IN THE "I TOLD YOU SO" DEPARTMENT

In the "I Told You So Department" ...

It turns out that when Fannie Mae was in private hands, back in 2003, that they knew about foreclosure fraud but did absolutely nothing about it. Nice. One of the reasons for not doing anything about it was that people along the financial train were getting rich off the process ... going all the way back to the last years of the Clinton administration! Yeah, that's about 15 years ago, and almost 10 years before the 2008 market collapse.

This is what I wrote in the opening pages of chapter 12 in my book, The Myth of the Free Market ...

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One year before the Financial Services Modernization Act (1999) was passed into law the Federal Deposit Insurance Corporation issued a set of guidelines for member banks managing transactions that involved bundled loans that were sold as collateralized securities. Concerned that deposit-taking institutions had not exercised sufficient risk management when handling these loan contracts the F.D.I.C distributed a “Statements of Policy” at the beginning of 1998 making it clear collateralized security transactions were on their radar screen. While it set out to reacquaint institutions with basic due diligence procedures, it also listed ways private firms could defraud F.D.I.C-backed institutions. More bluntly, the Statements of Policy (SOP) guidelines said private financial institutions weren’t always playing fair with F.D.I.C. backed institutions, especially when it came to complex financial instruments.

Among the embarrassingly basic rules of caution covered included “know your counterparty,” credit analysis, and credit limit reviews. The guidelines were so simple it was difficult to tell whether they were issued for the new finance guy at the local car dealership, or were really geared for seasoned F.D.I.C. affiliated banking institutions. Still, one thing stood out – in the wake of the 2008 market collapse – the 1998 SOP offered a Crow’s Nest view of what went wrong. Pointing to the tactics of subsidiaries belonging to “financially stronger and better-known firms” the SOP warns that larger corporations “may not be legally obligated to stand behind the transactions of related companies,” so the subsidiary may not be credit worthy. The F.D.I.C.’s advice? Don’t trust the other guys “character” or “integrity” until you get “the stronger firms” signature. That this needed to be said should have raised red flags back in 1998. Incredibly, the guidelines get even more basic.

We all know when we purchase a new car we have to deal with the sales staff. We’re then shuffled off into cubicles where we have to deal with the finance and credit team, who also want to sell us stuff. There’s a reason why the dealerships keep these two positions apart. Sales staff, anxious to sell a car, will either lower credit standards or overlook red flags on a customer’s credit report. Not so in the F.D.I.C. institutions. Apparently burned by too many conflict of interest transactions involving sales and finance pulling double duty, the F.D.I.C. found it necessary to remind banking institutions that credit evaluations for CDO transactions, for example, should be done by “individuals who routinely make credit decisions” and not those involved in sales. The F.D.I.C institutions were then provided with the incredibly sage advice that they should be on the look out for buyers who were already “overextended.”

Perhaps the greatest words of caution are saved for institutions inclined to believe CDO instruments could be used as market collateral. F.D.I.C. guidelines make it clear that simply because an institution has a CDO-affiliated instrument doesn’t mean it’s sitting on an asset whose book value is equal to its market value. The 1998 guidelines suggests, for example, that if a $100 million CDO transaction has occurred that “experience has shown” the underlying product or contract “will not serve as protection” if the subsidiary fails, or if the firm does not have control over the security. Put more simply, the tone of the 1998 SOP guidelines tell us market players and the federal government knew that U.S. financial institutions were sitting on a financial powder keg long before the 2008 market melt down began.

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I know, I know ... What I wrote about is a level removed from simple mortgages. The complexity contributes to why America is baffled by the bailout language. But it's all connected. Trust me.

So, yes, people knew that the CDO markets were a mess long before 2008. The market collapse was not an aberration. Very specific activities made it happen.

And, yes, I told you so.

- Mark

MORTGAGE SETTLEMENT = PAYOUT AND THE CHANCE TO DO IT AGAIN

OK, it looks like a settlement on the mortgage mess has been reached. Rather than go into the details, or discuss how "wonderful" the $26 billion penalty is, the good people at nakedcapitalism.com have put together a wonderful list of 12 Reasons to Hate the Mortgage Settlement.

It's pretty much what I've been writing about our real estate and banking mess for years now, but it's nice to see it synopsized.

Because the article at nakedcapitalism may be a bit long, I've synopsized the first seven points here:

1. FORGERY HAS A PRICE: The price of forgery and fabricating documents is now officially $2000 per loan. Not only is this amount a fraction of the cost of the legal expenses when foreclosures are challenged, but no one goes to jail for forgery. Take that, 300 years of real estate law.

2. TAXPAYER PAYS (again): The $26 billion sticker price penalty actually involves only $5 billion of bank money. The rest is your money. Mortgages that have been securitized will be written down, which means CDO investors will get Fannie and Freddie (who are now backed by the American taxpayer) to pick up the tab for their losses. Unfortunately, the size of your pension funds, 401 (k)s, etc. will take a hit too, which means reduced assets and income for your portfolio and retirement account(s). So you actually pay twice. Nice.

3. BANKS GET OFF: $5 billion divided among the big banks means nothing. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. BANK BAILOUT (again): $20 billion makes bank second liens sounder. This deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. ENFORCEMENT IS A JOKE: The first layer of supervision is the banks reporting on themselves. Seriously.

