Here's the top story in the Washington Post right now:
US suit cites ‘brazen’ mortgage fraud at Countrywide, even after Bank of America purchase
By Associated Press, Updated: Wednesday, October 24, 2:15 PM
NEW YORK — The latest federal lawsuit over alleged mortgage fraud paints an unflattering picture of a doomed lender: Executives at Countrywide Financial urged workers to churn out loans, accepted fudged applications and tried to hide ballooning defaults.
The suit, filed Wednesday by the top federal prosecutor in Manhattan, also underscored how Bank of America’s purchase of Countrywide in July 2008, just before the financial crisis, backfired severely.
The prosecutor, Preet Bharara, said he was seeking more than $1 billion, but the suit could ultimately recover much more in damages.
“This lawsuit should send another clear message that reckless lending practices will not be tolerated,” Bharara said in a statement. He described Countrywide’s practices as “spectacularly brazen in scope.”
He also charged that Bank of America has resisted buying back soured mortgages from Fannie Mae and Freddie Mac, which bought loans from Countrywide.
A relevant fact that has disappeared down the memory hole is that during the Housing Bubble, Angelo Mozilo, CEO of Countrywide, kept boasting that Countrywide was going hog wild in the name of increasing minority homeownership. For example, here's a press release from January 2005. (I suspect that this immediately followed a meeting between Mozilo and Daniel Mudd, head of Fannie Mae, in which Fannie agreed to buy more mortgages from Countrywide).
Countrywide sets $1 trillion goal for real estate loan program
Funding aims to help minority, low-income borrowers
BY INMAN NEWS, FRIDAY, JANUARY 14, 2005.
Countrywide Home Loans today announced an expansion of its We House America initiative to fund $1 trillion in home loans to minorities and lower-income borrowers and communities through 2010.
"The $1 Trillion We House America Challenge, expanded from $600 billion announced in 2003, embodies Countrywide's long-standing commitment to lead the mortgage industry in closing the home-ownership gap for minority and lower-income families and communities," said Angelo Mozilo, Countrywide Financial Corp. chairman and CEO, who announced the initiative at the International Builders' Show in Orlando.
"For several years now, Countrywide has been a leading lender to minorities and lower-income households," Mozilo said. "I am proud of our lending record and pleased to announce the expansion of our lending commitment to $1 trillion." The We House America program has already placed 2.4 million families into homes, Mozilo said that number should nearly triple by 2010.
The company will continue to develop innovative programs emphasizing non-traditional lending criteria, according to the announcement, such as calling for improved underwriting systems that eliminate the over-reliance on traditional credit scores that can mask a borrower's true credit-worthiness.
Countrywide last year launched Optimum Loan, a program that addresses obstacles for hard-to-qualify borrowers, such as allowing for non-occupant co-borrowers, other secondary income, and pooled funds for down payments. ...
"To ensure that this objective is achieved, we intend to expand upon our existing partnerships with specific community groups," Mozilo said.
Henry Cisneros, a Countrywide director and a former secretary of Housing and Urban Development, said, "This company is leading the industry in closing the homeownership gap through ambitious lending commitments, innovative programs, and a strong corporate culture that constantly looks for ways to improve."
Countrywide formalized its commitment to affordable lending more than a decade ago by launching We House America, an initiative to provide increased homeownership opportunities for all Americans. The previous commitment covered the years of 2001-10 and has provided $341 billion of home loans as of Dec. 31, 2004. The company is now extending the goal to $1 trillion by 2010.
And back in February 2003, Mozilo had given a well-publicized Harvard address pledging $600 billion (with a B) in minority and low income mortgages in support of President Bush's October 15, 2002 call for closing the racial gap in homeownership by freeing up lenders from discriminatory regulations like insisting upon down payments.
And Mozillo had been demanding deregulation in the name of minorities from nine years before that, when Cisneros and the Clinton Administration threatened Countrywide with having the Community Reinvestment Act, with all its paperwork, extended to non-bank mortgage lenders like Countrywide if they don't start lending more to minorities:
Eased guidelines seen as key to boost in minority lending
AUTHOR(S) Prakash, Snigdha
PUB. DATE October 1994
SOURCE American Banker; 10/13/1994, Vol. 159 Issue 198, p20 ...
ABSTRACT Presents the guidelines outlines by Angelo Mozilo, chairman of Countrywide Funding Corp. regarding loans awarded to minority borrowers. Recommendation for the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corp.to loosen underwriting guidelines; Presentation of the guidelines during a speech delivered to the Mortgage Bankers Association.
