Category: Real Estate

Economics Update

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It’s jobless Thursday, and initial claims rose slightly last week, up by 2000 to 439K, beating expectations, and remaining below the 450-485K range where the number has meandered much of this year, so this is good news.

Additionally, the 4-week moving average dropped to a 2 year low of 443,000 and continuing claims fell fell by 43K to 4.3 million, though extended emergency claims rose by 12K to 4.93 million.

Good news though, the extended claims number drops to 0 on November 30, thanks to the ineptitude of Congressional Democrats.

We also have Philadelphia Bank of the Federal Reserve, where its general economic index exceeded forecasts by a factor of 4, jumping to 22.5.

On the down side, as always, is real estate, where foreclosures are ramping up again, as banks tweak their fraud and corruption fine tune their foreclosure programs and documentation.

Economics Update

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Well, if you think that the run up to the Federal Reserve’s quantitative easing (printing money) might lead to inflation, you thought wrong, with inflation at 0.2% in October, and the core rate at 0% for the 3rd straight month, and the year over year change was an anemic 0.6%.

The problem is that there isn’t enough inflation.

We also have real estate news, all bad, with housing starts falling, house prices in the US falling 2.8% in September (down 0.8% in the UK), mortgage applications falling, and the AIA’s: Architecture Billings Index, an indicator of future commercial construction, falling in October.

Speaking of Saroff’s Rule

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If a financial transaction is complex enough to require that a news organization use a cartoon to explain it, its purpose is to deceive.

Williambanzai7 at zero hedge finds this description of how mortgage securitization works from an auditor by the name of Dan Edstrom.

The gentleman, “Performs securitization audits (Reverse Engineering and Failure Analysis) for a company called DTC-Systems.”

Of course, Saroff’s Rule does not strictly apply here.

This is not the product of a publication that is generating graphics for the edification of the reading public.

This is a visual aid to a Securitization Workshop for Attorneys, and it is what happened to his own mortgage.

This is not some theoretical mortgage that he looked at. This is his mortgage.

It took him a full year to track it all down, and his business is to do mortgage securitizations.

This happens because complexity is the enemy of transparency, and without transparency, the opportunities to profit by cheating and defrauding your counter-parties increases.

Economics Update

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The good news is that foreclosures fell in October, the bad news is that this was just temporary, as the banks paper over their fraudulent, and likely criminal, behavior.

An better indicator of the indicator of the health of the housing market right now is house prices, which fell 5% in the three months ending in October.

Outside of real estate though, the numbers look better, with retail sales rising significantly and credit card card defaults falling, though one month does not a trend make, particularly with sales numbers being driven by volatile auto, food, and fuel sales.

On the other side of the Pacific though, things are looking up as the South Korean central bank boosted its benchmark rate by 25 Basis Points (¼%), implying that they are now more worried about their economy overheating than about a double dip recession.

Economics Update

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We have two different data points, first mortgage delinquencies were up in the 3rd quarter, but we also saw that U.S. household debt shrunk by 0.9% over the same period.

So, are people paying down their debts, or are they having their debts written down by banks that realize that they will never get the money?

Coupled with this, crude oil is getting close to $90/bbl again, which may put another crimp in the economy.

Finally, the other shoe has dropped for monoliner bond insurer Ambac, and it has filed for bankruptcy, chapter 11 reorg, not chapter 7 liquidation.

Economics Update

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The lede here is that the Federal Reserved has announced another round of quantitative easing (printing money), $600 billion over the next 9 months, more than the the widely forecast $½ trillion, which pushed the US dollar down in currency markets.

Accompanying the statement was a mild, to my mind too mild, statement about how the recovery is not progressing as rapidly as planned.

With the Michigan Consumer Sentiment Index falling, and US GDP growing at a truly anemic 2% rate, I think that they are being too timid, though there is good news with the Chicago Purchasing Managers Index, the Institute for Supply Management’s manufacturing index and non-manufacturing index, and ADP’s private employment survey: all show an increase.