6. SERVICERS WON'T COMPLY WITH THE AGREEMENT: The history of servicer consent decrees is clear. Even though the banks said they wouldn't engage in criminal acts again (like forgery for paperwork they couldn't locate) in exchange for not being prosecuted, the banks and the servicers have failed to comply. Robo signings, among other activities, continue because the industry wants to bury the bodies.

7. CONSENT DECREE RENDERED TOOTHLESS: When Nevada and Arizona caved on the Countrywide settlement suit Bank of America rejoiced. It proved that failing to comply with a consent degree has no consequences 

You should read the entire article, and the follow up pieces too. Long story short? No penalties, another backdoor bailout, and another market collapse in the future. Only the next one will be worse than in 2008 because the banks haven't learned any lessons.

Oh, and they're going to try and do the same thing on a global level with the emerging markets. 

- Mark

WEALTH EXTRACTION 101

Remember this? (full view here; thanks Seven)

This chart explains who owns the title to one home in America. It was put together by a securities analyst who wanted to know who held the title to his home. It took him one year to figure this out. Here's the incredible part. It's the day job of this analyst to figure this stuff out on a daily basis.

Yeah, I know. Property rights in America shouldn't be this difficult. What a mess.

Anyways, I wrote about this and the legal maze that makes our financial and real estate markets such a mess earlier (here and here). Specifically I wrote that the very notion of property rights in America may be in trouble because of how Wall Street wanted access to income streams (to create securities), but didn't want to actually produce anything for the money. So they found a way to dump the actual title (plus the administrative and legal responsibility) of a home on to an obscure mega corporate entity called Mortgage Electronic Registration Systems (MERs). Then - in a demonstration of wealth extraction at its finest - they siphoned off the house payments into another legal maze (of securities) that benefited a few Wall Street market players.

And just like that, a small group of market players were able to make claims on millions of mortgage payments (through various "security" instruments) without having any responsibility for filing, registering, and tracking who owned the note on the house. (If you're looking for a metaphor it's kind of like handing the car keys, your wallet, and a keg of beer to your unemployed cousin and telling him to have fun.)

This is where it gets real good.

Rather than deal with homeowners after the mortgage bubble collapsed - and after their mortgage payment-security scheme went bust - Wall Street and other big market players said: "We can't negotiate with homeowners because we don't have the title to the home (MERs does). And besides, the loans have already been sold several times over ... oops."

Then, while threatening that system collapse was imminent if they didn't get bailed out, Wall Street and America's biggest financial players got the federal government to provide them with trillions in taxpayer backed guarantees. Why should big banks and Wall Street have to negotiate with homeowners (and learn from market justice) when Uncle Sam can foot the bill for their greed and arrogance?

Trillions of dollars in bailout money are now being used to purify and prop up an entire industry, while filling financial holes created when the income stream (i.e. mortgage payments) behind Wall Street's (pyramid) security schemes dried up.

Again, wealth extraction at its finest (if you're wondering why Wall Street isn't in jail, me too).

Anyways, I'm writing about all of this (again) because of how this Harper's Magazine article on MERs (hat tip to Barry Ritholtz) explains how Wall Street can make claims on money without actually producing anything of value. It also helps us all understand how our nation's biggest market players have undermined our nation's market integrity, while making a mockery of property rights in America.

If you care about the Constitution (hello, Tea Party) and the future of our nation this is one of the areas where you should be directing your attention.

- Mark

TRAILER PARK ECONOMICS

So, I'm thinking, How do I make this somewhat complicated post easier to understand? In the post I explained how Wall Street and the nation's biggest banks profited after making stupid business decisions. Specifically, I wrote how Wall Street was able to get the federal government American taxpayer to underwrite their stupidity with government taxpayer backed loans after they lost a bundle gambling on reckless derivative investments, and then wrecked the economy. Here's a short - and a bit more humorous - take on the events surrounding our market collapse and bailout.

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Imagine that you owned a trailer park development project and went to Las Vegas. You borrowed against your assets and then gambled away all your money. You now have to file for bankruptcy. This is how market justice is supposed to work.

Then, out of the blue, your bank covers your losses in Las Vegas. Then they open the loan spigot for you. The bank also tells you that you can continue doing what you were doing before you lost everything (in this case gambling). Seeing all this the Vegas casinos jump in and say, "Come to our gambling dens (again) ... we're even going to comp your suites." 

The best part (for you) is that the banks are going to charge you virtually zero percent on the money they're lending you. All you have to do is give the bank title to your "trailers with a view" development project as collateral. 

But wait. It gets even better. The banks are going to loan you money based on the value of your trailer park development BEFORE the market crashed. It doesn't matter that you over inflated the value of your $100,000 project by $1 million. You still get your million dollar loan because neat accounting tricks make the value of your crappy assets look good. You can walk away with the borrowed money any time too.

At the end of the day, you know you're going to walk away because the American taxpayer banks are going to be left with your trailer park assets. Sweet (for you).

Incredibly, things get even better for you because, with new money to backstop your stupidity, you can now start kicking out renters that you never liked. With your trailer park investment project effectively paid off, you can become arrogant and vindictive. And you're bringing a new landlord.

Can you imagine this happening? Of course not. This level of reckless support only happens if you're one of the big financial players making stupid bets in America.

