Tag Archives: Fannie Mae

Large US Banks Could Loose Between 17 And 42 Billion On GSE

Fitch estimates the four largest U.S. banks have received pending repurchase requests totaling $19.1 billion with $10.7 billion related to requests from the main housing Government Sponsored Enterprises (GSE). Fitch believes the expected loss for the four largest banks could be about $17 billion, the rating agency says in a statement.

“Using a more moderate loss scenario, whereby the put-back rate goes to 35% and recovery rate drops to 55%, Fitch believes losses could come in around $27 billion.”

Fitch Ratings


“Recently, the main housing government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, have been actively exercising their right to put back to the original lenders a considerable amount of the troubled mortgages in their portfolios. To some extent, this has been expected given the significantly larger volume of troubled mortgages sitting on the housing GSE’s books,” Fitch says.

Major banks have effectively acknowledged this development and have increased their representation and warranty reserves as requests for deficient loan repurchases expand.

“Based on data through the second quarter of 2010, Fitch estimates the four largest U.S. banks have received pending repurchase requests totaling $19.1 billion with $10.7 billion related to requests from the main housing GSEs. To date, these institutions have established $8.3 billion of representation and warranty reserves. A large sum, but one that Fitch would view as manageable within each firm’s inherent earnings capacity,” the statement says.

Purchasers of residential mortgage loans, such as the housing GSEs, have had the right under specific representations and warranties to require the seller/servicers of mortgages to repurchase loans or foreclosed properties or reimburse the investor for losses if the foreclosed property is sold if it is determined that the mortgage loan did not meet the investors’ underwriting and eligibility standards.

“Historically, Fitch has viewed purchasers of mortgages or mortgage-backed securities (MBS) as being fairly judicious in exercising their representation and warranty rights on troubled loans or foreclosed properties. More specifically, prior to the beginning of the mortgage crisis, mortgage losses were very manageable and the housing GSEs used to compete actively against one another to gain market share from the major bank originators. Accordingly, the housing GSEs likely weighed the costs and benefits of exercising their repurchase rights under representation and warranty provisions with originators with whom they had maintained long-standing relationships.”

Fitch says it is now undertaking a review to assess whether these increased reserves are just a part of the flood of current troubled mortgages or whether investors, such as the housing GSEs, have expanded their interpretation of what constitutes a mortgage that would be eligible to be repurchased under existing representation and warranty provisions.

“Fitch is concerned that a more aggressive request for loan repurchases could potentially expose banks with large mortgage origination operations to future losses that have not been previously incorporated into Fitch’s existing exposures, and effectively into current ratings. As of June 30, 2010, the housing GSEs combined had troubled mortgages (delinquent mortgages and real estate owned) of $354.5 billion.”

Losses Between 17 And 42 Billion Dollar

In assessing potential exposure, Fitch is concentrating on the four largest U.S. banks (JP Morgan & Co., Citigroup, Inc., Bank of America Corp., and Wells Fargo & Co.), given the likelihood of materiality, in absolute terms, since they collectively service approximately 50% of the GSE’s portfolio.

“This concern, however, is not isolated to only the four largest banks. Any bank or other entity that has been actively engaged in mortgage lending could feel the impact of this development, and to some degree on a relative basis, could be affected to a greater degree. In assuming an extremely adverse scenario where all of the existing GSE’s troubled mortgages were at risk of being repurchased based on market share, it is conceivable that the pool of “at-risk” loans eligible to be repurchased by the four largest banks could total about $175 billion-$180 billion. Fitch anticipates that a focal point of repurchase requests will be reduced documentation loans (sometimes known as Alt-A loans). The actual amount of repurchase requests will ultimately depend on key variables such as quality of the originator’s underwriting, documentation standards, and foreclosure rates, while losses will be a function of “cure” rates and home prices.”

“Under a mild loss scenario, where the GSEs collectively and successfully put back 25% of the current outstanding inventory of seriously delinquent loans, and assuming recovery rates of 60%, Fitch believes the expected loss for the four largest banks could be about $17 billion.”

