Financial News

[Balta1701]

No, the article is saying 40-50% of them could be "sold" back to the underwriter. That means it failed to meet underwriting requirements, which certainly would include flawed foreclosures, but also an array of other things. The author is making a leap over the hole in his theory, without addressing what's there.

 

I mean, yes, if indeed 40-50% of foreclosures were materially flawed in their execution in a way that directly effected the homeowner, or if the mortgage itself was flawed in a similarly material way, then yeah, that could be a HUGE problem. But that isn't the case here, at least in so far as this author's exploration goes.

Well then the question is...what else is it in the underwriting standards that could have resulted in the documents being sent back in that fashion other than having the document actually be fraudulent in some way?

[NorthSideSox72]

Well then the question is...what else is it in the underwriting standards that could have resulted in the documents being sent back in that fashion other than having the document actually be fraudulent in some way?

Underwriting is mostly about quality of lending and lendee (is that a word?). If Citi decides that the mortgage was made in bad faith, or the borrower (that's better) was not qualified to specificed standards, or the terms were not to standards, etc., those are all conditions of underwriting that would fail. And those are not something that the borrower would have any stake in for foreclosure problems, that's something the underwriter would have to deal with and pay for.

 

[NorthSideSox72]

People in the business of tracking the real estate market seem to agree with me, that legal challenges to foreclosures will not often make it to a judgment, and have only a minimal effect.

 

The problem is still the artificial bump and fall that this foreclosure stoppage will stick into the market.

 

[StrangeSox]

We had made an offer on an REO property a few weeks ago, but they accepted a competing offer. Feels like we dodged a bullet with that one.

[NorthSideSox72]

We had made an offer on an REO property a few weeks ago, but they accepted a competing offer. Feels like we dodged a bullet with that one.

Funny you say that... we just made an offer on a house on Friday, that had only hit the market the day before, which is REO-owned (post-foreclosure). But we're first in line, they gave us a counter with the same price but an earlier closing date, we accepted and signed, now just waiting for confirmation. There are apparently 3 other offers waiting behind ours, made within the first few days on the market, for the same house. Wouldn't have expected that in this market, but it makes me feel better about the choice we made for this one.

 

Should hear today if we really got it or not, but the realtor says it should be good to go.

 

[StrangeSox]

Funny you say that... we just made an offer on a house on Friday, that had only hit the market the day before, which is REO-owned (post-foreclosure). But we're first in line, they gave us a counter with the same price but an earlier closing date, we accepted and signed, now just waiting for confirmation. There are apparently 3 other offers waiting behind ours, made within the first few days on the market, for the same house. Wouldn't have expected that in this market, but it makes me feel better about the choice we made for this one.

 

Should hear today if we really got it or not, but the realtor says it should be good to go.

 

We made an offer on a short sale last night. It's been (back) on the market for about 4 days, already had an offer before ours (low ball) and had intense interest.

 

Price it right, and it'll sell.

[Texsox]

NSS, I believe it was somewhere in this thread you mentioned "sweeping" money into savings each month. I started sweeping anything left in my account at the end of a pay cycle and it has resulted in many hundreds of dollars in additional savings. I suspect by the end of the year I will save a few thousand dollars extra. In the past it would have kind of accumulated and eventually I would have made a frivilous purchase without much thought. Now I find myself sticking to my spending plan a little better. Thanks.

 

 

[NorthSideSox72]

NSS, I believe it was somewhere in this thread you mentioned "sweeping" money into savings each month. I started sweeping anything left in my account at the end of a pay cycle and it has resulted in many hundreds of dollars in additional savings. I suspect by the end of the year I will save a few thousand dollars extra. In the past it would have kind of accumulated and eventually I would have made a frivilous purchase without much thought. Now I find myself sticking to my spending plan a little better. Thanks.

Yeah, I do all my finances in Quicken, and have nearly everything I do financially, automated. Only two things are manual, each happens once a month: Pay the credit card bill, and sweep to savings or investments. We pay for as much as possible via the credit card, because we get the miles/points, its easier, it has better fraud protections, and we pay it off every month. Once a month, when I get the credit card bill amount, I project out all the predicted payment and cash flow events for the next month (Quicken does most of this for me), which gives me a surplus number at the end of the month in checking. Then at that time, I sweep the surplus to savings and/or investments, depending on the balance in the savings account (you always want a cushion in there, but you don't want TOO much in it either because you are wasting opportunity).

 

[StrangeSox]

Yeah, I do all my finances in Quicken, and have nearly everything I do financially, automated. Only two things are manual, each happens once a month: Pay the credit card bill, and sweep to savings or investments. We pay for as much as possible via the credit card, because we get the miles/points, its easier, it has better fraud protections, and we pay it off every month. Once a month, when I get the credit card bill amount, I project out all the predicted payment and cash flow events for the next month (Quicken does most of this for me), which gives me a surplus number at the end of the month in checking. Then at that time, I sweep the surplus to savings and/or investments, depending on the balance in the savings account (you always want a cushion in there, but you don't want TOO much in it either because you are wasting opportunity).