While I've oversimplified all of this, conceptually the logic applies. Our financial mandarins, who like to think they're rugged individualsts, are really wards of the state. And you and I get to pay for it all.

- Mark

THE "BIG LIE" CONTINUES

Early last week I posted on the GOP presidential field and their penchant for blaming the housing mess - and subsequent 2008 market collapse - on government policies. Long story short? Calling on my inner Paul O'Neil, I commented that the candidates in the GOP field are acting like blind men in a room full of deaf people. I posted links to earlier posts and op-eds I've written on the topic to provide substance and background.

Today I ran into this Washington Post discussion on the market collapse by Barry Ritholtz. It's titled "What caused the financial crisis? The Big Lie goes viral."

In a few words, Ritholtz makes the same points that I do, and argues persuasively that - rather than admit error - there is an emerging industry out there bent on creating a new narrative. Not only is this new narrative full of lies but, unfortunately, it's also winning the day.

 
Challenged on his op-ed points, Ritholtz responded with this piece in the Washington Post. It's excellent. I encourage you to read both his Nov. 5 and Nov. 19th columns. Both have inspired a great deal of ill-informed push back.

According to Ritholtz, the "push back continues from the usual sources." He lumps the Know Nothing sources into "3 distinct categories" that tell us much about a larger "disturbing trend" in America:

1) The Cognitive Dissidents (my term for a those politically dissenting from reality); their brains simply will not allow them to see what disagrees with their ideology. This is a very real and unfortunate part of human nature;

2) The Political Manipulators, who cynically know what they peddle is nonsense, but nonetheless push the stuff because it is effective. These folks are more committed to their ideology than the good of the nation, and as such earn my disdain.

3) The Innumerates, the people who truly disrespect a legitimate process of looking at the data and making intelligent assessments. These innumerates — mathematical illiterates — seem to revel in their own ignorance; it is embarrassing.

Ritholtz adds, "denying of reality has been an issue, from Galileo to Columbus to modern times. Reality always triumphs eventually, but there are very real costs to it occurring later versus sooner . . ."

I couldn't agree more.

- Mark

THE GOP FIELD ... LIKE BLIND MEN IN A ROOM FULL OF DEAF PEOPLE

Republican presidential candidates are ignoring reality, again.

Ten months ago I wrote that the GOP would - against all the evidence - begin blaming the government for a housing mess that was largely caused by the private sector and Alan Greenspan's policies. I wrote about it again in June. So, what happened last week? GOP presidential hopefuls blamed the real estate mess on "the government."

Like Paul O'Neill's blind man in a room full of deaf people, the GOP field ignored the role "Wall Street," "deregulation," and our "shadow banking" system played in creating the conditions for our housing market to bubble and burst. Nice.

But none of this should come as a surprise. GOP operatives began laying the groundwork for this narrative ... last December. Like last year's GOP operatives, todays Republican presidential hopefuls ignored the following:

* Freddie Mac and Fannie Mae were privately managed (and even became one with Wall Street) during the worst period of the housing bubble and bust.


* The real estate bubble and crash was global. Freddie, Fannie and the Community Reinvestment Act aren't global.


* Our commercial real estate market bubbled and crashed, too. Housing policies concerning Fannie, Freddie and the CRA had nothing to do here.


* Federal Reserve data reported that more than 84 percent of subprime mortgages in 2006 (right before the crash began) were issued by private (shadow) lending institutions. Yeah, that's 84 percent.


* Of these, only one of the top 25 subprime lenders in 2006 was directly subject to the housing laws like the CRA.

For added measure, here's what Federal Reserve Chair Ben Bernanke had to say about the real estate bubble and crash: 

"(M)ore than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties."

And the GOP's vaunted free market claim? Their record's not good here either. Back in 2003 Republicans began praising subprime lending as the type of innovative lending that comes from deregulated or unfettered markets. Again, they praised subprime lending that led to low quality mortgages.

But this isn't the worst of it.

The real story here is how Republican members of Congress actually used Wall Street talking points to criticize Freddie and Fannie in the lead up to collapse. They did this because it helped AIG, Goldman Sachs, Lehman, Merrill Lynch, etc., muscle in on Freddie and Fannies market share (between 2004 and 2006 Fannie and Freddie went from holding a high of 48 percent of the subprime loans to about 24 percent).

After dumping many of these products on unsuspecting clients, Wall Streets economic mandarins are now dumping many of these toxic ("legacy") assets on the American taxpayer, in exchange for cash payouts.

You won't hear any of this from the GOP list of presidential candidates. Ever.

- Mark

WHY FORECLOSURE IS A LUCRATIVE BUSINESS MODEL

Imagine what would happen if you filed an insurance claim on your $20,000 car after you sold it. Most of us don't do this because it's against the law. Specifically, most of us don't do it because it's morally and ethically wrong. We have a conscience. Not so with our nation's biggest banks. They not only file claims like these, but they do it often. Here's how it works.

The nation’s five largest mortgage companies have been accused of defrauding taxpayers by using defective and faulty documents to file federal reimbursement claims on home mortgages that are backed by the federal government (VA or FHA mortgages, for example). The problem is that these claims are being filed on homes the banks foreclosed on AFTER they sold it for less than the outstanding loan balance.

