10/15 From 'Bailouts' to 'Foreclosuregate'

First, Back to "bailouts" to drastically increase privatization of capital's profits by 'socializing' its debts
Emergency Economic Stabilization Act of 2008
This article is about one division of an enacted statute. For the entire statute, see Public Law 110-343. For the enacted rescue program, see Troubled Asset Relief Program.
The Emergency Economic Stabilization Act of 2008 (Division A of Pub.L. 110-343, enacted October 3, 2008), commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, and make capital injections into banks.[1] [2] Both foreign and domestic banks are included in the program. The Federal Reserve also extended help to American Express, whose bank-holding application it recently approved.[3] The Act was proposed by Treasury Secretary Henry Paulson during the global financial crisis of 2008.

* “We are all going to need to sacrifice,We’re all going to need to pull our weight, because now more than ever we are all in this together. That is part of what this crisis has taught us.”
Democratic nominee Barack Obama of Illinois in a floor speech.

* “If we fail to act, the gears of our economy will grind to a halt.”
*Republican nominee John McCain of Arizona at campaign rally in Independence, Mo.

*President Bush “...essential to the financial security of every American.”

'Robot-signers' etc. are trivial effects, not causes, of the problem that must be hidden: its systemic roots are embedded in finance capitalism and 'securitization' plus the profitable foreclosure racket (see "Foreclosuregate" below for a liberal explanation of how it works and can be legally 'reformed)
Government Warned about Troubles in Mortgage Servicer Industry
By Zachary A. Goldfarb, October 10, 2010, Washington Post
Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people's homes as fast as possible, often without regard to the rights of homeowners. Many of the warnings came in the context of the administration's signature housing policy program, the Home Affordable Modification Program. The initiative seeks to rework the loans of struggling borrowers to make them more affordable. As discussions about the program began in late 2008 and early 2009, consumer advocates and housing lawyers say they told senior officials that they had to escalate pressure on mortgage servicers to revamp their procedures if they hoped to stem the foreclosure crisis. In particular, the advocates and lawyers cautioned that servicers had incentives to foreclose and would only pay lip service to modifying mortgages.

Foreclosures and REOs Were 24% of Q2 Sales: RealtyTrac:
New data released by RealtyTrac Thursday shows that foreclosure and REO homes accounted for 24 percent of all residential sales during the second quarter.

Take Action: Demand To see Your Mortgage Note
10-15-10 CBS News' Rebecca Jarvis discusses the brewing mortgage fraud scandal and how important it is for homeowners to demand to see their original mortgage note.
Whether you are facing foreclosure, have an underwater mortgage, or are just a concerned homeowner, it’s important that you contact your bank and demand to see the original note on your mortgage. It only takes a few minutes using our free online tool. http://action.seiu.org/page/speakout/wheresthenote

Ally Said to Tell Freddie Mac of Faulty Foreclosures Weeks Ago
Ally Financial Inc.’s GMAC Mortgage unit told Freddie Mac that foreclosures by the auto and home lender might have been faulty weeks before halting its own evictions, according to two people briefed on the matter. Ally informed Freddie Mac on Aug. 25 that affidavits for court proceedings might not be valid, according to a person with direct knowledge of the matter. By Sept. 1, Freddie Mac had notified its network of lawyers and stopped related foreclosures and evictions, said the person, who declined to be identified because the matter hasn’t been formally disclosed. GMAC told agents to halt evictions in 23 states on Sept. 17.
Fannie Mae, the largest government-backed mortgage firm, said it notified lawyers of flaws in GMAC documentation after it was alerted. Fannie Mae spokesman Brian Faith declined to say when GMAC contacted the company, and Gina Proia, the spokeswoman for Detroit-based Ally, said she couldn’t comment.
Ally faces allegations that its GMAC unit evicted homeowners without verifying that borrowers actually defaulted or whether the firm had legal standing to seize the homes. Ally, Freddie Mac and Fannie Mae are majority-owned by the U.S. government [56.3%]
Freddie Mac had almost $118 billion worth of non-performing single-family loans at the end of June. The company completed almost 153,600 foreclosures in the first half of this year and had more than 62,000 foreclosed homes in its inventory, according to a filing with the Securities and Exchange Commission.
Fannie Mae and Freddie Mac own or guarantee more than half of the $11 trillion U.S. home mortgage market. The companies are almost 80 percent owned by the government, which took them over in September 2008 after declining home prices pushed them to the brink of collapse.

in case you hadn't noticed: finance capitalism's justice system works as intended
Judge Throws Out Case Against Countrywide
New York judge threw out a case against Countrywide Financial by investors who claimed it is unfair for them to have to absorb the cost of modified loans, and that Countrywide was required under contract to buy back any mortgages that it modified....Bank of America said it was pleased with the ruling.