Even more significantly, it appears that retail sales are beating expectations, which may bode well for the all-important holiday shopping season.

Still, real estate looks dead, with mortgage applications remaining flat despite historically low rates.

BTW, here is a blast from the past, monoliner bond insurer Ambac is warning that it might go bankrupt this year.

I’m wondering if this will put a whole raft of municipal bonds in technical default, since if Ambac goes BK, then it no longer has an obligation to fulfill its insurance contracts.

I really don’t know. Does anyone else know?

Full Fed Statement after break:

Press Release

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

Statement from Federal Reserve Bank of New York Leaving the Board

So After Months of Evidence That Their Lawyers Were Corrupt Bastards…

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The GSEs, Fannie Mae and Freddie Mac, have finally fired the foreclosure mill and forged document factory that is the law offices of David J. Stern:

Fannie Mae and Freddie Mac terminated their relationships with a top Florida foreclosure attorney on Tuesday, one day after the companies began taking back loan files from the firm that has processed thousands of evictions on behalf of the mortgage-finance giants.

Fannie and Freddie dispatched employees on Monday afternoon to begin removing loan files from the law offices of David J. Stern in Plantation, Fla. Those files are needed to process foreclosures, which must be done through courts in Florida.

………

The Stern law firm has been at the center of allegations by the Florida attorney general’s office of improper foreclosure practices and is one of four firms under state investigation. The office has released depositions of former law-firm employees who have alleged that the firm forged notarized documents and that employees signed files without reviewing them in an effort to speed through foreclosure filings.

In those depositions, former employees testified that the firms would go to great lengths to conceal improper practices during regular audits by Fannie and Freddie. A lawyer for Mr. Stern has dismissed the allegations as falsehoods made by disgruntled employees.

Well, it’s a start, though even the most tepid investigation of foreclosure fraud, which is all what Barack Obama would do, is sure to be sabotaged by the new Republican majority in the house, because:

  1. They will favor the banks even when they break the law because laws are for little people.
  2. They favor the Andrew Mellon school of dealing with the economy, foreclosure, and the financial crisis. As Hoover’s Treasury secretary, he suggested, “Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

So all that Daniel J. Stern, Esq. will see is a few bucks less profit, as opposed to disciplinary action from the bar or a criminal investigation.

Nothing to see, move along.

Economics Update

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H/t Calculated Risk for the September Philly Fed chart Pr0n

Since the tech bubble burst, the economy has been running on the consumer and on home sales, and both consumer confidence and home prices continue to disappoint.

Additionally, new home sales remain at pathetic levels, and mortgage applications increased, largely in response to lower rates.

Also, we did see the Philadelphia Bank of the Federal Released its State Coincident Indexes for September, and more states were up than down, though those advances were, once again, anemic.

The Definitive Word on Hamp

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David Dayen summarizes it in a paragraph:

This is just a truism based on the Treasury Department’s own design for HAMP. Every trial modification payment reads as a default to the credit reporting companies. The Treasury Department could have set it up so that didn’t happen; they chose not to intervene in that reality. All of the money between the trial modification and the original payment that borrowers don’t pay during their trial period gets tacked on as part of the unpaid principal balance at the end. The servicers also tack on late fees. Treasury could have banned that. They chose not to intervene. The servicers can proceed with foreclosure operations during the trial period, arguing that the borrower is in default. They can’t actually foreclose (also in some cases they have). But they can go through the legal process. Treasury could have put a stop to that. They didn’t. Borrowers keep getting told they have to miss a payment to be eligible for HAMP. Treasury actually didn’t put that into the design. But they haven’t sanctioned a single servicer for this or any other violation of the program guidelines. They could have done something. They didn’t.

(emphasis mine, though inspired by Big Tent Democrat‘s similar exercise.)

I think that Mr. Dayen is far more forgiving than I am. He implies that it was combination of incompetence and timidity.

I think that it was actual malice. I think that the Treasury Department deliberately chose to deceive homeowners, because they thought that it would give the banks some breathing space.

