More Georgia banks in trouble

Now it’s First Bank of Dalton, Bank of Ellijay, Piedmont Community Bank, Northwest Georgia Bank and High Trust Bank in the cross hairs of the FDIC.

Per the AJC, these banks must “boost their capital levels and take a host of other steps to shore up their balance sheets, including reducing the number of bad loans on their books.”

Don’t worry, though. Washington has top men on the matter.

102 comments

  1. Progressive Dem says:

    I heard this problem was moving south if the FDIC can ever finish in Georgia and send resources to Florida.

      • If you NEED increased gov’mint regulation, in order not to run your business on the presumption of home values rising 10%+ per year indefinitely, then you shouldn’t be running a bank.

        No doubt, there certainly is hypocrisy galore in the major political parties (and anyone who thinks their party is “better” is a fool). However, the core story here is that success made people lazy and greed made them stupid. Blaming one political party (or even BOTH political parties) is a sidestep and scapegoating.

        • DTK says:

          True, but you do seem to be dismissing the fact that these bankers were just responding to the artificially low interest rates the Federal Reserve kept in place for the better part of a decade.

          I agree that presuming home values would continue rising is foolish, but you have to admit that “historically low” interest rates played the major part in all this debacle. Without these low rates, there would not have been the crazy demand for homes. And without this increased demand, there wouldn’t have been the need for widespread mortgage securitization. And without the pervasive mortgage securitization, there wouldn’t have been a need to develop credit default insurance …

          • IndyInjun says:

            The bankers did a lot more than respond to low interest rates. They actively engaged in a daisy chain designed to generate fees at every step, irrespective of the very obvious end result.

          • ByteMe says:

            artificially low interest rates the Federal Reserve kept in place for the better part of a decade

            Less than 3 years between the peak at around 6% and when it started to rise again and the Fed telegraphed that they were going to raise it until it hurt.

            I would not say that artificially low rates played a “major” part, but I would agree they played a part in making T-bills not worth the investment, so all that money was seeking alpha and rampant securitization and fake accounting and fraudulent security ratings on the securitized mortgages made it all so much bigger.

            Investors could have picked the stock market, but that bubble had already burst.

          • I chafe under the government’s speed limit laws. My preferred cruising speed is around 85 mph, and it irritates me to no end that the government restricts speed to 10-20 mph below that in the best of scenarios. I think there’s a lot of corruption behind these government regulations, too… as in many cases they have more to do with revenue collection than public safety. I hate government regulation in this area.

            However, let’s say that state and local government across Georgia established an across-the-board speed limit of 195 mph. My question is whether it would then be an intelligent idea for me to try and reach that?

            Freedom goes hand-in-hand with responsibility. If you adopt a business model of doing whatever the government will let you get away with, and never stop one inch short of that, then you’ve effectively “outsourced” your sense of responsibility to the government. You can chafe under the regulations and tightening atmosphere that results, but you shouldn’t be surprised by it.

          • DTK says:

            Each of y’all make good points, but I don’t think y’all realize how hectic and crazy the real estate market was from 2002 until 2006. It was like a proverbial Wild West town, with new fly-by-night firms setting up and doing business, and everyone was making money.

            Smart people knew it was a bubble and knew it was going to end, but it all continued anyway. The key question is, why?

            It’s because there was a never-ending stream of clients walking in the door looking to buy a house. EVERYONE was buying a house, not just the rich or middle class. You had kids in their early 20s buying homes. It was really a never-before-seen phenomenon. So, again, the question is, why?

            These people wanted to buy homes because they could get a mortgage they could afford, at least initially. The banks wanted to lend the money because they could borrow it even cheaper.

            But the banks ran into a little problem. They had all these people demanding loans, but not enough capital to fund these loans. They looked at ways to get capital. They decided to “securitize” existing mortgages by packaging them together and selling them to investors. They would then take the proceeds and use them to make more loans. With a never-ending supply of potential homeowners spurred on by low interest rates, it seemed like a good idea.

            So, why would investors be so keen on buying these mortgages? Because they had already been burnt with the Tech bubble bursting and then 9/11. These investors, many of them foreign, still wanted a piece of the American economy but were too skittish to invest in American companies. So, instead they bought ordinary Americans’ land debt.

            The thinking was that if you packaged enough of these mortgages together, you could safely predict the number of defaults, and you could still end up with a good income stream from the remaining mortgage payers. What these investors didn’t realize is that the historical default numbers they used for their prediction did not take into account the current Wild West banking practices of throwing money at anyone with a pulse.

            So, yes, the bankers did take advantage of the situation by loosely verifying income and other bad behavior. They did so because they had a huge demand from clients for mortgages and a huge demand from investors for mortgage-backed securities. The could satisfy the former because of cheap interest on their own borrowing and they could satisfy the latter because investors looking to buy into the American economy didn’t want to buy stocks because of the recent past problems and they didn’t want to buy government treasuries because of current low returns. The originating banks — in the middle — couldn’t lose.

            There was, of course, a lot more to it. But, in short, it was a perfect storm of good intentions and unintended consequences. We like to think we can plan outcomes and just do “what works.” But the fact is the world is an extremely complicated place, and we fool ourselves whenever we think we know exactly what an outcome is going to be. Hell, we’re even foolish when we think we know what happens, even with the benefit of hindsight.

            Humans are moral creatures, so we like to separate the world into black hats and white hats. So, when things go badly, like it has here, we look for villians to pin the blame on. So we blame the bankers, or stupid, poor homebuyers, or politicians, or the Federal Reserve.

            The truth is, no one planned this debacle. No one entity is to be blamed. Each of these entities were just responding to the incentives they had in front of them. Sure, these incentives were distorted because of other factors, but that’s just evidence that we should not try to pick winners and losers in our economy. But that’s a political argument I’ll leave for another day, since this post has gone on way too long.

          • IndyInjun says:

            DTK,

            If you go back and read old PP archives, you will find my warnings all the way back into 2006.

            I started wondering how on earth mortgage lending could be so vastly lucrative.

            When I started querying local bankers I though “Oh, my God, what have they DONE?”

            Just like Cash for Clunkers, the whole deal was pulling demand forward. Now we have a huge national overstock of homes that will take years to work off.

