"The recession is very likely over at this point," Bernanke said in responding to questions at the Brookings Institution.

He thinks that the economy is likely growing at this point. He also said that Wall Street reform "will be forthcoming."

What do you think? Is Bernanke right?

Bernanke says recession 'very likely over' [AP]
(Photo:Ed Yourdon)

Mayor and City Council of Baltimore v Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc. (PDF)
PREVIOUSLY: Loan Officers Detail Wells Fargo's Blatantly Racist Subprime Loans

Meet Beth Jacobsen and Tony Paschal, two of Wells Fargo's top subprime loan officers, who recently gave affidavits detailing the bank efforts to needlessly steer minority Baltimore families into subprime loans. The banks shady dealings include setting up a special unit to target "mud people" with outrageously expensive "ghetto loans;" targeting black churches leaders because they "had a lot of influence and could convince congregants to take out subprime loans;" and offering cash bounties to loan officers who issued subprime loans to minority communities. And it gets so much worse...

Loan officers employed other methods to steer clients into subprime loans, according to the affidavits. Some officers told the underwriting department that their clients, even those with good credit scores, had not wanted to provide income documentation.

"By doing this, the loan flipped from prime to subprime," Ms. Jacobson said. "But there was no need for that; many of these clients had W2 forms."

Other times, she said, loan officers cut and pasted credit reports from one applicant onto the application of another customer.

These practices took a great toll on customers. For a homeowner taking out a $165,000 mortgage, a difference of three percentage points in the loan rate - a typical spread between conventional and subprime loans - adds more than $100,000 in interest payments.

[...]

"They confirm our worst fears: that this is not just a case based on a review of numbers and a statistical analysis," said the city solicitor, George Nilson. "You don't have to scratch your head and wonder if maybe this was just an accident. The behavior is pretty explicit."

The affidavits come as part of a pending federal lawsuit from the NAACP, which has filed class action suits against over a dozen banks for racist lending practices.

Bank Accused of Pushing Subprime Deals on Blacks [The New York Times]

The Mortgage Bankers Association told Reuters:

With unemployment at a 16-1/2-year high and rising, more borrowers will be late paying or fall into foreclosure this year, said the group's chief economist Jay Brinkmann.

"While California, Florida, Nevada, Arizona and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas and Mississippi, signs of the spreading impact of the recession," he said.

One in 8 US households late paying or in foreclosure [Reuters]
(Photo:joelogon)

From the AP:

During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.
ompel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.

"I'm going to hang on for dear life until they can prove to me it belongs to them," said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. "I'll try everything I can because it's all I have left."

In a few cases that we wrote about in 2007, judges halted foreclosure proceedings because the banks could not prove that they actually owned the mortgages.

The AP says some lawmakers are in favor of the stalling technique:

Democratic Rep. Marcy Kaptur of Ohio endorsed the strategy in a fiery speech on the House floor during debate on the federal bank bailout last month.
"Don't leave your home," she said. "Because you know what? When those companies say they have your mortgage, unless you have a lawyer that can put his or her finger on that mortgage, you don't have that mortgage, and you are going to find they can't find the paper up there on Wall Street."

We think that fair is fair. The bank certainly wouldn't just take your word that they owed you several hundred thousand dollars.

Homeowners' rallying cry: Produce the note [AP] (Thanks, Plastik Man!)
(Photo:foundphotoslj)

The Congresswoman wanted to help her constituents negotiate a better deal on their mortgage. Because they hadn't yet missed a payment, Bank of America wasn't sure which of their myriad departments could help the Congresswoman.

On her fourth try, Waters was directed to yet another department, and then transferred to hardship assistance. But when she explained the Beards' situation to the agent in that department, she was told that because they hadn't yet missed a payment, she needed to call the refinancing department.

Almost two hours after her first attempt to reach a loan officer, Waters was finally transferred to the refinancing department — where she was greeted with a recording and then cut off.

"Oh my goodness," Waters remarked. "Well, what they [the recording] just said is go to your computer and fill out info to see if you qualify. They don't check to see if you have a computer and they don't come back on line."

The Bank of America says it does a good job and is almost always quick to respond to calls.

