Government and Lender Policies of Fear and Shame…

Government, lenders, and various lender-sponsored “help” agencies have acted in unison, using fear mongering tactics and shame to manage the housing crisis for the sole benefit of lenders.

Thanks to Brent T. White at the James E. Rogers College of Law and the Sacramento Bee and for a fascinating called Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.

Note: The PDF is 54 pages long and worth reading in entirety but I have condensed the discussion down to a very readable 3-4 pages of so. There is little sense in putting such a lengthy snip into a huge blockquote that will take up a lot of space. Instead, I will make it clear below when the article ends.

Abstract

Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations – and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse.

II. Underwater and Staying Put

As further evidence that relatively few homeowners strategically default solely because they are underwater, housing markets with a sharply higher percentage of underwater homeowners as compared to the national average do not have sharply higher default rates.

As the chart below illustrates, this pattern of relatively low default rates compared to the percentage of underwater mortgages holds true almost universally across the hardest hit markets, with the default rate much more closely resembling the unemployment rate than the percent underwater:

III. The Financial Logic of Walking Away

Before examining why more underwater homeowners are not strategically defaulting, it might be helpful to explore why they should. A textbook premise of economics is that the value of a home, even an owner occupied one, is “the current value of the rent payments that could be earned from renting the property at market prices.”

In other words, when the net cost of buying a home exceeds the net cost of renting, one is better off renting. The equation is not as simple, however, as comparing total mortgage payments to rent payments because home ownership carries certain benefits including tax breaks and the potential for appreciation. Additionally, assuming a non-depreciating market, the portion of the mortgage payment that goes to principle rather than interest will eventually inure to the homeowner at the time of sale. On the flip side, homeownership carries significant costs that renting does not, including maintenance, homeowner’s insurance and substantial transaction costs upon selling.

In calculating whether to buy or rent, a potential homebuyer should compare the net cost of owning to the net cost of renting a similar home over the expected period of occupancy. The costs of owning include the interest-only portion of the loan payment, property taxes, maintenance, homeowners insurance, and transaction costs upon selling, minus the expected appreciation and cumulative tax savings over the planned period of ownership. As a rule of thumb, a potential homebuyer is generally better off renting when the home price exceeds 15 or 16 times the annual rent for comparable homes.

For example, a homeowner who bought an average home in Miami at the peak would have paid around $355,400. That home would now be worth only $198,00038 and, assuming a 5% down payment, the homeowner would have approximately $132,000 in negative equity. He could save approximately $116,000 by walking away and renting a comparable home. Or, he could stay and take 20 years just to recover lost equity – all the while throwing away $1300 a month in net savings that he could invest elsewhere.

The advantage of walking is even starker for the large percentage of individuals who bought more-expensive-than-average homes in the Miami area – or in any bubble market for that matter – in the last five years. Millions of U.S. homeowners could save hundreds of thousands of dollars by strategically defaulting on their mortgages.
Homeowners should be walking away in droves. But they aren’t.

V. The Social Control of the Housing Crisis

Alarmed by the possibility that foreclosures may reach a tipping point, formal federal policy has aimed to stem the tide of foreclosures through programs designed to “reduce household cash flow problems,” such as the Making Home Affordable (MHA) loan modification program and Hope For Homeowners.

In other words, federal policy assumes that homeowners are – for the most part – not “ruthless” and won’t walk away from their mortgages simply because they have negative equity. Most homeowners walk only when they can no longer afford to stay. As evidence of this fact, only 45% of homeowners would walk even if they had $300,000 in negative equity. This percentage drops to 38% among the subset of individuals who believe it is immoral to strategically default on one’s mortgage (a subset to which 87% of homeowners belong).

These numbers suggest that the “moral constraint” is a powerful one indeed – and that, for most people, only the complete inability to afford their mortgage would push them to default. On the other hand, the fact that 63% of “amoral” individuals would default at $300,000 in negative equity, and 59% would do so at $200,000, suggests that federal policy can only proceed on the premise that affordability is the prime consideration as long as the moral and social constraints on foreclosure remain strong.

The government thus has an incentive, along with certain other economic and social institutions interested in limiting the number of foreclosures, in cultivating guilt and shame in those who would contemplate walking away. Similarly, knowing that guilt and shame alone are not enough to prevent many individuals from defaulting once negative equity is extreme, these same institutions have an interest in increasing the perceived cost of foreclosure by cultivating fear of financial disaster for those who contemplate it.

At the political level, government spokespersons, including President Obama, have repeatedly emphasized the virtue of homeowners who have acted “responsibly” in “making their payments each month”. The worst criticism has been reserved, however, for those who would walk away from mortgages that they can afford.

Such individuals are portrayed as obscene, offensive, and unethical, and likened to deadbeat dads who walk out on their children, or those who would have “given up” and just handed over Europe to the Nazis.

Indeed, a homeowner contemplating a strategic default would be hard pressed to avoid the message that doing so would place them among the most despicable members of society.

Moreover, a homeowner who turned to any number of credit counseling agencies would also find little sympathy – and much moralizing – should they announce their plan to walk on their “affordable” mortgage. Gail Cunningham of the National Foundation for Credit Counseling declared for example in an interview on NPR: “Walking away from one’s home should be the absolute last resort. However desperate a situation might become for a homeowner, that does not relieve us of our responsibilities.”

Indeed, the uniform message of both governmental and non-profit counseling agencies (which are typically funded at least in significant part by the financial industry) is that “walking away” is not a responsible choice and should be avoided at all costs.

Social control of would be defaulters is not limited to moral suasion, however. Predominate messages regarding foreclosure also frequently employ fear to persuade homeowners that strategic default is a bad choice. Indeed, almost every media story on those who “walk away from their mortgages” condemns the behavior as immoral and enlists some “expert” to explain that foreclosure is, despite any claims to the contrary, a devastating event.