            My question is why Georgia is so much worse than the rest of the USA, when her population is rising and the worse of the home price declines have spared this state.

          • @DTK: I wasn’t saying that bankers were “villains”, just that they were “irresponsible”. We both seem to agree that the smart people realized there was a bubble. We both seem to agree that they lost their heads in the excitement. You’re just focusing more on how that’s understandable, while I’m just focusing more on how that’s irresponsible.

            @IndyInjun: Well, Georgia has more bank closures because we have far more small mom-and-pop banks. In most states the construction business is controlled by giant corporate developers, financed through giant banks. Georgia is still lead by the little guys (for now). Even though our number of banks closed is larger than most states, I would wager that the total size in dollars isn’t as far out of bounds.

          • IndyInjun says:

            Steve, I dunno.

            Georgia would even be WORSE if Wachovia had not been folded into Wells Fargo at the behest of FDIC and had also failed.

            Wells and Bank of America are not out of the woods even now.

            95% of all mortgages are now being financed by Fraudie and Fanny, creating total dependency on the Federal government. Welfare queens should have it so good.

            Today comes the news that the AIG department of the Treasury is paying an exec $8 million in severance. For disclosure, AIG was bailed out by Bush and Obama has kept the endless stream of $USD flowing.

            What GS level is that?

            How do I sign up?

          • benevolus says:

            Nice analysis DTK.
            The only quibble I have is the idea that consumer demand just sort of materialized. The demand arose because banks were offering low interest loans with no money down and/or no credit check. They created the demand.

          • DTK says:

            @ Benevelous

            I addressed the point implicitly in the eighth paragraph of my post, but the point was jumbled.

            You’re right, though. The strong consumer demand did benefit from the banks’ lax loan standards. The standards were loose because the originating banks did not have to live with the consequences of their loans — as soon as the loan was made it was packaged with other loans and sold to investors. The originating bank no longer was on the hook if the homeowner defaulted. Therefore, the originating banks didn’t care if homeowners had the ability to make their payments; by the time they defaulted, it was the investors’ problem (or actually the insurance companies who insured them through “credit default swaps”.) So the banks just kept on lending.

            What got the ball rolling, however, were the artificially low interest rates and the weak U.S. stock market. Without these happening simultaneously, we never would have seen such a large bubble and we never would have seen such a huge interest in investing in mortgage debt.

          • Dave Bearse says:

            Did you say “buy” a house? With zero percent down and payments that didn’t even cover interest, bankers were giving ’em away.

  2. ByteMe says:

    Yeah, Pete wants us to believe this is all being caused by Democrats in Washington. 🙄 Seriously, Pete, you really need to learn how these local banker guys (some of whom are also legislators) decided that they could invest in real estate up to their eyeballs without distributing their risk. It wasn’t a “Democrat plot”. Was totally a market screw-up by businesses that made terrible decisions.

  3. concernedhall says:

    When can we blame James Mills? Yeah I know I am a broken record beating a dead horse that you can’t teach to drink, but he is just such an easy target. I mean Banking Chair and all.

  4. GOPGeorgia says:

    See the glass as half full. If you are in the market for a home, ask one of these lenders for a short sale on a bad loan.

    • ByteMe says:

      The best part is that now that the loan problems are hitting the “prime” loans, the quality of the houses available for short sale is MUCH higher. We used to walk through foreclosed houses that you wondered how they were still standing. Now, they have updated kitchens and bathrooms.

  5. gatormathis says:

    heard a real estate guy complaining the other day that the banks were holding out and wouldn’t do the short sale thingie…….

    ….i guess when you’re working off commission of sale, instead of how much money you’re losing on the deal……it makes a better perspective…….

  6. IndyInjun says:

    This is an epic failure of government regulation at all levels, yet most American’s don’t realize the degree of FRAUD and bribery which occurred. There is a clear history of Dem and GOP political instigation all over.

    – Glass Stegall was repealed to neuter one of the primary lessons of Great Depression I.

    – In 2004 the FBI warned of massive home loan fraud.

    – Starting in 2004, more than 9000 real estate appraisers, more than a few from Georgia, petitioned the government claiming the banks were pressuring them to inflate appraisals.

    – In 2005, the Office of Controller of the Currency stopped the states Attorny Generals from investigating and prosecyting the fraud.

    – One regional OCC chief actively participated in the fraud by helping Washington Mutual avoid audit scrutiny.

    – When this writer started querying his bank branch managers in mid 2006 about what they did with loans, they all said “we sell them.” Lending ‘standards’ were plainly gone, because the game was to pass them along to someone else. By Q1 of 2007, I had sold all bank stocks and was actively advising friends and relatives to do the same. (On PP, Donkey Kong and others were giving me hell for being “negative.”)

    – In 1998, the index case of Derivative meltdown was manifest in Long Term Capital Management. That one entity threatened the global financial system, but the Dems and GOP quietly bailed it out and left the disastrous derivative cancer to thrive.

    – In 1996, Clinton’s top 20 contributors gave modestly. In 2000 and 2004 Bushes contributions from Wall Street exploded. Obama’s were even greater than that. (I would post the list for Clinton and Bush, but Opensecrets revamped their site and do not have those pages back up)

    – In estate planning there is a widely established and honored principle than divided ownership of property diminishes its marketability and hence lowers its value. Securitization accomplishes this loss of value as if on steroids.

    – At this juncture, the toxic securities REMAIN worth less than 15 cents on the dollar, but the Fed and GSEs have gobbled them up, keeping them on the books under Ponzi accounting “standards” adopted after GOP and DEM congress demanded. it.

    – At every step of the securitization process, participants were “earning” fees, so no one wanted to halt the gravy train even though the locomotive was FRAUD.

    – The toxic assets permeate every bank (except to the extent that the GSE’s were nationalized, putting TAXPAYERS on the line) fixed income 401ks, many mutual funds (even those with other stated investment objectives), and other entities that have NOT been bailed out. Since craven ‘leaders’ demanded an end to honest accounting, they sit there like time bombs, that will go off before pensioners and investors get to draw one penny of retirement funds.

    – If interest rates go up, the entire system will instantly implode, but the current Zero Interest Rate Policy is blowing up the finances of every pension plan in the land. (It requires an amortizing present balance of $1,000,000 at the current 3.5% yield of a 10 year UST to fund a $60,000 pension for 25 years.)

