Posts filed under “Legal”

Former NAR Economist David Lereah is a Jackass

Alternative Title: David Lereah: Even More Full of Shit Than Previously Believed

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Of all the various parties who contributed to the boom and bust in housing and credit, none have escaped more unscathed than the National Association of Realtors, and their former Baghdad-Bob-in-Chief, David Lereah.

The NAR turned a blind eye to fraud amongst realtors in terms of referrals to corrupt appraisers and mortgage brokers. They constantly cheerleaded prices, despite evidence to the contrary. For 3 years, they have been forecasting 2nd half price recoveries, dissuading realism amongst home sellers. They continually spun data, presented misleading commentary, and otherwise engaged in behavior that could only be characterized as sleazy.

I find EVERYTHING out of the NAR to be suspect, tainted and generally worthless. The NAR Housing Affordability Index is essentially worthless; from 1989 – 2009, the NAR showed housing as “Unaffordable” for just one month.

If you have any doubts as to whether or not the NAR are a bunch of shameless, lying hucksters who deserve to have glass catheters inserted in their Urethras then shattered, consider this:

Working for realtors, David Lereah was famously optimistic. Not anymore.
By Donna Rosato

As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the “positive spin.”

Q: Were you wrong to be so bullish?
A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q: The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?
A: My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back
to the peak prices we saw in many markets.

Q: Any regrets?
A: I would not have done anything different. But I was a public spokesman writing about
housing having a good future. I was wrong. I have to take responsibility for that.

-DONNA ROSATO – Fri Dec 19 2008, 11:14

Ahhh, so he admits to being nothing more than a paid shill whose mouth was available for a price. How does that job description vary from the Trannies who hang out by the West Side Highway? In my book, not by very much. A whore is a whore is a whore. Anyone who pays attention to the garbage generated by the NAR is a fool.

Oh, and I’m presenting Wednesday at Global Connect:

A World of Innovation, today January 7 at the Marriott Marquis, on the main stage on Wednesday, January 7, 2009.

Session: Wednesday, January 7, 2009, 3:30 pm – 4:15 pm

Description: Bulls vs. Bears: A frank discussion of where we are in the cycle of housing prices.
Panel: Noah Rosenblatt, Nouriel Roubini, Lawrence Yun (NAR), Barry Ritholtz

Lereah’s replacement — Lawrence Yun — is also on the panel. He has yet to demonstrate whether he will be an improvement over Baghdad Bob Lereah.

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Previously:
Realtors Get Real (March 2007)

http://www.ritholtz.com/blog/2007/03/quote-of-the-day-realtors-get-real/

Pending Home Sales Index, NAR Housing Market “Bottoms” (January 2008)

http://www.ritholtz.com/blog/2008/01/pending-home-sales-index-nar-housing-market-bottoms

How Counter-Productive is Realtor Association Spin? (March 2008)

http://www.ritholtz.com/blog/2008/03/how-counter-productive-is-realtor-association-spin/

NAR Housing Affordability Index is Worthless (August 2008)

http://www.ritholtz.com/blog/2008/08/nar-housing-affordability-index-is-worthless/

Source:
Former real estate bull admits, “I spun”
VOL. 38, NO. 1 – January 2009 – Mon Dec 22 2008, 08:58

http://money.cnn.com/magazines/moneymag/moneymag_archive/2009/01/01/toc.html

Confessions of a former real estate bull
Donna Rosato,
Money Magazine, January 5, 2009: 10:30 AM ET

http://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm

Category: Contrary Indicators, Legal, Real Estate, Really, really bad calls

Inside Look: Madoff Mayhem

Analysis and Discussion with University of Rochester President Joel Seligman, Also an SEC Historian

January 03, 2009

Featuring Interview with Former SEC Official Jacob Frenkel

January 02, 2009

Category: Legal, Regulation, Video

How to Repair a Broken Financial World

Here is another excerpt — part II — of the all consuming OpEd of the Sunday New York Times by Michael Lewis and David Einhorn: Excerpt: When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole…Read More

Category: Bailouts, Credit, Derivatives, Legal, Markets, Really, really bad calls, Regulation

The End of the Financial World As We Know It (and I feel fine)

The entire OpEd section of the Sunday New York Times has been taken over by an article jointly written by Michael Lewis and David Einhorn, titled The End of the Financial World As We Know It. Its this morning’s must read piece . . . Excerpt: “OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required…Read More

Category: Bailouts, Credit, Derivatives, Legal, Really, really bad calls, Regulation

Here Come the Cram Downs!

