Apparently the biggest banks in the US didn’t learn their lesson the first time around…
Because a few days ago, Wells Fargo, Bank of America, and many of the usual suspects made a stunning announcement that they would start making crappy subprime loans once again!
I’m sure you remember how this all blew up back in 2008.
In early 2015, after seeing a staggering $1.4 trillion in Euro area government debt trade at negative interest rates (the number has since grown to $6 trillion) we wondered when the bailout of insolvent governments was going to make its way to other debtors. Our question was quickly answered when we found that a negative rate mortgage had been issued by Nordea Credit, a bank in Denmark. Recently, even the WSJ finally stumbled on this bizarre inversion of traditional borrower obligations.
We noted at the time that this this was the first of many such paradoxes, as eventually more and more banks would begin to fall in line with ECB expectations and lend at slightly negative (at first, then progressively more negative) rates, rather than lose even more money as a result of leaving cash in the ECB deposit facility.
This is just the beginning: according the Danish media outlet, as a result of variable-refinancing, as recently as a week from now “a greater share of customers could have a negative rate.”
A fine for doing God’s work?
Hot on the heels of Wells Fargo’s $1.2 billion settlement, Bloomberg reports that Goldman Sachs will pay $5.1 billion to settle a U.S. probe into its handling of mortgage-backed securities involving allegations that loans weren’t properly vetted before being sold to investors as high-quality bonds.
“This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail,” said Acting Associate Attorney General Stuart Delery.
As AP reports,
The Justice Department announced a $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities leading up to the 2008 financial crisis.
H/t reader M.G.:
“Looking at the destruction Morgan Stanley wrought on the mortgage market, and the crooked judges are looking for a “settlement” early next year. No word about the millions who suffered as a result of their policies, not just those who bought the homes, but all of us who suffered from radical drop in property values as a result of mass foreclosures around us.”
– Court Filing Illuminates Morgan Stanley Role in Lending (CNBC/New York Times, Dec 30, 2014):
Since the financial crisis, Wall Street firms have argued that they were victims, just like everybody else, of the bad mortgages that were churned out by subprime lenders like Countrywide and New Century.
Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street’s leading banks, Morgan Stanley, actively influenced New Century’s push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.
– If At First You Fail Miserably & Blow Up The Financial System, Do It Again! (ZeroHedge, Dec 9, 2014):
Here we go again! Mortgage giants Fannie Mae and Freddie Mac have now officially approved 3% down payment mortgages. Having government entities provide low down payment mortgages to people who can’t afford to buy a house is always a good move. Keynesians like Krugman approve wholeheartedly. The housing market will get a nice boost and the working taxpayers will fund the bad debt through Fannie and Freddie. You own Fannie and Freddie. Everyone wins. In case you forgot, the closing costs to sell a house are usually 8% of the home price. So these home buyers are immediately 5% underwater when they move in… “Sometimes I can’t believe I live in a world this f##ked up. And no one notices and no one cares.”
– New bill: Congress engineering yet another financial crisis (Sovereign Man, Sep 6, 2014):
Say hello to the next financial crisis, brought to you courtesy of the dumbest new bill of the week: H.R. 5148: Access to Affordable Mortgages Act.
Ordinarily whenever an individual wants to borrow money for a mortgage, the bank conducts due diligence… both on the borrower as well as the property.
It’s in the banks’ interest (as well as the banks’ depositors) to ensure that the property is at least worth as much as the amount being borrowed. Duh.
Congress doesn’t agree. Apparently when banks conduct property appraisals, that seems to unfairly discriminate against some segment of the population trying to buy crap properties.
And we certainly can’t have that going on in the Land of the Free.
So with HR 5148, Congress aims to exempt certain ‘higher-risk mortgages’ from property appraisal requirements.
– Bank of America agrees to $17bn fine over mortgage fraud – report (RT, Aug 20, 2014):
America’s second largest lender has reached a $17 billion settlement with US federal authorities over selling bad mortgages, according to sources close to the negotiations.
The bank will pay out $10 billion in cash and $7 billion for consumer relief – such as modified home loans and refinanced mortgages, AP reports, citing officials close to the negotiations. The final verdict is due on Thursday.
The fine will be the largest single compensation settlement, beating out JPMorgan Chase & Co’s $13 billion penalty paid in November 2013. Citigroup, another major US bank, had to pay $7 billion in July.