Similar warnings of disaster pervade the information given to homeowners by HUD-approved housing counseling agencies, such as the following from the Anaheim Housing Counseling Agency:

Losing your home can be the worst and most devastating event to you personally, and your credit history. This is a scenario that you don’t want to occur if you can avoid it! Not only will you lose the comfort of your home and your investment, but a Foreclosure will stay pending on your credit history for as long as 10 years. This will jeopardize your ability to qualify for any future home loan purchases, it may affect your ability to access loans for car purchase and other needed purchases, and loan costs are likely to be higher both in fees and interest paid.

As discussed above, fear alone is a powerful motivator. But guilt and fear in combination are even more potent.

This may be because most individuals have a deep-seated, if ill-defined, sense that if they do “bad things,” bad things will happen to them. Whatever the psychological underpinnings, most people simply do not believe they will escape punishment for their moral transgressions. Guilt and fear of punishment go together.

As explored above, however, there is in fact a huge financial upside to strategic default for seriously underwater homeowners – an upside that is routinely ignored by the media, credit counseling agencies, and other political and economic institutions in “informing” homeowners about the consequences of default. Moreover, the costs of default are not nearly as extreme as these same institutions typically misrepresent them to be. In reality: homeowners face no risk of a deficiency judgment in many states or, regardless of the state, for FHA loans or loans held by Fannie Mae or Freddie Mac; even in recourse states, lenders are unlikely to pursue a deficiency judgment because it is economically inefficient to do so; there is no tax liability on “forgiven portions” of home mortgages under current federal tax law in effect until 2012; defaulting on one’s mortgage does not mean that one’s other credit lines will be revoked; and most people can expect to recover from the negative impact of foreclosure on their credit score within a two years (and, meanwhile, two years of poor credit need not seriously impact one’s life).

VI. The Asymmetry of Homeowner and Lender Norms

One obvious response to the above discussion is that society benefits when people honor their financial obligations and behave according to social and moral norms, rather than strictly legal or market norms. This may be true if lenders behaved according to the same social and moral norms. In the case of lender-borrower behavior, however, there is a clear imbalance in placing personal responsibility on the borrower to honor their “promise to pay” in order to relieve the lender of their agreement to take back the home in lieu of payment. Given lenders generally superior knowledge and understanding of both mortgage instruments and valuation of real estate, it seems only fair to hold them to the benefit of their bargain. At a basic level, sound underwriting of mortgage loans requires lenders to ensure that a loan is sufficiently collateralized in the event of default.

As such, historical home prices have hewed nationally to a price-to-annual-rent ratio of roughly 15-to-1. At the peak of the market, however, price-to-rent ratios reached 38-to-1 in the most inflated markets, and the national average reached 23-to-1.

If personal responsibility is the operative value, then lenders who ignored basic economic principles (of which they should have been aware) should bear at least equal responsibility to homeowners for issuing collateralized loans that were far in excess of the intrinsic value of the home.

Moreover, since lenders generally arrange the appraisal (which home buyers must pay for) and home buyers rely upon the lender to ensure the home is worth the purchase price, one might argue that lender should bear much more than 50% responsibility for the bad investment of the homeowner and lender.

Indeed, lenders’ mortgage default risk models have long shown that the loan-to-value ratio is a critical factor in default risk. Lenders relaxed this requirement, however, as credit default models showed that few borrowers were “ruthless,” meaning that few borrowers default as soon as the loan value exceeds the market value of the home.

This is not to say that lenders are solely responsible for the housing run-up and bust, but that they do in fact bear a substantial portion of the blame – and thus should thus bear a substantial portion of the cost. One might argue, in fact, that the value of personal responsibility would require lenders to own up to their share of the blame, and work with underwater homeowners by voluntarily writing off some of the negative equity.

But lenders, of course, do not operate according norms of personal responsibility, and seek instead to maximize profit (or minimize losses). Appealing to this duty, it has been suggested that, given the great cost to lenders of foreclosure, they have an economic incentive to modify loans for homeowners in danger of default.

Recent studies seeking to explain this apparently irrational behavior have shown that lenders are simply operating to maximize profit and minimize losses, just as they would be expected to do.

First, lenders know that borrowers with high credit scores are unlikely to default even at high levels of negative equity. To modify loans for these homeowners would be to throw money away – and to encourage more homeowners to ask for modifications. Second, a significant number of homeowners who temporarily default on their mortgages “self-cure” without any help from their lender – though self cure rates have dropped precipitously in the last two years. Again, to modify the loans of individuals who would otherwise self cure would be to throw away money. Third, homeowners with poor credit, or who end up in arrears because of “triggering events” such as unemployment, divorce, or other financially devastating circumstances are likely to default on the modified loan as well. To modify loans for these individuals is to waste time and risk housing prices falling further before the lender eventually has to foreclosure and sell the property anyway.

Given these economic incentives for the lender, a seriously underwater homeowner with good credit and solid mortgage payment history who responsibly calls his lender to work out a loan modification is likely to be told by his lender that it will not discuss a loan modification until the homeowner is 30 days or more delinquent on his mortgage payment.

The lender is making a bet (and a good one) that the homeowner values his credit score too much to miss a payment and will just give up the idea of a loan modification.

However, if the homeowner does what the lender suggests, misses a payment, and calls back to discuss a loan modification in 30 days, the homeowner is likely to be told to call back when he is 90 days delinquent. In the meantime, the lender will send the borrower a series of strongly-worded notices reminding him of his moral obligation to pay and threatening legal action, including foreclosure and a deficiency judgment, if the homeowner does not bring his mortgage payments current. The lender is again making a bet (and again a good one) that the homeowner will be shamed or frightened into paying their mortgage. If the homeowner calls the lender’s bluff and calls back when he is 90 days delinquent, there is a good possibility that he will be told that his credit score is now so low that he does not qualify for a loan modification.

