The Price of Deception: Settlement for Mortagage Underwriters Finalized

The Price of Deception: Settlement for Mortagage Underwriters Finalized
The big 5 mortgage services are forced to finally face music. In the past several months banks and underwriters were preparing to sign off on the highly anticipated settlement. As Attorney Generals nationwaide descended upon Washington to iron out the details of the settlement last month, industry analyst were left to speculate. We've reported about the widespread abuses in the mortgage industry, which culminated in thousands of forclosures being thrown out of court or temporarily halted. The housing industry which is the last of the economic indicators to show signs of a turnaround, is believed to be the catalyst for the financial callapse of 2008. As the rest of the financial markets began a massive melt-down, the foreclose rate was an an average of 45% nationwide by 2009. The Obama administration tried its best to stop the bleeding with several homeowner assistance programs, but it appeared the abuses had taken its toll on the market. It simply had to run its course.
It was later realized that many of the mortgage documents were not filled out properly, (leaving a questions as to what loan provider was attached to which property). This prompted intensified scrutiny, leading to a long over due investigation. During the investigation a freeze was placed on all foreclosures allowing homeowners to stay put for while until the matter was thoroughly reviewed. The implosion of the housing market slowly revealed a myriad of issues that involved abuse, fraud and deception, causing massive declines in property values. The term upside-down mortgages was commonly used to describe the steep depreciation property values that sank below the underlying mortagage owed. Later, the proliferation of foreclosures uncovered the ROBO signing scandal (mentioned above) involving, forged signatures and flawed paperwork which precipitated unfounded evictions. Imagine the devastation of homeowners being forced out of their homes, only to find it was due to erroneous paperwork.

An effort to correct the abusive behavior illustrated by the mortgage lenders and banks has finally come to a head. The "pow wow" of federal officials and attorney generals from all 50 states resulted in an outline of the terms of the settlement. Mortgage Servicers were bracing for a multi-billion dollar hit, which was announced yesterday (February.9th). The settlement is said to be a painful $25 billion in penalties and fines. News had circulated in December that there are a few sticking points in the deal, which was met with disapproval from a few of the Attorney Generals, namely Eric Schneiderman of New York.
The Obama Aministration was pushing to have the deal signed and sealed before the State of the Union Address, but that was a long shot. Surprisingly, he made no mention of it in his speech. Industry analysts and experts correctly speculated that fines would be around $25 billion, but were unclear as to the specifics of the homeowner assistance programs. I've been anxious to see the details of the settlement doe myself. Some aspects of the settlement will include limited aid from banks to overwhelmed homeowners, by reducing their loan principle. We can expect to see structured Principle Forgiveness programs, which will apply to a small number of mortgages that are wholely-owned by the banks, while Bank refinancings will be another form of aid to home owners.
The housing market woes of the past three years have eroded bank share prices and caused immeasurable blows to their reputation and goodwill. Trust and confidence of the public in Banks may be a thing of the past.


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K Reilly
The Cohn-Reilly Report
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Crimes & Misdemeanors: FBI Closes in on Large Wall St. Funds

The FBI has arrested key members of a ring woking out of several states, including New York. Similar to the Galleon Group, these guys traded information concerning publicly traded companies in an apparent conspiracy to commit insider trading fraud. This ring was so productive, they were able to generate financial gains that rival the Galleon Hedge fund, who's founder recently received an 11 year sentence for insider trading. One of the hedge funds involved, Level Global Investors, raked in over $50 million in gains alone. The court documents state that a ring of traders and analysts, who formed an insider trading club, swapped information that resulted in over $60 millions in illegal profits.

As the voices of "Occupy Wall Street" draw attention to the stark imbalances of the privileged 1%, the fraud saga continues. According to the , Wall Street Journal the government has already prosecuted 63 people on charges of insider trading, yielding 56 guilty pleas or convictions. This marks an unprecedented number of cases procsecuted concerning insider trading in a three year period. Judging by this unrelenting onslought of crimes and Misdemeanors, it would appear that the Finance Reform Act is about as valuable as wall paper. That is not to demean the efforts of law makers or the Obama Administration, its merely a commentary on the industry's commitment to an "any means necessary" approach to capitalism. The only consolation is that the Feds and the SEC seem to be paying closer attention to the activities and trade patterns of hedge funds and other financial institutions that engage in trading. There's fresh optimism about the economic forecast, as job reports and other market indicators send a strong message of recovery. Neverthless, with the reluctance traders, money managers and banks to change their habits to avoid a repeat of a financial collapse, sends another message altogether: They still don't get it, and its likely that they never will.

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K. Reilly
The Cohn-Reilly Report
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