The Real Mortgage Fraud: GSEs and Government Accounting, Duh



As many of you already know, JDA is no mathlete (don't let the name fool you; I am not an accountant, I just play one on TV. Don't ask me to help you with your taxes because I own this shirt) but these numbers just don't check out. And I have sat through several hours of government accounting classes. And I've even contemplated this at the bar loopy on Racer 5. Still, I can't figure out how this adds up. Can one of you fucking math whizzes help a sister out on that? Grab the waterproof calculator, kids, you're going to piss yourselves when you realize how deep in the hole we really are.

WSJ:

Fannie Mae reported a staggering $72 billion net loss for 2009, underscoring the challenges that still face the nation's largest mortgage financier and offering more grim news for taxpayers who may ultimately pick up the bill.

The Washington-based company posted a $15.2 billion fourth-quarter loss and said it asked the U.S. Treasury for another $15.3 billion to stay afloat, bringing its total bailout tab past $76 billion. The quarterly results were an improvement from the year-ago period, when Fannie reported a $25.2 billion loss, but the annual loss surpassed the year-earlier loss of $58.7 billion.

The Fannie Mae earnings release came days after Freddie Mac, its smaller competitor, reported smaller losses. Freddie Mac posted a fourth-quarter net loss of $6.5 billion, didn't ask for more bailout cash and posted a $21.6 billion loss for 2009, down by more than half from a year earlier.

Unfortunately, the GSEs' plan to squash competition (see what happens when things get nationalized? It isn't pretty to watch) by strong-arming independent AVM providers out of the loan modification fun isn't quite working out for them. Aww, now that isn't nice.

The CATC wrote an angry letter that you can find here:

In this era where there is a renewed interest in fair, open and honest dealings we felt it appropriate to communicate that members of the Collateral Assessment and Technologies Committee (CATC) of the Real Estate Information Professionals Association (REIPA) believe that the independent providers of residential real estate automated valuation models (AVMs) have been unfairly excluded by FHLMC and FNMA (collectively the “GSEs”) from participating in the Home Affordable Modification Program and we have a recommendation to rectify the situation.

The Home Affordable Modification Program (“HAMP”) guidelines released by the cosponsors on March 4, 2009 specifically provide for the use of non-GSE AVMs. Contrary to the Treasury’s directives, however, the GSEs made it abundantly clear that for this program only the GSE’s proprietary AVMs could be used for valuation purposes if the lender wanted to receive a waiver of representations and warranties1. While a lender could choose to use a non-GSE AVM, it was clear that they use it at their own peril because representations and warranties would not be relieved. As a result, all private sector AVM providers are effectively “locked-out” of participation in this program. The fact that no AVM other than those owned by the GSEs, can be used for the HAMP creates the appearance of an endorsement by the Federal Financial Institutions Examination Council (FFIEC) and sends a loud message to the lender community, that GSE AVMs are the best from the GSE perspective and unfairly suggest that there are no acceptable substitutes.

But wait, that's not all! Fannie and Freddie lined up for what must be their 9th bailout by now (is that how many quarters deep into this thing we are?) and little Timmy Geithner kept his unlimited bailout promises but failed to deliver on that transparency he's been pushing from the gate:

“The Administration is in the process of reviewing issues around longer term reform of the federal government’s role in the housing market.” Treasury also said that President Obama would provide a “preliminary report” in his fiscal 2011 budget in February 2010.

That report did not happen. On the contrary, this week Treasury Secretary Timothy Geithner told Congress a plan for the reform of Fannie and Freddie would not be offered until next year.

On Friday, Fannie Mae asked to tap into its Treasury credit facility for an additional $15.3 billion, bringing its bailout total to more than $75 billion.

China is holding a lot of this crap, so if they dare grow a pair and dump more Treasurys, Timmy won't be able to fund his unlimited bailout and therefore the Chinese paper will be worthless (oops it already is) and they'll end up screwing themselves. So? Do it already, China, just grab one end of the bandaid and yank. There's a gaping sore underneath it so you might want to look away.

BUT IT GETS WORSE! I know, right? How is it possible? Somehow it is.

GSEs get the most magical accounting treatment of all, somehow counting as their own entity in the debt sense and quarantined from the United States' "budget". That and China dumping the garbage is only slightly disconcerting.

