Sunday, September 2, 2012

Sex, Fraud and Mortgages - America, a Place Where Crime Really Does Pay

No real estate is permanently valuable but the grave. Mark Twain

In a bet there is a fool and a thief. Proverb

If there is one Boondoggle that everybody knows about it’s the Real Estate Boondoggle. It’s in all the papers, on TV and internet bloggers blog away day and night on the real estate quagmire of a nightmare. Of course, for some folks it truly is up close and personal. Those who lost their homes because of economic misery and job losses have experienced profound suffering.

Aside from the fact that the real estate bubble was spawned by the federal government and the Banksters who own the government, there was massive mortgage fraud, massive appraisal fraud, massive mortgage backed securities fraud, massive regulatory fraud and massive amounts of cheap fiat money – all key ingredients in a recipe for a Bernie Madoff styled Ponzi scheme with Madoff being a bungling petty thief compared to the grand larceny of the government and Banksters that toppled the global economy. As the carnage piles up, the Bankster and government solution is to just wait it out and re-inflate an already ruptured balloon, something that defies the laws of gravity. It’s not going to happen.

Just imagine going to a casino and attempting to gamble with Monopoly money from the board game. In the real world, the casino would toss you out on the street and call the nearest insane asylum to put you away. But in America the monopoly money created by the Federal Reserve is the cocaine of delusion – the delusion that freshly minted greenbacks is real wealth in what is increasingly being dubbed our crystal meth economy. The crack cocaine addicted economists and Congress Critters are firmly anchored in the cosmic belief that creating “money” out of thin air creates wealth because so long as folks have an unlimited supply of “free” fiat money, they will spend into oblivion and the spending will keep the economy roaring. So Americans voluntarily jumped on the spaceship to the nearest black hole in the universe and indebted themselves on a scale only witnessed in undiscovered parallel universes.

The Grand Delusion was fun for a while until the bitter day dawned when Americans woke up one day and acknowledged that there was no way they could ever pay back the consumer debt and the mortgage debt. Before arriving at financial Armageddon, Americans attempted to postpone the day of reckoning by endless cycles of refinancing their vastly overvalued homes to pay off debt to start another round of binge spending.

With fiat money more prevalent than all the stars in the universe, life in America was declared great. After all, America had defied the laws of financial, fiscal and monetary gravity or so we thought. As a nation, America ceased producing real and enduring wealth eons ago. This was only a minor setback as the makers of the money piƱata declared “No money no problem, no job, no problem, bad credit, no problem”. Just spend, spend and spend and everything will be glorious as the accoutrements of prosperity ooze from every earthy crevice.

An economy born of the dust of cosmic illusions was declared real, tangible and eternal. The debt and the asset bubbles supporting the Grand Delusion just, well, upped and crashed one day, as predicted by a handful of sane observers.

Fiscal sanity requires that folks not borrow more than 2.5-3 times annual income for a mortgage depending on other outstanding debt. But as median housing prices exploded as a result of easy fiat money and the government/Bankster crime families approved loaning nearly 5 times annual income on an overpriced house, it’s clear that the real estate mess is not going to “clear” until housing prices are more in line with wage trends and in some areas of the nation that constitutes a lot more misery. With wages actually on the decline, fewer and fewer folks will find housing that they can afford even at today’s lower prices and low interest rates. Prices are nowhere near low enough and until median housing prices approach 3 times median income or less, the disaster will only fester. At one extreme, there were cities in California with average annual incomes of about $70,000 annually and average home prices of $770,000. Those folks got mortgages.

Case Study 1: One of the most notorious cases of mortgage insanity involved strawberry picker Alberto Ramirez who easily got a $720,000 mortgage on an annual income of $14,000, here.  This Ramirez incident of mortgage insanity had gone media viral a few years back and he lost the house in foreclosure.

Case Study 2: 20 year old Denise Tejada bought a property with FHA financing using her congressional entitlement gift of an $8,000 tax credit. The price of the property was $155,000 and Tejada secured an FHA loan in the amount of $183,000 that included renovation costs based on an income derived from 1 full time job and 2 part time jobs. She walked away from the closing table with a big pile of taxpayer cash in her pocket. Apparently, she’s quite happy as she claims to have made a quick and easy $100,000. "I bought my house for $155,000. And now, after all the fixing, after all the remodeling, my house is worth $255,000. So just within a month period, I made a $100,000,". Her story is documented here but I don't know how her taxpayer funded road to riches ended.