Most lenders will, in other words, take full advantage of the asymmetry of norms between lender and homeowner and will use the threat of damaging the borrower’s credit score to bring the homeowner into compliance. Additionally, many lenders will only bargain when the threat of damaging the homeowner’s credit has lost its force and it becomes clear to the lender that foreclosure is imminent absent some accommodation. On a fundamental level, the asymmetry of moral norms for borrowers and market norms for lenders gives lenders an unfair advantage in negotiations related to the enforcement of contractual rights and obligations.

*** END OF ARTICLE SNIP ***

There is more in the article including a discussion as to what to do about it all. I do not agree with many of the proposed solutions and indeed the article points out flaws in most of the solutions that have been proposed.

However, I do agree with the basic idea that asymmetry is a huge problem, that the playing field needs to be leveled.

Moreover, I will add that the real moral hazard is attempting to keep people debt slaves by purposely overstating the costs of walking away while ignoring all of the benefits. These “help” agencies are designed to do one thing and one thing only: help the lender regardless of the cost to the homeowner.

If these “help agencies” actually gave a realistic assessment of the advantages of walking away, we would see more willingness for voluntary cooperation between lenders and homeowners to negotiate a mutually beneficial arrangement. Instead we have a one sided winner-take-all approach whereby the only way for the homeowner to win is to walk away.

The current system of offering lenders a few thousand dollars to refinance a loan making the loan “more affordable” does nothing to address the fundamental problem of too much debt that will act as a drag on the economy for a decade to come.

The article concludes …

Regardless of the precise policy prescription, it is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible. To the contrary, walking away may be the most financially responsible choice if it allows one to meet one’s unsecured credit obligations or provide for the future economic stability of one’s family.

Individuals should not be artificially discouraged on the basis of “morality” from making financially prudent decisions, particularly when the party on the other side is amorally operating according to market norms and could have acted to protect itself by following prudent underwriting practices.

The current housing bust should be viewed for what it is: a market failure – not a moral failure on the part of American homeowners. That being the case, it is time to take morals out of the picture and search for an equitable solution to the negative equity problem.

Other than a single sentence about “market failure” that was a brilliantly written piece by Brent T. White. The market did not fail, government policies to promote housing in conjunction with loose monetary policies at the Fed is what failed. Fannie Mae, Freddie Mac, HUD, the FHA, and the Fed all failed. Every one of those agencies should be abolished.

In the meantime, morality and fear mongering is not the solution. Instead, a rational look at the costs and benefits of walking away will encourage market solutions involving renegotiating debt levels to affordable levels rather than concentrating on affordable payment levels. A focus on the latter will act as a drag on the economy for a decade.

Addendum:

Walking away may be a good thing but laws vary state by state.

This is very important: Please do yourself a favor and Consult An Attorney Before Walking Away. The link will explain why.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

How Goldman secretly bet on the U.S. housing crash

The mainstream media finally reports something that is about 1 year old and manny of us knew since 2005

C-J
By Greg Gordon | McClatchy Newspapers
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

“The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,” said Laurence Kotlikoff, a Boston University economics professor who’s proposed a massive overhaul of the nation’s banks. “This is fraud and should be prosecuted.”

John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman’s maneuvers depends on what its executives knew at the time.

“It would look much more damaging,” Coffee said, “if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless.”

Lloyd Blankfein, Goldman’s chairman and chief executive, declined to be interviewed for this article.

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to “hedge” against a housing downturn.

DuVally told McClatchy that Goldman “had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so … other market participants had access to the same information we did.”

For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.

Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.

To piece together Goldman’s role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm’s activities.

McClatchy’s inquiry found that Goldman Sachs:

Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they’d misled borrowers or exaggerated applicants’ incomes to justify making hefty loans.

Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.

Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.

Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board’s blessing, AIG later used $12.9 billion in taxpayers’ dollars to pay off every penny it owed Goldman.

These decisions preserved billions of dollars in value for Goldman’s executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.

Read the Entire Story Here

When are the people of this country going to get mad enough to do something about the rampant theft of trillions of dollars from them, their children and their grandchildren?  When are the peop0le responsible for the massive inflationary credit bubble and its subsequent collapse going to be held accountable for the rampant profit taking and market manipulations which have crippled the people, the small busiensses and the working people of this nation? Maybe never… particularly so long as Goldman Sachs is allowed to run the Treasury and the SEC as it seems now clear they do.

Welcome to the Untied States of Goldman Sachs – where the strings are all coming off and the threads of sound money markets are tattering in the winds of the coming storms.

The FDIC Must Be Indicted

Yeah, ok, the title is dramatic and will never happen.

Nonetheless, if we were truly a nation of laws, it would happen.

The LA Times notes regarding IndyMac depositors over the insurance limit:

The head of the Federal Deposit Insurance Corp. delivered some bad news personally to uninsured depositors who lost money last year when IndyMac Bank crashed and burned, saying an act of Congress is their only hope for recovering their funds.

“When a bank fails, we have to do what’s least-cost to our deposit insurance fund,” FDIC Chairman Sheila Bair said during a public appearance Wednesday in Los Angeles.

Sheila is correct as far as she goes, but like most government employees, it is what she didn’t say that is the problem, not what she did.

The problem lies with the willful and intentional refusal to enforce black-letter law, in this case Title 12, Chapter 16, Section 1831o which says in part:

Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.

“Shall” is a specific term of art in legislation.  It allows no discretion and mandates action.  “May” and “Can” are two other words of course, and mean what they say – as does “shall.”

This section of the law goes on to define capitalization “buckets”, each of which represents a level above water, or above zero, of the excess of assets .vs. liabilities for depository institutions.

It also contains plenty of other “shall” directives such as:

Each appropriate Federal banking agency shall—

(A) closely monitor the condition of any undercapitalized insured depository institution;

(B) closely monitor compliance with capital restoration plans, restrictions, and requirements imposed under this section; and

(C) periodically review the plan, restrictions, and requirements applicable to any undercapitalized insured depository institution to determine whether the plan, restrictions, and requirements are achieving the purpose of this section.

and plenty more.

