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How Allstate Used Sampling To Confirm BofA/Countrywide Lied About Virtually Everything When Selling Mortgages
A few days ago, news broke that MBIA was allowed to use statistical sampling in its ongoing Bank of America fraud lawsuit. This happened despite the Countrywide acquiror's loud protests. And now, courtesy of today's brand new lawsuit against BofA (and Agent Orange himself) filed by Allstate, in which the insurer "seeks unspecified damages, alleges fraud,
negligent misrepresentation and violation of U.S. securities
laws" we know just why Bank of America was so very against allowing sampling to be used by plaintiffs. According to the full report (pdf attached below), Allstate has determined that Bank of America misrepresented virtually everything in its prospectuses: from the percentage of owner-occupied properties reped in prospectuses (about a 10% differential), to the LTV thresholds on represented loans (both at the 90% and 100% threshold), while inbetween finding willful and malicious intent to defraud and deceive. We are confident that none of this, however, will result in a prison sentence for Mozillo, as laws in America are meant to be broken by anyone who can demonstrate an LTV more than 100,000% or have more than $100MM in annual income (including that derived from golden parachutes).
From the just released prospectus, which opens a green light for everyone who believes that the banks or its predecessor was dishonest in representing any and all deal components, and wishes to do so using statistical sampling, which is now permitted:
Allstate's sample sizes of Mortgage Loans are more than sufficient to provide statistically-significant data to demonstrate the degree of misrepresentation of the Mortgage Loan characteristics. Analyzing data for each Mortgage Loan in each Offering would have been cost-prohibitive and unnecessary. Statistical sampling is an accepted method of establishing reliable conclusions about broader data sets, and is routinely used by courts, government agencies, and private business. As the sample size increases, the reliability of its estimations of the total population increase as well. Experts in RMBS cases have found that a sample size of just 400 loans can provide statistically significant data, regardless the size of the actual loan pool, because it is unlikely that so large a sample would yield results vastly different from results fro the entire population.
So having used this sapling method, here is what Allstate found:
...statistics show that despite Countrywide's representations, a much higher percentage of borrowers did not occupy the mortgaged properties:
...Overall, 18.3% of the loans sampled had recalculated LTV ratios of more than 10% higher than was claimed in the offering materials, and 6% of the loans sampled had recalculated LTV ratios of more than 25% higher than what was claimed in the offering circular. This overvaluation affected numerous statistics in the Offering Materials...For instance, the Offerings each made representations about the percent
of loans that had LTVs higher than 90% provide the lender little value
cushion to protect against borrower default and loss upon foreclosure.
However, the AVM indicates that a much higher percentage of the loans
had LTVs higher than 90%.
The Offerings uniformly represented that none of the Mortgage Loans that collateralized the Certificates had LTV ratios greater than 100 percent, meaning that the size of the loan is greater than the value of the property. (aka: being "underwater") Loans with over 100% LTV afford the lender no equity cushion and leave the lender with inadequate collateral from the outset of a loan. Allstate's analysis has found that, despite Countrywide's representations, a substantial number of Mortgage Loans had LTVs greater than 100%, as follows:
Allstate has also analyzed the weighted average LTV of the Mortgage Loans in each pool and has found that the weighted average LTV was also overstated, because of the overstatement of individual Mortgage Loans within the pools.
All these lies, and much, much more, can be found detailed in the filing below. At the risk of cheeiness, this is just a sampling of the sampling. And it demonstrates as all those who purchased loans from CFC/BofA that were repped to be in order, will find, following sampling or loan by loan analysis, that Brian Moynihan's bank committed acts of fraud after fraud, putting not only itself, but its underwriter counsel at risk time again. In fact, if there was anything remotely close to a working legal system in the US, what happened to Lehman's Repo 105 auditor, E&Y, should promptly befall every single underwriter's counsel which is jointly liable in representing that the data set forth by the underwriter is correct. But just as importantly, it means that of the hundreds of hundreds billions in loans sold by BofA to hapless dimwits, arguably the bulk of it is now subject to putbacks, and is of far worse quality than previously expected. It also means that the GSEs: those infinite receptacles of mortgage biohazard, are lying consistently when representing the state of their own books, which are likely orders of magnitude worse than the monthly status reports will indicate.
