Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1307.6 -3.8 -0.29%
Eurostoxx Index 2412.5 -19.590 -0.81%
Oil (WTI) 98.35 -0.600 -0.61%
LIBOR 0.5566 -0.003 -0.45%
US Dollar Index (DXY) 80.226 0.428 0.54%
10 Year Govt Bond Yield 2.05% -0.01%

Markets are mixed this morning, with the broader indices lower following Europe, and the Nasdaq up on Apple’s earnings.  AAPL is up about 8% pre-market.  Conoco Philips also reported good earnings this morning.   United Rentals reports after the close, which should provide another data point as to the state of the construction industry.  Construction /  Housing has been the achilles heel of this recovery, and if that sector is turning around, the economy could finally be on its way.

I didn’t watch the SOTU last night (I always just read speeches), but it doesn’t sound like there was anything market-moving in it.  Natural Gas is up a little, presumably on the lack of a production target.  The US dollar is stronger this morning and bonds are up 1/3 of a point, presumably on Europe, not necessarily the SOTU.

Perhaps the timing of the robo-signing settlement was not a co-incidence. In the speech last night, Obama laid out a plan for refinancing underwater mortgages.  The fine print will not be available for some time, and it will require Congressional approval.  I have noted in the past that you have to get the originators on board with this plan, and put-back risk is the big hurdle.  Put back risk means the government can decide after the fact that a mortgage violated underwriting standards and can force the originator to buy it back.  Re-financing underwater homes will by definition violate underwriting standards.  The government can tell originators that it will allow underwriting violations for this program, but there is nothing preventing a future administration from changing the rules.  An originator makes exactly the same profit on a 80% LTV loan as they do on a 120% LTV loan.  So why would originators take the additional political risk when the returns are exactly the same?   They won’t.

The FOMC rate decision will be released this afternoon.  I don’t think anyone expects a change in policy, but people will be interested in seeing if the the Fed takes note of the early signs of a turnaround.

Whistle Blowers

I read a piece yesterday that has been rattling around in my brain ever since.  Remember recently the NV AG, Masto, indicted a couple of wheeler dealers on fraud charges for the robo signing scandal in the foreclosure mess?  Well, apparently a large part of her case, and the information she used to investigate the charges, came from one woman at the lower end of the totem pole.  She gave up information in exchange for a reduced sentence in a plea agreement.  She didn’t show up Monday for sentencing and when investigators were sent to her home they found her dead.  Here’s a link to the piece in Naked Capitalism describing some of the events surrounding this interesting and tragic case.

Las Vegas police say it could be weeks before investigators know how 43-year-old Tracy Lawrence died.
Her body was found about 11:30 a.m. Monday at her Las Vegas apartment.
Police Sgt. Matt Sanford says there’s no apparent sign of foul play, and coroner toxicology tests could take up to eight weeks.
Lawrence would have faced up to a year in jail and a $2,000 fine earlier Monday for her guilty plea Nov. 17 to one criminal charge of notarizing the signature of a person not in her presence.
KSNV-TV reports ( that Lawrence admitted notarizing tens of thousands of fraudulent documents as part of a wider foreclosure fraud scheme.

Lawrence had earlier admitted to notarizing “tens of thousands of fraudulent documents” as part of a wider foreclosure fraud scheme involving employees of Lender Processing Services (LPS).  It was Lawrence who turned Nevada Attorney General Catherine Cortez Masto on to two mid level LPS employees who face up to 30 years in jail each if found guilty. 

Lawrence came forward earlier this month and blew the whistle on the operation, in which title officers Gary Trafford, 49, of Irvine, Calif., and Geraldine Sheppard, 62, of Santa Ana, Calif. — who worked for a Florida processing company used by most major banks to process repossessions — allegedly forged signatures on tens of thousands of default notices from 2005 to 2008.

Trafford and Sheppard were charged two weeks ago with 606 counts of offering false instruments for recording, false certification on certain instruments and notarization of the signature of a person not in the presence of a notary public.

Here’s  another sort of whistle blower speaking with regret and admitting at least a guilty conscience if not fraud.  This guy was a Regional Vice President for Chase Home Financial in Florida.

“If you had some old bag lady walking down the street and she had a decent credit score, she got a loan,” he added.

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.
“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.
“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up. 

I think it’s important to remember how and why we got into this financial messObviously, government has over spent and over promised, from entitlements to government pensions, but if we’re going to be discussing fairness here we should also understand that a lot of people continue to suffer from a dose of unfairness in this economic shit storm (excuse my french).  Obviously life’s not always fair.

Nevada Goes After the Robo-signers

Photo above is apropos of nothing, just a pretty pic of our loofah scrubs we make every year.

Here’s the real story. I can’t count the number of times over the past year I’ve been told this was a non-story. A few people on the left said it was peanuts compared to the real criminal behavior and some on the right said it didn’t matter, the people being foreclosed on were behind on their payments and would lose their homes anyway. Of course, I may have been wrong but I always believed that fraud is still fraud, and on this scale it indicates a much larger danger to the rule of law than people were willing to admit. It’s a little frightening when you realize the scope IMO.

The Nevada attorney general Catherine Cortez Masto has just filed a 606 count indictment against two title officers in a single county, Clark County, for supervising the filing of tens of thousands of fraudulent documents in a robo-signing scheme.

On the one hand, this indictment is not as gratifying, say, as busting Angelo Mozilo. On the other hand, if low level supervisors in bank frauds face the risk of serving time, you are going to find a ton fewer people willing to take that job. Those higher up on the food chain might also have to be a lot more careful and pay the people involved more money, which in turn undermines the basic logic of these abuses, which is cost savings.

In addition, as mob prosecutions have shown again and again, you start by going after the foot soldiers in the hope that they roll people higher up on the food chain.

And at a minimum, this action says that the law and due process matter, and violations, particularly large scale, systematic violations, can and will be punished.

From the press release:

“According to the indictment, defendant Gary Trafford, a California resident, is charged with 102 counts of offering false instruments for recording (category C felony); false certification on certain instruments (category D felony); and notarization of the signature of a person not in the presence of a notary public (a gross misdemeanor). The indictment charges defendant Gerri Sheppard, also a California resident, with 100 counts of offering false instruments for recording (category C felony); false certification on certain instruments (category D felony); and notarization of the signature of a person not in the presence of a notary public (a gross misdemeanor)…

The indictment alleges that both defendants directed the fraudulent notarization and filing of documents which were used to initiate foreclosure on local homeowners.

The State alleges that these documents, referred to as Notices of Default, or “NODs”, were prepared locally. The State alleges that the defendants directed employees under their supervision, to forge their names on foreclosure documents, then notarize the signatures they just forged, thereby fraudulently attesting that the defendants actually signed the documents, which was untrue and in violation of State law. The defendants then allegedly directed the employees under their supervision to file the fraudulent documents with the Clark County Recorder’s office, to be used to start foreclosures on homes throughout the County.

The indictment alleges that these crimes were done in secret in order to avoid detection.”

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