The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

To quantify the credit response today to the concerns with large future financial obligations for the banks in dealing with foreclosure and mortgage buybacks, 5 yr CDS in BAC (they own Countrywide) is up 10bps to 191 and higher by 35 bps over the past 4 days. The cost of credit insurance is now at the highest level since July ’09. Wells Fargo, who bought Wachovia (who before bought Golden West Financial at the peak of the housing market in May ’06 and GW was big in option ARMs) 5 yr CDS is up by 10 bps to 130 and up 35 bps this week to the highest since June. Citi CDS is higher by 8 bps to 173 up almost 20 bps on the week and JPM is up by 8 bps to 96 and is also up about 20 bps on the week.

Full Deposition of Tammie Lou Kapusta Law Office of David J Stern

Click for larger graph

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Laurie Goodman and the Amherst Securities Group tries to determine the size and scope of the housing problem:

This article summarizes the size and scope of the housing crisis, making the point that if governmental policy does not change, one borrower out of every 5 is in danger of losing his/her home. A crisis of this order of magnitude requires both supply and demand side measures. On the supply side, a successful modification is critical. This will require principal reductions to re-equify the borrower. The moral hazard (strategic default) issues must be addressed by first recognizing that this is an economic issue, not a moral one. Second liens must also be addressed. As supply side measures alone are likely to prove insufficient to address a crisis of this size, we discuss demand side measures to increase the buyer base.

The full report, if you can track it down, is here and worth reading.

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Source:
The Housing Crisis—Sizing the Problem, Proposing Solutions
Amherst Mortgage Insight, October 1, 2010

http://www.politico.com/static/PPM170_101006_amherst.html

The absurdity of illegal activity, criminal conduct, rampant fraud has reached a point where the nation much declare “No More.” We must begin the process of identifying criminal actors — and prosecuting them.

The latest twist on the criminality/foreclosure fraud: The hiring of untrained, incompetent burger flippers to act as lawyers or paralegals in the processing of foreclosures:

“At JPMorgan Chase & Company, they were derided as “Burger King kids” — walk-in hires who were so inexperienced they barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

“I don’t know the ins and outs of the loan,” a Litton employee said in a deposition last year. “I’m not a loan officer.”

This is a degree of recklessness previously unseen in American jurisprudence.

My advice: If you have been in any way personally harmed by the illegal actions of any bank, law firm, process server, or loan servicing agency, you MUST file criminal charges.

If your home was broken into by a firm to change the locks illegally, that is breaking and entering, and conspiracy. If the wrong bank filed a foreclosure action, if the wrong house was foreclosed upon, its time to go criminal prosecution route.

Go to the local police department, fill out the requisite forms. Then go to your District Attorney’s Office or County Prosecutor’s office, and ask to speak to someone in charge. Tell them you want to prosecute. You can also contact your state Attorney General about the same. Follow up with written letters, that you send you your local newspaper and the NYT, WSJ, USA Today.

If any local DAs balk — some will know bank execs from the political groups and golf courses — let them know you will keeping a written record of all of this, and you plan to make sure that their opponent in the next election knows all about their bank coddling ways. When they stammer, hammer them about their opponent’s interest in who is and isn’t a bank bitch.

Corporations that get free speech rights also have liability for their own criminal actions. Its way past time we start forcing those responsibilities to have some meaning.

This is not about keeping deadbeats in their homes, as a few idiots and liars have asserted. The corporate sympathizers who are too busy fellating the bank to recognize what is going should be ignored. This is about fundamental property rights and the Rule of Law in the United States — nothing less.

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Source:
Bankers Ignored Signs of Trouble on Foreclosures
ERIC DASH and NELSON D. SCHWARTZ
NYT October 13, 2010
http://www.nytimes.com/2010/10/14/business/14mortgage.html

Initial Jobless Claims totaled 462k, 17k above expectations and a disappointing reading after last week’s fall to a revised 449k, the 1st figure below 450k since early July. A Labor Dept official though did say that claims typically rise in the beginning of each quarter and 5 states had to estimate their claims data because of the Columbus Day holiday. Either way, looking at the 4 week average to smooth out the distractions has it at a still elevated 459k, a 3 week high. A positive was the 112k person drop in Continuing Claims and a 340k net fall in Extended Benefits BUT only if the decline was due to benefit recipients finding new jobs as opposed to reaching the expiration of them. Based on jobs data recently seen, its unfortunately more of the latter than the former.

