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80% of mortage fraud is from banksters, not homeowners

Go read William Black (senior regulator during S&L debacle):

The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.

In fact, the fraud is so egregious that the "stress tests" really are kabuki: That's because the banksters didn't ask for documents from the lenders, because they didn't want to know:

[T]he investment and commercial banks that purchased nonprime loans, pooled them to create financial derivatives, and sold them to others engaged in the same willful blindness. They did not review samples of loan files because doing so would have exposed the toxic nature of the assets they were buying and selling. The entire business was premised on a massive lie -- that fraudulent, toxic nonprime mortgage loans were virtually risk-free.

What didn't they want to know? This:

A rating agency (Fitch) first reviewed a small sample of nonprime loan files after the secondary market in nonprime loan paper collapsed and nonprime lending virtually ceased. The second document everyone should read is Fitch's report on what they found.

Fitch's analysts conducted an independent analysis of these files with the benefit of the full origination and servicing files. The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file.

It's the banksters.

It's the banksters.

It's the banksters.

This is why, both from the perspective of the historical record and building the left, it's moronic to blame the victims, who are the borrowers, instead of the perps, the banksters. The financial crisis isn't the borrower's fault if 80% of the problems come from the lenders! And I bet a lot of those borrowers are in Hillary's 18 million, not the "creative" [cough] "class."

It's even more moronic to throw the borrowers under the bus after Obama repeats the same untruth ("People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway"). I mean, Alan Greenspan, the entire Village, everybody on the teebee, every authority figure, and tout le monde except for a few hippies thought that housing prices would keep rising forever, right? So why not blame those with the money and power who drove the process?

It's the banksters!

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goldberry's picture
Submitted by goldberry on

NO ONE AT THE CONFLUENCE was blaming the borrowers. Again, this is a deliberate misconstrual of what was written. The blame was, and always will be, on the people who ran Fannie Mae and Freddie Mac who took a deliberate hands off approach to predatory lending practices. That does not mean that we think it is a bad idea for Fannie and Freddie to lend to all people, *who can afford it*. But the efforts of the quasis was not put towards steering these people to safer loans even if it meant that it would take more time and effort for them to qualify. Fannie and Freddie were negligent of their oversight responsibilities. BTW, the quasis are only one little portion of this whole mess. We find it odd that you would concentrate all of your attention and rationalization for claims of racism, on this one post that y ou have deliberatly misinterpreted. In fact, this is a very simple concept. It doesn't take a master logician to sort it out. Loans to underserved populations= good. Bad loans to underserved populations = not good. The people who were responsible for the bad loans and who by their own admission took a passive attitude towards it, should be held accountable.
Does that mean we think that the quasis should be abolished? I have read nothing at The Confluence that suggests such a thing. Do we think that lending to poor people is a bad thing? No, again, there is no evidence of this. What we believe, and what is consistent with our principles, is that there is an equality of opportunity. We believe that people shouldn't be expected to pull themselves up by the bootstraps if we refuse to give them boots. BUT do we think these people were badly served when the mortgage industry was allowed to operate through the quasis to provide substandard and expensive loans? Yes, we do. Any other interpretation is in your heads.
In the spirit of interbloggy friendship, we would really appreciate it if you dropped this line of accusation. It is contentious and divisive as well as being demonstrably untrue.

Submitted by lambert on

Obama:

People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway.

That's Obama, and to me, that blames the borrower. The borrowers didn't fake the paperwork; the banksters did.

The TC commentary doesn't repudiate Obama's frame at all; in fact, it reinforces it:

As we learned last year from certain people who shall remain nameless, blaming the financial crisis on bad loans is racist. So how is what Barack Obama said in his Sad State of the Union address materially different from this?:

Loose standards were set up to expand home ownership to folks who couldn’t pay home loans back and to improve the odds of high compensation for its CEOs.
I believe the technical term used in the accusation against us was “racist, ratfucking bullshit of the Right.”

Sure, it's not materially different -- and it's just as wrong no matter who says it. (Conveniently lost in the commentary is the fact that the original commentary was focused on Fannie Mae and Freddie Mac; for the consequences of that, see Anglachel's post.

