Deutsche Bank Sued by U.S. Government

Bloomberg is reporting Deutsche Bank is being sued by the U.S. government for $1 billion over mortgage fraud lending.

Deutsche Bank AG, Germany’s biggest bank, was sued for more than $1 billion by the U.S. government for allegedly selecting mortgages “recklessly” for inclusion in a government insurance program.

The Frankfurt-based bank and its MortgageIT unit violated the U.S. False Claims Act by presenting fraudulent data to obtain mortgage insurance from the Federal Housing Administration of the U.S. Housing and Urban Development Department

Seems Deutsche Bank hoodwinked the government and used them to insure a host of worthless mortgages and then collected on the insurance when those mortgages defaulted.

$1 Billion is a drop in the bucket, but the fraudulent amount in question is $386 million in FHA insurance claims, paid by HUD.

The Wall Street Journal reports mortgage reviews were stuffed into a closet by Deutsche Bank. And you thought your receipts in a shoebox were bad.

More than 39,000 mortgages that Mortgage IT endorsed for HUD’s mortgage-insurance program, FHA, about one third of them defaulted. The government says that when an outside auditor showed MortgageIT its findings about serious problems in its mortgages, the auditor’s findings were literally shoved in a closet.

In other words, an outside consultant group reviewed the underwriting of these mortgages and instead of even reading the reports, they were stuffed, unopened, into a closet.

FHA Tightens Mortgage Requirements

The FHA has tightened lending standards, all in an effort to remain solvent.

Higher monthly fees. Earlier this month, Congress gave the green light for the FHA to raise the monthly premium it charges on loans; a presidential signature is expected.

FHA-backed loans have looser restrictions than other mortgages on down payments -- now at 3.5% of the home's selling price -- but require borrowers to pay an upfront fee and a monthly fee. The legislation allows the FHA to hike the monthly fee to as much as an annualized 1.5% of the loan balance, up from 0.55%, though initially it will go only to 0.9%.

The initial fee was increased earlier this year to 2.25% from 1.75%, though the FHA has said it will bring it down to 1% with the higher monthly fee.

A fee that doesn't go into paying off the loan? That would surely help. (sic)

Credit scores are now raised to 580 minimum for a 3.5% down payment.

Sellers can only contribute 3% instead of the 6% for borrower costs to sell the house. That puts the borrowers costs to 6.5% of the purchase price on a new home.

The FHA is also tightening underwriting standards.

The changes are a result of legislation passed earlier this month.

So much for the ownership society, but that was a fiction anyway, it was the debt with reduced income society in reality.

Housing Market Propped up by the Government

FHA Head David Stevens:

This is a market purely on life support, sustained by the federal government. Having FHA do this much volume is a sign of a very sick system.

Remember when we pointed out the entire residential real estate market is a ticking time bomb, propped up by the government?

Seems the FHA, which is guaranteeing more loans than Freddie Mac and Fannie Mae, thinks so too.

The FHA, which backs loans with down payments as low as 3.5 percent, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.

The FHA and Fannie Mae and Freddie Mac, which regulators seized in 2008, have been financing more than 90 percent of U.S. home lending after a retreat by banks and the collapse of the market for mortgage bonds without government-backed guarantees.

The above quote is in the midst of a feel good existing home sales report:, which increased 7.6% for the month.

25% of 2007, 2008 FHA Loans in Default

If one looks over the recent SIGTARP report, the U.S. government is now propping up and owns the entire residential real estate market.

Today we have another damning statistic via this Washington Post article, Rising FHA default rate foreshadows a crush of foreclosures.

9.1% of FHA loans missed 3 mortgage payments by December 2009.

Seems the problem is loans made in 2007, 2008. But by this time, the U.S. was well into a housing collapse, so the subprime lending was curtailed...but guess what, we have another sucker, the FHA.

Efforts to re-inflate the housing bubble costing taxpayers

After posting massive losses, yet again, Fannie and Freddie have warned that they will be needing another round of bailouts in the near future.

Fannie Mae and Freddie Mac, already reeling in red ink, are warning they could face additional losses from the weakening condition of mortgage-insurance companies.
Fannie and Freddie together have required capital injections from the Treasury of $112 billion since the government took them over through conservatorship last year. Their need for government support would have been greater without collecting on claims from mortgage-insurance companies. Fannie and Freddie have received payouts of $2.3 billion and $658 million, respectively, from mortgage insurers through September this year.

Regulating the financial industry is still not Job One

The House was drawing up new banking regulation this week, which included the new agency to protect consumers from abusive and deceptive lenders. So would Congress stand up for the voters or the industry?

Bowing to political pressure from community bankers, the House Financial Services Committee approved an exemption on Thursday for more than 98 percent of the nation’s banks from oversight by a new agency created to protect consumers from abusive or deceptive credit cards, mortgages and other loans.
The carve-out in legislation overhauling the regulatory system would prevent the new consumer financial protection agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.

Unofficial Economic Policy: Re-Inflate the Bubble

This is kind of a follow-up to this story here. And it reinforces the notion that the Administration and the Democratically-controlled congress are dead set on re-inflating the housing bubble.

There are two proposals at play: 1) extending the first-time homebuyer tax credit and 2) Increasing the loan limit amounts for Fannie, Freddie and FHA.

First-time Homebuyer Tax Credit

According to Bloomberg:

House Speaker Nancy Pelosi said lawmakers might extend an $8,000 tax credit for first-time homebuyers that is set to expire Dec. 1.

The 3 F's - Fannie Mae, Freddie Mac and the FHA

There has been a series of Congressional hearings and there are two which point to some serious trouble at our never ending financial black holes, Freddie Mac, Fannie Mae and the FHA.

Firstly, Fannie & Freddie might require even more money, even though they have received $96 Billion in bail out cash. Total losses to date from these two is $196 billion.

Their books are still bleeding red as foreclosures rise and homeowners — even the highest-quality borrowers — fall behind on their mortgage payments. Several crucial positions remain vacant, and Mr. DeMarco said the agencies are worried about losing workers because of the uncertainties surrounding their fate.

90% of Residential Loans U.S. taxpayer backed

Buried in a Washington Post article:

90 percent of all new home loans are funded or guaranteed by taxpayers

taxpayers are on the hook for most of the loans that are still being made if they go bad. And they are also on the line for any losses in the massive portfolios of old loans at Fannie Mae and Freddie Mac, which own or back more than $5 trillion in mortgages.

Gets better. WaPo is reporting a high risk of default (Are we surprised with a 9.7% official unemployment rate?)

There is growing evidence that many loans being guaranteed by the government have a significant risk of defaulting. Delinquencies are spiking. And the Federal Housing Administration, another source of government support for home loans, is quickly eating through its financial cushion as losses mount.