If it were a car, what the banks are accused of doing with foreclosed homes is akin to filing an insurance claim on a car the bank repossessed AFTER they sold it for less than what the previous owner owed. Instead of taking a hit for making bad loan decisions they're forcing the federal government the American taxpayer to take it on the chin.

Five separate investigations conducted by the Department of Housing and Urban Development examined the activities of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally. To pursue the case the feds are using the False Claims Act, a Civil War-era law crafted after numerous firms swindled the U.S. government by selling it (and Union soldiers) sub par and defective food, uniforms, and weapons. 

So, why is all of this important? Three reasons.

First, if the banks knew they were going to get their claims paid out by filing false claims to the federal government then the banks had a financial incentive not to hire people to help distressed homeowners modify their loans (not hiring more staff also saved the industry $40 billion).

Second (and worse), the banks also would have had a financial incentive to file and speed up foreclosures on distressed home owners whose homes were backed by the government. Taxpayer guarantees are easy pickings. Bank of America, it appears, has mastered this practice.

Finally, the key to making all of this market magic work was to find a way to kick people out of their homes en masse, and quickly. Hello, Robo Signing mills ...

There's a reason why the banks want to pay fines for doing all of the above, instead of being forced to negotiate with distressed homeowners. They've made a ton of money, and fines are viewed more as a nuisance tax. With the federal government making guaranteed payouts, and with nifty tools like "net present value" to undermine homeowner interests, foreclosure has become a lucrative business.

Why isn't any of this surprising?

- Mark

MORE CORPORATE BLAME GAMES

About eight months ago - in "Corporate America's Blame Game" - I discussed how our financial services sector is busy suing each other because no one wants to accept responsibility, for anything. Well, guess what? The finger pointing in corporate America continues.

First up, we're learning that Deutsche Bank has shoved at least a billion dollars in toxic loans on to the books of the U.S. government, in the process shifting responsibility and blame on to the government for bad loans that they originated (their argument works like this, "If the government insured it, it's their fault").

Then we hear about our taxpayer bailed out banks illegally evicting military families from their homes, in the process claiming that they were both a "painful aberration" and an oversight in bank practices - ignoring how the industry created the "aberration" environment by deliberately overworking and taking shortcuts on hiring people to properly assess troubled borrowers' home loans (earning $20 billion in savings in the process).

Now we see the banks raking in billions of dollars acting as bad neighbors and slumlords because of their claim that they aren't legally responsible for maintaining their properties, in the process shoving the responsibility on to hard-to-prosecute servicers of their loans.

Making matters worse, is that all of these taxpayer bailed out parasites are hiding behind lobbyist-driven negotiations, and taxpayer funded legal infrastructures to avoid responsibility for their questionable activities.

At the end of the day we end up with one simple truth: The banks are not responsible for anything.

And the big banks wonder why America has lost faith in corporate America and in the financial services sector (only 25% of Americans trust the banks to do the right thing, a drop of 46% points).

Simply put, the banks are demonstrating that they have no sense of responsibility, shame, or irony.

They just have our money.

- Mark

TAXPAYERS IN HOUSING PURGATORY ... BUT SCREW YOU ANYWAYS

While America's financial institutions make their way through record profits and bonuses - made possible by trillions in government guarantees and taxpayer backed bailouts - millions of distressed homeowners are forced to sail the high seas of housing purgatory.

Matters are made worse for homeowners by financial institutions who are saving billions by dragging their feet on providing adequate service to distressed homeowners.

So, how much does dragging their feet save America's bailed out financial institutions? By not upgrading their procedures, by not hiring more workers, and by not making necessary loan-processing adjustments Bank of America alone has saved more than $6 billion. Wells Fargo, JPMorgan, Citigroup, and Ally have saved billions as well, according to a confidential presentation prepared by the Consumer Financial Protection Bureau (CFPB).

Overall, by delaying applications and providing shoddy service, the banks have saved about $40 billion. The impact has been predictable. Delinquencies and foreclosures have soared, while distressed homeowners, who might otherwise be prime candidates for payment reductions, aren't getting loan modifications.

But all is good for America's banks because - as I've pointed out ... over and over and over again - the banks are able to take the contract you walked away from, and get almost face value for them (BofA is especially good at this). Bonuses are had by all. You, on the other hand, can do little as your home life and credit scores are wrecked ...

... all of which is good for the big banks, but cost you in the long run.

Additional concerns made worse by banks dragging their feet include:

* The CFPB estimates that there are about 12 million U.S. homeowners underwater (about 23 percent), most of whom are not delinquent. Of those, nine million would be eligible for proposed principal-reduction programs.

* About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February 2011.

* Underwater homeowners owe $751 billion more than their homes are worth. This number is made worse by the fact that ...

* Home prices continue to decline, and reached their lowest levels since 2003, according to the National Association of Realtors.

* With millions of homeowners in housing purgatory purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department.

The incredible thing is that fixing many of these problems would cost a fraction of the trillions it has cost U.S. taxpayers to bail out Wall Street. Specifically, lowering total mortgage debt for three million homeowners who are underwater by 15 percent would cost about $135 billion (or about what Wall Street's top 25 publicly traded banks and security firms paid out in compensation and benefits in 2010).

So, not only did America's biggest financial institutions get trillions in taxpayer guaranteed money, but they have no obligation to help their taxpaying customers stabilize their housing situation. Nice.

