The fate of Freddie Mac and Fannie Mae will be center stage in January when the Obama administration makes its required Congressional recommendations about what to do about the two companies. The stakes for homeowners and the economy couldn't be higher as the next Congressional session will determine if the U.S. has a private mortgage market or if, by controlling housing finance, government bureaucrats will be able to direct where Americans live and how much they pay for housing.
While the administration is trying to figure out how much is too much government intervention in the housing finance markets, it doesn't seem to be concerned with the underlying problems that shut down virtually all new issue volume in the private mortgage securities markets. As a result, administration proposals are doomed to fail until it acknowledges that radical mortgage finance reform is a prerequisite for the U.S. to break its dependency on Freddie Mac and Fannie Mae. Reform is needed to induce investors to buy newly issued non-government guaranteed mortgage backed securities.
According to the Securities Industry and Financial Markets Association, since 2006 new issue volume of private mortgage backed securities has dropped by more than 98% and in November came to an almost complete halt. In its place, Freddie Mac, Fannie Mae and the FHA are providing liquidity for most mortgages originated in the United States. When banks and other government insured depositories are included in calculations, the market share of mortgages that are directly or indirectly financed by the Federal government is virtually 100%.
The reason the private mortgage finance market died is that investors no longer trust Wall Street to originate, underwrite, package or service mortgages. Instead, investors are staging a buyer's strike and fleeing to the relative safety of government guaranteed mortgage securities. It doesn't matter what the underlying credit quality of mortgage pools are, investors just aren't buying.
It shouldn't be surprising to anyone that investors don't want to buy what Wall Street is peddling. Over the last four years losses in mortgage backed bonds almost took down the global economy.
But even with what has been reported since 2007, the news from the mortgage backed bond industry keeps on getting worse.
According to many industry experts, including the Congressional Oversight Panel, many private label mortgage backed bonds have a fatal defect. Of course, Wall Street disagrees and claims that the problem is a mere technicality and not very important. The "insignificant" defect that Wall Street is downplaying is that many mortgage backed bonds may not be backed by mortgages.
The last sentence was not a typo or a mistake of fact.
There is a serious chance that the issuers of many mortgage backed bonds lack ownership of the mortgages that are supposed to back their bonds. This dirty little defect has paralyzed the private mortgage finance markets and is a primary reason that new issuance of even private mortgage securities made up of loans to "A" quality borrowers and low loan to values has ceased. And, the problem seems to be ignored by the administration and regulators.
The defect occurred because it was too much of a paper work burden for Wall Street mortgage professionals to make 100% certain that they actually legally transferred mortgages to trusts that issued mortgage backed bonds. Instead of doing what generations of mortgage professionals had done before, the current generation of Wall Street geniuses decided to cut a few corners in the spirit of cost saving innovation.
Cutting corners when transferring mortgages to bond issuers isn't a good idea. If mortgages aren't transferred as expected, then mortgage backed bonds are close to worthless because they aren't actually backed by anything.
But it gets worse; flawed bonds are worth less than $0 to investors. Because of Wall Street's paper work errors, investors took what they thought were legitimate Federal and state tax deductions and paid taxes based upon the expected attributes of their investments. But, it turns out that they may not have been entitled to their tax benefits and as a result may face costly retroactive tax bills including interest and penalties.
The paper work problems in the mortgage finance and securities in industry are well known and well documented. The Congressional Oversight Panel's November 16, 2010 report titled Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation provides an authoritative summary of the problem even though it reads like a cheap pulp fiction novel.
The Congressional Oversight Panel raises questions about the financial integrity of hundreds of billions of dollars of mortgage backed bonds and identifies a spillover effect on ordinary people who may be "unable to know with any certainty whether they can safely buy or sell a home." Even this week's report of continued falling home prices was predictable given fundamental title issues raised by the Congressional panel.
The Congressional Oversight Panel report concludes that "[t]he American financial system is in a precarious place" because of the private label mortgage securities issue.
