Mortgage meltdown, two front war, battle carrier group steaming to the Middle East, Russia

The state of Indiana has yanked the licenses of more than 300 mortgage brokers for reportedly failing to comply with a law requiring “each brokerage to name a principal broker with at least 3 years experiences who has passed a state exam and who will oversee his company’s business affairs.” (Fort Wayne News-Sentinel)

According to the report, the numbers aren’t alarming because many brokers, licensed and unlicensed, have already left the industry because of the huge housing downturn. Tell that to the thousands of homeowners who have been stung by crooks with and without licenses to broker mortgages nationwide.

According to an investigation by the Miami Herald, “More than half the mortgage professionals registered in Florida -- 120,563 -- entered the industry this decade without being licensed by the state.” Setting up business as “loan originators”, many weren’t bound by the same rules as mortgage brokers, although “they perform the same job as mortgage brokers but aren't bound by the same rules.” (Ibid)

The industry has been a haven for felons, would be felons, forgers and thieves. The paper notes that, “5,306 people with criminal histories became loan originators -- a rate of nearly two a day. Worse, those include 2,201 who had committed financial crimes, such as fraud, money laundering and grand theft.” (Ibid)

The Florida mortgage industry became a haven for convicted felons, con artists and document deception. In an eight-year period, “more than 5,300 people with criminal histories rushed into Florida's mortgage industry as loan originators.” That was bad enough, but many felons with multiple convictions had no trouble setting up business or getting a paycheck as a loan originator.

With all of the documented thievery from within the mortgage industry, the government still leans toward bailing out corporate thieves and brokerage houses from their own malfeasance. While the “mortgage bailout” is hailed as a cure to the imminent meltdown of the US banking system, it is no such thing.

The “bail out” sets up very specific conditions for bailing out a fraction of borrowers with adjustable rate mortgages (ARMs), while several million borrowers, along with the companies who wrote the loans, go down the tubes, possibly taking the economy down with them.

Bad news is trickling out of the mortgage banking industry like a venereal discharge, and the bankers and their tame politicians are crossing their legs to keep the ooze out of sight. Mortgage industry lobbyists continue to buy politicians like two-dollar whores.

We keep hearing news about this or that bank or mortgage bank on life support, but somehow they manage to keep enough money in the kitty to feed to their tame congresskritters.

The California Chronicle reports on an interesting situation allegedly involving two of the largest mortgage organizations in the nation.

Apparently, although facing bankruptcy, these companies (Freddie Mac and Fannie Mae) have enough money to spend on lobbyists and political contributions? In fact, Freddie Mac and Fannie Mae spent about $3.5 million in the first quarter of this year on lobbyists. (8-10-08)

Buying off politicians, excuse me, lobbying political office holders is a tried and true way to throw sand in the wheels of justice. According to several researchers, lobbying pays off when it comes to how long thieves can operate before the hammer comes down on them, if it does.

A new paper by Frank Yu of Barclays Global Investors and Xiaoyun Yu from the Kelley School of Business at Indiana University, Corporate lobbying and fraud detection, has found that fraudulent firms that lobby evade fraud detection 117 days longer than their non-lobbying counterparts. For firms that do not lobby, the average is 594 days. For firms that do lobby, the average is 711 days. And with friends in high places, they are 38 per cent less likely to be detected by regulators. (Management and Compliance, 04-08-08)

When companies are churning the fraud waters, that’s when they spend the most on lobbyists. Nothing like a little safety net to keep a good fraudster afloat.

The study also found that firms spend more on lobbyists peddling influence when they are actually engaged in hoodwinking investors. On average, a fraudulent firm spends $1.61 million on lobbying each year during its non-fraud period, but spends $2.08 million - 29% more - on lobbying each year during its fraud period. (Ibid)

An industry expert predicted back in April that we were headed to a slew of bank failures because of the mortgage meltdown:
In an exclusive interview with the Financial Times yesterday, OCC head John Dugan said that the agency sees a wave of bank failures in the not-too-distant future, particularly as the credit and mortgage crunch begins to work its way to regional and community banks most vulnerable to failure. (Housingwire.com)

From that interview 4 months ago with the Office of the Comptroller of the Currency (OCC), the Financial Times reported that,
Mr Dugan’s Office of the Comptroller of the Currency is particularly worried about lending by smaller banks to commercial real estate developers for condominiums and other projects. More than a third of smaller community banks have made commercial property loans that exceed 300 per cent of their capital, the OCC says. By comparison, in 1987, when hundreds of banks failed amid a commercial property collapse, such banks had commercial property loans equal to 175 per cent of their capital. (Financial Times, 4-22-08)
These banks have a massive exposure in mortgages, many of which were written by unscrupulous mortgage originators who knew they were worthless. Yet, and still, the banking industry is being rewarded for its criminality or negligence (what you call it depends on how much sympathy you have for the industry) by government bail outs.

The failure and bail out of IndyMac continues to send shivers down the spine of the nation’s top economists and bankers.

The failure of IndyMac, one of the biggest banks to go under in US history, has sparked fresh fears about the survival of other lenders exposed to the faltering mortgage market. (Ibid)

The hole in the dike has grown so big, that many pessimists wonder if the government and industry have what it takes to shore up this economic Humpty Dumpty.

House prices are falling at an annual rate of 15 per cent. The catalyst for the bust were defaults by subprime borrowers but, as prices continue to fall, less marginal homeowners are coming under pressure. Credit Suisse recently forecast that by the time the crisis is over as many as 6.5m loans will have fallen into foreclosure - more than one in 10 of all US mortgages. (Financial Times 8-8-08)

By now, the lobby machine has pulled out all of the stops. It’s a Presidential Election Year and the stakes are extremely high. By the time January rolls around and the new President, whoever he is, is sworn in, a full plate of disasters will be sitting on the table.

With the Russian invasian of Ossetia and the shooting war that has claimed hundreds of lives, as of this writing, no one knows how much economic fall out will poison the well. As major US carrier groups head to the Middle East and more instability breaks out, you just have to wonder how much the American economy can take.

We are already at war in two countries, with a major meltdown in the mortgage industry which is costing billions more in a "domino effect" economy wide. Add the multiple billion dollar price tag of the Iraq-Afghanistan debacle to the mix and we have to wonder if Uncle Sam can print money fast enough to pay the bills.

The author has written articles on economics, public policy, farming and food safety. She has written 5 books and serves as advisor to several not for profit agencies. Her author website is: http://www.lulu.com/davis4000_2000