And why should they? They got their money. They can afford to wait (and make money doing so) as American taxpayers are slow-bled out of their homes.

So screw you American taxpayer.

- Mark

P.S. If you want to help do something about this ... and you're looking for a job ... and would like to work for the newly created Consumer Financial Protection Bureau (CFPB) ... and have experience in finance and auditing take a look at this site.

THE AMERICAN SISYPHUS ...

Remember the story of Sisyphus? He was the king in Greek mythology who was punished by being forced to roll a boulder up a hill, only to watch it roll back down. He was to repeat this activity throughout eternity.

If you recall this story then you'll understand why this piece from Mother Jones makes the U.S. taxpayer out to be little more than an American Sisyphus ...

First you bailed out Fannie and Freddie. Now you're paying their legal bills.

Taxpayers have covered $434 million in legal fees for Fannie Mae, Freddie Mac, and their highly-paid executives since the federal government took over the wounded housing giants in September 2008, according to data (PDF) provided to Mother Jones by a congressional source.

In case you forgot, Fannie Mae and Freddie Mac were privately managed, government backed, institutions who were used to absorb corporate America's toxic mortgage loans. They then bundled them up and dumped these contracts (CDOs) on gullible market players (like union and state pension funds), who ended up taking huge hits when the market collapsed in 2008.

After the American taxpayer bailed out Fannie and Freddie, and backstopped all the toxic loans for Wall Street's wage and bonus bonanza in 2008 and 2009, we're now paying to defend their incompetence too. Great.

I don't know about anyone else, but I'm beginning to feel like the American Sisyphus ... condemned to bailout out Wall Street and corporate America's incompetence into eternity.

- Mark

SYSTEMIC CRIMINALITY AND CIVIL FRAUD, OR BUSINESS AS USUAL?

President Obama did not sign legislation that the Senate passed with a voice vote last week. The bill would have allowed banks to speed up home foreclosures by diluting and removing notary due diligence requirements that are supposed to be carried out during the mortgage and foreclosure process.

While the banks and mortgage industry claim the primary goal of the proposed legislation was to facilitate "interstate commerce" the reality was quite different. Simply put, the bill would have enabled the nation's largest banks to push people out of their homes quicker by allowing banks to cover up deceit and fraud during the loan origination and foreclosure process.

While it is good news (for now) that President Obama did not sign the bill into law, this piece from MSNBC's Dylan Ratigan explains why our mortgage and real estate industries are now facing a legal mess. In a few words, those involved in financing and servicing mortgages are trying to hide the fact that they didn't care about qualifications, and did a piss poor job of documenting loans that they subsequently dumped on the American taxpayer federal government after 2008.

Worse, as Ratigan points out, there are a lot of people trying to cover up "systematic criminal and civil fraud at the highest levels of America's banks and in its political corridors."

Put another way, thanks to Wall Street and Washington the American taxpayer is getting the shaft, yet again.

- Mark

FORECLOSURE FOLLIES & FALSE POSITIVES

Here's how you know you're dealing with a survey company that's dealing from the bottom of the deck ...

Check out this question, and see if you can spot the section where they're doing a little "push-polling" (planting an idea in your head before they ask the question they really want you to answer).

2.* Some say that Wall Street investors and mortgage companies are to blame for the problems with subprime mortgages and foreclosures. Others say that individuals who borrowed more than they could afford are to blame. Who do you believe is primarily to blame?

Can't find it? OK, let's try again. This time I'll pull out the phrase that makes the query a "leading" question. Using the same language I'll ask the question the way it should be asked, if the pollsters were being intellectually honest.

2.* Some say that Wall Street investors and mortgage companies are to blame for the problems with subprime mortgages and foreclosures. Others say that individuals are to blame. Who do you believe is primarily to blame?

Got that? The polling company inserted "who borrowed more than they could afford" in an attempt to plant the idea that borrowers were reckless and irresponsible when they took out loans.

If I were going to reverse the goal - and try to make an equally culpable Wall Street and their mortgage industry buddies out to be the bad guys - I would ask the question like this ...

2.* Some say that Wall Street investors and mortgage companies who recklessly securitized loans and took out insurance that could not be paid if the market collapsed are to blame for the problems with subprime mortgages and foreclosures. Others say that individual homeowners are to blame. Who do you believe is primarily to blame?

See how that works? The question takes on an entirely different connotation when you suggest that Wall Street's recklessness is also to blame for the mess.

The poll, which was reported in Rasmussen Reports, was conducted by Rasmussen, a conservative-leaning polling organization. They finished off their 5 question push-poll with this innocuous sounding question ...

5.* Would you favor or oppose a plan forcing banks to stop all mortgage foreclosures for the next six months?

As you can imagine, the wording of Question #2 allowed them to come up with this "made for TV" headline.

"Americans Are Now Less

Supportive of a Foreclosure Moratorium"

Nice. I'm sure Wall Street and the mortgage industry was happy with this one (though I'm not sure who paid for the poll).

At the end of the day, as I always tell my students, you can't simply depend on what the polls say. You need to know who's asking the questions, and how they put the poll together.

- Mark

OUR NEW, AND RIDICULOUS, FORECLOSURE STANDARD(S)

RealityTrac.com has the new numbers. We're now in the 18th straight month with 300,000 or more foreclosures. Why is this happening?