Everyone should go read that section of law, and note all the shall requirements in there.

These are not suggestions, they are mandates, and if they were followed each and every bank that has been closed by the FDIC would have resulted in ZERO loss to uninsured depositors.

The reason for this is simple, when you get down to it – a bank’s “capital structure” looks like this (roughly) in terms of claims against a failed institution:

1. Advances and loans/liens by the government (e.g. employment taxes and liabilities)
2. Deposit liabilities
3. Senior secured debt (bondholders)
4. Senior unsecured debt (bondholders)
5. Ordinary debt (bondholders)
6. Preferred stockholders (hybrid stock/bondholders)
7. Common stockholders
8. Excess capital (retained earnings, etc.)

As you can see in a liquidation depositors are subordinate only to statutory preference for employment and similar related claims; the entire capital structure of the firm has to be wiped out before depositors take any loss whatsoever.

If assets are properly valued at all times by government examiners and the bank is closed in accordance with the black-letter requirements of Prompt Corrective Action, then in a liquidation the depositors will never lose any money and neither will the FDIC’s Deposit Insurance Fund.

It is in fact willful and intentional blindness by government agencies, including but not limited to allowing financial institutions to lie about the value of their assets, that has resulted in these losses being sustained by ordinary Americans.

Sheila Bair and the rest of the government’s “apparatus”, including the OTS and OCC, will undoubtedly claim “sovereign immunity” from suit, even though in the instant case, that of IndyMac, the OTS’ own inspector general has disclosed that an OTS employee and persons at IndyMac conspired together to back-date deposits, thereby distorting the bank’s financial condition, and there is now a 100-bank set of history on FDIC seizures that shows the FDIC has not been and still is not following the black letter requirements of Prompt Corrective Action.

We the people must not accept this sort of malfeasance and misfeasance.  These losses sustained by ordinary Americans are not the result of bad luck or even bad decisions by the banks that have failed.

Instead, these losses taken by ordinary Americans occurred as a direct result of malfeasance and misfeasance by the OTS, OCC and FDIC itself.

To be blunt, if you lost money as a consequence of being an uninsured depositor at IndyMac that loss occurred as a direct consequence of the willful blindness (or worse) of government agencies who have intentionally and wantonly refused to obey the mandates set before them under black-letter law.

You were, in essence, robbed by the government.

Once again we find the Untied States of Goldman Sachs unravvling the financial world in what looks very much like a team effort to take everyone down in one big swell foop.  Sure, the recession is over, Cash for Clunkers worked, and we are all going to be very happy (homeless and unemployed) campers very soon.  Is anyone paying attention besides Karl?

Friday, October 30. 2009

Oh Boy, Threats!

If you are still unifiormed, stick around awhile and read and watch videos. If not this piece will lay it out as plain as the nose on your face. Well, either way it may do that.

So… watch it and learn.

And when you are done learning and ready to do something, give us a shout.

Meantime, have a great day!

Sure, it’s 8 full pages of reading, and that’s a LOT in the world on online jibberish, one liners, sound bits and photo opps but it is the best damn 8 pages of reading you are likely to do in a while on the subject and in terms of providing clarity, let’s just say it will leave you unsettling clear and wondering WTF as well as askign yourself how we get control of what is clearly now firmly in control of our government and our financial system: namely a massive, deeply entrenched system of fraud.

In Wall Street’s Naked Swindle you will discover just how far gone our current financial system is, and just how at this very moment it is being handed over without reservation to the largest and most corrupt banking powers of our day.

You might say, “well who cares?” or “what can I do about that?” but the truth is, if more people in this country knew the truth about the current financial crisis the polls asking who is to blame would not be coming up with the lame-o answers of “Democrats” or “Republicans” and the cherade of blaming politicians for what is now a systemic propblem of mass corruption would be set aside to deal with the real issue which is the wholesale theft of our government by the banking elites. Not to mention that people responsible for this huge swindle would start going to jail, perhaps… just perhaps. The truth is that if they do not, then our system of money and governance as we know it will not be around much longer to talk about.

If you are looking for the facts underlying the realities we are all experiencing, this is a great place to start.

According to

Supervisory Insights

Hybrid ARMs: Addressing the Risks, Managing the Fallout

Recent turmoil in U.S. residential mortgage markets has shattered the long-held belief that home mortgage lending is inherently a low-risk activity. During the early part of this decade, a confluence of events contributed to the highest level of homeownership in our nation’s history.¹ Low interest rates, a strong domestic economy, rapid rates of home price appreciation, and greater access to the capital markets created almost ideal conditions for the residential mortgage market to expand. This environment generated tremendous demand for, and supply of, home loans, prompting lenders to relax underwriting standards and offer adjustable-rate mortgages (ARMs) with risk-layering features to a broader spectrum of borrowers.

Many mortgage originators inundated consumers with misleading advertisements that touted low “fixed” interest rates or payment amounts. The combination of potentially deceptive marketing claims and extremely favorable lending conditions fueled unprecedented growth in subprime mortgages, especially hybrid ARMs that enabled many borrowers who did not otherwise qualify for a mortgage to obtain a loan.² However, these products were fundamentally flawed as long-term financing vehicles. In many instances, failure to assess borrowers’ repayment ability according to the actual loan terms forced many homeowners to refinance, as they could not afford the payment after the rates reset. This departure from prudent underwriting standards has contributed to an increasing number of foreclosures and rising credit losses, and is generally believed to have contributed to a house price bubble that is now deflating.

The ramifications of the lending and marketing practices described in this article have been profound, and extend far beyond the practice of bank supervision. Most of the policy responses that have been proposed or are being considered remain under active debate and are beyond the scope of this article. In addition to the supervisory guidance that is the focus of this article, a partial list of other initiatives includes proposed legislation to strengthen protections to mortgage borrowers, proposed changes to Federal Reserve Regulation Z,³ public and private sector initiatives to encourage loan modifications, and initiatives by rating agencies and other proposals to strengthen due diligence and enhance transparency in the rating of securities.

