth it.
In the fall of 2008, news stories about “scammers” taking advantage of homeowners at risk of foreclosure started appearing frequently in the media. I remember watching a prime-time national news magazine type program, I think it was 20/20, that was airing a story that featured a sleazy looking middle-age man in Denver, hurriedly walking from a small, strip mall store front to his car, his hand covering his face, as a reporter tried to ask him questions that he obviously did not plan to answer.
The story involved a company that had charged a handful of homeowners several thousand dollars up front to help them negotiate with their banks to get their mortgages modified. The core issue being raised by the show’s host was that the homeowners had been victims of a scam because, as a couple of the homeowners interviewed were saying, their loans had not yet been modified.
I remember wondering, to begin with, how in the world such a story had become the subject of a national news magazine television program. I mean, “Three homeowners get ripped off by small business in Denver,” is not usually the sort of event that makes national headlines. The implication being made was that this case was emblematic of a more widespread problem, but nothing further was offered in the way of proof… no statistics, no additional facts… just statements about how homeowners should NEVER pay anyone up front to help them negotiate with their bank over a loan modification because they were “scammers.”
I asked Eliot Spitzer what he would do with the regulatory system if he were king. He said he did not consider it probable that he would soon be king, but then he offered this simple fix:
The plaintiffs, from Indiana, New York, and Maryland, are represented by AARP Foundation Litigation and the Washington, DC law firm of Mehri & Skalet, PLLC. The lawsuit, filed in U.S. District Court for the District of Columbia, seeks an injunction prohibiting HUD from abandoning long-standing rules and from illegally foreclosing on surviving spouses. These arbitrary changes allow lenders to initiate foreclosure and eviction actions against the plaintiffs.
The case will have broad national implications, because the outcome will determine whether spouses will be able to stay in homes that are now “underwater” as a result of the housing downturn, a possibility that reverse mortgage borrowers have always paid insurance premiums to protect against.
Washington Post Staff Writer
Saturday, October 9, 2010; 10:11 PM
Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people’s homes as fast as possible, often without regard to the rights of homeowners.
In recent days, amid reports that major lenders have used improper procedures and fraudulent paperwork to seize properties, some Obama administration officials have acknowledged they had been aware of flaws in how the mortgage industry pursues foreclosures.
But the officials said they could take only limited action to address the danger. In part, this was because they wanted lenders’ help carrying out federal programs to modify mortgages that had fallen into default or were poised to do so.
New concerns about improper practices – such as those involving faked documents or “robo-signers” who signed tens of thousands of documents without reviewing them – have prompted the mortgage servicing arms of the country’s largest banks to freeze millions of foreclosures. As momentum builds for a national moratorium, the administration has begun assessing the potential impact, examining the threat it could pose for the ailing housing market and the wider financial system.
There is no evidence so far that the specific abuses made public in the past few weeks were known to government officials. Nor is it clear whether they were aware that the process of the selling and reselling of mortgages among financial firms – which became extremely common and highly profitable during the housing boom – was raising legal questions about who actually owned the loans and had the right to foreclose if they want bad.
But government officials were told repeatedly that the mortgage servicing industry was deeply troubled, according to administration officials, consumer advocates, housing lawyers and congressional aides.
Banking Executives Tell Obama Officials Government Needs To Play Large Role In Mortgage Market
(AP) WASHINGTON (AP) – The Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in the mortgage market. Their response: stay big.
While the executives disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role propping up the nearly $11 trillion market.
Bill Gross, managing director of bond giant Pimco, said the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions homes backed by mortgage giants Fannie Mae and Fannie Mac.
Refinancing those homes at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said.
Without such stimulus in the next six months, Gross said, the economy will move at a “snails pace.”
Treasury officials have said they have no plans to enact such a plan, which has been the subject of intense rumors on Wall Street in recent weeks.
Tuesday’s conference at the Treasury Department is the administration’s first of many steps toward restructuring the troubled industry. So far, rescuing Fannie and Freddie has cost the government more than $148 billion. That number is expected to grow.
Treasury Secretary Timothy Geithner pledged “fundamental change” to the structure of Fannie and Freddie. The mortgage giants profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. He said the two companies weren’t the only cause of the financial crisis, but made it worse.
Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans – even after the housing market collapsed.
The two companies, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance.
Geithner did not offer a specific exit strategy for Fannie and Freddie. He agreed that the government could remain involved in the mortgage system by guaranteeing investors in mortgage-backed securities get paid, even when borrowers default.