    – Coming up is a tsunami of ARM defaults and other mad mortgage schemes. Some of these frauds allowed the banks to book ‘profits’ years in advance of actual cash payment under accrual accounting.

    WHAT HAPPENED WENT BEYOND ‘GREED’ AND THE ‘CORRECTIVE’ ACTION IS THE BIGGEST THEFT IN WORLD HISTORY

    The wise, the frugal, and the saver are being sodomized by the politician and the fraudsters.

    The socons should put that one under their thinking caps and consider what the impact of that is going to be.

    Where are the prosecutions? The only entity to take a close look was Fitch and that rating agency found massive FRAUD.

    This is a disaster of simply epochal proportions and it will take decades to overcome.

    It will NEVER be overcome by leaving the incumbents of either party ensconced in DC.

    • GOPGeorgia says:

      Indy,

      You are entitled to your opinion. IMO, you generalize way too much. Let’s look at the word “fraud” that you have thrown about repeatedly. The word “fraud” means an intentional deception made for personal gain or to damage another individual.

      I am a mortgage broker. Part of getting my mortgage license meant understanding what mortgage fraud is, and how to look out for it, and what the repercussions are.

      Strictly speaking, taking a blank w-2 and putting in the amount of income required to get a loan is mortgage fraud. Using a stated income loan program is not. Stated programs are good for self employed people, waitresses who cannot prove their income, and others. Some people will have the attitude that if they do not claim the income on their taxes and cannot prove it, they should get no loan and should rent forever.

      Rate equals risk. IMO, in a free market society, lenders should be allowed to set their own lending guidelines. If a lender wants to offer a stated loan and charge more, who are we to say no? Yes, the default rate will be higher, but so will the overall amount of business generated. If a lender makes too many risky loans, they will go out of business. They can even sell these loans as securities, provided the buyer knows what type of loans they are.

      The mortgage industry was the first to take a hit in our current economy. I blame the government for offering 100% loans regardless of qualifications, and the way fannie and freddie have been ran. Lenders tried to match the 100% offered by the government. Congress passed laws requiring PMI (Private mortgage insurance). PMI created AIG. If the government were not involved as much as it is now, I think some common sense lending practices would find their way back into the mix. I would guess that if you had 5% of the purchase price as cash invested by the buyer, we would see less defaults. If we had a cap of 90% on loans with 10% equity on refinances, banks would not take as hard of a hit as they do now on a foreclosure.

      Risky? yes. Rate equals risk and if a lender makes too many bad loans, let them go out of business. More regulation is not the answer. It’s what created the problem. However, the industry as a whole is NOT guilty of FRUAD and you owe those of us in that industry an apology.

      • IndyInjun says:

        To channel Perkins, regulation comes out of government involvement. FDIC insurance necessitates regulation.

        GOPGa, sorry to have bruised your feelings, but there absolutely was FRAUD.

        That everyone was doing it and the ‘benefits’ were widespread is no excuse.

        FRAUD at the local bank level was the subject of this petition, which now has more than 11,000 signatures, going back into the early years of this decade.

        More recently, the $8000 refundable Isakson tax credit has been the source of FRAUD, just like the earned income credit that conservatives despise.

        Securitization was a fraud. I would agree with you that most of the fraud happened with the Wall Street firms who put the securities together and the ratings firms.

        Where is the investigation? Where are the prosecutions? With the S&L frauds 1100 bankers went to prison and this is many-fold bigger.

        I owe the bankers at the epicenter of this mess nothing. I have closed accounts with banks who took TARP and who were most irresponsible.

        I thought the GOP was the party of responsibility.

        Your response is another nail in the party’s coffin.

        • Mad Dog says:

          I can’t totally agree with ‘regulation comes from government involvement’ if by that you mean that asking the government for something brings ‘strings.’ Of course there are ‘strings’ attached to that kind of a transaction. You’re right in that part of what you said.

          However, regulation usually comes ‘after’ the crash and not before. Or once the horse is out of the barn, Uncle Sam posts a sign saying, Don’t let the horse out of the barn. And if you do, and you get caught, every cowboy gets punished. j/k Cowboys.

          Might not be 100% true, but most regulations come about after a crisis.

          • Mad Dog says:

            GOP,

            Regulation or the lack of useful regulation? Or de-regulation?

            I’m not that familiar with mortgage regs to make intelligent conversation.

            But I general agree with the Fed-St. Louis that the emergence of private label MBS was key in the crisis.

            The era of private-label MBS and the “originate-to-distribute” business model.
            “Despite the improvements in risk management represented by the GSEs, the homeownership rate remained unchanged, on balance, between 1970 and 1995. In part to encourage greater mortgage lending to nontraditional or underserved borrowers, and in part as a response to the rapid innovations in financial markets, a new business model emerged-private-label MBS. This so-called originate-to-distribute business model allowed different firms to specialize in the various parts of the mortgage-lending process, such as origination, securitization, guaranteeing, funding and servicing. By last year [2007 as this was published in summer 2008] more than 20 percent of the mortgage market was funded by private-label MBS.

            The private-label MBS model has all but disappeared, buckling under the weight of misaligned incentives, significant doses of fraud and unrealistic expectations on the part of many of its participants.”

            There is no realistic prospect that the private-label MBS model will return to life in the near future.

            http://www.stlouisfed.org/publications/cb/articles/?id=797

            No disrespect to other FED districts. I just like the guys in St. Louis.

          • IndyInjun says:

            “most regulations come about after a crisis.”

            Indeed. The rules came about after Great Depression I in the form of Glass Stegall and the SEC. These regulations served well for 70 years, but then Phil Gramm gutted them with Gramm Leach Bliley.

            The SEC forbade leverage of more than 12:1 until Bush appointed the industry puppet Chris Cox who gave Hank Paulson at Goldman Sachs the OK after every one of his predecessors held firm.

            We HAD the rules. We don’t need more rules, just the ones that worked for 70 freaking YEARS!

