Foreclosure Law Office of David J. Stern Cash’s in On Foreclosures And Goes Global On The NASDAQ With “Chardan 2008 China Acquisition Corp”.

Another great post from Sarasota PI Bill Warner Florida

Sunday, March 28, 2010

Foreclosure Law Office of David J. Stern Cash’s in On Foreclosures And Goes Global On The NASDAQ With “Chardan 2008 China Acquisition Corp”.

Chardan 2008 China Acquisition Corp. (CACA, CACAW, CACAU) signed a definitive agreement for a business combination with DAL Group, LLC, a provider of processing services for mortgage lenders and servicers in Florida. 

At the closing of the business combination with Chardan, DAL will own 100% of the business and operations of Default Servicing, Inc. and Professional Title & Abstract Company of Florida and the non-legal operations supporting the foreclosure and other legal proceedings handled by the Law Offices of David J. Stern, P.A., collectively known as the Company.


Upon consummation of the transaction, Beijing, China-based Chardan will change its name to DJSP Enterprises, Inc. “DJSP” (David J. Stern Processing), and its stock is expected to trade on the Nasdaq under the symbols DJSP, DJSPU, and DJSPW. Assuming no redemptions by Chardan shareholders, the current owners of the company, the “Stern Parties” will receive approximately $111 million from DAL and the right to receive another $35 million in post-closing cash. In addition, “Stern Parties” will also hold equity interests.  Kerry Propper, Chardan’s chief executive officer said, “The acquisition should generate significant value for our shareholders. David J. Stern, who will be DJSP’s CEO, has an impressive record building this business by continually strengthening the customer relationships on which it is based.”

DJSP Enterprises, Inc. “DJSP” (David J. Stern Processing)…Revenues increased from approximately $116 million in 2007 to an estimated $259 million in 2009; EBITDA adjusted on a pro forma basis increased from approximately $44 million in 2007 to an estimated $68 million in 2009; Net Income adjusted on a pro forma basis increased from approximately $28 million in 2007 to an estimated $43 million in 2009, excluding one-time transaction expenses related to the business combination;



For the six months ended June 30, 2009, the company, DJSP Enterprises, generated revenue of approximately $117 million, EBITDA adjusted on a pro forma basis of approximately $35 million and net income adjusted on a pro forma basis of approximately $22 million.


So, Mr. Stern, how does the ‘foreclosure mill” of the David J. Stern law office net $49 miilion in 2009 when you bid on and obtains”bundles” of foreclosures from Wells Fargo Bank or Deutsche Bank and process’s each foreclosure for a flat fee of $1,400 which covers the cost  of an associate attorney, processing, service of complaint, office help etc.?  I know for a fact that the cost of processing a Foreclosure Complaint has increased since 12th Judicial Circuit Chief Judge Lee Haworth stopped  Attorneys “calling in” on Foreclosure Complaints in 2009 and forced Stern Associates to actually drive from Plantation Fl to Bradenton or Sarasota to appear in person.


“The area’s top judge has lost patience with so-called foreclosure mills so he’s ordering them to appear in court. Non-local law firms that specialize in mass foreclosure filings have ignored local court procedures, filed incomplete or inaccurate court documents and “widely abused” the privilege of appearing at court hearings by telephone, 12th Judicial Circuit Chief Judge Lee Haworth said. He’s cracking down, requiring lawyers in foreclosure cases filed in Manatee, Sarasota and DeSoto counties to attend all foreclosure-related hearings in person”.

DJSP…NASDAQ
Last Sale $ 11.66
Change Net / % 0.27 2.26%
Today’s High / Low $ 11.97 / $ 11.35
Share Volume 157,831
Previous Close $ 11.93
52 Wk High / Low $ 12.66 / $ 6.90
Shares Outstanding 10,634,000
Market Value $ 123,992,440
Annualized Dividend N/A
Beta 0.4
NASDAQ Official Open Price: $ 11.97
Date of NASDAQ Official Open Price: Mar. 26, 2010
NASDAQ Official Close Price: $ 11.75
Date of NASDAQ Official Close Price: Mar. 26, 2010
 

The companies listed as Delaware Corporattions and DJSP ENTERPRISES, INC (except DAL Group LLC) above are all Florida Foreign Corporations linked directly to the David J. Stern Law Ofice in Plantation Fl.

