Mortgage Fraud Investigations And Prosecution Centering On Mortgage Brokers And Title Companies

11 12 2008

“Let’s not lose sight of the fact that there is immense criminal fraud involved in this financial crisis,” said U.S. Attorney McGregor Scott, whose district spans California’s vast Central Valley and is among those most affected by the housing bust. “It’s a profound ripple effect that affects everyone.”

“We are mainly focusing on the mortgage brokers and title companies because they are really at the center of mortgage fraud in this district,” said William Edwards, the acting U.S. attorney for northern Ohio.

In addition to California, large numbers of investigations are under way in Nevada, Florida, Illinois, Arizona, Atlanta and Rust Belt states such as Ohio and Michigan, the areas that have experienced the highest rates of home foreclosure.

 

http://www.google.com/hostednews/ap/article/ALeqM5ieeI0NXfkFVB7LKp1n_hYlEbeagAD95046J80

 

Prosecutors are finding buyers who created fake identities to take out home loans, brokers who paid kickbacks to ensure fraudulent mortgages were approved and lenders who took bribes and forged documents.

They are the ones who fraudulently overstated property values and borrowers’ incomes, who used illegal means to secure loans that homeowners ultimately couldn’t afford, though they had plenty of encouragement from Wall Street.

That fraud helped artificially inflate home values that have since come crashing to earth. Foreclosures are dragging down property values in neighborhoods across the nation. Lenders, in response, have shut the door on almost anyone without platinum credit, and raised a variety of fees to make up for huge losses.

And the fraud is continuing in new ways as desperate homeowners try to unload mortgages they can’t afford and builders shed surplus properties.

The U.S. Justice Department has formed more than 40 mortgage fraud task forces nationwide as prosecutors and investigators struggle with a flood of mortgage-related criminal cases. The FBI reports that its mortgage-fraud caseload has more than doubled in three years to about 1,600 investigations that have cost lenders at least $4 billion. About 200 FBI agents are assigned to the cases, up from 120 a year ago.

Nationally, federal prosecutors charged 226 people with mortgage fraud between July and the end of October, the latest figures available, said U.S. Department of Justice spokeswoman Laura Sweeney. Another 406 were charged as part of a national mortgage-fraud crackdown between March and June.

In Scott’s California district, prosecutors have filed charges related to housing scams against 53 people in 15 ongoing prosecutions. They have another 15 active investigations against 68 individuals.

They estimate hundreds of millions of dollars have been paid out by banks and other lenders because of mortgage fraud in the Central California district, which stretches from just north of Los Angeles to the Oregon border.

“We’re running out of bodies to handle these cases,” said Scott, calling on Congress to approve more money for investigators and prosecutors. “We’re just being overwhelmed.”

Spokesmen for the FBI and Justice Department said there are no plans to ask Congress for more money. They could not say how much the hundreds of agents and prosecutors are spending to investigate mortgage fraud nationwide.

“We continue to re-prioritize as necessary,” Justice spokesman Ian McCaleb said in an e-mail. “Currently, we have shifted significant resources toward investigating mortgage fraud.”

Paul Leonard, director of the California office of the Center for Responsible Lending, welcomed investigators’ attempts to keep up with newer forms of foreclosure and builder fraud. However, wrongdoing remains so widespread that “I think those agencies have to pick their spots,” he said.

“I wish they had engaged in this earlier,” Leonard said. “I think it’s constructive to sort of root out these evil and malicious scams when they occur … Given the state of the economy, it’s too little too late.”

In addition to California, large numbers of investigations are under way in Nevada, Florida, Illinois, Arizona, Atlanta and Rust Belt states such as Ohio and Michigan, the areas that have experienced the highest rates of home foreclosure.

South Florida has been a particular hotbed of activity for federal prosecutors, who have charged 112 people there with an estimated $176 million in mortgage fraud this year.

“It really is an incredible amount,” said Alicia Valle, spokeswoman for the U.S. Attorney’s office in Miami. “You name it and we’ve got it.”

