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EDITOR’S NOTE: It’s only the first of a series of moves that will reduce the megabanks to rubble. They are reporting a substantial amount of “assets” that don’t exist and now it is apparent that neither the politicians nor the taxpayers have any stomach for bailing them out again. The ruse backfired. These banks siphoned off trillions and parked it off shore and are not reporting the real cash they have because they would need to explain how they got it.
The banks got the money in two major ways: First they skimmed the money that investors advanced for loans to the tune about 20-25% which is around $3 trillion dollars. Second, they took money that should have been given to investors to pay off the obligations and left the investors holding the bag. That amounted to trillions of dollars as well — estimated by some to be as much as $9 trillion.
By leaving the investors in an apparent “loss” position they were able to say the mortgage bonds (received by investors) were in default and so the payoff was pennies on the dollar for most investors who held those bonds. Now the investors are suing these investment banks for 100 cents on the dollar and more because of the very reason that the banks reported the bonds in default — that the mortgages went bad. But the math doesn’t add up. Not all mortgages are in default but virtually all investors are getting stiffed by these banks.
It was a logical and necessary position for the banks to say that the mortgages had gone bad. But they had a problem. The obligations of the borrowers were ultimately payable to the investors. The borrowers account was not credited with the bailouts, insurance and proceeds of credit default swaps because (a) the banks were keeping the money for themselves instead of giving it to the investors (b) the banks saw an opportunity to step in as intermediaries (pretender lenders) and claim a default even while they knew the account had been paid off.
The “Trustees” of the asset backed pools that were virtually empty failed to provide any accounting to the investors so there was no credit against the obligation owed to the investor and thus no credit against the amount owed by the borrower. At ground level where the foreclosures were taking place the only accounting is from the servicer who reports what the borrower paid but not what other money was received by or on behalf of the investor on the obligation of the borrower.
This gave the banks another opportunity to make even more money. They subverted the modification and settlement process and forced millions into foreclosure even though the amount claimed in default was either paid off entirely or nearly paid off. They then manipulated the foreclosure process so that the fees they charged the investor accounts were so large that they ate up any equity the investor might have recovered. In short, they are keeping the houses for themselves.
To recap, somebody in these banks is holding onto trillions of unreported liquid assets parked somewhere offshore, while the banks are left to float away unattended, leaving the bank shareholders to lose the rest of the money. The management of the these banks has pulled off the largest scam in human history and its complexity is thwarting even the highest government officials from seeing the truth.
Management of the megabanks, since they have nothing to lose and everything to gain, maintained the banks by reporting the mortgage bonds as assets — bonds which they did not and never did own as assets, while knowing that the bonds were worthless because they were either in really in default or paid off with the investor pool dissolved. Using the cover of foreclosure where there was an apparent attempt to recapture “losses”, the banks are becoming the largest landlowners in the country.
While many on Wall Street understand this it was assumed that the government would again bail out the megabanks when they had to won up to the fact that a very large portion of their reported assets did not exist and then were forced to write them down, thus requiring divestiture of of many lines of business to bring them in line with the reserve requirements for a lending institution. Now people realize the government won’t bail the banks out again which means that there is a day of reckoning coming. The banks will be forced to write down these assets to true value (zero) and they will be forced into liquidation, which is as it should be. Then the government and the 7,000 other banks that are not in this bind will resolve the issue by dividing up the business and assets of what remains of what once was the megabanks.
It is only at that point that the truth about the mortgage balances will be known. Right now the banks are doing everything they can to thwart discovery of the money trail and the actual obligations that are owed to the real creditors (investors) because they will need to account to those investors for payments received on behalf of the investors that the banks kept for themselves. At that point we will discover that millions of foreclosures were based upon false reports of default because the borrower and the court was not notified of the real balance that was owed to the creditor which had been mitigated or obliterated by the receipt of enough money to pay for the actual “defaults” on ground level several times over.
It is only then that people can be restored to the former homes and perhaps recapture a piece of the equity that was stolen from them,just like it was stolen from investors. It is only then that the housing market will recover. And it is only then that the economy will recover.
Moody’s Downgrades Credit Ratings of Three Large Banks
Moody’s cut its credit ratings Wednesday on three large banks — Bank of America, Citigroup and Wells Fargo — underscoring the challenges the sector still faces three years after the onset of the financial crisis.
The downgrades were driven by Moody’s conclusion that the federal government was less likely to step in and provide support for a faltering big bank the way it did after the 2008 collapse of Lehman Brothers, when Washington executed a series of actions including capital infusions and credit guarantees to halt the spreading panic.
Moody’s had put the banks on notice for a possible downgrade on June 2.
While Moody’s said it “believes that the government is likely to continue to provide some level of support to systemically important financial institutions,” the agency added that the government “is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled.”
Under the Dodd-Frank financial regulatory reform passed by Congress in 2010, financial institutions must file a so-called living will that lays out steps for an orderly liquidation in the event of a financial collapse. The goal is to avoid future government bailouts, as well as the kind of turmoil unleashed by Lehman’s unexpected bankruptcy.
“Now, having moved beyond the depths of the crisis, Moody’s believes there is an increased possibility that the government might allow a large financial institution to fail, taking the view that the contagion could be limited,” the firm said in a statement. Even so, Moody’s said it doubted whether a global financial institution could be liquidated “without a disruption of the marketplace and the broader economy.”
The ratings agency cut Bank of America’s long-term senior debt to Baa1, three levels above junk. For Citigroup, Moody’s cut its ratings on short-term debt to Prime 2 from Prime 1, while affirming its A3 long-term rating. Moody’s lowered its rating on Wells Fargo’s senior debt to A2 from A1. Its Prime-1 short-term rating was affirmed. Of the three institutions, Bank of America has the lowest credit rating.
Shares of all three big banks fell sharply after the downgrade, but Bank of America dropped the most, falling 7.5 percent to $6.38 a share.
Although big banks enjoyed higher credit ratings before the financial crisis, Wednesday’s move was not unexpected, and analysts played down its significance. Although it could slightly raise borrowing costs over the long term, banks are not expected to have to pay significantly more to finance their operations in the near term.
“It’s not a good headline, but it shouldn’t have much impact,” said Jason Goldberg, an analyst with Barclays Capital, adding that even the federal government’s loss of its AAA rating this summer had not raised its borrowing costs.
In addition to seeing the government as less likely to support Bank of America, if needed, Moody’s said that the company “remains exposed to potentially significant risks related to both the residential mortgage and home equity loans on its balance sheet, as well as to mortgages previously sold to investors.”
Investors are seeking to force Bank of America to pay billions of dollars for its alleged misdeeds during the height of the housing boom, especially the bubble-related excesses at Countrywide Financial, the subprime giant Bank of America acquired in 2008. Bank of America has reached settlements with some investors, but other holders of mortgage-backed securities assembled by Bank of America, Countrywide and Merrill Lynch, another subsidiary, are suing to recover multibillion-dollar losses.
Moody’s was careful to note that its action did not reflect a weakening of Bank of America’s “intrinsic credit quality.”
Tags: Bank of America, bankruptcy, borrower, Citigroup, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, Moody's, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND, Wells Fargo
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