Thursday, October 25, 2012

Why Freddie Mac Resisted Refis


One day .. perhaps years, even decades from now, someone will connect the dots:

The problem is not merely that it was the industry standard to bet against securities your institution issued, or that the small number of institutions that are able to participate in the REMIC world (real estate investment conduit) - Wells Fargo, Deutsche Bank, Bank of America, JPMorgan Chase, Citibank - are involved in a huge incestuous game of musical chairs concerning "who can generate more servicing fees for serving as trustee / custodian / master servicer" for the REMIC pools, or that loan originators were pushed to get the worst loans possible (often targeting minorities), or that regulators turned a blind eye to this huge shell game.

The problem that will be revealed is that the web of interconnectedness - the thing that scared everyone so badly when Lehman exploded - is more dense and interconnected than anyone admits, but in truth no one has any idea just how interconnected it all is. 

Why? Once bank A creates and sells exotic instrument 1 to B, which is not tracked on an exchange, B sells it to C, who sells it to D -- all the while A has no idea where it went down the alphabet. 

At the same time investor / institution / bank C creates exotic instrument 2 made up of assets which include some/all of instrument 1 created by bank A, which are in turn sold to and become part of instrument 3, and bank D creates instrument 4 which is made up of bets against instrument 1 (which also means instrument 2), and then A buys instrument 5, which is made up of parts of instrument 4, which unknown to A is made up of bets against instruments 1 & 2, and so on and so forth, to the point where no one knows where they stand or what they own or even if they are holding bets against other instruments they hold.

Thus, the reference to this being one huge ponzi scheme.  A casino, but worse.

This is Freddie Mac's problem.  They insure the loans, but stand to profit from the exotic instruments it holds -- you cannot collect a credit-default swap if the loan(s) do not default.  This is the disconnect, the incentive problem which explains why servicers, Fannie, Freddie, et al. are not "trying" to assist homeowners.  In fact, this explains why it is more likely the opposite - and the facts support that, even if the words they speak suggest otherwise.

Wells Fargo’s Directors Ordered to Face Foreclosure Claims

From the article:

"U.S. District Judge Susan Illston in San Francisco rejected Wells Fargo’s request to dismiss shareholders’ allegations that directors wrongfully failed to disclose their opposition to a government probe of the bank’s mortgage lending and foreclosure policies."

Now shareholders are suing as those same investigations wold have benefited them and their claims against management.

Fascinating, absolutely correct, and also applies to holders of certificates issued by securitized trusts (that own pools of loans) and their claims against the trustees of the pools (the major banks) and the master-servicers / servicers of the loans (again, the major banks) for how foreclosures were handled as those practices hurt their investments as well. 

Wells Fargo, and several others, did all they could to disrupt the investigations into foreclosure practices leading up to the National Foreclosure Settlement last year.  The banks' efforts to deny investigators access to robo-signers, documents, data, etc., was well documented in the IG reports that can be found on HUD's Website

Wells Fargo has agreed to pay $175 million to settle allegations that it discriminated against minority borrowers, the Department of Justice announced Thursday.


Tuesday, October 23, 2012

Friday, October 19, 2012

Thursday, October 18, 2012

Ex-Tarp Watchdog gives Wall Street Reforms an "F"

Washington's one major shortcoming: failing to reign in Wall Street, no prosecutions of high level bank officials, and watered down reforms.  While Barofsky points to Obama, Congress has a lot to do with this as well, if not more.