Florida, California and Illinois combined to provide nearly half the nation’s fraud reports in the second quarter, according to a Dec. 2 report from the Mortgage Asset Research Institute. Nationwide, mortgage fraud reports increased 42 percent from January to March and 45 percent from April to June, compared with their year-ago periods.

“We have a duty to put these people in prison,” said Scott, the U.S. attorney in California.

Michael Cardoza, a San Francisco-area attorney representing one of those charged in central California, said prosecutors should be setting their sights higher.

“It’s amazing to me that the people on Wall Street walk away with millions and millions if not billions of dollars,” said Cardoza. “Now they’re just picking off little people … They’re doing scapegoats is what they’re doing.”

The FBI says about 80 percent of mortgage fraud losses under investigation involve industry insiders who inflated property values or made loans based on fictional information.

The remaining 20 percent is by individual borrowers who lied about their income or job history to qualify for loans. So-called “liar loans,” which require little or no documentation about the buyer’s income or employment.

The larger group is where law enforcement is focused.

“We are mainly focusing on the mortgage brokers and title companies because they are really at the center of mortgage fraud in this district,” said William Edwards, the acting U.S. attorney for northern Ohio.

U.S. Attorney Joseph Russoniello is setting the bar at $400,000 or more in his San Francisco-based district, where home values are among the nation’s highest.

“We could be looking at thousands of potential cases,” Russoniello said. “We’ve been looking at a number of cases that run the gamut from simple mortgage fraud to collusion involving brokers, appraisers … bait and switch, predatory rescue operations.”

His mortgage-fraud task force contracted with a financial analyst in October to help sort through the transactions. Russoniello expects to soon announce “a significant number” of indictments.

Nevada has the nation’s highest foreclosure rate, and now a corresponding amount of mortgage fraud complaints are flooding law enforcement agencies, said U.S. Attorney Gregory Brower. A special telephone hot line has fielded more than 1,100 calls since it was set up in April, said Nevada FBI spokesman David Staretz.

Brower has had to shuffle attorneys to handle cases like the one Nevada prosecutors say involved 432 fake buyers for 227 properties worth more than $107 million. At least 143 of the homes are now in default, costing lenders more than $17 million. Five Las Vegas brokers, mortgage agents and loan officers have pleaded guilty and six are awaiting trial.

“It’s certainly a contributor, if not the contributor, to some of the economic downturn we’re seeing,” Brower said. “It will be a while before the dust settles.”

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Fannie Mae And Freddie Mac Executives Focus On Profits And “Outright Greed” Have Cost Taxpayes “Hundreds Of Billions Of Dollars”

10 12 2008

“The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies,” said House Oversight and Government Reform chairman Henry Waxman, a California Democrat. “Their actions could cost taxpayers hundreds of billions of dollars.”

“Outright fraud and greed wasn’t isolated to just Wall Street,” Mr Issa said. “Fannie and Freddie shared in this disgrace as it drove much of the poor decision-making that have led us to where we are today.”

 

http://www.theaustralian.news.com.au/business/story/0,28124,24779115-20142,00.html

 

Republicans struck an even harsher tone. California’s Darrell Issa said the two government-sponsored enterprises, or GSEs, were “a primary cause, if not the primary cause” of the collapse of the housing market.

Lawmakers cited thousands of documents collected by the committee that Mr Waxman said “show that the companies made irresponsible investments” that destabilised the firms and forced the Government to put the companies in conservatorship in September.

Specifically, the panel released a June 2005 presentation made by former Fannie CEO Daniel Mudd that suggested the firm should move away from the traditional mortgage market in order to take advantage of the growing sub-prime and non-prime loan businesses.

“If we do not seriously invest in these ‘underground’ type efforts and the market changes prove to be secular, we risk: becoming a niche player; becoming less of a market leader; becoming less relevant to the secondary market,” the presentation slides said.

Fannie, the slides showed, could “meet the market where the market is” by accepting higher risk and more volatile earnings.

Mr Waxman said: “Their own risk managers raised warning after warning about the dangers of investing heavily in the sub-prime and the alternative mortgage market. But these warnings were ignored.”

