Daily Archives: October 21, 2012

A History Lesson from the Great Depression in Foreclosure Management

(TheNicheReport) — Of all the lessons learned during the Great Depression of the 1930s, the Federal Home Loan Bank Act of 1932 stands as one of the most powerful examples of efficient government intervention during a time of economic crisis. The system of 12 Federal Home Loan Banks, from which Fannie Mae and Freddie Mac emerged, have provided funding for residential mortgage loans for the last eight decades –in addition to keeping the cost of home ownership within reasonable levels.

The foreclosure crisis during the Great Depression was of a greater magnitude in comparison to the avalanche of foreclosures that have piled up since around 2007. By the time the Federal Home Loan Bank Act was passed, the rate of foreclosures in the United States was about a thousand a day. At the time the radical interventionist legislation was passed, bankers criticized the federal government’s measure as being egregious and arbitrary.

The Birth of Mortgage-Backed Securities

It is interesting to note that Federal Home Loan Bank were pioneers of mortgage securitization, particularly since the reckless creation and trading of these debt instruments were at heart of the financial meltdown in 2008. In 1932, the federal banks provided funding for residential construction firms that also acted as lenders. Mortgages written in good faith were accepted as collateral and then sold to investors as securities.

Securitization of mortgage-backed debt was solely within the purview of the newly created institutions in the wake of the Great Depression. They managed to create cash flow at a time when the U.S. housing industry had thoroughly collapsed. In a historic move that would be repeated in late 2008, a mortgage moratorium was called by the chairman of the new federal banks.

The passing of the Federal Home Loan Bank Act shows that government intervention in real estate and mortgage matters can be leveraged to alleviate an ailing system. For this reason, current discussion about the Federal Housing Administration (FHA) and its need to tap a credit line from the Treasury in order to stay afloat should include a look back at the policies enacted and measures taken during the Great Depression.

Read more from The Niche Report.

Informath.org writer Douglas Keenan exposes LIBOR abuses from the inside

Must read for those who have had LIBOR-based adjustable rate notes.

It has recently become public knowledge that the London Interbank Offered Rate (Libor) has been misreported by banks. Such misreporting is generally thought to have begun in about 2005. In fact, such misreporting has been common since at least 1991. Moreover, corruption in the interest-rate markets has been aided and abetted by official institutions.

In 1991, I began trading for an investment bank, Morgan Stanley, in London. I was trading bonds, derivatives, and related securities. One of those securities was based on the 3-month Libor rate, i.e. the interest rate at which banks can borrow money for 3 months, on the interbank market. Morgan Stanley does not trade on the interbank market; so I could not directly borrow or loan money at Libor rates. What I could do, however, was trade a “futures contract” on the 3-month Libor rate.

As an example of how a futures contract works, consider the following. Suppose that we are concerned about 3-month Libor rates increasing in the future; in particular, we are concerned about what the 3-month rate will be in September. If that 3-month rate is currently, say, 1%, we can contract today to effectively lock in that rate. If, come September, the actual 3-month rate is 2%, then our contract will ensure that we can still borrow at 1%. Such a contract is a futures contract.

Trading the futures contract
Futures contracts on 3-month Libor were, and are, heavily traded on the London International Financial Futures Exchange (Liffe, now part of NYSE Euronext). There was a standard contract for the month of September. That contract had its rate settled on the third Wednesday of the month, at 11 AM.

In 1991, I had live trading screens that showed the Libor rates. In September of that year, on the third Wednesday, at 11 AM, I watched those screens, to see where the futures contract would settle. Shortly afterwards, Liffe announced the settlement rate. The announced rate was different from what had been shown on my screens, by a few hundredths of a percent.

As a result, I lost money. The amount was insignificant for me, but I believed that I had been defrauded, and I complained to Liffe. Liffe explained that the settlement rate was not determined by what rates actually were in the market. Instead, the British Bankers’ Association polled selected banks, asking them what the rates were. The highest and lowest reported rates were discarded, and the rest were averaged, giving the settlement rate. Liffe explained that, in doing this, they were adhering to the terms of the contract.

I talked with some of my more experienced colleagues about this. My colleagues told me that the banks misreported the Libor rates in a way that would generally bring them profits. I had been unaware of that, as I was relatively new to financial trading. My naivety seemed to be humorous to my colleagues.

Simply put, then, misreporting of Libor rates has been common practice since at least 1991. Although the difference between the reported rate and the actual rate might seem small, the total amount of money involved is material, given that Libor rates affect contracts worth hundreds of trillions. Also important is what such misreporting says about the culture.

Read on.

Employees of Romney Family’s Secret Bank Tied to Fraud, Money Laundering and Drug Cartels

The Romney family, namely Mitt, Ann, G Scott and Tagg Romney, along with Mitt’s “6th son” and campaign finance chair have a secretive private equity firm called Solamere Capital Partners. This firms ties to Romney’s campaign and bundlers is already well documented, along with its connection to the manufacture and distribution of voting machines. What is not as well documented is a subsidiary of that private equity firm hiring employees of a failed firm tied to a Ponzi scheme that has a long history of money laundering for Latin American drug cartels and to the Iran-Contra scandal.

