Did the Mortgage Giants INTENTIONALLY Sell Mortgages Which Would Default, to Generate Huge Credit Default Swap and Synthetic CDO Payouts?
Nicholas Colas Laments The Passage Of The Stock Market, Blames High Frequency Trading And The Federal ReserveSubmitted by Tyler Durden on 10/19/2010 23:45 -0400
In the movie Terminator, various faceless machines, and one especially murderous one almost caused the end of the world. In an ironic twist of life imitating art, the very core premise of our capital markets - the effective allocation of capital to worthy assets on the basis of solid fundamental analysis (and yes, "information arbitrage") is on the verge of being eliminated by the same combination of forces: millions of faceless, anonymous algos, and one destructive endoskeletal machine. Remember: Ben Bernanke is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until both the middle class, and the dollar, are dead.
As the putback parade gets going, the question is not whether the banks can afford to buy back the mortgages. The question is “Can the Banks Afford the Instantaneous and Guaranteed HIT to CAPITAL?” What investors will lend money to see it instantly evaporate, and how much will they charge for those evaporation services? TARP 3.0 coming to a door step near you!!!
Putbacks, bitches! This headline that has just flashed, can not be right. Otherwise it would mean the New York Fed (and Bill Gross) is preparing to sink Bank of America with hundreds of billions of par MBS putbacks. It would however explain why PIMCO has been gobbling up MBS on margin in the past month as we highlighted. We will bring you more as we see it, because this could be a groundbreaking development.
Update: Blackrock joins too! The "soured mortgages" in question amount to $47 billion (to start). We are now just waiting for BofA to next demand TARP 2 and the circle jerk will be complete.
Update 2: Full Bloomberg story attached.
Reminder: Here is JPM's presentation on what the total putback risk is for the Big Banks. As the lawsuit seeks to putback $47 billion one wonders just how accurate JPM's estimate of a $55 billion max pain truly is...
Reminder 2: As our whistleblower pointed out earlier today, the issue of misrepresentation of all mortgage related items (not just titles) is precisely what would destroy the mortgage originators and servicers. Today, Countrywide, its former orange CEO, and Bank of America are the first to realize just how correct he or she was.
I wrote a couple of weeks ago about Brian & Ilsa, a retired couple in their sixties who were trying to refinance their house through HAMP, but were being jerked around by their bank—probably so the banks and servicers could get government bonuses that created perverse incentives to put homeowners into the HAMP program, then toss them out after a three-month "trial mod". In this update of their story, we find out the happy ending they got—and the cattle-prod to the crotch that their bank got. All Brian and Ilsa needed to do was say four little words: "Show Me The Note." — Gonzalo Lira
A financial insider makes a big claim ...
The critical issues in America stem from minimally a blatantly ineffective public policy, but overridingly a failed and destructive Economic Policy. These policy errors are directly responsible for the opening salvos of the Currency War clouds now looming overhead. Don’t be fooled for a minute. The issue of Yuan devaluation is a political distraction from the real issue – a failure of US policy leadership. In my opinion the US Fiscal and Monetary policies are misguided. They are wrong! Now after the charade of Extend & Pretend has run out of momentum and more money printing is again required through Quantitative Easing (we predicted QE II was inevitable in March), the responsible US politicos have cleverly ignited the markets with QE II money printing euphoria in the run-up to the mid-term elections. Craftily they are taking political camouflage behind an “undervalued Yuan” as the culprit for US problems. Remember, patriotism is the last bastion of scoundrels. - Gordon T. Long
Looming losses from the mortgage scandal dubbed “foreclosuregate” may qualify as the sort of systemic risk that, under the new financial reform bill, warrants the breakup of the too-big-to-fail banks. The Kanjorski amendment allows federal regulators to pre-emptively break up large financial institutions that—for any reason—pose a threat to U.S. financial or economic stability.
“It is not necessary to accept everything as true, one must only accept it as necessary.”
Franz Kafka–The Trial
(I just finished watching the Earls family forcefully reclaim their home in SIMI Valley. Like many of you, I am feeling slightly uneasy about this story.)
