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Saturday
Oct162010

David Faber: Look Out BAC & JPMorgan "Mortgage Put-Backs Don't Require Fraud Just Inaccuracy"

Video:  David Faber explains the latest scare for big banks -- Oct. 15, 2010

Faber has an update on bank exposure to potential put-backs and interviews David Grais, lawyer for the FHLB who is currently suing pretty much every big bank out there.

For background see the following from yesterday:

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Faber interviews David Grais, lawyer for the FHLB.

The escalating crisis over flawed foreclosures took a new turn Friday, when the attorney representing the Federal Home Loan Bank, David Grais, told CNBC:

  • “We don’t have to say there was fraud.  All we have to say is that the disclosures about these loans and the representations that were made to the securitization trustees were inaccurate.”

Grais is lead counsel for the FHLB, which is in litigation against eleven securities dealers over mortgage loan pools that were created to fuel the boom in mortgage-backed securities market in 2005, 2006 and 2007.

  • “The way we know that so many of these loans didn’t comply is that in our security cases we actually purchased data on 750,000 loans made by about 30 different originators—in about half of the loans we find there are material inaccuracies in the disclosure,” Grais told CNBC’s “The Strategy Session".

As this multi-trillion dollar issue bubbles to the surface, many bank stocks are taking a hit. Many are wondering if it’s proven that false statements were made about those loans, how many mortgages would the banks be forced to repurchase at par?

  • "The CEO’s of both Bank of America and JP Morgan Chase have made it clear that their strategy is to fight these cases loan by loan, a war of attrition.  They have the resources. They know that time is on their side," he said.
  • “Our clients are always willing to negotiate, there hasn’t been any reciprocal interest on the part of the banks, probably because the cases are in early stages," Grais said.
  • "In respect to BofA in particular, the biggest question is whether it will successfully ring-fence Countrywide.  Countrywide liabilities have been estimated at 70 billion and if those liabilities are saddled on BAC (Bank of America) then it obviously has a very big problem," he concluded.

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Reader Comments (13)

The Securities and Exchange Commission is looking at companies' mortgage practices to see whether any securities laws were violated, a person with knowledge of the matter said.

http://www.cnbc.com/id/39694083
Oct 16, 2010 at 7:45 PM | Registered CommenterDailyBail
Oct 16, 2010 at 7:46 PM | Registered CommenterDailyBail
Bank Stocks Crushed as New Mortgage Issues Emerge

http://www.cnbc.com/id/39686334
Oct 16, 2010 at 7:47 PM | Registered CommenterDailyBail
Here's That Devastating Report On Bank Of America That Everyone Is Talking About Today

http://www.businessinsider.com/bank-of-america-mortgage-report-2010-10#ixzz12ZaHcSkk
Oct 16, 2010 at 8:53 PM | Registered CommenterDailyBail
Faber is a complete punk, focusing irrelevantly as he does on:

"mortgage loan pools"

"mortgage-backed securities market"

"originators and distributors"

"mortgages at par"

Those quotes you can hear in the first minute of the video.

Let's get down to brass tacks, Dave. Banks are foreclosing in courts knowing they have zero right to do so. Your report is boring and designed to make you look like a smart guy who knows what he's talking about. News flash: you're either complicit in a crime or an idiot.

Which is it?
Oct 16, 2010 at 9:45 PM | Unregistered CommenterCheyenne
cheyenne...i understand your frustration...but htis clip isn't about foreclosure fraud...it's about securitization fraud...whether or not the banks can be sued by big RMBS investors for inaccuracies or fraud in the creation of the pools...that's why faber was talking about mortgages and not foreclosure...but in the franklin raines clip he does talk about the foreclosure mess and completely ignores the law...
Oct 16, 2010 at 10:26 PM | Registered CommenterDailyBail
Correct me if I'm wrong, DB, but the central problem here is one and the same. The banks don't have the promissory note, which is why they can't foreclose (and have it stick as a matter of law). The lack of any promissory note, as I understand it, likewise gives rise to claims by security holders that they were defrauded, as they received nothing of value.

Is that not accurate?

There are obvious wrinkles and subtleties here and whatnot. But Jesus.

I was out tonight and asked a half-dozen people what they thought about foreclosuregate, and no one has anything resembling a clue. Faber's report assists in that obfuscation, what with its impenetrable terminology.

"People were wrongfully evicted because banks cheat and defraud everyone, including courts." Faber delivers corporate bullshit-speak in lieu of that straightforward fact. So fuck him.
Oct 16, 2010 at 11:01 PM | Unregistered CommenterCheyenne
Correct me if I'm wrong, DB, but the central problem here is one and the same. The banks don't have the promissory note, which is why they can't foreclose (and have it stick as a matter of law). The lack of any promissory note, as I understand it, likewise gives rise to claims by security holders that they were defrauded, as they received nothing of value.

Is that not accurate?

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Yes...that's accurate...but the REAL liability with regard to mortgage put-backs is that there was fraud (or even just inaccuracy) in the creation of the pools themselves...in other words, the securitizers LIED about what they stuck in there...this is what faber has been saying...it creates the possibility that investors (MBS buyers) could put back trillions of private label RMBS (not fannie or freddie) to the originating banks and demand the money back at PAR...

Now, it won't be trillions, but the potential exists that hundreds of billions could be put back...and this will destroy most big banks...as you see in the clip, the banks are fighting these case by case...it'll be a long slog...

So the mortgage put-back issue is unrelated to unclear documentation -- it relates to lying about what went into the securities in the first place.....

Hope this makes sense...i didn't mean to jump on you, i was just pointing out that faber was talking about something else...thanks...
Oct 17, 2010 at 12:05 PM | Registered CommenterDailyBail
And i agree about the difficulty of the terminology...that's why i liked the whalen clip so much...very simple and easy to understand...and talk about asking the public their thoughts on these issues...

We tried an experiment one night at a bar...asked about 100 people aged 21-60 about TARP...and only about 10 people had ever heard of it...most of this stuff never gets seen by the masses, as you know...
Oct 17, 2010 at 12:08 PM | Registered CommenterDailyBail
"We tried an experiment one night at a bar...asked about 100 people aged 21-60 about TARP...and only about 10 people had ever heard of it..."

You weren't in my bar. Patrons there are have been treated to multiple tirades about TARP ever week for more than two years now.

"in other words, the securitizers LIED about what they stuck in there"

What was actually in the pool, and what did the securitizers say was in the pool?
Oct 17, 2010 at 12:32 PM | Unregistered CommenterCheyenne
We tried an experiment one night at a bar...asked about 100 people aged 21-60 about TARP...and only about 10 people had ever heard of it
---
I guess that's not surprising, but I'm curious what was their reaction when you said that TARP was the name of the bank bailout program (or something like that)? Was there anyone you came across who DIDN'T know about "the bailouts"?
Oct 17, 2010 at 1:10 PM | Registered CommenterDr. Pitchfork
"...Those same banks may face a far higher liability from another issue involving mortgages the banks securitized and sold. Simply put the issue here is fraud. And whether the banks packaged and sold pools of mortgages that did NOT contain the various underwriting characteristics that were attested to when the mortgage securities were sold."

http://www.cnbc.com/id/39670564/

It's in there cheyenne...but there is much more that's been written on it...that you can find elsewhere...yves smith and felix salmon...
Oct 17, 2010 at 1:32 PM | Registered CommenterDailyBail
Was there anyone you came across who DIDN'T know about "the bailouts"?

--

just a few college kids...we were only asking about bank bailouts...
Oct 17, 2010 at 1:34 PM | Registered CommenterDailyBail

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