There also have been proposals for governmental intervention to stabilize the current situation in the mortgage market. These include Federal Deposit Insurance Corporation (FDIC) Chairman Sheila C. Bair’s recent proposal for Home Ownership Preservation loans to pay down a portion of unaffordable loans to prevent unnecessary foreclosures, while avoiding any taxpayer losses or new bureaucracies. The scope and fundamental nature of many of these proposals underscore the gravity of the problems that widespread deficiencies in lending practices can bring, and the importance of supervisory guidance in keeping such practices in check.

This article describes misleading marketing practices and underwriting weaknesses that heightened the risks that hybrid ARM products pose to borrowers and lenders.⁴ It also discusses the principles, policies, and practices that protect consumers and underpin an effective risk management and monitoring system. The article concludes with an overview of the considerable financial damage attributable to the subprime mortgage crisis, and a brief summary of interagency guidance and encouragement for financial institutions to work constructively with borrowers to modify loans or otherwise mitigate losses, and preserve home ownership.

Risks to Borrowers

Between 2004 and 2007, significant volumes of hybrid ARMs were originated to borrowers who did not have the ability to repay the loans according to their terms. In many cases, the viability of these loans was contingent on the borrower refinancing (typically with a substantial prepayment penalty) or selling the property. The wave of foreclosures that ensued raised credit risk issues for lenders, but also raised concerns about the appropriateness of these loans for some borrowers.

The experience with hybrid ARMs illustrates the close nexus that can exist between safe-and-sound lending and lending that complies with applicable laws, regulations, and supervisory guidance. Specifically, lending that results in significant credit losses also generates significant compliance issues, reputation risk, and litigation.

It is important to emphasize that the bank regulatory agencies’ (agencies) concerns in this respect are not with lending to subprime borrowers per se. The Statement on Subprime Mortgage Lending and the Interagency Guidance on Nontraditional Mortgage Product Risks (interagency guidance) explicitly recognize that subprime mortgage lending is not synonymous with predatory lending.

The term subprime is often misused to refer to certain “predatory” or “abusive” lending practices. The agencies have previously expressed their support for lending practices designed to responsibly service customers and enhance credit access to borrowers with special credit needs. Subprime lending that is appropriately underwritten, priced, and administered can serve these goals. However, the agencies also recognize that some forms of subprime lending may be abusive or predatory. Such lending practices appear to have been designed to transfer wealth from the borrower to the lender/loan originator without a commensurate exchange of value. This is sometimes accomplished when the lender structures a loan to a borrower who has little or no ability to repay the loan from sources other than the collateral pledged. When default occurs, the lender forecloses or otherwise takes possession of the borrower’s property (generally the borrower’s home or automobile). In other cases, the lender may threaten the borrower with foreclosure/repossession to elicit payment.

Accordingly, the interagency guidance warns institutions against engaging in the types of predatory lending practices discussed in Expanded Guidance for Subprime Lending Programs. Predatory lending involves at least one of the following elements:

• Making loans based predominantly on the foreclosure or liquidation value of a borrower’s collateral rather than on the borrower’s ability to repay the mortgage according to its terms;
• Inducing a borrower to repeatedly refinance a loan to charge high points and fees each time the loan is refinanced (“loan flipping”); or
• Engaging in fraud or deception to conceal the true nature of the mortgage loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.

The interagency guidance states that a fundamental consumer protection principle relative to the underwriting and marketing of mortgage loans is to approve loans based on the borrower’s ability to repay the loans according to its terms. As discussed in more detail in the next section, many subprime hybrid ARMs were not underwritten in accordance with this fundamental principle. The interagency guidance also states that another fundamental consumer protection principle is to provide information that enables consumers to understand material terms, costs, and risks of loan products at a time that will help the consumer select a product.

Consumers need clear, balanced, and timely information on mortgage loan terms to make informed decisions at crucial points in the product selection and loan application process. Unfortunately, adequate disclosures about the material terms, costs, and risks of hybrid ARM loans have not always been provided. For example, many advertisements described hybrid ARMs as having a “fixed” interest rate or payment amount. The term “fixed” typically describes an interest rate or payment amount that will remain unchanged for the term of the loan. However, using this term to describe adjustable-rate products, which have “fixed” rates or payment amounts for only a few years, is misleading.

In September 2007, the Federal Trade Commission (FTC) determined that “many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments.”⁵ The FTC warned mortgage brokers and lenders that some advertising claims appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mails and faxes may violate federal law. The agency determined that many marketing materials failed to indicate clearly that the stated rate and low advertised payments were in effect for a short time and concluded that “some ads promoted only incredibly low monthly payments, but failed to disclose adequately the terms of repayment, including payment increases (payment shock) and a final balloon payment.”⁶

To help ensure that consumers understand that their interest rate or payment amount may change, communications—including advertisements and mortgage product descriptions—should provide clear and balanced information about the terms of hybrid ARM products with any of these features:

• Payment shock: disclosing when the introductory fixed interest rate expires, how the monthly payment amount will be calculated, and the dollar amount of potential payment increases.
• Balloon payment: specifying when it will be due and how much will be owed.
• Responsibility for taxes and insurance: explaining whether these required housing-related expenses will be escrowed and, if not, that the consumer is responsible for their payment and that the amount due can be substantial.
• Cost for a reduced documentation or “stated income” loan: informing borrowers if they will be charged a pricing premium for a reduced documentation or stated income loan program.
• Prepayment penalties (PPPs): indicating the existence of these penalties, how they will be calculated, and when they will be imposed. In general, PPPs should expire 60 days before the reset date and should not exceed the initial reset period.