This is just starting to get interesting.
The full Allstate filing which is a must read for everyone is presented below.
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As I have pointed out for months, the mortgage fraud scam cannot be contained and has gone viral in the sense that it is growing like a metastasizing, malignant cancer for these banks. They will fall because of it. Wells, B of A, maybe even JP all will fall in time. But it will take awhile. They're not up against depositors - they're up against well-funded insurance companies, pensions etc. who have also bought and paid for considerable influence in our bought and paid for system of justice, and this will be a battle royale. of course there will be exceptions - this is a battle of the haves against each other after all, but this will not go away. The securities were bogus - and the buyers have remedies.
"the buyers have remedies."
The buyers were idiots and deserve to lose their money. How stupid could they get? If I'm a pension fund manager and a bond salesman calls me up with some nice CountryWide MBS my antenae would go up. But since your average pension fund manager is a complete neophyte, bed wetting, Casper Milqetoast sounding, womens lingerie wearing, thumb sucker they couldn't connect the dots.
Excellent comment. The only word I would change is "thumb".
I would change "the".
I am Chumbawamba.
I'm sure the buyers still cashed their paychecks and bonus checks and probably still do. It was the pensioners that actually lost their money.
Well, somebody was an idiot. I nominate you. Violations of reps and warranties cannot be defended by claiming that the plaintiff should have known that the reps and warranties were false. I'm trying to imagine the world in which you inhabit (one where I cannot sue for fraud) and the best examples I can find is Myanmar, North Korea, Cuba and Venezuala.
"one where I cannot sue for fraud"
Don't get me wrong. I agree. I merely making light of the "victimization" syndrome of the modern day money manager. If an investor makes a marginal investment only because they could sue if something goes wrong then they're probably making the wrong investment. If it's too good to be true then it probably is.
I can imagine our world as being a lot more sane if you actually had to eat your losses. Take the FDIC for example. The FDIC creates a moral hazard where banks can lend recklessly because they know they'll always have customers. If the FDIC didn't exist then people would do their homework before putting money into a bad bank. In a sense the FDIC partially enabled bad banks to exist. So an institution that was created to protect wealth ends of enabling the theft of much more wealth down the road.
"The FDIC creates a moral hazard where banks can lend recklessly because they know they'll always have customers."
No, the most egregious moral hazard originated with the castration of Glass Steagall which then allowed FDIC insured banks to act as investment banks and effectively gamble with public money; heads they win, tails we lose.
Re-phrased:
Fraud cannot be defended by claiming that the plaintiff should have known that the reps and warranties consituted fraud.
---
Fraud cannot be corrected by a government that looks the other way while holding its palm out to be greased.
We know the SEC is busy watching porno. What is the DOJ watching?
The SEC ... of course
No, just us peons.
.
Leave Venezuela out of this!
Too many people rightfully question everything the MSM & government tells us about it's policies in the US, and yet accept without question the continuing propaganda directed against countries that do not comply with their orders from Washington.
Given how corrupt and unsustainable the US. ecomomic system is proving to be you would think that viable alternatives would be more closely examined.
http://www.cepr.net/latin-america-the-end-of-an-era/#article
http://www.commondreams.org/views06/0706-32.htm
http://www.correodelorinoco.gob.ve/english-edition/
Anyway, back to the lawsuit, BofA will settle for a few hundred million (tax payer)dollars, no admission of guilt, business as usual.
Venezuela is viable? They let 80,000 tons (4000 truckloads) worth of food rot.
Then scapegoated the grocery stores for the shortage and nationalized them 6 months ago.
Now they hand out 'loyalty coupons' to friends of Hugo to ration food.
Welcome to Obamazuela
The complaint lists the addresses of all of the defendants - many look to be personal in nature.
Hmmm.
Angelo Mozilo, 2816 Ladbrook Way, Thousand Oaks, CA 91361
Peek-a-boo!
http://maps.google.com/maps?oe=UTF-8&gfns=1&q=google+maps+2816+ladbrook+...
