Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-59894 Fri, 27 May 2016 15:40:36 GMT Essence of BofA "Hustle" Ruling: Sign A Contract And LATER Decide To Commit Fraud, and It's Not Fraud http://implode-explode.com/viewnews/2016-05-27_EssenceofBofAHustleRulingSignAContractAndLATERDecideToCommitFrau.html The judges based their ruling on the contracts that Countrywide had reached with Fannie and Freddie, pledging to provide those government-sponsored firms with "investment quality" mortgages. There was no evidence, the appellate judges found, that the executives who signed those contracts intended at the time to stuff the pipeline with toxic junk. It just turned out that way. Because there was no intent to defraud when the contracts were signed, the judges ruled, this whole affair is merely a case of breach of contract, not fraud...

There are a few problems with this analysis. One was pointed out presciently by Judge Rakoff. In a 2013 ruling in the case, he observed that under the federal mail fraud statute, that limitation [of fraud needing to occur at the moment of contract signing] doesn't apply. In any event, the bank's misrepresentations were continuous and ongoing: every time it sold Fannie or Freddie a substandard loan, it was arguably lying... Judge Rakoff anticipated and rejected [the Appeals Court's] argument, and even pointed out that Congress closed the loophole by amending the mail fraud statute -- in 1909. It's also likely that the government will appeal the latest ruling to the full 2nd circuit court, and thence, if necessary, to the Supreme Court.

Yes, this will likely get reversed again. The ruling simply seems to be in error, aside from leading to nonsensical conclusions (i.e., that anyone can now defraud the government with abandon as long as they don't show any evidence of intent to defraud at the time they sign a contract or make covenants).

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iehi-feed-59889 Fri, 27 May 2016 14:17:18 GMT Wells Fargo Reintroduces 3%-Down Mortgages http://implode-explode.com/viewnews/2016-05-27_WellsFargoReintroduces3DownMortgages.html After being called out for its deceptive practices, the bank has scaled back on FHA backed mortgage lending in recent years. Wells Fargo accounted for just 2.5% of total FHA mortgages in 2015, down from 13% in 2010, and ultimately coming to this end game where the bank has a path forward without the FHA... Wells' own mortgage origination pipeline has been slowing down in recent years, and as such the corner office of the country's largest mortgage originator is desperate to find new and innovative ways to boost lending.

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The new program partners with Fannie Mae in order to allow borrowers with credit scores as low as 620 to make as little as a 3% down payment and use income from family members or renters to qualify. Naturally, the intent is to make more loans to low and middle-income borrowers - in the process pushing up home prices countrywide - without going through the FHA.

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iehi-feed-59887 Thu, 26 May 2016 16:55:52 GMT HUD: For many poor families, housing costs are ‘out of reach' http://implode-explode.com/viewnews/2016-05-26_HUDFormanypoorfamilieshousingcostsareoutofreach.html The affordable housing situation is bleak. So bleak that "in no state, metropolitan area, or county can a full-time worker earning the prevailing minimum wage afford a modest two-bedroom apartment," according to the report.

To afford a two-bedroom apartment at the current federal minimum wage of $7.25 an hour, a worker would need to work 112 hours a week, every week, according to the report. That means workers "would have no remaining time during the week for anything other than working and sleeping."

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NLIHC proposes a formula reducing the mortgage interest tax deduction that benefits homeowners. For years, there have been various proposals to change the popular deduction. Whatever reform that might eventually be approved, the coalition wants a portion of the savings to go to affordable housing.

The main benefit of eliminating the mortgage interest tax deduction would actually be to allow home prices to fall to more affordable levels. Of course cutting a sacred "middle class" benefit (even if done so gradually that there'd be no nominal decline in home prices) is politically impossible.

Alternatively, they could make all consumer debt interest (i.e. credit card) tax-deductible. That would be fair.