There is a “strong case to be made” for such an arrangement, Geithner said.’
But Geithner suggested that Fannie and Freddie’s replacements could pay the government to insure the loans. That money could be tapped if the housing market collapses and would ensure taxpayers do not get hit with losses in the future.
“It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again,” Geithner said.
Republicans are expected to pick up seats in Congress in November and the Obama administration will need support from both parties to enact changes next year.
The Obama administration’s management of Fannie and Freddie has been under fire for months from Republicans on Capitol Hill. In December, the Treasury Department eliminated a $400 billion cap on how much money it would give the mortgage giants to keep them from failing.
Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, accused the Obama administration of excluding critics of the government’s role in the mortgage system from Tuesday’s conference.
In a letter to Geithner, Bachus said Treasury appears to be “laying the groundwork for a predetermined policy outcome that looks uncomfortably similar to the failed status quo.”
But the industry executives and experts at the conference seemed to agree that the government should maintain a role in the mortgage market, even if Fannie and Freddie disappear someday. Where they disagreed was on the level of government involvement and whether it should be reduced gradually.
Gross advocated the biggest government role. He said Fannie and Freddie’s function should be consolidated into one government agency that would issue mortgage-backed securities. Without such a solid guarantee, mortgage rates would soar, he warned.
Gross said he is skeptical of having those securities issued by the private sector, saying that doing so would favor “Wall Street as opposed to Main Street.”
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
The government’s $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG’s collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand—moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public.
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear—why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel’s critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau.
The most troubling revelation in this story is the astonishing weakness of the Federal Reserve and its incompetence as a faithful defender of the public interest.
The report concludes that the Federal Reserve Board’s intimate relations with the leading powers of Wall Street—the same banks that benefited most from the government’s massive bailout—influenced its strategic decisions on AIG. The panel accuses the Fed and the Treasury Department of brushing aside alternative approaches that would have saved tens of billions in public funds by making these same banks “share the pain.”
Bailing out AIG effectively meant rescuing Goldman Sachs, Morgan Stanley, Bank of America and Merrill Lynch (as well as a dozens of European banks) from huge losses. Those financial institutions played the derivatives game with AIG, the esoteric practice of placing financial bets on future events. AIG lost its bets, which led to its collapse. But other gamblers—the counterparties in AIG’s derivative deals—were made whole on their bets, paid off 100 cents on the dollar. Taxpayers got stuck with the bill.
“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions,” the COP report said. This could have been avoided, the report argues, if the Fed had listened to disinterested advisers with a less parochial understanding of the public interest.
The Mortgage Foreclosure Maze: Securitization with a Twist
The cases and commentary, the blogs and discussions tend to focus on the legal details. Lawyers without
substantial knowledge of the securitization process attempt to shoehorn the resultant obfuscations into
often-arcane statutes and even more antiquated case law. The result is a bewildering array of conflicting
and confusing case law. Defendants “cannot see the forest for the trees”. This is the intended outcome:
the securitization process practiced by the numerous now defunct fly-by-night originator-securitizers
created a complex maze of internally contradictory documents that only a finance MBA can unravel.
So let us step back and focus on the bigger policy perspective and attendant questions commonly
asked—never definitively answered.
Why do servicers resist loan modifications when the clear economic consequences in terms of net
present value to the “lender” would appear to yield much better results than a foreclosure sale in a
distressed market, less costs of administration? Many focus upon the latter as the driver: the servicers
generate substantial fees in the foreclosure process. The government programs fix upon this aspect and
attempt to sway the servicers’ economic decision by offering a few thousand dollars for modification to
offset the benefits of foreclosure-related fees. But this has not worked—not at all. The reason is clear if
we step back two more steps.
At the inception, the securitizations were mass-produced models of complexity. They are a bewildering
assembly of “boiler plate” common to financings plus special twists that make each one a little different
from the next. These little twists make calculation of the specific payouts across dozens of the trusts
uncommonly difficult. Imagine a servicer with “rights” to service dozens of different trusts with complex
internal ladders of senior/junior tranches that drive re-allocation of payments from one group of
investor payees to another. These are often referred to as “waterfalls”. These waterfalls are driven by
“designed to fail” mortgage loans that go into default. The effect was intended, the triggers to default
were combinations of negative amortization, illusory teaser interest rates and last but not least a very
steep “cliff” that homeowners face when the current payment amounts hit a rest calculation 3-5 years after loan origination. Again the question arises as to why an originator would intentionally create a predictably defective loan. Again the answer lies buried among the boilerplate paragraphs in the seldom-read twists.
