Category Archives: Mortgage

Danish Mortgage Rates Drop to Negative 0.2%

In the land of negative rates, yet another record has been set

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The best time to visit Copenhagen is Summer—June, July, and August—when the days are long and relatively warm and outdoor cafes are crowded.

(Reuters – COPENHAGEN) – Interest rates in Denmark’s mortgage bond market, one of Europe’s largest, are hovering around their lowest ever levels due to strong international appetite for the top-rated bonds.

30 year fixed for 1.5%

The country’s largest mortgage lender Nykredit on Friday began issuing 30-year mortgage loans with a fixed rate of just 1.5 percent, revisiting a 2015 record-low.

“The low risk of these triple-A rated papers combined with interest rates of 1.5 to 2.0 percent is attractive in international comparison,” chief analyst Jeppe Borre of Totalkredit, a unit of Nykredit, said.

“Therefore we’ve seen foreigners increase their share of ownership in these bonds significantly”.

Most European bonds have rallied over the past month after the European Central Bank extended asset purchases until September 2018 and left it open-ended beyond that.

Investors are paying Danes to finance negative rates

Danske Bank, the second-largest mortgage lender, on Friday concluded the latest batch of auctions over ‘flex-loans’, one-year adjustable rate-loans, with an interest rate of negative 0.20 percent, the lowest ever for that bank.

“The economic developments in Denmark and Europe are pushing interest rates to these extremely low levels. It looks as if it will continue for some time to come,” senior economist Sonia Khan of Danske Bank’s mortgage unit Realkredit Danmark, said.

Some investors may also be choosing to place their money in Danish bonds rather than German ones due to the political uncertainty stemming from the prolonged coalition talks in Berlin, Khan added.

The main owner of Nykredit late on Thursday decided to go ahead with the sale of a 10.9 percent stake to five pension funds, putting an end to plans to publicly list the company.

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Fascinating Interview Of New CFPB Director Mick Mulvaney


Director Mick Mulvaney appears on Fox Business News to discuss the ongoing tax reform efforts along with ongoing revelations within the Consumer Financial Protection Bureau (CFPB).

There are two really insightful articles, written by Ronald Rubin -who was there at the start of the bureau- about the CFPB, that deserve to be read by anyone looking to understand the organization and the left-wing constructs within it.

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Here’s the two articles that deserve to be read.  The first one might blow your mind:

♦ #1 Conceived as a government watchdog, with aims to financially fill the coffers of left-wing activist organizations, the CFPB was doomed by an Elizabeth Warren structure that made it an inherently political agency. READ HERE

♦ #2 The sad and sick joke – how the face of the CFPB’s first director falsely claimed caring about consumers, but the reality was entirely political. READ HERE

Immediately upon taking control within the CFPB Director Mick Mulvaney:

  • Immediately shut down any further hiring and expansion for 30 days.
  • Immediately froze any new rules and regulations being implemented.
  • And most importantly stopped any further payments from the CFPB to left-wing political activist groups.

WATCH:

The CFPB was essentially created to work as a legal money laundering operation for progressive causes by fining financial institutions for conduct the CFPB finds in violation of their unilateral and arbitrary rules and regulations. The CFPB then use the proceeds from the fines to fund progressive organizations and causes. That’s the underlying reason why the Democrats are fraught with anxiety right now.

Elizabeth Warren set up the bureau to operate above any oversight. Additionally, the bureau was placed under spending authority of the federal reserve. The CFPB gets its operating budget from the Federal Reserve, not from congress. Again, this was set-up to keep congress from defunding the agency as a way to remove it.

Everything about the way the CFPB was structured was done to avoid any oversight. Hence, a DC circuit court finding the agency held too much power, and deemed the Directors unchecked position unconstitutional.

Mick Mulvaney is now in a position to look at the books, look at the prior records within the bureau, and expose the political agenda within it to the larger public. That is sending the progressives bananas.

Most likely President Trump will not appoint a replacement until Mulvaney has exposed the corruption within the bureau. That sunlight is toxic to Elizabeth Warren and can potentially be politically destructive to the Democrats. If the secrets within the bureau are revealed, there’s a much greater likelihood the bureau will be dissolved.

There are billions of scheme and graft at stake. Within the record-keeping there are more than likely dozens of progressive/Democrat organizations being financed by the secret enterprise that operates without oversight. That’s the risk to the SWAMP.

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By Sundance: The Conservative Tree House

CFPB Positioned For Deconstruction

Pocahontas Financial Control Scheme Returns To Bite Its Creator…

Everyone is aware how apoplectic the Democrat loonery became when their best laid schemes to put Hillary in the White House ran into the reality of electoral Cold Anger carried by the deplorables. Lots has been written about the gobsmacked reaction to the election, yet few have outlined the underlying policy reasons for the scope of the panic.

The desperate need for post-election control showcased the lefts’ reaction to fear. However, it is only by looking at the policy groundwork they lost where a political observer can evaluate the scale of defeat. Democrats created a continuum pathway that is now entirely controlled by the very nemesis of their controlling belief system.

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In a largely under-reported story last week, President Trump installed OMB Director Mick Mulvaney as interim head of the Consumer Financial Protection Bureau, the CFPB.

The CFPB was created to establish power and control over almost every financial transaction in the United States.  But it is only when you review how Elizabeth Warren and the control agents structured the czar head of the CFPB that you recognize the scale of the intent carried within the construct.

When Senator Elizabeth Warren and crew set up the Director of the CFPB, in the aftermath of the Dodd-Frank Act, they made it so that the appointed director can only be fired for cause by the President.

This design was so the Director could operate outside the control of congress and outside the control of the White House.  In essence the CFPB director position was created to work above the reach of any oversight; almost like a tenured position no-one could ever remove.

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The position was intentionally put together so that he/she would be untouchable, and the ideologue occupying the position would work on the goals of the CFPB without any oversight.

Elizabeth Warren herself wanted to be the appointed director; however, the reality of her never passing senate confirmation made her drop out.

The CFPB Director has the power to regulate pensions, retirement investment, mortgages, bank loans, credit cards and essentially every aspect of all consumer financial transactions.

However, in response to legal challenges by Credit Unions and Mortgage providers, last October the DC Circuit Court of Appeals ruled that placing so much power in a single Czar or Commissioner was unconstitutional:

[…]  The five-year-old agency violates the Constitution’s separation of powers because too much power is in the hands of its director, found the U.S. Court of Appeals for the District of Columbia Circuit. Giving the president the power to get rid of the CFPB’s director and to oversee the agency would fix the situation, the court said. (more)

After the November 8th 2016 election (during the lame-duck Obama period), the CFPB sought an en blanc review of the decision by the circuit court panel.  However, in March the Trump administration reversed the government’s position.  In essence, Team Trump was now positioned to use the power of the CFPB Director to eliminate itself. The entire DC panel heard the appellate case in May and a decision is pending. [Either outcome Trump wins]

Facing insurmountable legal headwinds, and simultaneously finding himself under the control of the executive branch, the Obama Director of the CFPB Richard Cordray announced his resignation.

President Trump has now appointed OMB Director Mick Mulvaney as interim head of the agency; with no rush on a permanent replacement. [Mulvaney will return to his role as OMB Director as soon as a permanent replacement is nominated. Until then he wears two

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While in congress Mick Mulvaney, along with dozens of Dodd Frank critics, strongly opposed the creation of the CFPB and the scope of control within its mandate to regulate all consumer financial transactions.  During his confirmation hearing Mulvaney referred to the CFPB as “one of the most offensive concepts” in the U.S. government and that he stood by an earlier comment describing it as a “sad, sick joke.”

The Democrats, most specifically Elizabeth “Pocahontas” Warren and crew, are apoplectic at the end result of their too-cute-by-half plans and the possibility of their agency being deconstructed.  What is even more delicious to note – in their rush to construct the entire CFPB scheme the Dodd-Frank law does not specify the deputy director as next in line to serve in the event of a vacancy.  That means President Trump is within his normal constitutional powers to appoint whomever he likes.

In appointing Mick Mulvaney President Trump has now put in place someone who can be counted on to deconstruct Warren’s leftist plan to control all our financial transactions by dictatorial fiat and unilateral authority.   By their own doing Pocahontas et al created a situation they are now powerless to stop.

Expanding the Consequence: This now becomes a critical part of President Trump and Treasury Secretary Mnuchin’s overall strategy to create a secondary financial market for smaller banks and credit unions to operate the Main Street economy.

Because Dodd-Frank Act created even fewer and even bigger banks it’s become almost impossible to re-institute something like a Glass Steagall wall between commercial and investment divisions within banks.

