Caution! Ex-Freddie Mac Officials Settle SEC Suit Over Subprime Loans

Bloomberf: Three former Freddie Mac executives settled a lawsuit by regulators over whether they misled the market about the mortgage-finance company’s exposure to risky loans, in a deal that included about $300,000 in donations to a fund set up to reimburse investors.

The settlement marks a quiet end to a high-profile U.S. effort to hold individuals accountable for some of the shocks to the financial system after banks, ratings companies and others underplayed the risks of subprime mortgages.

Richard Syron, the former chief executive officer of Freddie Mac, and two other executives settled the Securities and Exchange Commission’s 2011 lawsuit without admitting liability. In 2007 and 2008, according to the SEC suit, the three executives had said exposure to subprime mortgage loans was from $2 billion to $6 billion, when it was actually as high as $244 billion.

“This was one of the big cases to come out of the financial crisis. They accused CEOs of lying,” said Peter Henning, a corporate law professor at Wayne State University in Detroit. “And now, it ends, with I guess you can say, a whimper.”

Weak Case
The unusual settlement likely reflects a weak case by the SEC, Henning said. The agency also sued executives of Fannie Mae, including former CEO Daniel Mudd, over similar claims of misrepresentations. Tuesday’s resolution with Freddie Mac executives will likely help Mudd and his former colleagues.

“If I were Mudd, I would see if I could get this deal,” Henning said.

James Wareham, Mudd’s attorney, declined to comment on the case.

Also settling the case in Manhattan federal court were Patricia Cook, a former Freddie Mac executive vice president, and Donald Bisenius, an ex-senior vice president.

Under the agreement, the three executives must donate money to the Freddie Mac Fair Fund, set up to reimburse investors, in amounts tied to their stock and option awards during fiscal years 2006 and 2007. Syron will pay $250,000; Cook, $50,000; and Bisenius, $10,000. The three agreed to cooperate with the SEC in any related proceeding.

“We’re delighted with the terms of the dismissal,” Bisenius’s lawyer, Daniel Beller, said. “Mr. Bisenius is not making any payment. Freddie Mac’s insurer will make a donation on his behalf.”
Steven Salky, Cook’s lawyer, said in a statement, “We are extremely pleased with this resolution.”

Syron said in an e-mailed statement Tuesday that “The agreement states that it is not in the interests of justice to continue to litigate this matter, and I wholeheartedly agree with that sentiment.”
‘Appropriate Resolution’

The three also agreed for limited periods not to violate anti-fraud and reporting provisions of U.S. securities laws or sign company reports filed with the agency. The SEC initially sought to ban them from serving as officers or directors of other companies.

“The settlement’s limitations on future activities and financial payments reflect an appropriate resolution of the matter,” Andrew Ceresney, the SEC’s director of the Division of Enforcement, said in an e-mail.

U.S. District Judge Richard Sullivan on Tuesday approved the agreement.

McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae are government-sponsored enterprises that issued more than half of all mortgage-backed securities at the time of the financial crisis.
The case is SEC v. Syron, No. 11-cv-09201, U.S. District Court, Southern District of New York (Manhattan).

The case revolved around whether “Caution loans” were subprime loans or not. Caution loans are loans where Freddie Mac is supposed to exercise greater caution in their underwriting.

Were these loans “subprime” or “prime?” Freddie Mac is not permitted to purchase subprime loans. But the very mention of “caution” seems to indicate that these loans are more risky than their average loan, but perhaps less risky then “subprime” loans since Freddie Mac bought many of them.

In fact, caution loans had serious delinquency rates that were somewhere in between “subprime” and the conforming loans usually purchased by Freddie. Let’s call them A- loans. hpd_1302_gates

Here is Freddie’s Richard Syron singing “Alleluia” on the case being settled with the SEC.

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Industrial Production “Growth” MoM WORST Since End Of Great Recession

US Industrial Production numbers are out for March 2015 and they are ugly.

Industrial Production “growth” MoM fell more than expected to -0.6 percent.

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Utility output fell 5.9 percent, leaving it 3.6 percent lower year over year. This is no surprise, given that the weather in March moderated from record cold temperatures in February (as it does EVERY YEAR).

Mining and mineral extraction fell 0.7 percent, as the recent declines in oil prices have caused the energy sector to trim back activity, although this represents a moderation from declines of 1.6 and 1.7 percent in February and January, respectively. Utilities are now 3.6 percent lower from a year ago.

Alarm! Dive, dive, dive!

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Burnout! Mortgage Purchase Applications Fall 2 Percent WoW As Home Prices Keep Rising

And the hits just keep coming! Home prices continue to rise as mortgage purchase applications decline 2 percent week-over-week.

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 10, 2015.