“Using a more moderate loss scenario, whereby the put-back rate goes to 35% and recovery rate drops to 55%, Fitch believes losses could come in around $27 billion.”

“Finally, under a more adverse but less likely scenario, if repurchase requests were to run at 50% of delinquent loans, and recovery rates fall to 50%, then losses are about $42 billion.”

Fitch emphasize that  these figures do not incorporate the ability to cure deficiencies in loans, thus ultimate realized losses could be lower than these figures.

“To put these figures in perspective, these institutions had annualized pre-provision net revenues and net income of $164 billion and $54 billion, respectively, in aggregate and $391 billion of tangible common equity.”

Fitch believes that any of the scenarios listed above is a possibility,

However, for purposes of current bank rating analysis, Fitch is assuming the more moderate cases are the most likely outcome.

Fitch also notes that the repurchase scenarios listed above do not include any potential risk of buybacks on troubled mortgages situated in existing private-label MBS transactions.

“At the present time, there are a number of legal suits outstanding against the originators of private-label MBS deals. In addition, our assumptions do not incorporate any potential financial liabilities that may result from the recent subpoenas issued by the Federal Housing Financing Agency (FHFA) in July 2010 against a number of mortgage originators,” the rating agency points out.

Ratings In Danger

Recognizing this potential risk, Fitch in the near term will be monitoring the on-going developments between the banks and the GSEs related to mortgage loan repurchases. Fitch will also consider other mortgage investors such as private mortgage insurance companies and private-label MBS investors, the statement says.

“If these investors are successful in putting back a sizeable portion of the troubled loans presently in inventory, Fitch believes the existing bank Individual and Issuer Default Ratings (IDR) not already at their Support Floor (i.e. Bank of America and Citigroup are the only two U.S. banks active in mortgage lending that are currently at their Support floors) could be susceptible to a downgrade in the future.”

Full Press Release Here.

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Readers Response: The BP Conspiracy

Last month journalist, researcher and the author, Victor Thorn, presented a theory of grand conspiracy behind the BP oil spill.According to Thorn the catastrophic Gulf of Mexico oil rig explosion be part of a larger scheme to “reform” the energy industry, just as the Obama administration has “reformed” health-care, banking and automobile manufacturers. Sounds pretty wild? Well, here’s one readers response:

“I think they have a lot of money riding on this Dark Horse!!!”

Why does Raines Freddie/Fannie own the patent for CO2 carbon computer that some guy who died on 9/11 invented?? The Democratic congress gave it to Raines Nov 2008.. 44 % of the people killed on 9/11 were in competetion with CCX,,Chicago Climate Exchange. Poor souls …Al Gore, Ohbummer and Maurice Strong, plus whatever Congress and House member who own stock in CCX will make TRILLIONS if the can pass Cap & Trade..Funny how that bill they passes yesterday does not include Fanny/Freddie, and Dobbs and Frank that cause the mess will not be investigate,,I think they have a lot of money riding on this Dark Horse!!!

{{Interesting twist to 9/11::The people at Northwestern University who ran the cap-and-trade simluation which demonstrated the profits possible with a 350ppm cap, also partnered with Boeing and Honeywell to guide the planes on 9/11 and sabotage the evacuation of their number one rival CO2e.com from the North Tower.

The ADT dispatcher.told everyone in the Twin Towers to return to their offices on 9/11 where Honeywell / Vulcain ventilation systems were rigged to kill them with a toxic/explosive mix of gases

9/11 real purposes was to scare the climate deniers and remove the competition to the racketeering launch of the Chicago Climate Exchange by Al Gore and Maurcie Strong and Richard Sandor.}}

“Were Marsh & McLennan, Cantor Fitzgerald/CO2e.com/eSpeed and Aon Corp destroyed to eliminate the competition in a future multi-trillion dollar carbon trading market?”

“Cantor Fitzgerald/CO2e.com/eSpeed held the patent on the unique software which would be used in the future carbon emissions trading which will result in trillions of dollars of trades. The Carbon Disclosure Project (CDP) located at 10 Downing Street is currently estimated at $64 trillion.”

