Tuesday, October 27, 2009

SDNY Head Fake

"Federal prosecutors announced charges on Thursday against 41 lenders, lawyers and others in the real estate industry who they said used fraud to obtain more than $64 million in loans connected to more than 100 residential properties in New York State. An investigation involving the FBI, the Secret Service, the [NY] State Banking Department and other agencies led to the wire fraud, bank fraud and conspiracy charges against the lawyers, mortgage brokers and loan officers, who engaged in complex plots that operated over a period of years, said Preet Bharara, the [US] attorney for the [SDNY]. ... 'Whether the economy was going up or the economy was going down, these alleged fraudsters were working feverishly to game the system.' ... Eventually, prosecutors said, the defendants would strip all the equity from the homes, putting them through sham transactions and saddling the properties with enormous debt. ... 'This office has a tradition of looking at institutions and executives oif institutions,' [Bharara] said. 'And we will go wherever the facts lead'," my emphasis, Colin Moynihan ay the NYT, 16 October 2009, link: http://www.nytimes.com/2009/10/16/nyregion/16fraud.html.

This is the DOJ's MO, see my 12 September 2009 post: http://skepticaltexascpa.blogspot.com/2009/09/csi-las-vegas.html. $64 million? That's Lloyd Anoinette Blankfein's annual bonus. While over my "Blankfein test", why bother with this? Bank fraud, 18 USC 1344. Hmm. Was the investigation which likely cost tens of millions made because the fraud was against as opposed to for banks? What did the "alleged fraudsters" do? If big enough they're called leveraged buyouts! Right? Just get a solvency opinion from say KPMG, my 18 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/deprizio-doctrine-and-aig.html and you're good as gold. "[W]e will go wherever the facts lead", says Bharara. Even to the Vampire Squid? Is this case part of the DOJ's continuing efforts to turn bankers into fraud victims as opposed to co-conspirators, my 31 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/real-estate-charade.html.


Anonymous said...

Dear Preet:

Here is a rough roadmap.

Bank of America Fact Sheet
Showdown in Chicago

Bank of America had a hand in the worst of the subprime lending excesses, providing financing to four of the five largest subprime lenders during the years prior to the crash:

It helped to finance Countrywide Financial, the country’s #1 subprime lender; it purchased and securitized loans from Ameriquest, the #2 subprime lender; it financed loan originations by New Century Financial Corp, the #3 subprime lender; and the bank partnered with First Franklin, the #4 subprime lender, to securitize and sell its subprime loans.

Between them, these four firms issued over $320 billion in subprime loans from 2005-2007.

Merrill Lynch, which Bank of America acquired in 2009, owned the #4 subprime lender, the now closed First Franklin Corp.

In July 2008, BofA acquired Countrywide Financial, which at the end of 2007, had $15.1 billion worth of mortgages in its loan servicing portfolio in foreclosure.

Countrywide was investigated by the FBI, the U.S. Justice Department, and multiple state attorney general offices in 2008 for predatory lending and securities fraud.

BofA is still dealing with Countrywide’s legal problems, which included numerous lawsuits, some of which have settled, that were brought against the company for its allegedly abusive lending practices and financial practices.

Since taking over Countrywide, BofA has failed to adequately change course. BofA initially praised the Countrywide business model and offered its president and COO a $28 million retention bonus to stay and head BofA’s mortgage operations.

Although BofA agreed to get rid of him after a public outcry, he got to keep the $28 million anyway.

Following the Countrywide acquisition, BofA became the largest underwriter of mortgage backed securities in the country.

While BofA itself stopped originating subprime mortgage loans in 2001, it continued to package subprime mortgage-backed securities. This allowed subprime lenders to bundle up their loans and sell them to investors without worrying about the borrowers’ ability to repay. It encouraged other banks to keep making subprime loans, and made it possible for the subprime crisis to grow.

BofA continues to make money off of subprime securitizations. In September it was announced that BofA will be underwriting a $239 million subprime securitization backed by loans from the CIT Group which was recently on the verge of filing for bankruptcy.

Showdown in Chicago

Anonymous said...

Ah! This is perfect! Thanks for putting to rest many
misunderstandings I have heard about this lately.