FDIC Responds To IndyMac/OneWest Video Alleging Sheila Bair Transferred Billions In Taxpayer Funds To Paulson & Co., And Others

Tyler Durden's picture

A few days ago we posted "The Great Highway Robbery Continues: How the FDIC is Legally Transferring Billions in Taxpayer Money to Hedge Funds" which presented a clip by Think Big Work Small, highlighting what was seemingly a grand scheme to defraud taxpayers with the FDIC's complicity. Today, the FDIC strikes back, issuing a Press Release claiming the video contains "blatantly false claims",  "perpetrates other falsehoods"  and has "no credibility." The counterargument which is supposed to render all allegations of impropriety false: "OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets" and that "in order to be paid through loss share, OneWest must have adhered to HAMP." Unfortunately, reading between the lines of the response indicates that not only are the falsehoods actually truehoods, but the video is still, sorry Shila, quite credible.

So to make sure we get this straight. OneWest could have an accrued loss balance of $2.499 billion as of today, and just one more loss will be enough to force the FDIC to make a lump sum payment instead of linear payments? And somehow we are supposed to be comforted by this? A cursory public filing search for OneWest bank reveals no such organization. Maybe while it is denying the validity of the video the FDIC can advise taxpayers where they can get some information on what the correct reserve or loss accrual at OneWest is? Courtesy of the most opaque accounting rules in the history of America, OneWest could have already gotten way beyond the $2.5 billion threshold and is simply waiting for the proper time to spring this to the unwitting FDIC.

And as for adhering to HAMP? Would that be the same program that will ultimately benefit less than 1% of US first mortgages due to ridiculous constrains that make the vast majority of participants ineligible? Aside from scoring one for the stupidity of the administration, does the FDIC actually believe that Americans will find this to be a relevant gating issue?

Sorry FDIC, but not only did your press release not refute the video's claims in the least, but you just dug yourself an even deeper grave as every aspiring blogger and investigative reporter will now do everything in their power to find comparable examples of blatant "slap in the face" fraud expecting you to retort to any and all allegations, ensuring 15 minutes of fame for all implicated.

From the FDIC press release:

FDIC Provides Additional Information on its Loss Share Agreement With OneWest Bank

February 12, 2010    

FDIC Director of Public Affairs Andrew Gray said, "It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and OneWest Bank. Here are the facts: OneWest has not been paid one penny by the FDIC in loss-share claims. The loss-share agreement is limited to 7% of the total assets that OneWest services, and OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets. In order to be paid through loss share, OneWest must have adhered to the Home Affordable Modification Program (HAMP).

The producers of this video perpetuate other falsehoods. The FDIC has not requested to borrow money from the Treasury Department. Indeed, we continue to be funded by the banking industry through assessments, not by taxpayers as claimed in the video.

This video has no credibility. Regardless of the personal or professional motivations behind its production, there is always a responsibility to be factually correct and transparent. The FDIC made available a fact sheet on the day that the sale of IndyMac was announced that details the terms of the contract. It's too bad that the creators of this video opted to premise it on falsehoods."

Those who may have missed the full video, here it is again.

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cougar_w's picture

Non-denial denials are always fun to parse. He-said-she-said, and it's $billions.

They are just buying time now. Forget the shredding, just set a match the whole fucking mess. Let it burn, nobody is going to give a shit. Then get your ass to the roof because the chopper is spinning up and you do not want to be the only loser left behind to face a firing squad.

35Pete's picture

Ahh. One can only dream of freedom. I do like your visionary optimism that all of mankind, at least in the UBA (United Bankers of Amerika) can live unemcumbered by the political-economic walls of the The Great Feudal Manor. 

However, unlike you, I do not have the luxury of waxing so poetically of this "freedom thingy". 

I'm too busy figuring out how to re-fi my citizenship. I for one sure as hell don't want to get repo'ed for not "paying my fair share" so that the Treasury can transfer my adjustable-rate, interest-only, citizenship bond to the FDIC, which then transfers it to OneWest, which then transfers it to Goldman's crew, which then hands it out to paupers like that #$%sucker Soros and company. 

I don't have that luxury. Now if you'll excuse me, I have to go to my 3rd job. 

 

Molon Labe's picture

The FDIC's Mission is "to maintain stability and public confidence in the nation's financial system."

Mission failed.  Why are failures still running these agencies?

The whole of the federal regulatory scheme is just a way for those with their hands on the levers to transfer capital from the majority to the favored few and to protect vested interests from the challenges of the free market. 