Rather than see Obama's untruth as an opportunity to lob another grenade at unlinked-to "certain people" in a trivial war among the blogs, wouldn't it have made a lot more sense, both pragmatically and historically, to lob the grenade -- metaphor, people -- directly at Obama? Priorities! Focus!

goldberry's picture
Submitted by goldberry on

Let me try to clear this up for you who are so willing to misinterpret:

1.) As Dakinikat has patiently explained in other posts, there were a lot of people who took out loans they couldn't afford. Bad loan takers were not limited to the poor. They are among all socio-economic groups. But I do find it curious that you are focussing on the poor to the exclusion of everyone else.

2.) We all have free agency. I do not believe in permanent victimhood. It is one of the reasons why I don't jump on the "it's all the Patriarchy's fault and we are powerless against it" stuff that other posters, including some of my friends, like to promote. Yes, people can be duped but that is one of the reasons we get real-estate lawyers to look over the contract before we sign on the dotted line. Yes, I am aware that some people aren't acquainted with these procedures, especially when they are first time borrowers.. That is where the quasis fell down on the job. They let the bad guys to take advantage of vulnerable people desperate for the American Dream and a mortgage tax break. without requiring that these providers provide the prospective homeowner with a list of possible "side effects" of the loan. If it were a new drug, the lender could never get away with it.

3.) There were more secure, stable loans available. They take more time to qualify for and their requirements were more stringent but in the end, borrowers would have been much better off if they were steered towards the FHA loans.

Did you notice that I keep putting the emphasis on the lenders and the quasis to provide more disclosure? No, I don't think you have. We have always faulted the lenders. That was what the whole problem was all about. Myiq2xu's point (thanks for banning him, btw, he was a great pick up for us) was that any criticism of the borrower is now interpreted as a racist remark even though it is beyond farcical to accuse Obama of racism. For the record, I do think that borrowers were in part responsible for what happened (I give it 20% culpability. The market was blistering and homeowners had to move fast. Still...). It is always a good idea to shell out $1000 for a good lawyer to look over the contract very carefully. If you don't have the money for a lawyer, you're probably in over your head when it comes to the house. That should be SOP until the government reinstates proper regulatory oversight.

Now, ban me if you want. I don't care for this discussion anymore. It's pointless and makes me cranky. Whether we keep a link to you guys after this last post is up for discussion at The Confluence. They've been pressuring me to delink for some time now but I always held off because you guys have good stuff, most of the time, and I like to send business your way. But I have to wonder if it's worth it these days. Maybe your readership is bigger than your comments suggest but I don't think the perceived smallness of this community is worth the agita.

I know, I know, you probably think it will make no difference. I hope you're right as that will significantly relieve my sense of responsibility.

Good luck! I'll remain a faithful reader. Hope you guys snap out of it someday.

Submitted by lambert on

Banning here doesn't work on a tit for tat basis; banning you never occurred to me, nor would it to anyone who has that power here.

If a commentator chooses not to use a classic Obama moment as a teaching opportunity that would explain to the disenfranchised 18 million who's really responsible for the financial crisis, and instead uses it to lob grenades at unnamed other blogs, those priorities are hardly my problem.

That was the point of the NOTE, that was the point of my rejoinder, and it remains the point. It is unaddressed in any of your commentary, further reinforcing what I'm saying. I am not the one who is persistently misunderstanding here.

goldberry's picture
Submitted by goldberry on

You, mandos and anglachel have used some pretty flimsy excuses and unjustified accusations of racism to distance yourself from us since last August. It isn't *our* fault that you allowed the psych warfare, peer pressure tactics and group identity tricks to divide us. We have made every effort to stay friendly and I have, on many, many occasions asked my front pagers to not to go after you. They've been insulted in more ways than you can imagine and at times, threatened to mutiny. myiq2xu takes this stuff very personally and has shown remarkable restraint. But every now and then, anger gets the better of all of us.

myiq2xu has a point and it is this: You have persisted in your misconception of who is the true enemy. We don't expect an apology from you guys. That would go above and beyond. We were ok with forgive and forget. But this crap keeps resurfacing and it's not always from us. And if he took a moment of his time to point out to you that you went off the rails last year just when we needed solidarity from you, well, good.

Now, I'm done. You can have all of the last words you want. It's your blog. That doesn't mean they have to make any damn sense.

