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Whistleblower Speaks On Fraudclosure
Zero Hedge has been approached by an individual who participated directly in the various aspects of what is now broadly known as Fraudclosure. The below narrative recounts his experience in the due diligence process of selecting loans for the MBS pipeline. And far more than just legalese "technicalities" or a broad abrogation of property rights, as he points out there is a far more palpable issue for all those who hold Mortgage Backed Securities or other pool aggregations of mortgage loans: "we have no idea what is in those packages." This coming from the person who helped pick, diligence and sort through the various loans...
Full exposition:
The truth behind the foreclosure crisis.
Yes, I am choosing to remain an anonymous coward. I just have been waiting this shoe to drop for a long time. The last thing I want to do is have to explain myself and get my ass sued for defamation. Not worth it.
This much I can tell you. We have no idea what is in those packages. I personally packaged billions in MBS which have been placed on public shelves. Those assets were underwritten by Goldman, Morgan or name your investment bank.
I started packaging loans as early as 2003, at the beginning of the crisis. After working for a large aggregator in New York, I joined GMAC. Those were good times. I worked directly with the traders to package assets that we would buy from our institutional clients and broker channel. It was the trader’s responsibility to close the deal with the underwriter. He would then hand the deal to the securitization group where it was managed by an asset specialist and a securitisation manager. We take the pool to the ratings agencies, S&P, Fitch, or Moody`s where we get levels of overcollateralization required for the waterfall of public tranche offerings.
Breakdown
Then, we worked with underwriters of the deal to perform due diligence. That is where this process breaks down. They use sampling to verify the makeup of the pools. There is a lot of pressure to get the deals done in a timely manner so they don’t have time to check every asset. The most I’ve ever checked on a deal is 30%. We’ve done some pools that came back very different from what the trader originally told us. I’ll give a personal example and show how it relates to the foreclosure crisis.
I put together a large subprime deal where we said that the percentage of Stated income assets was 10%. Out of a pool of over 500 assets, we ran our due diligence and pulled a sample of 50 assets, we had over 25% of the assets come back as stated income. Well, we got another 50 assets and still came back with 22% stated. It was obvious to me and the underwriter that the stated income levels were higher than originally reported.
How did we handle this issue? We threw all the stated income assets out of the deal. In this case we threw out 22 assets and packaged the deal as 10%. In fact that is how we would typically handle issues where we had discrepancies. I told my boss on several occasions that it was a real fishy way of doing things, but as everyone was also doing it, my coworkers, the guys from Goldman, the agencies, I just kind of went along with it.
We securitized that deal and put 10% stated on the dealbook. S&P put their name on the package. Goldman underwrote that deal and sent it out to hedge funds and pension funds. What the hell?
That deal was one of the worse deals that we did. Many other deals did come in as reported. Some might have been only 15%, or 12% instead of 10% stated. In most of those cases, we might have only thrown out a couple of assets. And, it may have mathematically worked out assuming that the sample is representative of the population, but it still leads me to my big problem, that there were far too many instances of incorrectly labelled loans, incorrect documentation such that the pool information which went on the dealbook could be very different from the actual makeup of the pool.
Don’t get me wrong, I’m not saying that all deals are incorrect, most aren’t. I’m saying that many are, and we have no way of knowing which deals are tainted. Fortunately, most deals have been seasoned a bit which make them easier to value, but the foreclosure documentation is just one instance where my shady scepticism has been vindicated. I knew there was shit floating around in the pools we were putting together, but the sampling technique and level of due diligence was never going to clean it out.
Due Diligence of lack thereof
That is one of the big fights that the we had with the i-bank underwriting the deal. We would always try to reduce the sampling size. The agencies would stand on the sidelines, and put the stamp of goodness on the pool so long as we were in agreement with the underwriters.
Now going back to the foreclosure mess, when doing the due diligence, we would often find assets that were missing a document here and there (and these were just the ones that we were catching). We had the same response to the bad docs as we did the stated income discrepancies, i.e. just throw those assets out.
I’m no expert, but I do know that statistically, if there is a problem with the sample, there is an overwhelming likelihood of having problems with the population. If you are checking the meat and find out its bad, you don’t just throw out the piece that you checked. It means you have a problem. Check everything.
During the heyday of securitization, due diligence was something that we tried to limit. The underwriters were really looking for instances of egregious fraud. They did not set out to intentionally fraud investors, they just thought that by throwing out the offending assets, the pool would be made whole so to speak.