Mortgage originators should provide information about these features during the product selection process—not only when an application is submitted or a loan is consummated. The FDIC is monitoring institutions’ efforts to ensure that consumers are receiving adequate disclosures in an appropriate timeframe through the supervisory review process. Many of the aforementioned misleading and potentially deceptive loan marketing practices served to mask some of the lax underwriting features in these hybrid ARM products.

Underwriting Weaknesses

The mortgage loan industry has offered hybrid ARM products to meet the financing needs of certain prime borrowers for some time. However, the extremely strong demand for subprime mortgages from late 2004 through the first half of 2007 heightened competition among originators to generate greater volume. In retrospect, this emphasis on quantity over quality clearly reflects that neither investors nor originators were sufficiently concerned with due diligence or the ramifications of risk-layering practices in an adverse economic environment. These practices included the following:

• Offering hybrid ARM loans to individuals who may have had limited repayment capacity or little experience with credit as a means of expanding the pool of potential loan candidates.
• Relaxing ability to repay standards to qualify borrowers based on the low introductory payment (rather than the fully indexed, fully amortizing payment required once the loan reset) and without consideration of other housing-related expenses, such as real estate taxes and insurance.
• Creating payment shock when the low introductory payments increased substantially after the reset, forcing many subprime borrowers to refinance their loans, as they could not afford the new higher payment amount.
• Allowing interest-only or payment-option terms that heightened payment shock by deferring the repayment of principal.
• Using simultaneous second-lien loans, or piggyback loans, that permitted borrowers to make a minimal or no down payment, resulting in their having little, if any, equity in their home.
• Permitting reduced documentation or No Doc loans, causing lenders to rely on unverified income information to analyze a borrower’s repayment capacity.⁷ Lenders offering these No Doc loans often charged borrowers a higher rate of interest for this service. Borrowers could have avoided this fee by providing copies of pay stubs, tax returns, bank statements, or other similar, readily available documentation.
• Imposing prepayment penalties that kept borrowers from refinancing their loans at a reasonable cost.

These weak underwriting practices enabled more borrowers to obtain loans that they could not afford to repay. The increased volume of hybrid ARMs contributed to record levels of net income at financial institutions, which were attributable, at least in part, to high levels of fee income from originating high-risk assets sold into the secondary market.⁸ However, these short-term profits are quickly dissipating. As of March 14, 2008, financial institutions have written off more than $195 billion in losses stemming from subprime loans, and most observers expect further losses as the subprime mortgage crisis works its way through the financial markets.⁹

Risk Management Practices for Hybrid ARMs

The interagency guidance specifies that an institution’s analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. When risk-layering features are combined with a mortgage loan, an institution should demonstrate the existence of effective mitigating factors that support the decision and the borrower’s repayment capacity. Typical situations where mitigating factors might exist could include a borrower with a strong performance history, whose financial condition has not deteriorated, and who is seeking to refinance with a similar loan, or a borrower with substantial liquid reserves or assets that support the prospect of repaying.¹⁰ However, a higher interest rate is not considered an acceptable mitigating factor. Reliance on any mitigating factors should be documented, and policies should govern the use of reduced documentation, which generally should not be accepted for subprime borrowers.

Institutions that engage in hybrid ARM lending activities need robust risk management practices and written policies that establish acceptable underwriting standards, including protocols governing risk-layering features. The written policies should establish the internal parameters that will be used for categorizing loans as subprime, if such parameters differ from those specified in regulatory guidance. For example, many institutions classify borrowers as subprime based on a Fair Isaac Company (FICO) credit score of 620 or less; however, regulatory guidance describes a FICO credit score of 660 or less as a characteristic of a subprime borrower.¹¹

In addition, the interagency guidance states that hybrid ARM lending activities warrant an enhanced management information system (MIS) that proactively identifies and alerts the user of increasing risk given changing market conditions. The MIS should generate reports that segment the hybrid ARM portfolio by key characteristics, such as loans with high debt-to-income ratios, high combined loan-to-value ratios, the potential for negative amortization, low credit scores, non-owner-occupied investors, or a combination of these or other risk-layering features.

The probability of default and potential for loss should be measured across portfolio categories. Risk assessments based solely on recent historical performance may not adequately measure the risk in the segmented pools, given the strong housing market conditions experienced a few years ago. To help ensure an accurate assessment of portfolio risk, analyses should be based on current performance trends and local economic conditions. Loan segments characterized by weak underwriting standards and unreasonable credit risk may warrant adverse classification regardless of the delinquency status.¹²

Risk exposure may not be limited to the loan portfolio. The securities portfolio may harbor investments supported by pools of subprime hybrid ARMs. Bond rating agencies recently have downgraded the ratings of many mortgage-backed securities. For example, a national bond rating agency downgraded or placed a negative CreditWatch on 6,389 classes of securities and 1,953 collateralized debt obligations backed by subprime residential mortgages during the course of a single day.¹³ If a rating falls below investment grade, the security should be classified according to existing regulatory policy.¹⁴

Hybrid ARM lending activities can negatively affect other performance criteria. Earnings may be significantly lower because of impairments in the investment portfolio, reduced fee income, compressed interest margins, or increased loan provisions. The interagency guidance specifies that institutions should maintain the allowance for loan and lease losses and capital levels that are commensurate with the risk characteristics of the portfolio.

Contingency planning, counterparty risk assessments, and back-up lines of credit are critical to ensure adequate funding is available if product demand weakens in the secondary market. Ultimately, the failure to recognize or properly manage any of the associated risks of assets backed by hybrid ARM loans could reflect negatively on management. Robust risk management protocols consistent with the size and complexity of the operation are critical to properly managing the risks in hybrid ARM lending activities. The FDIC is closely reviewing management’s efforts to implement and adhere to prudent guidelines and procedures at institutions that engage in hybrid ARM lending activities.

