A New Spin on Bank Fraud: Banks Defrauding Their Invesors, Auditors and Regulators, Which Also Helps Delinquent Mortgagees
Last week, I made clear to my readers and subscribers that the bank malaise is not over, despite what may appear to be encouraging moves by the executive staff. Housing prices are still on their way down, save temporary blips from government bubble blowing and the outright concealment of non-performing assets by banks, see Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate. Now, many may see this as consipiracty theory, which is why I always included hard analysis behind my posts. After a Careful Review of JP Morgan’s Earnings Release, I Must Ask – “What the Hell Are Those Boys Over at JP Morgan Thinking????”
The boys over there at the “Morgan’ appear to be partying like it was 1999, releasing all types of reserves and provisions (which coincidentally padded a very weak earnings quarter) as if I didn’t make it “Very Clear In March, US Housing Has a Way to Fall”:
Well, here is some additional evidence which shows how banks are producing those positive sloping credit metrics… They are fudging the delinquency reporting. Reference this note from a fellow BoomBustBlogger:
Hello Reggie,
I’m a big fan of your blog and greatly appreciate your diligent efforts in effectively educating your readers while exposing the the biggest heist ever perpetrated on the American Public by Wall Street. I know you are the most up to date person out there when it comes to the scams the banks are running but I wasn’t sure if you knew of a specific scam that they have been running on the mortgage side of their business. I’m hoping you can be the voice that warns people of a new type of fraud which the banks are perpetrating in broad day light.
I have been a Mortgage Banker for the last 18 years. I also follow the markets and particularly the banking sector with great interest. While reviewing the Banks most recent quarterly earnings, the common theme evident in all of their disclosures was that their delinquency rates had dropped dramatically and hence they were lowering their loan loss reserves.
Meanwhile, I have repeatedly come across delinquent and even defaulted loans which are not being properly reported by the loan servicers to the credit bureaus.
As an example, I recently came across a new mortgage client who was referred to me and I thought I’d share it with you for a potential story. These particular clients had a house which they were way upside down on, so last year they went ahead and purchased another house under an FHA loan with 3.5% down and immediately let the old, upside down house go into foreclosure thereafter.
These particular clients called me to see if they could refinance their new home’s FHA loan to a lower rate. I told them that it would be near impossible because of the damage done to their credit by the foreclosure on the previous house. They were adamant that their scores were still in the high 670’s and so I ran both of their credit reports. Sure enough, his middle score was a 674 and her score was a 678. When I looked at the previous mortgage, it showed as “FORECLOSED- NO DELINQUENCIES”!!! When I asked them they stated that they hadn’t made a payment to the bank for more than a year prior to the foreclosure on their house.
Same is true for many loan modification cases that I have come across. While the banks are dragging out the process with the borrowers, who are living in the homes 100% mortgage free, their statements reflect the borrowers as being current every month.
Is that not just absolutely ridiculous!?!? This is blatant fraud!
While Bank CEO/CFOs are going on their quarterly calls and lying to investors about how they are reducing their loan loss reserves due to their delinquency rates being substantially lower, they are deliberately falsifying their credit ratings while foreclosing on homeowners.
What happens when these banks end up losing billions of dollars on all of these foreclosures after depleting their loan loss reserves? More of 2008 is what I imagine. Except their won’t be any more bailouts.
I implore you to please feel free to contact me or any other sources you may have at your disposal to investigate this newest fraud being perpetrated against investors. Should you be interested, I can forward you the above credit report for your review.
Investors should know what the heck is going on before they listen to analysts telling them that “this is a buying opportunity of a lifetime” while the banks are fudging their numbers. This is exactly how we got into this mess. Investment Banks pulling Repo 105 scams, not marking their books correctly, and so on.
Shame on them for defrauding investors and the Public the first time and causing the global credit crisis. Shame on us for sitting by and letting it happen again two years later while they wipe out millions more of investors retirement accounts and cause the next Great Depression.