Just Read This

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Yves Smith again:

The Obama Administration is entirely predictable. It ever and always sides with large corporate interests, while trying to create the impression that it is actually concerned for the welfare of the average citizen. Admittedly, the occasionally tough talk with little follow through feeds a perverse spectacle of plutocrats sulking, pouting, and claiming that they are really, really badly treated.

……

There are so many people on the internet who write, and think, gooder than I do.

My only addition on this is her there are limits to looting without productive activity, and when we run down that string, things will get very ugly very quickly.

Economics Update

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Catching up on the economic number dump, first we have the Federal Reserve’s so-called Beige Book, which shows that growth has continued, but it is very sluggish.

This is reinforced by the fact that consumer confidence fell in October, factory production and capacity utilization fell in September, for the first time in a year, though home builder confidence rose (to a truly pathetic 16 where 50 is neutral), and housing starts rose.

We also have some importing news out of China, with their central bank making a surprise increase in its benchmark rate, and Chinese government published new statistics showing that its growth slowed and inflation edged up.

Certainly, it looks like the Central bank is concerned about inflation, and the statistics, even considering the general unreliability of official government statistics, indicate a problem.

One interesting effect of the rate hike is that it should place additional upward pressure on the Yuan.

We Are Going to See More of This

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The Cook County Sheriff has issued a statement that he and his deputies will not enforce foreclosures until he receives documentation from the banks that they have their sh%$ together:

Two of the largest U.S. mortgage servicers have said they will resume home foreclosures, but a big-city sheriff has news for them: he won’t enforce their foreclosure evictions.

The sheriff for Cook County, Illinois, which includes the city of Chicago, said on Tuesday he will not enforce foreclosure evictions for Bank of America Corp, JPMorgan Chase and Co. and GMAC Mortgage/Ally Financial until they prove those foreclosures were handled “properly and legally.”

While the Cook County Sheriff has been here before, he instituted a moratorium over lack of notifications to renters 2 years ago, but I think that this time, there is a distinct possibility that this will go viral, and that other county sheriffs will follow his lead.

Basically, this is a political winner for almost any incumbent charged with foreclosure service.

The standard disclaimer, that my powers of prediction suck wet farts from dead pigeons, apply.

Mortgage Backed Security Holders Stir……A Little…

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Institutional investors who purchased mortgage backed securities issued by Countrywide, now Bank of America have sent a demand letter requesting that Bank of America repurchase their mortgages for non-performance.

What makes this a big deal is just who is writing this.

Pacific Investment Management Co. [PIMCO], BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn’t name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.

Bank of America responded that it would, “defend its shareholders,” which might make for an interesting conflict between two groups of too big to fail financial institutions.

In either case, it makes Congressional Deus Ex Machina hail Mary play less likely, since the constituencies that normally bribe lobby the House and Senate appear to be fairly evenly divided.

My guess is that this is actually not as big a deal as it sounds.

I agree with Yves Smith, that this is primarily posturing:

  • This is not litigation, it’s just a nastygram that was release.
  • The claim appears to be an extension of a claim against trusts.
  • They are claiming that the lack of due diligence was because the former Countrywide is not going after Countrywide, that sold the loan.
  • That BoA/Contrywide has been too slow in forclosing. (!?!)

Still, if it prevents Congress from bailing out the banksters, it would be a good thing.™

The full press release from the bond holders is below the fold:

Institutional Holders of Countrywide-Issued RMBS Issue Notice of Non-Performance Identifying Alleged Failures by Master Servicer to Perform Covenants and Agreements in More Than $47 Billion of Countrywide-Issued RMBS

Oct. 18 /PRNewswire/ –Today, the holders of over 25% of the Voting Rights in more than $47 billion of Countrywide-issued RMBS sent a Notice of Non-Performance (Notice) to Countrywide Home Loan Servicing, as Master Servicer (“Countrywide Servicing”), and to Bank of New York, as Trustee, identifying specific covenants in 115 Pooling and Servicing Agreements (PSAs) that the Holders allege Countrywide Servicing has failed to perform.

