Daily Archives: September 23, 2012

Are the lessons of the housing crisis already being forgotten?

Just four years after toxic U.S. mortgages brought the global financial system to its knees and triggered the deepest recession since the Great Depression, a U.S. housing regulator may be making it easier for banks to make bad loans without suffering losses.

The Federal Housing Finance Agency released a little-noticed rule week before last that makes it harder for Fannie Mae and Freddie Mac – the government-owned companies that guarantee home loans made by banks – to hold lenders accountable when mortgages go bad.

Some experts said the new rules show that lessons of the housing crisis are already being forgotten, and could set up taxpayers for tens of billions of dollars of losses if the lending bubble re-inflates later in the credit cycle.

At issue is when Fannie Mae and Freddie Mac can press banks to make them whole when mortgages go bad.

Under the current rules, the two U.S. government-backed companies can push banks to buy back mortgages that were fraudulent, or not properly underwritten.

Under the new regulations, starting with loans sold to Fannie Mae and Freddie Mac in January, if the borrower makes payments for 36 consecutive months, banks cannot be asked to buy them back due to underwriting or appraisal problems. So if the borrower did not have enough income to qualify for a loan to begin with but Fannie Mae or Freddie Mac did not notice for three years, the bank could not be pressed to buy back the loan.

For new loans, the bank can still be pushed to buy back the loan for reasons such as fraud or errors in submitting data. The new rules do not apply to existing loans.

Read on.

Feds launch formal probe into JPMorgan Chase & Co. electricity trading in California

FOLSOM — Federal regulators have intensified an investigation into JPMorgan Chase & Co. electricity trading in California.

The California Independent System Operator, a Folsom-based agency that runs the state’s power grid and oversees last-minute electricity sales, said earlier this year that the big electricity trader might have figured out a way to exploit vulnerabilities in the state’s $8 billion-a-year electricity market.

The Federal Energy Regulatory Commission began a formal probe on Thursday, saying JPMorgan may have submitted misleading information or omitted information in its dealings with the agency and the California Independent System Operator, better known as ISO. ISO manages California’s power grid and energy market.

“We preliminarily find that JPMorgan may have submitted misleading information or omitted material information,” FERC said.

The Sacramento Bee reports the commission has threatened to suspend JPMorgan’s right to sell electricity in the California.

Read on.

Ex-Fannie Mae Chief Is Dismissed From Investors’ Suit

Franklin D. Raines, who resigned as chief executive of Fannie Mae in late 2004 amid revelations of extensive accounting improprieties at the mortgage finance company, has been dismissed from a long-running civil suit brought by Fannie Mae investors hoping to recover damages.

The federal judge overseeing the class action, Richard J. Leon of the United States District Court for the District of Columbia, ruled on Thursday that the investors’ lawyers had not proved that Mr. Raines knowingly misled shareholders about the company’s accounting and internal controls, a necessary hurdle for the case against him to continue.

“There is not only no direct evidence that Raines intended to deceive Fannie Mae’s investors,” Mr. Leon ruled, “there is no evidence that he even knew his statements were false.” At best, the judge continued, evidence submitted by the shareholders showed that Mr. Raines “acted negligently in his role as the company’s chief executive and negligently in his representations about the company’s accounting and earnings management practices.”

Rest here…

Lanny Breuer: The role of deferred prosecution agreements with white collar criminal law enforcement

Breuer spoke at NYC Bar Association :http://youtu.be/1gbcB5BRzXo

Bill Black’s response: http://youtu.be/D4WzcEzVBBY