Case Study 3: The Washington Post documented a “sob” story about Daverena White, a single mother with 3 children who never earned more than $15,000 a year and who at times was dependent on food stamps and Section 8 housing vouchers. Moreover, she had never paid more than $700 a month in rent. But White discovered the road to riches, or so she thought. White managed to buy a residential property in a DC suburb at a sales price of $698,00 on 11/8/06 from a couple who earned a living as a mortgage loan officer and a real estate agent. The sellers had purchased the property only 22 ½ months earlier and were earning a whopping profit by selling the property to Daverena for $203,000 more than they paid for it.

According to the Washington Post, White walked away from the closing table with nearly $40,000 that included, among other things, a seller paid $13,000 down payment and $11,200 in cash to make the first two mortgage payments that were $5,635 per month for a borrower never paid more than $700 a month in housing costs. The adjustable rate loan had a start rate of 8.6% that could have been raised to 15.1 within 2 years. The loan was funded by a General Electric subprime subsidiary, WMC Mortgage, who documented White’s annual income at $163,320 – very odd indeed for a woman who never earned more than $15,000 a year and was entitlement dependent. The sellers paid the first mortgage payment and White used the cash she got at the closing table to make the next 2 payments. Then she defaulted and ended up in a homeless shelter with her 3 children. Then the family ended up in a county subsidized motel for a while and eventually moved into a county subsidized apartment.

Interestingly, the Washington Post also reported in another article that “General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's key rescue programs for banks. At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government. The company did not initially qualify for the program… But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.”

Financial blogs and the NYT have reported that GE Capital secured $140 billion in federal bailout assistance. GE’s fraud artist mortgage lenders should be in jail but they are probably using their bailout bucks for big bonuses for pulling off such a lucrative heist.

Such stories are not at all unusual and during the go-go days mortgage lending mania, mortgage lenders and buyers literally went WILD. Unlike real gambling where the participants actually bring “real” money to the table, our government and insane financial system actually facilitates gambling with no money except for the fiat monopoly money created from something less tangible in value than cosmic dust.

Fannie Mae and Freddie Mac have cost taxpayers a bundle and at one time it was estimated that they would ultimately cost taxpayers several hundred billion. The WSJ reported in 10/11 that Fannie and Freddie bailouts had thus far cost taxpayers $141 billion, here. Obama got Congress to lift the $400 billion limit on Fannie/Freddie bailout so now the sky’s the limit.

Fannie Mae has a most interesting side story.  Fannie Mae crimes proliferated under the leadership of a Bill Clinton pal, Franklin Raines, who ran Fannie from 1998 to 2004 but things got a whole lot worse as lending standards plummeted after Raines left Fannie amidst a financial scandal. Public service doesn’t come cheap and Raines raked in $90 million in compensation, of which $52 million was bonus money tied to earnings that never existed. Being on the public dole is the easiest money in town. For his $90 million worth of public service in helping folks move into houses they couldn’t afford or ever pay for, Raines was involved in an accounting scandal that overstated Fannie’s earning by over $10 billion. Fannie’s profits were pure fraud. Government accounting makes Enron accounting look like a paragon of integrity in financial disclosure.

Every now and then a government employee actually does their job or attempts to do their job. Armando Falcon, as Chief Regulator of the Office of the Federal Housing Oversight (OFHEO), was Fannie Mae’s auditor/regulator. Falcon fought like a tiger for years to expose Fannie fraud and require more audit oversight but Raines made sure through his network of high powered congressional and political contacts that he was untouchable. Falcon, an extraordinarily courageous and competent public servant, ended up being fired for the “crime” of trying to do his job.

Across the nation and long before the real estate crash became official many folks at the state level become very concerned. With so many bizarre mortgage products concocted by Wall Street, many state attorney generals were investigating what they deemed “predatory lending practices”. Also, some state legislatures attempted to rein in insane mortgage lending practices. However, the Bush Administration rabidly intervened and instructed the Justice Department to file lawsuits against such state initiatives. Most probably, the Bush gang was just taking orders from the Banksters who had no interest in anything except securing endless supplies of high risk mortgages to package and sell; the fee income generated by various mortgage products was an enormous source of bankster income. In the aftermath of the popped real estate balloon, journalists were trying to find out precisely what happened. Even the Washington Post took notice with a piece titled “Predatory Lenders' Partner in Crime, How the Bush Administration Stopped the States From Stepping In to Help Consumers” written by Elliott Spitzer in 2/08, here.
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets….

