The Seattle Post-Intelligencer’s days may be numbered, but it’s still got some scrap.
It put out a nice story the other day reporting how the FBI for years was very aware of the pervasive mortgage fraud going on across the country but did nothing to stop it, in large part because it didn’t have the resources for white-collar crime after 9/11. After the attacks, the Bush administration reallocated resources into counterterrorism rather than giving the G-men more resources to do both.
“There were two hurdles,” said the second retired FBI official, “not enough agents working in the criminal area and not enough (federal prosecutors) to prosecute these complex cases. You have to have investigators to follow the money, you have to follow the decision making to take it up to the corporate suites. And we didn’t have it.”
But the feds knew it was going on:
“We knew that the mortgage-brokerage industry was corrupt,” the first of the retired FBI officials told the Seattle P-I. “Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism.”
This is very interesting:
Further complicating efforts to detect and prosecute mortgage fraud, banks and other mortgage lenders were making so much money from the constant churn of transactions and the continually escalating price of homes that the fraud that did arise simply didn’t cost the industry enough money to raise their concerns.“You had victim banks that would not acknowledge that they were victims,” said the first retired FBI official. ” ‘We’re not out any money,’ they would say. Nothing has been foreclosed. The banks weren’t reporting, the regulators weren’t regulating and the FBI was concentrating on external mortgage fraud as opposed to the underlying internal problem.”
Let’s all hope the P-I gets a reprieve. We need papers that continue to push this story.
I think that the banks to a certain extent knew exactly what they were doing, too. It is too bad that it was allowed to carry on for so long. Hopefully we can get the problem fixed and move on before more damage is done.
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#1 Posted by Mortgage Broker, CJR on Fri 30 Jan 2009 at 02:53 PM
There's one key place that we are avoiding finding fault here, and it is pivotal: The Worst.Congress.Ever.
Last spring they had every chance to address the Fannie/Freddie epicenter before it created the first tsunami for the Feds. Once that hit, all Hell broke loose -- how different might this have been had that first emergency not been so devastating?
Congressional leadership would not address it because they are one with it -- what's the saying? Thick as thieves.
And Worst.Congress.Ever Part II, led by the same Pelosi/Reid as Part I, is doing its best to sweep it all under their sanctimonious carpet:
* Chris Dodd is 6 months from his promise to come clean on his mortgage affair, but he hasn't, remains in leadership and has the audacity to scold Wall Street about ethics.
* Charlie Rangel heads up Ways and Means even though he is supposed to be under ethics examination for his tax ... shall we say... handicaps.
* We all know that Pres. Obama, Chris Dodd and Hillary Clinton got jaw-dropping contributions from Fannie/Freddie about the time the possibility of being coralled came up, and back when these two mortgage-lending beasts had all the money in the world to spend, but who is going to pull on that ethical thread?
Indeed, the Congress can have all the righteous investigations it wants, but who will police the Congress? The fourth estate, a free and skeptical press, is our only hope. Anybody out there? Anyone at all?
#2 Posted by Carol, CJR on Fri 30 Jan 2009 at 08:28 PM
I agree with Carol completely. According to my research, government withheld the investigation to allow the banks make money not because of terrorism. Now the people who are really responsible are using FBI and cracking down small people locally while people who have money and power will continue to cause boom and burst cycle taking away more and more from people.
#3 Posted by Angel , CJR on Mon 20 Feb 2012 at 02:34 AM
You need to read "They Did It On Purpose" which I will post later to understand how foreclosure fiasco happened. It did not happen because of the loan officers like Shawn Portmann. He did not have to lie because the loans allowed by the government and big banks were liars' loans and qualified everybody who were not qualified. The government and banks knew home owners would default and that is why they sold toxic notes to Wall Street and the world.
The purpose of the ninja (no income, no job) loans, no doc loans, no down payment loans was to give loans to people who were not qualified. Shawn Portmann did not have to commit fraud to give loans at all because there was no need. Everybody knows that anybody could get the loan for several years before foreclosure.
How government which played the most powerful roles with laws such as Community Reinvestment Act and pushed the banks to give loans with low income and minority people who were not qualified can blame small local loan officer like Shawn Portmann as the cause of foreclosure? How president Obama who received political contribution from ACORN which pushed the banks to give loans turn around and try to punish loan officer who did what he wanted?