While few experts believe that the economic nuclear winter profiled in the Congressional Oversight Panel report will actually happen, most experts agree that it is a more than remote possibility that "shoddy executed paperwork" will be a costly problem for investors and homeowners.
For its January Congressional recommendations to have any meaning, the administration needs to fix the private label mortgage backed securities problem and recognize that investors will continue to stay away from the market unless they are 100% certain that Wall Street abuses and errors won't reoccur.
The American public has a big stake in the administration's policy initiatives. Home price stability requires a vibrant and sound mortgage finance industry. Investors need to feel confident in the basic integrity of the bonds that they purchase. And, Wall Street decision makers that either made bad decisions or failed to supervise their subordinates need to be held accountable.
Without reform, protection and accountability, the administration's proposals will be stillborn and the U.S. will continue to be almost totally dependent upon the Federal government for housing finance. Maybe this time around Congress and the Administration will use common sense in their policy initiatives but I just don't plan on holding my breath waiting.
The loan servicers make a quick profit on all the fees. Easily $25,000 just from the homeowner.
The foreclosure attorneys committed Fraud Upon the Court - because they claim to represent the Trust - but it did NOT own the Note thus was NOT and could not EVER become a bona-fide purchaser or holder in due course -so by contract specifically sections 2 (PSA) and else-where under the Representations & Warrantees submitted to the SEC. Worse the Trust "cannot" accept those Notes after the closing date and especially if the Note is defective i.e. IN DEFAULT. IT IS ALL A FRAUD & ILLEGAL!
Essentially, any judge allowing those foreclosures - LITERALLY gave that property to a complete STRANGER to the transaction. That stranger never PAID a nickel of its own money - did NOT own the Note - had NO LEGAL RIGHT TO THAT PROPERTY - were then PAID the mortgage insurance - default insurance - etc... CHARGED THOSE FAMILIES with HUGE (illegal) legal fees then illegally tossed those families to the street.
ALL while the only ones left BURNED were those homeowners that were sold an ILLEGAL MORTGAGE - then were ILLEGALLY FORECLOSED... The loans were never legally perfected and lacked proper recordation - making them VOID.
The more the Gov
Starting from playing fast and loose with short-selling, the gamesters figured out they could play as gamblers, indexing to the markets, naked-short-selling, selling short without selling. Selling synthetic 'virtual shares', nothing really, just bets on books. They made book, used share quotes to show who were winners. From there they went to selling synthetic virtual-securities...
And then they went to selling to real investors, pretending their synthetic virtual securities real securities. That was what they needed the loosely run and lax-regulationed MERS computer system to facilitate, so that just by entering a synthetic security as a security they could make it appear a real one in the database.
A great Ponzi until it all collapsed and left all those only data-entry mortgages they'd securitized to securities. Data entries with no real properties...
Of course investors aren't going to buy horses there again, even if the dealers swear they're really real horses this time.
Honest investors avoid dishonest markets. It's one of the controls in free market systems, that make free markets function.
Big Sign: NO SMOKING
(flick, flick)
The members of that family can then reflect their real wealth and financial security with the net positive accumulation of grain, gold, cattle, jewels, land, buildings, hotels, casinos, factories, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family.
This accumulated wealth is then available to be taxed in order to create funds to spend for pork barrel projects, green projects, infrastructure projects, water & sewer, wars, streets, bridges, highways, welfare, unemployment, school teachers, policemen, fire fighters, and other government bureaucrat provided services.
This reminds me of a classic scene from Monty Python’s Life of Brian
“All right ... all right ... but apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order ... what have the Romans done for us?”
The investors should not have believed anything that their brokers told them about those or any other investments.
If you review almost any of the SEC filings (on the EDGAR database) you will find almost all of the sworn information filed with the SEC is extremely false, most especially when you get away from the "Blue Chip" stocks.
It irritates me when my banker refers to Banking, Stock Trading, Insurance and other financial businesses as "industries", since they do not create anything, except worthless paper (toxic asset) financial "products".
The Wall Street Stock Exchanges and Banks are essentially corrupt and should be allowed to close in Bankruptcy.