If nothing else, I suppose we can be thankful the means are becoming more and more obvious these days.

albion402's picture

In all honesty, I will take the first short from Frank and Brian at TBWS as being closer to the target (read truth) than any bull sheet coming from the spin-meisters at the FDIC.

Anonymous's picture

Like I state on my page, WallStOnion.blogspot.com

If it is piece of shit the Tresuary gets it.

If it has value the Fed gets it.

The FDIC is a chop shop for the Fed.

Good Day

Anonymous's picture

Dont forget the third verse:

Oh, sugar where you been
Hangin' out with your male friends
Listen, somebody's going to hurt you
The way you love, to keep hurting me, we say

phaesed's picture

hahaha.... Oh Sheila by Ready for the World (ain't that fitting?)

Like I always say what's good for the gaze
Is always good for the camera
oh Sheila, oh, oh

2-Oh baby love me right
Let me love you till I get it right, hmm
Can't you let the others be
'Cause with you is where I got to be

Oh, sugar where you been
Hangin' out with your male friends
Listen, somebody's going to hurt you
The way you love, to keep hurting me, we say

1-Oh oh Sheila let me love you
Till the morning comes
Oh oh Sheila you know I want
To be the only one

3-Oh baby, understand that I want
To be the only man

But it seems you're screaming too hard
Now think yourself to have an only friend
Oh baby, it's plain to see
That you're qualified to fill my needs

4-I think you threw an oath on me
Honey, baby, just you wait and see

Anonymous's picture

So may be Soros and Paulson turned to charity!!Or they are stupid business people. Any loss share gimmick by a private entity is,gimick. Back in the eighties and early nineties,the process was much mor transparent. Insolvent banks were ciezed. Guaranteed deposits were shifted to other banks,and assets were sold throught auctions. I don't recall "loss sharing",or "public privte partnership" gimicks..

buzzsaw99's picture

Sheila, the banksta's beotch. Slap her fannie and ride that ho.

i.knoknot's picture

it's a he-said/she-said, and only 5 people probably know the real truth...

the fact that this video went so viral and was taken seriously says volumes in itself.

calc-risk is one of the most balanced sites out there, so as an opinion, i'll still take his over most  of the others.

I still don't trust anything Federal these days...

trust is earned.

umop episdn's picture

Calculated Risk is a great site, but the gubbermint numbers are what get reported. I'd prefer to see what's under the hood, so to speak, and ZeroHedge is much better at that sort of thing. Also, CR just repeated what the FDIC said and didn't add any new info. Maybe someone is 'leaning' on someone...

Anonymous's picture

That guy is a fdic apologist

Don Smith's picture

The $2.5B loss share threshold actually makes them MORE likely to rack up losses so that they do get paid, right?

VegasBD's picture

Thats the result (purpose?) of having an FDIC to begin with.

FDIC is the best example of Moral Hazard in Frac Res Banking.

glenlloyd's picture

+1

FDIC just creates the illusion of protection. If it wasn't there people would be far more cautious about where they kept their money. The FDIC is a great idea but it's nothing more than a false sense of security that excuses people for not paying attention and doing due diligence.

It's also another element of this ginormous government that could go away.

I'm so pissed at the Fed for suppressing rates I think I'll pull my money just so the bank will (might) have to contract its loan book.

Anonymous's picture

The fdic is more responsible for the misallocation of capital in this country than every single other government entity combined. By allowing thousands of banks to raise cheap capital at a price that does not differentiate between bank risk levels, it encourages dice rolling behavior. Allowing, no, encouraging private equity to participate in this scam is insane.

Anonymous's picture

Nice logic!

I typically go to Vegas... and lose all my money... so that I can file for bankruptcy protection.

Plus, I can write it off on my taxes.

-BBH

TopHat's picture
TopHat (not verified) Feb 12, 2010 7:17 PM

Isn;t she an ally?

faustian bargain's picture

Sheila "The FDIC can never ever run out of money" Bair?

velobabe's picture

don't buy into this dweeb, someone needs to show him the door. he's lurking me. (tophat)

geopol's picture

You can randomly point to any ABC Agency of the Federal Government and be correct in an assumption of fraud...This whole system is one creeping coup, an insurrection against constitution and law from beginning to end..

 

 

Careless Whisper's picture

the "loss-sharing" agreement looks more like a guaranteed profit agreement. I really don't think Paulson, Soros, and Munchin bought IndyMac with the intention of taking on the risk of those bullshit mortgages. They a little too smart for that. Anyone have a link to the "agreement"?