Maxine Waters isn't just a rank-and-file Congresswoman, either. She's a member of the powerful House Financial Services Committee and the Chair of the Subcommittee on Housing and Community Opportunity—pretty much the last person Bank of America wants to put on hold for two hours.

So can you get better service than a Congresswoman? Possibly! You can try sending a well-written letter to Bank of America's CEO, reaching out to their Twitter-based support team, and if all else fails—including calling your Congressional representatives—try launching the mighty and fearsome Executive Email Carpet Bomb.

On Hold: Even Congresswoman Gets the Runaround on Bank Help Lines [ABC]
(Photo: matthewnstoller)

From Bloomberg:

Thain, who in September negotiated the sale of Merrill with Bank of America CEO Kenneth Lewis, “agreed his situation was not working out and that he should resign,” said Robert Stickler, a Bank of America spokesman, in an e-mail.

Bank of America has been taking a lot of heat for purchasing Merrill Lynch, a deal that forced Bank of America to ask for a "second multibillion dollar investment from the government as it absorbed the mounting losses at the New York-based investment bank," says the AP.

The Wall Street Journal is even speculating that Bank of America and Citigroup may have to be nationalized.

We wonder who'll get his fancy ass office.

Ex-Merrill Lynch CEO Thain Agrees to Leave Bank of America [Bloomberg]
What if Uncle Sam Takes Over Your Bank? [WSJ]
(Photo:wmliu)

Portfolio is taking another look at It's a Wonderful Life and they're wondering if the villain of the film — the cold sensible businessman, Mr. Potter, was right all along.

To figure out the answer, let's take a look at the scene in which George Bailey and the leaders of the town, including Mr. Potter, discuss the fate of the Savings and Loan started by George's father, Peter.

In it, Mr. Potter questions a loan given to a taxi driver to build a house. Mr. Potter says the bank turned down the loan because the taxi driver could not afford the house that he wanted to build — but the Savings and Loan approved it. He wants to know why. George Bailey defends the loan — saying that he inspected the man's finances and could vouch for his character. Mr. Potter believes that loans should not be given out on the basis of character.

Mr. Potter: Friend of yours?

Bailey: Uh-huh.

Mr. Potter: You see? If you shoot pool with some employee here, you can come and borrow money. What does that get us? A discontented, lazy rabble instead of a thrifty working class. And all because a few starry-eyed dreamers like Peter Bailey stir them up and fill their heads with a lot of impossible ideas. Now, I say...

Bailey goes on to defend his father's good intentions and explain that his father never made any money off these ill-advised loans, but that he did help people get out of slums. Then...

Bailey: ... What did you say a moment ago? That people should wait and save their money before they even thought of a decent home? Wait? Wait for what? Until their children grow up and leave them? Until they're so old and broken down that... do you know how long it takes a working man to save $5,000?

Portfolio says that they aren't comparing idealistic George Bailey to Angelo Mozilo — but they are looking a little kinder on poor mean old Mr. Potter:

But consider this: Perhaps Mr. Potter wasn't just a heartless Scrooge. Perhaps Mr. Potter, in the absence of sufficient regulatory oversight, was the one voice of sanity keeping the good people of Bedford Falls from over-leveraging themselves.

Perhaps, if we had all taken Mr. Potter a little bit more seriously, we wouldn't be in this mess to begin with.

George Bailey, Subprime Lender [Portfolio]

Graham says:

Our mortgage is with Countrywide. They keep sending us notices with bold type that say:
"YOUR MORTGAGE IS NEARING ITS NEXT ADJUSTMENT!"

Of course ... we have always had a fixed rate and they know that. There isn't anything that could possibly adjust.

They know we don’t have a variable rate. It has always been a fixed rate and never been refinanced. It strikes me as fear based tactics to get you to shoulder an expensive refi.

The text reads:
"As a valued Countrywide customer, you shouldn't have to worry about rising monthly payments."

Except ... It would never have crossed my mind to worry about my Fixed Rate Mortgage payments rising if I hadn't received this mailer from them.

Oh, but Graham, didn't you realize that "If you have available home equity, you may be able to access it to pay off bills or take care of unexpected expenses." Don't you know that your house isn't really a house? It's an ATM! Isn't that nifty? It must be true, too, because it says "official" up there at the top.

We thought Bank of America was going to try to clean up Countrywide's image, but apparently not.

