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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (37553)	8/2/2005 1:02:41 PM
From: ild	Read Replies (2) \| Respond to of 110194

Telling lies to get that house With the market booming, more buyers and lenders are turning to mortgage fraud to qualify, report says. By Kenneth R. Harney, Washington Post Writers Group WASHINGTON — If you needed to stretch your actual income to qualify for a mortgage to buy the house you love, would you consider telling a little white lie to your lender? What if your loan officer thought of some creative ways to get you into a house you couldn't otherwise qualify for, such as cooking up W-2s or credit scores, or submitting false banking and tax documents? Would you? Whatever your answer, the sobering fact is that thousands of people across the country — ordinary home buyers and loan industry personnel — no longer are playing the mortgage game straight. Think of it as the little-publicized seamy underside of the national housing boom: widespread, growing fraud on home loan applications, where sticker-shocked buyers lie about income and assets, and where mortgage brokers create what the FBI calls "air loans" — fictitious borrowers, houses, addresses, credit reports, bank statements and income verifications. It is a multibillion-dollar problem, largely unseen by the vast majority of consumers and loan officers who wouldn't think of taking part. But a new national report confirms the mortgage industry's fears: Fraud appears to be growing faster than ever. The number of mortgage-related "suspicious activity reports" received by the FBI more than doubled from 2003 to 2004, and the problem is spreading from the big cities into smaller metropolitan areas. The top cities for mortgage fraud in 2004, according to Mortgage Asset Research Institute of Reston, Va., were Atlanta; Dallas; Denver; Orlando, Fla.; Charlotte, N.C.; Memphis, Tenn.; Scranton, Ohio; Columbus, Ohio; Houston; Salt Lake City; and Louisville, Ky. Although most cases of fraud involve multiple misrepresentations, the institute's study found that falsehoods on applications by individual borrowers constitute the most common problem, followed by bogus or incorrect tax and financial documents, fake employment verifications and fabricated or intentionally inflated appraisals. The report, based on pooled industry data as well as FBI statistics, focused on the types of fraud being perpetrated. The most commonplace: Problems with stated-income transactions: Known in the industry as "liar loans" or NINAs (no income, no asset verification), these programs were originally designed for highly creditworthy professionals and owners of small businesses who prefer not to show documentation on income, investments and other financial assets. Stated income means you simply state your income, estimate your assets — not prove them with documentation — and that's what's accepted by the lender for underwriting purposes. Typically, stated-income loans carry a slightly higher interest rate or fees to compensate for the perceived higher risk. But during the housing boom, such mortgages have been routinely extended to applicants with shaky credit and insufficient incomes to qualify for their home purchases. In one case highlighted in the report, a Florida mortgage broker worked with a NINA borrower, changing the applicant's alleged income as he shopped for loans from different lenders. When challenged, the broker said: "I thought that with stated-income loans you could claim an income as high as necessary" to obtain the loan. Property-flipping fraud networks: If you can assemble a team of dishonest appraisers, title agents, realty agents and investors, you can fool lenders by flipping properties at inflated prices and loan amounts. Federal investigators in Ohio recently broke up a ring involving people in the realty and title industries. Those allegedly involved would buy houses, then fabricate appraisals to flip the homes to new buyers using appraisals that effectively doubled the properties' values within a few weeks. Buyers and the lenders who extended them mortgages based on the excessive valuations were defrauded, according to the investigators. Employment or income disinformation: If a buyer's income doesn't make the grade, unscrupulous loan officers will sometimes help them fake it. In a small Michigan town, fraud investigators tracked seven mortgages where the broker showed the borrowers working at a company owned by the broker. Five of the loans contained forged CPA verification forms. The certified public accountant's listed address was the same as that of the broker-owned "employer." Working with the Mortgage Asset Research Institute and the FBI's financial crimes investigation teams, the home loan industry is mounting a major effort to spot hints of fraud before mortgages close or go into default. And the FBI is putting out the word: If you attempt to defraud or lie to your lender and you get caught, you will likely have to pay back any money you received illegally and spend time in prison. latimes.com

To: russwinter who wrote (37553)	8/2/2005 1:39:38 PM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

"They are clearly being indoctrinated from higher ups on how they are supposed to be used, so a butt covering program is underway at CFC, a quasi-tightening via marketing? Perhaps also in response to the letters, and comments coming from the regulators?" So are they pushing fixed for 30 years in the 5.5% range? How can they make money on that spread now unless Mish's deflation prediction comes true? Greenspan pushed ARM's a few years ago to protect his banker friends from interest rate risk. How can he protect them now? Only hope seems to be a goldilocks economy for a very long time to slowly bring markets back in balance.