The Holders’ Notice alleges that each of these failures has materially affected the rights of the Certificateholders under the relevant PSAs. Under Section 7.01 of the PSAs, if any of the cited failures “continues unremedied for a period of 60 days after the date on which written notice of such failure has been given … to the Master Servicer and the Trustee by the Holders of Certificates evidencing not less than 25% of the Voting Rights evidenced by the Certificates,” that failure constitutes an Event of Default under the PSAs.

In a previous release, the Holders emphasized their intent to invoke all contractual remedies available to them to recover their losses and to protect their rights. Kathy Patrick of Gibbs & Bruns LLP, lead counsel for the Holders, emphasized that the Holders’ notice does not seek to halt loan modifications for troubled borrowers. Instead, it urges the Trustee to enforce Countrywide Servicing’s obligations to service loans prudently by maintaining accurate loan records, demanding the repurchase of loans that were originated in violation of underwriting guidelines, and compelling the sellers of ineligible or predatory mortgages to bear the costs of modifying them for homeowners or repurchasing them from the Trusts’ collateral pools.

Patrick also noted that the group of Holders that tendered today’s Notice of Non-Performance is larger, and encompasses more Countrywide-issued RMBS deals, than were included in the August 20 instruction letter. When asked why the group of holders was larger, Patrick replied, “Ours is a large, determined, and cohesive group of bondholders. We have a clearly defined strategy. We plan to vigorously pursue this initiative to enforce Holders’ rights.”

The Notice of Non-Performance, which is the first step in the process of declaring an Event of Default, was issued on behalf of Holders in the following Countrywide-issued RMBS:

Deal Name Deal Name Deal Name
CWALT 2004-32CB CWHL 2004-22 CWL 2006-15
CWALT 2004-6CB CWHL 2004-25 CWL 2006-16
CWALT 2004-J1 CWHL 2004-29 CWL 2006-19
CWALT 2005-14 CWHL 2004-HYB9 CWL 2006-2
CWALT 2005-21CB CWHL 2005-11 CWL 2006-20
CWALT 2005-24 CWHL 2005-14 CWL 2006-22
CWALT 2005-32T1 CWHL 2005-18 CWL 2006-24
CWALT 2005-35CB CWHL 2005-19 CWL 2006-25
CWALT 2005-36 CWHL 2005-2 CWL 2006-26
CWALT 2005-44 CWHL 2005-3 CWL 2006-3
CWALT 2005-45 CWHL 2005-30 CWL 2006-5
CWALT 2005-56 CWHL 2005-9 CWL 2006-7
CWALT 2005-57 CB CWHL 2005-HYB3 CWL 2006-9
CWALT 2005-64 CB CWHL 2005-HYB9 CWL 2006-BC2
CWALT 2005-72 CWHL 2005-R3 CWL 2006-BC3
CWALT 2005-73CB CWHL 2006-9 CWL 2006-BC4
CWALT 2005-74T1 CWHL 2006-HYB2 CWL 2006-BC5
CWALT 2005-81 CWHL 2006-HYB5 CWL 2006-SD1
CWALT 2005-AR1 CWHL 2006-J2 CWL 2006-SD3
CWALT 2005-J5 CWHL 2006-OA5 CWL 2006-SD4
CWALT 2005-J9 CWHL 2006-R2 CWL 2006-SPS2
CWALT 2006-14CB CWHL 2007-12 CWL 2007-2
CWALT 2006-20CB CWHL 2007-16 CWL 2007-5
CWALT 2006-37R CWHL 2008-3R CWL 2007-6
CWALT 2006-41CB CWL 2005-10 CWL 2007-7
CWALT 2006-HY12 CWL 2005-11 CWL 2007-9
CWALT 2006-OA11 CWL 2005-13 CWL 2007-BC1
CWALT 2006-OA16 CWL 2005-16 CWL 2007-BC2
CWALT 2006-OA17 CWL 2005-2 CWL 2007-BC3
CWALT 2006-OA6 CWL 2005-4 CWL 2007-QH1
CWALT 2006-OA9 CWL 2005-5 CWL 2007-S3
CWALT 2006-OC10 CWL 2005-6
CWALT 2006-OC2 CWL 2005-7
CWALT 2006-OC4 CWL 2005-8
CWALT 2006-OC5 CWL 2005-9
CWALT 2006-OC6 CWL 2005-AB2
CWALT 2006-OC7 CWL 2005-AB3
CWALT 2007-17CB CWL 2005-AB4
CWALT 2007-23CB CWL 2005-BC5
CWALT 2007-24 CWL 2005-IM1
CWALT 2007-OA7 CWL 2006-10
CWALT 2008-2R CWL 2006-12