Back in July 2010 when Dodd-Frank banking regulation was passed into law, there were approximately 12 to 17 banks who fell under the definition of “too big to fail”.

Meaning 12 to 17 financial institutions could individually negatively impact the economy, and were going to force another TARP-type bailout if they failed in the future.  Dodd-Frank regulations were supposed to ensure financial security, and the elimination of risk via taxpayer bailouts, by placing mandatory minimums on how much secure capital was required to be held in order to operate “a bank”.

One large downside to Dodd-Frank was that in order to hold the required capital, all banks decreased lending to shore-up their liquid holdings and meet the regulatory minimums.  Without the ability to borrow funds, small businesses have a hard time raising money to create business.  Growth in the larger economy is hampered by the absence of capital.

Another downstream effect of banks needing to increase their liquid holdings was exponentially worse.  Less liquid large banks needed to purchase and absorb the financial assets of more liquid large banks in order to meet the regulatory requirements.

In 2010 there were approximately twelve “too big to fail banks”, and that was seen as a risk within the economy, and more broad-based banking competition was needed to be more secure.

Unfortunately, because of Dodd-Frank by 2016 those twelve banks had merged into only four even bigger banks that were now even bigger risks; albeit supposedly more financially secure in their liquid holdings.   This ‘less banks’ reality was opposite of the desired effect.

The four to six big banks (JP Morgan-Chase, Bank of America, Citigroup, Wells Fargo, US BanCorp and Mellon) now control $9+ trillion (that’s “TRILLION).  Their size is so enormous that small group now controls most of the U.S. financial market.

Because they control so much of the financial market, instituting a Glass-Steagall firewall between commercial and investment divisions (in addition to the Dodd-Frank liquid holding requirements), would mean the capability of small and mid-size businesses to get the loans needed to expand or even keep their operations running would stop.

2010’s “Too few, too big to fail” became 2016’s “EVEN FEWER, EVEN BIGGER to fail”.

That’s the underlying problem for a Glass-Steagall type of regulation now.  The Democrats created Dodd-Frank which: #1 generated constraints on the economy (less lending), #2 made fewer banking options available (banks merged), #3 made top banks even bigger.

This problem is why President Trump and Secretary Mnuchin are working to create a parallel banking system of community and credit union banks, individually less than $40 billion in assets, that are external to Dodd Frank regulations and can act as the primary commercial banks for small to mid-sized businesses.

The goal of “Glass Steagall”, ie. Commercial division -vs- Investment division, is created by generating an entirely new system of smaller banks under lowered regulation.  The ten U.S. “big banks” operate as “investment division banks” and are subject to the rules and regulations of Dodd-Frank.  The smaller banks and credit unions have less regulation and operate as the “Commercial Side” directly benefitting Main Street.

Instead of fire-walling an individual bank internally (within its organization), the Trump/Mnuchin plan firewalls the banking ‘system’ within the United States internally.

By Sundance | The Conservative Treehouse


Tragic Downfall of the Consumer Financial Protection Bureau

https://i1.wp.com/c1.nrostatic.com/sites/default/files/styles/original_image_with_cropping/public/uploaded/consumer-financial-protection-bureaus-tragic-failures.jpgSen. Elizabeth Warren and CFPB director Richard Cordray on Capitol Hill, September 2014. (Reuters photo: Jonathan Ernst)

Conceived as a government watchdog with noble aims, the CFPB was doomed by a structure that made it an inherently political agency.

On October 11, 2016, in PHH Corp. v. Consumer Financial Protection Bureau, a three-judge panel of the D.C. Circuit Court of Appeals found the CFPB’s structure unconstitutional and “fixed” it by empowering the president to remove the agency’s director at will. Sounds dull, but this is a tragic story.

Metamorphosis:

In 1988, during my first year of law school, I met a young professor named Elizabeth Warren. She was like a tornado — energetic, fascinating, and scary. She was also a Republican. Despite that last bit of trivia, she hadn’t changed much when Americans began to notice her two decades later.

In fact, a Reagan Republican might have written her 2007 article “Unsafe at Any Rate,” which proposed a new regulatory agency to help consumers understand credit products by simplifying disclosures and ending deceptive industry practices. Free-market economists would approve of her rationale for a “Financial Product Safety Commission:”

To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. . . . Terms hidden in the fine print or obscured with incomprehensible language, unexpected terms, reservation of all power to the seller with nothing left for the buyer, and similar tricks and traps have no place in a well-functioning market. . . . When markets work, they produce value for both buyers and sellers, both borrowers and lenders. But the basic premise of any free market is full information. When a lender can bury a sentence at the bottom of 47 lines of text saying it can change any term at any time for any reason, the market is broken.

Over the next two years, the economy collapsed, Democrats gained control of Congress and the White House, and Warren grew famous criticizing big banks in congressional hearings. She lobbied Democrats to include her agency in their Wall Street–reform legislation, arguing that effective enforcement of consumer-protection laws required a regulator independent from politicians beholden to the financial industry. The Democrats had a better idea: They would make her agency independent from Republicans.

Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.

Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.

Exclusion:

Warren, who had hoped to be the CFPB’s first director, led the one-year agency-building process. She chose loyal Democrats to be her senior deputies; they hired like-minded middle managers, who in turn screened lower-level job seekers. It was too risky for interviewers to discuss politics, so mistakes were possible. I was one of them.

As a Jewish graduate of a liberal college living on Manhattan’s Upper West Side, I fit the stereotypical Democratic profile. In fact, my primary influences were my business-school professors at the University of Chicago, the epicenter of free-market capitalism. I supported the agency Warren proposed in 2007 for the same reason I had worked at the Securities and Exchange Commission — accurate information improves markets’ efficiency. I had not read important sentences at the bottom of the Dodd-Frank Act’s thousands of lines of text.

In March of 2011, I interviewed with Richard Cordray, the pre-operational agency’s new enforcement chief. By May, I had surrendered my prized rent-stabilized apartment and moved to Washington to be the CFPB’s 13th enforcement attorney.

I would not have been so lucky two months later. As screening techniques improved, Republicans were more easily identified and rejected. Political discrimination was not necessarily illegal, but attempts to hide it invited prohibited race, gender, religion, and age discrimination. In retrospect, the Office of Enforcement’s hiring process, which was typical for the bureau, violated more laws than a bar-exam hypothetical.

Job seekers interviewed with two pairs of attorneys and most senior managers. All Office of Enforcement employees were invited to attend the weekly hiring meetings, where interviewers summarized the applicants. Any attendee could voice an opinion before each candidate’s verdict was rendered; even a single strong objection was usually fatal. Note taking was strictly forbidden, and interviewers destroyed their records after the meetings. I never missed one.

Clear verbal and non-verbal signals quickly emerged. The most common, “I don’t think he believes in the mission” was code for “he might not be a Democrat.” At one meeting, Kent Markus, a former Clinton-administration lawyer who had joined the bureau as Cordray’s deputy, remarked that an applicant under consideration “sounds like a good liberal to me.” After a few seconds of nervous laughter and eye contact around the room, Markus recognized his slip. “I didn’t say that,” he awkwardly joked. The episode so unnerved one attorney that he never attended another hiring meeting.

Applicants who had represented financial-industry clients were routinely rejected, depriving the bureau of critical expertise and business perspective. A memorable exception sought to become only the second African-American female enforcement attorney. Following an hour-long debate that would have doomed most applicants, her verdict was postponed pending additional interviews. Her prospects looked good at a subsequent meeting until someone expressed concerns over her frequent use of the F word. She survived a second excruciating hour of debate, and worked for the CFPB just long enough to become a partner at a big law firm.

White men over 40 received the opposite treatment. One attorney’s résumé was so spectacular that interviewers struggled to come up with plausible excuses to reject him. Finally, someone blurted out, “For the love of God, don’t hire him!” Cordray, who always spoke last, had no choice. He asked that the rejection letter be delayed until he could call the Supreme Court justice who had left a voicemail recommending the man.

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Coronation:

Warren would have faced less opposition to being the chair of a bipartisan commission, and might have been confirmed before the 2010 midterm elections restored Republicans’ Senate filibuster and House majority. Instead, her efforts to charm Congress failed and she was heartbroken when the president declined to nominate her as director. She left the agency she had conceived and nurtured on its birthday, July 21, 2011. Biblical allusions to original sin and expulsion from the Garden of Eden were spoiled when she was elected Massachusetts’ junior senator later that year.

On July 17, 2011, the president nominated Cordray to lead the bureau. The soft-spoken Ohio Democrat and University of Chicago alumnus — a former Jeopardy champion and state attorney general who had clerked for Judge Robert Bork and two conservative Supreme Court justices — was literally and strategically a smart choice.

