Traci Gregory, Financier

Feds move up from originators, go for IndyMac, Countrywide and New Century Mortgage

I've just heard today that those three, IndyMac, C'Wide and New Century have been issued subpoenas as the subject of a federal grand jury investigation. The Justice Department was focusing primarily on smaller operators thought to be defrauding homeowners and mortgage lenders . . . as if there could have been a coordinated effort across the country large enough to create the mess we're in. . . Now they've decided that it was fraud on the part of large sub prime lenders. According to Los Angeles Times, they have asked for e-mails, phone bills, financial records and other information. The Times said this is part of an investigation into whether fraud and other crimes contributed to the mortgage crisis.

I find this stuff small time compared to the creation of the programs that required a heartbeat and a signature to get a loan, but I'm just a loan officer . . . They didn't need fraud to lose money on those programs! There were such minimal requirements for loans an enterprising 12 year old could have made them work.

You already know about Countrywide and Angelo Mozilo, with the "friends of Angelo" mortgage program . . . interesting that the only "friends of Angelo" that we know about are politicians . . . who probably can't repay the favor for him now . . . too much daylight shining on their relationships . . . and you probably know by now that Countrywide is being sued in Illinois, Florida and California. I'm sure Cuomo will jump in there soon. After his win with Fannie Mae, he couldprobably take on any lender and win.

Countrywide and all its memories will fade though, except maybe for Angelo and anyone else who actually attends a trial. BOA bought it, and they'll swallow it whole. . . they're already changing the names of the divisions to "Anything But Countrywide".

I was surprised to hear that a court-appointed examiner has determined that New Century was involved in inappropriate accounting practices that inflated its profit and gave top executives the ability to acquire millions of dollars in undeserved or inflated bonuses. I guess I was surprised that I had not heard it sooner . . . I'm certainly not surprised at the charges.

They were not a lender that I sold loans to . . . they were quick to change program details, interest rates, etc, at the closing table and they only had to embarrass me once for me to take them completely off my list of possibilities. They filed Chapter 11 in April of 07 . . . and I felt almost the same way when I heard that news as I did when I heard Greenpoint had "bitten the dust." (What goes around comes around doesn't it? Couldn't have happened to anyone who deserved it more.)

The FBI is up to 21 cases against corporate and other large companies relative to subprime market defaults. They've inferred they want brokers, lenders, and now securities firms, hedge fund operators and credit rating agencies. The Securities and Exchange Commission (SEC) is reportedly working closely with the fibbies to find and charge anyone who may have contributed to the credit crises . . .but because of deregulation they're struggling with making criminal cases about the subprime debacle.

I've recently thought of two youtube videos I think I'd like to make . . . Bear Stearns indictees, set to the tune of Dirty Laundry, by Don Henley

You may listen to it in the next post

News from all over, again . . . indymac, bear stearns, fannie, freddie, and the beat goes on and on and on

New Yorker editor David Remnick said the provocative cartoon was intended to satirize those [Obama's religion and other] rumors and those who traffic in them. In fact, the New Yorker is a publication that would be inclined to support Obama. New York Gov. David Peterson, the state's first black governor, condemned the cover as "one of the most malignant, vicious" magazine covers he's ever seen. The National Association for the Advancement of Colored People called it "tasteless, Islam-a-phobic, mean-spirited and racially offensive." The Obama campaign early on called the cartoon "tasteless" and "offensive" and even Republican presidential candidate John McCain referred to the cover as "inappropriate." Judge for yourself - I don't care for it at all.
Lehman Brothers' CEO Dick Fuld is seriously mulling a way to take itself private and out of the public eye
	Back in the news, Indicted former Bear Stearns hedge-fund manager Ralph Cioffi has hocked houses in New Jersey and Naples, Fla. to secure a $4 million bond, but saved the Southampton digs for the family. According to Assistant U.S. Attorney Patrick Sinclair the government is considering further criminal charges against two former Bear Stearns executives indicted last month related to the collapse of two hedge funds they oversaw.  In a court hearing in U.S. District Court in Brooklyn, Sinclair said "the government is indeed contemplating additional charges." Reuters for full story And, check this out!! According to the New York Post, Cioffi would like to start an independent hedge fund and may have some investors lined up . . . wonder if they'll still be there in 20 years . . . .
Fannie Mae and Freddie Mac . . . End of Illusions.  The Econonmist has a series of articles detailing the problems at Fannie Mae and Freddie Mac.  Now that we've jumped to trillions of dollars at their behest, surely the American Public will sit up and pay attention to what the federal reserve is doing to us by printing more and more money. Highly detailed, easy to understand . . . you should read every word. Hank Paulson, America’s treasury secretary, unveiled the emergency plan to save Fannie Mae and Freddie Mac, two mortgage giants that owe or guarantee $5.2 trillion.  He wants you to know how imortant it is so you won't mind paying for it . . . this isn't capitalization or free markets as we know them, this is nationalization and it will only create problems for the people who pay the bills.  That would be me and you . . .
The FBI had launched an investigation of IndyMac Bank for possible mortgage fraud shortly before the thrift was closed by regulators and placed into receivership, according to news reports. Fraud and they failed . . . they couldn't do anything right then could they?
Even though mortgage fraud for housing "doesn't seem quite as violent" as mortgage fraud for profit, it has its own consequences, according to a representative of the Florida Office of Financial Regulation's Bureau of Financial Investigations. Fraud for Housing is when a borrower commits fraud to get housing, as opposed to fraud for monetary gain. And that, my dears is life in my lane . . . I'm seriously thinking of Montana . . . horse, bedroll, rifle.  Sounds like the place to be to me!

