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View Diary: NY Atty. Gen. Schneiderman LOVES Today's Mortgage Fraud Deal. UPDATED x3 Liz Warren Likes it Too! (261 comments)

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  •  What that tells us is that the "wealth" (28+ / 0-)

    was not reality-based to begin with.  It was a figment of the imagination.

    Whether a house is "worth" $450,000 or $150,000 makes little difference, as long as the house is still sitting on the ground and the owner has whatever is required to keep it.
    As it happens, the $150,000 is more realistic because that's about what it cost to build those McMansions.  The rest of the "value" in the $450,000 price tag was made up of realtor's and developer's and appraiser's pipe dreams.  Can the dollars they pocketed be gotten back?  No.  Most of it has already been spent.  Besides, people are going to have to be content knowing that about 90% of those "professionals" are now unemployed and, because most of them were independent contractors, there's no unemployment insurance for them.

    People to Wall Street: "LET OUR MONEY GO"

    by hannah on Fri Feb 10, 2012 at 03:02:43 AM PST

    [ Parent ]

    •  Great comment, hannah. The points you make get to (10+ / 0-)

      the heart of how/where this housing mess started.

      As it happens, the $150,000 is more realistic because that's about what it cost to build those McMansions.  The rest of the "value" in the $450,000 price tag was made up of realtor's and developer's and appraiser's pipe dreams.
      This point doesn't get made nearly often enough. And when I read/hear about "housing prices needing to come back up" it maked me want to pull my hair out. That just puts us right back where we were.

      People have got  to stop being willing to pay over inflated prices for homes. The realator, developers, and bankers were only able to do what they did because buyers let them. I don't have a lot of sympathy for people whose mortgages are underwater if it was a case of wanting a big fancy house and they were willing to pay through the nose to get it. Shame on them for not walking away and looking for something realistically priced that they could comfortably afford.

      For instance, in the neighborhood adjacent to downtown Rockville, MD, houses would go on the market and on the first day there'd be bidding wars. For anyone who won those wars and is now stuck with a home for which they paid too much, I just don't feel sorry for them.

      And there is a huge difference between those folks and the folks who were preyed upon by realators and lenders who took advantage of their naivte.

      Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

      by JTinDC on Fri Feb 10, 2012 at 05:03:13 AM PST

      [ Parent ]

      •  And there are also the people who (12+ / 0-)

        allowed their names to be used to "buy" numerous houses in which they never intended to live so the realtors and mortgage brokers and all the other middlemen could collect their fees. Some of those people have actually been prosecuted and sent to jail. The DoJ reports on the cases, but the local media, if they provide coverage only do it once or twice.
        There was fraud and it didn't all happen on Wall Street.

        People to Wall Street: "LET OUR MONEY GO"

        by hannah on Fri Feb 10, 2012 at 05:30:57 AM PST

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        •  And this area of mortgage fraud committed by (9+ / 0-)

          small players is where the Justice Department and the FBI have chosen to focus their energies to date and yes, people have actually gone to jail. They focused on crimes where the bank was the victim, not the reverse, where the banks and servicers were the perps.

          All well and good, but it doesn't address the systemic crimes of the big boys who used robosigning (counterfeiting, forgery, fraud and perjury) and servicer abuse to steal houses which affected far greater numbers of people.

          If you lied to the bank, they will get you. If the bank lies to you (or the courts) no problem.

          “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

          by Phoebe Loosinhouse on Fri Feb 10, 2012 at 05:42:00 AM PST

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          •  Banks learned a long time ago to (22+ / 0-)

            keep their records secret.  Without documentary evidence, it's very hard to make a case.  
            The way I discovered land speculators were flipping lots via multiple bogus sales to each other so they could then get a mortgage for the inflated amount was quite by chance in flipping through deed books at random and seeing that the same people were "selling" the same parcel within a couple of pages.  I sent the information to the supervisory agency (don't remember which--it was in about 1980) and an investigator showed up at my house to collect the data and a couple of years later an S&L was closed down.
            I never heard another word until a banker from another institution asked me why I'd "gone after" the S&L.  I told him it was because they were refusing to make loans to home owners in the inner city and giving money to land speculators. Some malfeasance got nipped in the bud, but it was just a matter of chance and one person liking to look through deed books.
            I suspect that one of the reasons for setting up MERS was to avoid the kind of snooping I did.  All the electronic records are inaccessible and so easily "lost." The counties getting their recording fees back is going to be a big success, if they ever manage it.
            Nobody likes paper-work because a written record is hard to falsify.  The robosigners demonstrated that.  But, it took some judges actually looking at the paperwork.

            People to Wall Street: "LET OUR MONEY GO"

            by hannah on Fri Feb 10, 2012 at 06:02:19 AM PST

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          •  Sorry, no (9+ / 0-)

            That's not what happened:

            All well and good, but it doesn't address the systemic crimes of the big boys who used robosigning (counterfeiting, forgery, fraud and perjury) and servicer abuse to steal houses which affected far greater numbers of people.
            Not a very smart crime if you try to steal houses that are worth less than your loan, and you can't find a buyer to get it off your hands anyway.

            The robosigning abuses were primarily to deal with the problem of sloppy paperwork and record keeping. Yes, some people who were not supposed to be foreclosed on got foreclosed on, and that's a genuine problem. But most of the people who were foreclosed on were genuinely in default.

            The real crooks aren't the buyers, sellers or even the originating lenders. It's the big boys at the investment banking firms who ginned up the market for this whole mess. As long as Wall Street investment banking firms kept packaging pooled loan investments and selling them to gullible nvestors, mortgage lenders kept creating "product" to sell them, no matter what crap they had to put in the grinder.

