In addition to BOA, WAMU and WB can't be too pleased with more reviews.

I hear they are hiring McGruff the crime dog.

Fraudsters....the bell toles for thee.

The only real loan volume the last year has been GSE purchases. With 99% of all mortgage brokers nothing but con artists I would imagine this will be like shooting fish in a barrel for FNM.

Thanks Tanta!

Is lying on income or assets (inflating it) a misrepresentation? I guess it was very widespread on Alt-As, will this lack of verification come to hunt the lenders?

What happens if the seller of the fraudulent loan to FNM/FRE turns out to be IndyMac or a IndyMac to be? Is the FDIC left holding the bag?

"I got my money on Silver State Bancorp (SSBX)"

BRING ON WAMU!!

So I guess the question is Will the taxpayers be the bagholders by recapitalizing FRE and FNMA, or will they be the bagholders by recapitalizing the FDIC?

Lawyerliz

Massachusetts Educational Financing Authority is trying to float a $425M bond offering, and the Gov. Patrick is trying to strong-arm the PF's and the endowments into purchase the bonds. It would make more sense if Patrick strong-armed the schools to LOWER costs.

With housing, we have fundamentals to gauge the affordability: price/rent or median home price ratios. Someone really needs to develop analagous fundamentals with education. No effing way can $60K for private undergrad tuition/room/board be sustainable...

Tanta,

It is vital to look at the indemnification language. I seriously doubt Fannie would've taken on the loan without an indemnfication from the originators. It seems likely to me that the originators (because they will do anything to avoid paying these damages) will claim the indemnification language doesn't cover this type of conduct. Alternatively, the indemnification language could be mutual: the originators could claim they have to indemnify but Fannie also has to indemnify to the extent of its wrongdoing. If Fannie expects the originators to pick up the entire tab this will surely end up in court.

Lawyerliz sez:
"With housing, we have fundamentals to gauge the affordability: price/rent or median home price ratios. Someone really needs to develop analagous fundamentals with education. No effing way can $60K for private undergrad tuition/room/board be sustainable..."

Quite true - - need WalMart University to step up to the plate, especially given:
No Significant Difference Phenomenon Website

In the meantime, there are various means of avoiding the nasty sticker price, if getting a decent accredited degree is the goal:
100 Online schools to earn an accredited college degree
http://www.lowestcostcolleges.com/

as long as loans are still processed with any of the accompanying documentation done with verbal verification this will continue.

C&C-
99% in a bit harsh....I'd say about 80%.
What's lost in this meme. is ramifications of the securities that are margined on the backs of these loans.
WHy doesn't anyone speak to this problem? Instead all we get is flag waving BS and a market that gets bloated up to begin the same process again.

Ciao
MS

It would be nice if FNMA would also released foreclosure data on Alt-A loans where those was no mispresentation. How many fully documented loans where originated through mortgage brokers that were 100% financing, no reserves, credit scores under 680 and back ratios greater than 60%? Are they going to own up to having placed a crappy product on the market?

Fannie Mae (or any other investor) is under no obligation to eat losses for you just because you can't find anyone else to.

Nor should they be. I was just thinking through the flow and these would be potential losses that WAMU/BAC no longer carries loss reserves for, right? Bear with my little pea brain here but is this not a potential btch slap to their income, hard dollar btch slap, at that?

I hope MEFA can't get their money. Schools have not had to lower their tuition rates because they just kept piling up the student loan (alternative) debt for students. Gone are the days of a dorm room with a double bed and 2 desks. Now they have living areas, private sleeping areas, etc- just keep signing for more debt.

In the long this student loan "crisis" will be much better for future students who won't see tuition skyrocket over the next 10 years like it has over the last 10.

Bottom line is if you can't afford the 45K private school then go to your state school- they give out the same degree.

Comment from the Texas S&L fiasco 1988-1992), when there was a civil remedy (i.e., a private party to make good on the loss) the feds had less interest in criminal remedies:

When there was a loss that could not be put or offset, or the indemnity was worthless, then you more frequently saw a criminal referral. Given the generally sloppy business practices of the era (probably no worse than those of the recent housing boom) making a criminal case tended to be pretty easy, once the prosecuting teams quit trying to explain the grand schemes in detail to a jury of normal people and focused on a few simple representative fraudulent transactions sufficient to support a conviction and easily understood by a lay jury.

We'll probably see the same pattern here. And the Bushies will be long gone before this is all straightened out or the limitations statutes have run--I suspect McCain might be in favor of recycling Gitmo as a holding pen for a number of participants in this sad food chain.

>
loan loss reserves

See for reference: Alternative Loan Trust 2007-OA6, et al. · 424B5 · On 5/2/07

http://www.secinfo.com/dsvR3.u2ht.htm

\tCredit enhancement is intended to reduce the effect of loan losses. But credit enhancements may benefit only some classes of a series of securities and the amount of any credit enhancement will be limited as described in the related prospectus supplement. Furthermore, the amount of a credit enhancement may decline over time pursuant to a schedule or formula or otherwise, and could be depleted from payments or for other reasons before the securities covered by the credit enhancement are paid in full. In addition, a credit enhancement may not cover all potential sources of loss. For example, a credit enhancement may or may not cover fraud or negligence by a loan originator or other parties. Also, all or a portion of the credit enhancement may be reduced, substituted for, or even eliminated so long as the rating agencies rating the securities indicate that the change in credit enhancement would not cause them to change adversely their rating of the securities. Consequently, securityholders may suffer losses even though a credit enhancement exists and its provider does not default.