Anatomy of a Crisis [Washington Post]

From Bloomberg:

"Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''
...
The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that ``private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''

Today Committee Chairman Henry Waxman, a California Democrat, said Greenspan had ``the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.''

``You were advised to do so by many others,'' he told Greenspan. ``And now our whole economy is paying the price.''

Waxman and other lawmakers repeatedly interrupted Greenspan as he answered their questions, in contrast to deference to his testimony while he was Fed chairman.

Greenspan then claimed that the Fed had no idea how large the subprime mortgage market had become until late 2005, says Bloomberg.

Greenspan Concedes to `Flaw' in His Market Ideology (Update2) [Bloomberg]

From the NYT:

In response to the falling value of their homes and high gasoline prices, Americans have become more frugal all year. But in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply. Even with the government beginning a giant bailout of the financial system, their confidence may have been too shaken for them to resume their free-spending ways any time soon.

Recent figures from companies, and interviews across the country, show that automobile sales are plummeting, airline traffic is dropping, restaurant chains are struggling to fill tables, customers are sparse in stores.

When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades.

The Times says that when the government releases the numbers this month, they are expected to show that consumer spending shrank by 3%, which would be the steepest decline since 1981 and the only decline since 1990.

Consumers are apparently buying more groceries, enjoying fewer meals out, and spending less on clothes, school supplies, and air travel. Nintendo Wiis, however, are still flying off shelves.

“My view is that when consumers get concerned about their nest egg, or their country, they need entertainment,” said Bo Andersen, president and chief executive of the Entertainment Merchants Association, which represents distributors and retailers of home entertainment products.

Full of Doubts, U.S. Shoppers Cut Spending [NYT]
(Photo: robinryan )

``There is a point at which the FDIC will take Wachovia over if they are concerned about the stability of the bank,'' said Christopher Whalen, managing director of Institutional Risk Analytics, an independent research firm in Torrance, California. ``But as long as Citi and Wells will extend support to Wachovia, they have time.''

To end a legal skirmish, Citigroup may agree to take Wachovia's branches in the northeast and mid-Atlantic regions, while Wells Fargo would get the Southeast and California branches, as well as Wachovia's asset-management and brokerage units, the Wall Street Journal reported, citing people familiar with the situation.

Bank officials and FDIC spokesman David Barr declined to comment. Cable network CNBC reported that Citigroup was bidding for all of Wachovia. Citigroup spokeswoman Shannon Bell didn't immediately return a call seeking comment.

A ruling over the weekend that said Citibank had the exclusive right to negotiate a takeover with Wachovia until Oct. 10 was overturned yesterday.

Wachovia is in trouble after acquiring a lender that was heavily invested in "pay-option" mortgages, a type of risky loan often given to people with good credit, but who are not required to provide documentation of their finances. "Pay-option" loans can actually grow in size because borrowers are allowed to pay less than the accruing interest.

Citigroup, Wells Fight May End by Splitting Wachovia (Update4)[Bloomberg]
(Photo: So Cal Metro )

UPDATE: Now the block has been blocked! Madness continues apace.

Citibank previously teamed up with the FDIC to pick off Wachovia's banking operation for $2.2 billion. Four days after the deal was announced, Wells Fargo loaded up the stagecoach, buying Wachovia as a whole for $15 billion. The FDIC shrugged its shoulders, glad not to have pay $42 billion to secure against losses, and let Wells Fargo proceed with the takeover.

Citigroup raised the stakes in the merger battle on Saturday afternoon, asking Justice Charles E. Ramos of New York State Supreme Court to issue an emergency order blocking the deal between Wachovia and Wells Fargo.

Representatives from the banks met at Justice Ramos’s home in Cornwall, Conn., late Saturday afternoon for more than three hours of oral arguments, according to people briefed on the situation.

In the unusual weekend session, Citigroup presented Justice Ramos with a 16-page complaint naming both Wells Fargo and Wachovia, and their boards, as defendants. But it has not yet filed the suit formally because the courts were closed.

Late Saturday, after several hours of intense legal jockeying, Justice Ramos issued an injunction effectively blocking the Wells Fargo deal, pending a hearing scheduled for Friday.

