SCC Housing Market Blog

By GARY FIELDS and JOHN R. WILKE
July 17, 2008; Page A12

WASHINGTON -- Failed lender IndyMac Bank is among nearly two dozen banks under scrutiny by the Federal Bureau of Investigation for possible mortgage fraud, U.S. officials said.

The big Pasadena, Calif., bank was seized by regulators last week, the third-largest bank failure in U.S. history. It specialized in home loans to borrowers who lacked full documentation for their income or assets and have a higher default rate than other loans.

The IndyMac investigation began shortly before the bank was seized last week, a law-enforcement official said.

Officials wouldn't provide further details of the IndyMac inquiry, reported earlier by the Associated Press. In other cases, the FBI has been focusing on accounting fraud, the documentation of mortgage-backed securities and insider trading.

In a statement Wednesday, the FBI said the number of banks under investigation for mortgage fraud is now 21.

"We receive information from a variety of sources on a daily basis, and we have an obligation to review each allegation on its merits," the bureau said. "Given the volatility of today's subprime market, we have seen an increase in subprime-related complaints."

Few major lenders under investigation have been identified. One of them is Countrywide Financial, once IndyMac's parent company, which has since been acquired by Bank of America Corp. Countrywide has said it isn't aware of an investigation.

Evan Wagner, vice president of corporate communications at IndyMac Bank, said given the size of the bank and the fact that it failed, "it shouldn't be a surprise if someone is investigating, however, we can't confirm that one way or another."

Richard Wohl, president of IndyMac Bank, referred calls to the Federal Deposit Insurance Corp., which is now running the bank. Representatives for the FDIC and the Office of Thrift Supervision, IndyMac's former regulator, declined to comment.

The bank was back in business Monday. Most of its depositors were fully insured by the federal government.

--Jonathan Karp, Damian Paletta and John R. Emshwiller contributed to this article.

From: Bank-Implode.com
Posted on July 17th, 2008 in BREAKING NEWS!

The covert bail out of JP Morgan continues unabated along with those of Fannie Mae, Freddie Mac and the rest of the finical sector, all partially cloaked under the fog of Morgans fiscal second quarter 2008 earnings report. After carefully releasing estimates to analysts the company came out and beat those estimates this morning and that is what the financial media would have investors believe is responsible for todays rise in the stock and the sector.

JPMorgan posted a 53% plunge in second-quarter net income Thursday morning. Credit-loss provisions more than doubled, and its investment bank cut the value of leveraged-loan and mortgage-related securities by an additional $1.1 billion.

However, JPMorgan’s earnings per share, at 54 cents, beat analysts’ average expectations of 44 cents, as calculated by Thomson Reuters. Revenue of $18.4 billion for the quarter exceeded expectations of $16.55 billion. JPMorgan’s stock was up 10% in morning trading.

The jump in the share prices of JPMorgan Chase and other bank stocks was likely a reaction to “the lack of doomsday outcomes,” David Trone, an analyst with Fox-Pitt Kelton Cochran Caronia Waller wrote in a research report. But he warned, “we remain somewhat cautious about calms before storms, as consumer and commercial losses will likely increase into early 2009, if not longer.”

Not likely at all David! The jump in the share prices of JPMorgan Chase and other bank stocks was likely a reaction to the SECs restrictions of short selling on all but two stocks in the sector and the socialization of the sectors favorite toxic mortgage dumping grounds, Fannie Mae and Freddie Mac.

I have news for Bernanke and the SEC. This won’t work. China had short sale restrictions on and it did not stop the Shanghai index from falling over 50%. Insolvency cannot be cured by short sale restrictions and many of those companies are insolvent.

If you really think Morgan has turned the corner, just consider the things that have to happen before the bottom can be called, that have not happened yet, that are beging to happen, beging to happen to JPMorgan.

J.P. Morgan Chase said on Thursday that losses on its $47 billion portfolio of prime mortgages could triple in coming quarters because of the slump in house prices in previously hot markets such as California, Florida and Arizona.

A complete freeze on short sales won’t save The House of Morgan when those PRIME loans begin to default. Todays stock spike was pure short covering and once the market sees the implosions in the portfolios of Morgans prime mortgage and commercial real estate and credit card and the sacrifice of first born sons it will take more than an act of Congress to bring new longs into the stock.

When all the hype and hoopla are finally spun and done the only thing share holders have to hold onto is that 53% cliff dive in second-quarter net income, loan losses provisions of $3.5 billion more than doubled from a year ago, a return on equity crashing to 6% from 14% a year ago and the certain knowledge that a lot more went wrong in the quarter than went right.

Nor can the company reliy on the broader economy to save it.

* Investment banking swung to a $785 million loss, dropping 67 percent after it wrote down $1.1 billion in unsold buyout loans and complex mortgage related securities. Trading revenue was weak in both the equities and fixed-income divisions.
* Chase Card Services, the bank’s big credit card arm, saw second-quarter profit fall 67 percent, to a $509 million loss as charge-offs continued rising. Its loss rate climbed to about 5 percent in the second quarter.
* Chase Retail Services, the bank’s consumer unit, reported a $179 million loss after a 23 percent drop in profit. The division was mired by losses on home equity loans as well as mortgages as more borrowers stopped making their monthly payments.

