Sub-prime mortgage watchdogs kept on leash

[tpsbmam]

Source: Los Angeles Times

Loan checkers say their warnings of risk were met with indifference

They could see the meltdown coming.

Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports.

The loan reviewers' role was just one of several safeguards -- including home appraisals, lending standards and ratings on mortgage-backed bonds -- that were built into the country's complex mortgage-financing system. But in the chain of brokers, lenders and investment banks that transformed mortgages into securities sold worldwide, no one seemed to care about loans that looked bad from the start. Yet profit abounded -- until defaults spawned hundreds of billions of dollars in losses on mortgage-backed securities.

"The investors were paying us big money to filter this business," said Cesar P. Valenz, one of the loan checkers. "It's like with water. If you don't filter it, it's dangerous. And it didn't get filtered."


Read more: http://www.latimes.com/business/la-fi-subprime17mar17,0,782997.story

[DeSwiss]

1. And I'm not even an in-house watchdog....

...and I knew something disasterous would happen over year ago when I saw that they threw the rulebook out of the window and gave loans to anyone with a pulse. And sometimes maybe not even that.

- Wall Street (and us along with them) has truly been http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=1025939">"hoist by its own petard...."

K&R!!!

[redqueen]

3. We've been watching this storm brewing for years.

It was allowed to build.

[DeSwiss]

8. Yep.

I'm afraid you're right.

And a lot of public and private pension funds are "invested" in the CDO's (toxic waste bonds) that made all this possible. With baby boomers now swelling the ranks each day. And the ripple effect from the sudden awakening people will have about all this, will most likely be hitting them right around election time.

- This is what happens when corporations control the government...

[alcibiades_mystery]

2. In my old life, I often did due diligence on mortgage and loan-backed securities

Thumbing through loan contracts for Truck cabs and taxicab medallions, shit you wouldn't believe. And then, at one point, I wondered "Hey, what qualifications do I have to assess the strength of these loans?" The answer? None, essentially. I was instructed to look for aberrations in interest rates and loan terms that might signal that the company (which is to say, the "borrower" for the bond) was trying to sneak in some dubious loans with the so-called good ones. We were counsel for the underwriters of the bond. That was it. And believe me, when I was doing that, I was not an expert. At all. But THAT was the due diligence. Ridiculous.

[katty]

4. the pyramid is crumbling-much more to come

[DeSwiss]

9. Very well put... n/t

[louis-t]

5. FSTV yesterday, great speaker

talked about "disaster capitalism". This may be the financial disaster shrubco is hoping for to finally take over and destroy Social Security.

[katty]

6. indeed, and many other 'entitlements'

[DeSwiss]

10. Its the kind of capitalism....

...that's in the http://www.h2-pv.us/Bush-Hitler/">Bush family tradition.....

[rucognizant]

17. Swell!

Then I guess I sit here & starve to death!
Fubar!

[whistle]

7. I heard an NPR News reporter at noon refer to the "$750 TRILLION"

....derivatives mess and he repeated that it was trillion with a "T" but that no one knows for sure how much these derivatives financial obligations really represents. :wtf:

These financial derivatives was Alan Greenspan's answer to the stock market crash of October 1987 and it appears to have been one worldwide Ponzi Scheme. The entire thing has been a fraud and I doubt if anyone knows for sure what the debt obligations truly are.

[DeSwiss]

11. What's so amazing to me....

...is that Greenspan is still held in any regard at all. He should be tarred and feathered and run out of town on a pole.

I remember him back during the Nixon Regime. That other criminal outfit we had in the White House at the time. And remember wage and price controls and gas lines? Its this a recurring nightmare or what?

- With the same monsters in it. And their children....

[rucognizant]

21. Ponzi scheme is right!

What is really sad is that when my peer group ( PREBOOMERS,) were cast out and compromised, The young people just turned a deaf ear, or turned to that new age saw " you MAKE YOUR OWN DESTINY!" yeh right!
You need some kind of playing field to start with!
SO I wasted my last productive years on min. wage jobs without being able to do a 401 K, after the children were out of the nest!
Yeh! I was that "real American", "myth", a self employed entreprenuer! But I hgad a;lot of friends who were CEO's didn't make out too well either . It was a hostile takeover then.............it's taken 21 years fior the public to get on to it.
If they had LISTENED to their older wiser elders, it might not have advanced this far!

[The_Casual_Observer]

12. All this happened under the watch of Christopher Cox at the SEC.

A bullshit carpetbagging rw bastard bush appointee & he's still there.

[whistle]

18. That's right, I wonder if this guy is related to Nixon's son-in-law

...the one who married Tricia?

[sarcasmo]

13. More Greedy A$$HATS that should be in Jail.

[ellie]

14. But, but

it's all the borrower's fault. They were too greedy.

:sarcasm:

[dave123williams]

15. So....you're saying that greed has a downside?

I'm flabbergasted! Shocked, I tell ya!

In all seriousness, people who think Michael Douglas's Gordon Geko was some kind of a visionary are going to get *exactly* what they deserve in this implosion.

[Joe Chi Minh]

19. "So....you're saying that greed has a downside?" Hilarious!

[whistle]

20. Greed in the extreme is avarice

Definitions of avarice on the Web:

o reprehensible acquisitiveness; insatiable desire for wealth (personified as one of the deadly sins)

o extreme greed for material wealth
wordnet.princeton.edu/perl/webwn

o Greed is excessive or uncontrolled desire for or pursuit of money, wealth, food, or other possessions, especially when this denies the same goods to others. It is generally considered a vice, and is one of the seven deadly sins in Catholicism. ...
en.wikipedia.org/wiki/Avarice

[Joe Chi Minh]

16. It was never incompetence; rather extraordinary efficiency. In the US and the UK,

we no longer have political and financial sectors; just a single, pathologically predatory, commercial demi-monde. With media chamber-maids to change the bed linen for unsuspecting honest non-Johns.

Eliot Ness would have nowhere to go. He would be deemed by the authorities to be surplus to requirements.

[ben_meyers]

22. Some of us were shaking our heads 3 years ago

I do business as primarily as a sellers agent. When I would push the button to post a new listing on the MLS, I would start answering the phone within minutes. If my sellers didn't have multiple offers by the end of the day it was unusual. I even built in non-refundable earnest money into the contracts in case the buyers couldn't get financing! Guess what, almost none of the contracts didn't close.

Who were these buyers and how were they getting financed? In the Arizona market they were "investors" from CA. and NV. attending too many get rich quick seminars or watching too many "flip this house" cable TV shows.

The "bubble" had to burst, and now it has. Blame the greedy "buyers"? Sure, and the now gone fly by night mortgage brokers and appraisers.

[Barb in Atl]

23. Greg Palast wrote about this just Friday 03/14...

http://www.gregpalast.com/elliot-spitzer-gets-nailed/#more-1979

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’

Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.

(snip)

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Read the whole thing. It's pretty horrible.