Wednesday, July 28, 2010

Bank Mortgage Fraud Redux

Yesterday in my blog post I asserted that banks are fraudulently dragging out the foreclosure process on homes, including delaying the accounting declaration of delinquencies.  This serves two purposes:  1)  It allows the banks to release previous loss reserves into their income statements by lowering  their loss reserves and recognizing the "release" of these reserves as income, thereby boosting earnings.  This is a pure paper/phantom GAAP accounting manipulation that will ultimately hammer most banks down the road.  Please refer to the management commentaries that accompany the big bank earnings releases from last week if don't believe me. And 2) By understating delinquencies and foreclosures, it makes the balance sheet look stronger from a credit risk standpoint and it reduces reserve requirements for these banks. This is another component of the moral hazard and fraud that has completely infected our financial system and has been gloriously enabled by the idiot in the Oval Office and his band of merry thiefs running the White House.

And if you think I'm exaggerating, please read through this letter from a mortage professional sent into Reggie Middleton, who's is one of the definitive truth-in-disclosure forensic accounting blogs out there:

     Hello Reggie,
I’m a big fan of your blog and greatly appreciate your diligent efforts in effectively educating your readers while exposing the the biggest heist ever perpetrated on the American Public by Wall Street. I know you are the most up to date person out there when it comes to the scams the banks are running but I wasn’t sure if you knew of a specific scam that they have been running on the mortgage side of their business. I’m hoping you can be the voice that warns people of a new type of fraud which the banks are perpetrating in broad day light.

I have been a Mortgage Banker for the last 18 years. I also follow the markets and particularly the banking sector with great interest. While reviewing the Banks most recent quarterly earnings, the common theme evident in all of their disclosures was that their delinquency rates had dropped dramatically and hence they were lowering their loan loss reserves.

Meanwhile, I have repeatedly come across delinquent and even defaulted loans which are not being properly reported by the loan servicers to the credit bureaus.

As an example, I recently came across a new mortgage client who was referred to me and I thought I’d share it with you for a potential story. These particular clients had a house which they were way upside down on, so last year they went ahead and purchased another house under an FHA loan with 3.5% down and immediately let the old, upside down house go into foreclosure thereafter.

These particular clients called me to see if they could refinance their new home’s FHA loan to a lower rate. I told them that it would be near impossible because of the damage done to their credit by the foreclosure on the previous house. They were adamant that their scores were still in the high 670’s and so I ran both of their credit reports. Sure enough, his middle score was a 674 and her score was a 678. When I looked at the previous mortgage, it showed as “FORECLOSED- NO DELINQUENCIES”!!! When I asked them they stated that they hadn’t made a payment to the bank for more than a year prior to the foreclosure on their house.

Same is true for many loan modification cases that I have come across. While the banks are dragging out the process with the borrowers, who are living in the homes 100% mortgage free, their statements reflect the borrowers as being current every month.

Is that not just absolutely ridiculous!?!? This is blatant fraud!

While Bank CEO/CFOs are going on their quarterly calls and lying to investors about how they are reducing their loan loss reserves due to their delinquency rates being substantially lower, they are deliberately falsifying their credit ratings while foreclosing on homeowners.

What happens when these banks end up losing billions of dollars on all of these foreclosures after depleting their loan loss reserves? More of 2008 is what I imagine. Except their won’t be any more bailouts.

I implore you to please feel free to contact me or any other sources you may have at your disposal to investigate this newest fraud being perpetrated against investors. Should you be interested, I can forward you the above credit report for your review.

Investors should know what the heck is going on before they listen to analysts telling them that “this is a buying opportunity of a lifetime” while the banks are fudging their numbers. This is exactly how we got into this mess. Investment Banks pulling Repo 105 scams, not marking their books correctly, and so on.

Shame on them for defrauding investors and the Public the first time and causing the global credit crisis. Shame on us for sitting by and letting it happen again two years later while they wipe out millions more of investors retirement accounts and cause the next Great Depression.


  1. Well, when the whole basis of the system is a fraud, should not all of its branches be?
    -Sun Geithner Tzu

  2. Sofa King's mortgage was transferred two months ago, and he had a hard time finding out who bought it. The company who bought it did not make Homeowners insurance payment from Escrow account and he had to go out of pocket to keep it from lapsing. Just found out NationStar from Texas is account manager...finally looking to get paid. What does that mean, being managed, for who? Some more digging around and it turns out mortgage is now owned by FDIC, with NationStar as "debt collector". Huh, company it was purchased from was not in receivership, why buy the mortgage. Answer below:

    I've just been packaged and sold like a cheap whore.

    FDIC needs to come up with 200 million to cover the irresponsible people that had more than 100k in their accounts when banks went under, as far back as August of 2008, thanks to FinReg and now the FDIC is engaging in the very practices that led us to this mess in the first place. Are we in the god-damn twilight zone or what?

  3. What's wrong with you Dave? Why you want people starving/dying in the streets and bankrupted banks? Show must go on.

    Yesterday one of our major newspaper (although we have more I suspect they have one office and different layouts/domains only) published some latest blah blah about europeans banks crash tests results. Besides the article was pool, something like:

    "Did crash test results convinced you banks are in good condition?" I was 14th who voted and result was 93 % for NO then. In a few moments pool has disappeared for ever.

    I believe there is great summary in latest Martin Armstrong's piece: just second two paragraphs within Acknowledgements.

  4. LOL stibot. Interesting color on the poll. I guess even Europe is now censoring the media.

    Thx for the MA link. Didn't know he had a new essay out.

  5. I WANT to say I am shocked, but this is policy now. Another layer on the crapola cake.


    Mr. RANGEL needs to go.

  7. Yeah mee too I am shocked but what can we do about it huh? Nothing!

    mortgage information

  8. So you want to say that banks are fraudulently dragging out the foreclosure process on homes. And I too agree with you as the reasons which you have given there.

  9. Thanks for the post and all the information. This is pretty helpful to many who does not everything in this at all.