          • GOPGeorgia says:

            I’ll concede the cause of the meltdown to a lack of useful regulation. Some lenders had broker agreements that if there was a default in the first 90 days, they wanted the broker to buy the loan. There does need to be some guidelines set by policy and law, but when social change or engineering is at work, economic self preservation (or making money) is no longer the guiding principal. Not everyone deserves a 100% loan, regardless of what carter and Clinton think. There were also congressional players that covered up for lenders, freddie and fannie.

            http://www.youtube.com/watch?v=1oiMFcrm_fk

            http://video.google.com/videoplay?docid=-3355502843223263015&ei=qCOYSuu3HYyQqALqw-TMCA&q=democrat%20freddie%20and%20fannie&hl=en#

          • Mad Dog says:

            GOP,

            “Not everyone deserves a 100% loan, regardless of what [C]arter and Clinton think.”

            I don’t think Carter and Clinton are at issue here. Nor 100% loans. Subprime loans which were NOT government agency loans are in issue.

            Private label MBS were 20% of the market and most of the defaults.

            There are 102% loans in the government agency portfolio of mortgage origination. (Am I saying that right? A couple government agencies will make a loan at 102% of appraised value, including agency fees.)

            I wish I knew the default rate on those to compare with private lending.

            FHA, VA, USDA … what’s the loan default rate for those government loans, eh?

            BTW, we can get a 125% refinance these days.

            I’m not interested in blaming politicians or policy.

            I want an answer on regulations. I might never get one. (Not pointing that at you. Meaning, I just want to have an answer that works on regulations. Were they cut. How much of the cuts need to be put back in place. How much of the crisis is from cuts. It will be 50 years before those questions have reasonable answers.)

          • Mad Dog says:

            Indy,

            I think more than Glass Stegal was cut. I researched it once. Most banking acts from 29-34 were gutted of some protections.

            I think GOPG would like a good conspiracy theory about banks and mortgage brokers. Banks created the crisis to get rid of brokers. Any takers on that?

            I do believe banks are using the crisis to get rid of the remaining competition in mortgages like brokers.

            MD

          • GOPGeorgia says:

            Banks didn’t create the problem to get rid of mortgage brokers, but now that the problem is here, they are putting the squeeze on. Most MPI companies will no longer write PMI on conforming loans from 3rd party originated loans (brokers.) Therefore, I now only look at conforming lenders when the loan to value ratio is less than 80% on a refi.

          • GOPGeorgia says:

            I forgot to ask, who is offering 125%? I’ve seen that before 2 years ago, but not since. I wouldn’t offer that, but they may have other programs I may like.

          • GOPGeorgia says:

            MD,

            Sub prime loans were in direct competition with government loans. If they did not offer 100%, they would lose market share.

            The only cuts on regulation that might have occurred would have been related to selling the loans after they had closed, but that’s far outside of my normal scope of business. I don’t know that any cuts were made, or if the loan selling process evolved faster than regulations that should require exactly what type of loans were being sold should be disclosed to the buyer.

          • Mad Dog says:

            GOP,

            A 125% refi can be had from FifthThird and Flagstar.

            THERE CAN BE NO MONEY OUT AND FOR RATE TERM CHANGES ONLY.

            Might be some requirements of distress, no credit rating required, and funds might be from Obama … It’s not a normal mortgage.

          • Mad Dog says:

            GOPG,

            Before the crisis, there was no disclosure of what was in the package. I don’t know if that has changed. Packages were described as an average … based on maturity, rate … etc. No real information to buyers unless buyers researched … and the things traded too fast for that to have been going on.

            There was no regulation of those DIE-rivitive thingies. Leveraging was the problem there. Which also had no regs.

            One of the failed ‘banks’ or brokerages had only $8 billion in capital but had that leveraged into over $900 billion in DIE-rivitives. Might have been Goldman. I don’t really remember.

            So a 10% loss in the DIE portfolio wiped them out. Plus … they had to pay investors interest on the DIE.

            So I’m saying, they were so leveraged into something they didn’t understand that if 10 percent of their package went bad, they couldn’t survive. And more than 10% went bad.

            ….

          • GOPGeorgia says:

            MD,

            I am familiar with fifth third and Flagstar. A few lenders used to offer 125% with cash out with current equity at 80%.

            I’ll agree with your assessment of that portion of the crises, but I’ll still contend that 100% financing that wasn’t earned by credit, job stability and so on was a huge part of the problem

          • ByteMe says:

            Bear was leveraged at 30-1 and higher (the SEC rules say you just need to report this once a month and can do anything you want in between reporting dates), so that’s why they fell first and hardest. But there was a lot of incestuous investments, so Lehman held a lot of Bear’s paper and that’s why they were a mess and left to die.

          • Mad Dog says:

            ByteMe,

            Thanks for the word on Bear and the SEC reporting requirements.

            But other than reporting it …. what power did the SEC have to do anything about it?

            Not an attack on you, a question. Could the SEC and would the SEC do something if a leverage position was beyond reason?

            Didn’t Greenspan testify before Congress that regulation wasn’t need because the ‘market’ would police itself?

            Saw that on PBS

          • Mad Dog says:

            GOPG,

            I’m going to disagree with you on the 100% thing in general. Also going to say I might not know enough to support my position.

            Putting out what I think I know.

            We should read,

            “Data on Home Mortgage Finance from the 1997, 1999, 2001, 2003, and 2005 American Housing Surveys.” Basic information from Census interviews. (HUD 2008) Sorry I don’t know the publication number or a link.

            “Fitting the Pieces Together: Using Public and Private Financing Tools with HOME-Assisted Homebuyer Programs.” From HUD in 2004. Poison. Smoking gun. Private industry working through HUD to get public institutions to partner with subprime and other lenders to get more poor people homes. [My point of view of the document.] No publication number. Sorry. I download and read them.

            “Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance Fund (Excluding HECMs) for Fiscal Year 2009” Drink some hard liquor with this one.

            “Interim Report to Congress on the Root Causes of the Foreclosure Crisis” A barn burning, page turner.

            All those are subject to bias complaints. Agree?

            I do know that home purchases hit 6.9 million in 2005. FHA did 323,000 purchase loans. So I don’t see much direct competition of government vs. private at that time.

            Now, just like others have pointed out, almost all mortgages have some ties to a government agency or the Fannie Freddie twins.

            Also in 2005, FHA loans $40 billion in volume while the rest of the market was $1.5 trillion…

            I don’t see the public vs. private competition in retrospect.

            p.s. my numbers might be questionable on the dollar amounts but aren’t that far off if they are off.