Nice pool. The house next door is bigger, though. Blankfein?
I am Chumbawamba.
Google car definitely didn't venture into that neighborhood. Someone either knew to stay away or some files were deleted after the fact.
Not the securest of closed communities. Lots of backdoor access into that place. Those hills can be steep and have thick scrub, but they ain't keeping anyone from hiking in. Not that you'd need to: I see a construction road leading from the south. Providing that picture isn't out of date, it definitely looks traversable.
Mr. Mozilo, have you considered moving?
I am Chumbawamba.
You May Be a Domestic Terrorist If:
Nice to read your work...
Have you noticed the latest fad: The <JUNK> festival there Chumba?
That is actually Sherwood Country Club, which is adjacent to Hidden Valley. Both places are as nice as you would find anywhere. And both places pretty much have one way in and one way out - unless you are fit enough to climb over the mountains that ring both places. Some very wealthy people live in these two locations. It is not likely you would get in over the mountains undetected. But they are a lovely destination for a lazy Sunday afternoon drive. Horse ranches and stuff. Lots of T.V. commercials shot in Hidden Valley. (Actually, you cannot drive into the Sherwood Country Club unless you have a reason to be there, but you can drive past Lake Sherwood and look down into the Country Club. This particular address is almost impossible to see from the road.)
Looks like Julian could be detonating those charges sooner rather than later...
Or is is it Thragod vs. Mozilla?
IIRC, Bambi was a worthy opponent.
It would be interesting to see how an honest rating by Moodys or S&P (if such a thing exists) of an MBS based on the actual sample would compare with one based on the false statistics originally presented.
Hell, if they rated it low enough the Fed might step up and buy it.
Honest rating - lmao
It would be interesting to see an honest rating by Moodys or S&P of an MBS
Parses better??
Thank God Allstate is not a private citizen calling for a bank run. They could have been in big trouble for that.
my personal favorite is the CWALT 2007-18C 3FL3 trust. 14.5 % of its loans were underwater on day 1, when BofA said that none were.
and the response from the banksta will be, yeah, what ya gonna do about it.
You're in good hands with Allstate, bitchez!
I suspect in a few days WB will have some blistering art on here showing those good hands around BOA's neck. Hear that, Willie?
Moynihan is in good hands with Allstate...
HAHAHHAHAH-ah-hah-hah-ah-ha...
Tough Luck BofA bitchez!
its funny how all this info can be in the open yet analysts on tv keep talking about ratios and historical studies about situations and stocks..........how long would Any of you last at a carnival throwing bean bags at moving targets to get a prize for your niece...if you saw the guy rigging it against you?? A few rounds maybe? You eventually win something small at best, get your teddy bear and move on. Unfortunately, the real world game is for all the fucking marbles with money that counts....yet so many stand there like sheep playing a rigged game with their hard earned money.
Just finished reading the Big Short. Yeah, I know. I'm the last kid on block to read it. I'd been putting it off from fatigue reading so many others on the crisis. But, Michael Lewis got it done in a manner that quelled my anger.
I even have some hope. The beauty of the American system--if there still is one--is that a lone man can make a difference. The lone man can be mentally defective (no offense Burry, Eisman, et al). In fact, the best part is that the oddball probably has the advantage. So, who is out there right now figuring out the way to fix this insurmountable, f'd-up country / market? Is he on ZH?
big short is awesome!
Did ya catch the fact that all those CDS's are STILL ticking?!
I'm currently reading Econned by Yves Smith. She is proving rather conclusively that the "science" of economics isn't. Every econ major should read this at their own peril.
The financial IQ ratings have always been: stock market::dumb as a post, bond market::average, insurance::really smart, and reinsurance::brilliant. These are in proportion to the assets in each market.
That insurance got nailed here is bad.
I'll exhibit my financial ignorance and ask just what constitutes the "reinsurance" market?
Basically one insurance company hedging (or off-loading) risk by buying insurance from another insurance company on a particular risk.
Now that sounds like boinking your own sister.
From a distance (Australia), I cannot see how the USA fails to meet any definition of an almost perfect corporate Fascist state.
Well you know the old saying...the Business of America is, after all, business.
