Banks Increasingly Forced To Buy Back Bad Mortgages

nytimes.com:

If nobody does their job right, and disaster ensues, who should pay for the sins of all?

That is the predicament now confronting the mortgage industry, where it has become clear that many billions of dollars in home loans were sold, guaranteed and rated as safe without anyone bothering to examine whether the loans were made with due regard for the rules.

Read the whole story: nytimes.com

Comments

[Aneesia]

08:13 AM on 08/30/2010

Who should be jailed ? The Regulators and Rating companies who didn't do their job, the brokerages who were selling packages of loans, falsifying their ratings and then betting against them, the banks using our money and buying derivatives. the mortgage companies falsifying data. The above were all criminal acts, and the criminals still have positions of power.
If I shoplifted a magazine at a store I would get more time than these people that robbed the American people, destroying their livelihoods and future. The Legislative, Executive and Judicial branches of government have all shown that they are easy sell outs to a bribe. Russia said that this nation would die from within. This nation is dying from a cancer of greed.

[wolfdogNM]

12:29 AM on 09/06/2010

At the same time, on the other end the realestate moguls jacked the prices sky high. Now you still have all these cities in the USA where the average household income is about 50k/year, yet the 3 bed room, 2 bath houses are still about 250k. This means that the mortguages are like >$1500/month, and the families theere are bring home about 2k/ month after tax and medical insurance have been taken out of their checks. This is a formula for failure on a massive scale.

[Charles Deihl]

02:29 AM on 08/23/2010

I feel Banks should go down with the borrows,cause the BANKS are the ones that blinded the borrows over their loans so screw them to..To big to fail,what about the AMERICAN DREAM.Banks turned that into a NIGHTMARE..

[Main Street Blues]

01:23 PM on 08/22/2010

It's refreshing to see that for a change..it's not just the taxpayers that are being held responsible for what the Banks and Wall Street and the Obama Administration did. What we need to see now however is the headline: Banks are forced to reduce Principal and Interest rates on existing home mortgages Nation-wide. Only until then will our economy start to rebuild...until then we continue to slide down to the unknown bottom,

[Cipo]

12:12 AM on 08/23/2010

I agree. However, I don't think that you really think that the bottom is actually "unknown," do you? National default and the ensuing chaos that occurs afterwards have been played out in several countries over the years.

[tacevad]

03:46 PM on 08/23/2010

the fairness of such a move to those who paid their mortgages off is?

[USNDC]

09:47 AM on 08/22/2010

This is a silly story ... and a silly question.

Of course the taxpayer should pay.

[Passerineblue]

09:43 AM on 08/22/2010

There is so much misinformation about this whole issue that I have to comment. I have been practicing mortgage law since 1978. It's my field of expertise as a lawyer. I also have LOTS of experience with the GSE's. First, let me tell you that Kevin of Atlanta doesn't know what he's talking about 90% of the time.

Second, this is how the system works. When you go into say Bank of America and get your mortgage, they do what is called underwriting. The check the borrower (credit history, work record, provable income) and the property (does it exist, appraisal, etc.) The main purchasers of mortgages these dates are Fannie and Freddie. They both have printed guidelines which list in great detail the types of loans they will buy. When Bank of America sells the loan to Fannie or Freddie, they are deemed to have warranted to Fannie or Freddie that the loan/borrower/property complies with the guidelines. When and if Fannie/Freddie finds out that the loan/borrower/property fails to comply with the guidelines, Fannie/Freddie force Bank of America to repurchase the loan. Bank of America gives Fannie/Freddie the amount Bank of America originally received for the loan plus some adjustments. Then Fannie/Freddie legally transfers ownership of the loan back to Bank of America.

This is not what is called a "repo." They are two totally separate things.

[CharlesMac]

11:46 PM on 08/26/2010

Fine. But the author insisted on using the term "repurchase". At the same time, the headline print wasn't to the shareholders "Banks forced by the rule of law to buy back garbage, after passing on fraudulent vehicles initiated by pizza delivery boys turned mortgage lenders. Some of whom were mortgage lending subsidiaries of the bank itself."

The thesis remains the same, the article is pandering for teen-aged banks who violated their contract.

And repurchase agreements are no longer functionally different. The REPO 105 deception proved you can book as a sale, horsebleep collateral at EOQ to prop up your balance sheet.

Until unwinding QE came to a grinding/immediate halt, the Fed reported their entire effort as reversing repos. Ones in which the Fed didn't demand the Primary Dealer take a haircut on the collapsed collateral while they were on the Fed's balance sheet.

That's also same-as-sale.