        • GOPGeorgia says:

          You haven’t shown me where the pattern of deceit is. Irresponsibility, yes. As far as where the investigations and prosecutions, you are the one yelling fraud with no proof. If you have proof, march over to your local DA and then complain if they don’t do anything.

          As far as your list of appraisers go on your petition, that’s business. If I am trying to get a loan done and I have two appraisers to choose from, one of them goes the extra mile and finds better comparable sales to get a better value on the home that I am trying to get a loan done on and the other just looks it up on the internet writes down a figure and wants $400, who do you think I should give my business to? If they over-stretch, lenders cut them off and they go out of business.

          I’m not worried about winning you over because I don’t think I’ve seen you agree with many people on here. I know you want to vote them all out and start over.

          The GOP is the party of individual responsibility, less government regulation, lower taxes, lower spending, and other things. Not everyone in DC behaves that way, but that’s another thread. If someone buys a house for $500,000 and they only make $36,000 a year, they are just as responsible as the bank. They should know they can’t afford it and when they get foreclosed upon, am I supposed to feel sorry that someone got to live in a $500,000 house for a year before they got kicked out? No way. The Bank or lender that approved the loan should go out of business and taxpayers should not have to prop them up for their bad decisions.

          Your response is another notch in your straight jacket.

          • IndyInjun says:

            Mortgage originators are no better than welfare queens. Both are now government dependents sucking on the teat of society. None of y’all would even have a job because Mr. Market says you blew it and have to serve the consequences.

            The irony is stunning that Obama is bailing you out.

            You either are in the wrong party or the wrong business.

          • GOPGeorgia says:

            Obama hasn’t sent me a check. I don’t know what you do for a living, but I work hard for my money. It wasn’t Mr. Market that cause my industry to have problems; it was Presidents Carter and Clinton. Do some research before you type. You obviously have no clue as to what you are talking about.

            Is it time to take your meds yet?

          • IndyInjun says:

            GOP, so you deny that 95% of your loans are going through federal GSE’s who were given an UNLIMITED BAILOUT on Christmas Eve?

            Written any NEG AM loans?

            As for blaming Dem Presidents you have an amazing blindness…..

            Bush touts subprime lending programs

            Let’s see if the embed works….

          • GOPGeorgia says:

            Indy,

            I deny that 95% of my loans are going through GSE’s. I know several local bankers, and individuals with private and venture funds. A percenatge of my loans go FHA or USDA, but it’s no where near 95%. As I stated before, you don’t know what you are talking about and AFAIK, you don’t know me.

            As far as who was bailed out and when, I have no control over that and probably don’t agree with it. That doesn’t mean I am going to stop helping people find money for homes.

            After 8 years of being in the mortgage industry, I have NEVER written a negative AM loan. I have friends who do; it’s just not my cup of tea.

            President Bush was on the wrong side of that issue when he talked about it. Presidents Clinton and Carter did more than talk. Keep digging. Eventualy you may learn something.

          • IndyInjun says:

            Mad, you and others are on the right track. I would seriously suggest participating in, or reading several of the excellent economy/finance blogs populated with spirited discussion of which way this collapse comes.

            Frankly, some of those folks are on a level that I don’t understand even after 3 years of trying, but what I like is having my views challenged and challenging those of the others, using information.

            The information exchange and flow is simply awesome and leaves one best prepared for the next movement toward financial collapse.

            PP did a great job during the Speaker selection and I was proud to participate in that, but if you look to be informed about economy and finance, this ain’t the place. There are too many who have their minds mind up out of some weird partisan ideology. I just hope they survive what is to come.

        • ByteMe says:

          The SEC is the legal entity that’s empowered with enforcing securities law. That includes how much leverage a regulated entity can have on the books.

          However, Bush appointed a head to the SEC (Christopher Cox) who was philosophically opposed to government regulation in the securities industry, so when the big 6 (Bear, Lehman, Morgan Stanley, Citi, Goldman Sachs) went to him to lobby to ignore the leverage limits, he agreed that they could go ahead and ignore the limits (normally 12-1). In Bear’s case, instead of being able to lose up to 8% of value before being insolvent, they could only lose about 3%.

          In other words, the regulations were there, the regulating body decided to ignore the law.

          • IndyInjun says:

            Thanks, Byte, I mentioned Cox’s role above, but you explained it better. Every SEC chair from Arthur Levitt to Bill Donaldson told Wall Street “NO” on overleveraging. Along came Cox and presto….

            A lot of these ‘securities’ were leveraged 100:1 and some of the underlying synthetic CDO’s were leveraged to infinity because their assets were ficticious, as in CDS with no reserves.

      • Mad Dog says:

        GOP,

        There is no such thing as a free market. Markets are human creations. Your comment about “They can even sell these loans as securities, provided the buyer knows what type of loans they are.” implies a level of honesty and intelligence not typical of humans. So why insist that humans will operate at 100% honesty and 100% intelligence if the government will get out of the way?

        “Congress passed laws requiring PMI (Private mortgage insurance).” Can you cite this law? I’m more than just curious.

        MD

  7. IndyInjun says:

    Donkey, where are you?

    You got major ‘splaining to do to old Indy.

    Oh yeah, single entry bookkeeping in some money supply Excell spreadsheet at the Fed is the answer.

    Right.

  8. Technocrat says:

    High-end home prices (+$1mm) will continue to fall in value. In some areas the decline will be another 20+%. The absence of a viable mortgage market for these homes is the culprit for these declines. Prime defaults will rise to 8%.
    In 2010 over 90% of all new mortgages will come from or be supported by the government.

    Not a pretty picture for any Bank – local or national.
    http://www.mortgagefraudblog.com/
    when 70 year olds get sent to jail for MF
    How will we build enough new prisions to house all the millions of fraudsters.

    Unemployment will fall from 10% as the 800,000 census workers are hired. Outside of that there will be no growth in employment. Ex the census impact and other government hiring, job creation will be negative in total for US.

    • Mad Dog says:

      Annual unemployment numbers won’t change much from the Census hiring. In the 2000 Decennial Census, max employment hit 600,000 for a week. The Census job is a temporary appointment with assistant managers having a one year appointment. Most jobs are measured in weeks.