But in the rush to pass the Dodd-Frank Act, Democrats had made a drafting error that limited the CFPB’s most important powers until the bureau had its first director. Republicans vowed to use that leverage to filibuster any nomination until Democrats revised the bureau’s structure and funding.

Cordray was preparing for his confirmation hearing when I e-mailed him one of my favorite Ronald Reagan quotes:

“Free men engaged in free enterprise build better nations with more and better goods and services, higher wages and higher standards of living for more people. But free enterprise is not a hunting license”

He still hadn’t decided how to use the quote when I bumped into him in the office late one night. I asked if he was studying harder than he had for Jeopardy, and for the next half hour he reeled off almost every question he’d been asked a quarter-century earlier. He seemed as impressed by my correct answers as I was by his memory.

On January 4, 2012, the president bypassed the filibuster with a legally suspect recess appointment. Cordray used my Reagan quote in the opening statement of his first Senate testimony as director. Finally, on July 16, 2013, with the Supreme Court decision that clarified the recess appointment’s unconstitutionality a year away and Democrats threatening to eliminate the filibuster through a change in Senate rules, Republicans abandoned the fight. Cordray was confirmed, intensifying partisan acrimony.

Secrecy:

From 2011 to 2016, Republicans regularly passed legislation to restructure the CFPB as a bipartisan commission and bring its funding under the congressional appropriations process. Democrats labeled and rejected all changes as attempts to weaken consumer protection.

The CFPB itself was defined by this existential threat, driven to paranoid secrecy and obsessive self-promotion. It viewed Republican legislative-oversight initiatives as insincere attacks, sometimes appropriately so. But its stonewalling of Congress, and even of its own inspector general, was shocking.

A knowledgeable friend within the bureau once debriefed me on the unit that handled oversight requests. The unwritten policy of its supervising attorneys, and in particular of one former Democratic Senate staffer, was “never give them what they ask for.” When the inspector general complained to Cordray about that supervisor, Cordray took no action because she had accepted a job in the White House. Another former Democratic staffer replaced her. Soon, a career professional in the unit who had resisted pressure to engage in witness coaching and other unethical practices was reprimanded for insubordination and reassigned. The inspector general investigated and issued a report to Cordray that concluded the reprimand was unwarranted and the supervisors had engaged in obstruction.

My own experience as a House Financial Services Committee staffer in 2015 left me no doubt the debriefing was accurate. In one episode, unbeknownst to the CFPB, the committee had obtained internal documents that showed the bureau planned to send discrimination-restitution checks to thousands of Caucasian car buyers — the only way to distribute the restitution fund it had extracted from an auto-finance company based on trumped-up allegations that car dealers had charged higher interest rates on loans to minority customers. The committee’s chairman sent Cordray a letter precisely describing and requesting the documents and related information. I was appalled by the response.

The oversight lawyers sent almost none of the requested information or documents, together with a letter from Cordray pretending the bureau had provided everything. I spent days drafting e-mails demanding either the omitted items or a declaration that they did not exist. Each time, the supervisor simply replied that the chairman’s inquiry was “better suited” to a private briefing with committee staff. Subsequent committee subpoenas fared no better. CFPB enforcement attorneys would have bankrupted a company whose lawyers used similar tactics to stonewall the bureau.

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Publicity:

The flip side of the CFPB’s secrecy was its single-minded pursuit of publicity. External Affairs was the bureau’s most powerful division. Headlines drove and often hindered decision-making and operations, as I witnessed first hand.

Shortly after his nomination, Cordray gathered senior enforcement attorneys to discuss an op-ed by Bill McLucas, my first SEC enforcement director. The piece urged the CFPB to adopt the SEC’s Wells process and allow potential defendants to submit their cases directly to the director before he approved lawsuits and other enforcement actions. Everyone at the table rejected the idea, but I stressed the importance of fairness and due process, especially when legal expenses could destroy an innocent defendant. Cordray agreed. I would draft the procedures.

The working group added restrictions to discourage submissions, like strict page limits and a 14-day deadline. I named it the Notice and Opportunity to Respond and Advise, or NORA, process. Everybody liked the friendly, feminine acronym.

However, External Affairs decided “NORA” wasn’t testing well with journalists, and renamed it “Early Warning Notice.” On Saturday, two days before the November 7, 2011 Early Warning Notice press release and media call, the general counsel’s office sent an e-mail postponing the rollout due to legal concerns. Minutes later, External Affairs replied that it was not their problem and there would be no postponement.

Within days of the rollout, a company threatened to sue for trademark infringement, and the original name was restored. I wish I could report that a NORA submission ever persuaded the director to decline an enforcement action.

Misery:

2011 was a wonderful time to work at the CFPB. Most of the employees had emigrated from distant cities, and they became each other’s second families. Five attorneys huddled with me in a small office dubbed the “Meat Locker” for its arctic air conditioning, and then changed locations every few weeks. My favorite was the “Warren Room,” a cluster of twelve cubicles permeated by non-stop clatter from a nearby ping-pong table.

We pitched ideas for the first investigations. Mine involved the currency-exchange rates credit cards use to convert foreign charges to U.S. dollars. Loud boos and cries of “Who cares about rich tourists?” filled the room. I argued that many international travelers are students and retirees, and the law protects everyone. Plus, we should show wealthier people the CFPB helps them, too. Cordray agreed, and approved my investigation.

Things changed after the recess appointment. Markus, the new enforcement chief, exacerbated hiring biases by soliciting anonymous oral comments about colleagues competing for twelve mid-level supervisor positions. Similar illegal practices throughout the bureau resulted in a dearth of real-world experience, and then socialistic management schemes camouflaged by new-age nomenclature.

Enforcement had issue groups, issue teams, working groups, strategy teams, investigation teams, and litigation teams. Individual initiative was forbidden — investigation ideas were to be submitted to the collective even before preliminary Internet research. An issue group took custody of my exchange-rate investigation and aborted it.

The “us against the world” culture that was exhilarating in a startup became debilitating in a mature agency. Internal policies to minimize record-keeping deprived the CFPB’s enemies of statistics, but limited management tools. External criticism was dismissed as disingenuous, good advice ignored. Problems that could not be acknowledged could not be fixed. Morale and productivity deteriorated. The employees unionized.

There were a few winners, most with political connections, and many more losers. Moderates who objected were marginalized or ostracized.

Leonard Chanin, a 20-year veteran of the Federal Reserve, was the rule making division’s first leader. During meetings, I was humbled by his dignified intellect and mastery of financial laws. In 2013, I asked him why he’d left the bureau. With characteristic understatement, he replied, “I thought it was going to be a professional agency.”

Other employees had fewer options. I once shared a cab with an enforcement attorney who’d had several drinks and was so despondent over her treatment at work that I was terrified she would harm herself.

Discrimination:

During my job interview, Cordray asked what I thought Enforcement should do first. I said there was plenty of low-hanging fruit like credit-report errors, inscrutable fine print, and fraud to keep us busy until the skeptics got comfortable. He agreed.

Car dealers were the highest-hanging fruit — the Dodd-Frank Act explicitly exempted them from the CFPB’s jurisdiction. A month after his recess appointment, Cordray approved a resource-intensive campaign to stop dealers from negotiating interest rates on car loans, a critical profit source. The comically aggressive plan involved guessing car buyers’ races from their names and addresses, using manipulated statistics and the controversial disparate-impact legal doctrine to label dealer lending discriminatory, and accusing finance companies of discrimination for purchasing dealers’ loans at competitive market prices.

The original and least controversial use of the disparate-impact doctrine, which allows discrimination to be proven by statistics alone, was in employment cases. Unfortunately, a September 2013 confidential Deloitte consulting report found that CFPB minority employees received below-average performance-review scores — much stronger disparate-impact evidence than the bureau was using for dealers. Union officials were briefed on, but not given, the report.

Cordray still had not fixed the performance-review system on March 6, 2014, when a perfect storm of the CFPB’s flaws erupted. The report’s findings were leaked to the media, and Republicans pounced. During several embarrassing congressional hearings, employees described disturbing discrimination problems at the agency, like a unit nicknamed “the Plantation.”

That summer, I ran into a CFPB-union official who had shivered with me in the Meat Locker three years earlier. I said Cordray’s senior managers must have been keeping him in the dark. “No,” he replied, “Rich knows everything, the smallest details. He’s changed. He’s over at the White House playing basketball with the president. He’s not the same guy.”

Following the hearings, the CFPB attorney who had defended the bureau against Equal Employment Opportunity claims was chosen to run its EEO program. Another year passed before an African American woman in the EEO office testified to Congress that the problems had worsened; the CFPB was more concerned with preventing bad publicity than with preventing discrimination.