Wachovia hasn't seen the judge's order yet, but that didn't stop them from debasing Citibank's lawsuit as nothing more than a "pointless legal maneuver."

Wachovia customers can sit back and feel loved. Your accounts are safe, and for the moment, your banking experience will remain the same as it ever was.

Citigroup Says Judge Suspends Wachovia Deal [The New York Times]
Citi: Wells Fargo blocked from buying Wachovia [AP]
PREVIOUSLY: Giddyup! Wells Fargo Rides In And Steals Wachovia From Citibank!
(Photo: So Cal Metro)

Hey, we thought it was just us! Turns out the Emperor was naked.

Thankfully, Marketplace has written a short one act play that explains everything. Here's a taste...

SELLER: [sound of door opening] All right. So glad to hear the Union of Mothers and Nurses Pension Fund is keen to invest with us, Mr. Moron.

BUYER: Actually, That's Mah-RONE.

SELLER: Oh, do pardon me.

BUYER: Happens all the time. Now, we really took a hit when Lead Paint Toyco went under, so we'd like some big, quick returns here.

SELLER: Then have I got the product for you. It's called a reverse sub-micro-standard mortgage shadow security and — do you hold a degree in rocket science?

BUYER: Nope.

SELLER: Hmm. Well then, simply put, what we do is take semi-insured debts that've been sold to us from inelastic bubble markets, vertically resell, then unbundle the revenues according to Moody's astro-logarithm.

BUYER: Astro ...

SELLER: Astro-logarithm, which gives a monetized valuation that has itself been subdivided into A-3 and G-minus pumpkin patch. You following?

BUYER: Not at all!

SELLER: Great; me neither, really! This thing was invented by some eggheads we keep in a cave.

BUYER: Please, continue.

SELLER: Right. So, I think the Q-grades are dumped and leveraged upwards across 25 underplummeries? Our unicorn gives it a kick, and presto: you've got 300 percent annual growth.

BUYER: Now, you just said "unicorn." There is such a thing?

SELLER: Uhhh. Kind of? Honestly, I don't know. Don't care!

BUYER: Well, you also said "300 percent." So, I'm sold!

Credit Crisis Confusion: the one-act play [Marketplace] (Thanks, John!)

UBS has been more aggressive about marking down its assets than many of the banks for whom the rescue package is intended, making it easier for the Swiss bank to sell them on. UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

UBS, whose troubles began in May 2007 when it shut its Dillon Read hedge fund, has been one of the heaviest-hit victims of the credit crunch. But it has acted swiftly to get back on track, pumping shareholders and two sovereign wealth funds for billions in new capital. In August, it announced that it would be abandoning its "universal bank" model, slashing the balance sheet of its securities division, and slicing itself into three divisions to curb the outflow of money from its core wealth management business in Switzerland.

However:

UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

Capitalism, you say? That sounds like an intriguing concept. We should get some of that going on over here.

UBS Gets An Alternative Bailout [Forbes] (Photo: On Stage Lighting)

Here's a quick summary of the article, which can be found here:

1. A much less leveraged economy — Cash will be the thing to have.

2. More modest rewards — Less risk-taking means slower growth, slower appreciation of property value, etc.

3. A feast for bottom fishers — If you've got patience and cash, there will be a feast for you amongst the wreckage.

4. Fewer financial firms — Big banks are swallowing the smaller ones.

5. More government oversight of financial markets. — They're gonna be watching.

6. But a revival of private financial firms — Kiplinger's doesn't think that investment banks are gone for good.

7. Simpler forms of securitizing debt — Nor do they think that the secondary mortgage market is gone for good. They say it will be back, but it won't be as 'exotic'

8. Greater scrutiny of executive compensation — Shareholders are annoyed. Very annoyed.

9. Higher taxes and/or a bigger federal deficit — Someone has to pay to run the bilge pump.

10. Higher long-term interest rates — You saw that one coming, didn't you?

Hey, it turns out that the new post-apocalyptic economy is pretty much just the old traditional economy — but with a debt hangover.

10 Things That Will Change [Kiplinger's]
(Photo: Joy of the Mundane )

We wonder how long this WaMu Live nonsense is going to last. Hello, Chase Bank Auditorium #334,234...