Every one of these TBTF multi-banks' primary business foundation is risk assessment. And they blew it.

The key issue that the author and you don't mention to these folks, while you deflect it..

Any fraudulent mortgages the banks sold to a GSE which are appropriately "forced" back on the banks, is a private loss for the bank and shareholders.

Any mortgages which should be, but aren't... are an unnecessary public loss for the American people.

In this instance, the GSEs are clearly working on behalf of the American people.

Go ahead, spout about mis-information.

[Aripottah]

01:15 AM on 08/22/2010

Bon Appetit, big banks!

[ms winkle]

09:42 PM on 08/21/2010

yeah the headline should read

Banks buying back faulty mortgages with our tax dollars

please feel free to add to this headline

[ms winkle]

09:41 PM on 08/21/2010

yeah the headline should read

Banks buying back faulty mortgages with our tax dollars

[rory talbot]

09:21 PM on 08/21/2010

Cramdown now.

[Passerineblue]

09:45 AM on 08/22/2010

Huh? Cramdown is a bankruptcy term which has nothing whatsoever to do with topic of the article.

[flashblitzen]

02:09 PM on 08/21/2010

This is a faulty spin. The banks were never on the hook for anything.
For all I know, the housing bubble and factory jobs bubble were timed to burst and create one of the biggest payoffs in the worlds history.
When you follow the money flow as a result - it gets even more suspicious.
I wonder how many Silver-steins insured against this disaster a couple weeks before it occurred.

[MyFatCat]

12:42 PM on 08/21/2010

The opener of this article gets it wrong. The industry did its job right: the job is to ensure short-term profits at the maximum possible cost to the consumer.

[Kevin Atlanta]

11:24 AM on 08/21/2010

With 80% of the Mortgage Fraud coming from the loan originator and not the consumer this nightmare should be put back on the Banksters and Wall Street Frauds.

Americans are still clueless to the Heist of History the FED, Banksters and Wall Street thieves perpetrated with their back-room gambling parlors.

Real relief on Main Street begins when the US Government seizes the assets and profits of the Too Big To Fail and distributes them back to the people who propped up the greedy thieves leading the destruction of America.

America WAKE-UP and see the lie, the fraud the corruption of Corporate Government.

[binksmom85]

05:17 PM on 08/21/2010

faved it, can't fan ya again!

Bloomberg attempted to tally the toxic derivatives, estimated at 600 trillion- on a world GDP of 65 trillion. the sooner it blows up and everybody defaults and starts over, the sooner we can all move on

[Kevin Atlanta]

06:52 PM on 08/21/2010

It's going to crash when the new global currency appears and the world divests the Dollar as the currency of commerce. That's the crash for this fall that is planned.

[McKeaton]

07:31 PM on 08/21/2010

The"onion" with multilayer hidden financial "instruments" were long time ago designed and tested by SNLand Enron Ponzi schemes. The delay , to rip the huge short time profit"derivatives" were computerized schemes with many variables(2 wars, hosing bubble, gas prices, etc.) used by the insider traders from the miriad of the same greedy Wall St. barons hedgge funds.

Freddie and Fannie were created to gradually absorb, at taxpayers expense, the losses.That 's what are doing now, so they try to keep prices INFLATED, to avoid the total collapse that is inevitable.

[Passerineblue]

10:02 AM on 08/22/2010

You have no idea of what you're talking about. Do you have a law degree, an MBA, a PhD in econ? You are not doing anyone any favors by spreading ignorant nonsense.

[Mafdet]

11:02 PM on 08/20/2010

Well I saw this coming a mile away. I don't know what sins of others this article references. Quite simply, the consumer banks ginned out paper that had no corresponding assets or weak assets because the investment banks couldn't get enough of them and didn't particularly care if they were fraudulent or not because the investment banks had the ratings agencies in their pockets, so they could have gotten a triple A rating on a sack of dung...which is what they did.

30 or 40billion is a totally imaginary number. No one but the consumer banks have an idea of how much fraudulent paper they generated, and they have waited for law suits to force them to come clean.

Barak Obama should not have let this be settled in the civil courts. Had these criminals - Ken Lewis being the poster child - been prosecuted, the scope of the crimes would have come to light immediately just like they did once the Enron criminals were hauled in.

[binksmom85]

05:19 PM on 08/21/2010

try trillions; all those ‘too big to fail’ banks that got bailouts and gave huge executive bonuses are still insolvent, with toxic derivative debt still on their books, but **kept off their balance sheets**: listed in the Office of Comptroller of the Currency, quarterly Report, Page 23: “JPMorgan-- $81 trillion, Bank of America --$78 trillion, Goldman Sachs--$48 trillion, CitiGroup-- $32 trillion”; this is on a world GDP of $65 trillion

[Mafdet]

05:55 PM on 08/21/2010

I have no doubt the real liability is in the trillions. The consumer banks are now holding reseves in the hundreds of billions. If they're not lending it, it's because they need to anticipate something that's going to cost them more.