.

Submitted by lambert on

To use a right wing meme.

Nor do you respond, again, to my point, which I will repeat for the third time:

Is using a potential teaching moment in an Obama speech to lob grenades in a blog war instead of defending Hillary's 18 million, really the best use of your platform?

If you think so, and apparently you do, good luck with it.

Submitted by jawbone on

words from the Sorta SOTU? When I heard him, I heard him blaming po' folk for not having the moxie to know the all wise banksters and their mortgage broker sales arms weren't being on the up and up with them. But I could have been too limited in sussing out what Obama meant by people buying homes they knew they couldn't afford to pay for. Which, actually, I can't imagine too many people do deliberately. I mean, moving is hell and who wants to be foreclosed?

Whenever I hear that approach I go apoplectic: Most homebuyers, especially first time buyers, are so dependent on their real estate sales people, mortgage brokers and bankers, and, in some states, lawyers. I bought my first house in WI from a realtor who was honest, clear about costs, and would rather say a house had problems than sell the house if I couldn't have handled them. She was wonderful. No lawyers involved out in WI ususally back then, unless it was a newly built house from a contractor

Came out to NJ -- had a lawyer, who, it turned out, was in kahoots with the realtor who recommended a house inspector who lied and the realtor was best buds with the seller. I was lied to. The lawyer tried to tell me to release my downpayment amount to the realtor prior to the closing, etc. (I didn't) I should have recognized that as totally beyond the pale and gotten out of the deal then. I would have been better off bcz I got screwed. The realtor never said we should do a walk-through close to the closing -- and the seller ripped items out of the house, leaving it a bloody mess. The seller even emptied the oil tank!

I thought I was doing due diligence! I really thought I had some "experience." My experience was just too good out in WI and with completely ethical people, leaving me unprepared for the NJ bastards.

OK, so I was a fool -- but when mortgage brokers tell a buyer that they are "qualified" for x-amount for a mortgage, those buyers tend to believe them. They're the freakin' experts. They didn't know the game the Big Banksters and Wall St was playing with their home purchases.

Anyway, Obama's words really bothered me. But he was probably being either bipartisan (as in "We are so bipartisaned!) or taking care of his Big Bankster supporters' feelings. Heh.

Anyway, to me the Confluence piece and Lambert's are getting at essentially the same thing, no? Words are difficult things to use to get absolutely clear ideas across to our readers, but I read what you're both saying as basically the same thing.

And do continue posting here--love to read your input.

And this bit about 80% should be shouted from the roottops -- and by all good lefty bloggers and any talking heads we can persuade to talk about it.

Submitted by lambert on

As you said:

This bit about 80% should be shouted from the roottops

I'm trying to. Priorities!

And yes, I heard this too, just as you did:

Goldberry, wasn't the Confluence piece just repeating Obama's words from the Sorta SOTU? When I heard him, I heard him blaming po' folk for not having the moxie to know the all wise banksters and their mortgage broker sales arms weren't being on the up and up with them

Yep. That should have been called out as bullshit, not used as a stick to beat other unnamed and unlinked to blogs! Opportunity cost! Every day counts!

gqmartinez's picture
Submitted by gqmartinez on

This needs to become common knowledge. Fast!

Blaming the victims is pretty widespread. I cringe everytime a Dem (particlarly Obama who has the biggest bully pulpit) says that. Its easy to believe that the victims were to blame because its truthy. But banksters were essentially betting on loans they *knew* were too risky. They knew their behavior could lead to much bigger catastrophe than losing a single house. Which is another thing: people are yelling at folks for a few hundred thousand dollars, but the banksters screwed up to the tune of hundreds of billions. Seems like folks have their anger directed at the wrong people. But not only is the scale of the victims "mistakes" chump change, they were really a small fraction of the problem.

jjmtacoma's picture
Submitted by jjmtacoma on

When the housing market was going up, up, up!! The foreclosures could be dumped for a profit if the buyers couldn't pay. It was a win/win for all the important people.

Now, I think the "blame the victims" framing has everything to do with who gets to eat the loss -and- who gets the money from the taxpayers.