“In 2000, the Joyce Foundation provided a grant to Richard Sandor and Northwestern University’s Kellogg School of Management to develop a competing carbon trading software. At the time, Barack Obama was on the board of directorsgreenhouse gases and the only operational cap and trade system in North America.” for the foundation. A second grant was made in 2001 and eventually led to the birth of the Chicago Climate Exchange (CCX) the only emissions reduction and trading system for all six

“The Obama administration is currently strongly pushing carbon emission policy. While leaning heavily on congress, they have also instructed the Environmental Protection Agency to declare CO2 a dangerous threat to human health which will lead to regulation of carbon emissions.””
Powerful forces behind the scenes appear to be orchestrating events to set up and profit from a carbon emissions trading system worth trillions of dollars.

The impact area of American Airlines Flight 11 in the North Tower was the offices of Marsh & McLennan. ( See below)

The offices above Marsh & McLennan were primarily Cantor Fitzgerald/CO2e.com/eSpeed. Cantor Fitzgerald was cut off from the rest of the building by the impact and suffered the greatest single loss by any company on 9/11. 658 of its employees died in the north WTC tower. [Business Week, 9/11/2006]

But Thomas Barnett’s two “mentors” at the firm that he interacts with—Bud Flanagan and Philip Ginsberg—are both out of the building at the time, for “accidental reasons,” and survive the attacks. [Institute of International Studies]

Marsh & McLennan loses 295 employees & 60 contractors.

In the South Tower, United Airlines Flight 175 impacts a zone mostly occupied by Fuji Bank. The Aon Corporation offices are above the impact area and they are also cut off. 175 employees of Aon Corp. die in the attacks.

There were 2605 deaths in 2 towers that day. Marsh & McLennan, Cantor Fitzgerald/CO2e.com/eSpeed and Aon Corp lost a total of 1153 people. That is just over 44% of the total deaths—a staggering proportion.

The employees of these 3 companies constituted a small fraction of the total number of individuals in the two towers but accounted for 44% of the deaths.”” (#1)

“From the Washington Examiner:

When he wasn’t busy helping create a $127 billion mess for taxpayers to clean up, former Fannie Mae Chief Executive Officer Franklin Raines, two of his top underlings and select individuals in the “green” movement were inventing a patented system to trade residential carbon credits.

Patent No. 6904336 was approved by the U.S. Patent and Trade Office on Nov. 7, 2006 — the day after Democrats took control of Congress. Former Sen. John Sununu, R-N.H., criticized the award at the time, pointing out that it had “nothing to do with Fannie Mae’s charter, nothing to do with making mortgages more affordable.”

It wasn’t about mortgages. It was about greenbacks. The patent, which Fannie Mae confirmed it still owns with Cantor Fitzgerald subsidiary CO2e.com, gives the mortgage giant a lock on the fledgling carbon trading market, thus also giving it a major financial stake in the success of cap-and-trade legislation.

Besides Raines, the other “inventors” are:

* Former Fannie Vice President and Deputy General Counsel G. Scott Lesmes, who provided legal advice on Fannie Mae’s debt and equity offerings;

* Former Fannie Vice President Robert Sahadi, who now runs GreenSpace Investment Financial Services out of his 5,002-square-foot Clarksburg home;

* 2008 Barack Obama fundraiser Kenneth Berlin, an environmental law partner at Skadden Arps;

* Michelle Desiderio, director of the National Green Building Certification program, which trains “green” monitors;

* Former Cantor Fitzgerald employee Elizabeth Arner Cavey, wife of Democratic donor Brian Cavey of the Stanton Park Group, which received $200,000 last year to lobby on climate change legislation; and

* Jane Bartels, widow of former CO2e.com CEO Carlton Bartels. Three weeks before Carlton Bartels was killed in the Sept. 11 attacks, he filed for another patent on the software used in 2003 to set up the Chicago Climate Exchange.