 

This is pretty much exactly what I've been doing for a while now, except I automatically dump money into my money market after every pay check and, if the checking account balance climbs, dump in more money manually or pay down some debt. Things will be a bit tighter over the next six or seven months if we get this house, though, because we're a one-income household while my fiance finishes up student teaching to get her certificate. Quicken was great for making accurate spending and budget projections based on what we actually spent in the past. I use my debit card for just about everything, so every purchase is tracked and categorized.

[NorthSideSox72]

This is pretty much exactly what I've been doing for a while now, except I automatically dump money into my money market after every pay check and, if the checking account balance climbs, dump in more money manually or pay down some debt. Things will be a bit tighter over the next six or seven months if we get this house, though, because we're a one-income household while my fiance finishes up student teaching to get her certificate. Quicken was great for making accurate spending and budget projections based on what we actually spent in the past. I use my debit card for just about everything, so every purchase is tracked and categorized.

I have automatic pulls for 401k and a brokerage as well, the money at end of month is the "extra" part for me.

 

And yeah, Quicken is fantastic for seeing what you are doing. Using it the first month or two is a pain, but once it "learns" the categories for everything once, its a breeze. As long as you are paying with a credit or debit card, its recognizes everything.

 

[Texsox]

I've had to relearn some of Quicken. My gf and I have a joint household account, plus individual. Getting reports has been a pain. The accounts are at my bank, so transfers are easy, but it really goofs up the category stuff in Quicken. After using Quicken for 20 years, it sducks to have to relearn it. lol

 

I have savings and investments taken out automatically when I get paid. What I had never really done before for sweeping each month. Before, I would wait until the balance built, then do something with it. I can see where doing it monthly, even if it is only $100 or $200 bucks is smarter.

[Cknolls]

Banks getting pummeled this week. Remeber the reaction to the news is always more important than the news itself. Something to keep in mind with the QE2 talk floating around.

 

 

JPM down over 10% since earnings Wed morning.

 

BAC down almost 20% since Wed morning.

 

 

Before this crisis ends we'll see if too big to fail is truly too big too fail.

[Balta1701]

Banks getting pummeled this week. Remeber the reaction to the news is always more important than the news itself. Something to keep in mind with the QE2 talk floating around.

 

 

JPM down over 10% since earnings Wed morning.

 

BAC down almost 20% since Wed morning.

 

 

Before this crisis ends we'll see if too big to fail is truly too big too fail.

Yay, an excuse to post this article!

The sell-off was one of the most vivid indications yet that, just as banks were recovering from the financial crisis of recent years, foreclosure problems could take a new toll. Indeed, J.P. Morgan Chase said Wednesday it had set aside $1.3 billion of new reserves for litigation, "including those for mortgage-related matters."

 

Share prices declined Thursday by 2.8 percent for J.P. Morgan, 4.2 percent for Wells Fargo, 4.5 percent for Citigroup and 5.2 percent for Bank of America. In contrast, the Dow Jones industrial average was down by 0.01 percent, and the Standard & Poor's 500-stock index, a broader market gauge, was down by 0.36 percent.

 

Several major lending institutions have frozen foreclosures in response to evidence that employees in what were essentially foreclosure mills signed the paperwork to seize homes without checking whether the evictions were justified.

 

Meanwhile, a similar but potentially broader concern has cast an additional cloud over the system. Some analysts are concerned that securities based on huge pools of mortgages might be defective.

 

Mortgages are routinely pooled and packaged into securities that are traded around the world like stocks and bonds. The securities are widely held by investors, including mortgage finance giants Fannie Mae and Freddie Mac, which are wards of the government. Court documents show that in many cases the paperwork transferring legal ownership of those loans to the pools was lost, ignored or even forged.

 

It is not yet clear what the consequences will be if large quantities of mortgage-backed securities turn out to be flawed - or how the problem could be solved.

 

"If the basic principles of property law have been violated here . . . it may be extremely difficult to fix," said a source involved in government oversight of financial institutions who spoke on the condition of anonymity because of the uncertainties involved. "There is a chain of questions that no one seems to know the answer to."

 

Banks and other players in the mortgage industry could face substantial penalties from state law enforcement officials and potentially extensive litigation from homeowners over the disputed foreclosures, as well as from investors who bought the mortgage securities.

 

Analysts are divided over what the final cost will be to big financial firms. Some predict the cost could run into the tens of billions of dollars. A few say the foreclosure debacle could evolve into a major crisis for the entire financial system.

 

In a note to investment clients Thursday, Paul J. Miller, an analyst at FBR Capital Markets, estimated that lenders could see a hit of $6 billion to $10 billion, a large sum but one the industry "could comfortably absorb."

The scary part here is that they have zero idea of how big of a problem this could be.

[NorthSideSox72]

Yay, an excuse to post this article!

The scary part here is that they have zero idea of how big of a problem this could be.