Based on data from TIC and other U.S. sources, it is possible to construct a profile of the owners of U.S. government debt held by the public, which stood at $7.8 trillion at the end of December 2009. China’s share of total outstanding U.S. government debt held by the public has risen steadily over the years, but fell slightly in the latter half of 2009 and now stands at 10 percent (or about one-quarter of all U.S. debt held by foreigners). This represents a one percentage point reduction relative to the share in August 2009, consistent with the fall of about $45 billion in China’s overt holdings of U.S. Treasuries from August to December 2009. Debt issued by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, which amounted to about $7.2 trillion as of September 2009, represents a liability of the U.S. government as well. China’s share of outstanding U.S. agency bonds was 6.4 percent in 2007 but fell below 6 percent in 2009.

Wait. So they are nationalized and a pretty fucking large liability (again, I suck at math so if I'm over-reacting by over-adding or something, please let me know) and we're on the hook for an unlimited bailout because Tim Geithner is a debt hack but GSEs aren't counted in our overall debt?!

Like the Social Security "Trust" we've been looting for years?

Government accounting. It's a miracle. And we truly are screwed.

If the government would really like to be proactive in attacking mortgage fraud at the root, JDA humbly suggests they bust themselves and let competent entities (like the markets) figure out how to put the pieces back together as they have failed miserably. Good luck with that.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

43 comments:

Anonymous said...

http://money.cnn.com/2010/03/01/news/economy/budget_debt/index.htm

GSE problems are now starting to get some other media attention for the unwashed masses (a day late and a dollar short but wtf, better late than never, right dear?)

"If the government would really like to be proactive in attacking mortgage fraud at the root, JDA humbly suggests they bust themselves and let competent entities (like the markets) figure out how to put the pieces back together as they have failed miserably"

My opinion is that no person or entity enjoyed the bubble more than Uncle Sam and that's why no on in a capacity to reign it in did anything about it - cui bono? cui bono?

I find reading about the Bureau of Land Management land auctions of the recent past just fascinating especially given that hindsight is always 20/20 :>)

I really need to get some better winter time hobbies - Spring in about three weeks yippie!

Jeff

Anonymous said...
Anonymous said...

I'm not an Obama groupie but I will say this now that he's been around for two years...

He has done more via DOJ/FBI to crack down on mortgage fraud in the past two years than Bush ever did in his 8 years in office. Seriously. I look at the Obama win as a bit of a cloud with a silver lining. When Bush was in office, there were working stiffs like yours truly who were screaming to high heaven about the level fo mortgage fraud that was happening day in and day out. Anyone with any experience and even the weakest bullshit detector could spot it. It was blatant, unchecked and widespread. Now, Holder over at DOJ & the FBI are treating the problem with the urgency that it really does deserve. There are some who got used to the way things were and were becoming enriched by the environment. That party is coming to an end but it is going to be a long slow slog getting through it and it's going to be costly and time consuming to clean up the mess.

http://www.housingwire.com/2010/09/14/fbi-crackdown-on-fraudulent-mortgages-may-underestimate-scope-of-problem

"In addition to the FBI's main detective agency for the program, the National Mortgage Fraud Task Force, it also employs 23 local mortgage fraud task forces around the nation, targeting key areas such as California, Texas, New York and Florida"

http://www.stopfraud.gov/news.html

W.C. Varones said...

Anon,

Angelo Mozilo, David Crisp, Casey Serin.

All walking the streets free today.

All slam-dunk criminal cases.

I'll believe it when I see the perp walks.

Anonymous said...

Angelo is being investigated now

http://www.reuters.com/article/idUSN2722585520100827

Casey Serin is a basket case with a serious personality disorder. They probably won't bother with him as he'll probably wind up on your Greenspan's Body Count list in due time.

David Crisp is feeling the noose tighten.

http://www.bakersfield.com/news_alerts/x113239145/Crisp-in-laws-charged-with-wire-fraud

Anonymous said...

The plot thickens for David Crisp.

http://www.bakersfield.com/special_sections/crispcole/x457515363/Fifth-guilty-plea-entered-in-Crisp-Cole-fraud-case

These frauds took years & years to develop and carry out. They are not going to be investigated and prosecuted in the same time it takes to make a batch of Hot Pockets. Patience is a virtue.

Anonymous said...

But, in truth I'm as impatient as the next guy. In my perfect little world, all of these idiots would tell their loved ones that they need a little space and go off to a nice secluded area, have a stiff drink of Vodka, put the business end of a loaded S&W in their mouth and do the right thing. Prosecutions and investigations take a lot of manpower & money and haven't they cost their fellow man enough already? Angelo would probably just strap on his Speedo, hop into the tanning bed, turn it on "HIGH" and close the lid. Anyone else think he's like the Count Dracula of the California Sun realm?

