Round-Up: Government And Bank Lies

Let's start with Chrysler:

May 13 (Bloomberg) -- Chrysler LLC’s bankruptcy might take as long as two years, not the two months President Barack Obama suggested as a target, an administration official said.

The 60 days projected by the President at an April 30 press conference announcing the automaker’s bankruptcy only applies to a sale of Chrysler’s best assets to a new entity, said the official, who can’t be identified because the matter is confidential. Afterward, creditors would fight over unwanted factories and other assets to recover money, lawyers said.

In other words, not only did our dear President lie, his administration knows he lied, but the guy/gal who is blowing the whistle doesn't want their name used.  After all, he wouldn't want to end up like Vince Foster.

Now let's talk about foreclosures:

May 13 (Bloomberg) -- Foreclosure filings in the U.S. rose to a record for the second consecutive month in April as banks increased efforts to seize homes from delinquent borrowers.

A total of 342,038 properties received a default or auction notice or were seized last month, RealtyTrac Inc. of Irvine, California, said today in a statement. One in 374 households got a filing, the highest monthly rate since the property data service began issuing such reports in 2005.

Of course we have been told that things are "improving."  This is a lie.

In fact, as I noted back on March 5th (and many times previous):

Remember, this is far worse than it looks.  The median "holding time" for a home loan is around 7 years, so this means that about half of the mortgages written were done before the boom occurred; those are presumed safe, as there is sufficient equity that even if you lost your job you can sell for more than the outstanding balance on the note.

So this means that approximately one in five mortgages written in the last seven years are either not being paid or in foreclosure.

ONE IN FIVE!

That is twenty times the normal rate.

This can only happen through massive, pervasive fraud up and down the line.  This gross mismatch between expectations and historical norms and actual performance means that nobody holding this paper is safe under any definition you care to use.  With 1 out of 5 notes going back and average recovery (per HUD) being around 50 cents at best, you're talking about losses of ten percent of the total amount financed over the last seven years!

How has this been hidden?  There are reports from across the country that banks have been sending out NODs but then sitting on the process, effectively hiding the fact that these loans have gone bad and will be foreclosed, in some cases allowing people to live in these homes without making a payment for up to a year!

The various "moratoriums" have been claimed to be responsible.  Balderdash.  What is responsible for this is intentional sandbagging by the banks who have two separate but interlocked perverse incentives to do this:

• They are praying that home values recover, so they do not have to take such a big loss (what's actually happening is the prices are continuing to go down, making the loss worse!) and
• They are holding these notes at full face value on their books; if they foreclose and sell the property they are forced to mark the note to the market based on recovery value as recognized in a sale.  If they do that many of these banks would be instantaneously recognized as insolvent.

Let's remember that back on October of 2008 I noted that Wells Fargo had changed the definition of "delinquent" loans from 120 days without a payment to 180 days.  This allowed them to report that quarter while booking delinquent only one in three of the loans that went bad during that period in time!

The same game has been played by all of these banks with respect to actual foreclosures.  By refusing to actually proceed from NOD to foreclosure in the most expeditious fashion permitted by law the banks are gaming their results and balance sheets, and the perversity of this in the broader economy leads to not only overstated bank results but also overstated consumer purchasing power, as those who are living in a house they stopped paying for - effectively having their "housing" budget reduced to utilities and food - are spending money they don't in fact have.

When, not if, these foreclosures are processed the "squatters" are evicted and suddenly their household expenditures either spike or they are rendered homeless.  Both outcomes destroy their consumer purchasing power.  At the same time the banks' recognition of these hidden losses destroys the alleged and claimed excess capital in these financial institutions.

Bluntly, people, you have been had by a government that is still sitting back while our nation's financial wizards lie, cheat and to the extent they are able, steal.

The essence of this game-playing is in fact securities and bank fraud, yet nobody in our government seems to care.

If you got suckered into this faux "green shoot" game by the crooners on television and in our government you have every right to be angry, but you should not be surprised.

I've been warning of these acts since April of 2007, and thus far, the song has remained the same.  

The lies, all of which end up damaging you, the investor and consumer, continue.