U.S. Banks WILL BE ‘Toast’ If Struggling Homeowners Keep Walking Away (VIDEO)

Huffington Post | Sherry Shen First Posted: 06- 2-10 05:11 PM | Updated: 06- 2-10 05:11 PM

Felix Salmon

click for video

Reuters blogger Felix Salmon believes that if more and more struggling homeowners continue walking away from their homes, U.S. banks could be “toast.”

As strategically defaults continue to rise, some homeowners are using their inability to pay their mortgage to live rent free — often for more than a year, the New York Times reported.

“Trying to renegotiate your mortgage is not a morally reprehensible thing to do,” Salmon said, pointing out that mainstream media organization’s like the New York Times magazine has been publishing columns about this trend and how it makes so much “financial sense.” Corporations walk away from commercial mortgages, Salmon said. “It’s not clear to me why an individual should behave any different,” Salmon said.

Wells Fargo is most exposed to the trend, affecting the bank’s livelihood. “Sand state” banks such as those in Florida and California are also far more exposed. Here’s more from Salmon:

“From the bank’s point of view, if this catches on, there’s a very large number of banks in this country who are just toast. And in hindsight they were just much better off dealing in a realistic way with these borrowers a year ago or two years ago when the problem first reeled its head instead of extending and pretending. Now they are in a pickle.”

“If this trend continues, then the banking system is probably insolvent,” he said.

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With Banks Under Fire, Some Expect a Settlement: NYTimes.com

From left, Chester Higgins Jr./The New York Times; Andrew Harrer/Bloomberg News; Ramin Talaie for The New York Times

From left, Andrew Cuomo, the New York attorney general; Robert Khuzami, of the S.E.C.; and Preet Bharara, of the United States attorney’s office. The agencies are investigating Wall Street.

By NELSON D. SCHWARTZ and ERIC DASH

Published: May 13, 2010

It is starting to feel as if everyone on Wall Street is under investigation by someone for something.

News on Thursday that New York State prosecutors are examining whether eight banks hoodwinked credit ratings agencies opened yet another front in what is fast becoming the legal battle of a decade for the big names of finance.

Not since the conflicts at the center of Wall Street stock research were laid bare a decade ago, eventually resulting in a $1.4 billion industrywide settlement, have so many investigations swirled across the financial landscape.

Nearly two years after Washington rescued big banks with billions of taxpayer dollars, half a dozen government agencies are still trying, with mixed success, to peel back the layers of the collapse to determine who, if anyone, broke the rules.

The Securities and Exchange Commission, the Justice Department, the United States attorney’s office and more are examining how banks created, rated, sold and traded mortgage securities that turned out to be some of the worst investments ever devised.

Virtually all of the investigations, criminal as well as civil, are in their early stages, and investigators concede that their job is daunting. The S.E.C. has been examining major banks’ mortgage operations since last summer, but so far, it has filed a civil fraud claim against just one big player: Goldman Sachs. Goldman has vowed to fight.

But legal experts are already starting to handicap potential outcomes, not only for Goldman but for the broader industry as well. Many suggest that Wall Street banks may seek a global settlement akin to the 2002 agreement related to stock research. Indeed, Wall Street executives are already discussing among themselves what the broad contours of such a settlement might look like.

“I would be stunned if any of these cases go to trial,” said Frank Partnoy, a professor of law at the University of San Diego. “I think Wall Street needs to put this scandal behind it as quickly as possible and move on.”

As part of the 2002 settlement, 10 banks paid $1.4 billion total and pledged to change the way their analysts and investment bankers interacted to prevent conflicts of interest. This time, the price of any settlement would probably be higher and also come with a series of structural reforms.

David Boies, chairman of the law firm Boies, Schiller & Flexner, represented the government in its case against Microsoft and is now part of a federal challenge to California’s same-sex marriage ban. He said a settlement by banks might be painful but would ultimately be something Wall Street could live with. “The settlement may be bad for everyone, but not disastrous for anyone,” he said.

A settlement also would let the S.E.C. declare victory without having to bring a series of complex cases. The public, however, might never learn what really went wrong.

“The government doesn’t have the personnel to simultaneously prosecute several investment banks,” said John C. Coffee, a Columbia Law School professor.

The latest salvo came on Thursday from Andrew M. Cuomo, the New York attorney general. His office began an investigation into whether banks misled major ratings agencies to inflate the grades of subprime-linked investments.