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge?...

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
It was common knowledge that lenders were giving folks mortgages that they knew they couldn't afford. The lenders didn't care because they weren't keeping the mortgages and all the lenders cared about was commission incomes and the fees generated from packaging and selling 'cash for trash' mortgage loans to unsuspecting investors.

In Seattle, WA a 90 year old stroke survivor, Barbara Simonson, lost a million dollar property through a series of 6 Washington Mutual mortgage deals in six years on a home she lived in for 50 years. Washington Mutual took advantage of an old woman who had no idea what she was signing. She ended up with a $680,000 option arm mortgage that she couldn’t afford on a deal that started out with her son conning her into mortgaging her home to give him $500,000 for a business venture. Mrs. Simonson had SS income of $1,270 a month, couldn’t afford the mortgage payments and though a series of refinances and cashing out to cover escalating mortgage payments, she lost her home. The Washington Mutual folks just filled out the paperwork and had her sign – she had no idea what she was signing including a document that listed her monthly income at $10,300. She denied ever reporting that level of income. But Simonson was among a lot of equity rich older folks who got stiffed in numerous mortgage scams. Had Washington Mutual just followed “old fashioned” lending standards of income verification and tax return reviews, the loan would have been denied as unaffordable. The Banksters didn’t give a hoot if the loans they made were affordable to Mrs. Simonson nor did they care if a 90 year old ended up homeless, here.

It’s not just the poor with bad credit and no money who are victims of mortgage fraud. While the poor get suckered into qualifying teaser rates and some have even actively participated in mortgage fraud, there isn’t much sympathy for folks who had “no skin” in the game. But a lot of folks did have their own skin in the game and got skinned alive. Senior citizens who worked a lifetime to be mortgage free got bamboozled. A lot of senior citizens swimming in equity have been specifically targeted by crooked Banksters and their schemes. The reverse annuity mortgage is a product that was devised to make payments to cash poor but equity rich seniors to supplement their income. These loans were secured with first mortgages and the mortgages were to be paid when the person died and the property was sold.

In March 2009, the FBI’s own website reported on equity theft crimes “FBI and Department of Housing and Urban Development-Office of Inspector General (HUD-OIG) reporting indicate that unscrupulous loan officers, mortgage companies, investors, loan counselors, appraisers, builders, developers, and real estate agents are exploiting Home Equity Conversion Mortgages (HECMs)—also known as reverse mortgages—to defraud senior citizens. They recruit seniors through local churches, investment seminars, and television, radio, billboard, and mailer advertisements, and commit the fraud primarily through equity theft, foreclosure rescue, and investment schemes.1 HECM-related fraud is occurring in every region of the United States, and reverse mortgage schemes have the potential to increase substantially as demand for these products rises in demographically dense senior citizen jurisdictions”. The link has since been scrubbed from the FBI's website.

All the banks ever wanted were an endless supply of garbage loans to package into mortgage backed securities. The Banksters made their money on fee income when the mortgages were closed and again on the sale of mortgage backed securities to victims all over the world. The Banksters had a lot of help and willing partners in their crimes – the government, Congress, the Federal Reserve and the rating agencies that they control like Moody’s, S & P and Fitch. Even the customarily staid Bloomberg chirped in and reported on the practice of the rating agencies to churn junk into stellar AAA rated securities.

Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or ``sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators… An e-mail that a S&P employee wrote to a co-worker in 2006, obtained by committee investigators, said, ``Let's hope we are all wealthy and retired by the time this house of cards falters.'', here.

The rating agencies did in fact play a key role in facilitating fraud and they were well paid by Wall Street for their crimes.

Why were the rating agencies allowed to get away with facilitating the biggest financial fraud in human history? 

That’s easy. You can’t take down the rating agencies without taking down Wall Street and you can’t take down Wall Street without taking down Congress and the Bankster owned federal regulatory chiefs.