Wall street is too corrupt and inept to be salvaged. Stocks should be delivered to the registered owners.
We need more comic relief today.
Incidentally, I have three bushel baskets full of recently created new financial products including a lots of CDOs, SIVs, ABSs, SPVs, VIEs, CPDOs, SiVs, derivatives, and other similar new toxic "financial products" for sale to you at a very good price. These products cost more than toilet paper to produce, are of first quality, and can be used as toilet paper if you are not too sensative. These products can be yours at a price much lower than the same retail price per pound of toilet paper if you are interested.
Maybe the SEC should require/grant license only to those that have intrinsic collateral value, are easily understood, are transparent, forthright, and are not deceptive in their sworn financial statements filed with the SEC.
Maybe the SEC should also require a study to justify the need and define the value of any new derivative type instrument created, similar to an Environmental Impact Statement.
When the financial risks are several layers or completely removed from the title to the actual asset that has some actual collateral value (like a Mortgage, Bond, Property Title, Stock Share, Promissory note), and this instrument is insured from most of the investment risk, how much due diligence will an investor perform before he will commit to purchase, as compared to the investing into a primary mortgage or similar instrument that is collateralized for the event of failure?
If I were driving a car without insurance, I would probably drive more carefully than if I had insurance since my exposure for loss is lessened with insurance coverage.
The management of these failed financial institutions should have been fired, especially their CEOs and leaders, and not rewarded with cash bonuses by the US government with borrowed US dollars.
This bailout is rewarding these incompetent managers with continued employment and even large cash bonuses to these managers that caused the failures.
Why should these managers work hard to investigate anything to do with their financial decisions and/or investments if the US taxpayer will pay for their mistakes?
They will still get their big cash bonuses. Did their friends get commissions for selling these bad investments?
Were there any kickbacks to financial institution employees who approved these transactions?
Why are the financial institution personnel that made these bad decisions still employed?
Why is it necessary for financial institution not to become bankrupt?
Why does the taxpayer have to pay for these bad judgments and stupid actions?
If they went bankrupt and all of these managers were out of work, it would be an incentive for managers of other companies and other future managers (and individual investors) to become more cautious of what they buy in the way of mortgages, securities, bonds and other investments.
The corporation state, hiding behind the smokescreen of the public relations industry, the entertainment industry and the tawdry materialism of a consumer society, devours us from the inside out. It owes no allegiance to us or the nation. It feasts upon our carcass.
The bleakness of our post-industrial pockets, where some 40 million Americans live in a state of poverty and tens of millions in a category called “near poverty,” coupled with the lack of credit to save families from foreclosures, bank repossessions and bankruptcy from medical bills, means that inverted totalitarianism will no longer work.
“Never again will you be capable of ordinary human feeling,” “Everything will be dead inside you. Never again will you be capable of love, or friendship, or joy of living, or laughter, or curiosity, or courage, or integrity. You will be hollow. We shall squeeze you empty and then we shall fill you with ourselves.”
Do you begin to see, then, what kind of world we are creating? It is the exact opposite of the stupid hedonistic Utopias that the old reformers imagined. A world of fear and treachery and torment, a world of trampling and being trampled upon, a world which will grow not less but more merciless as it refines itself.”
Their idea of spreading home ownership is fraudulent securities, ratings, appriasals and malicous foreclosures. Other than that, they are a bunch of nice guys.
So before you blame your local consumer attorney, take a look at what the so-called "good guys" on Wall Street did while they were bashing attorneys who work on a percentage.
Obama will end his presidency by saying that we need to cave in on tort reform with more caps on damages, as in the Gulf disaster - look at how good that's going for victims, which includes all of us.
The only thing standing between the government and the fraudulent mortgage chasers is your consumer lawyers.
This fraud is what juiced up the economy to create a false prosperity to pay for wars for more oil. Wall Street is caught with its hand in the cookie jar. Slicing and dicing mortgage rights didn't work out. But they structured their commissions up front and made the right political contributions with the right lobbyists.
http://www.federalreserve.gov/aboutthefed/section19.htm
Our legislators have been taking their legislative cues from Wall Street lobbyists for years. Let that sink in.