Many Americans are probably already wondering why this has taken so long. The answer is that these cases are tricky, like the investments at the center of them.

But regulators also concede that they were reluctant to pursue banks aggressively until the financial industry stabilized. The S.E.C., for one, is now eager to prove that it is on its game after failing to spot the global Ponzi scheme orchestrated by Bernard L. Madoff, or head off the Wall Street excesses that nearly sank the entire economy.

The stakes are high for both sides. At a minimum, the failure to secure a civil verdict, or at least a mammoth settlement, would be another humiliation for regulators.

Wall Street wants to put this season of scandal behind it. That is particularly so given the debate over new financial regulations that is under way on Capitol Hill. The steady flow of new allegations could strengthen calls for tougher rules.

Even worse would be a criminal charge, which could put a firm out of business even if that firm were ultimately found not guilty, as was the case with the accounting giant Arthur Andersen after the fraud at Enron.

“No firm in the financial services field has the stomach for a criminal trial,” Mr. Coffee said.

Bankers have been reluctant until now to take their case to the public. But that is changing as Wall Street chieftains like Lloyd C. Blankfein of Goldman take to the airwaves and New York politicians warn that the city’s economy will be endangered by the attack on some of the city’s biggest employers and taxpayers.

“In New York, Wall Street is Main Street,” Gov. David A. Paterson has said. “You don’t hear anybody in New England complaining about clam chowder.”

There are broader political consequences as well. At the top, there is President Obama, who was backed by much of Wall Street in 2008. Many of those supporters now privately say they are disillusioned and frustrated by his attacks on their industry, which remains a vital source of campaign contributions for both parties.

Closer to home, the man who hopes to succeed Mr. Paterson, Mr. Cuomo, is painting himself as the new sheriff of Wall Street. Another attorney general, Eliot Spitzer, rode a series of Wall Street investigations to the governor’s mansion in 2006.

But ultimately, it is what Wall Street does best — making money — that is already on trial in the court of public opinion.

Put simply, the allegations against Wall Street were prompted by evidence that the firms may have devised and sold securities to investors without telling them they were simultaneously betting against them.

Wall Street firms typically play both sides of trades, whether to help buyers and sellers of everything from simple stocks to complicated derivatives complete their transactions, or to make proprietary bets on whether they would rise or fall.

These activities form half of the four-legged stool on which Wall Street’s profits and revenue rest, the others being advising on mergers and acquisitions and helping companies issue stocks, bonds and other securities.

“This case is a huge deal. It has the potential to be the mother of all Wall Street investigations,” said Mr. Partnoy of the University of San Diego. “The worry is that the government will go after dealings that Wall Street thought were insulated from review.”

Even some Wall Street executives concede that all the scrutiny makes proprietary trading a bit dubious. “The 20 guys in the room with the shades drawn are toast,” one senior executive of a major bank said.

BANKS TAKE THIS AS A WARNING…coming to a home near you!

ENOUGH is ENOUGH!

The more they destroy our lives, the more we lose our identity!

Class Warfare: Hundreds Protest Outside Bankers’ Houses In DC

Perhaps an early “Wake Up” call next time…

First Posted: 05-16-10 08:00 PM | Updated: 05-17-10 05:46 PM

Arthur Delaney
arthur@huffingtonpost.com | HuffPost Reporting

Huge raucous crowds converged outside bank employees’ houses on Sunday afternoon to demand banks stop lobbying against Wall Street reform.

“Bank of America: bad for America!” shouted community leaders outside the house of Bank of America deputy general counsel Gregory Baer.

The Chicago-based grassroots organization National People’s Action, in coordination with the SEIU, bused more than 700 workers from 20 states to Baer’s neighborhood, one of the wealthiest corners of Washington. The action kicks off several days of protests targeting K Street for lobbyists’ role in financial reform.

Baer himself went unnoticed until a neighbor outed him. The mob booed loudly as he walked into his house. “I don’t have time for you,” he said, according to Trenda Kennedy of Springfield, Ill. who used a bullhorn to tell the crowd about her trouble getting a mortgage modification from Baer’s bank.

Kennedy told HuffPost she’d been making reduced monthly payments thanks to a trial modification via the Home Affordable Modification Program. She said that when the bank turned her down for a permanent mod, she was told she still owed all the money she’d been paying during the trial. She said she’s been notified of several sheriff’s sale dates but has somehow managed to keep her home.