After the implosion of the mortgage fiasco, many investigative journalists began to delve into the real estate carnage and books started to appear that documented massive fraud and the head of the snake is always Wall Street. Businessweek reviewed a book titled Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis by award winning journalist Paul Muolo and business reporter for The Orange County Register Matthew Padilla. According to Businessweek, the Banksters raked in an astounding $26.6 billion in mortgage back securities scheme profits between 2002 and 2007. The factories established and funded by Wall Street to facilitate the fraud were called wholesale and warehousing shops. These operations were nothing more than “a massive commission scheme with everyone’s hand in the cookie jar”. The Banksters hired hot looking females, called “mortgage sluts”, who solicited business from mortgage brokers.

But the story get real seedy and salacious in another Businessweek piece titled “Sex, Lies, and Subprime Mortgages, The sexual favors, whistleblower intimidation, and routine fraud behind the fiasco that has triggered the global financial crisis”.

A high school dropout and manicurist named Sharmen Lane earned $1 million in 2002 and $1.2 million in 2003 in one of these Wall Street concocted mortgage shops. Sharmen refused to play the “sex for mortgage application” game and got out of the mortgage business just before it crashed in 2007. But besides hot looking babes prostituting themselves for fraudulent mortgage applications to approve in the Bankster created sweatshops, the internal fraud was so widespread and pervasive that folks at all levels were getting a cut. One insider said mortgage underwriters “demanded spiffs of $1,000 for the first 10 loans and $2,500 for the next 20 loans”. Many honest folks in the mortgage business were outright fired. Of course, after the real estate meltdown and the loss of big commissions and high incomes, the mortgage industry insiders started spilling the beans. .

Businessweek reported “The abuses went far beyond sexual dalliances. Court documents and interviews with scores of industry players suggest that wholesalers also offered bribes to fellow employees, fabricated documents, and coached brokers on how to break the rules. And they weren’t alone. Brokers, who work directly with borrowers, altered and shredded documents. Underwriters, the bank employees who actually approve mortgage loans, also skirted boundaries, demanding secret payments from the wholesalers to green-light loans they knew to be fraudulent. Some employees who reported misdeeds were harassed or fired…..In the end, the wholesalers were undone by the same people who allowed for their rise: Their Wall Street overlords”.

Wall Street has so much power and money sloshing around in its manure factories that it could easily afford to buy Congress and their blessings for Bankster schemes and scams. In 2000, the top ten Wall Street investment banks did $245 billion in the mortgage securitization business but by 2006 the mortgage backed securities business mushroomed to $1.5 trillion in one year alone.

But Wall Street wasn’t just content earning tens of billions from mortgage and securities fraud. These fraud artists managed to shift the financial risk of their scams to taxpayers who are covering their losses.

What about all those bond holders and pension funds who got stiffed on mortgage backed securities? After all, they didn’t buy junk rated securities and they paid high prices for supposedly high quality securities. They also threatened to file civil lawsuits for fraud and even demanded criminal investigations.

But in the end, they were silenced and quietly paid off. The Banksters were forced to buy back a lot of the slop they sold to avoid civil lawsuits and criminal prosecutions for fraud. The Federal Reserve, the greenback rainmaker, had spent a whopping $1.2 trillion to buy up the mortgage backed securities slop from the Banksters and the Government Sponsored Enterprises (GSE's like Fannie Mae and Freddie Mac) according to NPR, here.

Not only were the Banksters making bad mortgages and packaging mortgage backed securities, the Banksters were packaging everything in the fiat financial universe – home mortgages, commercial mortgages, credit cards, 2nd mortgages, auto loans - all during an era where sound lending principles were ditched as irrelevant. And the rating agencies and government were there to aid and abet them in their crimes and even cover up their crimes.

A long, long time ago, a worker would save a percentage of his earnings. These savings filled small and medium sized banks. Folks saved for a variety of reasons; they saved to buy a house, they saved for future consumption, they saved for vacations, they saved for their kid’s education and they saved for their retirement. Shocking as it might be, there was a time in America when folks saved for a down payment on a home and to get qualified for a mortgage, one had to actually have good credit and the ability to repay (a job).

But along comes Uncle Sam and the Banksters who singlehandedly abandoned as irrelevant every principle of sound lending practices. They said, no job – no problem, bad credit – no problem, no money – no problem. Instead of the time honored home purchasing method of working and saving, the government and the Banksters decided that working and saving was archaic and should be abolished.

It was a whopper of a stretch from the days when Teddy Roosevelt campaigned on “a chicken in every pot”. Filling a hungry belly is one thing but churning chickens into houses was quite an imaginary leap.

