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.

The Great Consumer Credit Squeeze

Banks are busy putting the screws to the middle class once again, this time in the form of reduced credit. The Wall Street Journal reports Residential Loans, refinance of mortgages and home equity loans are being subject to absurd credit requirements.

Are the banks going to investigate if you chewed gum and if so, deny you a loan for it next?

Recently, Mr. Berg arranged a refinancing for a borrower with a very high credit score and lots of home equity and debt payments totaling just 19% of pretax income. But Mr. Berg said the lender was worried about a credit report showing a $14 missed payment to a credit-card company in 2001. The lender insisted on proof the money had been paid, which Mr. Berg said was impossible to get.

"Who cares?" he said. "It's nine years ago, and it's $14." He appeased the lender by having the borrower write a $14 check, though no one knew where to send it.

Pete Ogilvie, a mortgage broker in Santa Cruz, Calif., hasn't found a bank that will refinance a $250,000 loan on a $1 million property for a borrower with more than $200,000 a year in income and a high credit score. Banks balked because the borrower, a technology executive, was out of work for nearly a year starting in 2008.

Mortgage Delinquencies - Lying in Wait

The headlines are all abuzz with the headline that mortgage foreclosures are down to 9.47%. This is from the MBA Q4 Delinquencies Conference Call.

The delinquency rate for mortgage loans on one-to-four unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down 17 basis points from the third quarter, and up 159 basis points from one year ago.

Don't you believe it. Firstly, 14.05% of all mortgages are delinquent or in foreclosure, not seasonally adjusted, 15%. Then, this from Calculated Risk:

HAMP's purpose isn't to save people's homes

If you listened to Obama Administration and the MSM you would have thought that the Making Homes Affordable program was designed to help people stay in their homes. You would have been mistaken.

Of the nearly 760,000 modifications that have been enrolled in three-month trial plans, less than 32,000 have transitioned into permanent relief for homeowners. Nearly 87 percent of the modifications under the administration's program are for investor-owned mortgages.

That's right - the program is designed to bail out real estate investors and speculators, not homeowners.

Geithner to use "Shame" on Mortgage Companies

This is absolutely ridiculous. Once again the Treasury Secretary uses the press for a huge we're doing something really campaign and then says they will use shame to embarrass those lenders not really helping homeowners.

In August, we got the same claim. See The Politics of Shame for more details on how obviously, from bail outs to bonuses to loan shark credit card tactics, financial institutions have no shame.

The only ones who are being shamed are the Obama administration, in particular Tim Geithner.

People Walking Out on the Mortgage

More and more people are simply walking away from their mortgage even though they still can make payments.

More will walk away, which will hamper the housing recovery, reinforce lenders' tight credit policies and drag on the economy's recovery, economists say.

"It's increasingly a more important factor driving the foreclosure crisis," says Mark Zandi, of Moody's "As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."

It's not just economists who are concerned about strategic defaults.

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.