Banks Continue Playing Extend and Pretend with Foreclosures thanks to Rep. Paul Kanjorski

On March 12, 2009, FASB Chairman Robert Herz was warned by Rep. Paul E. Kanjorski (D-Pa.) and other committee members that Congress would write its own mark-to-market rules if FASB didn't relax them.

Grandpa

The Notice of Defaults (NOD's) number is down only because banks are not sending out NOD's to borrowers who are seriously delinquent. It is in the bank's interest to delay processing mortgage delinquencies courtesy of Representative Paul Kanjorski's crusade for Mark-to-Model (a.k.a. extend and pretend) accounting.

After Kanjorski's cage match victory over FASB, banks assign whatever mark-to-model valuation on their toxic mortgages that best manages their earnings in any given quarter. Foreclosure forces the banks to mark-to-market as the $112,000 Sheriff sale price negates the $180,000+ mark-to-model valuation previously carried on the bank's books. As long as the bank extends and pretends, the $180,000 valuation rules.The Notice of Defaults (NOD's) number is down only because banks are not sending out NOD's to borrowers who are seriously delinquent. It is in the bank's interest to delay processing mortgage delinquencies courtesy of Representative Paul Kanjorski's crusade for Mark-to-Model (a.k.a. extend and pretend) accounting.

Diana Olick
Realty Check
9/16/10

I'm sure you've all seen the headlines from RealtyTrac today that show a new record for bank repossessions.

In some of the news reports today, I've also heard TV anchors make mention of some bright news in the report, that Notices of Defaults (NOD's) are down 30 percent from a year ago.

NOD's are the first stage in the foreclosure process. So that should mean that while there are still a lot of borrowers working through the system, at least the number of newly troubled borrowers entering the system is improving, right?

Wrong.

According to Rick Sharga at RealtyTrac, the NOD number is down only because banks are not sending out NOD's to borrowers who are seriously delinquent.

"We are seeing people in more and more serious stages of delinquency, who in a normal market long ago would have received an initial notice of default or been in the foreclosure process who are not there yet. I do think it is one of the mechanisms that the industry is using to manage supply and demand levels of this distressed inventory to keep the market from melting down."

We already know that banks are managing their owned inventory (REOs) by not flooding the market with all the properties they repossessed. They do this so as not to drive home prices down even further (although it's not really working).

I was really amazed to hear this from Sharga, who points to the bucket of seriously delinquent loans as proof. It keeps getting bigger, while the NODs get smaller.

That doesn't make sense.

Yes, banks are trying to get people into modifications, but we already know those numbers are very small in comparison.

Since I was so skeptical, and happened to also be doing an interview with Doug Duncan, the chief economist over at Fannie Mae, about their National Housing Survey released today, I posed the question to him. He agreed with Sharga.

"The survey shows significant softness on the demand side of the equation, and if you are concerned about the broad based economic effects of significant price declines, if you were to bring large quantities of foreclosed or distressed properties onto the market suddenly, you would definitely put serious downward pressure on prices and that would have broad effects," says Duncan.

He went on to say, "The various parties involved [banks, lenders], either on policy or in executing in the market, are attendant to that and are concerned about the possibility about making the problem greater. My sense is that there is not an attempt to avoid the problem but rather to manage the problem to minimize the damages to both the housing sector and to the economy."

This is why Sharga estimates we will not see a peak in foreclosures until 2011.

U.S. Gov't thinks banks should share in the garbage they sold to Fannie and Freddie, price tag: $17+ Billion

September 15, 2010 and the U.S. Government believes our countries largest banks should pay for some of the cost of Fannie and Freddie given the fact that these same banks peddled garbage to Fannie and Freddie. WHAT A CONCEPT however do not hold your breath!

Our fine banking institutions will simply state they sold mortgages that met Fannie and Freddie standards at the time albeit who really "fogged the mirror" when the applications were completed?

Even "Representative" Paul Kanjorski gets mention, "We found a way to pay for the savings and loan crisis, and we can survey find a way to recover the costs associated with this crisis." Mr. Kanjorski is the very same "representative" of the banking industry that put the screws to FASB to change accounting valuations from mark-to-market (a.k.a. real valuations) to mark-to-model.

No America, banks will not be paying their fair share of the financial burden paced on our children and grandchildren. Our large financial institutions are deemed "special" and integral to the survival and growth of Main Street so say our elected "representatives" in D.C. Both groups continue to pillage and place our children and grandchildren in financial harms way however they sleep well.

Our "leadership" has already placed a $43,000+ debt burden on our children and grandchildren (excluding unfunded liabilities and Fannie and Freddie) so each and every one of us needs to raise a voice on their behalf and force the career politicians to commence reducing their burden. It is really simple....it is not fair!

WASHINGTON (AP) -- The nation's largest banks have an obligation to pay some of the cost for bailing out mortgage buyers Fannie Mae and Freddie Mac because they sold them bad mortgages, a government regulator said Wednesday.