10/15/10 Countrywide's Former Chief in Settlement of Fraud Case
Lawyers have told the Associated Press that Angelo Mozilo, the co-founder of Countrywide Financial Corporation, and two other defendants have reached an agreement with federal
regulators to settle civil fraud and insider trading charges.The settlement was announced at a hearing on Friday in federal court in Los Angeles.
Countrywide was a major player in the market for high-risk subprime mortgages that helped touch off the financial crisis. http://www.nytimes.com?emc=na

so who pays for this institutionalized thuggery
Mortgage Mess May Cost Big Banks Billions
Major institutions like Bank of America, JPMorgan and GMAC Mortgage have halted foreclosures in many states, and have not said when they would resume. As a result, foreclosed homes will remain on the bank’s books while racking up thousands of dollars a month in extra costs.Until Thursday, Wall Street regarded the foreclosure issue as a risk to the banks’ reputations, rather than their bottom lines. Indeed, some analysts insisted it was unlikely that wide-scale abuses would be found...Inside the investment houses, several traders said nerves were frazzled further by worries banks could face much bigger mortgage related losses, not from foreclosures, but because of questions about how the money was lent in the first place. If it turns out that mortgages were bundled together and sold improperly, more holders could sue the banks and force them to buy back tens of billions in mortgage-backed securities...
An alarming report on Bank of America, compiled by Branch Hill Capital, a San Francisco hedge fund, circulated widely on Wall Street on Thursday suggested the bank, the nation’s largest, could be facing more than $70 billion in losses from mortgage securities that it may have to repurchase from Fannie Mae and Freddie Mac, as well as private investors In addition to the losses directly caused by the delay, Mr. Miller foresees additional charges totaling $3 billion to $4 billion to cover lawsuits stemming from faulty foreclosure procedures...The fund is betting that Bank of America shares could decline because of the potential liability...
“If you’re talking about three or four weeks it will be a blip in the housing market,” said Jamie Dimon, chief executive of JPMorgan Chase Wednesday. “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.”

Ex-Leaders of Countrywide Profit From Bad Loans
More than any other major lending institution, Countrywide has become synonymous with the excesses that led to the housing bubble. The firm’s reputation was so tarnished Bank of America, which bought it last year at a bargain price, announced the name and logo of Countrywide, once the biggest mortgage lender in the nation, would soon disappear...Countrywide Financial, the banking behemoth, made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering. So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess... buying up delinquent home mortgages the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.“It has been very successful — very strong,” John Lawrence, the company’s head of loan servicing...“In fact, it’s off-the-charts good,” he told Mr. Kurland, who was leaning back comfortably in his leather boardroom chair, even as the financial markets in New York were plunging.
As hundreds of billions of dollars flow from Washington to jump-start the nation’s staggering banks, automakers and other industries, a new economy is emerging of businesses that hope to make money from the various government programs that make up the largest economic rescue in history. They include big investors who are buying up failed banks taken over by the federal government and lobbyists. And there is PennyMac, the Private National Mortgage Acceptance Company, led by Mr. Kurland, 56, once No. 2 to Angelo R. Mozilo, the former chief executive of Countrywide and its permanently tanned public face...
While some critics are distressed the team are back in business, the executives say PennyMac’s operations serve as a model for how government, working with banks, can help stabilize the housing market and lead the nation out of the recession....
PennyMac...makes its money by buying loans from struggling or failed financial institutions at such a huge discount that it stands to profit enormously even if it offers to slash interest rates or make other loan modifications to entice borrowers into resuming payments. Its biggest deal has been with the Federal Deposit Insurance Corporation, which it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon. PennyMac’s payment was the equivalent of 38 cents on the dollar, according to the full terms of the agreement.
Under the initial terms of the F.D.I.C. deal, PennyMac is entitled to keep 20 cents on every dollar it can collect, with the government receiving the rest. Eventually that will rise to 40 cents....In dozens of cases, after it has control of loans, it moves to initiate foreclosure proceedings, or to urge the owners to sell the house if they do not respond to calls, are not willing to start paying or cannot afford the house...PennyMac hopes to achieve a profit of at least 20 percent annually, and it is actively courting other investors to build its portfolio, which now consists of $800 million in loans...