To: russwinter who wrote (37553)	8/2/2005 1:49:05 PM
From: ild	Read Replies (2) \| Respond to of 110194

NEW YORK (Dow Jones)--Bond insurer MBIA Inc. (MBI) said Tuesday that net income declined 14% during the second quarter to $188 million while premium income dropped 19% from the same period last year. The Armonk, N.Y.-based company, which insures the timely payment of interest and principal on hundreds of billions of dollars of bonds, attributed the declines to an "easy" credit market environment in which investors were more willing to take risk. Nicholas Ferreri, MBIA's chief financial officer, said the market had "a skewed perception of risk" with investors looking to take additional risk to pick up yield. That results in fewer issuers needing insurance for their bond offerings. "Greed is surpassing fear," Ferreri said on a conference call to discuss the second quarter with analysts. "We prosper when fear governs." Second quarter earnings per share declined to $1.37 from $1.49 a year ago, above expectations for earnings of $1.34 a share, according to analysts surveyed by Thomson First Call. Premiums were down 28% to $144 million in the company's U.S. public finance business and down 44% to $57.5 million in its overseas public finance business in the second quarter, MBIA said. Structured finance premiums dropped 15% in the U.S. to $33 million but rose by 42% to $94.4 million overseas. "The environment is tough," said Geoffrey Dunn, analyst with Keefe Bruyette & Woods in New York. "They're growing where they can but not growing for the sake of growth." To protect the triple-A rating of its insurance unit, MBIA's policy is to take minimal risk when insuring debt. One positive for shareholders is that the company continues to manage its capital base by buying back shares, Dunn said. MBIA repurchased 2.4 million shares during the quarter and has purchased 10.5 million shares over the last 12 months. MBIA's holding company is awaiting approval from New York State Insurance regulators to take a special dividend from its regulated insurance unit. A previous dividend, in December 2004, of $375 million, was used in part to repurchase shares. It's possible that the delay in the approval may be related to ongoing investigations of MBIA by regulators, Ferreri said. The Securities and Exchange Commission, the New York State Attorney General and the Justice Department have issued subpoenas to MBIA. Among the issues being reviewed is MBIA's use of so-called finite reinsurance to mitigate losses related to bonds it had insured for a Pennsylvania hospital chain that filed for bankruptcy protection in 1998. The company said there was no indication that the ongoing investigations were harming its business prospects, though they had led to an increase in expenses. MBIA recorded $37 million case losses for the first half of the year. Those losses were attributed mainly to tax lien securitizations completed in the late 1990s and exposure to Fort Worth Osteopathic Hospital in Texas, which failed last year. The company also took losses on a mortgage-backed securities transaction. MBIA shares were recently quoted down 14 cents, or 0.2%, at $60.06.

To: russwinter who wrote (37553)	8/2/2005 1:51:05 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

please confirm if my understanding of the option ARM is correct: if you borrow $1 million and select 1% "option" payment, you will only have to pay 1%, or just 10K the first year (increasing 7.5% the next). you would then pay $10,750 the second year, then 11.8K or so the next year. after that, you would be at over 115% of original loan, so you would have to pay down principal. but in the meantime, you could "own" and live in a million-dollar house for less than a grand a month.

To: russwinter who wrote (37553)	8/2/2005 1:56:54 PM
From: Ramsey Su	Respond to of 110194

Russ and Ild, Reg Z deals with Truth-in-lending laws. federalreserve.gov I am guessing that 99.99999% of loan apps process today violates Reg Z in one manner or another. I helped a relative with a refi last year, when he was jacked around by a major lender for a very simple refi that has taken him beyond the lock in period. Starting with "let me talk to your supervisor" and repeating that for 2 more levels, I simply told him the violations tha I can see at first glance and asked him how he would like me to proceed from there. They drew loan docs within the hour at terms that were originally agreed upon. Unfortunately, joe6pack is out there commiting loan fraud without even giving it a second thought. If anyone is applying for a stated income loan and is knowingly stated an income that is not true, I would first advise against it. If that person insists on going forward, then I would advise clearly documenting the process and all conversations with the lender. I suspect that there are many loan brokers/officers out there assisting the applicants in falsely stated income that is not true. When the foreclosures start, a smart attorney is going to be able to find as a lead plaintiff a single Hispanic working mom supporting 2 kids and bought a house that she cannot afford by all reasonable underwriting standards and is now being foreclosed upon. The excrements will hit the fan. Then MIs are going to sue lenders, MBS holders will sue issuers, etc. etc. Is it possible that since the Feds are unwilling to step up and do their part in deflating the bubble they are largely responsible for creating, the REAL FEDs, the G-men, the FBI are taking charge to put a halt to this silliness?