In the beginning, the trusts were constructed of ladders of “groups” of mortgage loans [promissory
notes] associated with “classes” of so-called mortgage-backed securities [“MBS”]. The various Classes
are commonly referred to as tranches—using finance terminology that usually referred to different
maturity classes in a conventional securitization pool. For example, a pool of “Group I” mortgage loans
were associated with a pool of “Class I” MBS. The two were theoretically matched: payments in from
homeowners were pooled and paid out to MBS investors. However, these “senior” Class I MBS payouts
were further “supported” by current payments received from mortgage loans associated with junior
classes of MBS. Some refer to this as “over-collateralization”. The investors themselves bought “notes”
issued by the special purpose vehicles [“SPVs”], which could either be affiliates of the originator/securitizer or the so-called trusts. The senior Class I MBS “notes” are payable as ARM investments with periodic payments set to match the full life of the associated mortgage loans. As noted above, the senior Class I MBS investors actually looked to forecast interest rates and the prospect of future payments out of all of the mortgage loans associated with the entire trust—all classes. In other words the senior investors’ returns are virtually guaranteed by all the payments of all the homeowners. There was little risk. These investors paid a premium for these senior classes to refect lack of risk due to over-collateralization, combined with an apparent solid expectation of rising interest rates. The underwriters set up these structures with a view to marketing. The underwriter could approach an investor and tout the safety of seniority and upside of interest rates. A guaranteed “IOU”. Although there were associated mortgage loans, these investors’ due diligence did not require investigation of the quality of the loans in the associated Group I mortgage loans. These investors looked to over-collateralization for payment. The MBS were marketed in this way. Nobody felt a need to look at the quality of these Group loans. That is why the worst loans, the predatory loans, the “air” loans [eg. falsified loans on non-existent condos located above the top story of a high rise] were concealed in the group I loan pool. The concealment was furthered by fairly consistent patterns of failure to file
“mortgage loan schedules” typically required by the securitization documents. These documents—
usually the Indenture—expressly provided for the filings of loan lists detailing aspects of the loans with
both Securities Exchange Commission [“SEC”] and (usually) the Delaware Secretary of State UCC
“financing statement” records. The failures to file loan lists—“missing loan schedules” are observable
from the docket of the SEC for every trust, in tandem with identification of the provision in the
Indentures where a “manually filed” exhibit is referenced. Any losses suffered by owners of these MBS
in 2007-2008 were due to unknowing panic sales or sales that were forced to meet margin requirements
elsewhere. There was no investor fraud associated with these senior classes.
Conversely, some investors in more junior classes received a different marketing pitch and product. For
argument’s sake, let’s say that the trust also included a pool of “Group III” mortgage loans. The Group III
loans are “salt of the earth” loans. These loans are straightforward 30 year fixed rate plain vanilla
conventional loans with no bells and whistles, good documentation, etc. [please note this is a premise
not necessarily a fact]. These Group III loans were superficially associated with junior Class III MBS. The
class III prospective buyers were directed by marketers to look to the associated “safe” mortgage loans
for recovery of investment—and interest. These investors either ignored, overlooked or were misdirected.
They did not take into account the impact of the over-collateralization benefits granted to the
senior Class I MBS holders. These investors needed to examine the quality of the toxic Group I loans that
purportedly supported the senior Class I holders. They did not. They did not even perform the due
diligence necessary to make the simplest of determinations—that in most cases the loan lists were
never filed with the government agencies that the SEC filings represented. These investors were the
teachers and other pension funds. The extent of the fraud on these investor managers was matched
only by their negligence/assumption of risk.
The foregoing sets the stage for the events 2007-8. The original toxic trusts began to really blossom in
2004. They took off. Massive outreach programs were launched to train mortgage loan broker personnel
how to aggressively market the Group I toxic and other loans to “anybody with a pulse”. They needed to
produce loans rapidly to feed the securitization and earn the tax-free SPV premiums. This is well-known.
By 2007, the earliest toxic loans were hitting the “cliff”—facing unsustainable dramatically higher
payment resets. Now the rest of the structure begins to kick in and the motivations of the then creators
and today’s servicers comes into focus.