Mr Mudd, along with other former executives from the two firms, defended their decision to expand into non-traditional mortgage businesses. Richard Syron, the former Freddie CEO who was forced out when the Government took over the firms in September, cited the legal and regulatory mandates the firms had to meet because they are congressionally chartered.

“We had obligations to Congress and to the public to promote our chartered purposes of increasing affordability, liquidity and stability in housing finance, which included some very specific low-income housing goals,” Mr Syron said.

Franklin Raines, the former Clinton-administration official who served as Fannie chief executive before leaving the firm in late 2004 following an accounting scandal, said Wall Street firms caused the housing crisis, not the GSEs. He blamed the crisis on the entrance of many new investors into the mortgage-backed securities (MBS) market, whom he said were “not natural holders of 30-year obligations”.

“When the market began to drop, these players panicked, drove down the prices of MBS, and dried up the liquidity of the market,” Mr. Raines said.

He noted that in 2004, the firm’s share of the secondary mortgage market dropped sharply as the firm was restricted from buying or guaranteeing riskier Alt-A mortgage loans, which required little or no verification of borrowers’ income.

Mr Raines said Fannie Mae followed “a lot of smart investors” when it decided to take on more risk after 2004, but he argued that Fannie Mae was a late entrant into the market for risky mortgages.

“By the time the GSE began its most significant investments in riskier loans in 2005, the roots of the present crisis had long taken hold,” Mr Raines said. “If anything, Fannie Mae played catch-up to the banks and investment banks who drove the securitisation of the most toxic sub-prime mortgages.”

While Mr Raines said Fannie Mae’s executives were responsible for its decision to dive into to Alt-A mortgages, he questioned why the firm’s regulator didn’t seek to limit its credit risk.

“It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risk, its regulator made no visible effort to enforce any limits,” he said.

Mr Mudd also took the opportunity to suggest that the Treasury Department and the firms’ regulator, the Federal Housing Finance Agency, didn’t have to take the dramatic step of placing the firms in conservatorship. He suggested that a capital injection like those now being enjoyed by the banking industry through Treasury’s Troubled Asset Relief Program, or TARP, would have been appropriate.

“I made the argument at the time and proposed that more modest government support could be used to encourage private investment capital – basically something more like the program many banks are now eligible for,” Mr Mudd said.

He also said lawmakers and the next administration need to decide on the future role of the GSEs – whether it be as public or private companies.

“Events have shown how difficult it is to balance financial, capital, market, housing, shareholder, bondholder, homeowner, private and public interests in a crisis of these proportions,” Mr Mudd said.

Republican John Tierney grilled Mr Mudd about the documents shedding light on Fannie Mae’s dilemma about jumping into riskier loans.

Mr Mudd explained that the presentation was intended to paint the choice very starkly, suggesting that executives did not actually believe the worst-case scenario would come to pass.

But he also acknowledged that Fannie Mae faced pressures to respond to the explosion in risky lending lest it continue to lose market share to competitors. “We couldn’t afford to make the bet that the changes were not going to be permanent,” he said.

Mr Issa expressed frustration that the four former chief executives declined to pin more blame on Fannie and Freddie for the housing crisis. He said they all “seem to be in complete denial” that Fannie and Freddie had anything to do with this.

He challenged them to agree that if they could go back and change their actions they would ensure the mortgage giants didn’t help finance loans that ultimately proved unaffordable to borrowers.

Without singling out Fannie or Freddie, the former executives agreed that lax underwriting standards had helped cause the crisis.

Mr Mudd said that, with perfect hindsight, the loans should have been better underwritten.
Mr Raines said, “Proper underwriting standards could have averted many of the losses.”





Fannie Mae And Freddie Mac Execs Testify To Congress On Scandals And Failures Of Mortgage Agency Lenders

9 12 2008

 

Four former CEOs of Fannie and Freddie are scheduled to testify Tuesday. One pair, Fannie Mae’s Franklin Raines and Freddie Mac’s Leland Brendsel, were both ousted after accounting scandals. The most recent pair of former top executives, Fannie Mae CEO Daniel Mudd and his counterpart at Freddie Mac, Richard Syron, were removed from their jobs this year after the government takeover.