      Sadly, women, in particular, who take the jobs lose various other income supplements. Then after employment ends, they must reapply. It’s a heart breaking scene when those people face job elimination.

      “In 2010 over 90% of all new mortgages will come from or be supported by the government.” Broad statement. Not far from wrong I fear. I could make a good argument that all mortgages are supported by the government but I don’t think you mean that.

      • IndyInjun says:

        “In 2010 over 90% of all new mortgages will come from or be supported by the government.” Broad statement.”

        Mad Dog – Is the Federal Reserve Bank of San Fransisco good enough for ya?

        In the present day, when Ginnie Mae’s activities are included, the three GSEs are providing unprecedented support to the housing market—owning or guaranteeing almost 95% of the new residential mortgage lending.

        Apology for questioning accepted.

        • Mad Dog says:

          Your broad statement remains broad.

          In the sixties 70% of loans were ‘government’ owned or supported. So 90 or 95% probably isn’t that much of a change from the pre-bubble days. At best 35% of loans were from banks and S&Ls.
          But the link is nice. Shows that banks are not making mortgage loans, not that GSE’s want to dominate the market.

          Thanks but no thanks for the apology in advance for me.

  9. IndyInjun says:

    Fitch: Underwriting & Fraud Significant Drivers of Subprime Defaults

    While some degree of early defaults are to be expected in subprime mortgage pools, the extraordinarily high level of defaults encountered by the 2006 vintage cannot be explained by home price declines alone. It has become increasingly evident that loans originated with lax underwriting and higher instances of fraud can have a material impact on a securitization.

    ‘In the absence of effective underwriting, products such as ‘no money down’ and ‘stated income’ mortgages appear to have become vehicles for misrepresentation or fraud by participants throughout the origination process,’ said Fitch Managing Director Diane Pendley. ‘During the rapidly rising home price environment of the past few years, the ability of the borrower to refinance or quickly re-sell the property prior to the loan defaulting masked the true risk of these products and the presence of misrepresentation and fraud.

    Finance, insurance and real estate became 40% of the economy. A decade of demand got pulled forward. A decade of brutal adjustment is necessary, but the fraudsters demand and command government come to the rescue.

    Heaven help the middle class, we don’t have massive government support that the Dems and GOPers dole out to the welfare classes at opposing ends of the spectrum.

    In ten years we can have a rebuilt America, if the bail-outs and fraudsters will get out of the way.

    The stated goal was that the USA would be the financial service provider to the world within the context of globalization. We took 85% of the world’s savings and sold them toxic assets. Now we are toxifying our money and government debt.

    This is a disaster of epic proportions and the elites of both parties are in denial.

    What is undeniable is their fingerprints on our necks.

  10. Mad Dog says:

    This is one of the more interesting threads around. But I don’t see all the perspectives represented yet. And some of the ‘facts’ should be described as ‘disputed.’

    A missing perspective is the overarching changing or aging demographics. We KNOW our population is aging. We know the average age is increasing. Don’t we also know that the old farts want to sell their 5 bedroom homes? Who is going to buy them? So where are the thoughts about how the demand for housing has changed as the demographics changed? [Based on my conversations with people 50+ living in Hall County. Think empty nesters.]

    I agree with whoever said the quality of REO properties has increased. But not that much depending upon area. No one is buying the trashed out homes. They stay on the market or remain unoccupied from what I’m seeing everyday.

    There are some REO homes less than 5 years old in very good shape in the market. But not at bargain basement prices. And those prices seem to be very firm.

    Short sales? I haven’t seen any go through. Doesn’t mean there aren’t any. Just none that I have seen in Hall.

    Fraud is a pretty big net. Some people got rich doing 4 transactions a year. Depending on what you call rich. Brokerage loan officers were making 4 percent or more per transaction. [and still can]

    But I like the thread and the imputs. More please?

      • IndyInjun says:

        LOL.

        Old news.

        The economic bloggers have been YEARS ahead on this one and remain so.

        No offense, but PP isn’t the place for serious discussion.

    • IndyInjun says:

      Throw anything you like back at me…..I will support my argument.

      I have in multiple places on this topic, unlike poor old GOP, who has revealed his kinship with the AFDC constituency of the ‘enemy’ party.

      See, when we told you there was no difference in the GOP and the Dems we were absolutely right, weren’t we Perkins?

    • IndyInjun says:

      “A missing perspective is the overarching changing or aging demographics. We KNOW our population is aging. We know the average age is increasing. Don’t we also know that the old farts want to sell their 5 bedroom homes? Who is going to buy them? So where are the thoughts about how the demand for housing has changed as the demographics changed?”

      Ding, ding, ding…..we have a winner!

      Bravo. Yes, we have a 10 year excess inventory of exactly the WRONG homes given the aging boomer demographic. I stood in wonder at all of the multiple story, 3000 sft and more, homes being bought by people who will need 1500 sft on one floor within 15 years, financed over 30 years.

    • GOPGeorgia says:

      I stopped listening after 3 minutes when he said lenders were making bad loans on purpose. He’s an idiot out to sell his book. You are an idiot conspiracy theory wing nut if you think that was true.

      • IndyInjun says:

        You wrote above “Strictly speaking, taking a blank w-2 and putting in the amount of income required to get a loan is mortgage fraud. Using a stated income loan program is not. Stated programs are good for self employed people, waitresses who cannot prove their income, and others.”

        William K. Black, a man who sent 1100 bankers to prison and who teaches law and fraud prosecution at the University of Missouri, specifically calls what you are defending as FRAUD

        You quit listening because you cannot stand the truth.

        Lenders WERE making bad loans on purpose, because they got fees originating and fees selling to securitizers. The supply of mortgages wasn’t enough to meet Wall Street’s demands, so they started making “synthetic” CDO’s that were comprised of fictional assets.

        At the 4 to 5 minute mark Black explains that stated income loans were fraudulent.

        If there are any PPers looking for where prosecutions need to start, they need to watch that interview in its entirety.

        Contrary to GOPGa, Black calls Dems and GOPers, alike, who did this criminals.