 
The David J. Stern Law Office and one of it’s process serving companies “Provest” have been sued in Conn for falsifing court documents, claiming the initial Complaint was served on the correct owner of the Florida property when in fact it never was, another case of “sewer service“.  A “John Grisham Novel” has nothing on the activities of the David J. Stern Law Offices.

 
SEE.. CONNECTICUT MAN FILES MASSIVE LAWSUIT AGAINST DAVID J. STERN LAW FIRM & ATTORNEY KARINA MUSELLA OF PLANTATION FL FOR ILLEGAL FORECLOSURE.

 
ALSO SEE.. THOUSANDS OF HOMEOWNERS ARE ILLEGALLY FORECLOSED ON BY DEUTSCHE BANK, IN FLORIDA LAW OFFICE OF DAVID J. STERN LEADS THE PACK,  FBI IS INVESTIGATING !

 
SEE.. LAW OFFICE OF DAVID J. STERN MISTAKENLY FILES FORECLOSURE ON FLORIDA FAMILY, INCLUDES FEDERAL TAX LIEN OF ANOTHER MAN & SERVES US ATTORNEY, HOW STUPID

 
SEE.. David J. Stern Law Offices “CASH IN ON FORECLOSURES” With Sewer Service and Bid Rigging on Homes Sold on The Court House Steps, FBI Needs to Investigate

 
SEE.. ATTORNEY FOR DAVID J. STERN LAW OFFICE IN MONTHS LONG FLORIDA BAR INVESTIGATION HAS BEEN FIRED OR RESIGNED, SARASOTA JUDGE AND US ATTORNEY TAMPA SUGGEST LEGAL ACTION AGAINST STERN LAW OFFICE IN BOTCHED FORECLOSURE CASE.

 
SEE.. The Foreclosure Mills of Florida led by The David J. Stern Law Offices.

 
India Infoline News Service, Mar 20, 2010.
DAL Group completes business combination with Chardan 2008 China Acquisition Corp.  The principals of FlatWorld Capital in Hyderabad and New York and DAL Group worked over the last two years to develop a long-term strategic plan with management and entered into a letter of intent with DJSP in 2008….DJSP is David J. Stern Processing.


FlatWorld Capital LLC, a Hyderabad and New York based global private equity firm, and its affiliates announced that their affiliated subsidiary, DAL Group, LLC, has completed a business combination with Chardan 2008 China Acquisition Corp. (a British Virgin Islands based Special Purpose Acquisition Company), DJS Processing, LLC, Professional Title and Abstract Company of Florida, LLC and Default Servicing, LLC to become DJSP Enterprises, Inc…… all of these companies are run by the Law Offices of David J. Stern, P.A in Plnatation Fl, see additional information below from the Florida Division of Corporations;


1). PROFESSIONAL TITLE AND ABSTRACT COMPANY OF FLORIDA, LLC
2). DJS PROCESSING LLC
3). DEFAULT SERVICES, INC.
4). DJSP ENTERPRISES, INC.
5). ATTORNEYS’ TITLE AGENCY, P.A.
6). LAW OFFICES OF DAVID J. STERN, P.A.
7). STERN HOLDING COMPANY – PT, INC. 

The principals of FlatWorld Capital in Hyderabad and New York and DAL Group worked over the last two years to develop a long-term strategic plan with management and entered into a letter of intent with DJSP in 2008, subsequently contributed the letter of intent to DAL Group, LLC in May 2009 and consummated the transaction on January 15, 2010.