“Every time I’m inches away from losing my house, by some miracle it’s been pushed off,” said Kennedy, who is a member of Illinois People’s Action.

Passersby and dogwalkers smiled at the sight of people gathered all over Baer’s lawn and blocking the road. Baer’s neighbor from across the street won little sympathy when he angrily yelled at protesters for waking up his two-year-old daughter. Kennedy was one of several people who used a bullhorn to tell personal bank horror stories.

Baer, formerly a senior official at the Treasury department, is a lawyer for the bank’s regulator and public policy legal group. Bank of America declined to comment.

“Bank of America came to the homes of everyday Americans when you spread predatory loans in neighborhoods across, the country, when you financed payday-lending storefronts, when your reckless behavior sent the economy to the brink of disaster, and when your bank-owned properties littered neighborhoods from coast to coast,” said a letter the group asked Baer to deliver to CEO Brian Moynihan. “You’ve created a historic mess and have been unreceptive to very polite, very formal and very consistent requests to fix the problems you helped create.”

The group also protested outside the house of Peter Scher, a lobbyist for JPMorgan Chase. Nobody answered the door.

UPDATE 5/17/10: Bank of America says Baer didn’t say “I don’t have time for you.”

“He did not make that comment to the crowd,” said a spokeswoman in an email. “Actually, Mr. Baer was away from his home and he returned home after his teenage son called him. Mr. Baer did say as he was walking up to his home that he needed to get inside his home to be with his son who was frightened and upset over what was going on outside.”

The bank also disputes the groups’ characterization of its lobbying and its efforts to help the economic recovery. “Bank of America supports financial regulatory reform, and has noted this publicly many times. We are committed to supporting and stimulating the economic recovery in our communities,” the spokeswoman wrote. “We are also vigorously modifying home loans and credit card balances for consumer and business customers in addition to eliminating debit card overdraft fees — steps that are necessary to help customers overcome financial challenges and succeed in this economy. Please visit [this page] for more information.”

Bank Investigations Cheat Sheet: ProPublica

by Marian Wang, ProPublica – May 13, 2010

Here’s our attempt to lay out exactly what’s known about which banks are being investigated by whom and for what. We’re going to keep updating this page, so please send usstories or details we’ve missed. Related: Covering the Bank Investigations: A Cautionary Tale

  What has been reported What the bank has said
 
Citigroup
Citing “a person familiar with the matter,” The Wall Street Journal has reported that Citigroup is under “early-stage criminal scrutiny” by the Department of Justice. Also citing unnamed sources, Fox Business reported on May 12 that the SEC has an active civil investigation into Citigroup and has subpoenaed the firm, but has not issued any Wells notices. A report on May 12th by the Journal cited unnamed sources saying that the Department of Justice is scrutinizing a few CDO deals that Morgan Stanley bet against–but which were underwritten by Citigroup and UBS. Neither the SEC nor the Justice Department have confirmed these reports.

Citing two anonymous sources, The New York Times has reported that New York Attorney General Andrew Cuomo is investigating eight banks to determine whether they misled rating agencies in order to get higher ratings for their mortgage-related products; Citigroup has been named as one of the banks. Subpoenas were issued on May 12, according to the Times and the Dow Jones Newswires, both of which relied on anonymous sourcing for their reports.

Citigroup has declined to comment to us and other outlets.

Credit Agricole
Credit Agricole has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating separately. Credit Agricole did not immediately respond to the Times’ request for comment and has not yet responded to ours.

Credit Suisse
Credit Suisse has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating. Credit Suisse declined to comment to the Times about the New York attorney general’s investigation.

Deutsche Bank
Citing “a person familiar with the matter,” The Wall Street Journal has reported that Deutsche Bank is under “early-stage criminal scrutiny” by the Department of Justice. Also citing unnamed sources, Fox Business reported on May 12 that the SEC has an active civil investigation into Deutsche and has subpoenaed the firm, but has not issued any Wells notices. Neither agency has confirmed these reports.

Deutsche Bank has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating separately.

Deutsche Bank declined to comment to Fox, the Journal, and the Times about possible investigations.

Goldman Sachs
The SEC has brought a civil fraud lawsuit against Goldman, alleging that the investment bank made “materially misleading statements and omissions” when it allowed a hedge fund to help create and bet against a CDO, called Abacus, without disclosing the hedge fund’s role to investors.