Anonymous said...

well, this one hits close to home

this blog is from a California girl who has been tracking this shit for a long time. I don't hold it against her that she's a lawyer (well, most of the time I don't). The complaints from within the industry fell upon deaf ears for years during the Bush administration.

Of course they did, the Bush administration didn't realize that what was happening was actually controlled demolition of the economy. They just liked the idea of "stimulating" the economy, even if the majority of that "stimulation" was fraud. And I'm not just talking about the actual fraud.

Anonymous said...

If you go to Rachel's first postings on the subject back in 2001, the reports of prosecution were in dribs and drabs. Once a month, some idiot would get pinched way back when she started the blog in 01. It built and built. Now, every day there are at least of a couple of cases listed on her blog. That doesn't mean that frauds were not happening. They were and in large numbers. But the people who were supposed to be policing the situation sat around with their collective thumb up their collective ass.

Anonymous said...

"They just liked the idea of "stimulating" the economy, even if the majority of that "stimulation" was fraud"

Amen. "My opinion is that no person or entity enjoyed the bubble more than Uncle Sam and that's why no on in a capacity to reign it in did anything about it - cui bono? cui bono?"

I love you JDA!

Anonymous said...

It always killed me to hear tales from people I know out in the scrublands of the country about all the new development out west. Places where you normally only find desolate dirt, coyotes, roadrunners, fucking tumbleweeds, etc. suddenly had idiots deciding it would be a great place for a development.

Q: How does the BLM determine the minimum purchase price for public lands?
A: By law, public land cannot be sold for less than the fair market value (FMV) which is determined by an appraisal approved by the Department of the Interior's Appraisal Services Directorate (DOIASD). The approved FMV becomes the minimum acceptable bid for a property.

OK, so the auction begins using the value assigned DOIASD - what could possibly go wrong?

shooting high some days and shooting low the next.

ahhh, wtf, being right half the time is good enough

Anonymous said...

This fraud went on for 22 years until now - like I said, I'm not an OMG fan and didn't vote for the man, but you gotta cut a brotha' some slack in areas where he and his posse are actually doing something. A thought occurred to me while enjoying a Pall Mall - you're hanging with a FORMER (I hope former) and now reformed accounting fraud who has turned over a new leaf and is showing firms how to combat fraud, right? Sometimes it takes a crook to catch a crook. Personally, I'd hate to have Holder climbing up my ass looking for dirt.

W.C. Varones said...

Oh, come on.

Most Ponzi schemes are discovered at the time they run out of funds to keep the scam going. Who is President at that time has nothing to do with it.

By that measure, Bush should be commended for catching the biggest Ponzi schemer yet in Bernard Madoff.

Anonymous said...

There was nothing being done under Bush's watch to combat the rising amount of mortgage fraud. The excuse used at the time was that more and more of the FBI's manpower had to be devoted toward the "war on terror" (that's becoming the war on drugs Part II). I'm not over here ready to suck Obama's Kenyan dick just because he's doing what the fucking DOJ is supposed to be doing anyway - but it is finally getting long overdue attention. I've sat on the God damned sidelines for the past seven fucking years waiting for this clusterfuck to be over with so I can go buy a fucking shack, get another fucking hunting dog and move on with my fucking life but part of what has kept me on the sidelines has been all the Goddamned unchecked fraud and the idiotic rah-rah'ing about housing made by HGTV and Extreme Makeover and other assorted assclowns pushing housing as a fucking investment. They are doing the right thing and more importantly than what I think, it is starting to take some effect. That's one of the reasons (among several) that housing prices are on the steady march down the staircase back to fucking reality.

Anonymous said...

"It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes," said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities"

hindsight is always 20/20

he didn't lift a god damned finger.

Anonymous said...

p.s. Madoff cooked his own goose

The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.

....firm was insolvent and had been for YEARS....

W.C. Varones said...

But cracking down *after* things blow up is just what politicians do.

Bush DOJ went after Enron and Worldcom and Quattrone etc. when Wall Street fraud was in the news.

Obama DOJ goes after mortgage fraud when the housing crash is in the news.

It doesn't make either of them crusaders.

+1 WCV

Anonymous said...

How's that Obamabucks "let's keep housing prices artificially high" tax credit working out for you?

Jeff

Anonymous said...

"Nevertheless, high FBI and Bush administration officials knew a potentially devastating problem was on the horizon and failed to stop it."

"It was a sleight of hand because the public thought the administration was resourcing counterterrorism when in fact they were forcing cannibalization of the criminal program," the retired FBI official said. "Now the chickens have come home to roost."