DJSP, is David J. Stern Processing, is the largest provider of processing services for the mortgage and real estate industries in Florida and one of the largest in the United States. The Company provides a wide range of processing services in connection with mortgages, mortgage defaults, title searches and abstracts, REO (bank-owned) properties, loan modifications, title insurance, loss mitigation, bankruptcy, related litigation and other services.

The Company’s principal customer is the Law Offices of David J. Stern, P.A., whose clients include all of the top 10 and 17 of the top 20 mortgage servicers in the United States, many of which have been customers for more than 10 years. The Law Offices of David J. Stern, P.A., Company has approximately 1,000 employees and contractors and is headquartered in Plantation, Florida, with additional operations in Louisville, Kentucky and San Juan, Puerto Rico.

The Law Offices of David J. Stern, P.A., Company’s U.S. operations are supported by a scalable, low-cost back office operation in Manila, the Philippines that provides data entry and document preparation support for the U.S. operation. The Law Offices of David J. Stern, P.A.,  Company generated revenues of approximately $260 million and adjusted net income of $45 million for the twelve months ended December 31, 2009.


Raj K. Gupta, Partner of FlatWorld Capital LLC, said, “FlatWorld Capital is excited about investing in the mortgage processing and legal process outsourcing industry  (Law Offices of David J. Stern, P.A., ) where we have significant expertise. We look forward to working with all stakeholders to bring significant value add to this opportunity. We will continue to apply our team’s SPAC and global offshoring expertise to similar investment opportunities in the future.”

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NASDAQ, DJSP Enterprises Major Shareholders David J. Stern (Law office Foreclosure Mill) and Kerry S. Propper Subject of Department of Justice Investigation And SBA Law Suit.

What an excellent investigation: Thank you Mr. Warner from W.B.I Inc in Sarasota

Tuesday, March 30, 2010

Foreclosure Mill Law office of David J. Stern is now DJSP Enterprises, Inc. “DJSP” (David J. Stern Processing)…their revenues increased from approximately $116 million in 2007 to an estimated $259 million in 2009; EBITDA adjusted on a pro forma basis increased from approximately $44 million in 2007 to an estimated $68 million in 2009; Net Income adjusted on a pro forma basis increased from approximately $28 million in 2007 to an estimated $43 million in 2009. 

For the six months ended June 30, 2009, the company, DJSP Enterprises, generated revenue of approximately $117 million, EBITDA adjusted on a pro forma basis of approximately $35 million and net income adjusted on a pro forma basis of approximately $22 million.

So how does the ‘foreclosure mill” of the David J. Stern law office net $49 miilion in 2009 when they bid on and obtain “bundles” of foreclosures from Wells Fargo Bank or Deutsche Bank and process’s each foreclosure for a flat fee of $1,400 which covers the cost of an associate attorney, processing, service of complaint, office help etc.? I know for a fact that the cost of processing a Foreclosure Complaint has increased since 12th Judicial Circuit Chief Judge Lee Haworth stopped Attorneys “calling in” on Foreclosure Complaints in Feb. 2009 and forced Stern Associates to actually drive from Plantation Fl to Bradenton or Sarasota to appear in person.

Chardan 2008 China Acquisition Enters Into Business Combination With DAL Group, David J. Stern Law office, DJSP Enterprises, Inc – Update gone public on the NASDAQ.

Chardan 2008 China Acquisition was run by Kerry S. Propper he has had some problems with the SBA and the Department of Justice as did his father Dr. Richard D. Propper.  Kerry S, Proper, Richard D. Propper and Royale Holdings own 1,151,128 shares of Chardan 2008 China Acquisition, they are the majority share holders of the company now directly linked to David J. Stern and DJSP Enterprises, Inc.

CHARDAN 2008 CHINA ACQUISITION CORP.