You're being deceived by the curvature of the Earth.
"From a distance (Australia), I cannot see how the USA fails to meet any definition of an almost perfect corporate Fascist state."
I agree with you, but need to add that the problem is pretty much worldwide thanks to central banks, globalization and the lack of prole representation in their respective government actions. There are oligarchies everywhere.
Mozillo makes Tony Soprano look like a gay alter boy.
And, he makes George Hamilton look like an albino.
Nice!
thanks Prophet, there had to be a scientific explanation.
In an effort to assert dominance, some of the silverback chimpanzees will shake sticks and pound stones. Their actions do not go unnoticed. The Banannake, backed by his secret banana growing farm, will provide the necessary provisions to quell the intertribal disputes and the attention will be refocused on how best to reorgananize the productive capacity of the rest of the jungle creatures.
And somewhere in the shadows someone figured out a better way to distribute beer to masses
http://www.youtube.com/watch?v=wiu_IX14wLI
The simple fact that this is Allstate v BAC makes it incomparably great viewing.
"We are confident that none of this, however, will result in a prison sentence for Mozillo..."
If Jamie & Lloyd
Decide they need a fall guy when the time comes to keep the heat off of themselves...
If Obummer Change-O-Hopium 2012 Campaign
Needs a faux get tough on Wall Street distraction...
Then Agent Orange aka Tangelo "Friend of Dodd" SchMozillo takes the fall... At least some Milken time playing tennis...
Hows possible the SEC dont halt BAC?
This banks should be halted till all this stuff is over....
what does this say about the rating agencies
Seriously? At this point?
William K. Black has already revealed in great detail how the ratings agencies were captured by control fraud.
This Casino is run by criminal FED through bigger criminal GS gang
China PBOC spikes banks' borrowing costs
China always does the right thing at right time.
China will progress
Sounds like a big lawsuit
Damn, that's a lot of reading!
Wow! This is great work.
And, of course, exactly what we all knew or expected.
Who needs Assange? BofA is toast.
Agreed, Winston. Goldstein is ubiquitous, but in the land of the free, he is so in your face that the proles don't see him. Prole representation seems to me to be oxymoronic, as it is totally impotent against the totalitarian system of monetary/military/mind control.
Not that this will mean much, since the net is full of sock puppets that don't get finance;
Allstate was smart to do the sampling. There is widespread knowledge that subprime fraud is huge. The Repo 105 is perfect evidence of fraud (how would the lenders collateralize the subprimes when the collateral/bonds were at another bank?). Of course SFAS 140 in Sarbanes Oxley made that legal.
So for that, lenders and borrowers should be entitled to pursue the US government as an aide and accomplice to fraud.
What we need in the media is a very experienced corporate lawyer and analyst to in straight forward lingo; just explain how the laws work and exactly how the judge is supposed to act in these types of cases. The financials report it, but they leave it up to the reader to tie the story together. Then they act like you don't know what you're talking about, stick their nose in the air and bring nothing to the table; which means they're guilty. If they say you're "wrong", tell them (in detail) to explain EVERYTHING about the case and leave no stone unturned. If they fail to do that, they're trying to intimidate you out of a valid opinion.
Ad hominems and red herrings won't fix this situation.
The CFTC was blocked from pursuing the lenders. Google Judge Painter, Levine, Wendy Gramm, Robert Rubin and Larry Summers. They're in violation of Title 18 U.S.C. 1501-1525, which is obstruction of justice. There is also violation of racketeering clauses. Where's Eric Holder and the Federal Prosecutors?
They're busy framing Julian Assange for hinting at exposing BoA! (which is a red herring)
Who pays their salaries? We do! Why aren't they working for us?
There's no good reason why Allstate should not win this case of fraud against Countrywide/Allstate. Tossing Mozillo in the slammer should have been done a long time ago, Allstate should not have needed to go through this to correct the situation. I KNOW people have tried to report the sale of counterfeit subprimes before 2005 to the CFTC; the corrupt CFTC refused to take complaints.
The investors could have prevented the subprime collapse a long time ago if the CFTC (the GOVERNMENT BACKED AGENCY) did what it was supposed to do.