* The asset management division booked a $395 million profit, down 20 percent from last year, despite a influx of new money. Revenue of $2.1 billion was down 3 percent because of lower performance fees.

and what augurs worst of all,

Chase’s auto finance arm also had higher loan losses, as more consumers find their budgets stretched by higher gas and food prices.

The reality is that JPMorgan would not exist today if not for the fraudulent FED engineered bail out of Morgan last March by guaranteeing a $29 billion disguised as a loan to facilitate the buy out of Bear Stearns. The fact that the bank was bailed out once and its CEO is a FED board member are the storongest, make it only argument insureing the companys future, but it is the strongest argument one can have.

In act eerily reminiscently of the great depression the FDIC seized IndyMac Bancorp today recording the third-largest bank failure in U.S. history.

After months of trouble and turmoil IndyMac finally broke under the weight of tighter credit, tumbling home prices and avalanching defaults. The bank’s final maneuver was one of double down desperation, offering unbeatable rates on taxpayer-insured deposits, rates it could not really afford, but in a credit crisis where all the choices are bad ones it was simply the only one left.

Having lost the ability to accept brokered deposits earlier this week, the bank desperately needed other sources of funding to keep its operations going. It had nothing to lose by offering the best rates on taxpayer-insured deposits, significantly higher than any other bank in the nation.

As word of the danger got out depositors rushed the bank and finally regulators moved in. Coinciding as it did with the anger and angst of financial markets recognization that their toxic mortgage dumping grounds Fannie Mae and Freddie Mac were in imminatate danger of implosion as well (without government intervention) brought out the blame gamers and finger pointers.

The director of the Office of Thrift Supervision, John Reich, blamed IndyMac’s failure on comments made in late June by Sen. Charles Schumer (D., N.Y.), who sent a letter to the regulator raising concerns about the bank’s solvency. In the following 11 days, spooked depositors withdrew a total of $1.3 billion. Mr. Reich said Sen. Schumer gave the bank a “heart attack.”

Might as well blame the earth quake in China on the good Senators comments while you’re at it. The director of the Office of Thrift Supervision, John Reich, should have blamed IndyMac’s failure on it’s fees up front deal with the devil “Liar Loans” made to ever-less credit worthy borrowers that sent the banks profits skyward.

“Would the institution have failed without the deposit run?” Mr. Reich asked reporters. “We’ll never know the answer to that question.”

Sure we do.

Definitely YES!

This article/question was posted on the Mortgage Lender Implode-o-Meter and I decided to post it here and discuss it because I've had dealing with IndyMac and other lenders and I'm pleased to see them sinking like lead boots to the bottom of the ocean. Unfortunately, the CEOs of these companies got filthy rich while all others lost their shirts. The post reads:

IndyMac shares are finally down to a mid-day low of $0.94 at one point. One of our sources states, "Pretty much we were told informally that if we did not get a capital infusion we would not make it and that we had a 50/50 chance of obtaining said infusion."

MY COMMENT:
But what about the infusion that the people needed when they sought loans through IndyMac's Owner Builder Programs in which IndyMac would not approve the loan unless the home buyer took out an additional so-called "permanent finance loan" or a "Loan To Value (LTV)" of up to 85%, although all the home buyer needed was a simple construction loan? IndyMac, and others, would not approve any construction loan unless you took financing that you did not need.

In addition, IndyMac, and others, would give "low doc" and "no money down" loans for any loan above $150k, but if you were of "modest income" and needed a loan for a modest home that cost under $100k you would need every document that exist on you plus a blood and DNA sample with 20% down. What the !

IndyMac is not our friend. They did not provide a service to the America people. They provided debt and slavery to the American people. They made it easier for you to get a half-million dollar loan than it is to get a $90k loan. And the government with its smoke screen companies like Freddie Mac, Fannie Mae, and Ginnie Mae would secure the high end loans but not the low end loans.

An infusion????? They don't need an infusion. They need to dissolve. Lets take'em off life support and pull the plug by demanding that they service people and not use us for long term profits.

Just my thoughts, what's yours?

This is a question that is being discussed on Trulia at this moment. In fact, it has been discussed there for some time with no end in site. You see, Trulia is a great site that is supposed to be a place where "Average Joes" can go and get some free unbiased professional advise. Of course, that is not the case. Instead, it is a place where the so-called "Real Estate Professionals" simply gather to spit there sales pitches to the people seeking advice, which are usually home buyers. But.... what do you expect from people that earn a living based on real estate sales commissions

Background: A few days prior to my comment a "Real Estate Professional", while trying to make a point that Real Estate is a local thing ( I strongly disagree and will discuss that on this blog), argued that certain markets were great like the "Seattle" market because of job growth and so on. A few days later the caption reads in the news: "Bullet Proof Market Gets Hit".... and guess what "bullet proof market" it was speaking of????? SEATTLE

Although the two threads were different - one discussing why you should buy in today's market and the other discussing whether real estate is a local market or a national market - to me, they are one in the same.

My Comment: The "Bullet Proof Market" story is funny because a month ago on Trulia a guy (a "real estate professional) was just telling me that Seattle is immune to the housing crisis because........ well, "real estate is local", as he and the others were saying. My argument was that the things that's causing the collapse are national things and therefore, no market is really safe, especially the markets or areas that saw an unnatural increase in home prices or where the median home price is more than 5x the median income. Well, I guess Seattle was not immune.