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Abuse:

The Dodd-Frank Act prohibited “abusive acts or practices” that take unreasonable advantage of someone’s inability to protect their interests. The prohibition did not apply to the CFPB.

Enforcement was still hiring and training attorneys when the recess appointment was announced at the beginning of 2012. Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.

Around that time, the Department of Housing and Urban Development transferred its investigation of PHH, a huge mortgage originator, to the CFPB. Most laws contain a statute of limitations that prevents lawsuits from being filed too many years after alleged violations occurred. Chuckles and sighs of relief filled Enforcement’s weekly meeting after an attorney announced that PHH had granted him a “tolling agreement” to temporarily stop the statute-of-limitations clock. Somebody sneered, “Suckers!”

In May of 2012, PHH received a massive civil investigative demand — basically, a subpoena for documents and information issued by government agencies such as the CFPB. Enforcement’s brutal Rules of Investigation gave the company 20 days to review the interrogatories and document requests, meet with enforcement attorneys, and petition the director to scale back the CID. Cordray denied PHH’s application for a two-week extension of the filing deadline.

In July of 2012, I got a call from a law-school classmate who suggested I join his law firm. By September, visitors to my new office at the firm could read Cordray’s recommendation letter, which hung next to a photo of us shaking hands moments after he was sworn in.

Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.

On September 20, 2012, Cordray issued his decision rejecting all of PHH’s modification requests. I had doubts about the opinion, which appeared to punish the company’s defiance, even before I ran into one of PHH’s lawyers the following January. I asked what had gone wrong. “Nothing,” he replied. “We just assumed the CFPB conducted itself like other agencies.”

A month later, I understood. My first CFPB-target client was a small-business owner whose twelve-year commercial relationship with a local bank was governed by the same law PHH would later be accused of violating. In 2011, the bank’s regulator had withdrawn its blessing from the arrangement, charged the bank a small fine, and transferred jurisdiction to the bureau. The file collected dust for over a year before Enforcement asked the man to sign a tolling agreement that only a lawyer would recognize as permanent. Fortunately, he contacted me first.

The man felt he’d done nothing wrong, but uncertainty about the investigation would force him to lay off employees. I called the enforcement attorney and offered to come right over and discuss a settlement. When I declined the tolling agreement, he said I had a conflict of interest, hung up, and spent the next month trying to find one. He gave up after I reminded his supervisors that interfering with my client’s constitutional right to counsel was a serious ethics violation.

For the first two hours of the subsequent settlement conference, the attorney refused to discuss a settlement, and continued to press for the tolling agreement. I insisted he make an offer. Finally, he did — ten times more than the bank had paid. I accepted and asked for the settlement documents. Instead, the next day he sent a civil complaint and threatened to sue within 24 hours if my client didn’t sign a tolling agreement.

I replied that my client wanted to make a NORA submission before the director approved the lawsuit. No scenario could have been more appropriate: The legal expenses would crush the man’s business and cost employees their jobs; he’d had no opportunity to present evidence or tell Cordray his side of the story; and Enforcement hadn’t even conducted an investigation.

The response was swift. I was informed that the NORA process was discretionary and the director felt it was not in the bureau’s interests to let my client present his case — request denied. The poor man signed a tolling agreement, but not the irrevocable one Enforcement had sent him before he had a lawyer.

Injustice:

During my first-year legal-ethics seminar, we discussed a scene from A Man for All Seasons in which Will Roper urges Sir Thomas More to arrest Richard Rich, an evil man who has broken no laws. When Roper says he would cut down every law in England to get at the Devil, More replies:

Oh? And when the last law was down, and the Devil turned round on you — where would you hide, Roper, the laws all being flat?

Bruce Mann, Professor Warren’s husband, taught the seminar. Perhaps the film’s ending — More’s execution based on Rich’s perjured testimony — inspired Warren to cut down the Constitution to get at the banks.

SEC enforcement attorneys are often asked, “Is my client a target?” They’re trained to respond, “SEC investigations are a search for the truth — they don’t have targets, they have subjects.” In 2011, I mentioned CFPB attorneys’ exclusive use of “target” to Cordray. He liked the SEC’s practice, and approved the internal procedure I had written to adopt it. Whenever he slipped and used “target” at meetings, he smiled and corrected himself.

By 2013, no other label worked. For each issue the strategy team identified, one or two companies were investigated. The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue — what it called the “chokepoints” — rather than those with the most complaints.

Enforcement’s internal procedures restricted the contents of investigation files, about the only thing the CFPB had to turn over to defendants before administrative trials. One of the procedures’ drafters told me that withholding exculpatory evidence from targets was ethical because the bureau was like any civil litigant — it did everything it could within the law to win.

Targets were almost certain to write a check, especially if they were accused of subjective “unfair, deceptive, or abusive acts or practices.” Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.

Defendants who chose to fight the bureau could not seek relief in federal court until all administrative processes were exhausted, despite those processes’ being a farce — Floyd Mayweather Jr. would envy Enforcement’s record in appeals to the director. And even if a case did make it that far, the courts were bound to defer to the director’s judgment unless he had clearly misinterpreted a law. With no meaningful opportunity to defend themselves, many businesses were forced to pay millions of dollars, regardless of guilt or harm to consumers.

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Neglect:

Despite these advantages, the CFPB’s misplaced priorities kept it from protecting consumers during the most widespread fraud in recent history.

On September 8, 2016, Wells Fargo paid the CFPB, the Los Angeles city attorney, and the comptroller of the currency $185 million in penalties for bank employees’ having opened millions of unauthorized customer accounts since 2011. External Affairs’ media blitz and the bureau’s $100 million share of the penalties created the illusion that Enforcement had led a heroic investigation. CFPB supporters, with Pavlovian predictability, shamed Republicans for attempting to weaken the agency.

But the settlement reserved only a few million dollars in restitution for victims. Enforcement didn’t advance consumer lawsuits by making the bank admit wrongdoing, and it didn’t do much to help criminal prosecutors beyond giving the Department of Justice legally mandated evidence.

Congressional hearings revealed that two years of examinations, thousands of bank-employee firings, and numerous complaints had failed to get the bureau’s attention before the Los Angeles Times published a detailed exposé late in 2013. Worse yet, from 2013 to 2016, the CFPB took no action while the bank continued the incentive program that drove the unauthorized account openings. Wells Fargo CEO John Stumpf and Carrie Tolstedt, the executive overseeing the program, earned tens of millions of dollars. Tolstedt retired with a huge nest egg two months before the settlement.

The CFPB had waited while the city attorney and OCC completed their investigations, and then negotiated its headline-grabbing penalty. A month after the settlement, it was clear that simply taking regulatory action to highlight the severity of the fraud had triggered the real wake-up call for bank executives. Wells Fargo’s stock lost billions of dollars in value, and its board clawed back $60 million from Stumpf and Tolstedt before firing Stumpf. The $100 million penalty may deter future violations, but no more so than a smaller fine or a CFPB lawsuit would have three years earlier.

During Senate hearings, Cordray implied that Enforcement had stood down because all available personnel were busy investigating deceptive credit-card add-on products and other violations. In doing so, he inadvertently revealed that the campaign to expand the bureau’s reach to car dealers had diverted limited resources from mission-critical tasks.

Reckoning:

Fortunately for PHH, the CFPB had accused it of violating a specific mortgage law. For two decades, HUD had interpreted the law and provided guidance that allowed business relationships like the ones Enforcement had investigated at PHH; payments to the company and its affiliates above the reasonable market value of services rendered were deemed illegal kickbacks. An administrative-law judge, following HUD’s interpretation, ordered PHH to refund consumers $6.4 million in excess payments. PHH appealed to the director.

Cordray’s decision was stunning: HUD’s interpretation was wrong; the CFPB was not bound by the mortgage law’s three-year statute of limitations; all payments during the last eight years were kickbacks; PHH didn’t owe $6.4 million, it owed $109 million.

Centuries before a 2016 Nobel Prize winner catalogued the havoc wrought by government officials with God on their side, the founding fathers put checks and balances into the Constitution to limit it. By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.

Parts of the decision by the three-judge panel were obvious: HUD’s interpretation of the law was correct; Cordray’s attempt to reinterpret it retroactively violated PHH’s due-process rights; the CFPB could not disregard deadlines in the laws it enforced.