The WSJ says that Dodd wants the government to receive shares in the firms that are dumping their questionable debt on taxpayers, as well as a provision to help distressed homeowners, whereas the White House is calling for a "clean" bailout that would allow the Treasury to grant "nearly unfettered powers" to its Secretary. The New York Times says that the Bush plan, "could prove to be the largest government bailout of private industry in the nation’s history."

CNN reports that most of the regular people that they've talked to are extraordinarily pissed about the bailout and think that, while ignoring the problem may not be practically possible, that Wall Street doesn't deserve any help:

"Companies, like individuals, should be held responsible for their decisions," wrote Jorge from El Paso, Texas. "This buyout does not address the other problems in the pipeline such as personal credit default and market slowdowns in most industries. No new jobs will be created."

"It is time for the financial institutions of this country to be called to the mat. We should be expecting and demanding responsible and ethical business practice, not rewarding it at the expense of taxpayers."

And John from Springfield, Va., said the government action actually hurts the people it is intended to help.

"The government does not have $700 billion dollars. WE have $700 billion, and it is being taken from us. If this is passed then the next administration and the next will be extracting this one from the people who are supposedly being protected by this bailout."

Other consumers vowed to get rid of any politician that supported a bailout:

"I will be watching to see which of our representatives vote for this bailout," said R. Kidd in Troy, N.C. "Let the American people see how many we can fire come election time."

And many readers, including Danny from Texas said we should stop typing and start dialing the lawmakers who are prepared to give the OK to the bailout.

"Call your Congressman. Stop blogging, posting comments, and call your congressman. This is the patriotic thing to do. Let them hear your opinion, show them this is still America and that you will not stand for this!!"

President Bush took today as an opportunity to ask Congress not to tack on any unnecessary nonsense to the bailout, and politely asked them to hurry:

Americans are watching to see if Democrats and Republicans, the Congress and the White House, can come together to solve this problem with the urgency it warrants. Indeed, the whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector, and retirement accounts.

Failure to act would have broad consequences far beyond Wall Street. It would threaten small business owners and homeowners on Main Street.

Everyone recognizes that it's not easy to write a bill of this magnitude in a timely manner, and all those who have worked so hard over the weekend and continue this morning deserve the thanks and appreciation of every American. Working together, I am confident we can enact the legislation necessary to prevent lasting damage to our economy and meet the unique challenge facing us today.

President Bush's Statement [NYT]
Dodd's Bailout Draft Could Give Companies' Shares to Government [WSJ]
Mad as hell - taxpayers lash out [CNN]
(AP Photo/Ron Edmonds)

From the NYT:

“We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to A.I.G. so it can sell some of its assets in an orderly manner,” Mr. Paulson said.

“Despite these steps, more is needed,” he said. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses.”

President Bush admitted that taxpayer money was funding these "decisive actions," but did add that he expected the money to be paid back:
“These measures will require us to put a significant amount of taxpayer dollars on the line,” Bush said in a statement, "But we expect that this money will eventually be paid back."

Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling [NYT]

Each spot features precocious little urchins discussing topics like "risk management" (ha!) and their parent's perceived personal finance failures until eventually the name of AIG is invoked as a salve to soothe their worried minds. Each commercial ends with AIG's tagline "The strength to be there." We saw these running as recently as Sunday, two days before you, the taxpayer, bailed the company out with 85 billion of your dollars.

Enjoy.

"Alan Greenspan told everyone to take a teaser rate and then raised the rate 17 times?" Cramer yelled back in August, pleading with Bernanke to focus on the issue. "Open the darn Fed window. He has NO IDEA how bad it is out there. HE HAS NO IDEA."

Here's his initial meltdown:

And here's Jimmy's elegy to the economy:

[via Gawker]

Wall Street is preparing for one of the largest bankruptcies in U.S. history as it becomes apparent that nobody wants to buy Lehman Brothers. Government officials are keeping the public's overextended credit card sheathed as they race to keep the fourth-largest U.S. investment bank from failing before the start of trading tomorrow.

Both Bank of America and Barclays rebuffed the Fed's entreaties to scoop up Lehman's profitable parts.

Barclays said it was approached by the U.S. Treasury at the end of last week, and saw in Lehman ``a potential opportunity to significantly enhance our investment banking and investment management franchise in key areas.''