The Group I loans that go into default cease current payments to the trust. However, the Class I MBS
investors MUST BE PAID. The waterfall kicks in. Current payments by Group III mortgage loan payers are,
in effect, diverted from paying Class III MBS teachers pensions to paying the holders of the Class I MBS
preferred “in the know” underwriter customers. The senior status of the Class I investors went into
effect. As the 2007-2008 debacle gains momentum, more group I mortgages fail and more current
payments are diverted from the Class III investors to Class I investors. Panic sets in and the entire MBS
structure comes under a cloud. In the know bottom feeders buy up Class I MBS for a fraction of their still
solid NPV. Class III investors are coming up short with worse times to come. These MBS sell for pennies.
These investors look to government buyout programs, insurance—anything to recoup.
The disintegration of the group I mortgages accelerates as all approach reset and the economy tanks.
Homeowners lose long-held jobs and must relocate to find new jobs. Their homes are now well below
water, no matter what the original loan to value ratio. They abandon homes to the foreclosure mills.
This is a well known scenario. But the unanswered question remains: What happens to the growing
volumes of incoming foreclosure proceeds? Who gets these monies?
The answer to this seeming imponderable is found in the servicing agreements. The servicer deposits all
receipts from current payments and foreclosure proceeds into a “collection account”. Payments are
made as per the terms of the MBS to the MBS investors from this account. However, the twist is that the
payments to the junior MBS classes, such as the Class III MBS, can be sourced exclusively from current
mortgage loan payments after the re-allocation of payments to the senior Class I MBS. By EOY 2008,
70% of the early 2004 Group I loans have defaulted—no current payments made. This 70% shortfall in
receipts available to the Class I holders is “made up” by shifted funds from Class III holders. At the same
time as the servicer is short-paying the Class III holders, the servicer is literally swamped with incoming
proceeds of foreclosure from all Groups—worst being toxic Group I mortgage loans. The terms of the
trust do not allow the servicer to distribute the foreclosure proceeds. The foreclosure proceeds instead
cause the servicer’s “collection account” balance to grow exponentially. The terms of the servicing
agreement, not surprisingly, contemplate this easily foreseeable eventuality.
Under older less aggressive securitizations and escrow arrangements a common benefit to servicers and
banks alike was the ability to retain the income from investment of the collection account balance. In
the “old days” this balance typically arose from timing differences between escrowed insurance and real
estate tax receipts versus payments to insurers and county governments. However, the same rules were
applied to these trusts. The balance of the entire trust’s loan amounts outstanding was and is shrinking.
Simultaneously the servicer’s related “collection account” is burgeoning with foreclosure proceeds.
Theoretically these proceeds must be held intact until the amounts are called upon to make distributions in the distant future to the Class I senior MBS holders. So after the Class III salt of the earth payers have themselves failed or refinanced, the proceeds might be needed. The servicer is stuck with large cash surpluses in the collection account. Once again by careful forethought the servicing agreement provides that the servicer may invest the proceeds of the surplus [foreclosure proceeds] in some worthwhile investment of several types typically set out in the servicing agreement. But there is no oversight and only in years’ far in the future will failed or fraudulent investments be felt by the Class I investors for whose purported benefit these sums are maintained. However, the servicer is expressly entitled to retain the entire income stream from this collapsed structure.
This series of events explains why servicers are REALLY anxious to foreclose—even if the decision
appears from the outside to make no sense. It explains why servicers have paid large sums for the
“servicing rights”—which most unknowing souls believe relates primarily to skimming fees. The true
incentive for the servicer is control over the ever-growing pool of foreclosure proceeds—similar to a life
estate. This is the last step on a long trail of American tears. It appears superficially to be legal but for
the original deceptions. That is why the worst trusts were made by fly by nights and they conveniently
file for bankruptcy. By connecting the servicers today to the original trust structure planning, the
servicers be deprived of their ill gotten gains and justice be done. This cycle will repeat itself absent
intercession by government.
According to a study released Friday by NeighborWorks America, 58 percent of homeowners who’ve received assistance through its national foreclosure counseling program reported the primary reason they were facing foreclosure was reduced or lost income.
NeighborWorks was created by Congress in 1991 as a nonprofit organization to support local communities in providing its citizens with access to homeownership and affordable rental housing. In January 2008, with the foreclosure crisis raging, Congress implemented theNational Foreclosure Mitigation Counseling (NFMC) Program and made NeighborWorks the administrator.