This is why bobbleheads are in charge of things.

delacroix's picture

sheila,( the no depositor, has ever lost a penny, and never will)Bair?

velobabe's picture

is this the HOPE we are looking for?

soros is so thick in the exploitation of south america. Mish's blog and his followers have woken my arse up.

velobabe's picture

you think the FDIC is bad well throw in the IOC international olympic committee, they are worst and more corrupt than the IMF.

Anonymous's picture

Tyler your angry rant doesn't prove anything more than the fact that you lack sufficient information to really nail these people. Please keep digging.

Anonymous's picture

Is that loss a true accounting loss or an inflated pull a # out of their ARSE loss?

Hephasteus's picture

Well glad we got that sorted out. It's always nice to have high level authority setting us straight when we get things wrong.

http://www.youtube.com/watch?v=6bMM61Y5CEU

SilverIsKing's picture

Here are the IndyMac details from the FDIC website.  Agreements are in section XII.

http://www.fdic.gov/bank/individual/failed/IndyMac.html

ghostfaceinvestah's picture

I posted this over on Calculated Risk, I know this type of deal well:

http://www.fdic.gov/about/freedom/IndyMacSharedLossAgrmt.pdf

First loss amount: 20% of UPB
Threshold = 30% of UPB
OneWest Pays 100% of the first 20%, 20% of the next 10%, then 5% of the rest.
Ten Year deal.

But from what I can tell, they don't share in the income. That is, any interest on the loans goes to OneWest.

Knowing IndyMac, these loans are probably Alt A and/or HELOCs, probably paying 8% or so.

Even with runoff, you will probably get 4.5 years of income, or 36% of the original UPB over the life of the deal.

In exchange, assuming say 50% loss, you take 20% + 2% + 2.5% = 24.5% loss.

It is really hard for OneWest to lose money on this deal, this is a classic XOL deal, the only way they can really lose if they get losses right to the threshold and very fast runoff.

deadhead's picture

For what it is worth, I have consistently found that ghostface is most knowledgeable in the mortage security/finance sector and I place alot of trust in his/her opinions in regards this subject matter.

Thank you for commenting on this and related items ghost; your input is valuable.

 

 

Crime of the Century's picture

I will second that sentiment. GFI brings light with his heat.

Careless Whisper's picture

If you read the Agreement sections entitled "stated threshold"(definition)  and section 2.1 "shared loss arrangement", I think you will find that OneWest gets reimbursed for 80% of the first 30% of the loss, however if the loss exceeds 30%, which is the "threshold", then OneWest gets reimbursed 95% of the loss (from FDIC). So, OneWest does much better when the loss is greater, and exceeds 30%. Of course the agreement says that OneWest must mitigate the loss, however, there's not much they can do when the economy and the real estate market are in serious decline, etc. In a declining market OneWest has an incentive not to restructure the loans and simply wait for a further collapse because they are guaranteed 95% of any losses will be paid by FDIC, as long as they met the threshold of 30% in losses. So, it seems like OneWest is guaranteed about 95% of the unpaid principal and interest of the mortgage -- which they bought at a discount.

ghostfaceinvestah's picture

Yeah, but the First Loss Amount, defined on page 2, has to be breached first, that is the 20% (or .2 * the upb as the agreement reads), then the 80% kicks in, then the 95%, but like I said, they seem to only share in losses, not income, so as long as they get enough life out of the loans, OneWest can't lose, and they can always hedge the prepay risk.

But good point about buying at a discount - what did they pay?  Note the loss provisions are based on UPB, not the purchase price of the portfolio, so they are probably in a leveraged position regarding this portfolio in that they are facing economics of profit and loss based on a UPB that is probably higher than the purchase price.

Also note that they can actually SELL this portfolio for a loss, and the loss share provisions still apply.  So from what I can tell, there is nothing to prevent them from running the portfolio for 5 years, stripping all the good interest out of it, then selling what is left at a loss and locking in a profit.  I could be wrong on that, though, i didn't look at all the details.

Whatever the case, the FDIC sure struck a sweetheart deal for these guys.  Wish I could have got it, there is almost no downside that you can't hedge away cheaply.

ghostfaceinvestah's picture

Oh, as for mitigating losses, yeah, what are they going to do that every other servicers has tried and failed at?  You are correct in that once the pool hits 19.9999% loss, as a servicer, there is little incentive to work your ass off to avoid a loss.