Loan Documents
Foreclosure and other loan docs make the issue more complex. We would buy assets all over the country and package them up. Every state has its own laws as to the documentation required. We do have lawyers who are experts in the ins and outs of loan documents, but in all honesty, we relied on the threat of reps and warrants to help us feel comfortable.
We didn’t check every single loan document for every single legally required piece of information. Yea, we’d check for the important things, but we couldn’t and didn’t check for every single clause on every single loan document. We couldn’t. And now we are finding out that we should have.
But, as I said before, we have no idea what is in those packages.
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Forgot to take your meds today?
"Don’t get me wrong, I’m not saying that all deals are incorrect, most aren’t."
Yeah whatever, sure your a real professional. I trust you to say the right thing.
Nice to see you bringing out the truth, Whistleblower.
You might wanna also consult a high profile criminal attorney about a plea agreement in exchange for testimony. Hoping you don't get caught is not the way to go. Everybody is gonna get caught. Especially the little guys. Do yourself and society a favor by making sure it doesn't end there.
"Everybody is gonna get caught"
and if it gets to the point where the people start stringing up bankers (and everybody else involved in the FIRE economy) on the nearest lamp post or tree, they aren't likely going to care that you were a whistleblower or knew what you were doing was wrong - it just won't matter
kill 'em all and let God sort 'em out ...
That would be a shame. Without the little guys coming out, we would have much less chance of unraveling this great bankster racket. I like the idea of bankster heads literally rolling, but it seems doubtful that I'll ever enjoy that sight. In any case, they won't be anywhere we can get at them.
A little guy who decided to do the right thing is somebody I would stand up to a mob for.
Chart
ES and ZB http://99ercharts.blogspot.com/2010/10/es-zb.html
When the levee breaks....
http://www.youtube.com/watch?v=5Dqp1rKCtvI
Sampling?? Gees man. For the kind of money involved in these "assets" should not every single loan have been scrutinized before being packaged regardless of the time necessary?
Unless that is the goal since they know the values were only temporary hence the rush to bundle them in before the housing collapse. That seems to be the case and then that is fraud. The whole industry knew it was only a matter of time.
They're sociopaths, to be sure, but I think you give them too much credit. They just didn't give a fuck.
On the other hand, all those CDO's to cover sure as hell suggest I'm wrong about that.
I agree completely--how much time would it take to check all 500 mortgages? A few man-weeks? By, say, a paralegal? Gosh, that would have cost them a crippling $1,000 or so.
You assume they were trying to get it right, and not engaged in fraud 40X leveraging as we know they were?
Gold 1333? WTF happened?
Is turd o.k. ?
AAPL "core dumped".
Thats why Im not on the 'Got to buy gold no matter the price!' bandwagon, everything is fake, everything is manipulated...time for stored goods.
Gold flashcrashing? OMG! jajaja... Can you please flashcrash it some more?
Hello, Kitco? Yes, the 400 oz. Thanks.
Youre putting up pictures of guys now? So, had the sex change yet or just hormones stage so far?
Um.... thats Jocelyn Wildenstein ....
+10 doggy 1
GOLD IS FOR LEMMINGS!
Rich, inflation-hedged lemmings.
Laughed OUT LOUD.
Every jerk in the world is buying gold right now.
Yellowcake, bitchez.
theme song:
http://www.youtube.com/watch?v=mw61q_b1i5I
I'll assume then that you are buying gold...
Are we jerks because we're buying gold (i.e. not supporting Helicopter Ben's POMO?)...
Or does buying gold and holding it in lieu of FRNs make you an arrogant jerk to others who are holding the bag?
Either way, I'm ok with being an asshole. Beats being a sucker.
Prick. Asshole.
http://www.finviz.com/futures_charts.ashx?t=GC&p=w1
Funny shit, ain't it? The need to do the neeeedling is fascinating.
Atlas Shrugged is unfolding in front of our eyes. The "looters" are being revealed.
To the whistleblower: you have great courage coming forward. to those who have had fraud perpetrated on them, this means more than any of us can fathom.
To ZH: rake that muck and down with the ponzi!
This is the correct response to this article.
The people that need to be blowing whistles are those being raped by the Fed, politicians and corporations daily.