Solamere Capital Partner’s subsidiary Solamere Advisors is a investment advisory group, providing advice to Solamere clients and boosting sales. Would-be corporate pugilist Tagg Romney is a director.

Read more from Truthout.org.

U.K. seeks to criminalize Libor manipulation

he U.K. government said this week that bankers who participated in manipulation of the London interbank offered rate will face criminal charges.

Greg Clark, the financial secretary to the U.K. Treasury, said he would criminalize attempts to manipulate key benchmark rates like Libor as part of a larger effort to reform the rate following reports of rate-rigging earlier this year, Scotsman.com reports.

Clark said that recommendations by Martin Wheatley, the managing director of the Financial Services Authority, including a proposal to eliminate the British Bankers’ Association as head of Libor-setting, would be accepted in full.

The BBA said on Wednesday that it was considering the establishment of an independent professional group for bankers, which could force out those bankers who breach professional standards, according toScotsman.com.

Legal changes necessary to reform rate-setting will be included in the financial reform bill, which is currently set before parliament and scheduled to receive royal approval next year.

“The government’s changes to legislation will ensure that those that attempt to manipulate Libor face the full force of the law,” Clark said, according to Financial Times. “But this is just one part of the process, the banks and the BBA will have to play their part to ensure that reform is effective and Libor’s reputation is restored.”

Read on.

Homeowners get screwed while Florida AG, legislature arguing over foreclosure funds

TALLAHASSEE — Florida is ranked No. 1 in the nation for the number of homes in foreclosures and the number of people on the verge of losing their homes.

But the Sunshine State is last in the nation when it comes to using the billions of dollars in available housing aid from a national mortgage settlement, according to a report released Thursday.Six months after the nation’s largest banks signed a $25 billion mortgage settlement in the wake of the robo-signing scandal, Florida and Texas are the only states that have not outlined a plan for how to use their share.

About $300 million is sitting in an escrow account. Attorney General Pam Bondi and the Florida Legislature are haggling over who is legally entitled to spend the money.
Read more here: http://www.bradenton.com/2012/10/21/4246825/ag-legislature-arguing-over-forclosure.html#storylink=cpy

Freddie Mac warns of bogus landlords renting out foreclosed homes

WASHINGTON — No one wants to take the blame for the housing bust in this political season, but scammers and rip-off artists in the hundreds are working overtime to siphon dollars out of the wreckage of the crash and its still-vulnerable victims.

You’ve probably heard about the loan-modification predators who promise financially ailing homeowners that they’ll prevent or forestall foreclosures —but are really after thousands of dollars in fees, for which they do nothing.

Now the second-largest source of mortgage money in the country — Freddie Mac — is warning about a troubling wave of post-crash fraud: scammers who illegally rent out foreclosed and for-sale homes to unsuspecting consumers. The bogus landlords don’t own the properties — Freddie does — and they have no right to offer them to anyone. But they use Craigslist and other websites to advertise them to prospective tenants.

Read on.

FEDERAL JUDGE: Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes

Defendants’ final (and weakest) argument is that homeowners like plaintiffs “will not be prejudiced” if the chain of assignments from original lender to foreclosing entity were immune to debtor challenge. After all, the argument apparently goes, the Millers owe the money to somebody. In truth, the potential prejudice is both plain and severe – foreclosure by the wrong entity does not discharge the homeowner’s debt, and leaves them vulnerable to another action on the same note by the true creditor. Banks are neither private attorneys
general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank’s deed of trust. MasterCard has no right to sue for debts rung up on a Visa card, and that remains true even if MasterCard has been assigned the rights of another third party like American Express. Unless and until a complete chain of transactions back to the original lender is shown, MasterCard remains a stranger to the original transaction with no claim against the debtor. And that is a fair description of this case in its present posture.

In

A debtor may, generally, assert against an assignee all equities or defenses
existing against the assignor prior to notice of the assignment, any matters
rendering the assignment absolutely invalid or ineffective, and the lack of
plaintiffs title or right to sue; but if the assignment is effective to pass
legal title, the debtor cannot interpose defects or objections which merely
render the assignment voidable at the election of the assignor or those
standing in his or her shoes.

The obligor of an assigned claim may defend a suit brought by the assignee
on any ground that renders the assignment void or invalid, but may not defend
on any ground that renders the assignment voidable only, because the only
interest or right that an obligor of a claim has in the assignment is to ensure
that he or she will not have to pay the same claim twice.

Plaintiffs here do not assert these or any other “voidable” defenses to Mellon’s
assignment. Instead, plaintiffs assert that, standing alone, this single assignment from a third party is ineffective to establish a right to foreclose, because it does not show a proper assignment of the original security instrument to the third party. Texas courts routinely allow a homeowner to challenge the chain of assignments by which a party claims the right to foreclose.

Under the Texas Property Code, the only party with standing to initiate a non-judicial foreclosure sale is the mortgagee or ‘ the mortgage servicer acting on behalf of the current mortgagee.’ Determining mortgagee status is easy when the party is named as grantee or beneficiary in the original deed of trust, mortgage, or contract lien. But factual disputes may arise when the party seeking to foreclose is not the original mortgagee, as is most often the
case these days. In such cases the foreclosing party must be able to trace its rights under the security instrument back to the original mortgagee.

Court document in Texas case