The Wall Street Journal, citing “people familiar with the probe,” reported in April that the Justice Department has been conducting a criminal investigation into Goldman’s CDO dealings following a referral from the SEC. Neither agency has confirmed this, but the AP, citing another unnamed source, has reported the same thing. Since then, many news organizations–including the The New York TimesABC News and the Washington Post–have also reported on the criminal probe, citing unnamed sources. No charges have been brought.

Goldman Sachs has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating separately.

Goldman called the SEC’s accusations “unfounded in law and fact.

After the reports of a criminal investigation, a Goldman Sachs spokesman declined to confirm that the bank had been contacted by the DOJ but also told several news outlets that “given the recent focus on the firm, we’re not surprised by the report of an inquiry. We would cooperate fully with any request for information.”

The bank has declined to comment to us on the New York attorney general’s investigation.

 
JP Morgan Chase
Citing “a person familiar with the matter,” The Wall Street Journal has also reported that JPMorgan Chase has received civil subpoenas from the SEC and is under “early-stage criminal scrutiny” by the Department of Justice. Neither the SEC nor the Justice Department has confirmed these reports. A JPMorgan spokesman told the Journal that the bank “hasn’t been contacted” by federal prosecutors and isn’t aware of a criminal investigation.

Merrill Lynch (now part of Bank of America)
Merrill has not been named in any SEC investigations. But as we pointed out, a lawsuit brought by a Dutch bank asserts that Merrill Lynch did a CDO deal that was “precisely” like Goldman’s. The SEC has declined to comment on whether it is investigating the deal.

Merrill Lynch has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating.

Merrill has said its CDO deal was not like Goldman’s, calling Goldman’s Abacus deal an “entirely different transaction.”

The bank did not immediately return the Times’ request for comment about the investigation by Coumo, but when we called and asked, a spokesman from Bank of America, which merged with Merrill, said, “We are cooperating with the attorney general’s office on this matter.”


Morgan Stanley
Citing “people familiar with the matter,” The Wall Street Journal reported on May 12 that the Justice Department has been conducting a criminal investigation into Morgan Stanley’s CDO dealings, including its role in helping design and betting against two sets of CDOs from 2006 known as Jackson and Buchanan. The Justice Department declined to comment. No charges have been brought, and according to the Journal, the probe is “at a preliminary stage.” A Morgan Stanley spokeswoman said the bank had “no knowledge of a Justice Department investigation into these transactions.” The Journal reported that the SEC has subpoenaed Morgan Stanley on several occasions, but the bank says it has received no Wells notices, which would indicate pending SEC charges.

Morgan Stanley has also been named as one of the banks that New York Attorney General Andrew Cuomo is investigating.

A Morgan Stanley spokeswoman said on May 12that the firm has “not been contacted by the Justice Department about the transactions being raised by The Wall Street Journal, and we have no knowledge of a Justice Department investigation into these transactions.”

The investment bank declined to comment to the Times about the Coumo’s investigation.


UBS
Citing “a person familiar with the matter,” The Wall Street Journal reported that UBS has received civil subpoenas from the SEC and is under “early-stage criminal scrutiny” by the Department of Justice. In a report on May 12, the Journal reported that the Justice Department is scrutinizing a few CDO deals that Morgan Stanley helped design and bet against–but which were marketed by Citigroup and UBS. Neither the SEC nor the Justice Department has confirmed these reports. The firm has not disclosed that it has gotten any Wells notices.

UBS has also been named as one of the banks New York Attorney General Andrew Cuomo is investigating.

A UBS spokesman has declined to comment on any of the investigations.

Moooove Over SLACKERS!! NY AG CUOMO probing 8 banks over securities

AP Source: NY AG probing 8 banks over securities

NEW YORK — The New York attorney general has launched an investigation into eight banks to determine whether they misled ratings agencies about mortgage securities, according to a person familiar with the investigation.

finance-20100513-US.Wall.Street.InvestigationAttorney General Andrew Cuomo is trying to figure out if banks provided the agencies with false information in order to get better ratings on the risky securities, said the person, who spoke on condition of anonymity because the investigation has not been made public.

Cuomo’s office is investigating Goldman Sachs Group Inc., Morgan Stanley, UBS AG, Citigroup Inc., Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, which is now part of Bank of America Corp.