The organization says that over the course of the NFMCprogram, the percentage of homeowners who’ve cited wage cuts or unemployment as the primary reason they were facing foreclosure has steadily increased.
In November 2009, 54 percent of NFMC-counseled borrowers reported reduced or lost income as the main reason for default. Six months earlier in June 2009, it was 49 percent; in February 2009, 45 percent; and in October 2008, 41 percent.
These steady increases parallel the nation’s unemployment rate, which until the November 2009 employment report, had marched upward since October 2008.
“With unemployment numbers not likely to dip below nine percent in 2010, our report proves what many already believed to be true. Unemployment and reduced income are having a devastating effect on our nation’s homeowners,” said Ken Wade, CEO of NeighborWorks America.
The administration recently announced changes to its Making Home Affordable program to provide assistance to unemployed homeowners by temporarily reducing or suspending mortgage payments for a minimum of three months. The initiative becomes effective July 1, 2010.
The federal government has also awarded additional funding to states where unemployment is high to support localized mortgage relief programs for homeowners who are out of work.
Lawmakers too are on a push to help homeowners who’ve lost their jobs. Congress’ financial reform package includes a measure that uses $3 billion from the Troubled Asset Relief Program (TARP) fund to make loans of up to $50,000 to unemployed homeowners to be used to make their mortgage payments for up to 24 months while they are looking for a new job.
Wade said, “While Congress and state governments have stepped up and extended unemployment benefits to help families survive this tough economic climate, it’s time for mortgage servicers and investors to make meaningful accommodations for homeowners facing foreclosure. If they don’t, we’ll see even more empty houses and devastated neighborhoods in our communities.”
NeighborWorks also noted in its report that 62 percent of all NFMC clients held a fixed-rate mortgage, and 49 percent were paying on a fixed-rate mortgage with an interest rate below 8 percent.
Nearly one million families have received foreclosure counseling as a result of NFMC Program funding. According to NeighborWorks, NFMC clients are 60 percent more likely to avoid foreclosure than homeowners who do not receive foreclosure counseling.
With home loans going bad at a still-staggering pace and losses mounting for the GSEs, the nation’s two largest mortgage financiers are pursuing several avenues to recover money, including returning poorly underwritten loans to lenders. During the first three months of this year,Fannie Mae and Freddie Mae required lenders to buy back $3.1 billion in mortgages they’d sold to the two firms.
Lenders repurchased approximately $1.8 billion in loans from Fannie in Q1, measured by unpaid principal balance, according to a recent filing by the GSE with the Securities and Exchange Commission (SEC). During the same period last year, Fannie forced lenders to buy back $1.1 billion in bad loans.
“We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage,” Fannie wrote in the regulatory filing.
Freddie Mac sent $1.3 billion in faulty home mortgages back to the loan sellers during the January to March period, the GSE said in its Q1 SEC filing. That compares to repurchases of $789 million during the first quarter of 2009.
“We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our mortgage seller/servicers, including non-performance of their repurchase obligations arising from breaches of the representations and warranties made to us for loans they underwrote and sold to us,” Freddie Mac explained in the regulatory document.
Freddie says some of its seller/servicers failed to perform their repurchase obligations due to lack of financial capacity, and many of the larger seller/servicers have not completed their buybacks “in a timely manner.”
“As of March 31, 2010 and December 31, 2009, we had outstanding repurchase requests to our seller/servicers with respect to loans with an unpaid principal balance of approximately $4.8 billion and $3.8 billion, respectively,” the GSE said.
As of the end of March, approximately 34 percent of Freddie’s outstanding purchase requests were more than 90 days past due.
“Our credit losses may increase to the extent our seller/servicers do not fully perform their repurchase obligations,” Freddie Mac wrote in the filing. “Enforcing repurchase obligations with lender customers who have the financial capacity to perform those obligations could also negatively impact our relationships with such customers and ability to retain market share.”
According to regulatory filings made by the GSEs earlier in the year, the two companies are expecting to return as much as $21 billion in home mortgages to banks in 2010. The nation’s four largest lenders – Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase – are the largest sellers of home loans to Fannie and Freddie and will likely take the biggest hits.
A recent report from Bloomberg noted that these banks sell mortgages to the GSEs at full value, which means they must buy them back at full value. But the news agency says at least one bank, JPMorgan Chase, says most of the loans repurchased must be immediately written down, sometimes by as much as 50 percent.
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