– Mortgage Standards Are Plunging – It’s Muppet Fleecing Time All Over Again (Liberty Blitzkrieg, April 21, 2014):
In February, I highlighted the fact that subprime loans were about to make a return in my piece: Subprime Mortgages are Back…This Time Marketed as “Second Chance Purchase Programs.” In that article, I posited that with the “all cash” private equity shops and hedge funds no longer able to make good returns through buying new homes to rent, these investors would need some sucker to sell to in order to realize a return (Blackstone’s purchases have plunged 70% recently). That sucker, as always, will be the retail muppets, and those muppets will be lured in through subprime. This is now starting to happen in earnest.
The following article from the Wall Street Journal is both depressing and disturbing. Rather than allowing home prices to reset at a lower level after the 2008 crash where to normal buyers could afford a sane 20% mortgage, our central planners decided to do “whatever it takes” to re-inflate the housing bubble. This was achieved through wealthy investment pools buying properties for all cash. The trouble is, with home prices now inflated by these financial buyers and no real increase in wages, homes are simply unaffordable. So what do you do? You bring back subprime and get the peasants long real estate with essentially zero money down all over again. Truly remarkable.
– Is Bob Shiller Right? Mortgage Applications Collapse Back To 5 Year Lows (ZeroHedge, Dec 4, 2013)
– Following 45% Collapse, Mortgage Applications Are Back To 2011 Lows (ZeroHedge, July 17, 2013):
For the 9th week of the last 10 mortgage applications fell (led by refis – down 55% from their peak). Now down an incredible 45% from its May highs – the largest 10-week plunge since December 2010 – overall mortgage activity is languishing around the lowest levels of the post-recession ‘recovery’. Year-over-year, applications have dropped 44% which is close to the worst on record as applications and mortgage rates track one another in their ‘whocouldanode’ perfectly correlated manner. It seems – for all those blinkered pollyannas – given this morning starts and permits disaster, that home sales are the next shoe to drop and judging by the empirical relationship with apps and rates, the ‘surprise’ could be significant for many who remain hopeful.
Not pretty at all…
– American Insanity: How to Buy a Home in Martha’s Vineyard with Zero Money Down (Liberty Blitzkrieg, June 5, 2013):
The absurd new housing bubble created by Banana Ben Bernanke’s cheap money, private equity slumlords and crony foreign oligarchs looking to launder their ill-gotten funds, continues to provide what would be hilarious headlines if only they weren’t so sad. In the following story, we find that courtesy of the Department of Agriculture (USDA), the struggling folks on Martha’s Vineyard have access to zero money down home loans. The USDA you ask? Well, it turns out that the “entire island is designated as a rural area eligible for a USDA loan.” Why do we even have a government at this point?
The zero down mortgage is back—in Martha’s Vineyard.
Ira Stoll at the Future of Capitalism bloghas come across an article on “Home Buying 101″ in the spring of 2013 “Real Estate & Homes” supplement to the Vineyard Gazette. A local mortgage broker by the name of Polly K. Bassett is quoted as touting how.
Bassett, the “co-owner and a broker of Martha’s Vineyard Mortgage Company, L.L.C., said: “We have access to a wide range of programs such as USDA, which is a program where you can put no money down, 100 percent financing, and we also do a 97 percent financing with three percent down….There are a lot of programs out there for people buying their first home.”
– Bank Of Ireland Doubles Mortgage Rates, Homeowners Fear More To Come (ZeroHedge, May 2, 2013):
With the Bank of England cutting its wholesale interest (bank) rate to historic lows and now the ECB slashing 50bps off its key rate (as well as remonstrating on the reduction in fragmentation across European nations), it is perhaps perplexing (or simply too obvious) that a bank would raise its mortgage rates. As the Daily Mail reports, government-owned Bank of Ireland (BOI) doubled mortgage rates for 13,500 customers in the UK leaving homeowners with huge increases in their monthly payments. The bank, exploiting small print in the legacy mortgage contracts, will hike the interest cost for 1-in-14 homeowners from 2.25% to 4.99% (raising the spread over the bank rate on these loans from 1.75% to 4.49%). Anger is rife as customers complain “it’s all very frustrating,” adding that they thought this was a ‘tracker’ mortgage but BOI defends their massive rate hike on increased funding costs and the need to maintain higher levels of capital. The disconnect between wholesale gorging provided by the Central Bank and wholesale gouging of the real economy grows ever wider it seems.
Thousands of homeowners are facing a huge increase in their mortgage repayments after the Bank of Ireland doubled rates overnight.