According to Barry Ritholtz, author of Bailout Nation, the problems aren't simply a matter of paperwork glitches. Apart from legitimate issues of people not paying their mortgages, what we're seeing is rampant fraud on the part of the banks.

What's worse, in my view, is how rampant fraud and cloudy ownership claims now constitute a genuine threat to property rights, which is the linchpin behind modern capitalism in America. Indeed, things are so bad that title insurance companies are now reluctant to guarantee properties that banks are foreclosing on because of improper foreclosure proceedings. Fraud and ownership claims are made even more murky by securitization claims and homes that have been improperly foreclosed on, even when they've been paid in full.

Huffintonpost.com is reporting on the story of a Florida woman who bought a foreclosure home, only to be told later that the property's foreclosure might not be valid. Cases like this, coupled with banks improperly changing locks on homes that aren't in foreclosure or foreclosing on homes that don't even have mortgages -- constitute a crisis of historic proportions, Ritholtz said.

Diana Olick, who was reporting on this story for MSNBC's Larry Kudlow, responded by saying "You're always going to see those stories," and that even though they shouldn't happen she dismissed the story by asserting, "The cops often knock on the wrong door in other cases as well."

You know, this is akin to saying "It doesn't matter if you get accused of assault or rape. If you haven't done anything, you have nothing to worry about."

Rampant fraud ... Property rights under assault ... S**t happens, live with it ... This is how low our standards have dropped in our mortgage and housing market.

- Mark

YET ANOTHER BAILOUT & SUBSIDY FOR THE BANKS?

My god, how many bailouts do these guys get? Seriously ...

A bill that passed through the Senate last week - the Interstate Recognition of Notarizations Act - would make it more difficult for homeowners to challenge bank foreclosures if President Obama signs it into law. Specifically, the bill says that the courts must accept digital notarization done by electronic means (in another state, no less).

This means that anyone with the right software could notarize a digital document, or image of a document, without watching or actually validating in person that specific procedures and due diligence were followed. As you can imagine, this could create an even bigger environment for fraud ... while putting a stamp of approval on the fraud that's already happened (in what's being called "Foreclosure Gate").

So this is what we're looking at. Once a notary signs and gives the banks legal cover for saying "everything's on the up and up" there's little recourse for a homeowner, other than spending more money to fight or challenge suspected fraud.

But even this option would become more difficult if you've already been foreclosed on and kicked out of your house, which this bill would facilitate. Kind of like calling the fire department after your house has burned down.

Ultimately, this bill would raise the bar for homeowners who want to challeng the legality of documents that the banks claim were prepared properly. That this is being shoved in front of President Obama when banks have already been caught forging documents and lying about what they've done with homeowner documents should raise all kinds of red flags.

At the end of the day, the right and authority to challenge foreclosures would be more difficult for homeowners - who are already under stress with job insecurity, mortgages that are underwater, and collapsing home prices - if the president signs the bill.

President Obama needs to veto this bill.

- Mark

A CULTURE OF LIES AND DECEPTION IN OUR MORTGAGE MARKET

Oh, what a tangled we we weave,

When first we practise to deceive!

- Sir Walter Scott, Marmion (1808)

Earlier this week I posted on how a culture of lies developed in our real estate markets to such a degree that Wall Street and other market insiders:

* Knew the real estate industry was producing toxic mortgage loans.
* Purchased insurance for these toxic loans and/or the toxic securities (that the toxic loans were thrown into), knowing that the underlying loans would likely fail.
* Are reacting to the irregularities and fraud now being discovered (in the loan origination process) by ignoring basic and legally mandated procedures in an effort to foreclose on as many homes as possible.

This is what makes the following so interesting ...

Today, courtesy of Zero Hedge, we learn that not only are financial servicers for the mortgage industry foreclosing on mortgages which nobody apparently owns the title, but (according to a letter from Congress sent to Fannie Mae) the industry is now outsourcing their foreclosure avoidance obligations to legal firms and lawyers "who specialize in kicking people out of their homes." 

So much for doing what's in the best interest of the homeowner, and the consumer. But wait. It gets better.

From the same letter signed by Reps. Frank, Grayson, and Brown, we also find out that some of these firms have been accused of "fabricating or backdating documents, as well as lying to conceal the true owner of the document."

And why not? If the industry had to go by the book, and tried to establish ownership and follow proper due diligence procedures, they wouldn't make as much money.

This might help explain why the financial service industry now seems willing to counterfeit court summons in an effort to create more efficient foreclosure mills. As Rep. Grayson's office points out:

"Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. That means that you could theoretically be foreclosed on without ever knowing there was even a foreclosure case against you."

There's more, but you get the picture. Fraud, deceit, and a culture of lies - and not simply over leveraged borrowers - are the primary culprits behind our current real estate and mortgage mess.

However you look at it, none of this bodes well for home owners.

- Mark

OUR HOUSING MESS ... LIES GOING IN, LIES GOING OUT

It appears that President Obama's Home Affordable Modification Program (HAMP) has been an abject failure. Promising to modify 3-4 million home mortgages, to date the program has only modified a paltry 449,000 mortgage contracts (with Bank of America doing a particularly poor job). If you're wondering why, look no further than the many speed bumps that the private sector has been putting up, or is in the process of trying to cover up.  