Shareholders Number of  Ordinary Shares  and Warrants
Kerry Propper 302,907
Steve Urbach 136,713
Jonas Grossman 81,296
George Kaufman 27,708
Todd Gold 5,542
Jiangnan Huang 261,427
Royale Holdings 661,693
Dr. Richard D. Propper 186,528
Paula Beharry 130,713
Daniel Beharry 130,713
Li Zhang 130,713
Li Gong 25,000
Dr. Jianjun Shi 25,000
Xiaosong Zhong 25,000
Carman Ramirez 20,000
Edward Carter 5,000
Ida Carter 5,000

Foreclosure Mill in Plantation Fl run by David J. Stern Law office (DJSP Enterprises, Inc).,  just recently went Public on the NASDAQ, David J. Stern has 1/3 ownership of the stock with Kerry S. Propper 1/3 and “Royale Holdings 1/3.

 
1). Kerry S. Propper was the subject of 2003 Federal law suit filed in Conn. by the Small Business Administration one of his co-defendants was Acorn Ct Investments LP, they all ended up paying the SBA $1,764,333 in total see link http://www.paed.uscourts.gov/documents/opinions/04D0487P.pdf  

2). Kerry S. Propper was/is under Dept of Justice investigation with his father Richard Propper. One of their partners was convicted of defrauding the SBA and sent to Federal prison for 70 months. SBA seeks to recover $96 million from Richard Propper and the rest of the crew in yet another SBA lawsuit, see info below……

DEPARTMENT OF JUSTICE;

FRIDAY, DECEMBER 29, 2006, U.S. Files Suit Against John Torkelsen, Richard Propper, Daniel Beharry, & Sovereign Bank Alleging Fraud of $32 Million Against the Small Business Administration

WASHINGTON – The Justice Department announced today that it has filed a lawsuit accusing John Torkelsen, Richard Propper, Daniel Beharry, and Sovereign Bank of defrauding the Small Business Administration’s Small Business Investment Company (SBIC) program of $32 million. The suit was filed in the Eastern District of Pennsylvania under the False Claims Act, which allows the United States to recover up to three times the amount of its losses plus civil penalties.

The government’s complaint alleges that Torkelsen, Propper and Beharry violated the conflict of interest and management fee rules of the SBIC program by engaging in multiple secret transactions that funneled government money into companies controlled by Propper and Beharry or Torkelsen and his family. The SBIC program has rules designed to prevent the unauthorized investment of government funds in companies controlled by those who act as managers of the SBICs. The alleged fraud is believed to be the largest perpetrated upon the program to date.

The SBIC program, administered by the U.S. Small Business Administration, was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. The government, itself, does not make direct investments or target specific industries. Rather, the SBIC program is a “fund of funds” – meaning that portfolio management and investment decisions are left to qualified private fund managers. Small businesses which qualify for assistance from the program are able to receive equity capital, long-term loans and expert management assistance.

The investigation of the fraud allegations against the defendants was conducted by the U.S. Attorney’s office in Philadelphia, Pa.; the U.S. Small Business Administration’s Office of Inspector General and Office of General Counsel; the Federal Bureau of Investigation; and the Justice Department’s Civil Division. The United States has settled with, or reached settlement in principle with, a number of other individuals or entities involved in the alleged fraud.

Published January 12, 2007 Kerry S. Propper is an executive at both SPACs.
http://www.smartmoney.com/investing/economy/blind-pool-danger-20640/  

Richard Propper  father), a physician and venture capitalist who had started an array of businesses, including Medibuy.com, a Website for marketing medical supplies. Propper subsequently launched two more bulletin-board-traded SPACs — Chardan North China Acquisition (CNCA) and Chardan South China Acquisition (CSCA). He serves as chairman of the former and chief financial officer of the latter.

Propper is head of Chardan Capital, a San Diego-based venture capital firm. His son Kerry S. Propper, who is an executive at both SPACs, heads the similarly named Chardan Capital Markets, a New York-based broker-dealer and investment bank.

The elder Propper has an eventful investment history. In the early ’90s, he resigned as the managing general partner at Montgomery Medical Ventures, a venture-capital firm controlled by Montgomery Securities, amid reports that he inadvertently disclosed to a family member inside information about a Montgomery-related transaction (SEC investigation). He now says only that the incident “had nothing to do with anything.”