Cursive's picture

@ghost

Thx for the analysis.  It is all very sad for us taxpayers and lesser mortals.

Anonymous's picture

Would someone explain to me how this trasnaction is different from the other FDIC-assisted transactions. Take, for example, FCNCA who has done three transactions since mid-2009.

While sad for the "taxpayer" (although not until the taxpayer bails out the FDIC), I am not quite sure how a financial institution which, has regulated capital levels they must remain at or above, is supposed to purchase assets if not at a discount. If they paid full price for assets and accepted the liabilities they would stretch their capital, potentially to an "unsafe" level.

My only point is that certain things the FDIC or government does that seem constructed to simply "rip you off", may actually have rationale.

digalert's picture

Right... and fannie and freddie are sound [cut to music]

Eally Ucked's picture

I'm not sure that their loss has to be more than 2.5 billion to get the payment from FDIC. I think 2.5 billion is just statement what first loss can be on the portfolio they purchased so it looks like 12.5 billion, this 12.5 billion constitutes 7% of all assets of Indy sold. That would give us total of around 176 billions of Indy loans sold. Maybe I'm wrong, judge yourself, below statement of FDIC:

"OneWest has assumed a first loss position on a portfolio of qualifying loans where they take the first 20% of losses before any loss share payments are made. This is a first loss position of over $2.5 billion."

ghostfaceinvestah's picture

that 7% number is pure bullshit, well, not actually bullshit, but note what it says, "7% of all assets SERVICED.  Like any major mortgage player, Indy serviced loans that is securitized through Fannie/Freddie/Ginnie/Private Label.  the fact that the owned pool is 7% of their entire servicing portfolio is irrelevant.

But using the 2.5/.2 = 12.5B portfolio, that is correct, but see my post below, they are basically capped more or less at 20% loss for a portfolio that is probably generating 8% in interest a year, and from what i can tell they ain't sharing in that interest payment.  So over the life of the portfolio they are going to earn more interest than they could pay out in loss, the only losing scenario is if the loans run off fast, so they are taking prepayment risk, which they can easily hedge, not credit risk.

Eally Ucked's picture

I understand what you say about interest, but still there is no clarification on price paid (original loan value or some other calculated value) and how first loss is calculated - this is one of the points mentioned in video. 

Anonymous's picture

Section 2.02 and Schedule 2.02 of the loan sale agreement indicate that the loans were bought for between 70% and 37.75% of their unpaid principal balance, depending on the type of loan. Exhibit 2c of the share loss agreement starts out the calculation of loss sharing by referring to the loan's unpaid principal balance (not purchase price).

Anonymous's picture

Hmmm, pay 60cents on the dollar and get losses capped at 20 cents on the dollar and get an interest free loan to boot so your funding costs as minimal, seems pretty hard to lose money on this deal, this was nothing but a way for the fdic to top up their fund in exchange for taking losses later, pretty much like the finite reinsurance deals that aig used to do, shifting losses from one period to another, some blogs should be embarrassed to defend the fdic for this sort of thing, it is organized crime, nothing more.

ghostfaceinvestah's picture

First loss is on page 2 of the agreement.

I do think the video is wrong, in that this agreement applies to the pool, not on a loan by loan basis, though some of the exhibits in the agreement are very misleading on that point.

Either way, it is a sweetheart deal for the purchaser.

Careless Whisper's picture

Indymac's loans and assets were valued at $21 Billion and OneWest paid $16 Billion for them. The FDIC lent OneWest $9 Billion to help finance the deal. There's nothing in the loss-share agreement that disproves the video. The video is correct.  After the deal was done Mnuchin said publicly that he wanted to buy other banks. Do you think he goes around doing deals to simply lose "the first 20%"? It looks like the FDIC basically gave away $5 Billion on this deal (plus losses). If I recall, the hedge fund (OneWest) only put up $1.5 billion of its own money. So they were basically guaranteed to triple their money.

Anonymous's picture

> A cursory public filing search for OneWest bank reveals
> no such organization.

They appear to be Doing Business As;
http://rrcc.lacounty.gov/CLERK/FBN_Search.cfm
there are two filings on 3/16/09
- ONEWEST BANK
- ONEWEST PROPERTY MANAGEMENT

The name filed with the county will likely show "OneWest Bank Group, LLC", as described here:
http://www.thetruthaboutmortgage.com/indymac-federal-becomes-onewest-ban...
however, the California Secretary of State's website doesn't show it: http://kepler.sos.ca.gov/cbs.aspx

Very curious as to why ...