Attached please find the first two pages of the credit report that I told you about. I [also have access to] mortgage statements from Bank of America, in which the borrower has not made a payment in over 18 months and is currently in the loan mod process, yet their statements reflect a current status each and every month. The borrowers had a foreclosure back in 04/2010 with no mortgage lates reported on their credit report. Please refer to the first trade line on page 2 of the credit report under Derogatory Tradelines.
Thank you for your time and consideration.
Feel free to click the icons below to get an idea of what this mortgage professional was referring to…
Now that we know an improving economy and upward sloping credit metrics are being manufactured, let’s revisit JP Morgan’s most recent quarterly results and the miracle known as “Green Shoots”!!!
Charge-offs came down but the reduction in provisions has been quite disproportionate bringing down the allowance for loan losses. In 2Q10, the gross charge- offs declined 26.6% (q-o-q) to $6.2 billion (annualized charge off rate – 3.55%) from $8.4 billion in 1Q10 (annualized charge off rate – 4.74%). But the provisions for loan losses were slashed down 51.7% (q-o-q) to $3.4 billion (annualized rate – 1.9%) against $7.0 billion (annualized rate – 3.9%) in 1Q10. Consequently, the allowance for loan losses declined 6.2% (q-o-q) from $35.8 billion from $38.2 billion in 1Q10. Non performing loans and NPAs declined 5.1% (q-o-q) and 4.5% (q-o-q) respectively. Thus, the NPLs and NPAs as % of allowance for loan losses expanded to 45.1% and 50.7%, respectively from 44.6% and 49.8% in 1Q10. Delinquency rates, although moderated a bit, are still at high levels. Credit card – 30+ day delinquency rate was 4.96% and the real estate – 30+ day delinquency rate was 6.88%. The 30+ days delinquency rate for WaMu’s credit impaired portfolio was 27.91%.
While the lower provisioning was able to beef up the bottom line in this quarter, the same is not sustainable in the future as JPM cannot afford to reduce its allowance for loan losses substantially. This is a one shot, blow your wad and go to sleep deal! There is no margin for error in the future, and one can only assume that the reason this was done was to pad accounting earnings and to take advantage of the extremely short term, and obviously naïve, memory of the financial media and retail/institutional investor. Given the high charge-off rates and delinquency levels, the provisioning will probably need to be bolstered again in the not too distant future.
Listen, even US Economic Cheerleader and Propaganda-in-Chief Ben Bernanke said it will be several years before growth and employment resumes. Sooooo…. What the hell are the boys (and girls) at JP Morgan doing????
The reduced provisioning can help improve bottom line, but it cannot conceal the weakness in core operations as reflected in the sagging revenues especially in the investment banking segment. Total net revenues declined 9.3% (q-o-q) and 2.0% (y-o-y) with non interest revenues declining 11.1% (q-o-q) and 4.2% (y-o-y) and net interest income declining 7.5% (q-o-q) and remaining flat on y-o-y basis. Trading revenues which witnessed a huge surge and underpinned the revenue growth in 1Q0 was seen moderating in 2Q10 in lieu of the high volatility recorded in the capital markets recently. Revenues from principal transactions declined 54.0% (q-o-q) and 32.5% (y-o-y) to $2.0 billion. Investment banking fees were down 2.7% (q-o-q) and 32.5%(y-o-y) to $1.4 billion with most of the weakness coming from Europe (If you are wondering why, reference our Pan-European Sovereign Debt Crisis series). Lending & deposit-related fees declined 3.6% (q-o-q) and 10.2% (y-o-y) largely driven by declining deposit fees. Only non interest income that was seen growing was mortgage and credit card fees due to improved volumes and activity in these segments and even this revenue stream may come under attach under new legislation.
The rest of this Q2 review can be downloaded by subscribers (click here to subscribe) here: 
JPM 2Q10 review
Subscribers should also review our forensic valuation reports, which have (thus far) proven to be right on the money in terms of JP Morgan:
The JP Morgan Professional Level Forensic Report (subscription only)
The JP Morgan Retail Level Forensic Report (subscription only)
Those that don’t subscribe still have a lot of BoomBustBlog JPM opinion and analysis to chew on, including a free, condensed (but still about 15 pages) version of the forensic analysis above. You can find it below this pretty graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…
An Independent Look into JP Morgan (subscription content free preview!)
