I rented The Big Short recently (via Netflix), so I’ve been researching some of what was written about the mortgage fraud, including this great article by Matt Taibi about how the banks churned out so many mortgages they didn’t have time to actually hold the deeds before re-selling:
If you’re foreclosing on somebody’s house, you are required by law to have a collection of paperwork showing the journey of that mortgage note from the moment of issuance to the present. You should see the originating lender (a firm like Countrywide) selling the loan to the next entity in the chain (perhaps Goldman Sachs) to the next (maybe JP Morgan), with the actual note being transferred each time. But in fact, almost no bank currently foreclosing on homeowners has a reliable record of who owns the loan; in some cases, they have even intentionally shredded the actual mortgage notes. That’s where the robo-signers come in. To create the appearance of paperwork where none exists, the banks drag in these pimply entry-level types — an infamous example is GMAC’s notorious robo-signer Jeffrey Stephan, who appears online looking like an age-advanced photo of Beavis or Butt-Head — and get them to sign thousands of documents a month attesting to the banks’ proper ownership of the mortgages.
This isn’t some rare goof-up by a low-level cubicle slave: Virtually every case of foreclosure in this country involves some form of screwed-up paperwork. “I would say it’s pretty close to 100 percent,” says Kowalski. An attorney for Jacksonville Area Legal Aid tells me that out of the hundreds of cases she has handled, fewer than five involved no phony paperwork. “The fraud is the norm,” she says.
Kowalski’s current case before Judge Soud is a perfect example. The Jacksonville couple he represents are being sued for delinquent payments, but the case against them has already been dismissed once before. The first time around, the plaintiff, Bank of New York Mellon, wrote in Paragraph 8 that “plaintiff owns and holds the note” on the house belonging to the couple. But in Paragraph 3 of the same complaint, the bank reported that the note was “lost or destroyed,” while in Paragraph 4 it attests that “plaintiff cannot reasonably obtain possession of the promissory note because its whereabouts cannot be determined.”
The bank, in other words, tried to claim on paper, in court, that it both lost the note and had it, at the same time. Moreover, it claimed that it had included a copy of the note in the file, which it did — the only problem being that the note (a) was not properly endorsed, and (b) was payable not to Bank of New York but to someone else, a company called Novastar.
(click here to continue reading Invasion of the Home Snatchers | Rolling Stone.)
Still amazed that we as a nation did not storm Wall Street with pitchforks and throw a bunch of bankers on a boat headed right for Somalia or somewhere similar. And in fact, now that a few years have passed, collateralized debt obligations (CDOs) are back, and the cycle of fraud continues.
The 2008 financial crisis gave a few credit products a bad reputation. Like collateralized debt obligations, known as CDOs. Or credit-default swaps. But now, a marriage of the two terms (using leverage, of course) is making a comeback — it’s just being called something else. Goldman Sachs Group Inc. is joining other banks in peddling something they’re referring to as a “bespoke tranche opportunity.”
That’s essentially a CDO backed by single-name credit-default swaps, customized based on investors’ wishes. The pools of derivatives are cut into varying slices of risk that are sold to investors such as hedge funds. The derivatives are similar to a product that became popular during the last credit boom and exacerbated losses when markets seized up. Demand for this sort of exotica is returning now and there’s no real surprise why. Everyone is searching for yield after more than six years of near-zero interest rates from the Federal Reserve, not to mention stimulus efforts by central banks in Japan and Europe. The transactions offer the potential for higher returns than buying a typical corporate bond, especially if an investor focuses on first-loss slices or uses borrowed money, or both. Obviously, the downside may be much greater, too. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment.
(click here to continue reading Goldman Sachs Hawks CDOs Tainted by Credit Crisis Under New Name – Bloomberg.)
Sub-prime auto loans are the next big thing, but some bankers whine that The Big Short might be interfering with their con…
Auto loans made to risky borrowers and then bundled into bonds sold to investors have been making headlines for years, with some voicing concerns over an apparent resemblance between the so-called subprime auto market and the subprime housing market that sparked the 2008 financial crisis and ensuing recession.
Indeed, the parallels may not have been lost on investors either. In a note published on Wednesday, Morgan Stanley analysts led by Jeen Ng wonder whether last year’s debut of The Big Short—the film version of the Michael Lewis book published in 2010—has played a role in sparking fresh worries over the asset class.
(click here to continue reading Morgan Stanley: People Might Be Worried About Subprime Auto Bonds Because of the ‘Big Short’ Movie – Bloomberg.)
as Gawker writer Hannah Gold puts it:
The memo reads:
“However, concerns about growing recessionary risks – and perhaps even the popularity of the recent movie The Big Short – have motivated investors to investigate any potential source of weakness. Consumer sectors that involve large initial outlays, such as housing and autos, provide a natural place to start. Combine that with recent headlines from Fitch suggesting that delinquencies in some sectors of the auto ABS market have reached 20- year highs, and you get a target sector for investors’ concerns.
Those concerns are not without merit, at least as far as delinquencies are concerned. It is interesting to highlight that as the housing market continues to heal from its post-crisis depths, mortgage delinquencies have been on a steady decline while auto delinquencies have been going in the opposite direction.”
Or maybe potential investors are suspicious of auto loans because…they’re actual villains. Critics of the auto ABS have been pointing out parallels between the subprime auto market and the subprime housing market for years. Hopefully this story has a slightly less disastrous ending.
(click here to continue reading Morgan Stanley Analyst Fears the Movie The Big Short Has Discouraged Investors From Buying Risky Auto Loans.)
Great. Just in time for a wave of deregulation if Hillary Clinton wins in 2016, or worse, Donald Trump, or even worse, Ted Cruz…