Posted on 01/03/2011 10:17:11 AM PST by Notary Sojac
A lawsuit filed by Allstate claims that Countrywide misrepresented the risks posed by the bundles of mortgages it sold to investors such as Allstate.
Housing prices are sliding again, and there's plenty of blame to go around. Factors include the sluggish recovery, ineffective private and public efforts to prevent foreclosures, suddenly risk-averse lenders and temporary tax credits that generated a short-lived and artificial rally in home sales. But a lawsuit filed last week provides a pointed reminder that the bubble would never have happened had it not been for irresponsible lenders and the feckless investors who kept them awash in cash.
The case pits insurer Allstate against Bank of America and Countrywide, the giant mortgage lender that Bank of America bought in 2008. The suit claims that Countrywide misrepresented the risks posed by the bundles of mortgages it sold to investors such as Allstate, which sank $700 million into the securities from 2005 to 2007. After the housing bubble burst, the mortgages in those securities started defaulting at a torrid pace, causing the value of the securities to plummet.
(Excerpt) Read more at latimes.com ...
This article makes it sound as if everything isn’t rosy with our economy which is obviously false because the stock market is up.
Allstate is a large corporation and presumably has attorneys and risk experts working in its investment divisions.
Sounds like somebody didn’t do their due diligence.
Anybody who cared to look into these securities at the time could see they were not based on anything solid. Those investing just didn’t care. They thought they could either unload them on another sucker, or that they could make somebody else take the hit through “insurance,” etc.
Everybody knows real estate always goes up. Absolutely classic bubble psychology.
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So where are the prosecutions? Isn’t ‘fraud’ illegal anymore? So much for the ‘deregulation’ argument!
The former owners (crooks) of Countrywide are Big Dems, and will get away with defrauding B of A and Allstate. Move On, nothing to see here.
This excess money had to go somewhere and most of it went into real estate, artificially inflating its price. Thia was greatly exacerbated by government attempts to artificially encourage loans to those who didn't qualify using traditional criteria.
Something I've seldom seen mentioned as a contributor is the rapid spread of "mortgage brokers." These folks had absolutely no incentive to turn down a "bad loan." Both the company and its employees were paid only by the fees when a loan went through, and they never had any risk. Why should they care if the borrower defaulted some years down the line? I've spoken with several people who worked for these firms, and every one said they were consistently exhorted to find a way to get the loan to go through, regardless of actual qualifications. To the point of intentional fraud being encouraged. Too bad somebody didn't tape these guys like they did ACORN.
IOW, the whole mortgage broker business IMO was by definition a disaster waiting to happen.
What do you predict will occur here? Surely the individuals will NOT be charged, and if any of the corporations are later found guilty, maybe they’ll be given a $50,000 fine.... right??
Risk is legal in this country.
People do not know what they are talking about when it comes to the Mortgage Brokerage Industry.
I work for a bank now, but was a mortgage broker for more than 15 years.
A mortgage broker works on behalf of the client who hires them to obtain financing.... Mortgage Brokers do not and did not write the rules of the game. They simply offered the programs that were available by banks, Fannie Mae, VA, FHA, etc.
What you dont hear on the news is that in most cases it is “illegal” to turn down a client if they received an underwriting approval from Fannie Mae or such....
If you turned down the loan, you could get sued for discrimination. If you gave them the loan, you were a predatory lender. You cant play both ends.
Get the facts correct and not just what you hear on the news!!
I suspect Allstate filed now because of a statute of limitations issue. Whether they have a case or not will be determined later.
I would also guess that Countrywide/BoA were hoping this case was not going to be filed, but are not the least bit surprised.
Wonder how many BoA executives unloaded stock with this lawsuit in mind. No one can claim such actions would constitute insider trading since anyone with half a brain had to know this was going to happen.
What could get real interesting is if borrowers follow the lead of Allstate and also allege fraud against the lenders. If they can prove lending fraud, they might be able to undo their loans and get their down payments back on their upside down loans; although that might be a bit of a stretch.
Risk is not risk when it is fraud.
1. Risk = do you want to buy the contents of this box for 1000 dollars? I have no idea what is in it.
2. Fraud = do you want to buy this fine box of chocolates? when really it is a box of dog ecrement.
Risk is legal, fraud is not.
Thanks; you saved me 10 minutes on my BB.
My friends tell me they were required to “help” the applicants spin their applications so they would be more likely to be approved. To the point where they were disciplined or fired if their rejection rate was too high, quite regardless of the facts of the actual cases involved.
The lenders, meanwhile, made their decisions whether to approve or reject a loan solely on the basis of the information submitted by the broker. Is this not correct? Does not the broker have a financial incentive to “help” a loan go through and little or none to be concerned about the actual likelihood the load will ever be repaid?
I am sure there were and are legitimate and honest mortgage brokers. No doubt you were one of them. Do you contend none pulled the tricks I’ve descibed?
What I’m talking about are the incentives a mortgage broker has, not his ethics. When the incentive is to be unethical, some people will invariably do so.
That is, IF you bought a carload of MBS's, and you are in Paulson's or Geithner's rolodex.
But if you only bought a brick and mortar house or two, well then, yeah, you're boned!!!
Fraud isn’t.
I'm no lover of regulation, but if every loan originator had been required to hold the loan for a couple of years, very little of this crap would have happened.
Perhaps someone here can address an issue that seems relevant to me, but I haven’t seen discussed, and I don’t have enough economic theory to know for sure.
It seems to me there are two types of assets. One type generates income and its value is based on the amount of that income or anticipated income. Examples include stocks, agricultural and commercial land and buildings, apartment buildings, machinery, etc. They are productive.
The other does not generate income and any increase in its value is based solely on the notion that someone else will be a greater fool and pay more for it in the future. These types of items include art, automobiles, boats, residential housing, etc. They are consumption. They generate no additional value over time.
Seems to me the second group is much more susceptible to loss of value when demand slows and are not really an “investment” in the same sense as a productive asset. Yet little distinction is drawn between the two groups, at least in the popular press.
Does this make any sense?
They bought a house, not a bag of excrement. The value of the house plummeted.
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