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 – JP Morgan
Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!
Anecdotal observations from the JP Morgan Q2-09 conference call
Reggie Middleton on JP Morgan’s Q309 results
Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results
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on Wed, 07/28/2010 - 08:31
#491778
Thanks Reggie;
Do I sense that these common criminals may be running out of places to hide? Geithner needs to come up with some more ideas so that the scams can continue.
on Wed, 07/28/2010 - 12:07
#492321
.
on Wed, 07/28/2010 - 12:18
#492354
It's probably cheaper for the banksters to keep the loan as current than to recognize the loss. Afterall, the term " current " doesn't need to identify the person or entity KEEPING it current.
The other factor is avoiding the trigger on the RMBS default. Plus the fact they'll wash out the prop with underprovisioning on losses.
Whatever it is, it is most certainly hocus pocus accounting and they're all doing it. In SoCal alone the ratio of distressed property to MLS listings is nearly 2 to 1. Since the Fed alledgedly quit purchasing the crap MBS on 3/31, I suspect the schemes will get bolder with time.
Don't think for a moment the gubmint masters and regulators are ignorant to what's going on. It's desperation time.
on Wed, 07/28/2010 - 14:51
#492715
Of course it's cheaper than marking it delinquent. Let me provide an example. Single mother on my street got $185K, zero down GMAC loan. Her boyfriend is a dry waller. They purchased the home two years ago. The guy got laid off two months after the home pruchase. They only ended up making the FIRST TWO payments and then never sent a dime after that. This couple lived in that house just over two years rent free, only ever making two $1500.00 mortgage payments. The bank just came for the home last week!!
Surprise, surprise. They told me that their credit report also showed them as current and not deliquent as of a month ago.
This "new" fraud is going on everywhere in multiple instituions. We're just uncovering it now.
Needless to say, that $185K note has been vaporized and the home at the foreclosure auction got bids no greater than $95K.
The losses these banks are hiding are MASSIVE!!!
Just a side note, anyone remember ENRON?? Mark to myth accounting was the main goblin that allowed them to perpetrate fraud which by the way is exactly what we're allowing these banks to do with the blessing of congress.
Un-fucking-real!!!!
on Wed, 07/28/2010 - 08:46
#491812
Thanks Reggie for another great article yet we all must remember the Fed wants to with ZERO reserves. And i quote:
"Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system" -- Federal Reserve February 10, 2010
www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9
on Wed, 07/28/2010 - 08:53
#491833
This needs to be sent to every media outlet, government agency, House/Senate committees, and so on, until the truth is told to the people. These bankers have to be put out of business. We don't even need companies like Citi, BofA, Wells, Chase, Goldman, JP Morgan. We have enough community banks and credit unions that are not committing fraud and actually help people. Who needs these large banks? No one! They are a drain on society. Close them all I say. The whole TBTF propaganda was played so Benny and Timmy could hook up their brothers at Goldman/JPM. If terrorists want to blow something up, I think no one would care if it were these that were attacked. They would be doing Americans a huge favor.
on Wed, 07/28/2010 - 09:41
#491928
"Priceless!"....Thanks Reggie
on Wed, 07/28/2010 - 09:43
#491936
This is some potent sh*t! Like smelling fresh ground beans in the morning. Synapses popping now.
Thanks!!!!
on Wed, 07/28/2010 - 11:19
#492185
Don't think that this process (or lack of process) is not without the implicit approval of those who would otherwise investigate this fraud. The Fed has had the authority to regulate mortgage activity for many years and has barely lifted a finger. They should start now? There is no "good time" to get real with the Ponzi because, as is normal with a Ponzi, the fraud collapses. Outrage is useless but bringing it to the attention of the regular folks is mandatory. So, how does one reduce the graphs and terminology to the level of the average NASCAR fan? (Oh, come on, I had to do that. Haven't had a good junking in some time now.) When the business section of the print media swaps places with the sports section maybe there will be a change.
