MORTGAGE MELTDOWN: Interest rate 'freeze' - the real story is fraud

[David Farber <dfarber () cs cmu edu>]

Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: December 9, 2007 6:53:59 PM EST
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] MORTGAGE MELTDOWN:  Interest rate 'freeze' -  
the real  story is fraud

[Note:  This item comes from reader Jeff Hodges.  DLH]

From: Jeff.Hodges () KingsMountain com
Date: December 9, 2007 9:51:43 AM PST
To: "Dewayne Hendricks" <dewayne () warpspeed com>
Subject: fyi: wrt MORTGAGE MELTDOWN:  Interest rate 'freeze' - the  
real  story is fraud

Of possible interest is this front-of-the-Insight-section article in  
today's Sunday SF Chronicle.

=JeffH


MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits,  
prison

Sean Olender

Sunday, December 9, 2007

<http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL 
>

New proposals to ease our great mortgage meltdown keep rolling in.  
First the Treasury Department urged the creation of a new fund that  
would buy risky mortgage bonds as a tactic to hide what those bonds  
were really worth. (Not much.) Then the idea was to use Fannie Mae and  
Freddie Mac to buy the risky loans, even if it was clear that U.S.  
taxpayers would eventually be stuck with the bill. But that plan went  
south after Fannie suffered a new accounting scandal, and Freddie's  
existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of  
Treasury Secretary Henry Paulson. It sounds good: For five years,  
mortgage lenders will freeze interest rates on a limited number of  
"teaser" subprime loans. Other homeowners facing foreclosure will be  
offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the  
other bailout proposals, it has nothing to do with U.S. house prices,  
with "working families," keeping people in their homes or any of that  
nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed  
securities, many of them foreigners, from suing U.S. banks and forcing  
them to buy back worthless mortgage securities at face value - right  
now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting  
subprime mortgage rates. The real problem is the contractual ability  
of investors in mortgage bonds to require banks to buy back the loans  
at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application  
documents, and it's in the appraisals. There are e-mails and memos  
floating around showing that many people in banks, investment banks  
and appraisal companies - all the way up to senior management - knew  
about it.

I can hear the hum of shredders working overtime, and maybe that is  
the new "hot" industry to invest in. There are lots of people who  
would like to muzzle subpoena-happy New York Attorney General Andrew  
Cuomo to buy time and make this all go away. Cuomo is just inches from  
getting what he needs to start putting a lot of people in prison. I  
bet some people are trying right now to make him an offer "he can't  
refuse."

[snip]


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