It was democratic presidents who strengthened the law like CRA which was responsible for huge scale of foreclosure. Then the same democratic president Obama and attorney like Jenny Durkan who has political relationship with president Obama are blaming powerless local loan officers for national scale of foreclosure, which is absurd.
I did loan and know that loan officers do not have such power and can do loans which are allowed under the ever changing rules and regulations. Loan officers are like retailers who buy from the wholesalers which are big banks and sell the loans to people. Unless the wholesalers give certain loans, there are no ways the loan officers to give loans.
Democratic presidents like Clinton and Obama are those who made the law CRA that allowed no income and no asset verification loans. President Obama was involved in ACORN which pushed the banks to give loans to low income and minority people who were not qualified. It was not the loan officers like Shawn Portmann that had power to make such loans. Why would he commit fraud when you did not need any verification of job and income?
To me people who are truly responsible are turning people’s attention to scapegoats for their political purpose. If people are focused on details, people would not be able to see what really happened.
We also know Federal Reserve's low interest rate policy helped people buy home first and raising rates later when people needed to refinance caused foreclosure. We know government, banks, and people all made mistakes or it was orchestrated by policy makers and banks to help the banks make money. Then how and why only loan officers became the target and are being punished so severely? Where is true justice in this country?
Here is an article which follow the events related with foreclosure chronologically. If you read, you can clearly see that it was not the local loan officers like Shawn Portmann that caused recession as Attorney Jenny Durkan says, but there were bigger causes and people like Shawn Portmann are scapegoats to divert our attention from the real culprits. People know there are multiple and complex causes for foreclosure crisis, but only the loan officers became the easy target and are being punished so severely.
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.
When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.
In 2001 the frequency of White House visits by Alan Greenspan
#4 Posted by Angel , CJR on Mon 20 Feb 2012 at 03:46 AM
During the Clinton administration, the government required the financial industry to start expanding the frequency of mortgage loans to consumers who might not have qualified in the past.
When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.
In 2001 the frequency of White House visits by Alan Greenspan increased.
Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.
Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.
The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.
According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed
Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.
Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.
Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.
Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.
Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.
Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.
George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.
Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq .
ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.
State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.
In February 2006, Ben Bernanke replaced Alan Greenspan as Federal Reserve Chairman and held interest rates steady. Homeowners began to default as ARMs reset.
The housing bubble began to collapse in 2006-2007, with the economy showing early signs of a recession and the stock market starting to decline by August 2007. Home prices began to plummet in most markets, with millions of homeowners owing more on their homes than their new appraisals.
Homeowners began to default, with over four million homes going to foreclosure from 2006-2008. In many cases, homeowners simply walked away, dropping off the keys to their houses at the bank.
The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local government
#5 Posted by Angel , CJR on Mon 20 Feb 2012 at 03:52 AM
The U.S. economy shed 60,000 jobs in August 2008. In a year, Wall Street had cut 200,000 jobs. State and local governments began to cut budgets and jobs.
The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value—$8 trillion—now having been lost in a year. $2 trillion of the losses were in retirement savings.
The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.
Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.
As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.
The U.S. government joined with the nations of Europe in planning a series of economic summits to explore global financial solutions. President Bush will host the first summit in Washington , D.C. , on November 15, after the U.S. presidential election.
The U.S. military shifted combat troops from Iraq to the U.S. to contain possible civil unrest.
Most major retail chains began to close stores and lay off employees even as the Christmas season approached.
The Washington Post reported on October 23, 2008: “Employers are moving to aggressively cut jobs and reduce costs in the fact of the nation’s economic crisis, preparing for what many fear will be a long and painful recession.”
Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared in numerous websites and print magazines. His book on monetary reform, entitled We Hold These Truths: The Hope of Monetary Reform, will soon be published by Tendril Press. He is the author of Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, “the most important spaceflight book of the last twenty years.” His website is www.richardccook.com. Comments or requests to be added to his mailing list may be sent to EconomicSanity@gmail.com. Also see a series of his speeches on YouTube at http://www.youtube.com/user/GracchusJones.
Richard C. Cook is a frequent contributor to Global Research. Global Research Articles by Richard C. Cook
#6 Posted by Angel, CJR on Mon 20 Feb 2012 at 04:01 AM