In 1996, meanwhile, he settled with the Securities and Exchange Commission over allegations that, as a general partner of two Montgomery funds, he failed to disclose holdings and transactions in several public companies. He says it was simply a matter of bookkeeping issues.

If this history has cast a shadow over Origin’s shares, an early recovery is hardly likely in view of new litigation. On Dec. 29, the Justice Department filed a civil suit in federal court for the Eastern District of Pennsylvania against Propper, his partner Daniel Beharry, their former partner John Torkelsen and Sovereign Bancorp, alleging they’d defrauded the Small Business Administration of $32 million.

That suit is running parallel to a civil action filed by the SBA in early 2005. In that action, the government alleges the same plaintiffs (Kerry S. Propper) funneled SBA money through Acorn Technology Fund, a small-business investment company, to their own companies. Among other things, it contends that Propper loaned money to Acorn to finance Medibuy, that Acorn repaid him with SBA money, and that Propper-related partnerships received more than $800,000 from Acorn. In June, Torkelsen began serving a 70-month prison sentence after pleading guilty to making false statements to the SBA.

A Justice Department spokesman says the government aims to recover up to $96 million from the defendants in its suit. In interviews last week, Propper and Beharry called the allegations in the suits “baseless.” Sovereign says none of its current employees are involved.

Propper puts the whole blame on Torkelsen: “It was his doing completely. He’s in jail. The SBA didn’t oversee him as well as they could have, and they’re just angry at the fact that money was lost.” Torkelsen’s attorney didn’t return calls for comment.

As for Origin, Propper still does shareholder-relations work for the company. In an answer to e-mailed questions from Barron’s, Origin’s chief financial officer, Jeff Wang, declined to comment on the stock-price decline or the litigation, other than to state that Origin isn’t named.

Wang noted that Origin’s revenues in the six months ended June 30 were $65 million and net income was $13 million, sharply higher than five years earlier, and that proprietary products now account for 10% and a growing portion of sales. And, he says, Origin remains focused on acquisitions. Read more: Blind-Pool Danger at SmartMoney.com http://www.smartmoney.com/investing/economy/blind-pool-danger-20640/#ixzz0jfavgysX
 
By its Order of January 17, 2003, this (Federal) court placed Acorn Technology Fund, L.P. (“ATF”) in Receivership and appointed the United States Small Business Administration (“SBA”) as Receiver. http://www.paed.uscourts.gov/documents/opinions/04D0487P.pdf  

Pursuant to powers granted under the Receivership Order, the SBA undertook the task of marshaling the assets of ATF and conducting all business affairs of ATF. This included making written demand upon certain limited partners of ATF for arrearages on investor agreements.

On October 29, 2003, after the Defendants (Kerry S. Propper et al) failed to meet their contractual obligations, the SBA, in its capacity as Receiver for ATF, brought separate actions against eight individual defendants and one corporate entity alleging breach of contract. The court consolidated all the cases on January 27, 2004. In response to the SBA’s demands, all defendants filed answers, affirmative defenses and counterclaims against both ATF and the SBA.

The Defendants allege claims for fraud in the inducement against ATF and negligence against the SBA. After being courted as potential investors by John Torkelsen, president and manager of Acorn Technology Partners, L.L.C. (“ATP”), the general partner of ATF, the Defendants entered into investment agreements (“Subscription Agreements”) for a partnership interest in ATF. In the Subscription Agreement, each defendant contracted to purchase a limited partnership interest in ATF and to make certain capital contributions to the partnership

For the foregoing reasons, the SBA’s Motions to Dismiss Defendants’ Counterclaims are Granted and the Defendants are ordered to pay the SBA as listed below; ATF is a New Jersey limited partnership pursuant to the Certificate of Limited Partnership filed with the Secretary of State of New Jersey on September 29, 1997.