Sept PPI rose .4% headline m/o/m, well above expectations of up .1% but was in line at the core level, up .1%. The headline gain was mostly food which rose 1.2% and is now up 5.1% y/o/y while energy prices grew by .5% and are up 10.5% y/o/y. Inflation in the pipeline as measured by Intermediate Goods (middle stage of production) and crude goods (initial stage) are clearly evident. Total intermediate goods prices rose 5.6% y/o/y and crude goods prices are up 20.3% y/o/y. Notwithstanding the headline PPI beat relative to expectations, the market awaits tomorrow’s CPI as more relevant. The Aug Trade Deficit was $2.3b higher than expected at $46.3b, the 2nd highest reading since late ’08 as a 2.1% rise in Imports more than surpassed the .2% gain in Exports. All things equal, this could trim Q3 GDP estimates by .1-.2 of a % pt.

Another day, another move lower in the value of the US$ vs most currencies and gold. The Australian$ touched .9994 vs the US$ before backing off a touch and the C$ is right at parity. The Yuan moved to another record as did the Singapore$ after authorities there ‘steepened and widened’ its band vs a basket of currencies which is a defacto tightening for them in order to quell inflation pressures. The Yen is near its record high vs the $ even after Japanese PM Kan said on the Yen “we will take bold measures if they are absolutely necessary.” It was back in Nov ’09 when Fed Pres Fisher said “our job is to maintain the purchasing power of the dollar.” That was then, this is now unfortunately and the continued weakness comes before Bernanke’s last monetary policy speech tomorrow before the Nov 3rd FOMC meeting. As I said on July 15th, short sellers better beware of the Fed, the election, calmness in Europe and good earnings.

Using the Relative Strength Index as one measure of overbought/oversold, the 14 day RSI in the $ index is down to 18, a very oversold reading and the most so since March 2008. Combine this with a bond market that has stopped rallying for now, maybe pricing in the QE2 theme and it tells me that the equity, reflation trade run, in the short term ahead of the early Nov events, is due for a rest after Friday’s expiration influence runs its course. Past this though, the reflation trade will continue to work as the US$ continues to lose its value on a secular basis and emerging markets see good growth.

Yves Smith on Foreclosure Fraud:

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click for video

You can view the segment here.

You may have missed this hard hitting McClatchy article over the weekend. It essentially accuses then Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson of “willful inaction in late 2006 and 2007 during a period when lending criteria were disintegrating in favor of so-called “liars’ loans,” for which applicants weren’t required to document their income.”

The reason? To give Goldman Sachs a chance to exit their soon to be crumbling sub-prime loan portfolio. (See video) They also got short subprime derivatives. GS became the only major Wall Street firm to safely exit the housing market before it crashed. McClatchy had previously reported that Goldman Sachs failed to report dumping their subprime positions to the SEC for 9 months, while making public statements to the inapposite to that.

These accusations come from William Black, the former senior thrift regulator, now law professor. Black states that Paulson “knew that if he acted the way he should, that would have burst the bubble. Then Goldman Sachs would have been left with a very substantial loss, and that would have been the end of bonuses at Goldman Sachs.”

Personally, I lean towards the belief that Paulson was merely an incompetent Treasury Secretary, not maliciously reckless or willfully corrupt, as Black asserts (but what do I know?). That alternative is certainly worth exploring, as the timing sure worked out well for both Goldie and Hammering Hank:

“The most dangerous loans offered teaser interest rates that would shoot higher in two to five years and saddle borrowers with crushing monthly payments. From Jan. 1, 2006, through 2007, mortgage lenders issued more than $1.6 trillion worth of these types of loans, according to data from the industry newsletter Inside Mortgage Finance.

Black and other former regulators said that Paulson could have reined in this flood of loans by:

Directing the Office of Thrift Supervision to beef up its dwindling number of thrift examination teams and to prohibit subprime lending by federally insured firms such as Countrywide Savings and Loan, the IndyMac Bank and WaMu, which together issued more than $360 billion in dicey mortgages in 2006, according to International Monetary Fund data and company disclosures.

• Pressing Comptroller of the Currency John Dugan to rescind his agency’s 2004 rules barring state enforcement agencies from cracking down on abusive lending tactics.

•Using his influence in the Bush administration to stop Fannie Mae and Freddie Mac from buying subprime securities and allowing the industry to grow even bigger.

• Weighing in against proposed international banking standards, which subsequently went into effect, that would allow foreign banks to hold low reserves when they bought Triple A-grade securities, such as subprime bonds whose ratings were grossly inflated.

A second Paulson critic, retired senior thrift examiner Richard Newsom, wrote to Congress about the regulatory lapses that he said contributed to the crisis. In a phone interview, he said that it was “simply implausible that Paulson couldn’t see the relation between delaying strong action by Treasury and the benefit to letting places like Goldman” reduce their risks.”