            •  Well said (2+ / 0-)

              Also remember the ratings agencies that legitimized the whole thing.

              I'm not liberal. I'm actually just anti-evil, OK? - Elon James White

              by Satya1 on Fri Feb 10, 2012 at 07:13:16 AM PST

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            •  True or false - (2+ / 0-)
              Recommended by:
              highacidity, Geekesque

              The big boys' schemes would not have been possible without overinflated real estate prices. Or was overinflating real estate prices instigated by the big boys? I've been under the impression that the big boys simply saw what the realators and lenders were doing and said to themselves, "hey, here's an idea..".

              Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

              by JTinDC on Fri Feb 10, 2012 at 07:15:43 AM PST

              [ Parent ]

              •  All part of a vicious cycle. eom (1+ / 0-)
                Recommended by:
                JTinDC

                "[R]ather high-minded, if not a bit self-referential"--The Washington Post.

                by Geekesque on Fri Feb 10, 2012 at 10:17:48 AM PST

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              •  I think you have it kind of backward (4+ / 0-)

                I think a virtually insatiable market for pooled mortgage bonds was created by the investment bankers. They sold the investments as essentially riskless because of the pooled nature.

                This created a demand for mortgages to go into the pools. Banks relaxed their lending standards when it became clear that the investment pools didn't care too much about the individual risk of default. And the originating bank made fees, but got to pass off the risk. What's not to love?

                It became much easier to borrow money to buy a house. More people started doing it. This increased demand for houses.

                And guess what? When demand for housing goes up, so do prices.

                As real estate prices soared, at the other end of the spectrum the investment bankers reasoned that they could include even dicier mortgages in the underlying pool. After all, even if the default rate when higher than expected, losses would be covered by the increase in property value.

                We all know the flaw in this reasoning far too well now.

                •  Gotchya. Thanks for explaining. Makes sense. (1+ / 0-)
                  Recommended by:
                  elmo

                  Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

                  by JTinDC on Fri Feb 10, 2012 at 10:59:10 AM PST

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                  •  Yeah, in a weird kind of way (0+ / 0-)

                    it does. The only problem was what happens if enough underlying mortgages start to default. Then real estate prices can start deflating, and the party is really over very fast. Which of course is exactly what happened.

            •  Some investors were gullible, others (1+ / 0-)
              Recommended by:
              virginislandsguy

              wereothers were greedy and chasing high yields.  They drove the problem as much as anyone.  Wall Street didn't sell stuff that didn't have buyers.

              "[R]ather high-minded, if not a bit self-referential"--The Washington Post.

              by Geekesque on Fri Feb 10, 2012 at 10:17:02 AM PST

              [ Parent ]

              •  But Wall Street loves to create "products" (1+ / 0-)
                Recommended by:
                Geekesque

                to sell, even ones that don't actually make financial sense. Have you ever read the book "Liar's Poker?" It explains this phenomenom very well.

                I used to practice public finance law in the 80's and early '90's. Investment bankers were always buzzing around our public finance clients like flies on you-know-what, trying to entice them with new investment structures.

                Investment banks make money from fees when they convince a client to close a deal, and they also make money on the other end when they convince their investment clients to buy the deal.

                Do they care if it makes financial sense for either side? Well, no. They care if it makes money for themselves.

                •  This wasn't driven by investment banking (0+ / 0-)

                  though--it was fixed income/structured credit deals.

                  Wall Street was plenty guilty of many sins.  But the people/investment advisors who sought and/or demanded 7% annual returns on supposedly AAA investments played a part.  Certainly no responsible pension fund should have been buying RMBS CDO equity tranches, but some did.

                  "[R]ather high-minded, if not a bit self-referential"--The Washington Post.

                  by Geekesque on Fri Feb 10, 2012 at 08:22:16 PM PST

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    •  This 'wealth' is our retirement funds (2+ / 0-)
      Recommended by:
      hannah, ericlewis0

      Most of this wealth that vanishes comes right out of the pockets of anyone who has a pension fund through their work.  

      The people who got rich out of run up in housing have their money in cash.  The retirement fund invested by both public and private companies own these mortgages that are being written down.

      I don't think there is much anyone can do about this, but it's not a win for us.

      •  In '92 or '93, Greenspan justified (1+ / 0-)
        Recommended by:
        ericlewis0

        lowering the capital gains tax and then removing from sales of home entirely in order to "liberate the equity Americans had in their homes for the market".
        This was not too long after the debacle of churning housing lots by the S&L had finally been cleared up.

        Speculating with other people's money and assets has no down side, if the speculators are bereft of ethics and Profit is the only measure.  It used to be that one managed other people's money with more care and caution than one's own. It was a matter of honor.  No longer.
        It's no longer true of our stewards in Congress either.

        People to Wall Street: "LET OUR MONEY GO"

        by hannah on Fri Feb 10, 2012 at 09:46:39 AM PST

        [ Parent ]

      •  That's where the class action suits matter (6+ / 0-)

        There are already some of these in the works -- pension funds (especially public employee pension funds) suing the banks and investment banks for securities fraud, for lying about the quality of the mortgages that were bundled up into those CDOs, when the banks either knew or deliberately turned a blind eye to how much fraud there was all through the system and to the looming defaults. (In other words, "You told me I was buying an Audi, but really it was a rusty old jalopy, and you knew it.") If those suits are successful, Goldman Sachs and all those folks will have to cough up a mint to pay the pension funds -- which is good for taxpayers (for the public employee funds) and for retirees.

        That's why it's so important that the federal settlement does NOT prevent these lawsuits from going forward.

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