The total amount demanded by the SBA from Defendants is $1,764,333. The following are the individual arrearage amounts per defendant(s):
• Acorn Connecticut Investments, L.P. and Daniel Beharry: $670,000
• Kenneth Borow: $25,000
• MichAel Chermak: $100,000
• Timothy Garton: $26,000
• William Lerach: $750,000
Kerry Propper: $25,000
Richard Propper: $128,333
• Charles Smith: $40,000

David J. Stern with DJSP Enterprises, Inc., recently went Public on the NASDAQ, David J. Stern has 1/3 ownership of the stock with Kerry S. Propper 1/3 and “Royale Holdings 1/3.  

DJSP Enterprises, Inc Ownership, Number of Ordinary Shares, Percentage of Ownership
David J. Stern (2) -0- -0- 4,151,666 OR 33.15%
Kumar Gursahaney -0- -0- -0- -0-
Juan V. Ruiz -0- -0- -0- -0-
Matthew S. Kayton -0- -0- -0- -0-
Mark P. Harmon -0- -0- -0- -0-
Nicholas H. Adler -0- -0- -0- -0-
Jerry Hutter -0- -0- -0- -0-
All Directors and Officers as a Group -0- -0- -0- -0-
Kerry Propper (3) 680,875 6.17% 4,151,666 OR 33.15%
Royale Holdings(4) 661,693 6.21% 4,151,666 OR 33.15%

US Small Business Admin v. Propper, et al
Plaintiff: US Small Business Admin
Defendants: Richard D. Propper (father), Acorn Ct Investments LP, Kerry S. Propper (son), P. Timothy Garton, Michael D. Chermak, Charles R. Smith and Kenneth M. Borow
Case Number: 3:2009mc00204
Filed: June 22, 2009
Court: Connecticut District Court
Office: New Haven Office [ Court Info ]
County: Hartford
Presiding Judge: Judge Robert N. Chatigny
Nature of Suit: Other – None
Cause: Registration of Foreign Judgment
Jurisdiction: Federal Question
Jury Demanded By: None
Access additional case information on PACER

 

 www.lawyerthatgetsit.com

What if the Florida Supreme Court Issued Mandatory Foreclosure Rules And The Foreclosure Mills Just Ignored Them?

BRILLIANT WORK!

Source: Matthew Weidner Blog

As most of you are aware, the Florida Supreme Court issued a new rule, effective February 11, 2010 that requires all homestead foreclosure complaints to be verified.  Amazingly, it appears that many of the mills are just ignoring the new rule and continuing to file, business as usual.

In the Answer attached here, I attack the complaint and I also attack another component of most foreclosure complaint….the lost note count.  As the research in the motion establishes, there is pretty good case law to support the proposition that most mortgage notes are not negotiable instruments.

If this case law gets correctly applied….more big trouble for the mills…happy hunting~

Full Deposition of Krystal Hall – Security Connections Inc. 400 Assignments a Day

Source: 4ClosureFraud

Full Deposition of Krystal Hall – Security Connections Inc

 

BOY WERE WE SCREWED! Bailout Tally $4.6 TRILLION

To think we all lost and keep losing our homes!

Comprehensive Bailout Tally: $4.6 Trillion Spent on the Bailout to Date

Submitted by Mary Bottari on April 1, 2010 – 7:05am. PRWATCH.org

Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an assessment of the total cost to taxpayers of the Wall Street bailout. CMD concludes that multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008. Of that, $2 trillion is still outstanding. Our tally shows that the Federal Reserve is the real source of the bailout funds.

CMD’s assessment demonstrates that while the press has focused its attention on the $700 billion TARP bill passed by Congress, the Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans amounting to $3.8 trillion. Little information has been disclosed about what collateral taxpayers have received in return for these loans, sparking the Bloomberg News lawsuit covered earlier. CMD also concludes that the bailout is far from over as the government has active programs authorized to cost up to $2.9 trillion and still has $2 trillion in outstanding investments and loans.

Learn more about the 35 programs included in the CMD tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program.