The rest of Judge Brett Kavanaugh’s 100-page opinion, an eloquent dissertation on liberty, democracy, and justice, answered questions that had been debated for six years. The people elect the president. Executive agencies report to the president, who can remove their leaders at will. While the president cannot remove members of independent commissions, their power is tempered by bipartisan collaboration and transparency. The Dodd-Frank Act made the CFPB’s unelected director “the single most powerful official in the entire U.S. Government, other than the President,” and arguably more powerful in consumer financial-protection matters. The Constitution permits single-director executive agencies and independent commissions, but not single-director independent agencies. The most important words in the opinion were buried in footnote twelve: “An agency structure must be adjudged on the basis of what it permits to happen.”

By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.

Judge Kavanaugh’s remedy was simple: He struck 18 words from the Dodd-Frank Act and announced, “The President of the United States now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” If the ruling were upheld, Warren’s agency would lose its independence. Democrats shrugged; they would undo the decision after winning the election, just 28 days away.

Shimon Peres’s death brought to mind parallels between the CFPB and the state of Israel. Both were established during a brief window of political opportunity created by sympathy for the victims of a catastrophe, both defined by existential threat, and both criticized for territorial expansion. Both might also have used the land-for-peace formula to resolve longstanding conflicts.

The CFPB’s metaphoric swap was Democrats’ restructuring the bureau as a bipartisan commission in exchange for Republicans’ recognizing the agency’s independence by blessing funding through the Federal Reserve. Unlike Israel, Democrats never offered the deal, even after losing everything but their Senate filibuster in the election.

Instead, on November 18, 2016, the CFPB petitioned the full court of appeals to rehear the case. If that fails, Democrats hope to exclude Republicans until Cordray’s term ends in 2018, or even until the 2020 election, by appealing to the Supreme Court. The strategy assumes President Trump cannot remove Cordray for cause — “inefficiency, neglect of duty, or malfeasance in office.”

Epilogue:

Late one evening in 2012, I entered the Farragut North metro station a few steps behind Cordray, who was talking on his cell phone. I kept my distance on the long descending escalator, but overheard snippets of the conversation. “That good plan, Kemosabe.” “You plenty wise, Kemosabe.” I remember thinking that his twelve-year-old son couldn’t possibly appreciate how lucky he was. Four years later, on March 16, 2016, Cordray testified before the House Financial Services Committee, which had published its copies of the documents the CFPB refused to provide because the chairman’s requests were “better suited to a briefing.” Representative Sean Duffy asked several pointed questions about the blatant stonewalling. Under oath, Cordray replied, “If you ask for responsive documents in an area, we give you the responsive documents we can.”

Source: Whiskeytangotexas

 

This Michigan Bank Just Brought Back The Zero-Down Mortgage; They’ll Even Cover Your Closing Costs

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A small savings bank in Michigan, Flagstar Bank, has come up with a genius, innovative new mortgage product that they believe is going to be great for their investors and low-income housing buyers: the “zero-down mortgage.”  What’s better, Flagstar is even offering to pay the closing costs of their low-income future mortgage debtors.  Here’s more from HousingWire:

Under the program, Flagstar will gift the required 3% down payment to the borrower, plus up to $3,500 to be used for closing costs.

According to the bank, there is no obligation for borrowers who qualify to repay the down payment gift.

The program is available to only certain low- to moderate-income borrowers and borrowers in low- to moderate-income areas throughout Michigan.

Borrowers would not have to repay the down payment or closing costs. But a 1099 form to report the income would be issued to the Internal Revenue Service by the bank. So the gifts could be taxable, depending on the borrower’s financial picture.

Flagstar said borrowers who might qualify for its new program typically would have an annual income in the range of $35,000 to $62,000. The sales price of the home — which must be in qualifying areas — would tend to be in the range of $80,000 to $175,000.

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Think it’s too good to be true?  Lakeshia Wiley of Detroit’s west side begs to differ…she recently went through Flagstar to purchase her new home and only had to come up with $350 of her own money.  Per the Detroit Free Press:

Lakeshia Wiley, 35, said she wouldn’t have been able to buy her first home without the Fifth Third Down Payment Assistance program and two other grants, including one from Southwest Solutions.

The brick home, built in 1951, is on Detroit’s west side, needed very little work and was priced at $50,000.

“I’m very excited every time I think about it. It’s beautiful. I love it,” Wiley said.

Wiley never expected to be able to buy a home, though, because she has had a hard time saving for a down payment.

“I didn’t think I’d be able to do it,” said the single mother who has two sons, ages 17 and 10, and a daughter, age 6. She works at a Detroit pharmacy.

Thanks to the down payment assistance and the grants, Wiley was able to buy her home in April. She had to bring less than $350 to the table at closing.

The Flagstar program is available in 18 counties in Michigan, and could be used for certain homes in Detroit and Flint, along with other cities.

Of course, we would highly encourage Flagstar to take a look back into ancient history for case studies on what happened the last time banks started peddling “innovative” mortgage products.  Here’s a summary of the Lehman Brothers case study:

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Ironically, South Park also did some fascinating research on the topic:

Source: ZeroHedge

 

Bringing Forward Important Questions About The Fed’s Role In Our Economy Today

I hope this article brings forward important questions about the Federal Reserves role in the US as it attempts to begin a broader dialogue about the financial and economic impacts of allowing the Federal Reserve to direct America’s economy.  At the heart of this discussion is how the Federal Reserve always was, or perhaps morphed, into a state level predatory lender providing the means for a nation to eventually bankrupt itself.

Against the adamant wishes of the Constitution’s framers, in 1913 the Federal Reserve System was Congressionally created.  According to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.”  Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest.

A quick overview; monetary policy is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.  The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy.  Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates.  Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States.

I suggest what truly happened in 1913 was that Congress willingly abdicated a portion of its responsibilities, and through the Federal Reserve, began a process that would undermine the functioning American democracy.  “How”, you ask?  The Fed, believing the free-market to be “imperfect” (aka; wrong) believed it (the Fed) should control and set interest rates, determine full employment, determine asset prices; not the “free market”.  And here’s what happened:

  • From 1913 to 1971, an increase of  $400 billion in federal debt cost $35 billion in additional annual interest payments.
  • From 1971 to 1981, an increase of $600 billion in federal debt cost $108 billion in additional annual interest payments.
  • From 1981 to 1997, an increase of $4.4 trillion cost $224 billion in additional annual interest payments.
  • From 1997 to 2017, an increase of $15.2 trillion cost “just” $132 billion in additional annual interest payments.

Stop and read through those bullet points again…and then one more time.  In case that hasn’t sunk in, check the chart below…

index1

What was the economic impact of the Federal Reserve encouraging all that debt?  The yellow line in the chart below shows the annual net impact of economic growth (in growing part, spurred by the spending of that new debt)…gauged by GDP (blue columns) minus the annual rise in federal government debt (red columns).  When viewing the chart, the problem should be fairly apparent.  GDP, subtracting the annual federal debt fueled spending, shows the US economy is collapsing except for counting the massive debt spending as “economic growth”.

index2

Same as above, but a close-up from 1981 to present.  Not pretty.

index3

Consider since 1981, the Federal Reserve set FFR % (Federal Funds rate %) is down 94% and the associated impacts on the 10yr Treasury (down 82%) and the 30yr Mortgage rate (down 77%).  Four decades of cheapening the cost of servicing debt has incentivized and promoted ever greater use of debt.

index4

Again, according to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.”  However, the chart below shows the Federal Reserve policies’ impact on the 10yr Treasury, stocks (Wilshire 5000 representing all publicly traded US stocks), and housing to be anything but “safer” or “stable”.

index5

Previously, I have made it clear the asset appreciation the Fed is providing is helping a select few, at the expense of the many, HERE.

But a functioning democratic republic is premised on a simple agreement that We (the people) will freely choose our leaders who will (among other things) compromise on how taxation is to be levied, how much tax is to be collected, and how that taxation is to be spent.  The intervention of the Federal Reserve into that equation, controlling interest rates, outright purchasing assets, and plainly goosing asset prices has introduced a cancer into the nation which has now metastasized.

In time, Congress (& the electorate) would realize they no longer had to compromise between infinite wants and finite means.  The Federal Reserve’s nearly four decades of interest rate reductions and a decade of asset purchases motivated the election of candidates promising ever greater government absent the higher taxation to pay for it.  Surging asset prices created fast rising tax revenue.  Those espousing “fiscal conservatism” or living within our means (among R’s and/or D’s) were simply unelectable.

