The other shoe dropped: TBTF banks sued over mortgage-backed securities.

[dixiegrrrrl]

Federal Home Loan Bank of Chicago sued lenders including Bank of America Corp. claiming their failure to disclose relaxed subprime mortgage underwriting standards, led it to unknowingly buy risky mortgage-backed securities.

Bank of America and the other defendant commercial banks, including Citigroup Inc., Goldman Sachs Group Inc. and Wells Fargo & Co., sold it more than $3.3 billion in residential mortgage-backed securities, according to the complaint.

“The defendants did not tell the bank the truth about the loans that comprised the mortgage pools,” underlying the securities, the Federal Home Loan Bank alleged. While it believed it was acquiring “safe” securities, “in fact the bank purchased a toxic stew of doomed mortgage loans,” according to the complaint.

http://www.bloomberg.com/news/2010-10-15/bank-of-america-sued-by-chicago-home-loan-bank-over-subprime-mortgages.html
*********************************************************************************************************

HA !!!!! They tried to have you believe this was *only* about "foreclosures" and "robo-signers".
No way!
This is about pervasive, systemic fraud going back years, beginning from home sales to packaging the mortgages and selling them at a premium to ...well, everybody....pension funds, Fannie Mae, foreign investors.

As Denninger puts it:

in this case, to the tune of a half-billion dollars out of $4.3 billion originally invested - in losses thus far.

Now that's not a huge amount of money.... but then again, $4.3 billion is a tiny slice of the more than $1 trillion in the private-label securities out there, and an even smaller piece of the whole, including GSE paper that may also be contaminated.

http://market-ticker.org/akcs-www?post=169404

[AC_Mem]

1. Can someone please explain

What all of this can potentially mean to everyday Americans? I'm not a homeowner by choice, I'm single and its just easier for me to rent an apartment, so I've never had to deal with a mortgage (or a foreclosure thank goodness). This issue seems to be avalanching; what is the potential outcome?

Thanks in advance for anyone who can offer their opinion!

Annette

[Lasher]

2. Sure.

[mistertrickster]

3. Yup . . . that pretty much sums it up. If foreclosed homes don't have a clear title,

then no one will ever buy them.

Imagine a few million unsellable houses on the market . . . imagine title companies--who don't actually search titles, they just buy insurance in case they have to do a title search and go to court--having to actually search titles and go to court on millions of houses.

The cost is staggering. Some might go bankrupt.

[dixiegrrrrl]

11. Some title companies are refusing to insure foreclosed houses.

Next they will refuse to insure ANY houses for sale.

Meanwhile, those of us paying mortgages have questions about our title, too.

[jtuck004]

20. And so this drags on, houses can't be sold, it all piles up,

and then one day they figure out a fix, and the next morning 2 million previously withdrawn listings hit the market. but it won't just hit the housing market, 'cause that would mean a million families had been made newly homeless, any building of, perhaps, even apartments might stop, a lot of new pain.

sheesh...

[Angry Dragon]

4. I know it is not funny ......... but your post made me laugh

[AC_Mem]

8. Well, it wasn't meant to be funny...

I mean, I'm not stupid, I am reading and I understand the concept but it appears that it may become more than just forging notary signatures and I honestly wonder how big this can get.

Annette

[Angry Dragon]

10. Your's was not a funny question at all

I was responding to post #2
the one with the pictures

[AC_Mem]

14. Oh I beg your pardon!

I'm still not used to the way these thread replies show up.

:)

[Angry Dragon]

16. Not a problem

No question should be taken lightly

Welcome to DU

[dixiegrrrrl]

12. It has the strong potential to wipe out the banks.

This may be god's joke on the big banks.


It has the potential to wipe out the housing market, which will wipe out the property tax base.

And as soon as people realize that COMMERCIAL loans have also been screwed up the same way, there go businesses.

The only good news is that people in illegal foreclosures ( which may be all foreclosures) have some breathing room, because this mess is so big, it could take years to straighten out.

Meanwhile the trillion dollar Mortgage bond investments are now judged to be pretty worthless because apparently too many of them had the mortgage notes in them as required by law, so now they are liable for millions of dollars to the IRS, and the IRS does like to get its money.

[Lasher]

23. Gallows humor is fine.

These days I could use some humor in just about any form.