Measuring and Managing the Fallout from Deficiencies in Mortgage Lending Practices

In 2007, hundreds of billions of dollars in subprime hybrid ARM debt began to reset. Almost 1.3 million subprime hybrid loans are scheduled to undergo their first reset during 2008, with an additional 422,000 subprime hybrid loans to reset in 2009.¹⁵ As reflected in Chart 1, the subprime ARM delinquency rate had risen to 20.4 percent in 2007, which was more than double the rate from one year earlier. The rising delinquency rate and continued deterioration in home prices have caused a surge in foreclosures. As shown in Chart 2, the rate of subprime ARMs in foreclosure also almost doubled from the prior year. Although subprime ARMs accounted for only 7 percent of total outstanding residential mortgage loans as of December 31, 2007, these products represented 42 percent of foreclosure starts.¹⁶

One report estimates that a foreclosure costs a lender about $50,000.¹⁷ However, the cost extends beyond a lender’s credit losses. Foreclosures inflict financial and less quantifiable costs on individual homeowners and their families and negatively affect neighborhoods and communities. A study of the external costs of foreclosure found that a single-family home foreclosure lowers the value of homes within one-eighth of a mile (or one city block) by an average 0.9 percent, and more so—as much as 1.4 percent—in a low- to moderate-income community.¹⁸ A contagion effect also may develop. As more foreclosures occur in close proximity, the value of nearby properties drops, resulting in even more foreclosures in the same community.¹⁹

Chart 1: Seriously Delinquent Subprime ARMs Soar to Record High
d

Chart 2: The Rate of Subprime ARMs in Foreclosure Almost Doubled from the Prior Year
d

An increase in foreclosure activity could contribute to escalating credit losses. In July 2007, a Merrill Lynch study forecast subprime credit losses of $146 billion and Alt-A credit losses of $25 billion.²⁰ In December 2007, Merrill Lynch raised this projection to $300 billion, with subprime credit losses aggregating about $250 billion and Alt-A credit losses totaling about $50 billion.²¹ These figures approximate Standard & Poor’s January 2008 estimate that hybrid ARMs will result in more than $265 billion in losses for financial institutions.²² Unfortunately, asset quality has continued to decline significantly. On May 14, 2008, FitchRatings issued a report that estimates total losses of $400 billion to $550 billion.²³ In comparison, aggregate losses sustained from the savings and loan crisis are estimated at $199 billion.²⁴ These statistics bring into sharp focus the seriousness of the situation caused by weak underwriting and deceptive marketing practices.

The agencies and the Conference of State Bank Supervisors have encouraged federally regulated institutions and state-supervised entities that service mortgage loans to pursue loss mitigation strategies that preserve homeownership.²⁵ The agencies issued guidance that describes prudent risk management practices and loss-mitigation strategies that institutions and servicers should consider in workout arrangements, as well as in loan modifications for residential mortgage borrowers (see Interagency Guidance inset box).

The agencies support other loan modification programs. The American Securitization Forum and the Hope Now Alliance developed industry guidance titled Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, which establishes a framework that the industry can use to modify certain securitized subprime mortgage loans.²⁶ This guidance strongly encourages institutions that retain subprime hybrid ARMs in their loan portfolio or service these loans to incorporate streamlined loan modification procedures as part of loss-mitigation strategies.

Institutions generally should consider implementing streamlined loan modification procedures for mortgages that meet the Hope Now Alliance program eligibility criteria (see inset box on page 22).²⁷ The FDIC also urges institutions to consider developing streamlined loss-mitigation strategies for borrowers who do not qualify under the Hope Now Alliance program, but face payment shock when their hybrid ARMs reset.

Further, the agencies will not penalize institutions that pursue streamlined loan modifications or reasonable workout arrangements with borrowers who cannot afford their payments after their loans reset. Institutions that engage in a significant volume of hybrid ARM activity should adopt reporting mechanisms that detail the types and success rates of these strategies. Institutions are encouraged to discuss the correct reporting of loss-mitigation strategies with accounting consultants, as some loan modifications could result in a troubled debt restructuring.

Conclusion

Approximately 1.5 million foreclosures occurred in 2007, an increase of 62 percent from a year earlier.²⁸ Current market conditions suggest this negative trend will continue, as housing prices are unlikely to rebound in the near term. Much attention has focused on the negative impact that the payment shock in hybrid ARMs will have on subprime borrowers and the compounding effect of declining home prices. A second wave of credit distress could occur when other nontraditional mortgages, such as interest-only or payment-option loans, begin to reset or recast in 2009. Losses could increase as more borrowers have negative equity in their homes or are unable to make their payments.

In response to these developments, policymakers are considering a host of far-reaching responses that remain under active debate. Whatever may ultimately come of these proposals, it has become clear that sound and responsible lending practices play a critical role in supporting the long-term economic health and stability of our nation. Seen in this context, the role of supervisors in promoting prudent underwriting standards is vital to maintaining the public’s confidence in the integrity of the residential mortgage market.

Beverlea (Suzy) Gardner
Senior Examination Specialist
Division of Supervision and Consumer Protection
BGardner@fdic.gov

Dennis C. Ankenbrand
Senior Examination Specialist
Division of Supervision and Consumer Protection
San Francisco Region
DAnkenbrand@fdic.gov

¹ United States Department of Commerce, Census Bureau Reports on Residential Vacancies and Homeownership, April 27, 2007, p. 4.

² According to Inside Mortgage Finance (2007), subprime mortgages increased from 6 percent of total originations in 2002 to 20 percent in 2006.

³ Section 129(h) of TILA, 15 U.S.C. 1639(h); 12 C.F.R. § 226.34(a)(4).

⁴ Hybrid ARMs do not have a fixed or variable interest rate for the entire term of the loan. Instead, they start with a fixed rate for an introductory period, often two to three years, then reset to a variable rate.

⁵ “FTC Warns Mortgage Advertisers and Media That Ads May be Deceptive,” press release, September 11, 2007.

⁶ Payment shock refers to a significant increase in the amount of the monthly payment that generally occurs when hybrid ARMs reset to a fully indexed, fully amortizing repayment basis.