As incriminating and revolting as all the aforementioned facts are, by far the Big Smoking Gun in the whole scam is that Wall Street criminals betted against the very same securities these fraud hucksters underwrote that were peddled as AAA low risk, high quality securities. Although big mainstream media has the mega resources to investigate and unravel anything, it used their investigative journalists to disclose bits and pieces of the mess for the purpose of misleading the public into not having enough information to connect the dots on Wall Street’s schemes. Mainstream print and broadcast media generally covered up and/or ignored the truth, but bloggers, alternative media and smaller media did some outstanding reporting.

The rather obscure McClatchy Newspapers came out with a blockbuster of an investigative journalist piece on 11/1/09 that actually connects the dots on the biggest financial fraud in human history. “How Goldman secretly bet on the U.S. housing crash” does an outstanding job documenting the real truth of what happened and who made the money. More importantly, the article was just the beginning of a series of articles that culminated after 5 months of investigation. McClatchy even admits that its investigation barely scratches the surface and much of what went on is still largely hidden from public scrutiny. But here are some quotes that piece together the fraud.
In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting…..

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws…..

To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.

Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.

The full extent of the losses from Goldman's mortgage securities isn't known… From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance. In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.

It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert. In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime,"….

In early 2007, the firm's mortgage traders also bet heavily against the housing market….

The swaps contracts would pay off big…. Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006….

…Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market…. Another question is whether, by keeping the trades secret, the company withheld material information that would enable investors to assess Goldman's motives for selling the bonds, said James Cox, a Duke University law professor who also has served on the NYSE advisory panel.

If Goldman had disclosed the contrary bets, he said, "One would have to believe that a rational investor would not only consider Goldman's conduct material, but likely compelling a decision to take a pass on the recommendation to purchase."
The last sentence is the heart and soul of the financial fraud and the article goes on to quote professors of securities law who can’t decide if Wall Street violated any securities laws. Above all, if securities laws are to be effective, they must be written to provide maximum disclosure of risks and all relevant facts. We have a situation where Wall Street sold securities and then reaped monster profits by betting against the very same securities they underwrote, packaged and sold. If that’s legal in America, then we really are a nation run by criminals and crime families.

Pension funds are among the biggest victims of Wall Street because millions of folks are dependent on their pension checks for survival. Pensions were already massively underfunded before Wall Street detonated itself and the world for fun, power and profit. The revolving door between Wall Street and Washington reeks of corruption and protectionism for crooks.

But not to worry, Wall Street has hatched a new scheme that is sure to give power mad Bankster owned Congress a dollar filled orgasm of even more campaign contributions. Just when you think that Wall Street couldn’t possibly sink any lower in its own manure pile, these shameless thieves are now going after old dying people. Matt Taibbi exposed this horror:

Wall Street Gambles on Old People Dying
Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.

…It looks like Wall Street is developing a new use for the securitization process – bungling life insurance policies and selling them as bonds to investors who would be betting, in essence, on when the policy holder will die.

The mechanism here is basically the same as the one used for mortgage-backed securities. Wall Street buys up life policies from elderly or ill people, who sell them for up-front cash that can be enjoyed before actual death (similar to those brokered arrangements with terminally ill HIV patients that received so much attention in the late eighties). They then take those policies and dump them into a securitized pool, where they can then be packaged as bonds and sold to investors who would get paid off when the policyholders die.
In other words, Wall Street will be seeking out seniors or dying folks desperate for cash and get them to make Wall Street the beneficiaries of their life insurance policies. These insurance policies will be packaged and sold to investors. Undoubtedly, the financial carnage and economic misery caused by Wall Street has created tons of desperate folks. And Wall Street is always there to cash-out on human misery – from your birth to your home to your deathbed.

In the end, it’s the Banksters who will end up making millions and billions off their schemes – they are lavishly compensated for their criminal behavior and exempted from criminal prosecution. Maybe that was the plan all along. The American people are the latest addition to Planet Serfs – a systematic and Stalinist styled fascist control over everything and everybody. This is not capitalism folks. This is government engineered greed, massive public corruption, wholesale theft and a total obliteration of sane markets.

In a sane world, the Banksters would have just gone bankrupt and to jail because that’s the price of failure and criminality, but not in America where the thieves rule and crime really does pay.  .

1 comment:

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