Edward DeMarco, the acting director for the Federal Housing Finance Agency, said the banks this summer have refused to take back $11 billion in bad loans sold to the two government-controlled companies, in written testimony submitted for a House subcommittee hearing Wednesday. A third of those requests have been outstanding for at least three months.

DeMarco said the banks have a legal obligation to buy back the loans and called the delays "a significant concern." He said the government may take new steps to force those buybacks if "discussions do not yield reasonable outcomes soon."

In an interview with reporters after the hearing, DeMarco declined to give further details on what the government might do next. He said only that "we're looking for contractual obligations to be fulfilled."

Fannie and Freddie buy mortgages and package them into securities with a guarantee against default.

The two mortgage giants nearly collapsed two years ago when the housing market went bust. The government stepped in to rescue them and it has cost taxpayers about $148 billion so far. The rescue is on track to be the most expensive piece of stabilizing the financial system.

Fannie and Freddie have a legal right to return bad loans, especially if they later discover fraudulent statements on applications. Any money they recover offsets their losses.

The amount in question is a small fraction of the total government rescue, said Ed Mills, financial policy analyst at FBR Capital Markets.

Still, lenders say Fannie and Freddie are trying to return too many loans. And in some cases, they are pushing back loans where it's not clear fraud was committed, the lenders say.

Mortgage industry consultant Brian Chappelle said the requests often apply to loans that met the mortgage buyers' guidelines at the time.

"The industry believes that the pendulum has swung far beyond what is reasonable," he said. As a result, he said, lenders are being extremely cautious about making new loans.

Wall Street has worried that the costs of bailing out Fannie and Freddie could get pushed back on big banks. Fitch Ratings said in a report last month that the four largest U.S. banks could book losses of up to $42 billion if Fannie Mae and Freddie Mac force them to take back troubled mortgages they made. It also estimated that JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. could record $17 billion in losses if they repurchase a quarter of the mortgage giants' seriously delinquent loans.

The leading Democrat on the panel, a House Financial Services subcommittee, indicated the banks bear some responsibility.

"We must begin to think about approaches for recouping taxpayers' money in the long run," said Rep. Paul Kanjorski. "We found a way to pay for the savings and loan crisis, and we can survey find a way to recover the costs associated with this crisis."

A bigger headache for lawmakers is figuring out what to do with Fannie and Freddie in the future.

The Obama administration is working on a plan to restructure the mortgage market and make sure home loans are affordable. Officials don't plan to release details until next year. But Michael Barr, an assistant Treasury secretary, told the panel Wednesday that Fannie and Freddie "will not exist in the same form as they did in the past."

Sorting out the future of housing finance has been a divisive issue on Capitol Hill. And it could grow even more contentious if Republicans take control of one or both houses of Congress.

Republicans have seized on the administration's management of Fannie and Freddie to illustrate Democrats' push for broadening the reach of the federal government. They say loans acquired by Fannie and Freddie since the September 2008 takeover have put taxpayers at risk.

"It's time for the government to get out of that business," said Rep. Spencer Bachus, the top Republican on the House Financial Services Committee.

But Democrats and regulators say the loans acquired by Fannie and Freddie before their takeover represent the overwhelming majority of the companies' losses. New loans acquired since then have been performing well, they note.

"There is no urgency," to reform the two companies, said Rep. Barney Frank, the committee's chairman. "The pattern of abuse they had engaged in has been changed...Fannie and Freddie are behaving differently and are causing far less problems."

Banner month for the FDIC: 22 bank closings and a $1.260 billion hit to the Deposit Insurance Fund (DIF) and Puff N Stuff Asset Valuations Continue

Sheila Bair's staff at the FDIC had a most productive July. Collectively she and her crack staff closed 22 banks with an estimated $1.260 billion hit to the Deposit Insurance Fund (DIF).

On Friday, the FDIC closed 5 banks with an estimated $334.7 million hit to the Deposit Insurance Fund. Year to date, the FDIC has closed 108 banks.

Recap of weekly bank closings for the month of July:

7/30/10 5 banks closed and DIF hit of $334.7 million
7/23/10 7 banks closed and DIF hit of $431 million
7/16/10 6 banks closed and a DIF hit of $334.8 million
7/9/10 4 banks closed and a DIF hit of $159.9 million
7/2/10 NO BANKS CLOSED (FDIC Holiday Weekend)

Courtesy of the Financial Accounting Standards Board (FASB) changes to "portfolio valuation", the banks continue their "Puff N Stuff" mark-to-model asset valuation (a.k.a. fraud).

Please allow grandpa to refresh your memory regarding the congressional "influence" on FASB:

June 26th, 2009 (Marketwatch): "I've testified maybe 20 times on the Hill and lawmakers and other policy makers here have a natural interest and responsibility to understand what we're doing," said FASB Chairman Robert Herz at the National Press Club in Washington. "I don't particularly welcome when people try to exert political pressure on us to get us to change accounting rules."