The Washington Post is reporting that some of the "nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork." It appears that 41-year-old Jeffrey Stephan - who was once head of Ally's (formerly GMAC) foreclosure document processing team - was required to review individual foreclosure cases to make sure the proceedings were legally justified, and that the information was accurate. He was also required to sign the documents in the presence of a notary.

In a sworn deposition, Stephan testified that he did neither.

Processing about 10,000 foreclosure documents a month, Stephan's volume means that for every eight-hour day he processed foreclosure documents he spent about 1 minute and 30 second reviewing and signing each one. That's a pretty quick pace to be sending someone elses American Dream down the toilet.

This is a significant development because we're learning (again) that ratings agencies charged with assessing risk levels in mortgage pools "dismissed conclusive evidence that many of the loans were dubious, according to testimony given last week to the Financial Crisis Inquiry Commission."

According to testimony from D. Keith Johnson, a former president of Clayton Holdings, "almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors." When he brought his information to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service he was brushed off because "it was against their [the ratings agencies] business interests to be too critical of Wall Street."

For those of you keeping score at home this means that (1) Wall Street insiders not only knew they were producing toxic loans but that (2) irregularities and possible fraud are now being ignored in the foreclosure process, in part because (3) the industry purchased insurance for the toxic loans they were signing off on, as I pointed out earlier this week.

Before the market collapsed in 2008 banks that held mortgages purchased insurance contracts in the event that they had to foreclose on a house (or had trouble with a mortgage backed security). We know this because Republic Mortgage Insurance Company (RMIC) sued Countrywide, Bank of America, and several other banks, claiming that either the borrowers or the banks lied during the mortgage origination process.

What's clear is that the mortgage fraud train doesn't begin with homeowners who never should have taken loans they couldn't afford (though this was a problem). It begins with an industry that could care less at the time if people could pay. All the industry was after were fees, up front bonuses, and to keep their money train chugging along.

- Mark

THIS IS WHY OBAMA'S IN TROUBLE ... MAIN ST. IS REELING, WALL ST. IS CLUELESS

QUESTION: What do abysmal employment numbers, rising poverty levels, collapsing home prices, evaporating middle-class wealth, a forgotten Main Street, white pity rallies and, finally, the emergence of a whiny elite class have in common?

ANSWER: They all help us understand why the Democrats have a hill to climb this November, and why this nation's troubles may be just beginning.

Let's take a closer look ...

ON THE JOBS FRONT, former Labor Secretary Robert Reich reports:

The Labor Department reports [in June] that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record. More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.) Of the small number of jobs created by the private sector in May, many came from temporary help services ...

... The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories) ...

ON THE POVERTY FRONT, via the NY Times, the Census Bureau reports:

Forty-four million people in the United States, or one in seven residents, lived in poverty in 2009, an increase of 4 million from the year before, the Census Bureau reported on Thursday.

The poverty rate climbed to 14.3 percent — the highest level since 1994 — from 13.2 percent in 2008. The rise was steepest for children, with one in five residents under 18 living below the official poverty line, the bureau said ...

... For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050.

Things could be worse, except for ...

Given the depth of the recession, some economists had expected an even larger jump in the poor. Expanded unemployment insurance and a rise in the number of families doubling up helped temper the trend, said Timothy M. Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

“A lot of people would have been worse off if they didn’t have someone to move in with,” said Mr. Smeeding, noting that in a typical case, a struggling family, like a mother with a child, stays with more prosperous parents or other relatives. The Census study found an 11.6 percent increase in the number of such multifamily households last year.

ON THE HOUSING FRONT, Michael David White is reporting:

Data from HousingStory.net predicts a nine percent fall in property prices nationwide in 2010. HousingStory.net is making this prediction "despite positive signals of higher prices including a gain of seven percent nationwide by Case-Shiller 10-City index from its post-crash bottom in April 2009."

So, why all the doom and gloom for the housing market? Part of the story is explained because of the lagging jobs and poverty picture painted above. But the real key is tied to historical projections that were broken by the bubble market starting in 2000. By using pre-bubble trends that predate 2000 it follows that housing prices will continue to fall.

This is especially since government sponsored home ownership programs are either ending, or not going so well (the Making Home Affordable Program, is especially a disaster because the details were left in the hands of the banks).

ON THE COLLAPSING NET WORTH FRONT, via Huffington Post we see that the Federal Reserve is reporting:

Americans' net worth plunged in the second quarter of this year, new data from the Federal Reserve show, erasing the gains of the previous two quarters and adding evidence to the argument that the economy has entered a double-dip recession.

The net worth of households and non-profit organizations dropped $1.52 trillion during the period from April 1 to June 30 of this year, according to the report released Friday. The new figure, $53.50 trillion, represents a 2.8 percent decline from the previous quarter.

The net quarterly loss, the data suggests, came from Americans' losses in the sagging stock market. Equity shares owned by households and non-profits tanked in the second quarter, dropping $1.88 trillion or 11.2 percent to $14.87 trillion from the previous quarter. The second quarter figure went down past the territory of 2009's third quarter ($15.32 trillion), almost to the range of the 2009 second quarter ($13.06 trillion), when equity was just starting to rise from its low of $10.94 trillion in the first quarter of that year.