Treasury Department Self-Congratulations Premature

While the Treasury Department has been patting itself on the back for recouping some of the Troubled Asset Relief Program (TARP) funds and allegedly making money off of its aid to Citigroup, the CMD accounting shows that TARP is only a small fraction of the federal funds that have gone out the door in support of the financial sector. Far more has been done to aid Wall Street through the back door of the Federal Reserve than through the front door of Congressional appropriations.

The tally shows that more scrutiny needs to be given by policymakers and the media to the role of the Federal Reserve especially as the Fed has accounted for the vast majority of the bailout funds, yet provides far less disclosure and is far less directly accountable than the Treasury.

Download the Financial Crisis Tracker

In addition to a comprehensive here Wall Street Bailout Table which will be updated monthly as a resource for press and the public, CMD is also making available a Financial Crisis Tracker, a widget that links to the table that can be downloaded to websites and provides up–to-date numbers on the financial crisis and the bailout. The Financial Crisis Tracker shows unemployment rates, housing foreclosure rates and the bailout total on a monthly basis. It is a more accurate measure of how we are doing as a nation than any Wall Street ticker.

* Key Findings

* Wall Street Bailout Table

* Financial Crisis Tracker

Among the Key Findings:

1) $4.6 Trillion in Taxpayer Funds Have Been Disbursed

All together, $4.6 trillion of taxpayer funds have been disbursed in the form of direct loans to Wall Street companies and banks, purchases of toxic assets, and support for the mortgage and mortgage-backed securities markets through federal housing agencies. This is an astonishing 32% of our GDP (2008) 130% of the federal budget (FY 2009).

2) TARP vs. Non-TARP Funding

Most accountings of the financial bailout focus on the Troubled Asset Relief Program (TARP), enacted by Congress with the Emergency Economic Stabilization Act of 2008. However, a complete analysis of the activities of all the agencies involved in the bailout including the FDIC, Federal Reserve and the Treasury reveals that TARP, which ended up disbursing about $410 billion was less than a tenth of the total U.S. government effort to contain the financial crisis. TARP funds only account for about 20% of the maximum commitments made through the bailout and less than 10% of the actual funds disbursed.

3) The Federal Reserve has Played the Primary Role in the Bailout

The Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans — $3.8 trillion in total. Little information has been disclosed about what collateral taxpayers have received in return for many of these loans. Bloomberg News is suing the Federal Reserve to make this information public. On March 19, 2010 Bloomberg won its suit in the Second Circuit Court of Appeals, but it is not clear if this case will continue to be litigated to the Supreme Court.

4) Federal Support for the Housing Market is on the Rise

A key component of the bailout has been the federal support for mortgages and mortgage-backed securities, primarily through the Federal Reserve. All together, the government has disbursed more than $1.5 trillion in non-TARP funds to directly support the mortgage and housing market since 2007.

Underwater borrowers in America: A splash of good news?

The government tries a new tack in the fight against mortgage foreclosures

Mar 31st 2010 | NEW YORK | From The Economist print edition

WITH America braced for 4m or more foreclosures this year, the government is still searching for an effective way to stop the rot in housing. Under the Home Affordable Mortgage Programme (HAMP), a mere 170,000 borrowers have received permanent loan modifications, well below the target of 3m-4m. Will a revamped HAMP, unveiled on March 26th, mark a turning-point?

Until now the focus has been on lowering mortgage payments as a share of income, mainly through interest-rate reductions and term extensions. New rules put an emphasis on reducing principal (ie, loan balances). A crisis first sparked by subprime-mortgage defaults has since spread to better-heeled borrowers: one in four American households with mortgages owe more than their properties are worth. Forgiving some of this debt makes it less likely that they will throw away the keys.

The new plan aims to help in four main ways. It offers incentives for loan servicers (which collect payments for investors in mortgage-backed securities) to reduce principal for those owing more than 115% of the property’s current value; the write-down will be staged over three years if the borrower keeps up with lower payments. Second, struggling borrowers who have kept up their payments can switch into loans guaranteed by the Federal Housing Administration (FHA), a government agency, as long as their loan is reduced by 10% or more. Third, jobless borrowers will get up to six months of payment assistance while they look for work.