This Congressionally created mess has culminated in the accumulation of national debt beyond our means to ever repay.  As the chart below highlights, the Federal Reserve set interest rate (Fed. Funds Rate=blue line) peaked in 1981 and was continually reduced until it reached zero in 2009.  The impact of lower interest rates to promote ever greater national debt creation was stupendous, rising from under $1 trillion in 1981 to nearing $21 trillion presently.  However, thanks to the seemingly perpetually lower Federal Reserve provided rates, America’s interest rate continually declined inversely to America’s credit worthiness or ability to repay the debt.

index6

The impact of the declining rates meant America would not be burdened with significantly rising interest payments or the much feared bond “Armageddon” (chart below).  All the upside of spending now, with none of the downside of ever paying it back, or even simply paying more in interest.  Politicians were able to tell their constituencies they could have it all…and anyone suggesting otherwise was plainly not in contention.  Federal debt soared and soared but interest payable in dollars on that debt only gently nudged upward.

  • In 1971, the US paid $36 billion in interest on $400 billion in federal debt…a 9% APR.
  • In 1981, the US paid $142 billion on just under $1 trillion in debt…a 14% APR.
  • In 1997, the US paid $368 billion on $5.4 trillion in debt or 7% APR…and despite debt nearly doubling by 2007, annual interest payments in ’07 were $30 billion less than a decade earlier.
  • By 2017, the US will pay out about $500 billion on nearly $21 trillion in debt…just a 2% APR.

index7

The Federal Reserve began cutting its benchmark interest rates in 1981 from peak rates.  Few understood that the Fed would cut rates continually over the next three decades.  But by 2008, lower rates were not enough.  The Federal Reserve determined to conjure money into existence and purchase $4.5 trillion in mid and long duration assets.  Previous to this, the Fed has essentially held zero assets beyond short duration assets in it’s role to effect monetary policy.  The change to hold longer duration assets was a new and different self appointed mandate to maintain and increase asset prices.

index8

But why the declining interest rates and asset purchases in the first place?

The Federal Reserve interest rates have very simply primarily followed the population cycle and only secondarily the business cycle.  What the chart below highlights is annual 25-54yr/old population growth (blue columns) versus annual change in 25-54yr/old employees (black line), set against the Federal Funds Rate (yellow line).  The FFR has followed the core 25-54yr/old population growth…and the rising, then decelerating, now declining demand that that represented means lower or negative rates are likely just on the horizon (despite the Fed’s current messaging to the contrary).

index9

Below, a close-up of the above chart from 2000 to present.

index10

Running out of employees???  Each time the 25-54yr/old population segment has exceeded 80% employment, economic dislocation has been dead ahead.  We have just exceeded 78% but given the declining 25-54yr/old population versus rising employment…and the US is likely to again exceed 80% in 2018.

index11

Given the FFR follows population growth, consider that the even broader 20-65yr/old population will essentially see population growth grind to a halt over the next two decades.  This is no prediction or estimate, this population has already been born and the only variable is the level of immigration…which is falling fast due to declining illegal immigration meaning the lower Census estimate is more likely than the middle estimate.

index12

So where will America’s population growth take place?  The 65+yr/old population is set to surge.

index13

But population growth will be shifting to the most elderly of the elderly…the 75+yr/old population.  I outlined the problems with this previously HERE.

index14

Back to the Federal Reserve, consider the impact on debt creation prior and post the creation of the Federal Reserve:

  • 1790-1913: Debt to GDP Averaged 14%
  • 1913-2017: Debt to GDP Averaged 53%
    • 1913-1981: 46% Average
    • 1981-2000: 52% Average
    • 2000-2017: 79% Average

As the chart below highlights, since the creation of the Federal Reserve the growth of debt (relative to growth of economic activity) has gone to levels never dreamed of by the founding fathers.  In particular, the systemic surges in debt since 1981 are unlike anything ever seen prior in American history.  Although the peak of debt to GDP seen in WWII may have been higher (changes in GDP calculations mean current GDP levels are likely significantly overstating economic activity), the duration and reliance upon debt was entirely tied to the war.  Upon the end of the war, the economy did not rely on debt for further growth and total debt fell.

index15

Any suggestion that the current situation is like any America has seen previously is simply ludicrous.  Consider that during WWII, debt was used to fight a war and initiate a global rebuild via the Marshall Plan…but by 1948, total federal debt had already been paid down by $19 billion or a seven percent reduction…and total debt would not exceed the 1946 high water mark again until 1957.  During that ’46 to ’57 stretch, the economy would boom with zero federal debt growth.

  • 1941…Fed debt = $58 b (Debt to GDP = 44%)
  • 1946…Fed debt = $271 b (Debt to GDP = 119%)
    • 1948…Fed debt = $252 b <$19b> (Debt to GDP = 92%)
    • 1957…Fed debt = $272 b (Debt to GDP = 57%)

If the current crisis ended in 2011 (recession ended by 2010, by July of  2011 stock markets had recovered their losses), then the use of debt as a temporary stimulus should have ended?!?  Instead, debt and debt to GDP are still rising.

  • 2007…Federal debt = $8.9 T (Debt to GDP = 62%)
  • 2011…Federal debt = $13.5 T (Debt to GDP = 95%)
  • 2017…Federal Debt = $20.5 T (Debt to GDP = 105%)

July of 2011 was the great debt ceiling debate when America determined once and for all, that the federal debt was not actually debt.  America had no intention to ever repay it.  It was simply monetization and since the Federal Reserve was maintaining ZIRP, and all oil importers were forced to buy their oil using US dollars thanks to the Petrodollar agreement…what could go wrong?

But who would continue to buy US debt if the US was addicted to monetization in order to pay its bills?  Apparently, not foreigners.  If we look at foreign Treasury buying, some very notable changes are apparent beginning in July of 2011:

  1. The BRICS (Brazil, Russia, India, China, S. Africa…represented in red in the chart below) ceased net accumulating US debt as of July 2011.
  2. Simultaneous to the BRICS cessation, the BLICS (Belgium, Luxembourg, Ireland, Cayman Island, Switzerland…represented in black in the chart below) stepped in to maintain the bid.
  3. Since QE ended in late 2014, foreigners have followed the Federal Reserve’s example and nearly forgone buying US Treasury debt.

index17

China was first to opt out and began net selling US Treasuries as of August, 2011 (China in red, chart below).  China has continued to run record trade driven dollar surplus but has net recycled none of that into US debt since July, 2011.  China had averaged 50% of its trade surplus into Treasury debt from 2000 to July of 2011, but from August 2011 onward China stopped cold.

As China (and more generally the BRICS) ceased buying US Treasury debt, a strange collection of financier nations (the BLICS) suddenly became very interested in US Treasury debt.  From the debt ceiling debate to the end of QE, these nations were suddenly very excited to add $700 billion in near record low yielding US debt while China net sold.

index18

The chart below shows total debt issued during periods, from 1950 to present, and who accumulated the increase in outstanding Treasurys.

index19

The Federal Reserve plus foreigners represented nearly 2/3rds of all demand from ’08 through ’14.  However, since the end of QE, and that 2/3rds of demand gone…rates continue near generational lows???  Who is buying Treasury debt?  According to the US Treasury, since QE ended, it is record domestic demand that is maintaining the Treasury bid.  The same domestic public buying stocks at record highs and buying housing at record highs.

index20

Looking at who owns America’s debt 2007 through 2016, the chart below highlights the four groups that hold nearly 90% of the debt: 

  1. The combined Federal Reserve/Government Accounting Series
  2. Foreigners
  3. Domestic Mutual Funds
  4. And the massive rise in Treasury holdings by domestic “Other Investors” who are not domestic insurance companies, not local or state governments, not depository institutions, not pensions, not mutual funds, nor US Saving bonds.

index21

Treasury buying by foreigners and the Federal Reserve has collapsed since QE ended (chart below).  However, the odd surge of domestic “other investors”, Intra-Governmental GAS, and domestic mutual funds have nearly been the sole buyer preventing the US from suffering a very painful surge in interest payments on the record quantity of US Treasury debt.

index22

No, this is nothing like WWII or any previous “crisis”.  While America has appointed itself “global policeman” and militarily outspends the rest of the world combined, America is not at war.  Simply put, what we are looking at appears little different than the Madoff style Ponzi…but this time it is a state sponsored financial fraud magnitudes larger.

The Federal Reserve and its systematic declining interest rates to perpetuate unrealistically high rates of growth in the face of rapidly decelerating population growth have fouled the American political system, its democracy, and promoted the system that has now bankrupted the nation.  And it appears that the Federal Reserve is now directing a state level fraud and farce.  If it isn’t time to reconsider the Fed’s role and continued existence now, then when?

By Chris Hamilton | Econimica

Mortgage Applications Decrease in Latest Mortgage Bankers Association Weekly Survey

The first graph shows the refinance index. The refinance index is down 76% from the levels in May 2013. Refinance activity is very low this year and will be the lowest since year 2000.

The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 11% from a year ago.

Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 26, 2014 …

The Refinance Index decreased 0.3 percent from the previous week. The seasonally adjusted Purchase Index remained unchanged from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 11 percent lower than the same week one year ago. …

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent from 4.39 percent, with points decreasing to 0.31 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Source: Calculated Risk

 

Think Wells Fargo is Corrupt? A Suit Claims Another Big Bank is Worse

Wells Fargo has been in the news for allegedly doing all sorts of bad things to consumers.  One thing Wells hasn’t done is collect payments on loans that were owned by someone else.  Then, tell federal regulators that they are forgiving the loans they have sold to get federal credit under the huge federal mortgage settlement.  Supposedly, Chase hired to company with ties to the Church of Scientology to prepare releases on thousands of loans Chase no longer owned to get the federal credit.  A suit against Chase claims that is what the country’s largest bank did, allegedly with the CEO’s full knowledge.  It sounds too bizarre to be real but 21 companies who bought defaulted mortgages from Chase say that is what happened.  Consumers have been caught in the middle with Chase sending them notices that their loans were paid in full and the companies who say they bought the loans from Chase telling them they still owe the money.


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Special Investigation: How America’s Biggest Bank Paid Its Fine for the 2008 Mortgage Crisis—With Phony Mortgages!

Alleged fraud put JPMorgan Chase hundreds of millions of dollars ahead; ordinary homeowners, not so much.

You know the old joke: How do you make a killing on Wall Street and never risk a loss? Easy—use other people’s money. Jamie Dimon and his underlings at JPMorgan Chase have perfected this dark art at America’s largest bank, which boasts a balance sheet one-eighth the size of the entire US economy.

After JPMorgan’s deceitful activities in the housing market helped trigger the 2008 financial crash that cost millions of Americans their jobs, homes, and life savings, punishment was in order. Among a vast array of misconduct, JPMorgan engaged in the routine use of “robo-signing,” which allowed bank employees to automatically sign hundreds, even thousands, of foreclosure documents per day without verifying their contents. But in the United States, white-collar criminals rarely go to prison; instead, they negotiate settlements. Thus, on February 9, 2012, US Attorney General Eric Holder announced the National Mortgage Settlement, which fined JPMorgan Chase and four other mega-banks a total of $25 billion.

JPMorgan’s share of the settlement was $5.3 billion, but only $1.1 billion had to be paid in cash; the other $4.2 billion was to come in the form of financial relief for homeowners in danger of losing their homes to foreclosure. The settlement called for JPMorgan to reduce the amounts owed, modify the loan terms, and take other steps to help distressed Americans keep their homes. A separate 2013 settlement against the bank for deceiving mortgage investors included another $4 billion in consumer relief.

A Nation investigation can now reveal how JPMorgan met part of its $8.2 billion settlement burden: by using other people’s money.

Here’s how the alleged scam worked. JPMorgan moved to forgive the mortgages of tens of thousands of homeowners; the feds, in turn, credited these canceled loans against the penalties due under the 2012 and 2013 settlements. But here’s the rub: In many instances, JPMorgan was forgiving loans it no longer owned.

The alleged fraud is described in internal JPMorgan documents, public records, testimony from homeowners and investors burned in the scam, and other evidence presented in a blockbuster lawsuit against JPMorgan, now being heard in US District Court in New York City.

JPMorgan no longer owned the loans because it had sold the mortgages years earlier to 21 third-party investors, including three companies owned by Larry Schneider. Those companies are the plaintiffs in the lawsuit; Schneider is also aiding the federal government in a related case against the bank. In a bizarre twist, a company associated with the Church of Scientology facilitated the apparent scheme. Nationwide Title Clearing, a document-processing company with close ties to the church, produced and filed the documents that JPMorgan needed to claim ownership and cancel the loans.

“If the allegations are true, JPMorgan screwed everybody.” —former congressman Brad Miller

JPMorgan, it appears, was running an elaborate shell game. In the depths of the financial collapse, the bank had unloaded tens of thousands of toxic loans when they were worth next to nothing. Then, when it needed to provide customer relief under the settlements, the bank had paperwork created asserting that it still owned the loans. In the process, homeowners were exploited, investors were defrauded, and communities were left to battle the blight caused by abandoned properties. JPMorgan, however, came out hundreds of millions of dollars ahead, thanks to using other people’s money.

“If the allegations are true, JPMorgan screwed everybody,” says Brad Miller, a former Democratic congressman from North Carolina who was among the strongest advocates of financial reform on Capitol Hill until his retirement in 2013.

In an unusual departure from most allegations of financial bad behavior, there is strong evidence that Jamie Dimon, JPMorgan’s CEO and chairman, knew about and helped to implement the mass loan-forgiveness project. In two separate meetings in 2013 and 2014, JPMorgan employees working on the project were specifically instructed not to release mortgages in Detroit under orders from Dimon himself, according to internal bank communications. In an apparent public-relations ploy, JPMorgan was about to invest $100 million in Detroit’s revival. Dimon’s order to delay forgiving the mortgages in Detroit appears to have been motivated by a fear of reputational risk. An internal JPMorgan report warned that hard-hit cities might take issue with bulk loan forgiveness, which would deprive municipal governments of property taxes on abandoned properties while further destabilizing the housing market.

Did Dimon also know that JPMorgan, as part of its mass loan-forgiveness project, was forgiving loans it no longer owned? No internal bank documents confirming that knowledge have yet surfaced, but Dimon routinely takes legal responsibility for knowing about his bank’s actions. Like every financial CEO in the country, Dimon is obligated by law to sign a document every year attesting to his knowledge of and responsibility for his bank’s operations. The law establishes punishments of $1 million in fines and imprisonment of up to 10 years for knowingly making false certifications.

Dimon signed the required document for each of the years that the mass loan-forgiveness project was in operation, from 2012 through 2016. Whether or not he knew that his employees were forgiving loans the bank no longer owned, his signatures on those documents make him potentially legally responsible.

The JPMorgan press office declined to make Dimon available for an interview or to comment for this article. Nationwide Title Clearing declined to comment on the specifics of the case but said that it is “methodical in the validity and legality of the documents” it produces.

Federal appointees have been complicit in this as well. E-mails show that the Office of Mortgage Settlement Oversight, charged by the government with ensuring the banks’ compliance with the two federal settlements, gave JPMorgan the green light to mass-forgive its loans. This served two purposes for the bank: It could take settlement credit for forgiving the loans, and it could also hide these loans—which JPMorgan had allegedly been handling improperly—from the settlements’ testing regimes.

“No one in Washington seems to understand why Americans think that different rules apply to Wall Street, and why they’re so mad about that,” said former congressman Miller. “This is why.”

Lauren and Robert Warwick were two of the shell game’s many victims. The Warwicks live in Odenton, Maryland, a bedroom community halfway between Baltimore and Washington, DC, and had taken out a second mortgage on their home with JPMorgan’s Chase Home Finance division. In 2008, after the housing bubble burst and the Great Recession started, 3.6 million Americans lost their jobs; Lauren Warwick was one of them.

Before long, the Warwicks had virtually no income. While Lauren looked for work, Robert was in the early stages of starting a landscaping business. But the going was slow, and the Warwicks fell behind on their mortgage payments. They tried to set up a modified payment plan, to no avail: Chase demanded payment in full and warned that foreclosure loomed. “They were horrible,” Lauren Warwick told The Nation. “I had one [Chase representative] say, ‘Sell the damn house—that’s all you can do.’”

Then, one day, the hounding stopped. In October 2009, the Warwicks received a letter from 1st Fidelity Loan Services, welcoming them as new customers. The letter explained that 1st Fidelity had purchased the Warwicks’ mortgage from Chase, and that they should henceforth be making an adjusted mortgage payment to this new owner.

The alleged shell game put JPMorgan hundreds of millions of dollars ahead—with federal permission.

Lauren Warwick had never heard of 1st Fidelity, but the letter made her more relieved than suspicious. “I’m thinking, ‘They’re not taking my house, and they’re not hounding me,’” she said.

Larry Schneider, 49, is the founder and president of 1st Fidelity and two other mortgage companies. He has worked in Florida’s real-estate business for 25 years, getting his start in Miami. In 2003, Schneider hit upon a business model: If he bought distressed mortgages at a significant discount, he could afford to offer the borrowers reduced mortgage payments. It was a win-win-win: Borrowers remained in their homes, communities were stabilized, and Schneider still made money.

“I was in a position where I could do what banks didn’t want to,” Schneider says. In fact, his business model resembled what President Franklin Roosevelt did in the 1930s with the Home Owners’ Loan Corporation, which prevented nearly 1 million foreclosures while turning a small profit. More to the point, Schneider’s model exemplified how the administrations of George W. Bush and Barack Obama could have handled the foreclosure crisis if they’d been more committed to helping Main Street rather than Wall Street.