And just to be clear about lending: 2 1/2 years ago, the consumer banks stopped lending to anyone who presented risk and they imposed controls on anything that was open-ended, like credit lines and credit cards.

This effectively means that they are not banks anymore. Banks assume risk and they charge an interest rate that reflects the risk. When banks lend in the absence of risk but they continue to charge interest rates, they are being something besides banks.

This, I think, is the reason that the Fed cut interest rates again against all logic - because there is no way to justify any interest rate at all when the banks refuse to assume risk. Those who don't present risk, also probably don't need loans. So they aren't going to take loans a high interest rates. Therefore, the interest rates have to disappear in order to attract the customer that presents no risk.

Because the banks, despite having billions in reserve now, can't bear risk.

[CharlesMac]

10:50 PM on 08/20/2010

Hold it.

The author is attempting to garner something on-the-record which is utter organic fertilizer.

It appears he is saying that the poor banks have to "buy" back something, as if that was not in the original agreement. It was.

He is describing "repurchase agreements" or "repos", not outright buy/sell.

When a secondary market (like Freddie and Fannie) provides cash for a mortgage, or a securitization of a mortgage, from one of the Wall Street Casinos or primary lenders, they can opt to do it as a repo.

That means "I'll give you this money today, if you give me the collateral (the mortgage) for this "loan". This is with full understanding that you will buy back the collateral at the same price, in the future. And it says so in the contract."

So when the Bankster was given $500K in cash to make money, they relinquished the mortgage to another Bank or Fannie. Now that the mortgage is only worth $250K due to default and house value collapse, they are POed they have to honor the contract and "buy" it back.

And this is somebody else's fault?

I see their teenage-like arrogance and contempt for contract law, when they have to answer for being caught in their own recklessness.

I also see one of their handmaiden/writers, who is condescending to trick you with obfuscated facts.

They are treating you like ignorant dirt.

This is what they do. This is all that they do.

[Mafdet]

11:48 PM on 08/20/2010

Thank you very much. And then there is the fact that when the Lehman securities were dismantled, it turned out they contained "loans" for which there were no corresponding assests. I kind of doubt that only one consumer bank took that approach to meeting the investment banks' demands. So before this is over, the consumer banks are going to have to buy back completely worthless paper - not undervalued loans. not defaulted on loans. completely fictional loans.


This is why they are not lending even though they are fat with cash. But fat as they are, some may fail when they have to settle up. And when that happens, we all get to see what the recent financial reform was all about.

[Passerineblue]

10:11 AM on 08/22/2010

Wrong again. You don't understand the structure of these deals. Your "consumer bank" put the loan together and is on the hook (liable) for bad underwriting, not the decrease in value of the collateral. The "consumer bank" is NOT going to be forced to buy what you call "worthless paper" unless they participated in fraud or violated underwriting rules. If a "consumer bank" does what it's supposed to do and checks the borrower, the property, etc., they are not forced to buy back the loan if the market tanks. If they sold a loan which was not secured by any collateral, that's their fault and they should be forced to buy the loan back;.

[Passerineblue]

10:07 AM on 08/22/2010

Sorry to disabuse you of your ignorance, but he's not tallking about "repo" loans.. He's talking about repurchases of loans by banks who sold badly underwritten loans to mortgage bundlers who securitized the loans.

[Revee]

08:01 PM on 08/20/2010

I am seeing a lot of posts here that appear to blame this on political parties.
However, after reading the book "The Big Short" by Michael Lewis (not an easy read but informative), I am convinced that the blame goes to human greed and complacence - not necessarily partisan traits. I guess the whole "system" can be blamed for this.
Someone came up with ways to make easy money and a whole lot of supposed "smart" people followed blindly. The banks were "intentionally" looking for borrowers that could not repay their loans! My jaw dropped after reading the gory details of why they did this. I am still in shock!

[tgiovanni]

09:38 PM on 08/20/2010

Indeed, the whole "system" can be blamed. And that "system" consisted of the ordinary home buyer, the appraiser, the lender, the title insurer, the regulators, the wall street bankers, the ratings agencies, and the government. Plenty of blame to go around for the republicans, the democrats, Bush, Clinton,the other Bush, Reagan.

Greed, on the other hand, is non-partisan.