Dear Whistleblower,
"Then, we worked with underwriters of the deal to perform due diligence. That is where this process breaks down. They use sampling to verify the makeup of the pools. "
This is what's going to happen now, with the pool and the turd:
http://www.youtube.com/watch?v=1PmMFaVzbzc
Sampling is probably fine - but throwing out the bad apples in the sample to fix the result is plain Fraud!
everyone in america needs to stop paying their mortgage now
WHEN challeNGED all you say is
SHOW ME THE NOTE MOTHERFUCKEr!!
You are stupid to even suggest something like this.
Perhaps he just has a different political philosophy than you, like anarchy.
Yes yes yes a thousand times yes. The only way to fight them is to STARVE THEM OUT. http://rockonomics.net/money/how-to-steal-trillions-a-game-plan/
Eric King getting carried out in a body bag.
Meanwhile, Capital One is up 5% today....
Can't fight city hall.
Check the record - Eric King is on record as buying Ag big at very low prices.
Signed,
Eric's mom ;)
What's missing from YOUR wallet?
Wrong place for a market update. Will you be writing your own column today?
89% of statistics are made up on the spot.
The other 11% are made up somewhere else.
There is a +/- 100% margin of error to these statistics.
Nothing here. Nothing to the story but a bunch of hype and gossip.
Seems like there is a huge rotation out of commodity plays and into homebuilders, REITs, and financials.
Follow the money.
It never leaves the casino.
REIT's started heading north on the27th of last month ...
Micky Gordon... professional lessons in good whistle blowing.
http://www.youtube.com/watch?v=3E4TmZG-gWI&feature=related
I don't like anonymous whistleblowers. This is just worthless unless we get a name and proof on paper of digital.
Any fool can say stuff like that!
It's a pitty Zerohedge posts this crap without direct proof and turns into a gossip site.
Check out how they're handling Julian Assange and think again.
Just wait until the Attorneys get a few of these perps in court and all the other perps get to see what may be in store for them. It's not like all these sleazeballs come from the ranks of Captain Courageous. One the whistles start blowing, there won't be enough whistles to go around. Hmmm. Whistle shortage. Get long whistle manufacturers (or importers).
From the ZH manifesto:
though often maligned (typically by those frustrated by an inability to engage in ad hominem attacks) anonymous speech has a long and storied history in the united states. used by the likes of mark twain (aka samuel langhorne clemens) to criticize common ignorance, and perhaps most famously by alexander hamilton, james madison and john jay (aka publius) to write the federalist papers, we think ourselves in good company in using one or another nom de plume. particularly in light of an emerging trend against vocalizing public dissent in the united states, we believe in the critical importance of anonymity and its role in dissident speech. like the economist magazine, we also believe that keeping authorship anonymous moves the focus of discussion to the content of speech and away from the speaker- as it should be. we believe not only that you should be comfortable with anonymous speech in such an environment, but that you should be suspicious of any speech that isn't.
You can't leave out Silence Dogood, Anthony Afterwit, Alice Addertongue and Richard Saunders- all various incarnations of Benj. Franklin.
True that your dudeness. Thus the avatars of the majority of posts; air conditioned gypsies are free.
Group think and desire for social compliance at its best. Peppered by fat paychecks and the ability to sweep retrobution under the rug. This guy wasn't a coward. Say anything and you're the next Jerry McGuirre, especially if you're not pearched on the top rung. It's all about being a "team player" and not rockin the boat. Do your job and shut it. This guy raises any flags he's washing cars the next day. That's the moral dillimma. When you have the chance to write your manifesto, better have the balls to live on the cheap or have a fat stash to pay your bills. Sucks but it's real.
there was a farmer, had a dog...
Gresham's Law in full effect. Counterfeit thought is cheaper than real thought.
A little blood in the water and these sharks will eat there own.
Even human predators can feel real FEAR.
It's quite appropriate--this is my first post (go easy on me Zhedgers) and I was involved from the originating end of the mess. I worked at several broker and mortgage bank offices and it was always curious to me how some files that had an "incurable flaw" would magically have the flaw fixed either with no explanation or with the intervention of some sharp account executive within the lender's office. This happened occasionally, but enough to know there are time bombs just waiting to be uncovered around every corner. The more they look, the more they will find and they will NOT like what they see. The pervasive culture was always "more, faster". Sadly, I agree with many savvy posters that TPTB will simply move a piece on the chessboard (probably will need to bring the queen into play) and dodge this bullet. I probably read a thousand posts on ZH and now its time for me to get into the game. We need to stop this farce and November 2 is a good start...
yeah, like some golfer's other club, is an eraser.