`The proposed transaction required a guarantee for the trading obligations of Lehman Brothers which was potentially open-ended,'' Barclays said in a statement. ` Barclays wasn't willing to assume such an open-ended obligation.''

The US government had hoped to arrange a bailout under which other US investments banks - such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs - would finance a "bad bank" that would hold the most "toxic" investments of Lehman in the property and mortgage market.

The "good bank" or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK's Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.

However, it appears that this plan is falling apart.

Lehman's lawyers are writing up the Chapter 11 papers as Wall Street and the Fed officials continue with their emergency meetings.

If nothing else, Bloomberg reports that the bankers and regulators were at least able to agree on a comprehensive mid-afternoon snack break:

At 11:30 a.m., five delivery-men arrived at the Fed building with carts of sandwiches, as the talks continued.

Lehman edges closer to insolvency [BBC]
Barclays Abandons Talks to Buy Lehman Over Guarantees [Bloomberg]
Lehman’s Fate Is in Doubt as Barclays Pulls Out of Talks [The New York Times]
(AP Photo/Mark Lennihan)

Residents of the development got their first look Aug. 27 when the feline squatters — at least two adults and three kittens — lolled atop a wall outside the Spanish-style house.

"But are they pussycats? No. Can they do a lot of damage? Yes," she said. "They usually look for a food and water source, and there is an old koi pond in the backyard and that's where they are headed."

She said she expected the animals to move on in a few weeks, when the kittens are old enough to travel.

Tuscany Hills has been hit hard by foreclosures, and the house on Vista Palermo has been empty at least six months, neighbors said.

Said one clearly well-humored resident: "They are great neighbors, and as long as they don't want to baby-sit my kids, it's not a problem."

With homeowner in doghouse, bobcats move in [The Los Angeles Times]
(Photo: Karen Brown)

From the LA Times:

"It has the potential to be an epidemic," Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

Of course, we all know how well they prevented the (still on-going) mortgage meltdown. What happened?

Most observers have declared the mess a gross failure of regulation. To be sure, in the run-up to the crisis, market-oriented federal regulators bragged about their hands-off treatment of banks and other savings institutions and their executives. But it wasn't just regulators who were looking the other way. The FBI and its parent agency, the Justice Department, are supposed to act as the cops on the beat for potentially illegal activities by bankers and others. But they were focused on national security and other priorities, and paid scant attention to white-collar crimes that may have contributed to the lending and securities debacle.

Now that the problems are out in the open, the government's response strikes some veteran regulators as too little, too late.

Swecker, who retired from the FBI in 2006, declined to comment for this article.

But sources familiar with the FBI budget process, who were not authorized to speak publicly about the growing fraud problem, say that he and other FBI criminal investigators sought additional assistance to take on the mortgage scoundrels.

They ended up with fewer resources, rather than more.

FBI saw threat of mortgage crisis [LA Times]
(Photo: meghannmarco )

"The properties smell," said Eve Alexander, an agent in Orlando. "You find maggots. The swimming pools are green. The lawns dry up. They're eyesores. Neighbors yell at us to water the lawn."

The Indiana Association of Mortgage Brokers worked with Rokita's office and lawmakers in drafting the new law, said the group's president, Mike Monaco of Merrillville.

"Make no mistake about it, we had one of the easiest entrance barriers in the country," Monaco said. He said many of the brokers who have lost their licenses likely already had left the business because of the housing industry downturn.

The low standards likely were among the factors leading to Indiana consistently having one of the 10 highest foreclosure rates in the nation, Monaco said.

When you add in the 143 brokerages who voluntarily gave up their licenses, the total number of mortgage brokerages in Indiana has shrunk by half since July 1st.

If you're interested in seeing a list of all the brokerages whose licenses have been revoked, you can click here (PDF).

40 percent of Ind. mortgage brokers lose licenses [BusinessWeek]
(Photo: stirwise )

The problems associated with banks that begin foreclosure proceedings when they do not have proper legal standing are now looming larger in the mortgage meltdown. Loans were heaped into trusts with little documentation of ownership or proper loan assignments — it was all about volume and the fees that came with it — and now that sloppiness is hurting both lenders and borrowers.