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The seasonally unadjusted Purchase Index decreased 2.14 percent compared with the previous week and was 7.2 percent higher than the same week one year ago. Bear in mind that purchase applications peaked on May 2, 2015, so the peak may be close at hand.

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The seasonally adjusted Purchase Index decreased 3.07 percent from one week earlier. Although home prices are rising again, wage growth remains slow to recover along with mortgage purchase applications.

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The Refinance Index decreased 1.76 percent from the previous week. I wonder if we are near the “burnout” equilibrium for refis since mortgage rates are approaching their all-time low again and refi activity is lackluster.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.87 percent from 3.86 percent, with points increasing to 0.38 from 0.27 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The good news? American consumers have less debt than in previous “recoveries.” The bad news? American consumers also have less income.

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Despite the rhetoric from the affordable housing lobbying groups, the US is worse off than in 2001. Adjust your forecasts accordingly.

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Retail Sales Miss For 4th Month In A Row Despite Producer Price Index Falling -0.8 Percent in March

2015 Q1 data cannot get much worse. The Atlanta Fed’s GDP NOW tracking system improved Q1 GDP to 0.1 percent.

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Meanwhile, retail sales missed expectations for the 4th month in a row.

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Despite lower Producer Price Index that fell 0.8 percent in March.

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Time to celebrate!

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S&P 500 Earnings Estimates Plunge Most Since Crisis (Running Out Of Energy?)

Analysts cut EPS estimates for S&P 500 companies by an average of 7.8 percent during the first quarter, the largest such decline since the financial crisis. Energy sector earnings were cut the most.

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Fed Chair Janet Yellen’s reaction? Whaaaat??

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Courtesy of Jesse’s Cafe Americain.

Low Down Payment Society? 2/3rds Of First-Time Home Buyers Use 0-6 Percent Down Payment Mortgages

So much for the 20 percent down payment meme.

2/3rds of first-time home buyers us 0-6 percent down payment mortgages.

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And so much for the meme that first-time home buyers have vanished. Fist-time homebuyers account for 29 percent of all purchases.

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The current figure of 29 percent is still lower than the historical average.

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Wage growth still remains elusive while home prices keep rising …

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despite The Fed’s zero interest rate policy.

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The FHA has 3.5 percent down mortgage insurance while Fannie Mae and Freddie Mac will purchase mortgages down to 3 percent down. Some banks will even do 0 percent down mortgages!!!!

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US Is In Worse Fiscal Condition Than Greece (Fiscal Gap Is $210 Trillion, ACTUAL Debt To GDP Is 211 Percent)

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” ― Alexis de Tocqueville

And that is exactly what has happened in the U.S. and Europe. Politicians give away more and more entitlements in order to get elected to office … and what candidate is going to suggest CUTTING entitlements?

Brookings published a nice opinion piece entitled “The federal debt is worse than you think.” The opinion piece is based largely on Professor Laurence Kotlikoff’s U.S. Senate Testimony on the grossly misleading health of our economy.

The reaction in “The Millionaires’ Club” (aka, the US Senate)?

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In a nutshell, the U.S. has a $210 trillion “fiscal gap” and “may well be in worse fiscal shape than any developed country, including Greece,” according to Kotlikoff.

“The first point I want to get across is that our nation is broke,” Kotlikoff testified. “Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today.”

“Indeed, it may well be in worse fiscal shape than any developed country, including Greece,” he said. PDF.Kotlikoff—Testimony-to-Senate-Budget-Committe

Using the Congressional Budget Office’s July 2014 75-year Alternate Fiscal Scenario projection, Kotlikoff calculated that the U.S.’ “fiscal gap” –which he defines as “the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts” – is actually much higher than those of either Italy or Greece.

The U.S. has a $210 trillion fiscal gap at this point which amounts to 211 percent of the U.S. GDP, making it higher than Greece’s 175 percent debt-to-GDP ratio.

The fiscal gap is “16 times larger than official U.S. debt. As a consequence, the federal government is 58 percent under-financed.

Worse than Greece? The other PIGS aren’t faring so well either (Portugal, Italy, Ireland and Spain). Thrown Belgium, France, and Cyprus on the debt pyre as well. The US is almost as bad as Japan!!!

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Yes, the U.S., like Europe and Japan, has promised entitlements in exchange for votes. Just like some Professors offer easy grades in exchange for good evaluations (or pretend to be Mr. Goodbar until AFTER the teaching evaluations are filled out and THEN give an extremely difficult final exam to lower the class grade point average).

Unlike Greece, the U.S. has its own printing press and ability to borrow (as long as The Federal Reserve buys the debt, that is). As former Obama economic adviser Austan Goolsbee said last week, “It just doesn’t matter.”

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The notion that the US can print, borrow and grow entitlement spending without ramifications is the same as believing in Santa Claus, The Easter Bunny and Big Foot.

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