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iehi-feed-59881 Wed, 25 May 2016 23:56:47 GMT Fannie And Freddie Are Mega-Frauds; Still Have Not Digested Derivatives & Accounting Losses From Crash http://implode-explode.com/viewnews/2016-05-25_FannieAndFreddieAreMegaFraudsStillHaveNotDigestedDerivativesAcco.html iehi-feed-59874 Wed, 25 May 2016 01:15:20 GMT Mortgage Borrowers Are Likely "Self-Sidelining" http://implode-explode.com/viewnews/2016-05-24_MortgageBorrowersAreLikelySelfSidelining.html "Thus, the observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity."

She suggests that this caution results in "self-sidelining" that makes it appear that credit is tightening.  This means that the policy solutions are quite different than if the cause was credit tightening and that more consumer education could be more successful in raising originations levels than introducing new lending products with lower credit standards.  

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iehi-feed-59872 Tue, 24 May 2016 17:52:21 GMT U.S. new home sales race to eight-year high, prices surge http://implode-explode.com/viewnews/2016-05-24_USnewhomesalesracetoeightyearhighpricessurge.html iehi-feed-59863 Mon, 23 May 2016 17:43:21 GMT Bank of America wins reversal of $1.27 billion penalty in Countrywide "Hustle" mortgage case http://implode-explode.com/viewnews/2016-05-23_BankofAmericawinsreversalof127billionpenaltyinCountrywideHustlem.html A U.S. appeals court on Monday overturned a jury's finding that Bank of America Corp was liable for mortgage fraud leading up to the 2008 financial crisis, tossing a $1.27 billion penalty and dealing the U.S. Justice Department a major setback.

The 2nd U.S. Circuit Court of Appeals in New York ruled that the proof was insufficient under federal fraud statutes to establish liability in connection with a mortgage program called "Hustle" run by the former Countrywide Financial Corp.

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But U.S. Circuit Judge Richard Wesley said the evidence at most showed Countrywide breached contracts to sell Fannie and Freddie loans of a specified quality, but that no proof existed to show it intended to deceive the buyers when those contracts were executed.

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The Justice Department contended the program rewarded staff for generating more mortgages and emphasizing speed over quality and resulted in Fannie Mae and Freddie Mac being lied to about the quality of loans they bought.

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iehi-feed-59848 Sat, 21 May 2016 22:09:34 GMT Fannie, Freddie and the Secrets of a Bailout With No Exit http://implode-explode.com/viewnews/2016-05-21_FannieFreddieandtheSecretsofaBailoutWithNoExit.html with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury's decision in August 2012 to keep all the companies' profits for the government. That move effectively maintained Fannie's and Freddie's status as wards of the state.

The newly released documents go beyond previous disclosures in the case and make clear that the Obama administration never had any intention of restoring Fannie and Freddie, which enjoyed implicit backing from the government before the takeover, to their status as stand-alone entities.

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The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed last month also served to undermine that legal stance.

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Preventing the companies from using their profits to rebuild a strong capital position was an explicit goal of the Obama administration, the newly unsealed materials show. In an email sent the day the profit sweep was announced, Mr. Parrott said diverting Fannie's and Freddie's profits would eliminate "the possibility that they ever go (pretend) private again."

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The unsealed documents indicate an intense desire to get rid of Fannie and Freddie as independent entities once and for all. They do not show any concern among Treasury officials that their actions on the profit sweep might violate the law.

Another way to view this is that the Treasury simply knew it needed whatever subsidy it could squeeze out of F&F....