Mr. Rothbloom said he had another case in which the lender’s representative has been unable to prove ownership for two and a half years.

Meanwhile, consumer lawyers fear that borrowers are being pushed out of their homes by companies that have no right to do so. Such a prospect is particularly worrisome for residents in states that allow lenders to foreclose without court supervision, known as nonjudicial foreclosure states.

Losing a home is devastating for any family. Such monumental and consequential proceedings should adhere to letter of the law, and if they don't, families shouldn't hesitate to ask a court to defend their rights.

How One Borrower Beat the Foreclosure Machine [The New York Times]
(Photo: Getty)

As of June 30, the closed banks had total assets of $3.6 billion. That's down from $4.1 billion six months earlier. Most of the assets are in 1st National while First Heritage accounts for $254 million.

Calls to 1st National were referred by a receptionist to Joe Martony, an executive vice president in Scottsdale, Ariz. Martony didn't return repeated calls to his office.

In Nevada, 1st National has 10 branches and employs about 350 people. Five of its branches are in Las Vegas, three are in the Reno-Sparks area, one is in Carson City and one is in Laughlin. Notices of the closure were being posted late Friday.

Fifteen 1st National branches are in Arizona, while Newport Beach-based First Heritage has three branches in Southern California.

Customers will be able to access their cash over the weekend by writing checks, or through ATMs and debit cards. Because Mutual of Omaha has purchased the banks in their entirely, all former customers, including those who exceeded FDIC insurance limits, will recover the full value of their accounts.

90 banks remain on the FDIC's problem list, and chairwoman Sheila Bair has warned us to expect more bank failures—but consumers have absolutely nothing to worry about as long as they keep their accounts within the FDIC's insurance limits.

FDIC takes over 2 more banks, closing 28 branches [AP]
Two More Banks Fail [The Wall Street Journal]
(AP Photo/Nevada Appeal, Brad Horn)

CNN says:

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

Once the legislation passes, Rep. Barney Frank, D-Mass., one of the authors of the bill, says that help could come "within days of Bush signing the bill," because lenders are familiar with the details.

How housing rescue bill can help you [CNNMoney]
Homeowners to get aggressive bailout [Star-Tribune]
(Photo: Getty)

The Senator recently criticized the Office of Thrift Services for allowing banks to underwrite cruddy mortgages, and specifically mentioned that IndyMac might be in trouble. Afterwards, the bank's depositors started a run on the bank, withdrawing up to $100 million per day. According to the director of OTS, a political appointee: “The senator made comments in his letter questioning the viability of the institution. When a member of the United States Senate makes such a statement, it frightens depositors.”

Schumer responded:

If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today. Instead of pointing false fingers of blame, OTS should start doing its job to prevent future IndyMacs.

Now, now, Senator, man up for your actions. Your persistent questions about the subprime meltdown are obviously what got us into this mess in the first place.

The bank's failure will cost the FDIC around $10 billion. IndyMac customers, like the woman who pointlessly banged on the bank's doors pleading, "please, please, I want to take out a portion," will be able to access their money via ATMs over the weekend, and will have full access by next week. The 10,000 customers who collectively deposited $1 billion above FDIC insurance limits will lose half of their uninsured funds.

The latest bank failure is a reminder that your FDIC insured bank account will always be safe, but only if you keep your deposits within FDIC limits.

Regulators Seize Mortgage Lender [NYT]
IndyMac Bank seized by federal regulators [L.A. Times]
IndyMac Seized by U.S. Regulators; Schumer Blamed for Failure [Bloomberg]
(Photo: The Associated Press)

The association says it expects foreclosures and late payments "are going to continue to go up" in the coming months as housing prices continue to fall.

"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble — a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."

Home foreclosures set record in first quarter [AP]
(Photo: respres )

From NPR:

"I'd see people who were hotel workers saying that they made, in California, making $15,000 a month so that they could qualify for a $500,000 home," Warren says. "If a hotel worker is making $15,000 a month changing sheets at the Days Inn, everybody would want to do it. It just really made no sense."

Warren has worked in the mortgage business for 25 years, the past five in quality control. Most recently, she was a contract worker for a company called Watterson-Prime, which did loan audits for investment banks. She says their biggest client was Bear Stearns, which recently all but collapsed because of its exposure to bad loans.

