IRA takes on PMI – Credit Unions take on the banks

PMI should be dead!

I got into writing financial blogs three years ago for one reason. It
was the mortgage insurance industry “PMI” that got me out in the open. I
saw first hand what a terrible concept this was. I saw (in advance of
the problem) that PMI was going to result in a mortgage explosion for
the country. Of course it did.

I had a family member working at one of the big PMI firms. I argued with
them regarding the insanity of what they were doing. Before the crisis
the response was always the same, “We're doing God’s work of getting people into their own homes. Plus we’re making a boatload in the process.”

In my opinion there is nothing more dangerous to our financial health
than PMI. It should have been banned years ago. It is the ultimate
derivate of credit risk. If it were not for PMI the disaster that hit us
in 2007 would not have been anything close to as severe as it was.

Yes I want PMI banned. Yes I want the likes of AIG (United Guaranty) out
of the business. But that will not happen. My fallback position is that
it should be illegal to securitize ANY PMI loan. I want
to have PMI backed loans rejected as eligible for purchase by Fannie and
Freddie. If there must be PMI, keep it out of the risk of taxpayers. If
private lenders want to make mistakes with this, let them. They will go out of business and we will be rid of them and their poor choices.

There is an excellent, must read article on this from the folks at Institutional Risk Analyst today. We can only hope that the “deciders” in D.C. read it.

Link to IRA.

Credit Unions go for blood

Interesting article at the WSJ this morning re Credit Unions. It would
appear that a law suit is about to get filed against the big banks
(again). Five of the nation’s biggest credit unions had their balance
sheets polluted with crap CDOs. Now they want their money back. From the
article:

The National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions.

The names involved?

The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.'s Merrill LynchCitigroup Inc unit, . and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions.

Surprised? I’m not. Goldman Sachs has commented on the pending litigation:

Goldman
said the NCUA "has stated that it intends to pursue...on behalf of
certain credit unions for which it acts as conservator" claims that
offering documents for certain securities Goldman sold "contained untrue statements of material facts and material omissions  ."

Untrue statements of material facts?? Material omissions?? I’m shocked!

Watch this case as it evolves. This may set an interesting precedent.
It could very well backfire on the US Treasury Department. Way back in
the spring of 2008 our good friend Hank Paulson (and former T.Sec.)
forced Fannie Mae to issue a $1 billion + Preferred Stock offering.
Fannie of course went bust less than six months later. The offering
document on this deal was littered with material omissions and
misstatements of facts. But this deal was pushed out to the public by
the Treasury Secretary. All the big banks (led by Merrill) sold this swill to the public.

If the NCAU wins its fight with the banks, the lawsuit against Treasury re the garbage Fannie pref is assured.

Comments

[falak pema]

besides the IRA is a terrorist organisation from Ireland, the country that's going belly up...

[falak pema]

They were eating pasta...

[rufusbird]

Where were the regulators?

[The Grip]

PMI is criminal extortion, focused on those who find 100-page promissory notes a little intimidating. Privately, any mortgage peddler will agree. Of course the peddlers have families to feed, too and to question the practice overtly is treason within the industry.

[kaiserhoff]

Great article.  Some risks are not insurable.  This is one of the fundamental pillars of the many layers of mortgage fraud, and it's still running.

[Cleanclog]

Relationship to why BofA's request to reinstate dividend was rejected?  Didn't hurt Wells Fargo though.

[aerial view]

no full disclosure, no oversight, no transparency=crony capitalism American style at it's best

[LawsofPhysics]

Spot on Bruce!  Separating the fraudulent debt or "investment vehicles" from the legitimate ones is now impossible and the reason why the entire system needs to be crashed.  Sucks, but this is were we find ourselves now.

[RockyRacoon]

Fannie and Freddie Hiding Over $100 Billion of Losses?

Both investors and Congress need a lot more details about the purchases of defaulted loans by Fannie and Freddie. We need to know exactly how many dud loans have migrated back to the GSEs, what their loan loss reserve is, how much of that loan loss reserve is “covered” by the MIs and how much “capital” the MIs have against these exposures. The GSE are letting dead loans sit on their books in part to avoid recognizing the losses, an event that would drive many of the MIs into bankruptcy. If you look at how slow the process of final loss recognition by Fannie and Freddie is proceeding, then you’ll understand why the publicly disclosed loss rates reported by Fannie and Freddie have been falling.

Instead of demanding insurance payments, the GSEs are doing everything in their power to keep the MIs looking like going concerns so that they can count the MI “receivable” as a good asset. This is why the GSEs direct LTV based LLPAs to the MIs, to keep some cash flowing their way, and…

If there was a proper mark-to-market on the MIs (like all proper insurance/reinsurance businesses do), then the MIs would be massively insolvent. The GSEs would have to take another huge amount of capital from Treasury. Geithner and the GSEs are trying to avoid it, and to date are getting away with it. Sad to say, nobody at the FHFA seems to have a clue about this issue. But we understand that a certain independent minded committee chairman on Capitol Hill is preparing for hearings on this monumental act of fraud against the taxpayer, not to mention the holders of GSE debt.

[gridlocked]

Where is Fitch, Moody's and S&P on this?

Fraud could not have been accomplished without the ratings.

[disabledvet]

"free speech."  you should see them do stand up comedy in their spare time.