The patent, which covers both the “cap” and “trade” parts of Obama’s top domestic energy initiation, gives Fannie Mae proprietary control over an automated trading system that pools and sells credits for hard-to-quantify residential carbon reduction efforts (such as solar panels and high-efficiency appliances) to companies and utilities that don’t meet emission reduction targets. Depending on where the Environmental Protection Agency sets arbitrary CO2 standards, that could be every company in America.

The patent summary describes how carbon “and other pollutants yet to be determined” would be “combined into a single emissions pool” and traded — just as Fannie’s toxic portfolio of subprime mortgages were.

“Fannie Mae earns no money on this patent,” communications director Amy Bonitatibus told the Washington Examiner. “We can’t conjecture as to the cap-and-trade legislation”” (#2)

“Know the crooks and their roles:
George Soros, Joyce Foundation and connection to CCX.

What is CCX, the Chicago Climate Exchange, projected to gross 10 Trillion a year is Cap-N-Tax passes. Obama played a pivotal role in the formation of the CCX. (Click here for expose)

Barrack Hussein Obama, Board Member of the Joyce Foundation, funded the formation of the CCX. (
Valerie Jarrett is still on the board, Obama’s top adviser.) Obama sat on board and funneled money to Ayer’s brother (wild huh, just a guy in his neighborhood) and to form the CCX.

AL Gore–Goldman Sachs– GIM: Hold on to your britches, London-based Generation Investment Management sees the Trillion and they purchased a huge stake in Chicago Climate Exchange (fifth largest shareholder.) The founder of GIM is none other than former Vice President Al Gore along with Goldman people. For example other founders are David Blood (former Goldman executive), Mark Ferguson (Goldman) and Peter Harris (Goldman) to name a few. “

Franklin Raines, mega crooked banker and bust Fannie Mae head, uses Fannie Mae (taxpayers money) to buy the technology to measure and manage carbon. The patent was award the day after Obama and Dems won the election.

Goldman Sachs owns ten percent of the CCX and its 10 Trillion a year potential. (CCX is 10% owned by Goldman Sachs (GS) and 10% owned by Generation Investment Management (GIM).) Gore, Goldman, and Cap and Trade – Tangled Web of Corruption” (#4)

“If we follow the time line on where Obama was during the funding of the Chicago Climate Exchange, he was still a professor at the University of Chicago Law School teaching constitutional law, with his law license becoming inactive a year later in 2002.

It may be interesting to note that the Chicago Climate Exchange in spite of its hype, is a veritable rat’s nest of cronyism. The largest shareholder in the Exchange is Goldman Sachs. Chicago Mayor Richard M. Daley is its honorary chairman, The Joyce Foundation, which funded the Exchange also funded money for John Ayers’ Chicago School Initiatives. John is the brother of William Ayers.

What a flap when it was discovered that the senator from Chicago had nursed on Saul Alinsky’s milk, had his political career launched at a coffee party held by domestic terrorist Bill Ayers, and sat for 20 years, uncomplaining in front of the “God-dam-America pulpit of resentment-challenged Jeremiah Wright.

Folk were naturally outraged that the empty suit who would go on to become TOTUS was spawned from such anti-American activism.

But the media should have been hollering, “Stop Thief!” instead.

The same Chicago Climate Exchange promoting public rip-off was funded by Obama before he was POTUS.

Even as man-made global warming is being exposed as a money-generating hoax, Obama is working feverishly to push the controversial cap-and-trade carbon reduction scheme through Congress.

Obama was never the character he created for himself in the fairy-tale version in “Dreams of My Father”. He’s the agent of Change and Hope for cohorts making money down at the Chicago Climate Exchange.” (#5)

“In closing, an article that appeared in FrontPage about a year ago, noted that “CCX’s members include Ford, DuPont, Dow Corning and the states of Illinois and New Mexico. CCX also owns 50 percent of the European Climate Exchange (ECX), which features such members as Shell, British Petroleum, Barclays—and Goldman Sachs.” British Petroleum—better known as BP.
http://canadafreepress.com/index.php/article/22810

Enough! We The People demand that a RICO investigation and criminal charges be initiated to uncover the criminal actions of this administration and all of its radical cohorts in crime, like GE, BP, Goldman Sachs, the labor unions, Fannie and Freddie, ACORN, Organizing for America, George Soros, Maurice Strong, Warren Buffett, Al Gore, The Progressive Caucus, anyone who has close ties to this administration.”