The final element is perhaps the most important. The government hopes to remove a blockage in the modification process with a bribe to holders of “second lien” mortgages, such as home-equity loans. CreditSights, a research firm, estimates that the four big banks hold $423 billion of home-equity loans (see chart), $151 billion of them to borrowers who are either underwater or close to it. These lenders have resisted modification of first mortgages, fearing knock-on write-downs of their second liens. The sweetener on offer is a payment of between ten and 21 cents on the dollar for balances they cut.

The new plan is widely seen as having more teeth than the first version of HAMP. But it still has its flaws. Participation by servicer banks is not assured. The motivation to avoid modifying second liens is likely to be stronger than a few thousand dollars in incentive payments for investors and servicers. Even so, the plan appears to treat second-lien holders better than investors in the main mortgage, because the former are not required to cut principal when first-lien balances drop. This “undermines the priority of claims in the capital structure” and supports the overvaluation of exposures on banks’ books, says Joshua Rosner of Graham Fisher, a consultancy.

The taxpayer will still be stuck holding the bill for the FHA. Already, the agency’s reserves have been heavily eroded by risky loans it took on in 2008-09 to shore up the housing market. Even homeowners may end up feeling dissatisfied. It is jobs that these households really desire, says Anthony Sanders, a property-finance professor at George Mason University, not to stay in a house that they cannot afford, especially when rental properties are so readily available.

Our view on foreclosures: Get out of the business of mortgage modifications

On an emotional level, many Americans have never come to terms with the $700 billion bank bailout that passed in the waning days of the Bush administration. Though it garnered bipartisan support, and the overwhelming view of economists and businesses leaders was that it averted calamity, the idea of propping the very institutions that caused the crisis seemed like a bad use of taxpayer money. How could it be otherwise? So in response, President Obama decided early in his administration to take $50 billion from the bailout funds and redirect it to homeowners. The goal was to induce banks to modify the terms of millions of loans that were in danger of default because of declining home prices. It was always a dubious idea. Bailing out people who, in many cases, bought houses they couldn’t afford isn’t much more appealing than bailing out bankers. And besides, this is bailing out bankers because it’s impossible to help borrowers without helping lenders as well.

Roughly a year after the program was created, and a week after some changes were announced, what is becoming increasingly clear is this: The main part of the bailout is shaping up less as a bailout than a shrewd investment, while the loan modification program looks like an embarrassing failure.

Now that the threat of a second Great Depression is gone, the justification for bailouts of any kind is even more tenuous. And despite improvements, the mortgage program still looks like a sweetheart deal for banks, as well as select homeowners.

Consider this contrast. The main part of the bailout — consisting of direct investments in financial institutions — is quickly being paid back, in some cases at a nice profit. A $25 billion investment in Citigroup, for instance, is worth between $31 billion and $32 billion at Wednesday’s share prices.

The loan modification program, on the other hand, is the only part of the bailout that can’t be described as an investment. Even in the case of the auto bailout, taxpayers will get something back. Not so with this.

The program is actually a mosaic of different parts. It includes money to induce servicers to refinance borrowers into government-backed loans, and in some cases reduce the principle owed on some mortgages. It has a requirement that they reduce the loan payments for three to six months if the borrower loses a job. And it encourages holders of second liens to settle up.

Economically, this makes some sense. The troubled housing market is a major barrier to recovery. And the expansion announced last week could at least put some life into a program that has fallen far short of expectations, with fewer than 200,000 modifications so far.

But from a perspective of fairness and what is best for the economy in the long run, it is hard to defend. Lenders made fortunes putting people in inappropriate loans by reselling them at a profit and collecting fees as a loan servicer. Now they are getting paid to behave as they should have all along.

Giving special deals to certain homeowners is troublesome as well. What about the people who opted against buying at the top of the market? Or those who narrowly missed qualifying for this program? Certainly, they must find the concept unfair.

Given how generous, and narrow, this program is, it’s hard not to agree with them.

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