March 2009 WASHINGTON (MarketWatch) -- Legislation that will give federal authorities more tools to combat mortgage fraud and create a commission to examine the financial crisis is on its way to the White House to be signed into law by the President Obama after the House voted to approve the measure. May 2009

Look, I ain't keeping score over here. You can make up your mind whatever way you want. I will tell you this, for someone who has watched housing for a variety of different reasons - work, personal, etc. - mortgage fraud was a problem that was known for several years. It was not a popular thought especially among people who make a living in this field (like me) or who collect taxes and fees from transactions. Skepticism about rising housing values was a contrarian thought. Harping about mortgage fraud was thought to be "Chicken Little" thinking. People who had the capacity to do something were adequately warned but in their hubris thought it wasn't something to be bothered with - I voiced concerns about this in an ALCO meeting and people in higher authority than me rolled their eyes. Those same folks don't control the day-to-day operations of our lending department though. I do. So, while I may not have been able to do much in getting policies changed, I could be a very "discouraging force" where it came to doling out loans that didn't pass my smell test. Guess what? (knock on wood) - no foreclosures so far... not even a serious delinquency so far. We'll see if we navigate through this without sinking the ship.

Now, one mortgage fraud that got my goat was Barry's little moronic tax credit stunt pulled earlier this year. Jesus H. Christ these people will throw ANYTHING at the unwashed masses trying to get them to "buy into the dream". Reckless and irresponsible government spending - wait that's right - that's a plank in the Tea Party platform, right? I wonder how many of those folks actually put their money where their mouth is at and make a choice to NOT participate in Uncle Sam's sometimes Kooky little plots and schemes to interevene in markets? If they rolled out a hair brained plot and no one participated in it what happens then? Getting my point here?????

Anonymous said...

"Nevertheless, high FBI and Bush administration officials knew a potentially devastating problem was on the horizon and failed to stop it."

"It was a sleight of hand because the public thought the administration was resourcing counterterrorism when in fact they were forcing cannibalization of the criminal program," the retired FBI official said. "Now the chickens have come home to roost."

March 2009 WASHINGTON (MarketWatch) -- Legislation that will give federal authorities more tools to combat mortgage fraud and create a commission to examine the financial crisis is on its way to the White House to be signed into law by the President Obama after the House voted to approve the measure. May 2009

Look, I ain't keeping score over here. You can make up your mind whatever way you want. I will tell you this, for someone who has watched housing for a variety of different reasons - work, personal, etc. - mortgage fraud was a problem that was known for several years. It was not a popular thought especially among people who make a living in this field (like me) or who collect taxes and fees from transactions. Skepticism about rising housing values was a contrarian thought. Harping about mortgage fraud was thought to be "Chicken Little" thinking. People who had the capacity to do something were adequately warned but in their hubris thought it wasn't something to be bothered with - I voiced concerns about this in an ALCO meeting and people in higher authority than me rolled their eyes. Those same folks don't control the day-to-day operations of our lending department though. I do. So, while I may not have been able to do much in getting policies changed, I could be a very "discouraging force" where it came to doling out loans that didn't pass my smell test. Guess what? (knock on wood) - no foreclosures so far... not even a serious delinquency so far. We'll see if we navigate through this without sinking the ship.

Now, one mortgage fraud that got my goat was Barry's little moronic tax credit stunt pulled earlier this year. Jesus H. Christ these people will throw ANYTHING at the unwashed masses trying to get them to "buy into the dream". Reckless and irresponsible government spending - wait that's right - that's a plank in the Tea Party platform, right? I wonder how many of those folks actually put their money where their mouth is at and make a choice to NOT participate in Uncle Sam's sometimes Kooky little plots and schemes to interevene in markets? If they rolled out a hair brained plot and no one participated in it what happens then? Getting my point here?????

Anonymous said...

And lastly, those same folks who rolled their eyes at me back in 2003, 2004, 2005, 2006????

When we meet now, I don't have to say it because I have perfected the "How do you like me now, Bitches?" look. It took a LOT of practice in a mirror.

Hey Fun Fact for the Day! San Diego Housing inventories in Jan 2010 - about 12,000 units according to one of my sources.

September 2010 inventories - about 17,000 units..... Yikes!

W.C. Varones said...

Now, one mortgage fraud that got my goat was Barry's little moronic tax credit stunt pulled earlier this year. Jesus H. Christ these people will throw ANYTHING at the unwashed masses trying to get them to "buy into the dream". Reckless and irresponsible government spending - wait that's right - that's a plank in the Tea Party platform, right? I wonder how many of those folks actually put their money where their mouth is at and make a choice to NOT participate in Uncle Sam's sometimes Kooky little plots and schemes to interevene in markets?