This is a cabal of crooks. All legislation should be halted until this is done. We, The People will not stop. We will know justice. We demand that you do your duty and uphold the oath you took to defend the Constitution. Our Country is depending on you like at no other time in history. (#6)

Once again, of course, Barack Obama is front and center, along with the Chicago Climate Exchange, the Joyce Foundation, George Soros, Maurice Strong, Edmund de Rothschild, the Federal Reserve, Goldman Sachs, George W. Bush’s Treasury Secretary Henry Paulson, even Fannie Mae, and many others. It entails global Marxofascism / global kleptocracy, with Americans being the chief victims, while a few overlords rule at, and their financiers skim off, the top. If any “mainstream” reporters cared to cover this thoroughly (and could) they could be much bigger characters in U.S. and world history than Woodward and Bernstein. And as for Americans willingly instigating this, it is treason.
http://investigatingobama.blogspot.com/2010/04/greatest-scandal-in-modern-history.html

see the brilliance of the plan..Bush’ watch,,bush’s fault..no connections to the chicago boys,,then Ohbummer says the the oil leak is like 9/11..they always return to the scene of the crime..why do they all protect him to a fault,,like picking an actor for their next soap opera drama,,Harry reid’s statement,,put a suit on that boy and he’ll work. fine,,paraphrase,,henry kissinger,,said O was poised in the art of deception,,he can play the part of the prez..everyone knows about soros,,he’s big enough to take the heat,,it’s not what see,,it’s there hole card,,,and the hole card was Cap & trade,,and viola,,Flight 93 landed at it’s target,,Nov 2008..

(#1) http://www.abeldanger.net/2010/04/specific-companies-in-world-trade.html

(#2) http://climateerinvest.blogspot.com/2010/04/fannie-mae-owns-patent-on-residential.html

(#4) http://www.examiner.com/x-14143-Orange-County-Conservative-Examiner~y2010m4d27-Scandal-Obama-Gore-Goldman-Joyce-Foundation-CCX-partners-to-fleece-USA

(#5)http://warofillusions.wordpress.com/2009/03/30/obama-maurice-strong-al-gore-key-players-cashing-in-on-chicago-climate-exchange/

(#6) http://investigatingobama.blogspot.com/2010/06/rico-investigation-needed-now-about.html

Related by the Econotwist:

Gulf Oil Spill: A Carefully Planned Inside Job?

So, You Thought BP Was An OIL Company?

Norway’s Oil Fund Among BP’s Largest Shareholders As Bankruptcy Rumors Hit Market

Oil Spill Makes Waves

BP Is Drowning In Its Own Oil Spill

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MBS Subpoenas: Major Lawsuits Against Banks?

The Federal Housing Finance Agency says, as the conservator of Freddie Mac and Fannie Mae, they will subpoenaing loan-level underwriting and performance data from 64 security issuers and other entities. The agency says the goal is to “determine whether private-label securities issuers and others are liable” for losses on the two government-sponsored enterprises‘ investment portfolios.

“This is now a government action, and it appears to go beyond initial underwriting.”

Paul Noring


The FHFA’s request could be a tentative step toward filing a lawsuit akin to those of the Federal Home Loan banks and hedge funds, which seek to force a gamut of banks to repurchase deteriorating mortgage-backed securities, Structured Finance News reports.

But because of the GSEs’ gigantic portfolios and their federal conservator’s ability to demand documents outside of court, the subpoenas pose a significant long-range threat to the as-yet-unnamed entities being served.