As if the electronic voting machines run by Repugs are not going to ignore the votes and steam on. I guess we must vote anyway and hope someone catches the vote fixing.
Jump right in, F_G, the water's fine...but if you think anything is going to change after 11/2, well good luck wid dat. Dems & Repubs = 2 sides of same coin when it comes to financial graft. They both want to grab all the $'s they can for government, 'cause that means power. They may preach about reducing government, but it just gets more bloated every year. Main difference is who they want to give the benefits of the tax largess to. Repubs seem to want it to stay w/top 2%, while Dems want it to go to bottom 50%. Either way, middle class is screwed - and that includes most of us and most of our children, many of whom will not be as "middle class" as we have been.
The fed will re-backstop the whole mess and pass the loss to the public - they're getting good at this. If mae and mac already own most of the toxic shit, they you and me are going to simply own more. Where am I wrong and when or how does this shit ever stop? This problem is so big that I can't imagine how hard the presses will have to run to churn out enough worthless federal lubricant to keep the show on the road.
If you are checking the meat and find out its bad, you don’t just throw out the piece that you checked.
-yeah, you make sausage out of the bad meat.
Financial Guard,
Bienvenidos a ZeroHedgemony!
This site is truly a leap forward over other contra-blogs.
The recurring theme here is that Nov 2 is a great place to start, but Oct 19th is a better one. CD would say that you start with self-actualization, Raccoon would say you start with the coin shop, Mako would tell you he's not HyperTiger, Chumba is a ghost so he wouldn't say anything, Robot would say check out my sexy charts, and JBravo would tell you to go to Denniger's site.
Thanks for the welcome Hook! I recognize those names and have read many of their posts but don't know them well enough to have any damn idea of what you're talking about... Looks like the earnings reports are starting to drown out the fraudclosure buzz. It seems the big boys (BofA, JPMC, etc.) are saying "nothing here to see, now move along and send us your payment". Revolting is not a strong enough adjective.
Confucius say: anonymous coward never be seen with many holes in shirt and buried in shallow grave.
I have my doubts about this guy. This could be a disinformation campaign, because what he admits to in this article is MINOR compared to what has already been uncovered. By admitting this piddling-shit, is like Bernie Madoff saying he did it all by himself and look no further.
I don't fucking buy it for a second.
Discrepancies exist, and like in the Madoff Caper, or 9/11, or the Anthrax attack on the 2 top Democrats,...were told look no further.....
Chris Whalen told CNBC's Larry Kudlow that Bear Stearns will be exposed as having sold the same loan to different investors on numerous occasions.
The implications are staggering! It means that a sizable portion of the remaining mortgage-backed securities sitting in pension funds must collapse eventually, because only one of those copied mortgages can actually generate a return. Is this what the Federal Reserve gave out those trillions of UN-tracked dollars to cover? Did we the American people get soaked to make good on the bankers' frauds?
en.wikipedia.org/wiki/Limited_hangout
"You Betcha" Hank the Stank Paulsen and his sidekick who was on CNBC yesterday morning should burn in hell. But first claw back their winnings and distribute it to the TAXPAYERS in equal shares. Do not give the winnings to the beer and cigarette crowd. viva la France!!
Today marks an important turing point for global markets and the USD strength I warned about has arrived.
http://stockmarket618.wordpress.com
thank you for posting - good story
GREAT interview with Chris Whalen yesterday on Bloomberg:
FRAUDCLOSURE: "MBS INVESTORS ARE CALLING THEIR LAWYERS" 10-18-2010http://www.youtube.com/watch?v=9_i9DO0BRdk
Whalen: "Barack Obama is walking in Herbert Hoover's shoes"
It's just beginning. First shot.
Pimco, New York Fed Said to Seek BofA Repurchase of Mortgageshttp://finance.yahoo.com/news/Pimco-New-York-Fed-Said-to-bloomberg-1351005346.html?x=0&sec=topStories&pos=1&asset=&ccode=
RMBS investors have gathered the requisite 25% share of voting rights to file an event of default against Countrywide.
http://www.prnewswire.com/news-releases/institutional-holders-of-country...
confession is good for the soul...
"I’m no expert, but I do know that statistically, if there is a problem with the sample, there is an overwhelming likelihood of having problems with the population. "
that statement is true if the sampling is correctly done. reading the article i doubt that was the case which means the problems are worse than reported....
This is essentially the black swan scenario that people have been harping on. Who would have thought that this would essentially topple a ton of banks.
Yes but will he testify?
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