… will affect some 13,500 UK customers,
– ALL IS WELL!!! (The Burning Platform, Feb 6, 2013)
– Marc Faber: “Paul Krugman Should Go And Live In North Korea” (ZeroHedge, Dec 13, 2012):
If there is one thing better than Marc Faber providing a free, must-watch (and listen) 50 minute lecture on virtually everything that has transpired in the end days of modern capitalism, starting with who caused it, adjustable rate mortgages, leverage, why did the Fed let Lehman fail, why was AIG bailed out, quantitative easing, Operation Twist, where the interest on the debt is going, which bubbles he is most concerned about, a discussion of gold and silver, and culminating with his views on a world reserve currency, is him saying the following: “The views of the Keynesians like Mr. Krugman is that the fiscal deficits are far too small. One of the problems of the crisis is that it was caused by government intervention with fiscal and monetary measures. Now they tells us we didn’t intervene enough. If they really believe that they should go and live in North Korea where you have a communist system. There the government intervenes into every aspect of the economy. And look at the economic performance of North Korea.” Priceless.
50 minutes of Faberian bliss:
YouTube Added: 02.08.2012
– U.S. files mortgage fraud lawsuit against Wells Fargo (Reuters, Oct 9, 2012):
The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co, the latest legal volley against big banks for their lending during the housing boom.
The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans.
The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured in assets.
– The Last Housing Crash Is Not Even Over But Bernanke Is Already Setting The Stage For The Next One (Activist Post, Oct 3, 2012):
Federal Reserve Chairman Ben Bernanke is determined to push mortgage rates to record low levels and he is encouraging the banks that the Fed regulates to make home loans more freely. Wait a second – isn’t that exactly what caused the last housing bubble?After 9/11, the Federal Reserve slashed interest rates and this caused mortgage rates to steadily fall. Financial institutions were urged to help “expand home ownership” in America, and many of them started making home loans to people who never, ever should have gotten home loans. When mortgage rates started to go back up, millions of families with adjustable rate mortgages discovered that they could not make their monthly payments. Mortgage delinquencies absolutely soared and large numbers of mortgage-backed securities suddenly turned into garbage.
– The Truth About How The Fed Has Destroyed The Housing Market (ZeroHedge, Aug 16, 2012):
When observing the trends in the housing market, one has two choices: i) listen to the bulls who keep repeating that “housing has bottomed”, a false mantra which has been repeated every single year for the past four, or ii) look at the facts. We touched briefly on the facts earlier today when we presented the latest housing starts data:construction of single family residences remains 46 percent below the long-term trend; the more volatile multifamily houses is 15 percent below trend and demand for new homes 47 percent below. This is indicative of reluctance by households to make long-term investments due to fear of another downturn in housing prices. Bloomberg summarizes this succinctly: “This historically weak demand for new homes is inhibiting the recovery of demand for construction workers as well, about 2.3 million of whom remain without work.” But the best visual representation of the housing “non-bottom” comes courtesy of the following chart of homes in negative or near-negative equity, which via Bloomberg Brief, is soared in Q4, and is now back to Q1 2010 level at over 13.5 million. What this means is that the foreclosure backlog and the shadow inventory of houses on the market could be as large as 13.5 million in the future, which translates into one simple word: supply.
Here is Bloomberg’s Joseph Brusuelas on this topic:
Approximately 13.5 million households hold negative or near-negative equity positions on their mortgages. Many of them will likely lose those homes to foreclosures, which are again on the rise. At best, an increase in foreclosures will constrain a recovery in prices; at worst, a flood of inventory to market will put further downward pressure on prices.
In other words it is Bloomberg, not us, coming up with the perfectly logical idea that a number as large as the total number of underwater mortgages may and will end up on the market as foreclosures, which in turn will clog up the market clearance piping for years, if not decades to come.
YouTube Added: 31.07.2012
In this episode, Max Keiser and Stacy Herbert discuss the virtual virtual economy getting hit by a dustbowl and there are no gully washers or toad stranglers on the horizon to bring reliefe; meanwhile out in the virtual real economy it’s all the bath-salts and beer you can drink and scalps for sale in California as eminent domain falls into the hands of private bankers. In the second half, Max interviews Teri Buhl about the possibility of San Bernardino county using eminent domain to seize mortgages from one set of rich private investors to give them to another set of rich private investors.
YouTube Added: 13.06.2012