God knows, "you" don't want your tax dollars paying for your neighbor to live in a better house than yours... that they don't deserve since they didn't work as hard and they cheated to buy it too (ya know!).

Oh no, they just want us to think it is a really good idea that the bankers get bonuses to prevent anyone undeserving from getting any benefit.

I still wish they would do HOLC, from what I understand it has the best chance of returning the investment. I'm pretty sure we won't get any return on CEO bonus pay.

Valhalla's picture
Submitted by Valhalla on

is what has gone largely unstated (although soon to be stated, I'm thinking) is that we must put aside our anger, frustration and plain old drive to punish the bankers, brokers, and others who perpetrated this massive bubble burst in order to save the economy. We must rise above for sake of us all. In other words, it's not about what they deserve, it's about what we must do.

But foreclosed-on homeowners get no such lofty feeling applied to them. There's no sense of needing to rise above for them. Even if Obama's and the right wing's tropes about who owns the responsibility for risky mortgages were correct-- hell, even if it were provably 100% on the homebuyers, even if they were all wicked, evil people who intentionally set out to defraud banks on a massive conspiracy scale -- where is the correlate argument that we have to help them anyway to save the economy?

Anglachel's picture
Submitted by Anglachel on

Noting that a single story does not count as "data", I offer up my own home buying experience, done in spring of 2007 when the shit was hitting the fan and anyone paying attention knew that the gravy train was coming to an end. We bought in one of the worst housing markets in the country, San Diego CA, with hyper-inflation on the upside and crashing values on the downside. At that time, the market was declining around the county, but the neighborhood we were buying in was still appreciating.

We wanted a conforming loan with a 30 year fixed rate. We had full documentation of income and assets. Our credit scores were over 800 for each of us. The loan officer looked it all over, then said if we would withdraw our documentation and just go with credit scores, he could get us "a better deal". What was a better deal? More money, lower (variable) interest rates, and cash out. We declined, got the conforming loan (which was sold multiple times and now is owned by BofA/Countrywide), and are not underwater.

The recommendation to engage in fraudulent activity came from the lender, not the borrower, based on an expectation by the lender that he could get a better deal *for himself* if the borrower would take on more individual risk. If we had been less aware of the housing market (i.e., listening to the TV instead of reading Calculated Risk), had been less sophisticated borrowers, had been less stubborn about sticking to the financial plan we had set for ourselves, we probably could have been talked into a loan less favorable to us. It might not have been a toxic loan, per se, but it would have increased the level of risk. In a deteriorating market, slightly more risky can become unacceptably risky in the matter of a few weeks.

Why would someone be "so stupid" as to accept a loan deal that was that risky? Why not just say no?

The mortgage crisis is highly concentrated in a few geographic areas, most prominently CA. The prices of homes there were able to hyper-inflate *because* of fraudulent lenders willing to push risk onto individual borrowers. If people couldn't borrow that much, the homes could not be sold for that much. Something people pushing the GSA argument keep overlooking is that the price of these homes was well above the conforming limit - in short, Fanny/Freddie could not have purchased the loans in the first place. To get down to a conforming limit in our case, we had bring more than a 20% down payment to the table. Even very responsible borrowers are unlikely to have that much cash on hand (We had the unfortunate luck to have inherited a house in another state due to the death of a relative, which we sold.) and so it is a very, very small number of California borrowers who could have negotiated a deal like ours, given the asking prices and high cash requirements to get a conforming loan. The upward price spiral required a reliable supply of fraudulent loans. When the supply of loans stops, the prices stop going up.

The media likes to focus on the really crazy 105% LTV, NINJA loans made to dishwashers and other people they like to scorn, but the fact is that many CA borrowers would have preferred to have a conventional loan if the real estate and mortgage markets had made them viable. The home prices are sky-high, and the lenders deliberately push risky loan vehicles (none of them GSA qualified) through hard-sell and deceptive practices. If you look at your stagnant/declining wages, look at the increasing house market, and try to see where wealth generation is ocurring, well, isn't the risk that you might mis-time the market and go in too late to resell out of it worth taking?

In CA, assuming you were willing to risk being the person holding the bag/house when the music stopped, "risky" borrowing was a rational response to rotten economic times where real estate speculation was commoditized for ordinary borrowers.

