Here’s Karl Denninger’s commentary on the article by Pam Martens, "Wall Street Titans Use Aliases to Foreclose on Families While Partnering With a Federal Agency" – Ilene
Corruption: Big Banks Using "Silent Subs"?
Courtesy of Karl Denninger at The Market Ticker
In a stealth partial privatization, the U.S. Department of Housing and Urban Development (HUD) farmed out its mandate of working with single family homeowners in trouble on their mortgages to the industry most responsible for separating people from their savings and creating an unprecedented wealth gap that renders millions unable to pay those mortgages.
What Pam is referring to here is…
In this case, from 2002 to 2005, HUD transferred in excess of $2.4 billion of defaulted mortgages insured by its sibling, the FHA, into the hands of Citigroup, Lehman Brothers and Bear Stearns while providing the firms with wide latitude to foreclose, restructure or sell off in bundles to investors.
In other words, this "organization" took in the defaulted notes on property (homes) and then did with it whatever they wanted.
But wait a second – who wrote that paper in the first place? "All roads lead to Lehman", when it comes to subprime, remember? (Incidentally, that’s a big part of why they blew up!)
The ugly, however, is here:
What the program effectively did was allow the biggest retail banks in the country to get accelerated payment on their defaulted, FHA-insured, single family mortgage loans while allowing another set of the biggest investment banks to make huge profits in fees for bundling and selling off the loans as securitizations. Once the loans were securitized (sold off to investors) they were no longer the problem of HUD or the Wall Street bankers. The loans conveniently disappeared from the radar screen and the balance sheet.
Uh, except for one problem – was it disclosed to the buyers that these loans were previously defaulted? Hmmmmm…. not really sure. See, those notes have to be performing to securitize them, but Pam does raise the question as to whether the source of these notes was reasonably disclosed to buyers. Note sales can be profitable for someone, the question is whether everyone buying knows what they’re getting – in this case there’s a dubious "homeowner" who has already demonstrated inability to pay on the end of the line!
Without clean disclosure you have a problem, in that the investor will almost certainly overpay. This is yet another example of trying to polish a turd through obfuscation; if you paint it gold and nobody looks too closely appearances are pretty good! However, the fact of the matter is that someone who defaults has a high risk of re-defaulting, and this is clearly a material risk and fact that must (if the law means anything) be disclosed. Was it? Hmmmm…
Oh, there’s more in that source article too – like the fact that these "special firms" appear to be "silent subsidiaries" of the very companies that were "making hay while the sun shines" during the fraud-laced housing boom.
Of course it would not do to have the same company (bank) involved in reaming homeowners and the government that screwed people in the first place! The solution of course is to create a whole host of shell companies and silent subsidiaries:
Having verified Melissa X’s information that Liquidation Properties, Inc. was indeed a subsidiary of Citigroup with officers employed by the firm, endowed with the uncanny knack of capturing an inordinate amount of winning bids at foreclosure auctions in depressed neighborhoods, I set about unraveling the multitude of Byzantine transactions in which it was involved.
The trail led to four more entities: Reo Management 2002, Reo Management 2004, SFJV-2002, and SFJV-2004. (Reo is an acronym for real estate owned by a bank, typically after an unsuccessful foreclosure auction.) SFJV, I would later learn, was the name of the HUD joint ventures, an acronym for Single Family Joint Venture. SFJV-2002 and SFJV-2004 were, indeed, subsidiaries of Citigroup and being used to facilitate the transfer of foreclosed homes around the country.
Amazing stuff here…. these folks simply never quit, do they?
Somewhere in here one would hope a prosecutor could dig into this and find a fraudulent misrepresentation (or perhaps a tiny bit of bid rigging, given their uncanny success?) Indeed, I suspect that the obfuscation alone is sufficient, should there be a cop somewhere with a free pair of handcuffs.
One wonders if any of our STATE AGs will find theirs, given that our federal government seems to be involved as principals in this sordid shell game.
Now that’s "change we can believe in."