The government simply restricts. You blame the "huge" government for "neglecting" people by reducing regulation? So you want smaller, weaker, government... that has more regulation.
The people who are responsible for writing bad loans... are the people who wrote bad loans.
If someone I've never met walks up to me and says "give me $100 and I'll give it back" and I give it to them it's my fault when they don't give it back. But if someone walks up to me and says "I need $300,000 and I'll give it back", then it's the government's fault if they don't give it back to me?
Really?
I'm sorry but if someone asks me for $300K there needs to be a nearly fool proof plan to get that money back. That's before I even consider the incentives of the loan.
The problem here was that the people writing the loans were not in any way responsible if the loans didn't get repaid and the people who were responsible either didn't do their homework or were swindled into thinking the loans were good by the people who wrote them.
I love how no one is even considering holding the people actually responsible for the "credit crisis" responsible in any way for their behavior.
Instead we somehow blame it on big government AND government neglect.
The mortgage lenders deliberately sold mortgages to families KNOWING they could NOT repay. Countrywide even developed a software underwriting program that took the REJECTED LOAN APPS - adjusted the loan - changed it to a NINA or SISA loan - inserted the payments the borrower could afford - qualified the borrowers by using 1.25% teaser rates - while showing the borrowers docs that did NOT properly disclose the loan. They were told their payments might go up a few hundred bucks in a few yrs when in FACT the loan jumped 3-4 TIMES the payment.
Per deposition and admitted to Office of Thrift already - those loans were sold to at least 3-4 MILLION FAMILIES. Those families are NOW being foreclosed and HAVE NO IDEA THEIR LOANS WERE ILLEGAL. That is disgusting and our gov knows it is happening.
It is incomprehensible that these lenders have not been prosecuted. These families don't even know it.
The only "100% certain" fact is that "Wall Street abuses and errors" WILL reoccur. So, I assume, you are saying that investors will stay away from the market forever.
Thanks, Reagan. Thanks, Bushes. Thanks, Clinton. Thanks, Obama. Thanks all you corrupt politicians on both sides. That deregulation of the banking industry really worked out well, eh? And that cart blanc you gave to the bankers to use our Treasury as a personal bonus pool has helped a lot, don't you think? And all those loopholes and legal escape hatches to prevent accountability--they have really made life easier for the oligarchy, so thanks so much.
Turn out the lights as you exit for your gated communities and private islands. But keep watch...the trillions you have stolen had previous owners who will probably know where you are hiding and be coming for them eventually.
http://cop.senate.gov/reports/library/report-111610-cop.cfm
This is a link to the summary. There is a link on the summary page to the actual report.
Below is a quote from the summary.
"The worst-case scenario is considerably grimmer. In this view, which has been articulated by academics and homeowner advocates, the "robo-signing" of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure. The risk stems from the possibility that the rapid growth of mortgage securitization in recent years may have outpaced the ability of the legal and financial system to track mortgage loan ownership. In essence, banks may be unable to prove that they own the mortgage loans they claim to own."
In the report they confirm that the worst case is a possiblity.
Unfortunately, as long as the worst case is s possilibity investors aren't going to be buying any newly issued securities.
Those who still pay attention to the mainstream media are just ignorant sheeple being led to the Wall Street meat market.
zerohedge--boombustblog--nakedcapitalism. Check them out if you are tired of the neoliberal government/corporate propaganda masquerading as mainstream news nowadays.
You are correct and the prudent investor simply cannot rely on the traditional sources for economic and investment information. Add Reuters to your list. Inexplicably, they will have coverage of events, occuring in America, that do not get even a whisper stateside. Also the Guardian, that comes with a little more rabble-rousing, but then maybe that's what we need.
There is a highly schooled lady, Carolab, that posts here at Huffington. You could do a lot worse than follow her around. She manages to be on top of a lot of what's going on.