ON THE "FORGETTING" MAIN STREET FRONT, as I pointed out after the Democrats lost the U.S. Senate seat in Massachusetts, Main Street is rightfully pissed off because:

1. President Obama rewarded Wall Street for their incompetence, while doing little to nothing for Main Street.

2. President Obama didn't push Congress when it came to allowing cheaper medicines in from countries like Canada (there goes the elderly independent vote).

3. President Obama made it look like he didn't really want a single payer system, or a public option, both of which he pushed for on the campaign trail. The base is uninspired.

4. Unemployment is hovering around 10% after the Obama administration said it wouldn't hit 10%. 

5. After the House passed foreclosure legislation, which would have helped stem record foreclosures by allowing bankruptcy judges to rewrite mortgages, it died in the Senate. After going to bat for Wall Street, President Obama did nothing to help push it through the Senate ... The message is clear, "You're on your own Main Street."

6. President Obama's Making Home Affordable plan is being undermined by banks, who have Federal trillion-dollar guarantees and aren't in any hurry to negotiate with distressed homeowners. Sitting by as homeowners get kicked out of their homes by the very banks that created our mess is no strategy for winning votes.

ON THE WHITE PITY / "WHINY" BILLIONAIRE FRONT, David Frum and Les Leopold report:

Former Bush speechwriter David Frum called attention to the comments of Chris Hitchens, who referred to  Glenn Beck's recent rally in Washington DC as the Waterworld of White Pity.

At the last “Tea Party” rally I attended, earlier this year at the Washington Monument, some in the crowd made at least an attempt to look fierce and minatory. I stood behind signs that read: “We left our guns at home—this time” and “We invoke the First Amendment today—the Second Amendment tomorrow.”

But Beck’s event was tepid by comparison: a call to sink to the knees rather than rise from them. It was clever of him not to overbill it as a “Million”-type march (though Rep. Michele Bachmann was tempted to claim that magic figure). The numbers were impressive enough on their own, but the overall effect was large, vague, moist, and undirected: the Waterworld of white self-pity.

Then we have Les Leopold pointing out how our bailed out billionaires think they deserve more tax breaks (or a medal) for their greed and stupidity. They are now whining about being asked to pitch-in some of their government escorted (or taxpayer subsidized?) profits so that the larger American economy can recover.

While 43.6 million Americans live in poverty, the richest men of finance sure are getting pissy. First Steve Schwartzman, head of the Blackrock private equity company, compares the Obama administration's effort to close billionaires' tax loopholes to "the Nazi invasion of Poland."

Then hedge fund mogul David Loeb announces that he's abandoning the Democrats because they're violating "this country's core founding principles" -- including "non-punitive taxation, Constitutionally-guaranteed protections against persecution of the minority, and an inexorable right of self-determination." Instead of showing their outrage about the spread of poverty in the richest nation on Earth, the super-rich want us to pity them?

Why are Wall Street's billionaires so whiny? Is it really possible to make $900,000 an hour (not a typo -- that's what the top ten hedge fund managers take in), and still feel aggrieved about the way government is treating you? After you've been bailed out by the federal government to the tune of $10 trillion (also not a typo) in loans, asset swaps, liquidity and other guarantees, can you really still feel like an oppressed minority?

Soaring unemployment, rising poverty levels, collapsing home prices, evaporating middle-class wealth, broken promises, pathetic white pity rallies, and a whiny elite class that think they've suffered enough ... All of these developments help to explain why the Democrats find themselves facing a pissed off electorate in November.

To be sure, this is exactly how the Republican Party wanted this electoral season to play out. Why else would they have become the Party of No? The GOP clearly understands that it's hard to reward a party when their policies helped bail out Wall Street, but had the effect of pretty much leaving Main Street to fend for itself.

At the end of the day, President Obama deserves much of the blame for trying to negotiate with a political party that told the country at the beginning that 60 vote filibusters would be the norm in the Senate, and then acted in a way that confirmed Rush Limbaugh's wish for him - and, by definition, for the country - to fail (whatever happened to Country First?).

With George W. Bush and his failed policies still a recent memory, this is the only strategy the GOP had. They knew it. People like me knew it. Unfortunately for the country, President Obama is still figuring this out ... and it appears this may cost him big in November.

- Mark

OUR CONTINUING HOUSING MESS

More solid information on the housing market from Michael David White ... and it's not good news. After all the price incentives, initial foreclosures, government guarantees, low % refis, HAMP modifications, etc. the supply of existing homes for sale is now larger than it was at the height of the market collapse.

While prices for residential real estate have been flat since August 2009 (they've fallen 34% from their peak in summer 2006), the number of foreclosures in progress are at a record level. About 14% of all mortgages are delinquent, which represents about 7.7 million borrowers (or one in seven mortgages).

As Michael David White points out, the key here is that no one's been talking about any of these trends at a level that they deserve ... which helps to illustrate the absurdity of spending media time focusing on Terror Babies, the pointless "mosque" fear-mongering, and Glenn Beck's tribute to himself this afternoon in front of the Lincoln Memorial. This probably explains why nothing's really being done to help the American mortgage holder. No one sees the mess, so the banks get to drive the process.

Check out White's review of our housing mess here. It's a good one.

- Mark

Addendum: For a solid and concise review of our impending housing market collapse, check this link out. It has the 15 signs that our housing market is in trouble (and, FYI, it has some of the same graphs from Michael David White that I've linked to here in the past).