SOURCE Gibbs & Bruns, LLP

They Write Letters

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Alan Grayson has written to the FBI requesting a criminal investigation of fraud by the bankers in their foreclosure proceedings.

He is correct when he says that, ” It is time for handcuffs. Fraud does not become legal just because a big bank does it. … This is absurd. This is deliberate, systemic fraud, and it is a crime.”

Full letter after the break:


October 14, 2010

Robert S. Mueller III
Director
Federal Bureau of Investigation
935 Pennsylvania Avenue, NW
Washington, DC 20535

Robert O’Neill
U.S. Attorney
Middle District of Florida
400 North Tampa Street, Suite 3200
Tampa, FL 33602
Dear U.S. Attorney O’Neill and Director Mueller,

When it comes to foreclosures, there is mounting evidence of a state of rampant lawlessness in Central Florida. There are increasing signs that big banks routinely evade laws meant to protect homeowners, in many well-documented cases of ‘foreclosure fraud.’ Despite the demonstrated existence, for instance, of ‘robosigners’ signing affidavits attesting to documents that they have never seen, the parties engaging in such misconduct are not being brought to justice. Big banks are mischaracterizing this as mere ‘technical problems,’ and apologizing only where there is clear and very public evidence of harm.

It is not enough for big banks only to apologize for fraud, perjury, and even breaking and entering – when they are caught. It is time for handcuffs. Fraud does not become legal just because a big bank does it.

On September 20, 2010, after my office found evidence of systemic foreclosure fraud perpetrated by big banks and foreclosure mills, I called for a halt to illegal foreclosures.

Since then, big banks such as Bank of America, JP Morgan Chase, GMAC, PNC and others have suspended foreclosures or foreclosure sales. These banks are still claiming that the massive fraud they have perpetrated amounts to nothing more than a series of technical mistakes. This is absurd. This is deliberate, systemic fraud, and it is a crime.

To give but two of the many available examples, attached is a deposition from an ex-employee of one of the largest ‘foreclosure mills’ in the state, the Law Offices of David Stern. In it, this employee testifies under oath that it was routine for that office to falsify documents regarding military records, in order to move foreclosure cases along more quickly.

The local media has reported on the case of Nancy Jacobini; a contractor for JP Morgan Chase broke into her home after the bank mistakenly foreclosed on it. JP Morgan Chase ‘apologized’ for terrifying her. But , US ; we have a system of laws. I am writing to ask you to enforce them.

The organized and systematic manufacturing of falsified documents to deprive people of their homes is not only a threat to the integrity of the legal system. It also aggravates and extends the weakness in the housing market. Who is going to feel comfortable buying a home if a big bank can simply take it, whether or not that bank has a right to it? Given the securitization of mortgage-backed securities, this misconduct is a threat to our securities markets as well. But fundamentally, this is a question of protecting basic property rights – if you don’t own it, then you shouldn’t try to take it. Without clear property rights, and a legal system that insists on clear proof of those rights before transferring ownership by force, the economy will fall apart.

If perpetrators of perjured affidavits and other systematic criminal activity can get off simply with civil liability – or even less, an insincere bureaucratic apology – the freedom that Americans enjoy will erode quickly in the face of lawless seizures of property. I appreciate your work on the joint Middle District of Florida’s Mortgage Fraud Initiative, and respectfully request that the efforts of your offices turn towards reining in this rampant criminality.

Regards,

Alan Grayson

Member of Congress