US imperialist capitalism will never unravel on its own. The deeper its decline due to late-stage capitalism's internal contradictions, the beating it's getting from international resistance, plus growing unity among rising capitalist rivals, its increasingly inability to expand capital accumulation and political power, the more deadly US desperation... and the more vulnerable it becomes, making revolutionary change more necessary and possible...
The Unraveling of the Empire of Finance Capital
Oct. 13, 2010 by BAR executive editor Glen Ford
The more the financial class dominates political affairs the sooner they will meet destruction. By giving the banksters everything they wanted, including free money, the Obama administration actually accelerated the processes of finance capital’s decline. That’s because, unfettered, capital behaves in ways that make its contradictions even more acute. The latest permutation of the general finance capitalist crisis has revived calls for a moratorium on home foreclosures, but may threaten an even greater catastrophe for the bankster class. The big-bank practice of “robo-signing,” where institutional officers certify to their personal familiarity with the terms and ownership of impossible numbers of mortgages per sitting – sometimes hundreds a day – has led Bank of America to voluntarily halt all foreclosures and wreaked havoc throughout the industry. If banks can’t prove, and courts don’t know, who lawfully owns what mortgage, then past and future foreclosures are under a cloud – another stake in the heart of the housing market. But, according to reporting by finance writer Ellen Brown, most of the mortgages bundled as securities in elaborate “tranches” by Wall Street may have been illegally processed through Mortgage Electronic Registration Systems (MERS). The banks claimed the MERS were temporary holders of the sliced-and-diced mortgages, but courts have concluded that MERS, as mere financial instruments, can own nothing and assign nothing. Therefore, “the chain of title has been irrevocably broken.”...research professor and former Wall Street economist Michael Hudson explains in “How the U.S. Launched a New Financial World War, and How the Rest of the World Will Fight Back” (October 10, Counterpunch) went on a “predatory” speculative rampage that has united growing parts of the planet in mutual protection societies against the U.S."...
the people must organize their own movements of resistance...try our best to disarm the imperial monster to whatever degree possible...even more dependent on guns as imperial economic power crumbles... we will all benefit from an earlier death of U.S. imperialism,

Ellen Brown
Securitization 'Tranches': turn bundles of subprime mortgages into triple-A investments”
By most reports, it would appear that the voluntary suspension of foreclosures is underway to review simple, careless procedural errors. Errors which the conscientious banks are hastening to correct. Even Gretchen Morgenson in the New York Times characterizes the problem as “flawed paperwork.”But those errors go far deeper than mere sloppiness They are concealing a massive fraud.They cannot be corrected with legitimate paperwork, and that was the reason the servicers had to hire “foreclosure mills” to fabricate the documents that never existed and swearing to the accuracy of facts not known....
These problems cannot be swept under the rug as mere technicalities. They go to the heart of the securitization process itself...
All of the mortgages in question were “securitized” – turned into Mortgage Backed Securities (MBS) and sold off to investors...
The Tranche Problem: in CNBC clip dated June 29, 2007 Steve Liesman describes how Wall Street turned bundles of subprime mortgages into triple-A investments, using the device called “tranches.” It’s easier to follow if you watch the clip [http://www.youtube.com/watch?v=0YNyn1XGyWg], but this is an excerpt:
How do you create a subprime derivative? . . . You take a bunch of mortgages . . . and put them into one big thing. We call it a Mortgage Backed Security. Say it’s $50 million worth. . . . Now you take a bunch of these Mortgage Backed Securities and you put them into one very big thing. . . . The one thing about all these guys here [in the one very big thing] is that they’re all subprime borrowers, their credit is bad or there’s something about them that doesn’t make it prime. . . .
Watch, we’re going to make some triple A paper out of this. . . Now we have a $1 billion vehicle here . We’re going to slice it up into five different pieces. Call them tranches. . . . The key is, they’re not divided by “Jane’s is here” and “Joe’s is here.” Jane is actually in all five pieces here. Because what we’re doing is, the BBB tranche, they’re going to take the first losses for whoever is in the pool, all the way up to about 8% of the losses. What we’re saying is, you’ve got losses in the thing, I’m going to take them and in return you’re going to pay me a relatively high interest rate. . . . All the way up to triple A, where 24% of the losses are below that. Twenty-four percent have to go bad before they see any losses. Here’s the magic as far as Wall Street’s concerned. We have taken subprime paper and created GE quality paper out of it. We have a triple A tranche here.
The top tranche is triple A because it includes the mortgages that did NOT default; but no one could know which those were until the defaults occurred, when the defaulting mortgages got assigned to the lower tranches and foreclosure went forward. That could explain why the mortgages could not be assigned to the proper group of investors immediately: the homes only fell into their designated tranches when they went into default. The clever designers of these vehicles tried to have it both ways by conveying the properties to an electronic dummy conduit called MERS (an acronym for Mortgage Electronic Registration Systems), which would hold them in the meantime. MERS would then assign them to the proper tranche as the defaults occurred. But the rating agencies required that the conduit be “bankruptcy remote,” which meant it could hold title to nothing; and courts have started to take notice of this defect. They are concluding that if MERS owns nothing, it can assign nothing, and the chain of title has been irretrievably broken.[...]