Sorry, this Teabagger takes the free cheese when he sees it. I was buying a house anyway and Barry O was handing out $8,000 checks. You'd have to be stupid to decline.

Anonymous said...

Sorry, this Teabagger takes the free cheese when he sees it. I was buying a house anyway and Barry O was handing out $8,000 checks. You'd have to be stupid to decline.

No, in my book, you'd have to be either a hypocrite or someone who doesn't follow tax spending and markets to accept it.

Get ready for further declines. They are on the way.

Anonymous said...

Mortgage fraud has an effect upon transactions - it inflates prices. It is especially true in real estate. Even in honest transactions, appraisals used in those transactions become tainted. The comparable sales used in the process become unreliable and suspect. They are like cancer cells in an otherwise healthy body. If the cancer cells are allowed to multiply unchecked, they overwhelm everything around them. There will always be some level of mortgage fraud. That's the way of the world. But if people who are in a position to do something about it don't, it is a disaster waiting for a place and time to happen.

Anonymous said...

it would appear that the whop Ooompa Loompa's luck is running out

Suicide by tanning bed, Angelo... do the right thing.

Anonymous said...

surf's up mothafuckers - cowabunga!

You know, when I do buy something (that is in the very near future) I'm not going to do a foreclosure. Too much desperation and a sacrifice of dignity has taken place in those dwellings. People clutching and scratching to hold on to a material thing. Vultures and parasites circling over head and there is just a really bad smell about the whole thing to me. Besides, bachelors with a cat and a couple of Brittanys can generally buy on the low end of the market - we don't have to participate in the whole pooky princess nesting on steroids female house buying experience. That type of housing stock here in old St. Louis has about reached the bottom of the trend. It is not quite there but the way I figure it, if I waited out the rest of the down cycle, I'm gonna part with a little chunk of rent money in the process so, WTF, right? And, Barry can keep his funny money - I don't mind. It's only money, right?

Anonymous said...

Wise man lookin' in a blade of grass

Young man lookin' in the shadows that pass

Poor man lookin' through painted glass

For dignity

Anonymous said...

Searchin' high, searchin' low

Searchin' everywhere I know

Askin' the cops wherever I go

Have you seen dignity?

Anonymous said...

Chilly wind sharp as a razor blade

House on fire, debts unpaid

Gonna stand at the window, gonna ask the maid

Have you seen dignity?

Anonymous said...

So.... Any Johnny Quest fans out there????

I loved the little Bandit dog - cute little bastard.

Johnny had a little brown buddy named Hadji. OK, it was long time ago so to jog your memory.

Anonymous said...

Oh, the heady days of 2005 when Americans everywhere were learning bo become contortionists - so they blow smoke up their own ass with funny money. The Ownership Society, come hell or high water. To use a Time magazine cover Why We're going GAGA over real estate ... yeah, so much for that little social experiment. By hook or by crook god damn it, you NEED a fucking house (or to profit from one).

Anonymous said...

Hey - let's talk Appraisal Fraud!!!! yaaay!

Anonymous said...

dated 2007 - another voice out in the wilderness


you can lead horses to water all day long but you can't make them drink..... we should do like some countries and shoot the fuckers and eat them.

Anonymous said...

Even a grouchy old Florida retiree and AARP member was noticing that something wasn't passing the smell test.

I'd like to know who decided that real estate should cost so much. In central Florida, a two-bedroom, one-bath home of 900 square feet sold six years ago for about $56,000 (and sometimes much less). Today, that same house carries a market price of $159,000! Who decided that that same little house was worth $100,000 more today than it was six years ago?
— Jon H., Deland, Fla.

Anonymous said...

2005 ahh yes, it was a very good year

Anonymous said...

One overvalued appraisal can skew home prices throughout a neighborhood, according to the Appraisal Institute's Kelly. "If a house is appraised for 10 percent or 15 percent more than it's actually worth and the sale closes, it may be used by another appraiser as a comparable sale the very next day," he said. "It has a ripple effect."

ahhh, what the fuck could possibly go wrong? Don't be an economic girly man.

Anonymous said...

wow this is a far cry from Old Blue Eyes My ears could only take about 30 seconds of it.

Anonymous said...

Jesus, what the hell was this? I think this is what the Army played on loudspeakers to annoy Noriega. I'd come out with my hands up within a minute - two minutes tops. God, that's awful music.

Anonymous said...

what me worry? - Alfred E. Neuman

Anonymous said...

....c'mon.... let me have some fun.

Anonymous said...

no one would listen when it could have made a difference - dig that WSJ article splashed across Drudge today.