Fannie and Freddie, which own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt, long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

 

 

 

http://news.yahoo.com/s/ap/20081209/ap_on_bi_ge/financial_meltdown

Lawmakers are poised to trade barbs Tuesday about who deserves most of the blame for the collapse and government takeover of mortgage finance titans Fannie Mae and Freddie Mac.

The two companies, which were seized by federal regulators in September, have become highly charged political targets in the debate over what caused the U.S. housing crisis and the resulting financial fallout.

Four former top executives are scheduled to be grilled at the hearing, which is being led by Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, starting at 10 a.m. EST. But there are doubts about whether the hearing will produce any solid conclusions or will just devolve into partisan bickering.

“I think we’re going to get a lot of finger-pointing, which will be totally unproductive,” said Bert Ely, a banking industry consultant in Alexandria, Va.

Fannie and Freddie, which own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt, long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

Washington-based Fannie and McLean, Virginia-based Freddie are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Republicans blame Fannie and Freddie, and the effort to promote homeownership under the Clinton administration for sowing the seeds of the financial meltdown. Democrats defend the companies’ role in encouraging homeownership and note that Wall Street banks — not Fannie and Freddie — led a dramatic decline in lending standards.

Both companies have been asked to turn over a long list of documents and e-mail messages concerning the risks they took in their mortgage investments, accounting, and compensation for the companies’ former CEOs.

Four former CEOs of Fannie and Freddie are scheduled to testify Tuesday. One pair, Fannie Mae’s Franklin Raines and Freddie Mac’s Leland Brendsel, were both ousted after accounting scandals. The most recent pair of former top executives, Fannie Mae CEO Daniel Mudd and his counterpart at Freddie Mac, Richard Syron, were removed from their jobs this year after the government takeover.

Freddie Mac last month asked for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so.

The Bush administration and former Federal Reserve Chairman Alan Greenspan long sounded the alarm about the potential threat to the nation’s financial health if the fortunes of the two mammoth companies turned sour.

In an effort to head off stricter regulations, Freddie Mac enlisted prominent Republicans to lobby on its behalf. Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D’Amato of New York were recruited with six-figure contracts.

The more vexing questions will come next year, when lawmakers weigh what role, if any, the two companies play in the future.

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

Separately, in a report to be released Tuesday, a bipartisan commission chaired by former HUD Secretaries Henry Cisneros and Jack Kemp takes aim at the Bush administration for the foreclosure crisis. The report cites the administration’s lax enforcement of fair housing laws and lackluster response for problems that have disproportionately hit poor and minority populations.

Calling the system “broken,” the seven-member panel calls for the creation of an independent agency separate from the Department of Housing and Urban Development to more vigorously enforce fair housing laws.

 

 





Senator Christopher Dodd (Connecticut) Received “Special Treatment” From Mortgage Industry He Now Aims To Reform

20 11 2008

“…Dodd gallops the gamut from calling the allegations of special treatment “outrageous” to pledging repeatedly and specifically to release documents related to the $800,000 in sweetheart deals he got from Countrywide…”

“…Dodd, however, signed some but not all of his loan documents himself. Agents of Countrywide signed his $275,042 Connecticut mortgage. His previous mortgage with Countrywide was paid off but the new mortgage did not appear on the local land records for an astonishing 16 months. For nearly a year and a half, Countrywide failed (or declined) to secure its interest in Dodd’s home by taking the ordinary and essential step of presenting the documents to the local town clerk and recording them in the land records….”

“…Dodd refuses to say whether his Senate campaign committee’s payments of $60,000 last summer to a Washington law firm, which has a history of representing Democratic senators in trouble, were for his defense in the Senate ethics investigation of his dealings with Countrywide…”

http://www.courant.com/news/opinion/editorials/hc-rennie1109.artnov09,0,7916474,print.column 

As the Democrats moved toward victory at the end of October, a story by NBC’s Lisa Myers set Dodd apart from his triumphant fellow Democrats. Myers reported that federal agents are investigating the notorious “Friends of Angelo” list maintained by subprime mortgage giant Countrywide Financial’s co-founder Angelo Mozilo. Dodd was the most prominent member of that exclusive club.