Putting Bad Apples Back in the Barrel

Warren thinks her supervisors didn't want her to do her job. She says that when she would reject, or kick out, a loan, they usually would overrule her and approve it.

"The QC reviewer who reviewed our kicks would say, 'Well, I thought it had merit.' And it was like 'What?' Their credit score was below 580. And if it was an income verification, a lot of times they weren't making the income. And it was like, 'What kind of merit could you have determined?' And they were like, 'Oh, it's fine. Don't worry about it.' "

After a while, Warren says, her supervisors stopped telling her when she had been overruled. She figured it out by going back later and pulling the loans up on her computer.

"I would look every couple of days, and just see, if it was a loan that I thought was a bad loan, I'd go back and see if it was pulled."

About 75 percent of the time, loans that should have been rejected were still put into the pool and sold, she says.

NPR says Tracy's story isn't the only evidence emerging that points to Wall Street. According to one report, some investment banks agreed to reject only a certain percentage of loans — regardless of how many were actually bad.

Loan Auditor: Supervisors Covered Up Bad Loans [NPR]
(Photo: Getty)

Mozilo, whose inbox has been flooded with EECBs (executive email carpet bombs) from borrowers, apparently meant to hit forward, but instead replied to Daniel Bailey, a homeowner who is trying to stay in his home of 16 years. Bailey signed an adjustable rate mortgage and was told at the time that he could refinance after one year, before the payments became unaffordable.

From the LA Times:

Much of the language in Bailey's message to Countrywide was borrowed from a form letter available at the website LoanSafe.org, a coaching service for troubled borrowers. Bailey, who says he operates a photo studio, posted his e-mailed exchange with the lender on a LoanSafe forum.

His original e-mail was sent to 20 Countrywide addresses, including Mozilo's. Such mass e-mails have overwhelmed e-mail boxes at Countrywide, disrupting its operations and prompting Mozilo's heated response, the company said.

"This is unbelievable," Mozilo said in his e-mail. "Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting."

Countrywide has issued a statement about the email:

"Countrywide and Mr. Mozilo regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers, like Mr. Bailey, keep their homes."

Countrywide Financial Chairman Angelo Mozilo's e-mail sets off a furor [LA Times] (Thanks, Kevin!)
(AP Photos/Susan Walsh)

"It was really every sleazy move in the book," says NPR's tipster, an economic analyst turned stay-at-home Mom who has owned several homes in the past and who is married to a mathematician.

NPR's tipster says that when she told the Countrywide loan officer that her income was low because she was a stay at home mom, he told her that she could lie about husband's income because he had "manager" in his job title.

"He said he could change it and if it was a manager then the underwriters wouldn't be as questioning. And I said but our taxes don't reflect it and his boss will not verify that that is indeed his income, and basically he said: 'Don't worry about it. I'll deal with it.'" She also says that the loan officer asked her to create an entirely fraudulent document claiming that she made $60,000 a year when in fact she was not working.

"I told him that I was extremely uncomfortable doing it, and I didn't want to," she said.

Countrywide says it is looking into the incident.

Woman: Countrywide Proposed Fibbing to Get Loan [NPR] (Thanks, Tmoney02!)

Back in the glory days, when credit and food were cheap, it took a mere 2-liter bottle of Pepsi to bait customers into filling out a Walmart credit card application.

Recent events have forced America's largest retailer to resort to increasingly drastic methods to entice applicants. Filling out an application is now worth one of four different sodas, VitaminWater, or a box of candy. The way things are going, a completed Walmart credit card application will soon be worth a party-size bag of chips. The horror!

According to Ireland's commentary, only Obama has a real plan. He would increase penalties for fraudulent lending, create a foreclosure-prevention fund, create a standardized scoring system for rating borrowers' obligations, and more. (Although Obama does not mention it, I hope he would also earmark funding to prosecute the frauds, who are pretty much going unpunished.)

Ireland says Clinton wants to offer shelter to the mortgage servicers who helped create the problem, while McCain's "proposal" is basically to do nothing.

The Issues: Housing [NYT]

Clinton, Obama, McCain On Foreclosure Crisis [Consumer Rights Watch]

(photo: The Joy Of The Mundane)