Nice column to end the year on via WSJ: Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount. Excerpt: “The banking industry hoped the mortgage “cram-down” measure died when Congress removed it from the $700 billion bailout bill that passed in October. But it has been gathering momentum in Democrat-controlled Washington, as evidence emerges that current voluntary foreclosure-prevention…Read More

Category: Credit, Legal, Real Estate

“If you were dead, they would still give you a loan”

“It was the Wild West. If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

-Steven M. Knobel, a founder of appraisal firm Mitchell, Maxwell & Jackson

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Interesting article in the Sunday NYTimes about WaMu, the company that could not say no. The Times missed a golden opportunity to proclaim a major bank a “slut” – any opportunity one gets to do so should be taken without hesitation.

And just how slutty were WaMu’s loans? By the first half of this year, the value of its bad lending had reached $11.5 billion. Here’s why:

WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

Why the disregard for traditional lending standards, the risky mortgages, the lending to unqualified people? Was it the CRA or Fannie/Freddie? To the contrary, it was a relentless drive for sales volume and market share. Loan officers were givens 100s of new loans per day, ensuring  review and oversight were minimal. Investigating into loan apps was actively discouraged.

I know from personal experience that WaMu was amongst a group of predatory lenders and mortgage felons who actively misrepresented loans. I have disagreed with those who called the no doc loans predatory borrowing. It was the banks that actively misrepresented the loan products to borrowers; It was the banks that had the fiduciary obligation to their depositors and investors not to engage in reckless lending.

My wife has a WaMu account, and we got a sales pitch on mortgages from them in 2004, and again when we sold one house and bought another in 2006. I am pretty savvy about mortgages, and I was aghast about their Option ARM and their Neg Am sales pitch. I spoke with several WaMu salespeople — in person in a NYC branch, and over the phone — and they tried to make the teaser rate sound like this was a non-resetting, permanent payment. If you pressed them about the reset, they would eventually fess up. If you asked them about Neg Am, they never explained the total amount owed went up every month you underpaid principle. But if you were naive about finance or didn’t understand how these loans worked, they steamrolled right over you.

Here’s the ugliness:

The ARM Loan Niche:  WaMu’s retail mortgage office in Downey, Calif., specialized in selling option ARMs to Latino customers who spoke little [or no] English and depended on advice from real estate brokers, according to a former sales agent who requested anonymity because he was still in the mortgage business.

According to that agent, WaMu turned real estate agents into a pipeline for loan applications by enabling them to collect “referral fees” for clients who became WaMu borrowers.

Buyers were typically oblivious to agents’ fees, the agent said, and agents rarely explained the loan terms. “Their Realtor was their trusted friend,” the agent said. “The Realtors would sell them on a minimum payment, and that was an outright lie.”

This is predatory lending. The FBI, which has already arrested over 1000 people, should be hunting for all of these dirtbags, clawback any and all commissions from them — then toss them in jail.

And again, what some have termed “predatory borrowing” was in the real world, simply fraud perpetrated by bank employees and mortgage brokers: “[Managers] in the Irvine, Calif, office coached brokers to leave parts of applications blank to avoid prompting verification if the borrower’s job or income was sketchy.”

I’ve mentioned this many times before: Many of the people who have 2/28 ARMs had no idea they had a mortgage that was going to reset. I’ve spoken to many people who had no idea, and remain convinced its a paper work error. From what I personally saw from the sales staff at WaMu, this was not an accident.

Excerpt after the jump . . .