Anglachel

gqmartinez's picture
Submitted by gqmartinez on

You know, just like we have to worry about them welfare queens in lincolns*, we have to worry about them greedy poor folk. The sad thing is, one Octomom can set things back a long way.

Submitted by Elliott Lake on

All I can say is this post must have been a low call to Goldberry---that is, ugly but true. . .

elixir's picture
Submitted by elixir on

Not to be a cheerleader, but, hell, we (and I like to think I'm on the fringe of the "we") are sooo lucky to have these forums - Correntewire, Confluence, etc. I would be a much, much sadder and uninformed participant without these bastions of truth and knowledge. And thank you to all who have created and supported these blogs by contributing many hours and dollars.

My god! Sarah, Myiq2xu, Lambert, Goldberry (Riverdaughter), Leah, Jawbone, Katiebird, Gqmartinez, Dakinat....damn, the list goes on and on...fabulous, fabulous insight and information. Thank you, thank you, thank you.

Submitted by lambert on

... we've been removed from The Confluence's blogroll. What a shame. Unfortunately, since I'm necessarily in quick hit mode, due to RL, I don't have time to set the record straight today -- which, even though past performance is no guarantee of future results, is very likely a necessity.

Submitted by jawbone on

This post by Hilzoy* (via Atrios) is about a Financial Times report on just how bad the toxic assets are, based on inside investigations by some of the Big Banksters, in this case JPMorgan, Chase. Alas, free registration required, but you can read the nut graphs at Obsidian Wings.

The comments mention a Wired article which talks about the infamous formula used by the math (and physics) whiz kids, the Quants, to find that mixing assets of varying qualities could result in a pate which would/could not fail.

The mathematician who comments below notes that the whiz kids and their managers did not want to know what would happen if they failed. So I guess this aphorism, attributed to Upton Sinclair, "It is difficult to get a man to understand something when his salary depends upon his not understanding it," applies to those supposedly dedicated to the scientific method.

I have a PhD in math. I had no idea that such lucrative work was available for someone with my credential. I'd have been more than willing to work for half the salary these guys were getting, and I'm sure I could have produced better results. [From earlier comment]

I do too, I did know, and in fact a number of my friends went and did just that. I'll be honest, the grinding poverty and "lifestyle" of graduate school made me jealous of their wealth and success. And I'll be even more honest and admit that, for me, the one bright spark in all this tragedy is the thought that, finally, they're falling back to my level.

[Plus, those innumerate hedge fund managers? Many of them were Type-A assholes I knew in college, and you have no idea how gratifying their comeuppance is to me.]

Let me also add one other factor not mentioned in the Wired article: hubris. Last summer one of my friends left town to become a financial analyst on Wall Street, using sophisticated modelling techniques developed by his college roommate. At a party just before he left, I caught him earnestly explaining to another friend how (what we now know were the beginnings of) the financial troubles were a completely anomalous event; and about how those models were almost always right, and they had only failed because of an incredibly unlikely series of events that no-one could have predicted.

I wanted to punch him in the face.

Never mind the fact that those events were in fact predicted. This is the thing that the Wired article missed: they knew the model didn't work. They being the quants, they being the managers. They knew it didn't work; they just convinced themselves that the events in question could never happen, and if by some miracle they did, they convinced themselves they could survive them. So -- and this is the part that burns me more than I can say -- they never looked at what would happen if it failed.

First rule of being a mathematician: when someone hands you a theorem, figure out why it doesn't work. Second rule: if it's true, figure out why it can't be applied to a broader context. That's just what you do. That's how we're trained. But these yoyos decided that because the risk was epsilon, the penalty for failure was irrelevant. As if epsilon were zero and therefore the negative outcomes need never be calculated. As if they could not fail.

They believed they'd conquered risk.

And now we're all paying for their sins.

Posted by: Anarch | February 27, 2009 at 11:36 AM (My emphasis)

Per the FT article, reality bites, hard and destructively:

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs [out of $450B] has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

Think Geithner knows this? If so, why is he recommending the actions he does? Or does he know more, that it is so bad that perhaps Soros could be right? There is no bottom? Yikes.

What have the Banksters wrought?

*Aha! Hilzoy hatips to Yves at Naked Capitalismm whose post has more from the FT article.