Bank of America's Bailout Bill
The “confidential and proprietary” FHA Housing Stabilization and Homeownership Retention Act of 2008, now HR5831 [digest: "current securitized 2.6 trillion US mortgage market"] illustrates how intricately involved Bank of America has been in drafting the legislation with Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.). Bank of America is in the process of buying Countrywide Financial Corp., which remains at the center of the mortgage meltdown. The document more or less spells out the mortgage bailout plan contained in the House and Senate versions. The date of the document is one month earlier than the date HR 5831 was introduced.....

Why Is the White House Against Freezing Foreclosures in the Face of Rampant Fraud?
By Nomi Prins, Oct.14, 2010 AlterNet
-- At first, there was a deafening silence from Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke on the foreclosure front. It was as if they: 1) didn’t read the news; or 2) were afraid someone would notice afresh their incompetence in dealing with the ongoing housing crisis and deteriorating economy, while convincing everyone that the bank bailouts and subsidizations were good for us.... Banks were announcing foreclosure moratoriums because it’s quarterly earnings season and uncertainty is bad for stock prices, and Geithner was defending TARP and mixing it up with China over the dollar. Meanwhile, the Fed was gearing up to buy more Treasuries, like some kind of rapacious alien that eats its progeny, because no one else wants our debt. But that changed when Geithner came out of hiding yesterday with a stance. (Bernanke will support Geithner’s view soon.)... response to Charlie Rose when asked whether he supported banks in declaring a foreclosure moratorium was: “No, I wouldn’t say it that way.”Why? Geithner follows the typical blame-the-little-guy-for-taking-on-too-much-debt-to-buy-a-house-he-couldn’t-afford pattern, coupled with old-style fear-mongering: if you wait and analyze what’s really going on, it might be bad for the housing recovery.
And, what housing recovery is that? The one in which 25-30 percent of homes being sold are REOs (bank owned real-estate, a.k.a. foreclosed properties). On a trading floor, that’d be considered "churning," not new value. The free-market allowed banks to create a $14 trillion mountain of securities backed by precarious mortgages to begin with. Don’t look at what they’re doing, that might hurt the boom. Don’t ask them for anything in return for bailouts -- that might clog the system. Don’t stop them from churning foreclosed properties -- that might stop the recovery.
But the real reason for Geithner’s reluctance about a foreclosure moratorium is that... the bailout wasn’t just about TARP and Bernanke isn’t just an economic savior. The government owns or is backing trillions of dollars worth of assets predicated on the same or similar suspicious loans that defaulted during the 2008 crisis period, which they did nothing to stop (or force banks to restructure)... the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them). They would have less of a bid if there was even more uncertainty about the loans that fill them. The Treasury is directly backing $400 billion of government-sponsored entity (GSE) securities, and is indirectly backing another $6.8 trillion. If foreclosed homes couldn’t be sold because of fraudulent paperwork or had to wait for more detailed inspections, you can imagine how difficult selling assets stuffed with faulty loans might be. If it’s tough to find a title for a foreclosed home, think how tough it is to back the related loan out of a pyramid of securities sitting on top of it. See, the loan that might be analyzed in a foreclosure situation could be part of a chain connecting the underlying home to 20 or 50 different securitized assets, all depending on it for either the interest payments the loan was supposed to provide, or the value of the foreclosure property if those payments stopped (in Wall Street speak, the "recovery value"). If a foreclosed property isn’t selling, it’s not recovering any money back to any asset waiting for it. Think what that can do to the value of toxic assets living at the Fed and the Treasury Department. Kill it....

Foreclosure fraud is not new. Many sane people and organizations have been talking about fraud for years -- you don’t manufacture $14 trillion worth of mortgage-backed securities and all their permutations and mega leverage out of $1.4 trillion worth of subprime loans in five years without cutting a lot of corners. Banks knew that. But when the value of their assets plummeted, unlike individual borrowers, they got to dump them on the Fed and the Treasury department, while receiving cash injections and guarantees, and cheap money subsidies in return...
The Bank of America didn’t quiver in its federally subsidized boots because Harry Reid asked for a moratorium on foreclosures last week...[but] because it owns a bunch of REO properties it wants to dump (and lawsuits are generally time-consuming and messy). It’s not alone. JPM Chase’s REO portfolio last quarter was double in size vs. its earlier quarter and nearly 30 times what it was last year. Wells Fargo’s REO portfolio also nearly doubled, and Citigroup’s REO pool last quarter was up 81 percent over the prior year. The GSEs, Fannie Mae and Freddie Mac are sitting on a record number of REOs on their books they haven’t been able to sell.[...]
Nomi Prins is a senior fellow at the public policy center Demos and author of It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.