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iehi-feed-59844 Sat, 21 May 2016 14:49:19 GMT Nearly 1/5 of Chinese Companies and 1/3rd of RE Companies "Zombies" http://implode-explode.com/viewnews/2016-05-21_Nearly15ofChineseCompaniesand13rdofRECompaniesZombies.html iehi-feed-59838 Fri, 20 May 2016 21:12:09 GMT The U.S. Government Is [Still] Quietly Paying Billions to Wall Street Banks http://implode-explode.com/viewnews/2016-05-20_TheUSGovernmentIsStillQuietlyPayingBillionstoWallStreetBanks.html iehi-feed-59836 Fri, 20 May 2016 17:18:28 GMT Germany Strives to Avoid Housing Bubble by Forming New Policies http://implode-explode.com/viewnews/2016-05-20_GermanyStrivestoAvoidHousingBubblebyFormingNewPolicies.html iehi-feed-59809 Tue, 17 May 2016 15:22:43 GMT Man Trawls 30 Years of San Fran Rental Ads; Discovers Reason For Insane Housing Prices http://implode-explode.com/viewnews/2016-05-17_ManTrawls30YearsofSanFranRentalAdsDiscoversReasonForInsaneHousin.html iehi-feed-59802 Mon, 16 May 2016 13:58:11 GMT Chinese pour $110bn into US real estate, says study http://implode-explode.com/viewnews/2016-05-16_Chinesepour110bnintoUSrealestatesaysstudy.html Big deals such as the Anbang insurance group's $2bn purchase of the Waldorf Astoria hotel in New York last year and its failed $14bn offer for the Starwood group in March have made headlines. But the study said Chinese buying of US homes far outpaces its investment in commercial land and buildings.

Between 2010 and 2015, Chinese buyers put more than $17bn into US commercial real estate, with half of that spent last year alone. Unlike many countries, there are very few restrictions on what foreigners can buy in the US.

But during the same period at least $93bn went into US homes. And in the 12 months to March 2015, the latest period for which relatively comprehensive data could be gathered, home purchases totaled $28.5bn.

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And despite a slowdown due to Beijing's subsequent clampdown on capital outflows, the figure for the second half of this decade is likely to double to $218bn, the study said.

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iehi-feed-59787 Sat, 14 May 2016 19:54:46 GMT Luxury real estate blues hit Manhattan http://implode-explode.com/viewnews/2016-05-14_LuxuryrealestateblueshitManhattan.html Hedge fund manager Steve Cohen has been back in the headlines, and it has had nothing to do with regulatory investigations.

The billionaire is having trouble finding a buyer for his Manhattan penthouse and had to lower the asking price to $72 million, according to real estate blog Curbed. That looks like a lot, but Cohen originally listed the four-bedroom apartment for $115 million in 2013... Still, he's a high-profile example of the malaise that has settled over the once red-hot Manhattan luxury real estate market.

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The luxury market sizzled in 2014 and 2015 when hot global demand was chasing limited supply. Monoliths towering more than 1,000 feet sprouted in midtown... developers who had planned to convert the famed Sony Building in midtown Manhattan into ultra-luxury apartments instead recently sold the Chippendale-topped building for a reported $1.4 billion to $1.5 billion. The new owners promptly said they planned to keep the building as office space. "That spared them the black eye of super luxury price cuts," Lightfeldt says.

There is massive supply coming online around the city, at most market price points. Other data we've seen shows that these other market segments have also stalled out or started to decline, price-wise. This surely won't end well.

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iehi-feed-59756 Thu, 12 May 2016 15:49:12 GMT The New SoCal: Multifamily Construction and International Buyers Dominate http://implode-explode.com/viewnews/2016-05-12_TheNewSoCalMultifamilyConstructionandInternationalBuyersDominate.html iehi-feed-59731 Sun, 08 May 2016 23:55:06 GMT Britain braced for a ban on second homes http://implode-explode.com/viewnews/2016-05-08_Britainbracedforabanonsecondhomes.html iehi-feed-59694 Tue, 03 May 2016 19:33:55 GMT Freddie Mac posts $354M "Don't Worry, It's Just Derivatives" loss; Cuts Dividend; Won't Draw on Treasury http://implode-explode.com/viewnews/2016-05-03_FreddieMacposts354MDontWorryItsJustDerivativeslossCutsDividendWo.html Mortgage giant Freddie Mac reported a net loss of $354 million for the first quarter, mostly due to losses it sustained on the investments it uses to hedge against swings in interest rates. The government-controlled company said Tuesday the January-through-March loss mainly reflected accounting measures, while its business remained strong. The loss compared with net income of $524 million in the same period of 2015.

