Daily Archives: December 6, 2013

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At Freddie Mac, Chief Discarded Warning Signs

At Freddie Mac, Chief Discarded Warning Signs

The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.

That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.

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What happened to SIGTARP investigation into Freddie Mac official who died of apparent suicide

This is an article back in 2009 where Fannie Mac CFO committed suicide. It makes me wonder what happened to the probe as well Freddie Mac’s accounting practices and why this case remains unsolved and silent:

Police Investigating Death of Freddie Mac Official, Dead Of Apparent Suicide

WASHINGTON (AP) — The chief financial officer of money-losing mortgage giant Freddie Mac was found dead in his basement early Wednesday morning in what police said was an apparent suicide.

David Kellermann, 41, apparently hanged himself, said a law enforcement official familiar with the investigation. He asked not to be identified because the investigation was ongoing.

Kellermann’s death is the latest in a string of blows to Freddie Mac since it was seized by the government last September. The company, which owns or guarantees about 13 million mortgages, has been criticized for financing risky loans that fueled the real estate bubble and are now defaulting at a record pace.

Freddie Mac lost more than $50 billion last year, and the Treasury Department has pumped in $45 billion to keep the company afloat. Last month, David Moffett, the government-appointed chief executive, resigned in frustration over strict oversight.

Kellermann worked for Freddie Mac more than 16 years, starting out as a financial analyst and auditor. He was named acting chief financial officer last September when the government ousted former CEO Richard Syron and Kellermann’s predecessor Anthony S. “Buddy” Pizsel.

Neighbors said Kellermann had lost a noticeable amount of weight under the strain of the new job. Some neighbors said they suggested to Kellermann should quit to avoid the stress, but Kellermann responded that he wanted to help the company through its problems. The neighbors did not want to be quoted by name because they didn’t want to upset the family.

Thanks to Gawker, FOIA documents revealed that inspector general of TARP was investigating the CFO. Read all the documents here. What you don’t know is that FBI that FBI was looking into the Freddie Mac’s loss thanks to an independent investigator 2008 report.  More from Daily Finance article in 2009:

The Journal quotes from a February 2008 confidential report by the investigative firm Kroll that concluded “inappropriate application” of accounting rules “enabled Freddie to defer billions of dollars of losses incurred from 2001 to 2004” on derivative contracts whose value depends on fluctuations in interest rates. FBI investigators obtained a copy of that report, which has not yet been released publicly, and is currently seeking additional information.

Freddie Mac lost a total of about $7.9 billion on derivatives trading as of December 31, 2004, but has only been reporting those losses gradually over the quarters since then. There are still $3.68 billion is looses to be reported over the next decade. Freddie Mac used “hedge accounting” to try smooth out the losses, and in doing so may have violated the rules, found the auditors.

The Justice Department and the SEC continue their own investigations into a range of accounting practices at both Freddie Mac and Fannie Mae.

Interesting enough that the outside investigator went to FHFA in 2008 about Freddie Mac’s accounting practices. From Real Clear Market website:

An outside investigator early last year told regulators that Freddie Mac failed to properly document interest rate bets, but the government didn’t challenge the mortgage finance company’s accounting practices.

FHFA, under Ed deMarco, went as far as filing a motion to not disclose Freddie Mac’s accounting:

 

 

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Documents in JPMorgan Settlement Reveal how Every Large Bank in U.S. has Committed Mortgage Fraud

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US judge weighs penalties after BofA fraud verdict

US judge weighs penalties after BofA fraud verdict

A U.S. judge is considering an alternative that could result in Bank of America paying much less than the $863.6 million the government is seeking as a penalty for the sale of defective mortgages before the financial crisis.

At a hearing on Thursday, U.S. District Judge Jed Rakoff in Manhattan asked the bank and the Justice Department to brief him on the alternative, which is based on the gains rather than the losses resulting from the sales.

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BofA Reps’ Bad Advice Harmed Credit Scores, Suit Says

BofA Reps’ Bad Advice Harmed Credit Scores, Suit Says

Law360, Los Angeles (December 05, 2013, 8:13 PM ET) — A married couple sued Bank of America NA and Nationstar Mortgage on Tuesday in New Jersey federal court, accusing them of unfair and deceptive business practices that forced the couple into default and damaged their credit scores.

Mark and Renee Marias alleged that BofA representative “Tammy” advised them to cease making their monthly mortgage payment so she could review their current mortgage for a modification, assuring them that they would not be considered in default in any manner throughout the modification process.

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City of Los Angeles sues Citi, Wells Fargo over discriminatory mortgage lending

City of Los Angeles sues Citi, Wells Fargo over discriminatory mortgage lending

(Reuters) – The city of Los Angeles has filed a lawsuit against Citigroup (>> Citigroup Inc) and Wells Fargo (>> Wells Fargo & Co), seeking damages for a loss in tax revenue due to discriminatory mortgage lending to the city’s minority communities, a court filing showed.

(Reuters) – The city of Los Angeles has filed a lawsuit against Citigroup (>> Citigroup Inc) and Wells Fargo (>> Wells Fargo & Co), seeking damages for a loss in tax revenue due to discriminatory mortgage lending to the city’s minority communities, a court filing showed.

In complaints filed in the U.S. Federal Court, LA City attorney Mike Feuer said that Citigroup and Wells Fargo “engaged in a continuous pattern and practice of mortgage discrimination in Los Angeles since at least 2004 by imposing different terms or conditions on a discriminatory and legally prohibited basis.”

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Newark, NJ Takes Steps Toward Eminent-Domain Plan

Newark, NJ Takes Steps Toward Eminent-Domain Plan

The city of Newark, N.J., is moving forward with a foreclosure-prevention plan that could involve using the power of eminent domain to restructure underwater mortgages.

The Newark Council voted unanimously Wednesday to take steps toward establishing a program that would allow the city to purchase troubled mortgages from banks and reduce the principal on the loans, thereby allowing struggling borrowers to stay in their homes. The vote allows the city to begin conducting legal research and policy analysis. Cities including Richmond, Calif., Irvington, N.J., Seattle, and Yonkers, N.Y., are exploring similar plans.