Here’s the greatest irony of all: While ignoring the burgeoning subprime crisis, Paulson focus was on Deregulation: He “repeatedly voiced opposition to what he considered over-regulation of banks and investment banks. He particularly complained about a provision in the 2002 Sarbanes-Oxley securities restructuring law that requires corporate officers to submit sworn statements to the SEC vouching that their firms’ internal financial controls were adequate.”

Incompetent, or criminally corrupt? You decide.

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Source:
How Hank Paulson’s inaction helped Goldman Sachs
Greg Gordon
McClatchy, October 10, 2010
http://www.mcclatchydc.com/2010/10/10/101753/inaction-by-treasurys-paulson.html

Goldman didn’t tell SEC about mortgage moves for months
Greg Gordon and Chris Adams
McClatchy, April 30, 2010
http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-to-shed-risky-mortgage.html

While Paulson dawdled, GS sold off $30B in subprime, and then went short subprime:

click for Video

FT.com:

“Legal documents obtained by the Financial Times suggest that Wells Fargo, the second-largest US mortgage servicer, also used a “robo signer”.

Unlike its rivals, Wells Fargo has not halted foreclosures. The San Francisco-based bank said on Tuesday it was reviewing some pending cases, but it has maintained that it has checks and balances designed to prevent serious procedural lapses.

In a sworn deposition on March 9 seen by the FT, Xee Moua, identified in court documents as a vice-president of loan documentation for Wells, said she signed as many as 500 foreclosure-related papers a day on behalf of the bank.”

Click for video

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Source:
Wells adds to crisis over home seizures
Suzanne KapnerFT.com, October 14 2010 00:01

http://www.ft.com/cms/s/0/ed4aa856-d70b-11df-9cd5-00144feabdc0.html

We have been covering the systemic Foreclosure fraud that has gone viral through out the US banking system over the past few days, months and year.

This is a perfect example as to why bailouts are so ill advised: The government becomes reluctant to prosecute firms when they have a vested interest in their financial success.

Less than 4 weeks before the election, a game of chicken has broken out: Which of the two parties will throw their banking friends and overlords under the bus in the mad dash for votes? Stay tuned!

Meanwhile, here is some midweek reading:

• Florida foreclosures continue; Banks’ moratorium claims called ‘farce’ (Florida News-Press)

• How The Controversial Foreclosure Bill Made It Through Congress With No Public Debate (Huff Po)

• BOMBSHELL- New Subpoenas Issued by Florida Attorney General to Lender Processing Services and Docx, LLC (Matt Wiedner Law)

• The MBS mess from the beginning – the deal docs (FT Alphaville)

• Robo-signers Wanted: Mortgage experience not necessary (Yahoo/AP)

• A Primer On The Foreclosure Crisis (CNBC.com)

• All 50 States Start Inquiry Into Foreclosures (Reuters)

• Title Insurers in Talks With Lenders on Warranties (Bloomberg)

• Michigan: Real Estate Officials Call for Halting Some Foreclosures AG’s Office Says Call for Investigation is Politicizing Issue  (Legal News)

• Daily Show On Foreclosure Fraud (TDS)

• White House Supports Mortgage Probe (WSJ)  This Wall Street Journal reports something hard to believe. What government officials are saying this? Is this true — or just poor reporting?

“Government officials said they haven’t uncovered evidence any homeowner was inappropriately evicted, but are probing further to assess the extent of the banking industry’s problems. State attorneys general are expected to announce their investigation on Wednesday.”

• WTF? Banks Breaking Into Occupied Homes (Not In Foreclosure) To Change Locks (Huff Po) They could start with Nancy Jacobini, to whom JP Morgan Chase actually apologized after hiring a contractor to break into her home when she was not in foreclosure.

• Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, (University of Utah – S.J. Quinney College of Law)

• Misbehavior and Mistake in Bankruptcy Mortgage Claims (University of Iowa)

• Florida’s AG seeks meeting with major lenders (Miami Herald)

• New PR from the Banks: All Is Well (YouTube)

• JP Morgan Leaves MERS (Yahoo/AP)

• JP conference call transcript (Calculated Risk)

• Obama Supports State AG Suits (Bloomberg)

• Citigroup Stops Using Foreclosure Law Firm Facing Florida Probe (Bloomberg)

• Why Foreclosure Fraud Is So Dangerous to Property Rights (TBP)

Foreclosure Mills:
• Rep. Grayson’s letter wrote a letter to Fannie on this subject: (PDF)

• It’s not clear if Fannie/Freddie are going to stop using foreclosure mills, as the letter asked.  The mills are still in their Retained Attorney Network (eFannie)  See also Wash Post)

• Bank of America Stops Foreclosures Nationwide (Fox Business)

• Memories of September: Fox Business News Attacks Grayson, Sanctions Foreclosure Fraud (YouTube)  Surprisingly weak reporting  . . .

Did I miss any good ones?