As a result of the loss the company, based in McLean, Va., is skipping paying a quarterly dividend to the U.S. Treasury next month. Freddie previously has paid $98.2 billion in dividends, exceeding its government bailout of $71 billion.

Freddie also sustained a loss in the third quarter of last year, $475 million, also largely due to losses on derivatives used to hedge against interest-rate swings. While Freddie and Fannie have shown volatility in their quarterly earnings, the housing market's gradual recovery in recent years has made them profitable again.

Regarding the latter point from the title, see Freddie Mac: No Draw on Treasury for Now, But. . .

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iehi-feed-59675 Sun, 01 May 2016 18:19:48 GMT The Real Story Behind The True Magnitude of The New Home Sales Collapse http://implode-explode.com/viewnews/2016-05-01_TheRealStoryBehindTheTrueMagnitudeofTheNewHomeSalesCollapse.html iehi-feed-59674 Sun, 01 May 2016 18:14:58 GMT UK housing crisis: four in 10 renters fear they will never own a home http://implode-explode.com/viewnews/2016-05-01_UKhousingcrisisfourin10rentersfeartheywillneverownahome.html David Cameron's pledge to build a property-owning democracy is called into serious question by a landmark survey revealing that almost four in 10 of those who do not own a home believe they will never be able to do so.

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The findings cast doubt on the prime minister's claim before last year's general election that Tory housing policies would transform "generation rent" into "generation buy". In April last year, as he launched plans to force local authorities to sell valuable properties to fund new "affordable homes", Cameron said: "The dream of a property-owning democracy is alive and well and we will help you fulfil it."

The poll -- which found that 58% of people want more, not less, social housing as a way to ease the crisis -- comes as the government's highly controversial housing and planning bill returns to the Commons on Tuesday.

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iehi-feed-59643 Tue, 26 Apr 2016 19:17:39 GMT 30-Year Fixed Mortgage At Root of Housing Instability; Should Be Nixed - Pinto http://implode-explode.com/viewnews/2016-04-26_30YearFixedMortgageAtRootofHousingInstabilityShouldBeNixedPinto.html The 30-year fixed rate mortgage should be retired -- for good. Despite continued proof that it fails to build up wealth for the most disadvantaged Americans, and that mortgage debt should not be a burden as homeowners approach their 50s and 60s, misguided advocates maintain that the 30-year fixed rate mortgage should be at the core of the U.S. housing finance system. The latest proposal by five respected economists including Gene Sperling and Mark Zandi aims to reformulate taxpayer backing of Fannie Mae and Freddie Mac in an effort to keep the 30-year fixed mortgage alive.

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The authors' reform plan, like virtually all the others before it, fails to acknowledge the government's role in past housing finance failures. Failures include the savings and loan (S&L) debacle of the 1980s, Fannie and Freddie's collapse into conservatorship, and the Federal Housing Administration's (FHA's) 3.4 million foreclosures (almost all with 30-year fixed rate loan terms). These crashes did not come about in spite of government support for housing finance, but because of government backing.

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Guaranteeing access to loans independently of market conditions creates an economics free zone, one where the FHA neither prices nor underwrites for risk, where the taxpayer-backed GSEs compete with the FHA for "affordable loans," and where government-backed lending is provided in both good times and bad... It is impossible to simultaneously keep the 30-year fixed rate mortgage at the system's core, protect taxpayers and provide broad access to meet the needs of underserved communities.

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This latest proposal is a policy cul-de-sac, repeating many of the same policy mistakes of the past decades. It is time to substitute shorter term loans of 15 and 20 years, designed to reliably build wealth and maintain buying power, while protecting borrowers and neighborhoods from high levels of foreclosure risk. Such a loan, developed by AEI's International Center for Housing Risk, is already being offered in different versions by a number of banks, credit unions and at least one non-profit. Several state housing finance agencies have also signed on.

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