⁷ Mortgage Asset Research Institute, Eighth Periodic Mortgage Fraud Case Report to the Mortgage Bankers Association, April 2006, reported that one lender that reviewed a sample of 100 No Doc loans (for which it subsequently verified the borrowers’ income) found that almost 60 percent of the stated amounts were exaggerated by more than half.

⁸ “Insured Banks and Thrifts Report Record Earnings in 2006,” press release, February 22, 2007; and Quarterly Banking Profile, “All Institutions Performance Fourth Quarter 2006.”

⁹ Bloomberg, “Subprime Losses Reach $195 Billion,” March 14, 2008.

¹⁰ Interagency Statement on Subprime Mortgage Lending, July 10, 2007; and the Interagency Guidance on Nontraditional Mortgage Product Risks, October 4, 2006.

¹¹ Statement on Subprime Mortgage Lending, July 10, 2007; Interagency Guidance on Nontraditional Mortgage Product Risks, October 4, 2006; Expanded Guidance for Subprime Lending Programs, January 31, 2001; and the Interagency Guidance on Subprime Lending, March 1, 1999.

¹² Uniform Retail Credit Classification and Account Management Policy, June 12, 2000.

¹³ Standard & Poor’s, Ratings Direct, “Projected Losses for U.S. RMBS Transactions Affected by Jan. 30, 2008, Rating Actions,” February 4, 2008.

¹⁴ Interagency Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts, June 15, 2004.

¹⁵ Estimates are based on the Loan Performance Securities database. They reflect data collected through August 2007 on first-lien mortgages secured by owner-occupied properties where the mortgage has been securitized in private mortgage-backed securities issues. These figures have been adjusted to include an estimate of subprime securitized loans that are not included in the Loan Performance Securities database.

¹⁶ Mortgage Bankers Association, National Delinquency Survey, Fourth Quarter 2007. The seriously delinquent rate includes loans that are 90 days or more delinquent or in the process of foreclosure.

¹⁷ Special Report by the United States Congress Joint Economic Committee, Sheltering Neighborhoods from the Subprime Foreclosure Storm, April 17, 2007, p. 16.

¹⁸ Dan Immergluck and Geoff Smith, “The External Costs of Foreclosure: The Impact of Single-Family Mortgage Foreclosures on Property Values,” Housing Policy Debate 17, no.1 (2006).

¹⁹ NeighborWorks America, Effective Community-Based Strategies for Preventing Foreclosures, September 2005.

²⁰ Merrill Lynch, “Economic Analysis: Credit Crunch Update: $500 Billion in Total Losses,” December 18, 2007, pp. 8–9. Alt-A loans are those made under expanded underwriting guidelines to borrowers with marginal to very good credit. Alt-A loans are riskier than prime loans because of the underwriting standards of the loans, not necessarily the credit quality of the borrowers.

²¹ Merrill Lynch, “Industry Overview: Magnitude, Distribution, and Timing of Losses,” July 20, 2007, p. 9.

²² Reuters, “S&P Sees Mortgage-Related Bank Losses Topping $265 Billion,” January 30, 2008.

²³ FitchRatings, Special Report, Subprime Mortgage-Related Losses: A Moving Target, May 14, 2008.

²⁴ Timothy Curry and Lynn Shibut, “The Cost of the Savings and Loan Crisis: Truth and Consequences,” FDIC Banking Review 13, no. 2 (2000): 26–35. The report estimates losses from the savings and loan crisis at $153 billion in 1995, which equals about $199 billion in 2007 on an inflation-adjusted basis.

²⁵ The term “federally regulated institutions” refers to state- and nationally chartered banks and their subsidiaries, bank holding companies and their nonbank subsidiaries, savings associations and their subsidiaries, savings and loan holding companies and their subsidiaries, and credit unions.

²⁶ The American Securitization Forum (ASF) is a broad-based professional forum through which participants in the U.S. securitization market can advocate their common interests on important legal, regulatory, and market practice issues. Hope Now is an alliance between counselors, mortgage market participants, and mortgage servicers to create a unified, coordinated plan to reach and help as many homeowners as possible.

²⁷ American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, “Executive Summary,” December 6, 2007.

²⁸ FDIC estimate based on the fourth quarter 2007 Mortgage Bankers Association National Delinquency Survey.

Table of Contents

This is a three hour video so you may not be able to take it all at once, but it’s important enough to watch. This is your government in action – all we can say is Ron Paul is worth watching.

Apparently, not here.

Planet Money Interview Adam Davidson and Elizabeth Warren May 2009

We note that all pontificating aside, not much has changed in the five months since this interview came out – the banks are still foreclosing on homeowners at a record clip; the government is now subsidizing private investor’s acquisitions of those “troubled assets”; new hedge funds are springing up to purchase the housing inventory left in the wake of the “credit induced housing bubble”; and, just by coincidence, no one has made a single move to begin prosecution of the most massive control fraud and public fleecing in America’s history. We note that the COP (Congressional Oversight Panel) under Elizabeth Warren DID come out last week and chastise the Tresury for its failure to provide any type of meaningful relief to the millions of Americans still facing foreclosure.

In this interview with Bill Moyers, Black explains just what he sees having gone on in the current mortgage crisis.

Read the

Full Transcript of Bill Moyers and William Black Interview

Watch the

Flash Video of the Complete Bill Moyers and William Black Interview

If you really want to understand what has gone on in the creation and expansion of what William Black calls a top down control fraud engineered entirely by top level bank executives looking for “off the chart profits”, this is the place and Mr. Black is the man.

William Black is no conspiracy theorist; he is a hard nosed investigator with a stellar track record of uncovering and prosecuting those responsibie for financial fraud. It is his position that the current mortgage crisis is was brought about by just that – a massive internally driven fraud by top level bankers.

BFR Webmaster Note: We give Mr. Black and this information our highest rating.