Since the Dodd story broke in June, the five-term senator has offered contradictory fragments of explanations and intentions. Scheherazade after a six-pack of Red Bull would not have told more desperate tales. Dodd gallops the gamut from calling the allegations of special treatment “outrageous” to pledging repeatedly and specifically to release documents related to the $800,000 in sweetheart deals he got from Countrywide.

Still claiming “there’s nothing there,” Dodd refuses to say whether his Senate campaign committee’s payments of $60,000 last summer to a Washington law firm, which has a history of representing Democratic senators in trouble, were for his defense in the Senate ethics investigation of his dealings with Countrywide. He suggested, before he fled to his third home in Ireland in August, that Countrywide was not cooperating in providing information.

Dodd still claims there was nothing unusual about the $800,000 in mortgages he got from Countrywide in 2003, but records refute that, too. Documents indicate that Dodd was getting a mortgage of $276,150 on his second home in Connecticut on July 3, 2003. The amount was reduced to $275,042 and the mortgage he was refinancing was paid off.

Dodd and his wife also got a home equity loan on their Connecticut property in East Haddam from Countrywide that day. But the course those loans took was very strange. The standard routine is for the homeowner to sign the loan documents, the borrowed money is sent to the lender being paid off and the new mortgage is recorded on local land records within a few days.

Dodd, however, signed some but not all of his loan documents himself. Agents of Countrywide signed his $275,042 Connecticut mortgage. His previous mortgage with Countrywide was paid off but the new mortgage did not appear on the local land records for an astonishing 16 months. For nearly a year and a half, Countrywide failed (or declined) to secure its interest in Dodd’s home by taking the ordinary and essential step of presenting the documents to the local town clerk and recording them in the land records.

This is exceedingly rare in the mortgage business. No wonder Dodd refuses to lift the veil on his deals with the generous lender that went bust this year.

Last month, amid tumbling approval ratings, renewed questions and scorching editorials in The Wall Street Journal and the usually friendly New York Times, Dodd unveiled a new tablet of nonsense. He announced that for the previous five months he’d really meant to say that he wouldn’t release any documents until the Senate Ethics Committee completes its investigation. The senator is terribly disappointed that the investigation has taken this long. He left out that nothing in the committee’s rules precludes him from releasing the documents to the public.

A July statement from the committee, however, may explain why it hasn’t confirmed Dodd’s contention that there’s “nothing there.” It announced: “Absent special circumstances, it has been the long-standing policy of the committee to defer investigation into matters where there is an active and ongoing criminal investigation and proceeding so as not to interfere in that process.” Clever Lisa Myers’ story of federal law enforcement’s investigation of the “Friends of Angelo” may explain the delay.

This is not the sort of story jubilant Democrats want unraveling around one of their prominent senators. It interrupts the narrative of changing the world. Dodd may learn that President-elect Barack Obama’s righteous wind, having dispatched so many Republicans, can cut down a Democrat who is not so nimble in explaining himself.





Beware New Fraud From “Foreclosure Consultants” Who Collect Fees Illegally And Don’t Perform

19 11 2008

“…the seven companies collected upfront fees and then failed to negotiate or perform any services on behalf of the homeowners, leaving them at risk of losing their homes…”

“…the company promised a “money-back guarentee (sic)” on its web site and that it has a 97 percent success rate and a “combined 25 years of real estate, financial and lending experience.” By this evening it had removed the misspelled “guarentee.”

http://www.rrstar.com/news/x1720658976/Attorney-general-sues-Rockford-company-for-mortgage-fraud 

A mortgage-rescue company with a Rockford office was one of seven sued by Illinois Attorney General Lisa Madigan today.

Madigan’s office filed the lawsuit in Winnebago County Circuit Court against StopMyForeclosure.net, which appears to have a location on the 3900 block of Abbotsford Road, for violating the state’s Illinois Mortgage Rescue Fraud Act. The act prohibits companies from requiring payment from consumers before completing all terms of a rescue contract.

Madigan claims the seven companies collected upfront fees and then failed to negotiate or perform any services on behalf of the homeowners, leaving them at risk of losing their homes.