The central thread in the Housing Bubble / Bust was excessive deregulation in the name of increasing minority lending. This all did a lot more for Angelo Mozilo's net worth than it did for minorities' net worth, but, there are simply no interest groups in America who want to hear what really happened. Everybody wants to promote their ideologically congenial fragment of the full story.
Sure, trillions evaporated and trillions may evaporate again in the future because nobody wants to learn this lesson of history, but I guess that's a small price to pay for keeping the embarrassing truth covered up.
An intriguing theory I read is that because Mozilo has unusually dark skin for an Italian-American, and claims to have suffered discrimination while traveling through the South as a young man, he basically considers himself an honorary minority and dedicated himself to increasing minority homeownership.
ReplyDelete$1 Trillion are 5 million borrowers each taking on a $200,000 loan.
ReplyDeleteThe old rule of thumb, was 3:1 debt to income. Call it 4:1 under our new system of wage/debt-slavery. That's $50k/yr of income, pretty close to the US median.
So, on the surface not implausible, but wait, there's stock and flow. 5 million new loans are 5 million new households. Where are 15-20 million new people going to come from? Native population growth has been flat. Ergo we are talking about immigrants. Do immigrants make anywhere near the US median in income?
Also, do any of us in the cheap seats get a say in whether we want another 15-20 million neighbors?
I remember John McCain's rage at being asked the question of roughly how many new neighbors he'd like us to have. It's on YouTube somewhere. As might be expected, he was too busy hurling insults at the questioner to both with an answer.
And not a single mention of any of it in the Official Word on all Matters:
ReplyDeletehttp://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble
When will the gov't finally kick Arizona out of the Union so I can move there?
ReplyDelete"These are cogent arguments"
ReplyDeleteBarry Ritholtz
US ruling elites have changed quite a bit since the Reagan Era-and not for the better:
ReplyDeletehttp://www.capitalismwithoutfailure.com/2011/12/bill-black-on-incidence-of-fraud.html
(...)
"On the prosecution of fraud following the Savings and Loan Crisis: Our agency filed over 10,000 criminal referrals that resulted in over 1,000 felony convictions. We worked closely with the FBI and the Justice Department, to prioritize cases—creating the top 100 list of the 100 worst institutions which translated into about 600 or 700 executives. We went after the absolute worst frauds.
On the prosecution of fraud following the current crisis: We now have appointed anti-regulators. The FBI warned in open testimony in the House of Representatives, in September 2004, that there was an epidemic of mortgage fraud, and they predicted that it would cause a financial crisis if it were not contained. It was not contained. Since then we have had zero criminal referrals. They completely shut down making criminal referrals. Both the Bush Administration and the Obama Administration have not made it a priority to prosecute these elite criminals who caused this devastating injury.
On the incidence of fraud : "Liars loans" means that there was no prudent underwriting of the loan. About one-third of all the loans made in 2006 were liars loans. The Anti-Fraud Specialist Unit of the Mortgage Bankers Association - the trade association of the perps - reported this to every member of the Mortgage Bankers Association in 2006. The Anti-Fraud Specialist Unit stated the following: 1. Liars loans are an open invitation to commit fraud, 2. Liars loans contain a 90% incidence of fraud, and 3. Loans that were named "Alt-A" were actually liars loans. So nobody can claim they did not know. After 2006, liars loans grew to comprise over half of all loans made."
(...)
"Daniel Mudd, head of Fannie Mae..."
ReplyDeleteRacist!
The problem isn't reckless lending on the part of the banks. The problem is the banks were able to shift the costs of their reckless lending onto the taxpayers and anyone who holds dollars.
ReplyDeleteI figure the banks should be able to lend to anyone they want. But. 1) They should be kept small enough that the failure of a few banks doesn't precipitate a liquidity crisis and 2) they should be prevented from holding the kinds of investments in other banks that make the system one virtual bank that fails as a unit.
Then when a bank fails only the people who own the bank lose, which is as it should be since they picked the management.
And not a single mention of any of it in the Official Word on all Matters:
ReplyDeletehttp://en.wikipedia.org/wiki/Causes_of_the_United_States_housing_bubble
And even more shockingly, there is nothing of it even on the "talk" page, where non-PC stuff unfit for the related article is often battled over.
"The central thread in the Housing Bubble / Bust was excessive deregulation in the name of increasing minority lending."
ReplyDeleteI think it was more "deregulation in the name of making the finance industry even richer," but the minority lending angle was exploited to justify this policy.
Incidentally, why the hell has it taken this long to bring Countrywide/BofA to court, and why did it conveniently happen just weeks before the election?
