bobbyw24
03-06-2010, 10:43 AM
Fannie and Freddie Start Returning Fraudulent Mortgages to Banks, But Crime Goes Unpunished
By Numerian Posted by Michael Collins
Citizens carry the load for bad loans by Wall Street
In a February regulatory filing with the SEC, Fannie Mae and Freddie Mac, now owned by the federal government, say they intend to return $21 billion in home mortgages to banks in 2010. Four commercial banks now dominate the home mortgage market: Citigroup, JP Morgan Chase, Bank of America, and Wells Fargo, and they will receive the bulk of these repurchases. Since the banks sold these mortgages to these agencies for full value, they must buy them back at full value, but at least one bank, JP Morgan Chase, says these mortgages will then be immediately written down by 50%.
Fannie and Freddie have already written off $200 billion in losses on their mortgage portfolio, and late last year they had a $400 billion cap on losses removed by the Treasury, meaning the losses could be unlimited. These losses have been localized in the agencies’ mortgage-backed securities portfolios, built up around 2006-2007 at the height of the housing boom, and consisting of thousands of “non-qualifying” mortgages that Fannie and Freddie based on their own policies would not normally have purchased as individual mortgages. The mortgages now being returned to the banks are in fact qualifying mortgages – the supposed cream of the crop sold individually to the agencies by the banks, but now that Fannie and Freddie are looking at each of these mortgages carefully, they are finding the documentation riddled with errors, fraudulent income claims, over-stated appraisals, and serious omissions. Banks “represent and warrant” that all mortgages sold to the agencies are in compliance with high standards, and must buy them back if they are proven otherwise.
The banks do not accept these repurchases willingly. They sit down with Fannie and Freddie and go through each repurchase request one by one. The agencies already have a leg up in the process; they have copies of all the documentation, and they have sent analysts looking at comparable property valuations at the time the mortgage was made. Most of the mortgages were made in 2006, 2007, and 2008, with far less problems occurring in the 2009 vintages once the recession hit. All of these mortgages are in default or heading to default, and property values have plummeted in so many cases that there is no way the government or the banks can recover full value on the loans. Hence the large write-downs. Still, in this review process banks are able to decline half of the repurchase requests, forcing the government to absorb the losses.
That means that not all of the intended $21 billion in repurchases will be dumped on the banks. If only $10 billion is successfully passed back to the banks for false representations and warranties, and half of this is written off, each of the four big banks will be facing $1 billion at least in losses. This is double what they experienced last year in repurchase losses, and the number should be heading higher for the next few years.
Banks are forced to go along with this process and play nice with Fannie and Freddie, because they are the only game in town. They bought at least three-quarters of all mortgages originated in 2009, and up to 90% of the market is supported by them if you count their guaranties as well. The banks themselves aren’t in the business of holding on to mortgages for 30 years; they are into trading, getting in and out of a mortgage as fast as possible to collect fees and stick someone else with the credit risk. Besides, the banks don’t have the capital to support a book of mortgages held to maturity.
Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, commented on the position the banks are in. “It’s a fine line you’re walking, because the government’s trying to recapitalize the banks,
http://www.thepeoplesvoice.org/TPV3/Voices.php/2010/03/05/fannie-and-freddie-start-returning-fraud#more10359
By Numerian Posted by Michael Collins
Citizens carry the load for bad loans by Wall Street
In a February regulatory filing with the SEC, Fannie Mae and Freddie Mac, now owned by the federal government, say they intend to return $21 billion in home mortgages to banks in 2010. Four commercial banks now dominate the home mortgage market: Citigroup, JP Morgan Chase, Bank of America, and Wells Fargo, and they will receive the bulk of these repurchases. Since the banks sold these mortgages to these agencies for full value, they must buy them back at full value, but at least one bank, JP Morgan Chase, says these mortgages will then be immediately written down by 50%.
Fannie and Freddie have already written off $200 billion in losses on their mortgage portfolio, and late last year they had a $400 billion cap on losses removed by the Treasury, meaning the losses could be unlimited. These losses have been localized in the agencies’ mortgage-backed securities portfolios, built up around 2006-2007 at the height of the housing boom, and consisting of thousands of “non-qualifying” mortgages that Fannie and Freddie based on their own policies would not normally have purchased as individual mortgages. The mortgages now being returned to the banks are in fact qualifying mortgages – the supposed cream of the crop sold individually to the agencies by the banks, but now that Fannie and Freddie are looking at each of these mortgages carefully, they are finding the documentation riddled with errors, fraudulent income claims, over-stated appraisals, and serious omissions. Banks “represent and warrant” that all mortgages sold to the agencies are in compliance with high standards, and must buy them back if they are proven otherwise.
The banks do not accept these repurchases willingly. They sit down with Fannie and Freddie and go through each repurchase request one by one. The agencies already have a leg up in the process; they have copies of all the documentation, and they have sent analysts looking at comparable property valuations at the time the mortgage was made. Most of the mortgages were made in 2006, 2007, and 2008, with far less problems occurring in the 2009 vintages once the recession hit. All of these mortgages are in default or heading to default, and property values have plummeted in so many cases that there is no way the government or the banks can recover full value on the loans. Hence the large write-downs. Still, in this review process banks are able to decline half of the repurchase requests, forcing the government to absorb the losses.
That means that not all of the intended $21 billion in repurchases will be dumped on the banks. If only $10 billion is successfully passed back to the banks for false representations and warranties, and half of this is written off, each of the four big banks will be facing $1 billion at least in losses. This is double what they experienced last year in repurchase losses, and the number should be heading higher for the next few years.
Banks are forced to go along with this process and play nice with Fannie and Freddie, because they are the only game in town. They bought at least three-quarters of all mortgages originated in 2009, and up to 90% of the market is supported by them if you count their guaranties as well. The banks themselves aren’t in the business of holding on to mortgages for 30 years; they are into trading, getting in and out of a mortgage as fast as possible to collect fees and stick someone else with the credit risk. Besides, the banks don’t have the capital to support a book of mortgages held to maturity.
Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, commented on the position the banks are in. “It’s a fine line you’re walking, because the government’s trying to recapitalize the banks,
http://www.thepeoplesvoice.org/TPV3/Voices.php/2010/03/05/fannie-and-freddie-start-returning-fraud#more10359