We have done little to remedy this catastrophe except throw money at the perpetrators. And we have done almost nothing to prevent yet another crisis just like this one.

[msongs]

13. look at your pic...it's the CHAMBER of COMMERCE! was this taken today? nt

[Lasher]

22. What has been will be again

What has been done will be done again; there is nothing new under the sun. - Ecclesiastes 1:9

The most important thing I have learned from history is that we do not learn from history.

Lasher

[704wipes]

15. I saw a construction site this afternoon that had a sign saying

'NOT HIRING'

I thought to myself.
Wow, first time I ever saw a sign like that except for PICTURES FROM THE GREAT DEPRESSION.

[upi402]

27. I worked on a job behind one of those signs

That was my first job, concrete construction -near minimum wage... and the contractor had to paint that on a 4X8 sheet of plywood to keep guys from pestering him.
That was the first Reagan recession, and this is worse.
And the plebes have drunk the media Kool Aid, and they blame the victims.
And there is no opposition * to this corporate cancer.
And my house will not sell. So I'm stuck in this country as it declines.


*party on Wayne

[iamtechus]

6. My wife just asked a similar question.

It's really hard to say except that we will likely all suffer some. For instance, some of the toxic securities comprised of sliced and diced mortgages were sold to pension funds. So, a lot of completely innocent bystanders like yourself (and us) are liable to be hurt by that.

[Name removed]

18. Deleted message

Message removed by moderator. Click here to review the message board rules.

[jtuck004]

19. Thank you for posting that. I notice you are new here, so a couple things.

First - Welcome to DU!

Second - There is a rule about how much one can post from another site, a rule designed to prevent trouble over copying work from other sites. You can find it in the faq on the site, but for reference it is:

Copyrights: Do not copy-and-paste entire articles onto this discussion forum. When referencing copyrighted work, post a short excerpt (not exceeding 4 paragraphs) with a link back to the original.

I doubt that Yves would care, but the admins might delete your post and we would miss your input. Don't want that.

Just an FYI.

and again, welcome.

[dgibby]

24. This affects everyone.

What if your apt. is in a building that was previously in foreclosure? It's quite possible the Title is not clear, which means that ownership is questionable, to say the least.

Other problems with rentals revolve around the owner paying the mortage payment. What if the owner defaults? The building will go into foreclosure. There have already been incidences of renters losing their homes as a result of owners defaulting.

The larger picture is how all this bad paper will affect the banks/lenders. If it's as bad as it looks(and I believe it is), either a whole bunch of banks are going to fail or the taxpayers are, once again, going to have to bail them out again.

[Po_d Mainiac]

25. look at my post #17 n/t

[mistertrickster]

5. I wonder how the idiot Fox-watching CONs are going to blame Barney Frank and Fannie Mae for this. nt

[CC]

9. They will find a way and their veiwers will

buy it. Look at how they blame Obama for every cent of the deficit as though they had nothing to do with it at all.

[Angry Dragon]

7. Time for Congress to pass a law and stop all bank bonuses

edit cat was typing

[westerebus]

21. Cat's a pretty good typist. n/t

[Po_d Mainiac]

17. This is a composit of different posts I've written over the last week

Unlike the old days, the vast majority of current RE loans are not the property of the original underwriter nor do they exist as a singular financial instrument. They are/were often securitized and held as investments by everyone from State retirement funds to private individuals (and everything in between) Groups of loans would be bundled to form mortgage backed securities (MBS) It's also common for parts of a mortgage to split amongst different MBS.

The original underwriter (Usually an Investment Bank, but not always) is often just the servicer of the loan. It's the responsibility of the servicer to keep the money flowing from a loan to the holder/s of the MBS/s in which the loan or part was bundled and sold off in. An investor or fund manager would place an order for an MBS that had a coupon of X (paid interest to that amount) and would be comprised of loans in which the mortgagors met certain requirements, the properties met certain requirements (SF or MF, commercial, primary owner occupied, etc), and the loans themselves fell within certain parameters. In most cases the MBS was also paid for up-front In other words, not unusual for the issuer of a loan to never have had any skin in the game. The contracts were/are pretty detailed with no room for mis-interpretation.