        • GOPGeorgia says:

          Indy

          If lenders were making bad loans on purpose, then why were many of my loans turned down? Your naiveté knows no bounds. I did lots of loans with Indymac and they turned down many stated loans. Calling them “liars loans” and “ninja loans” are terms out to sell his book. The industry term was “nina.” No income, no asset verification loans. Reserved for people with very high credit, usually self employed with a business license.

          60% and 80% loss claims are ridiculous. 10% might be right and that is enough to put a company in trouble. He admits that stated loans are not illegal. Most lenders including Indymac, had guidelines on what they expected a person to make from a type of job. A waitress might make up to $2,000 a month depending on what restaurant or bar they worked at. You could not submit a loan to underwriting and state that a waitress made $4,500 a month. It’s just not realistic.

          He THINKS there was fraud because the THINKS lenders were deceived and just accepted whatever they are told for income. It’s not the case and he’s selling his book. I have had some customers get foreclosed upon, but that’s usually from a loss or job, divorce, injury and so on. Most stated loans were repaid, but they do have a higher foreclosure rating than other loans.

          AIG sold PMI insurance. Of course they are going to deal with foreclosures. That’s what the insurance was for!

          I wasted 28 or so minutes listening to this conspiracy theorist naming Paulson and Geithner as cover up agents with no one but him knowing the real truth. He’s trying to sell his book!

          You don’t know what you are talking about. I really don’t know how many times I have to say that.

          • IndyInjun says:

            60% and 80% loss claims are ridiculous. 10% might be right and that is enough to put a company in trouble.

            Those high loss claims apply to mortgage SECURITIES and 60 to 80% is probably too low, as reported sales are in the 15% range.

            10% loan losses are fatal to most banks, as you have noted.

            The banks that have been taken over have been experiencing capital losses of 20 to 35%, reflecting a blend of higher than acceptable losses on loan portfolios of 10% and much higher losses on mortgage securities.

            This disaster has to be shockingly huge, for on Christmas eve, the GSE’s received unlimited bail-out support for their $6 trillion portfolio and Barney Frank has snuck in a ‘preauthorized’ $4 trillion NEW FED BAILOUT for ‘the next crisis

            it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

            For heaven’s sake, what have they DONE to us???????

          • GOPGeorgia says:

            http://www.huduser.org/portal/publications/hsgspec/int_foreclosure_report.html

            According to HUD, in a report to congress, in April of 09, less than 1 in 10 foreclosures involved a loan that had possible mortgage fraud involved. The report is about the root causes of the foreclosure crisis. It down plays the community reinvestment act of 1977 (under President Carter.) It does not mention the guideline changes of the CRA made under President Clinton. Then again, it’s a report going to a Dem congress so there are probably politics at play. It mentions Fannie and freddie, and a lack of equity (=100% loans), but there no mention of what percent loans that were defaulted were stated loans.

            Enjoy reading and happy new year!

  11. IndyInjun says:

    The people who can lead America back –

    William K. Black
    Simon Johnson
    Brooksley Born
    Elizabeth Warren

    There are others, but they are all too few.

  12. IndyInjun says:

    GOPGa wrote “If I am trying to get a loan done and I have two appraisers to choose from, one of them goes the extra mile and finds better comparable sales to get a better value on the home that I am trying to get a loan done on and the other just looks it up on the internet writes down a figure and wants $400, who do you think I should give my business to?”

    The question is who you DID give the business to, and that was the one that made the deal go through so you could ‘earn’ your fees.

    Definition of Fraud

    Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

    • GOPGeorgia says:

      Indy,

      If you want to get a job with the Georgia Department of Banking and Finance, I will be happy to open up my books for you. In the mean time, there are privacy laws that prevent me from going into detail on specific loans.

      Who I sent my loans to are none of your business. I didn’t set the lending program for any loan, nor did I underwrite any loan. I have never set a price for a home to be appraised. All of my loans were above board and the use of my name and the word fraud is getting you close to a libel lawsuit. I suggest you back off. I know what fraud is and I haven’t committed it.

      I have used 3 appraisers consistently over the past 8 years. Occasionally, a customer will have an appraisal already done or have a preference. I don’t use whiners. I use people I can depend on, who are fast, who are responsive and make changes that are needed by the lenders, and who bring in good vales, with the comparable sales to back them up. All of my appraisers that I use are still licensed.

      You still don’t know what you are talking about.

      • Dave Bearse says:

        I didn’t take it that Indy was impuning your business standards, but what do I know?

        As a real estate outsider and thus not knowledgable about standard long time industry practice, I couldn’t help but pause when I encountered “I use [appraisers] … who make changes that are needed by the lenders…”

        • GOPGeorgia says:

          Lenders frequently ask for things to be changed on an appraisal. The title work could say 1402 Main Street and the appraisal may say 1402 B Main Street. The lender would want both of them to say the same thing. The deed could show 1402 and the post office could use 1402 B. Both may be technically correct, but it should match the deed and be 1402.

          Those types of changes.

  13. Earlier this week I went to the theater to watch “Avatar”, which was perhaps one of the best two-hour movies I’ve ever seen. The only problem was that it ran for almost three hours. By the end, I was more interested in getting to the bathroom than I was in watching the final battle scene.

    Indy, buddy… you’ve posted 3 or 4 of the best paragraphs here. The only problem is that you’ve posted 30 or 40 paragraphs in the process. Seriously, bro… the endless back-to-back comments gets to be rather SpaceyG or GOPeach-ish.

  14. IndyInjun says:

    I am truly sorry that I mistook this as a place for serious discussion of what will turn out to be the biggest story of our lifetimes.

    Later.

    More serious places beckon where participants are not mentally challenged.

      • B Balz says:

        Indy is “fired up” about this because the enormity of selling America’s future is simply–Enormous.

        I would encourage parents to have their kids learn Mandarin.

    • IndyInjun says:

      I somehow replied to this above.

      PP is a good place for political discussion and we whould be proud of the results in the Speaker’s ‘race,’ but frankly most here are either incapable of, or don’t want to, embrace facts on this subject.

      These people didn’t just steal the kid’s future, they stole OUR present and it will take a crushing decade to work out of the massive fraud that robbed us all blind.

      • Mad Dog says:

        Indy,

        Glad to have some of your links. Using and reading them. Yeah, this topic isn’t completely political. And political topics get the best out of PP, or Pee Pee. Shrug.

