International Forecaster Weekly

New Scams and New losses

A new scam called foreclosure fraud, where loan holders and security trusts dont really own the loans they are foreclosing on, Straw Buyer scams, losses mount at investment houses, epidemic suicide rates among young veterans

Bob Chapman | November 17, 2007

Judge Christopher A. Boyko of the Eastern Ohio United States District Court, on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.

Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the court would enter a dismissal...

While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it is a big blow to the cause of sorting out the high-finance side of the mortgage mess.

Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours): This court order is what I have been saying in my cases. This is rampant fraud on every court in America or non-judicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.

That means that the loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged "sale" to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require.

This also means that many securitized trusts don't really, legally own these bad loans. In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.”... Investors in these securities might have assumed---wrongly, it turns out---that they actually owned some "real estate" in these deals. To paraphrase Jim Cramer, "They own nothing!"

This ruling is monumental. The holders of all those slice and dice derivatives could have zero legal redress or collateral in foreclosures. This reduces their values substantially. And how about all the distressed debt jockeys that think or used to believe that their crappy securitized paper has the same legal rights as the actual owners of the underlying securities?

Did your ‘model’ account for this when valuating blind pools of assets?

The remediation of the financial mess will be longer, far more complicated and more onerous that any other financial problem since at least WWII.

PS – The day after the above court decision, the DJIA tanked 330 points. How much impact the decision had can only be guessed. But once again, the US financial media and Street pundits are asleep or remiss.

Reuters: Mortgage scams involve a cartel of inside players -- colluding property appraisers, real-estate brokers and accountants willing to draw up fake income statements and tax returns -- who recruit people with good credit histories to serve as a decoy or "straw buyer" in a real-estate deal.

The conspirators inflate the price of the property, to get the biggest loan possible, pay the sellers the original price and then pocket the excess loan money as "cash back" at the closing of the deal.

The decoy buyer is paid off -- often with just $5,000 -- and the property is quickly abandoned to foreclosure, said Theobald, a senior official with the Miami-Dade Police Department.

"It's an epidemic," said Nancy Hogan, a veteran realtor and former head of the Florida Real Estate Commission. "The cash back, the fraud for profit, is what has been so rampant," she said.

The theory of spreading the losses may have seemed like a good idea, but what has happened in the MBS, CDO, ABS & SIV distributions is that dispersement has brought distrust and a loss of confidence at the highest levels of the financial world. Instead of seeing a handful of institutions go under, we have thousands of institutions having to declare losses. It has been over 3 months since central banks were forced to inject liquidity into the banking system. Some $800 billion to $1 trillion and the problem is nowhere near being solved. Daily we see admission of massive losses and there is no end in sight just as we predicted so long ago.

Again the fiasco was created by the Fed and natured by the rating services and the lenders. We have written for years of the terrible conflict of interests of these three groups, but as usual few wanted to listen. How can a rating system be objective when its members are paid by the people they rate? After all the forensics are done, years from now, what you have just witnessed in the mortgage market will be called the biggest scam of all-time created by the Fed to keep the economy from collapsing and to buy time until the elitists were ready to finally pull the plug. The rating agencies magically made BBB securities into AAA securities by mixing both together. They structured the product at the behest of banks and the Fed, just like the pressure that was put on mortgage originators to write loans that should have never been written. There is absolutely no question that a conspiracy existed between the Fed, the banks and the rating agencies that worked with the banks creating this toxic garbage to be dumped on professional inventors worldwide.

What we have now is professionals that are trying to dump these toxic securities into a market that is almost non-existent. That means in order to balance their books these investors have to sell other assets to offset these paper losses. This is called contagion and the spreading of misfortune into other markets. Positions in other investment areas are being sold to realize cash. This has led to unsettled lower markets in stocks and other investments. Hedge funds are in serious trouble as well with these CDOs, ABSs, MBSs and SIVs and if they are in trouble so are the banks that lend to them. Usually loses can be easily absorbed by all parties, but not when you are using leverage and that is what all these parties have been doing. The full damage done would be finally known for another year or two. If you mix in an overpriced stock market, a real estate collapse and major losses you come up with a deep recession accompanied by inflation. The only alternative is gold and silver related assets.

The MBA mortgage purchase application index was up 4.8% in the 9/11 week. This compares to zero in the prior week. The refi index was +6.4% versus -3.2% in the prior week. The 30-year fixed rate mortgage rose to 6.19% from 6.16%.

The PPI produced more bogus numbers, up 0.1%. Ex-food and energy it was even. The September figure was unrevised.

October retail sales reported plus 02%.

September business inventories reported 0.4%, up from a plus 0.3% in August.

CNBC says FAS 157 & 159 has been delayed for a year. What else is new?

John Thain will take over as CEO of Merrill Lynch. Thain previously was COO and President of Goldman Sachs. Goldman controls not only the financial reins of Wall Street, but also our government.

Further to the PPI report, prices fell 13.8% in August, were up 8.4% in September and down 3.1% in October, or down 9.5% over the 3-month period.

Retail sales showed gas station sales off 2.9% in August, up 1.8% in October and down 9.5% over the 3-month period, or down 4% over 3 months. Thus far retail sales at gasoline stations are only down .4% with the price falling 9.5% then unit sales would have to be up 9.1%. Lies, lies and more lies.

The losses continue to mount: Barclays with $2.7 billion, Bank of America $3 billion and even J.P. Morgan, which admitted that their corporate and investment banking looses will increase in 2008, and credit card write offs could hit 5%. Morgan said they think they are fine and that SIVs do not have a business purpose and will go the way of the dinosaur.

As we have contended for a long time the banks and rating agencies should be forced to pay off the owners of securities that they defrauded. They and the Fed created this credit bubble and they are in charge of the financial system. Who is watching what they are doing? It obviously is not our government. Nobody is watching.

Here are some jarring statistics. Between 1995 and 2007, there were almost 2,200 suicides. That is 188 last year alone of active duty soldiers. In 2005, in 45 states, there were 6,256 suicides among those who served in the armed forces. That is 120 each and every week in just one year. Veterans were more than twice as likely to commit suicide in 2005 than non-vets. Vets 20 through 24 who had served in the war had the highest suicide rate among veterans, estimated between 2 and 4 times higher then civilians the same age. There is no question many mentally ill young veterans are not being treated and they are losing their lives. Veteran suicide in America is an epidemic.