The banks are screwed—again. Because of the same thing as the last time—the fucking Mortgage Backed Securities. People still haven’t figured out what this Mortgage Mess means—but I’ll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that’s basically a license to halt payments right the fuck now. That’s basically a license to tell the banks to fuck off. This Mortgage Mess is a hurricane that'll make Lehman's collapse look like a spring rain. —Gonzalo Lira
Looks like someone may have had a little advance notice on October's foreclosure semi-moratorium festivities. According to RealtyTrac, September foreclosures marked a 5 month high of 347,420, jumping 3% from the previous month and 1% from September 2009, even as the 3rd quarters marked the highest foreclosure activity on record. For the first time in history, bank repossessions (REOs) surpassed 100K, hitting 102,134. Providing some much needed color on what is actually happening in the foreclosure market, James Saccio, CEO of RealtyTrac said: "Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months. We expect to see a dip in those bank repossessions — and possibly earlier stages of the foreclosure process — in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks." And plunge, foreclosure activity will: the 24 judicial foreclosure states most affected by the foreclosure documentation issue accounted for 40 percent of all foreclosure activity in the third quarter and 36 percent of bank repossessions, or REOs. And the worst part is precisely what Jim Cramer thought was going to represent a boost to home prices, confirming just how little the man understand basic market principles: "If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process. However, if the documentation issue cannot be quickly resolved and expands to more lenders we could see a chilling effect on the overall housing market as sales of pre-foreclosure and foreclosed properties, which account for nearly one-third of all sales, dry up and the shadow inventory of distressed properties grows — causing more uncertainty about home prices.” In other words: a complete housing market collapse.
Meet The Foreclosure "Experts": Hair Stylists, Walmart Floor Workers And Assembly Line Workers, All Hired To "Defraud Homeowners"Submitted by Tyler Durden on 10/13/2010 15:54 -0400
This is just surreal: the Associated Press has put together a must read profile of all the people who the mortgage servicing industry has been scrambling to get together since 2007. The outcome, and stereotypes, are stunning: "In an effort to rush through thousands of home foreclosures since 2007,
financial institutions and their mortgage servicing departments hired
hair stylists, Walmart floor workers and people who had worked on
assembly lines and installed them in "foreclosure expert" jobs with no
formal training, a Florida lawyer says." And it gets even scarier - these "experts" pretty much all confirm they participated in fraud, either willingly or unwillingly: "In depositions released Tuesday, many of those workers testified that
they barely knew what a mortgage was. Some couldn't define the word
"affidavit." Others didn't know what a complaint was, or even what was
meant by personal property. Most troubling, several said they knew they
were lying when they signed the foreclosure affidavits and that they
agreed with the defense lawyers' accusations about document fraud." And here is punchline: " In what is perhaps a
sign of things to come, a Simi Valley, Calif., couple and their nine
children broke into their foreclosed home over the weekend and moved
back in, according to television station KABC of Simi Valley. The family was evicted
from their Spanish-style two-story in July. The home has been sold, and
the new owner was due to move in soon." And this is a problem that will go away in a few months?
What has 60% of the nation’s residential mortgages but 0 employees?
Peeking Behind JPM's Voodoo Numbers, As Jamie Dimon Confirms Borrowers Live Mortgage Free For 14 Months Before ForeclosureSubmitted by Tyler Durden on 10/13/2010 08:16 -0400
Some accounting voodoo to start off the day. In a nutshell - the bank which missed total revenue expectations of $24.28 billion by almost half a billion at $23.824 (which you may find unadjusted on one place somewhere in the attached presentation but most likely not), and which is entering Q4 with the foreclosure fraud crisis chip on its shoulder, and halted mortgages, somehow is lowering its net charge-off provisions estimate by over a billion. Which is why, hey presto, earnings of $1.01 "beat" expectations of $0.88, and the robotic headline scanners go nuts over the stock. More importantly, in discussing fraudclosure, JPM admits that by the time there is a foreclosure sale, borrowers are on average 14 months delinquent. In other words, all those who end up being "thrown out" on the street, live mortgage-free for over a year! And one wonders where all the excess marginal money to buy worthless trinkets comes from...
There are still huge headwinds facing the residential real estate market. Shadow Inventory is not getting better, and now we have the robo-signing scandal which will only further delay recovery. Since all real estate is "local", some markets are clearly starting to find a floor. But a "recovery" whereby prices stabilize is a couple years away.