Representatives from Goldman Sachs, Citigroup and Credit Agricole declined to comment. Others were not immediately available comment.

During the housing boom, Wall Street banks often packaged pools of risky subprime mortgages together. The securities were then typically given top-notch ratings and investors purchased them, in part, because of their high ratings.

The ratings, given out by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, are used as a guide for investors to judge how risky an investment might be.

As the housing market collapsed and more customers fell behind on repaying their mortgages, the securities began to fail.

The securities have been widely blamed for exacerbating the credit crisis and costing investors and the banks themselves billions of dollars in losses. The ratings agencies have come under fire for having given such high ratings to securities that soured.

The attorney general’s probe comes as federal regulators are investigating whether some of the banks misled investors when marketing and selling the securities and other investments that were tied to mortgages.

The Securities and Exchange Commission charged Goldman Sachs with fraud over its packaging of mortgage securities. Goldman is facing a separate criminal investigation into the same securities. Goldman has denied the charges and plans to defend itself.

Earlier this week it was reported that federal prosecutors are investigating whether Morgan Stanley misled investors about its role in a pair of $200 million derivatives whose performance was tied to mortgage-backed securities.

The increased scrutiny over how banks managed, packaged and portrayed mortgage securities and derivatives comes as Congress discusses a major overhaul of financial regulations. Politicians have said an overhaul would add more transparency to investments and trading.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Chase Sued AGAIN Over Mortgage Modifications Gone Wrong: HUFFINGTON POST

Arthur DelaneyArthur Delaney arthur@huffingtonpost.com | HuffPost Reporting

First Posted: 05- 4-10 03:15 PM   |   Updated: 05- 4-10 04:58 PM

Three frustrated homeowners in New York City are suing JPMorgan Chase over the bank’s failure to permanently modify their mortgages under the Obama administration’s plan to help homeowners avoid foreclosure.Earns Jpmorgan Chase

The complaint, filed in federal court in New York, says the plaintiffs, who are represented by attorneys with the nonprofit Urban Justice Center, relied on promises by Chase that they could have their loans modified if they made reduced payments per the Home Affordable Modification Program (HAMP). Despite making payments on time, they’ve received foreclosure threats but no modifications.

One of the plaintiffs, Alex Lam, a 35-year-old restaurant manager, alleges Chase told him to actually stop making payments in order to be eligible for help. In early 2009, Lam contacted Washington Mutual (since absorbed by Chase) about a modification after his adjustable-rate mortgage blew up in his face. He was told he didn’t qualify for help because he was current on his payments.

“Mr. Lam was specifically told that if he stopped making payments for several months, he could be considered for a modification,” the says the complaint.

The next big surprise came in December, when, after making trial payments of $1,568 for the previous six months, Lam was told he owed the bank $12,000. When he protested, Chase relented and told Lam to apply once again for a mod, this time under HAMP. He made his payments until March, when Chase told him he’d failed HAMP’s opaque “Net Present Value” test, meaning the bank determined the investors who owned the loan would make more money via foreclosure than modification. Lam alleges Chase used bogus inputs for the NPV test and that Chase refuses to show its work.

Lam called the situation “very upsetting” in an interview with HuffPost. “I trusted them because they’re a big bank. I did whatever they asked me to.”

HuffPost asked Lam what he wanted from suing Chase.

“Just to get a modification, that’s all I’m asking for,” he said. “Since day one, that’s all I’m asking for.”

HAMP lawsuits have been flying. Last week a 91-year-old veteran of three wars named Peter Ruplenas sued Bank of America over mortgage mod malfeasance in West Virginia.

In April, Faiz and Khadija Jahani of California sued Chase for reasons similar to Lam’s — the bank told them to stop making payments to qualify for help, then foreclosed. A similar case is brewing in Seattle.

Homeowners are supposed to be eligible for HAMP mods if they’re having trouble making monthly payments, owe less than $729,750, took out the loan before January 2009, and if their payment on their first mortgage is more than 31 percent of their income. In theory, if homeowners make reduced payments (typically $500 cheaper) for three months, they are put in “permanent” modifications that last for five years.

But the banks voluntarily participating in HAMP have given permanent mods to just 230,000 homeowners in the program’s first year, a far cry from the three to four million officials said HAMP would help. Meanwhile, frustrated homeowners’ stories of lost paperwork, dishonesty, and incompetence by banks are piling up.

A Chase spokesman declined to comment on the lawsuit.