ACCREDITED HOME LENDERS HOLDING CO. 10-Q

The number of outstanding shares of the registrant’s common stock as of August 31, 2007 was 25,154,069.

We are subject to losses due to fraudulent and negligent acts on the part of mortgage loan applicants, mortgage brokers, other vendors and our employees.
When we originate mortgage loans, we rely heavily upon information supplied by third parties including the information contained in the mortgage loan application, property appraisal, title information and employment and income documentation. If any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to mortgage loan funding, the value of the mortgage loan may be significantly lower than expected. Whether a misrepresentation is made by the mortgage loan applicant, the mortgage broker, another third party or one of our own employees, we generally bear the risk of loss associated with the misrepresentation. If a mortgage loan is subject to a material misrepresentation, we are typically unable to sell or are required to repurchase the loan if it was sold prior to detection of the misrepresentation. Even though we may have rights against persons and entities who made or knew about the misrepresentation, such persons and entities are often difficult to locate and it is often difficult to collect any monetary losses that we have suffered as a result of their actions.
We have controls and processes designed to help us identify misrepresented information in our mortgage loan origination operations. We cannot assure you, however, that we have detected or will detect all misrepresented information in our mortgage loan originations. We are subject to losses due to fraudulent and negligent acts in other parts of our operations. If we experience or detect a significant number of such fraudulent or negligent acts, our business, financial condition, liquidity and results of operations would be significantly harmed.

“We have received a lot of questions about Countrywide's public debt. All I can say at this point is we don't intend to guarantee the public debt but we understand the ramification of not paying. We will keep you informed as we continue to integrate the country wide transaction.”

Am I parsing this right? They're saying "We just paid four billion dollars for CFC, but it's probably going to go BK/FDIC and that's fine, we'll just write off those billions that we paid to buy it."

In what parallel universe is that a reasonable exercise of BofA's fiduciary duty to its shareholders?

This is perhaps as old as Ms Bair's hairstyle, but at least on topic:

A loan that is subject to a material misrepresentation is typically unsaleable or subject to repurchase if it is sold prior to detection of the misrepresentation. Although we may have rights against persons who, or entities that, made, or knew about, the misrepresentation, those persons and entities may be difficult to locate, and it is often difficult to collect from them any monetary losses that we have suffered.

In addition, for approximately 40% of the non-conforming loans that we originate, we receive little or no documentation of the borrowers' income. Instead, we base our credit decisions on the borrowers' credit score and credit history, the collateral value of the property securing the loan and the effect of the loan on the borrowers' debt service. There is a higher risk of default on loans where there is little or no documentation of the borrower's income.

The Individual Defendants, unlike the investing public, were members of Board Committees charged with oversight of Countrywide’s risk exposures, investment portfolio, and loan loss reserves. 13 As such, they were in a position to recognize the significance of these red flags, and, accordingly, investigate the extent to which underwriting standards had been abandoned. Notably, the underwriting violations, unlike the “red flags” themselves, were not disclosed to the public – indeed, Mozilo repeatedly assured investors of Countrywide’s underwriting discipline and loan quality. See id. ¶¶141-146. Here, Plaintiffs have sufficiently alleged facts giving rise to a strong inference that Defendants on four specific Committees knew of the underwriting violations, or at the very least, proceeded with deliberate recklessness:

• 13 Moreover, the Board committees met regularly and were presumably functioning as intended. For example, in2006, the Audit & Ethics committee met 14 times; the Finance committee, 10 times; the Credit and Operations & Public Policy committees, 5 times each; and the Compensation committee, 29 times. See Compl. ¶¶78-97. 14 Defendants Melone, Parry, and Russell (and previously, Defendant Cisneros) are on the Audit Committee. 15 The Exception Processing System flagged highly risky loans based on certain objective criteria, for example, if the loan-to-value ratio was too high when compared with the borrower’s FICO score

Fannie Mae Push-Back

Something wrong with this story.
Story said Fannie looks for fraud and improper lending practices
Is this some kind of a bad joke?
Where where the Federal Regulators?
That was there responsiblility to supervise and exam these lenders to make sure they complied with US Code
12 CFR 560.01 and 564, plus others.
Has the government lost their mind.
What kind of crap is this?
The Bank made the loan, Butt crack Mae purchased it.
Certainly Crime pays here in lending land.
Michael LittleBig

When my Senators wrong way Sherrod Brown and George Voinovich get back from their paid vacation I will ask them to pass another money bill to help the Office of Thrift Supervision
to hire a bank examiner with a brain.

Tanta writes:
Here, specifically, they are talking about post-FC reviews. There is no longer a loan to buy back. They could make the servicer buy the REO at par, or they could make the servicer pay all actual losses, damages, attorney's fees and so on that are incurred because of fraud. The latter is strictly speaking an indemnification rather than a buy-back.

Aaaaahhh. I'm feeling a little bit better about Fannie/Freddie today, at least. Hopefully Freddie will also step up their push-back efforts as well. I mentioned a couple of Freddie foreclosures in my neighborhood on a previous thread, which were fairly obvious fraud cases and good candidates for push-backs. I don't know if Freddie or Fannie have a hotline for this sort of thing... I'll post around on Freddie's site and try contacting them anyway, it can't hurt.