On the prosecution of fraud following the Savings and Loan Crisis: Our agency filed over 10,000 criminal referrals that resulted in over 1,000 felony convictions. We worked closely with the FBI and the Justice Department, to prioritize cases—creating the top 100 list of the 100 worst institutions which translated into about 600 or 700 executives. We went after the absolute worst frauds.
ReplyDeleteIt is a little known fact that this prosecution wave was actually a major cause of the next housing bubble.
In the late 80's, Fannie Mae, FHA, etc, were strongly encouraging minority loans. But back then, they had to be conforming loans, so there was a lot of winking/nodding at grade inflation on mortgage applications for minorities - a little overstatement on income, acceptance of sob story waivers for bad credit issues, etc.
Then when the crackdown came, they went after the institutions with the highest default rates and pawed through the applications, looked at all this wink and a nod stuff, and sent tons of folks off to jail for the stuff the feds had been greenlighting.
This caused a massive shutdown in willingness to lend to minorities, as, while your average mortgage originator was generally not racist and willing to work w/minorities (redlining is a fairytale, at least in that era), they sure weren't going to risk going to jail for it when the political tides shifted.
Hence, the formal introduction of non-conforming, sub-prime loans. For reasons of fairness, these had to be available to everyone, not just minorities, so the long party began....
I know this because I several people very close to me got caught up in this grinder and had their lives destroyed back then.
"I think it was more "deregulation in the name of making the finance industry even richer," but the minority lending angle was exploited to justify this policy."
ReplyDelete"In the name of" and "for the purpose of" are not always identical.
"'In the name of' and 'for the purpose of' are not always identical."
ReplyDeleteIndeed.
Perhaps Wikipedia doesn't have this information because they require"Sources", not original research. I've read "eckless endangerment" and it seems to have enough to get a good start. Perhaps one of our readers could bring this to Wikipedia's attention. Robert Hume That's "reckless endangerment"
ReplyDeleteI wonder how much of this backfired and how much of the lent money ended up in middle class pockets.
ReplyDeleteHere is the deal. Countrywide makes some lousy loan of $150k to Tyresha Jackson on a house worth probably $120 but who cares Fannie Mae will buy it anyway. So, John and Mary Winstead are up $30k and they have whatever other equity to put down $200k on a house worth maybe $150. Tyresha defaults. There is a price crash in her neighborhood. But John and Mary Winstead keep paying the mortgage on their inflated value house. The middle class builder got paid. The developer got paid. The Bank got paid. Countrywide agents got paid. So, plenty of people made money on these deals.
Shouldn't someone sue Freddie Mac because it created 70% of all loans and failed to follow up on any of the information Countrywide and others sent to them?
ReplyDelete[["I think it was more "deregulation in the name of making the finance industry even richer," but the minority lending angle was exploited to justify this policy."
ReplyDelete"In the name of" and "for the purpose of" are not always identical.]]
The primary pushers of bank deregulation were the big banks. And they weren't waving the diversity flag. They did it for the purpose of what Mathew said, but in the name of helping the economy, allowing them to compete, free markets, getting rid of Depression Era regulations, etc...
The Diversity angle Comm. Reinvestment Act was then pushed to bring those final Dems/Clinton over to get it pushed through.
I think you make some good points--and ones the MSM won't touch for obvious reasons--but I think you tend to oversell it a bit at the same time.
Just wait for the student loan bubble to pop. It will take some time but, you will see the same exact talking points.
ReplyDeleteI work in the edu "industry" and see this happening every day.
Just wait for the student loan bubble to pop. It will take some time but, you will see the same exact talking points.
ReplyDeleteI think the student loan bubble will burst in the sense that there will be massive defaults as students cannot pay them back because they don't have jobs/money.
" Just wait for the student loan bubble to pop. It will take some time but, you will see the same exact talking points.
ReplyDeleteI work in the edu "industry" and see this happening every day.
10/25/12 9:09 AM
Anonymous Anonymous said...
Just wait for the student loan bubble to pop. It will take some time but, you will see the same exact talking points.
I think the student loan bubble will burst in the sense that there will be massive defaults as students cannot pay them back because they don't have jobs/money."
- One big problem, though, is that unlike the mortgage loans, the student loans are not so readily discharged in bankruptcy. If you've got $90k in loans and a B.A. in Art History with a specialization in 19th Century Basque vases, then you're pretty much saddled up with that debt 'til you go to the grave.
The massive and immensely complex Dodd-Frank Act promised to protect consumers from such shady lending practices. America can only wait and hope for the best.
ReplyDelete