Key lawmakers, including a subcommittee chairman, Paul Kanjorski, D-Penn., said they would consider introducing legislation to make FASB make the changes if the agency didn't do it on its own. They demanded that FASB provide flexibility within three weeks.

March 30 (Bloomberg) -- Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

The political action committees of banks including Citigroup, Bank of America, Bank of New York Mellon, Wells Fargo and banking trade groups contributed money to Kanjorski’s re- election campaign last year, according to the Federal Election Commission. Citigroup gave $6,500, Bank of America $7,000, Bank of New York $8,000 and Wells Fargo $13,000.

Puff N Stuff South Carolina Sytle

Woodlands Bank, Bluffton, South Carolina was closed by the FDIC on Friday and could be one the Poster Banks for mark-to-model. Woodlands Bank listed assets of $376.2 million and total deposits of $355.3 million. The FDIC estimates a hit to the DIF of $115 million. This would imply "REAL" assets of $240 million versus $376.2 million yielding a "Puff N Stuff" over statment of assest by 57%.

This is similar to one's child telling you they received an A- semester grade and during parent teacher conferences, the mark-to-market grade was a solid C+.

Thank you Paul Kanjorski for your stellar "integrity" role modeling on behalf of all children and grandchildren.

Paul Kanjorski leading a bailout of commercial real estate

On Paul Kanjorski’s website:
Today, Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, and Congressman Ken Calvert (R-CA), along with 77 of their House colleagues, sent a bipartisan letter to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke about the growing concerns that deteriorating conditions in the commercial real estate (CRE) market may threaten an economic recovery.

"The growing bubble in the commercial real estate industry has the potential to infect our economy and slow a recovery," said Chairman Kanjorski. "In order to safeguard the businesses operating on Main Street and protect the millions of jobs depending on commercial real estate, the Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses."

"I am deeply concerned about the health of our commercial real estate market and the stability of thousands of small businesses across the country," said Congressman Calvert. "We must take the appropriate steps to ensure that our commercial real estate market does not experience a liquidity crisis that would further exacerbate our struggling economic situation."

"A liquidity crisis in the commercial real estate market is hurting small business owners across the entire nation," said National Association of REALTORS President Vicki Cox Golder, owner of the commercial real estate company Cox and Co.; Associates in Tucson, Arizona. "I join with all commercial property owners who applaud the efforts of Reps. Calvert and Kanjorski to resolve this problem and put small business owners back in business."

Specifically, the letter asks regulators to take the following steps:
• Establish a clear method for measuring and evaluating the effectiveness of recent CRE loan modification guidance issued by the regulators.
• Institute metrics to more clearly differentiate performing versus non-performing loans as well as any other steps that provide lending institutions with more confidence in assessing CRE loans.
• Make clear public statements encouraging lenders to continue to make credit available for performing assets as a means of restoring confidence and long-term value in the CRE market.


The $6.7 trillion CRE sector supports 9 million American jobs. If the conditions in the CRE market deteriorate further the negative effects will be significant and widespread, rippling not only through the CRE sector but also the broader economy. More than $1.4 trillion in commercial mortgages will come due by 2013, and as much as 65% of those deals will have trouble getting refinanced according to recent analysis conducted by Deutsche Bank. While the Federal Reserve and Treasury Department have acknowledged the ongoing CRE challenges, their actions have so far failed to ease growing concerns among economists and market participants.

Paul, you need to get out more often. You have not left the house (of representatives) since 1984. Allow this grandpa to explain a few things since I have left the house in 26 years:
 
People have invested in commercial real estate long before you were born.
 
Believe it or not Paul, real estate investments have been and will always be impacted by economic cycles and it is the responsibility of the investor to manage his/her risk during challenging times. You see Paul; there are no guarantees in life.
 
Inept underwriting of mortgages was not exclusive to private residences. I suggest you secure a few underwriting worksheets from lenders and review the true “performance” of the property prior to issuing a mortgage. If you need assistance, zap me an email as I would genuinely welcome the opportunity to point out how essential investment factors such as vacancy rates, actual collected rents versus a stated rent roll, reserves for repairs and capital improvements, cash flow analysis when the initial note ballooned and projected rent rolls were “fudged” or ignored in order to get a deal done.
 
You see Paul, Wall Street was equally greedy and inept (by choice) regarding commercial loans as they were with residential mortgage products. I had the pleasure of working with commercial investor clients and when the “numbers” did not make sense, they hunted for other potential opportunities. In other words Paul, they were mature and intelligent investors and assumed responsibility for their actions and decisions.
 
Investing in CRE is no different than any other investment as it is about conducting due diligence and managing one’s risk. If one of your constituents invests in a publicly traded company and the stock price drops, do they call you requesting a letter to the NYSE?
 
Wake up Paul, our grandchildren do not need you or anyone else adding to their mounting mountain of debt due to the “Bail out Era”. Tell your investor clients with a boo-boo to pick themselves up and put on a bandage.
 
It is 2010; this might be the magical year when you finally have an opportunity to leave the house!