The conservator “is asking for the loan-level data that we ultimately want to get in discovery,” says Owen Cyrulnik, a partner at the law firm of Grais & Ellsworth who represents the San Francisco and Seattle Home Loan banks in their suits.

The FHFA “is able to take a leap over the normal litigation process, and get much further, much faster.”

“Fast” is a relative term in such disputes, which will likely drag on for years. But other observers said that the breadth of the FHFA’s inquiry could potentially change the landscape for MBS litigation.

Though the bulk of the FHFA’s subpoenas deal with underwriting, the agency explicitly mentioned servicing as an area of inquiry as well.

Ken Kohler, a partner in Morrison & Foerster’s banking practice, says the large number of entities receiving subpoenas likely includes “just about everybody” in the field and represents a “shift in the balance of power between the investor and the issuer.”

The scope of the issues the FHFA is looking at also appears to exceed that of prior private-label MBS litigation suits, says Paul Noring of Navigant Consulting.

The agency’s press release explicitly cites the servicing of loans as an area of interest.

“This is now a government action, and it appears to go beyond initial underwriting,” Noring says.

The FHFA explicitly said the subpoenas are “a financial inquiry, not an investigation or a lawsuit,” but the potential scale of any attempt by the agency to force mortgage-backed securities on their underwriters would likely dwarf outstanding lawsuits.

At the beginning of the year, Freddie alone held more $100 billion of bonds backed by subprime, alternative-A, option adjustable-rate and other non-agency mortgages.

Neither GSE has revealed identifying information for specific securities in their portfolios, and both invested solely in what were originally investment-grade securities.

But information on the current ratings and losses severities of the securities suggests the losses are disastrous.

Average delinquency in Freddie’s $62 billion subprime residential mortgage-backed security portfolio is above 50% for the years between 2005 and 2008, with an average loss severity of around 70%. Freddie’s gross unrealized losses on subprime alone have already hit $21 billion, and more than 80% of the securities have fallen below investment-grade.

Though Freddie and Fannie’s problems are by no means limited to their investment portfolios, the GSEs failed as a direct result of residential MBS losses, the FHFA’s acting director, Edward DeMarco, told Congress earlier this year.

“Investments in private-label MBS were primarily responsible for eliminating Freddie Mac’s preconservatorship net worth of $27 billion and played a significant role in the initial draws under the Preferred Stock Purchase Agreements,” he wrote in a letter to senior banking committee members in both houses of Congress.

Were the FHFA to try to recoup Fannie and Freddie’s losses, the agency said Monday, whatever money was recovered would go toward offsetting the Treasury’s continuing GSE bailout.

But getting direct compensation for taxpayers would require clearing the same hurdles that the lawsuits filed by the Home Loan banks and hedge funds face.

“Clearly there was poor underwriting,” Brian Harris, a senior vice president at Moody’s Investors Service, says.

“Does that rise to a legal issue is a different question,” he adds.

If the FHFA were to make a case, it would have to demonstrate that the securities it bought contained collateral that was materially different from what was promised in the securities’ prospectuses and other documentation.

That would require disentangling losses due to sloppy or fraudulent underwriting from “a 35% decline in house prices nationwide,” Harris says.

Such a lawsuit over origination accuracy would closely resemble the suits already filed by the Federal Home Loan banks and other investors.

But the FHFA’s conspicuous inclusion of “servicing” as a topic of interest raises the prospect that the agency may be looking at how banks managed the repurchase and collection of delinquent loans as well, Noring says.

That avenue is largely untried, he said. The basis for a possible suit would likely be that mortgage servicers failed to properly manage the collateral after the securities’ sale.

Servicers’ obligations vary, but investors could argue that a defendant failed to buy back mortgages that go into early delinquency or to pursue adequate loss mitigation efforts.

Whether the FHFA’s inquiry will be of use to other litigants, Noring and others says, depends on how the FHFA uses the information it obtains.

“They can directly get their hands on documents, and be in a far better position to take action,” says Kohler. “They have a leverage that an ordinary private-label investor wouldn’t have.”

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