        You get some pretty general agreement out of me on the guts of what you’re saying.

        I just might warn you that some others were saying what you’re saying back about … 1850? 1890? 1910?

        Only those authors called it corruption instead of fraud. And some that corruption as a central component of our system. Which must lead to failure.

        Marx and Engels.

        And I consider them THE experts on capitalism.

        There goes the neighborhood, eh?

  15. IndyInjun says:

    Funny that.

    I read some of Marx for the first time last year and was spooked by the forces in play then that were dominant in Marx’s work.

    They are back. This is the age of the Later Say Robber Barons…..and sadly the USA is moving the same direction as Bolshevik Russia.

  16. IndyInjun says:

    EIGHTH PERIODIC REPORT TO
    MORTGAGE BANKERS ASSOCIATION
    …issued in 2006 before the crash.

    Although 2005 statistics are still preliminary, it appears that Florida, Utah and Georgia are leading the mortgage fraud pack.

    The report showed Georgia to have ‘improved’ as, from 2002 to 2004 Georgia LEAD THE ENTIRE US IN MORTGAGE FRAUD

    Georgia, the leader in fraud rates from 2002 through 2004, has dropped to third position for fraud reported to date on its 2005 book of business. For 2005 it is a little less than twice the national average (MFIGA/2005 = 193), which is a far cry from its 2003 position when it far outstripped every other state (MFIGA/2003 = 436). This drop may be due to the aggressive legislation and enforcement Georgia officials have recently put in place.

    Yes, but Georgia had cancer by then.

    Reports like this were why this writer started scrutinizing banking relationships and stock holdings, along with querying bank managers in 2006.

    BTW, 10% default rates are double the magnitude that will wipe out the capital of the average bank.

    Also interesting is that 11% of the loans originated in 2007 are already under water and about 1/4 of the loans in Florida are nonperforming.

    Liar’s loans are now Liar’s bank Balance Sheets, thanks to Mark-to-Make-Believe Accounting.

    On a related note – People who demanded an end to Mark-to-Market accounting sure are going to be surprised when they go to retire and the CASH proceeds are a fraction of their “retirement account balance”

    A tangled web,’tis this and one that will hang a lot of unsuspecting folks.

  17. Bill Greene says:

    “More Georgia Banks In Trouble” seems to be a repeating headline lately.

    It almost makes it amusing to remember the testimony given before the GA House Banking Committee by the presidents of the Georgia Banking Association and the Georgia Association of Community Bankers earlier this year, when they were testifying against the proposed Constitutional Tender Act: “If this passed, it would change the way our banks do business!”

    My response then was, “Let’s hope so, before it’s too late!” Now, I can’t wait to get before that committee again, so we can take a look at Georgia’s new trophy for “Most Bank Failures in the Nation” and examine exactly how many banks could have been saved, and how much money the State and the taxpayers of Georgia could have saved by obeying the Constitution and using sound money. 🙂

  18. IndyInjun says:

    On Christmas Eve, when attention was de minimis Treasury announced an UNLIMITED bail-out fund for Fannie and Freddie, while at the same time saying these GSE’s had stabilized and no further rescues were foreseen.

    Much speculation centers on as much as $1 trillion in principle write-downs to be thrown on the backs of the taxpayers. Given that $400 billion was already deemed lost, this would be a new $600 billion bailout. On the heels of that tidbit, a House bill being rammed through by Barney Frank preauthorizes the Fed to spend $4 trillion in the event of another collapse.

    Meanwhile, GMAC got a new $3.8 billion bail-out and weekly Federal cash outlays for UI doubled in the December as more state funds ran out of funds.

    Icarus, when do your favored bail-outs end? Where do they end? This side of $300 quadrillion and $1000 per gallon gasoline?

    Gold bugs look like geniuses and Harvard PhD economists look like Larry, Moe, and Curly without one hint of being funny or having any real utility.

    The $USD has lost 95% of its value since 1913, nearly 70% in the last 30 years, and the numbers this old boy is looking at says that they destroy 95% of the remaining value in not more than a decade, possibly in 3 years.

    Official default or default by hyperinflation are the choices. Fiat money managers always favor the later.

    My favored investment this year will be gasoline pumps with 5 foot wide price displays.

  19. GOPGeorgia says:

    What was min wage in 1913? What type of car could you buy? Cell phone? Big screen TV? What could you buy at walmart at 4 am? The consumer is so much worse off than the way things were in 1913.

    I hear there’s a sale at the whip and buggy. Maybe I’ll see you there, in your home made suit.

    • seenbetrdayz says:

      Basically, he’s saying we’re being robbed. The bank pays me a whopping 0.25% interest/year on a dollar that loses ~4% of its value every year. I guess it is supposed to be so obvious that no one notices it, but people are amazed to hear it all the time.

      Now, in the olden days, you got interest as an incentive to make deposits, so the bank could have the capital necessary to make loans. But now, banks no longer have to be picky about who they loan to (no money, no credit, NO PROBLEM!), and since they don’t actually need people to make deposits (the Fed will simply create out of thin air the money the bank needs for capital), saving has become moot. In fact, it’s nothing more than a gimmick.

      • GOPGeorgia says:

        I think I understand your agruement, but I still can’t stroll down to the local bank and say “give me a million, you’ll get it back from the taxpayers.” Things are bad, but not as bad as what many on here describe.

        Note* If I don’t post on here for the next month, the bank gave me a million and won’t be asking for it back.

    • IndyInjun says:

      Somethings have increased 5 fold since 2003 because of this madness, meanwhile DOW, S&P, and NASDAQ are considerably negative for a decade. Some people have done very well by seeing the trend and getting real money and real things of value.

      They keep this up and shiny things, ag, oil and gas are going orbital.

  20. IndyInjun says:

    SIGTARP reported in the middle of the year that the sum total of bail-outs and commitments then stood at a breathtaking $24 trillion. Basically Treasury and Barney Frank added another $4.6 trillion in change as a Christmas .

    These figures are stupendous.

    Meanwhile ZIRP is wreaking $trillions in havoc on pension plans, FDIC is broke, PBGC is broke, SS went into deficit years early, the states are $350 billion in the hole and Obama is expanding wars.

    Insanity is what this is.

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