Friday, January 15, 2010

Big Banks Short Sell Fraud

Diana Olick, in her blog Realty Check today , disclosed how big banks are coercing real estate agents to pay them money on the side off the official settlement statement to get the banks, as second lien holders, to agree to a short sell (below the value of the mortgage). This is not just a questionable pattern of conduct, it is specifically illegal.  You should read her complete post in the link above.

Interestingly, although we have been very vocal for many months on the exceedingly inaccurate balance sheets banks are now allowed to publicly present, today's reaction to J. P. Morgan's earnings show a closer inspection of the information being provided.  While J. P. Morgan had $3.3 billion in "profits" this last Quarter, analysts were disturbed by credit costs. Its mortgage and credit card business has seen rising costs.  It set aside $4.2 billion in Q4 to cover mortgage losses which are up from $653 million vs a year ago.  It increased its commercial loan loss reserve to $494 million from $190 million.  Prime mortgage net charge-offs (what it expects to never be paid) increased to $568 million from $195 million a year ago.  It wrote off loans at an annualized rate of 9.33%.

Continuing his critique, Joseph Stiglitz, has written a new book, "Freefall: America, Free Markets, and the Sinking of the World", and just published an article entitled, "Moral Bankruptcy", in which he argues that the current financial system has created a moral hazard which is a direct threat, not just to a free market but to society.  As long as the systemically dangerous financial institutions are allowed to privately profit and disgorge their losses onto the public, they have no fear of failure and no reason to fear the law as long as they are considered "too big to fail".


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2 comments:

  1. Maybe the banks taking a substantial hit on a short sale are insisting on a less percentage or take by the real estate agent, something like both taking less than if market conditions were better.

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  2. The banks were asking for money under the table to release the second lien. Their request was not a negotiation it was an illegal act.

    It is a violation of RESPA, the law that specifies that all compensation that changes hands on a real estate transaction irrespective of form must be disclosed on the HUD-1.

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