A record wave of foreclosures locally and nationally have pushed the economy to the brink of recession. As foreclosure actions have increased, so have the number of companies promising help to homeowners behind on payments.

Madigan has sued 22 companies, including those sued today, so far this year for violating the state mortgage rescue fraud act.

“There are so many of these companies, and most have no idea that the state has a law that restricts what they do,” said Bob Campbell, executive director of the Rockford Affordable Housing Coalition, a U.S. Housing and Urban Development-certified housing-assistance organization. “Since they don’t know that the law is in place, most of these for-profit companies end up violating the law.”

Early today, the company promised a “money-back guarentee (sic)” on its web site and that it has a 97 percent success rate and a “combined 25 years of real estate, financial and lending experience.” By this evening it had removed the misspelled “guarentee.”

The site also displays two seals of approval by the Better Business Bureau.

Dennis Horton, executive director of the Rockford office of the Better Business Bureau, said he believed both BBB symbols are pirated.

“This company is not registered with the BBB anywhere in the United States,” Horton said.

Rhonda Poshka, who said she is owner of the Queen Oak, Ariz.-based company, said the company is registered with the Arizona Better Business Bureau but not accredited.





Subprime Lenders Exempt From “Community Reinvestment Act” Law Responsible For Mortgage Crisis

15 11 2008

“It is subprime that’s really causing it,” Hayes said of the mortgage crisis. “But CRA did not force anyone to do subprime.”

“…most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made…”

http://www.ocregister.com/articles/loans-subprime-banks-2228728-law-lenders 

“…people are charging that the Community Reinvestment Act of 1977 forced banks to make bad loans, leading to financial Armageddon.

There’s just one problem: It isn’t true.

A Register analysis of more than 12 million subprime mortgages worth nearly $2 trillion shows that most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.

Among our conclusions:

  • Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.
  • State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.
  • Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren’t subject to the law, though some were owned by banks that could choose to include them in their CRA reports.
  • Among lenders that were subject to the law, many ignored subprime while others couldn’t get enough.
  • Among those standing on the sidelines: Bank of America, which made no subprime loans in 2004 and 2005; in 2006 and 2007 subprime accounted for just 2 percent of its loan portfolio. Washington Mutual, meanwhile, raised its subprime bet by 20 times to $5.6 billion in 2006 – on top of its already huge exposure through its ownership of Long Beach Mortgage.

Since the federal takeover of mortgage giants Fannie Mae and Freddie Mac in September and particularly since the federal bailout of Wall Street, some have argued that the reinvestment law is to blame for the mortgage meltdown and credit crunch.

In a Sept. 22 editorial, The Wall Street Journal said that the law “compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval.”

In a Sept. 15 editorial, Investors Business Daily wrote that by strengthening the reinvestment law in the late 1990s, President Clinton “helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but ‘predatory.’ ”

And in an Oct. 13 op-ed in The Register, Chapman University President James Doti, an economist, wrote that the law “pressured banks to make loans and mortgages to people who might not be the best credit risk. In fact, Clinton administration Attorney General Janet Reno threatened legal action against banks that didn’t loosen up mortgage requirements.”

The criticisms of the reinvestment act don’t make sense to Glenn Hayes. He runs Neighborhood Housing Services of Orange County, which works with banks to provide CRA loans to first-time homebuyers. In its 14-year history, the nonprofit has helped 1,200 families buy their first homes. Score so far: No foreclosures and a delinquency rate under 1 percent.

“It is subprime that’s really causing it,” Hayes said of the mortgage crisis. “But CRA did not force anyone to do subprime.”

Bob Davis, executive vice president of the American Bankers Association, which lobbies Congress to streamline community reinvestment rules, said “it just isn’t credible” to blame the law CRA for the crisis.

“Institutions that are subject to CRA – that is, banks and savings asociations – were largely not involved in subprime lending,” Davis said. “The bulk of the loans came through a channel that was not subject to CRA.”

Congress passed the Community Reinvestment Act to crack down on “redlining,” the practice by banks of refusing loans to neighborhoods where most residents are minorities or earn low incomes. The law applies to all federally insured banks and thrifts that take deposits. It generally requires banks to help potential customers near their branches, typically by making loans, investing or providing other services such as financial education.