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Category: Bailouts, Corporate Management, Credit, Legal, Real Estate

Inside Look: Spotting the Next Madoff

Interview with James Hedges of LJH Global Investments

Category: Legal, Markets, Video

Security Fraud Prosecutions Down 87% Since 2000

Some toothless watchdog: This year, the S.E.C. has brought the fewest number of securities fraud prosecutions since 1991. That’s according to the data that the Transactional Records Access Clearinghouse (TRAC), a research group at Syracuse University, has amassed. Soft on White Collar Crime, by the Numbers: • 2008 had 133 prosecutions for securities fraud (thru…Read More

Category: Bailouts, Legal, Markets, Regulation

Office of Thrift Supervision: Asshat Central

I am trying to figure out who is the biggest jerk in this story. It is a challenge, given the collection of utter clowns and ne’er-do-wells that run that office.

First, you have some moron who helped cost the taxpayers a hundred large ($100B) back in the 1980s. How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority.

Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels.  As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run!

That the OTS is run by such half-wits and morons, that they blamed a US Senator — for having the temerity to ask how much money the criminally incompetant managers running Indy Mac were going to cost the taxpayer — rather than their own inadequate supervision. (BTW, the answer to Schumer’s question was about $9 billion).

Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech.

Nice work.

This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation.

As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI.

It all comes back to the radical deregulatory philosophy we discussed Sunday:  Appoint cabinet level people who share that same belief system, who think government can never work — and voila! –  this is what you get.

Anyone who thinks that really bad behavior in the corporate world needs no proscribing should not be put in charge of Regulatory agencies.

Excerpts after the jump . . .

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Category: Corporate Management, Legal, Markets, Regulation

Pondering Madoff as we enter 2009

Pondering Madoff as we enter 2009
by David Kotok
December 23, 2008

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs, including Morning Call, Power Lunch, Kudlow & Company, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

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“This is a major disaster for a lot of people. You work all your life, you finally manage to save up something, and somebody who’s entrusted with it, it turns out suddenly he’s a crook. Lots of people are getting fully or partially wiped out.”
-Lawrence Velvel, 69, Dean of the Massachusetts School of Law who said he and friends had lost millions among them.

“Those with the biggest financial gains generally had their money managed by Madoff. It was an honor having him handle your fortune. He didn’t take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns.”
-Laurence Leamer, a Palm Beach based journalist, writing in the New York Post, December 13.

First to the structural business issues.

Cumberland Advisors did not and does not have a single penny in any fund directly or indirectly positioned with, having custody with, or in any way associated with Madoff. The Madoff structure violates all of our internal disciplines. Madoff required that investment management, brokerage, and custody all be with him under the same roof. At Cumberland we require that each of these three functions be separated by task, separately evaluated, and separately reported.

Cumberland will not invest in any conduits or vehicles where the sponsor refuses to disclose the contents of the investment. Furthermore, we recommend that our clients avoid any investments they do not understand. We also avoid any investment about which we cannot obtain a full and completely clear description, so that the investment’s merit may be independently evaluated.

Moreover, at Cumberland, all discretionary managed accounts separate asset custody from brokerage and from Cumberland as manager. Our performance reports and asset lists are separate and independently compiled from those of the custodian broker or bank. Managed accounts that are in custody at a broker have explicit permission for us to trade “street wide” when it benefits the client. We will not accept a managed account where the brokerage transactions are captive to the broker custodian unless there is a specific pricing of transaction costs and the client knows what their broker will charge them. Cumberland never acts as broker and never mixes commissions with fees. We are a fee-for-service only manager.

We recommend this structure for all of our institutional consulting clients where we are not the discretionary manager but only consultants on the strategy. We also recommend this for those whom we are advising on boards and as trustees. In fact, we advise that those who place funds as a fiduciary in any other format should consult their legal counsel before doing so, in order to ascertain if they are in compliance with fiduciary standards.

The Madoff affair’s implications for lawyers, accountants, trustees, boards, etc…

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Category: Bailouts, BP Cafe, Hedge Funds, Legal