Rates, Market Commentary, and tears from Dave Fox

First the good news: Jumbo rates for loans up to $1 million are down to 6.875 - quite a lot from the 8.5 we saw a few weeks ago.  AND, that's at 90% LTV, which I didn't know if we'd ever see on a super jumbo again . . . Vertice, in their market commentary says "Treasuries rose after a government report showed housing starts in the U.S. plunged to a 14-year low in September. The data may add to speculation that the Federal Reserve will reduce borrowing costs this month to curb an economic slowdown."  We already new it was a new low, didn't we?

And last, but not least, Dave Fox was voted off the island last week for loan fraud (kicked off his television show) and now, he's gone on the air, cried real tears, and guess what?  For the second-degree felony charge, Fox has been placed on 36 months of a plea in abeyance, and he's back on the air.

Now that is what I call fraud deterrence.

Unbelievable.

Occupancy Mis-statements Lead to Fraud Charges

Over the years I've had more people than I can count find reasons to apply for loans as owner occupied, rather than investor owned.  They might move in the house . . . they might move in the house for a month and then move out of the house . . . they might buy it and decide not to move in the house.  Those what if questions scream investment property.

When I explain that false occupancy statements are punishable by law, and that law governs them as well as me, they've generally moved on to another lender.  When they haven't, I've sent them to another lender.  My feeling is if they are prepared to lie about one thing, they'll lie about anything.  Here's proof:

From the Mortgage Ledger, under the heading, Industry Scandals:

Dave Mark Fox, a television sports anchor and host of “Talkin’ Sports,” pled guilty last week to mortgage fraud in an attempt to flip a home for profit, prompting his network to place the broadcaster on “administrative leave.”

Fox has been a sports anchor for KUTV in Utah since September of 1987.

Until recently, Fox could be found reporting on local and national sports weeknights at 5 and 10 p.m., along with hosting the hour-long “Talkin’ Sports” on Sunday evenings.

Television audiences will not be seeing Fox for some time, though.

Last week, the sports anchor pled guilty to a second-degree felony charge of communications fraud for illegally obtaining a lower mortgage rate with a false loan application in April 2006.

According to prosecutors, Fox falsely suggested that he planned to live in a home in order to obtain a residential loan, rather than a more costly investor loan that could take longer to approve.

Fox had no intentions of living in the Utah residence, prosecutors claimed, and instead planned to quickly re-sell the property as an investment.

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Dont' even think about it - if you don't like the interest rate, or think you can't afford it on an investor loan, maybe you really can't afford to own extra residential real estate.  The consequences certainly aren't worth the risk. 

Sub-Prime Meltdown? What About My Meltdown?

I read all the broker bashing going on . . . how lenders and greedy brokers encouraged borrowers to buy houses they couldn't afford and sign up for payments they couldn't make and about the bailout programs states are putting in place to keep people in their homes and I think back to conversations I have had with borrowers over the last few years.

One in particular comes to mind, my client, a well educated and successful business owner, with great credit and lots of assets had completed an application for an investor purchase.

Noting the $20K a month figure he had put in the salary block, with his hand,  I asked "Did your income tax return last year show $240,000 in taxable income?"

"No" he said, somewhat indignant.

"Well, was your gross income before deductions $240,000?"

"No," he says, getting more agitated. "Where are you coming up with that?"

"Well, if we multiply $20,000 X 12 months, my math says that is $240,000 . . . Right?"

"Uh, yeah, but this is a stated loan."

"A stated loan?"

"Yeah, a stated loan."

"But, Mr. Borrower, a stated loan means you state what YOU made last year . . . Not what Will Smith netted on a slow Saturday night."

"Well, what good is it if I have to state what I make?" (I'm guessing this is as opposed to what Will Smith makes . . . )

"You can state your income, and not have to prove it with income taxes, but you have to state YOUR income. Not what you wish it was, or what it might be, or what you think will get you this loan . . . You state your income, truthfully."

Well, he didn't want to do that and I didn't want to not to do that so we agreed to disagree and I haven't done his loan . . . But I can't count the times I've said, "No, if you're not going to live there, you can't have an owner-occupied rate," or "No, having another home in the same subdivision is NOT a second home, even if you do put your ex-wife and children in it," or, "You know, I'd really like for you to have this house" (and I'd really like to close this loan since I've wasted so much time on you) "but what you are suggesting is loan fraud, and I'm not willing to risk jail so you can . . . (fill in the blanks)"

Everyone is responsible . . . Lenders did take loans that met criteria that appeared to be sufficient to cover their exposure and wasn't; borrowers did take loans they wouldn't be able to afford in two years because their wives wanted in a house, and their children needed a good neighborhood. Speculators in the real estate market jumped on the property bandwagon and drove it away, because they could, and because they wanted to.

Because Americans believe in having it all and having it now, and the credit industry (all of it, not just mortgage lenders) encourages the spend, spend, spend mentality and think about it tomorrow, Scarlet irresponsibility.

I've NEVER been a Chicken Little. I'm the extreme optimist . . . but this meltdown, that started out as the "sub-prime" meltdown, and has turned into the CEO of Countrywide mortgage predicting that the major 10 lenders in the country will go to five major lenders soon;

Australian funds that are tallying their losses because they bought real estate securities in the US;

Lenders scrambling to keep people out of foreclosure with forebearance contracts and payment plans and then they go into foreclosure, only it is three months later than they should have.

Massachusetts setting up a $250 million fund to help 1,000 homeowners. . . New York, $100 million to help 500 homeowners?

So now it is My meltdown. I don't worry about my job anymore, or even about my industry.

Now I'm worried about my country