A companion law, the Home Mortgage Disclosure Act, requires every large home lender to report annually on every home loan application they receive. (No names or streets are listed.) Those reports feed a database that in turn allows regulators, community activists and others to monitor home lending in virtually every neighborhood in America.

Beginning in 2004, federal regulators also have required lenders to report on high-priced loans – those with rates at least three percentage points higher than U.S. Treasury notes of comparable maturity. While the mortgage industry defines subprime loans by credit scores, Federal Reserve Board analysts believe that subprime and Alt-A loans fall into their high-priced loan category.

The Register used that database for its analysis. During the four years covered by our analysis, lenders made 55 million home loans, including 12 million subprime loans.

In its glory days, subprime lending was a lucrative business that paid six-figure salaries to 20-something salespeople and made fortunes for top execcutives. Nowhere were the riches more evident than in Orange County, home to industry giants New Century, Ameriquest, Argent and Fremont.

But the money spread far beyond Orange County, thanks to Wall Street’s years-long love affair with subprime. In 2005 and 2006, subprime lenders sold about 70 percent of their loans by dollar volume to investors – principally to finance and insurance companies or by packaging the loans in highly rated securities.

Fannie and Freddie, the federally sponsored mortgage buyers, were bit players in this market. Together they bought about 3 percent of all subprime loans issued from 2004 through 2007, most of that in 2007 alone.

In 2007 Wall Street turned its back on subprime. That year, subprime lenders were forced to keep 60 percent of their loans on their own books or on the balance sheets of their affiliates.

That was the last fatal step in a financial high-wire act.

Since then, most of the 25 companies that dominated subprime lending between 2004 and 2007 have shut down or been sold at fire-sale prices.

Just eight of the 25 top subprime lenders were subject to the reinvestment law. But among those eight are two of the summer’s most prominent failures – Washington Mutual and IndyMac Bank. Together with its Long Beach Mortgage subsidiary, WaMu made $74.2 billion in subprime loans. IndyMac specialized in “Alt-A” loans to customers who had good credit but couldn’t qualify for top-drawer loans.

pirates-caribbean-4

“…Fannie and Freddie, the federally sponsored mortgage buyers, were bit players in this market. Together they bought about 3 percent of all subprime loans issued from 2004 through 2007, most of that in 2007 alone…”





Freddie Mac Needs $13.8 Billion More From Government

14 11 2008

pirates_of_the_caribbean_015

Freddie Mac’s net worth — the value of its assets minus the value of its liabilities — fell to negative $13.8 billion at the end of September, which forced the company to ask for government help.

Fannie Mae and Freddie Mac, which own or guarantee around half of the $11.5 trillion in outstanding home loan debt, operate in a conservatorship that enables the government to inject up to $100 billion in each company in exchange for ownership stakes of almost 80 percent. They also are facing a federal grand jury investigation into their accounting practices.

 http://biz.yahoo.com/ap/081114/earns_freddie_mac.html

Mortgage finance company Freddie Mac is asking the government for $13.8 billion in aid after posting a $25.3 billion third-quarter loss and expects to receive the funding by the end of the month.

The McLean, Va.-based company, seized by federal regulators more than two months ago, posted a loss Friday of $19.44 per share for the third quarter, due to a $14.3 billion charge to reduce the value of tax assets, $9.1 billion in writedowns on mortgage securities, and $6 billion in credit losses due to soaring mortgage delinquency rates and foreclosures.

The results compare with a loss of $1.2 billion, or $2.07 a share, in the year-ago period. Analysts were looking for a loss of 89 cents per share for the latest quarter, according to Thomson Reuters.

The results come days after sibling company Fannie Mae on Monday posted $29 billion loss in the third quarter as it took a massive tax-related charge.

While Fannie Mae said it may have to tap the government’s for help in the coming months, it has not yet done so.

Both Fannie and Freddie have changed their accounting for their deferred-tax assets, which can emerge from operating losses, and can be used to reduce future tax expenses. Companies must be able to show they will be profitable if they intend to use the tax assets for earnings in later periods.