on Wed, 07/28/2010 - 11:27
#492219
worth every penny to join n subscribe from him ....nice
on Wed, 07/28/2010 - 13:43
#492537
Perfection Reggie!
on Wed, 07/28/2010 - 13:43
#492538
Meanwhile, in Brazil, interest rates for loans have never been so "low" (google translate):
http://translate.google.com/translate?js=n&prev=_t&hl=en&ie=UTF-8&layout...
on Wed, 07/28/2010 - 14:28
#492656
Not surprising...keep the sham going until the house of cards comes tumbling down then they will be looking for their next handout.
on Wed, 07/28/2010 - 14:43
#492694
It all seems to be the same conspiracy, called "extend and pretend", started by Paulson, Geithner and Bernanke, and which includes the "leaders" of the major banks.
The Fed and Treasury will support the banks as long as it's needed, until the Banks steal enough to pay themselves bonuses and to cover their RE losses. In return banks will not unilaterally pull the sh*t out like Lehman, and will not create market panic.
I think it's time when we finally have to accept it, and have to learn to "love Big Brother"
on Wed, 07/28/2010 - 15:26
#492801
But how can anything else happen Reggie when the nature of the units of exchange are drawn on interest? Ever more is needed to service the debts, thus taking yet more out of circulation so that eventually the water level of the pond lowers. As no new debt is taken on more and more is extracted from production leaving basic exchange of services subject to larger forces of erosion that are more mathematical then diabolical. Would it not be better to look further up the stream toward the origination of such mechanisms which seek gain at the expense of production than to those (semi educated) stewards left in the cockpit as the aircraft hits stall speed?
When a wing unloads due to terminal design characteristics put into the design of the plane way back when it was a mere drawing do we call attention as if it were the fault of the pilot or of the engineer who implemented the design flaw? Being that most pilots are NOT aeronautical engineers of course they will pull all levers to try to correct it based on their knowledge base (or lack there of) but to dig deep into the issue, it seems more of a systemic flaw than an open act of crookery. Just sayin'... Keep an eye on the ball... The pilot is likely scared as shit and never learned aeronautical engineering in school! Tell me where in the universe does there exist the equivalents of leverage we are talking about which has been used in these latest of "bubbles" -- the housing and derivatives bubble? Way off the chart bro...
"Everyone, this is your captain speaking. We have encountered windshear and due to the design flaw of our aircraft we can no longer maintain level flight! As we reach terminal (debt) stall speed the aircraft will become erratic and difficult to control. Fasten you seat belts and stow your tray tables in an upright and locked position... Is there a savvy engineer on board? Oh, we don't have time for that..."
Dude, in the end its the levying of interest pure and simple which over time creates a terminal stall speed as an imbalance is systematically thus put in place which is just like designing an airplane which could never perpetually maintain balanced flight! They can drop interest all they like but -- it won't deal with the pond water getting lower and lower.
Maybe its human nature to more so spew on what can be considered the "bad guys" than to look at the simple flawed design characteristics of the over all thing? Yes, human nature seeks gain over others and thus things perpetuate -- but go to the heart of the flaw regardless. Put it in bright neon lights: Interest! Interest! Interest!
Far worse would be an interest based monetary system 2.0 once the "airplane" takes on the glide ratio of a set of car keys and does its thing as all the laws of physics play out! This one is already toast due to the simple terminal accumulation of debt -- simple! The only way to turn it around is to use an equivalent amount of leverage the "other" direction and jubilee that debt in proportion to how much has been extracted from general circulation.
God help us to RECOGNIZE the engineering flaw and to rid this form of usurpation from center to circumference when it comes time to really re think this type of collective design principle.
Don't blame the pilot -- blame the engineer! Build it better the next time. Fk interest!
http://www.perfecteconomy.com/pg-probability-of-worldwide-economic-collapse.html
on Wed, 07/28/2010 - 15:54
#492855
Well, I think its real nice of the banks not to go smacking somebody's credit rating just because they are in dire straits and trying to work things out.