FBI investigating for fraud at Fannie Mae, Freddie Mac, Lehman Brothers and AIG

and that's not all...the total is 26 firms.


http://money.cnn.com/2008/09/23/news...ex.htm?cnn=yes

It's about time.

[Mike]

I second that "it's about time"

[timmgirvan]

Originally Posted by Coach Pants

and that's not all...the total is 26 firms.


http://money.cnn.com/2008/09/23/news...ex.htm?cnn=yes

It's about time.

..a little late now.....barn door's wide open!

[dalakhani]

Originally Posted by timmgirvan

..a little late now.....barn door's wide open!

Ahhhhh....finally you say something with which i can agree.

Fraud in mortgages from 2003-2007 was systemic and PROMOTED all the way up and down the line.

Mortgage fraud was bipartisan. You can point the finger at the democrats for promoting many of the community homebuyer iniiatives through Major banks (acorn) and the GSE's that became sespools of fraud and corruption.

You can point the finger at the republicans for the lax regulation in securitization by the wall st investment banks. Ever heard of the Ninja? Yes a wall st creation. Had to fill those CDO tranches.

[docicu3]

Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??

[SCUDSBROTHER]

Originally Posted by docicu3

Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??

Well they knowingly offered people loans that they couldn't afford. For a short period of time, the loans had moderate interest rates, but then would switch to interest rates that people couldn't afford to make the payments on. They got people to take on these loans by telling them they could quickly refinance the loans with lower interest rates. That worked when the price of the house went up, but not when they went down. Well, they went down. Because people couldn't refinance, they couldn't afford it when their loans switched to high interest rates. So, they would lose the house. The mortgage company originally gave these people they bought the house from like say 500k. Now, the mortgage company owns a house worth 400k, and they paid 500k for it. They want you to bail them out for the 100k they lost. Your asking what was fraudulent, and obviously they were making loans to people who shouldn't of been getting those loans. They often lied about the income of the borrowers etc. Fake cosignors etc. They(knowingly) didn't secure loans properly at all.

[dalakhani]

Originally Posted by docicu3

Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??

Scuds is right and that was a portion of it. But there is a bigger part of it.

Securitization combined with deregulation combined with complex financial instruments equalled lack of transparency with no responsibility. In plain English?

In the past if someone wanted a mortgage, he would go to the bank and get a loan and send his payments to that bank every month. It was the George Bailey/Mr. Potter relationship like on Its a wonderful life. Securitization changed that.

In the age of securitization, you go to a bank to get a loan. That loan is then packaged and pooled and sold to investors in a mortgage backed security. The type of MBS (mortgage backed security) that are getting all of the attention right now are CDO's (collateralized debt obligation). Without going into too deep of an explanation, CDO's allowed crappy loans to be mixed in with qaulity loans in a way. At the end of the day, the liablity was passed on to unwitting investors who had no idea what they were buying. The originator of the loan (the bank) really didnt care if the loan performed or not because ultimately they didnt own the loan anymore as it was sold in a pool right after it closed. The bottom line idea was that A. there was little risk because values were going up. B. Whatever risk there was, it was someone else's. Risk was passed off till it eventually ended up at the end of the Ponzi scheme and into the hands of the poor investor(s) that wanted a "safe" return with a good yield.

So you ask why would a bank want to do a fraudulent loan? In simple English, it was good profit and they thought they would never have to pay the piper. Wall St. aided and abetted by creating products that just asked for fraud. Ninja loans to 100%? No income, no asset, NO JOB verification with no money down. It didnt matter...it was someone else's money.

[GPK]

Originally Posted by dalakhani

Scuds is right and that was a portion of it. But there is a bigger part of it.

Securitization combined with deregulation combined with complex financial instruments equalled lack of transparency with no responsibility. In plain English?

In the past if someone wanted a mortgage, he would go to the bank and get a loan and send his payments to that bank every month. It was the George Bailey/Mr. Potter relationship like on Its a wonderful life. Securitization changed that.

In the age of securitization, you go to a bank to get a loan. That loan is then packaged and pooled and sold to investors in a mortgage backed security. The type of MBS (mortgage backed security) that are getting all of the attention right now are CDO's (collateralized debt obligation). Without going into too deep of an explanation, CDO's allowed crappy loans to be mixed in with qaulity loans in a way. At the end of the day, the liablity was passed on to unwitting investors who had no idea what they were buying. The originator of the loan (the bank) really didnt care if the loan performed or not because ultimately they didnt own the loan anymore as it was sold in a pool right after it closed. The bottom line idea was that A. there was little risk because values were going up. B. Whatever risk there was, it was someone else's. Risk was passed off till it eventually ended up at the end of the Ponzi scheme and into the hands of the poor investor(s) that wanted a "safe" return with a good yield.

So you ask why would a bank want to do a fraudulent loan? In simple English, it was good profit and they thought they would never have to pay the piper. Wall St. aided and abetted by creating products that just asked for fraud. Ninja loans to 100%? No income, no asset, NO JOB verification with no money down. It didnt matter...it was someone else's money.

Wow...thanks for the clarification.

[SuffolkGirl]

Originally Posted by docicu3

Not that I am a complete simpleton but exactly what constitutes a bogus or fraudulent mortgage contract and how do they benefit a bank. If you can't pay for the damn thing doesn't it end up as bad debt for the bank. What's the deal here??

An even simpler explanation is the reward was completely separated from the risk. Wall St. was compensated (rewarded) by the transaction (bundling and selling pools of loans - MBS) but held little to no risk. They just kept getting paid on the transaction. The risk was spread throughout the economy by the institutions that purchased the product (MBS). Which is, in part, why this housing crisis is roiling the U.S. and, arguably, the international economy. Once again, the Coase theorum on transaction costs proves correct, i.e. the greater the transaction costs the more inefficient the outcome. I'd say it is all pretty inefficient right about now.