Basically the agreement is: here's X amount of money. In return I want RE loans that meet these specifications and will pay me this amount of interest

The buyer of an MBS would insert verbiage in the contract to enable the return of and receive full compensation any portion of an MBS that did not meet the conditions of the original purchase contract. If the number of non-conforming loans exceeds a certain percentage of the total MBS, the investor usually had language in the contract that allowed for the whole instrument to be returned as defective, and receive a total refund of the initial investment

Basically: if you screw up I'll demand my money back for part or all of the security

If the bank that bundled the MBS had prior knowledge that there were non-conforming loans in an MBS and passed if off anyway that is fraud. (It's just a matter of whether the fraud is civil or criminal in nature)

So how can the investors prove that they were screwed? The original documents would clear the issue up in a heartbeat. The original documents would also prove in a heartbeat if there was fraud. There are a lot of people/States/funds that have lost serious amounts of money on MBS that by all rights should have been safe investments

If all of a sudden the courts and investors have the blue ink papers setting out in the open, and everything is as it should be. Then it can be written off as just some clerical missteps. But if our country was raped by banksters whom knowingly committed widespread fraud, they deserve to rot in a cell.

If the doc problem is an attempt to deceive the courts then the matter is both civil and criminal.

The break-in at the Watergate was just a simple burglary. The attempt to cover up what was a fairly minor crime took down the President.

ps....there are also several other logical reasons that banks would look at clearing their books, in a timely fashion, as not in their best interests...

..................

Loans that were securitized were not done so in a manner that met the perimeters of the MBS client's order. The problem for the originators is if they produce the docs for the courts, the fund managers and others that are getting hosed would also have a chance to get a look-see.

I seriously doubt that fund managers just told the banks to toss a bunch of mortgages together into a security. We ain't fussy. Here's the cash.

Mortgages and mortgagees were supposed to meet certain minimums and ratings before that particular note could be a component of an MBS. When/if the current owners of those securities start pawing through the paperwork, they may well have every right to be made whole again. There are also triggers worded into contracts that allow for non complying securities to be kicked back upon the originators.

If you look at the current paper problem from that respect:
A)Things start to make a whole lot more sense
B)The so-called clerical errors and lack of due diligence becomes a massive cover-up to conceal fraud.
C)The are a few trillion ($) reasons this is a big frigging deal

I believe the assclowns that got the bonuses were not screw-ups. They knew exactly what they were doing. In the real world it's called fraud and or racketeering.

RE application forms are standard. Each lien folder has a master sheet that gets checked off as each doc is added. The folder ain't complete until the master is filed. The process is in place so everyone's ass is covered and documents are always available.
............................
This is from testimony before the The Financial Crisis Inquiry Commission

Clayton Holdings (CH), a Connecticut firm that analyzed mortgages

“Of the 911,000 loans that Clayton scrutinized, 72 percent either met the mortgage seller’s standards and other guidelines set by the buyer of the mortgages, typically Wall Street firms, or they had off-setting factors that allowed Clayton to give them a passing grade"

In other words:
The company (CH) examined 911,039 mortgages
Of those, 255,802 mortgages Clayton flagged defective
Wall Street ended up waiving 100,653 of them

1 in 9 loans that were securitized were known to be defective or substandard and the investors were not informed.
This is called fraud!
…………………

[upi402]

28. Larry Hagman Wins $11M from Citi in Securities Arbitration

"Former "Dallas" star Larry Hagman is walking tall these days. The 79 year-old actor was recently awarded an $11 million judgment in a securities arbitration suit with Citigroup. A financial industry regulatory authority arbitration panel recently ruled that the financial giant must pay $10 million in punitive damages to charities selected by Hagman, $1.1 million in compensatory damages, and $440,000 in legal fees.

The New York Daily News reports that Larry Hagman sued Smith Barney brokerage division (which was previously owned by Citigroup) for breach of fiduciary duty, breach of contract, fraudulent misrepresentation, failure to supervise, and violations of state and federal laws relating to securities. He originally sought $1.35 million in damages. All the causes of action stem from various securities accounts and a life insurance policy held by Hagman. Very few details have been released in this case."

From findlaw;
http://blogs.findlaw.com/celebrity_justice/2010/10/larry-hagman-wins-11m-from-citi-in-securities-arbitration.html




Looks like Major Tony Nelson has booted J.R. Ewing in the ass. Hope it portends justice.

[AtheistCrusader]

26. How many shoes is this monster wearing?