Outrage Fatigue
Jan. 25th, 2011 06:01 pm![[personal profile]](http://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
giandujakissSometimes I feel like I'm just going through the motions:
Because these lenders were falsifying the paperwork right and left, there were a lot of these loans.
Once Bear bundled them into a security and sold them, it was the investors in the security - not Bear - who were supposed to get the proceeds when a loan turned out not to meet quality requirements. But apparently Bear skipped that part. It bought crappy loans, sold them to investors, and then - even though it no longer owned the loans - sold bad ones back to the originator and claimed the money.
E-mails Suggest Bear Stearns Cheated Clients Out of BillionsSee, the idea is, Bear would buy dodgy mortgages, bundle them together, and sell them as securities to investors. According to the paperwork, when Bear bought the mortgages, it had a right to force the originator to buy back any loans that didn't meet quality requirements (i.e., poor documentation, incorrect income, borrower defaults very quickly, etc).
Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit's supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a "sack of shit."
Ex-EMC analysts admitted they were sometimes told to falsify loan-level performance data provided to the ratings agencies who blessed Bear's billion-dollar deals. But according to depositions and documents in the Ambac lawsuit, Bear's misdeeds went even deeper. They say senior traders under Tom Marano, who was a Senior Managing Director and Global Head of Mortgages for Bear and is now CEO of Ally's mortgage operations, were pocketing cash that should have gone to securities holders after Bear had already sold them bonds and moved the loans off its books.
Because these lenders were falsifying the paperwork right and left, there were a lot of these loans.
Once Bear bundled them into a security and sold them, it was the investors in the security - not Bear - who were supposed to get the proceeds when a loan turned out not to meet quality requirements. But apparently Bear skipped that part. It bought crappy loans, sold them to investors, and then - even though it no longer owned the loans - sold bad ones back to the originator and claimed the money.
In 2007, when Ambac started to realize something was very wrong with its high-rated bonds, it demanded Bear provide loan-level detail and reviewed 695 non-performing loans in its portfolio. Ambac's audit concluded that 80 percent of the loans showed an early payment default. This meant they should have never have been packed in the bonds Bear sold and were required to be repurchased. Bear refused, and of course had already been pocketing buyback money for itself from the originators. Bear also never told investors that its auditor Price Waterhouse and Coopers submitted an internal review in August 2006 that this repurchase process was not in-line with its due diligence standards and not typical for the industry. By January 2007, a Bear internal audit also reported the firm had collected $1.7 billion in repurchase claims -- a 227% increase over the previous year. Yet Marano's group of traders continued their double-dip payment scheme and kept selling the toxic loans with full awareness of the poor quality of the due diligence.Sigh.
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Date: 2011-01-26 12:14 am (UTC)(no subject)
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Date: 2011-01-26 12:42 am (UTC)(no subject)
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