Securitized mortgage debt will indeed take a hit here. But the thing with MBS's is, the instruments themselves are intended to be risk-inclusive. So I don't think the instruments will be toast. What might happen is, if the mortgages within the instrument fail to any serious degree, then the holders can sue the issuers, and in turn the issuers can sue the mortgage banks, and in turn the mortgage banks can sue the underwriters. That could get ugly, if again as was discussed before, there is any significant level material flaw in the original mortgages as tendered.

 

Another aspect here is, we again go back to swaps. A layer on top of this could be that, if the risk on these MBS's was swapped, and the swap is called, the protection seller may not be able to cover in large scale, and even if they can, they may sue their way down that same chain.

 

This would cost everyone money in litigation, and could bury some underwriters and mortgage providers (which may be a good thing, if some of them have routinely put out bad mortgages). Fortunately, I get the impression that the level of material flaw will not likely be very high. We'll have to see.

 

[NorthSideSox72]

Also of note here, there is a fascinating study in both the flaws and the strengths of the open markets here.

 

The flaw is, these mortgage providers and underwriters were apparently not well policed - that will absolutely need to be addressed.

 

The strength is, the market itself will work these losers out of the system via this path. Unfortunately, this is the more expensive path, than if things have been better policed to begin with.

 

And one other aspect that worries me about this or any other financial regulation changes we are seeing discussed or implemented... much of it is creating a TON more work on the enforcement end, but I am not seeing signs that the enforcement agencies are getting funding to do that extra work. Creating more laws to enforce costs money, Congress often forgets this.

 

[Balta1701]

This would cost everyone money in litigation, and could bury some underwriters and mortgage providers (which may be a good thing, if some of them have routinely put out bad mortgages). Fortunately, I get the impression that the level of material flaw will not likely be very high. We'll have to see.

Well, frankly right now I'm just going on intuition...but really, I don't think you could have yet gone wrong by overestimating the level of malfeasance on the part of the financial and banking industry over the past 10-ish years. If there's something they could have screwed up...they screwed it up worse.

 

I think the thousands of illegally stamped foreclosures is probably just the tip of the iceberg here.

[Balta1701]

Creating more laws to enforce costs money, Congress often forgets this.

You're saying that like it's a flaw and an accident, rather than a deliberate end-around.

[NorthSideSox72]

Well, frankly right now I'm just going on intuition...but really, I don't think you could have yet gone wrong by overestimating the level of malfeasance on the part of the financial and banking industry over the past 10-ish years. If there's something they could have screwed up...they screwed it up worse.

 

I think the thousands of illegally stamped foreclosures is probably just the tip of the iceberg here.

I'd agree that the financials, the large ones particularly, are still midstream in overhauls. And yeah, you are going to find flaws in what they do all over the place.

 

But malfeasance doesn't by itself determine the scale of the problem in this case. As I've repeatedly said, this is only an issue of the mortgages themselves are materially flawed. I'm not talking about, the notary's license has the wrong zip code, or the there is a typo in the mortgage's recovery clause, or some page didn't get initialed. It has to have a true damaging effect. Otherwise, the instrument stands. If any security or debt obligation could be nullified simply because of an immaterial typo, you could probably nullify half the financial contracts currently out there in all instrument types. That just won't happen.

 

[NorthSideSox72]

You're saying that like it's a flaw and an accident, rather than a deliberate end-around.

Its both, or some of each.

 

[Balta1701]

It has to have a true damaging effect.

Like say, deliberately lying about a person's income because otherwise the mortgage wouldn't have been approved?

 

I think that has happened all the time.

 

That's what happens when you deliberately stop verifying income.

[NorthSideSox72]

Like say, deliberately lying about a person's income because otherwise the mortgage wouldn't have been approved?

 

I think that has happened all the time.

 

That's what happens when you deliberately stop verifying income.

In that case... if the mortgage went into foreclosure, the bank or mortgage holder could very well sue the underwriter or whomever did the background.

 

I tend to doubt that happened regularly, and here is why. I've had mortgages and loans before, big and small, with a number of institutions. And every single time, they wanted copies of W-2's showing income.

 

[Balta1701]

I tend to doubt that happened regularly, and here is why. I've had mortgages and loans before, big and small, with a number of institutions. And every single time, they wanted copies of W-2's showing income.

Like I said it's just my impression, but I think in a whole lot of the mortgages issued 2004-2007, that broke down completely. We've heard way too many anecdotes so far. Remember that 2008 thread on the auto loan where the issuer lied about the income to get her a BMW?

[NorthSideSox72]

Like I said it's just my impression, but I think in a whole lot of the mortgages issued 2004-2007, that broke down completely. We've heard way too many anecdotes so far. Remember that 2008 thread on the auto loan where the issuer lied about the income to get her a BMW?

Car loans Mortgages

 

Way different.

 

[Balta1701]

Car loans Mortgages

 

Way different.

I know that, same basic idea though

 

[lostfan]

Holy f***, anyone seen AAPL stock?