Looks like the Gov is going after the banks re: fraudulent mortgages

[dixiegrrrrl]

This is from an August 25th news story.
which means all this "MortgageGate" stuff is not news to the banks.

(Most of the mortgages have ended up in Fannie and Freddie, the US bought them from the banks, via MOrtgage bond trusts, and apparently has figured out the fraud angle.)

"The four largest U.S. banks could face as much as $42 billion in losses as they repurchase faulty mortgages from housing finance giants Fannie Mae and Freddie Mac, Fitch Ratings said on Wednesday.
Under an "adverse but less likely" scenario where Fannie Mae and Freddie Mac successfully put back 50 percent of bad loans and the banks can still recover 50 percent of the assets' value, the institutions could lose $42 billion, Fitch said. If the GSEs put back 25 percent of the loans, the expected loss could be $17 billion, it said.

Fitch said a more moderate case is the most likely outcome. Losses for banks if the GSEs put back 35 percent of loans would be about $27 billion, it said.

Potential repurchases demanded by investors holding privately-issued mortgage bonds were not factored into the Fitch study.
Fannie Mae and Freddie Mac are also among investors in the private mortgage securities.
Fannie Mae and Freddie Mac are likely concentrating on loans where some normal documentation, such as proof of income, was not required, Fitch said.

http://www.reuters.com/article/idUSN1821994820100818
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So as of Aug. looks like the Gov was only looking into minor fraud issues and not the question of no notes being in the bond trusts, as they should have been.
Sigh...half measures avail us nothing.

[dkf]

1. I don't understand how Fannie and Freddie were so lax in their purchases.

I feel no confidence in keeping these entities as is.

[dixiegrrrrl]

2. Because they were in the pockets of the banks who sold them the bonds.

And being "quasi" government, had access to the money the banks wanted for the lousy bonds.
Another bankster con, in broad daylight, with willing accomplices.

[dkf]

3. Those are the execs who need to be tossed in jail.

[Name removed]

4. Deleted message

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[Yo_Mama]

5. I think you are misunderstanding this

First, this repurchase thing is standard. It has always worked this way. Whether originated for sale or later sold to a GSE, the GSEs do not perform due diligence.

When you convey or originate one of these loans, you provide warranties and representations, i.e., the sale is conditional upon you meeting their guidelines. You are responsible for the due diligence to ensure that you do meet those guidelines. So if the loan later goes bad, the GSEs would always hand it back if they could find something wrong. That could include a bad appraisal, bad loan app, etc.

The only thing new about this is the scale, which is because of the housing boom and/or bust.

Mortgage insurance works the same way. The insurer does not do upfront due diligence. Instead, it writes insurance under a contract that includes a bunch of warranties made by the insured party to the insurance company. In fact, often Fannie will hand back a loan after the loan has been rejected by the mortgage insurer, who has every financial incentive to check the loan over carefully before it pays the claim.

The real issue are the last couple of years of loans, in which banks were refinancing loans as Fannie or FHA loans. Many insiders, myself included, think they were fudging on valuations, etc to get it done and get the bad assets off their books, and that when these loans default, they will be stuck with a sudden wave of repurchases. This summer's campaign in Congress to "resolve" the GSE problem was really, IMO, a campaign by a few big bad boys to stick the taxpayers with their financial obligations.