The Warwicks’ loan was one of more than 1,000 that Schneider purchased without incident from JPMorgan’s Chase Home Finance division starting in 2003. In 2009, the bank offered Schneider a package deal: 3,529 primary mortgages (known as “first liens”) on which payments had been delinquent for over 180 days. Most of the properties were located in areas where the crisis hit hardest, such as Baltimore.

Selling distressed properties to companies like Schneider’s was part of JPMorgan’s strategy for limiting its losses after the housing bubble collapsed. The bank owned hundreds of thousands of mortgages that had little likelihood of being repaid. These mortgages likely carried ongoing costs: paying property taxes, addressing municipal-code violations, even mowing the lawn. Many also had legal defects and improper terms; if federal regulators ever scrutinized these loans, the bank would be in jeopardy.

In short, the troubled mortgages were the financial equivalent of toxic waste. To deal with them, Chase Home Finance created a financial toxic-waste dump: The mortgages were listed in an internal database called RCV1, where RCV stood for “Recovery.”

Unbeknownst to Schneider, the package deal that Chase offered him came entirely from this toxic-waste dump. Because he’d had a good relationship with Chase up to that point, Schneider took the deal. On February 25, 2009, he signed an agreement to buy the loans, valued at $156 million, for only $200,000—slightly more than one-tenth of a penny on the dollar. But the agreement turned sour fast, Schneider says.

Among a range of irregularities, perhaps the most egregious was that Chase never provided him with all the documentation proving ownership of the loans in question. The data that Schneider did receive lacked critical information, such as borrower names, addresses of the properties, even the payment histories or amounts due. This made it impossible for him to work with the borrowers to modify their terms and help them stay in their homes. Every time Schneider asked Chase about the full documentation, he was told it was coming. It never arrived.

As CEO, Jamie Dimon is potentially legally responsible for JPMorgan’s apparently phony mortgages.

Here’s the kicker: JPMorgan was still collecting payments on some of these loans and even admitted this fact to Schneider. In December 2009, a Chase Home Finance employee named Launi Solomon sent Schneider a list of at least $47,695.53 in payments on his loans that the borrowers had paid to Chase. But 10 days later, Solomon wrote that these payments would not be transferred to Schneider because of an internal accounting practice that was “not reversible.” On another loan sold to Schneider, Chase had taken out insurance against default; when the homeowner did in fact default, Chase pocketed the $250,000 payout rather than forward it to Schneider, according to internal documents.

Chase even had a third-party debt collector named Real Time Resolutions solicit Schneider’s homeowners, seeking payments on behalf of Chase. In one such letter from 2013, Real Time informed homeowner Maureen Preis, of Newtown Square, Pennsylvania, that “our records indicate Chase continues to hold a lien on the above referenced property,” even though Chase explicitly confirmed to Schneider that it had sold him the loan in 2010.

JPMorgan jumped in and out of claiming mortgage ownership, Schneider asserts, based on whatever was best for the bank. “If a payment comes in, it’s theirs,” he says; “if there’s a code-enforcement issue, it’s mine.”

The shell game entered a new, more far-reaching phase after JPMorgan agreed to its federal settlements. Now the bank was obligated to provide consumer relief worth $8.2 billion—serious money even for JPMorgan. The solution? Return to the toxic-waste dump.

Because JPMorgan had stalled Schneider on turning over the complete paperwork proving ownership, it took the chance that it could still claim credit for forgiving the loans that he now owned. Plus the settlements required JPMorgan to show the government that it was complying with all federal regulations for mortgages. The RCV1 loans didn’t seem to meet those standards, but forgiving them would enable the bank to hide this fact.

The Office of Mortgage Settlement Oversight gave Chase Home Finance explicit permission to implement this strategy. “Your business people can be relieved from pushing forward” on presenting RCV1 loans for review, lawyer Martha Svoboda wrote in an e-mail to Chase, as long as the loans were canceled.

Chase dubbed this the “pre DOJ Lien Release Project.” (To release a lien means to forgive the loan and relinquish any ownership right to the property in question.) The title page of an internal report on the project lists Lisa Shepherd, vice president of property preservation, and Steve Hemperly, head of mortgage originations, as the executives in charge. The bank hired Nationwide Title Clearing, the company associated with the Church of Scientology, to file the lien releases with county offices. Erika Lance, an employee of Nationwide, is listed as the preparer on 25 of these lien releases seen by The Nation. Ironically, Schneider alleges, the releases were in effect “robo-signed,” since the employees failed to verify that JPMorgan Chase owned the loans. If Schneider is right, it means that JPMorgan relied on the same fraudulent “robo-signing” process that had previously gotten the bank fined by the government to help it evade that penalty.

On September 13, 2012, Chase Home Finance mailed 33,456 forgiveness letters informing borrowers of the debt cancellation. Schneider immediately started hearing from people who said that they wouldn’t be making further payments to him because Chase had forgiven the loan. Some even sued Schneider for illegally charging them for mortgages that he (supposedly) didn’t own.

When Lauren and Robert Warwick got their forgiveness letter from Chase, Lauren almost passed out. “You will owe nothing more on the loan and your debt with be cancelled,” the letter stated, calling this “a result of a recent mortgage servicing settlement reached with the states and federal government.” But for the past three years, the Warwicks had been paying 1st Fidelity Loan Servicing—not Chase. Lauren said she called 1st Fidelity, only to be told: “Sorry, no, I don’t care what they said to you—you owe us the money.”

JPMorgan’s shell game unraveled because Lauren Warwick’s neighbor worked for Michael Busch, the speaker of the Maryland House of Delegates. After reviewing the Warwicks’ documents, Kristin Jones, Busch’s chief of staff, outlined her suspicions to the Maryland Department of Labor, Licensing and Regulation. “I’m afraid based on the notification of loan transfer that Chase sold [the Warwicks’] loan some years ago,” Jones wrote. “I question whether Chase is somehow getting credit for a write-off they never actually have to honor.”

After Schneider and various borrowers demanded answers, Chase checked a sample of over 500 forgiveness letters. It found that 108 of the 500 loans—more than one out of five—no longer belonged to the bank. Chase told the Warwicks that their forgiveness letter had been sent in error. Eventually, Chase bought back the Warwicks’ loan from Schneider, along with 12 others, and honored the promised loan forgiveness.

Not everyone was as lucky as the Warwicks. In letters signed by vice president Patrick Boyle, JPMorgan Chase forgave at least 49,355 mortgages in three separate increments. The bank also forgave additional mortgages, but the exact number is unknown because the bank stopped sending homeowners notification letters. Nor is it known how many of these forgiven mortgages didn’t actually belong to JPMorgan; the bank refused The Nation’s request for clarification. Through title searches and the discovery process, Schneider ascertained that the bank forgave 607 loans that belonged to one of his three companies. The lien-release project overall allowed JPMorgan to take hundreds of millions of dollars in settlement credit.

Most of the loans that JPMorgan released—and received settlement credit for—were all but worthless. Homeowners had abandoned the homes years earlier, expecting JPMorgan to foreclose, only to have the bank forgive the loan after the fact. That forgiveness transferred responsibility for paying back taxes and making repairs back to the homeowner. It was like a recurring horror story in which “zombie foreclosures” were resurrected from the dead to wreak havoc on people’s financial lives.

Federal officials knew about the problems and did nothing. In July 2014, the City of Milwaukee wrote to Joseph Smith, the federal oversight monitor, alerting him that “thousands of homeowners” were engulfed in legal nightmares because of the confusion that banks had sown about who really owned their mortgages. In a deposition for the lawsuit against JPMorgan Chase, Smith admitted that he did not recall responding to the City of Milwaukee’s letter.

If you pay taxes in a municipality where JPMorgan spun its trickery, you helped pick up the tab. The bank’s shell game prevented municipalities from knowing who actually owned distressed properties and could be held legally liable for maintaining them and paying property taxes. As a result, abandoned properties deteriorated further, spreading urban blight and impeding economic recovery. “Who’s going to pay for the demolition [of abandoned buildings] or [the necessary extra] police presence?” asks Brent Tantillo, Schneider’s lawyer. “As a taxpayer, it’s you.”

Such economic fallout may help explain why Jamie Dimon directed that JPMorgan’s mass forgiveness of loans exempt Detroit, a city where JPMorgan has a long history. The bank’s predecessor, the National Bank of Detroit, has been a fixture in the city for over 80 years; its relationships with General Motors and Ford go back to the 1930s. And JPMorgan employees knew perfectly well that mass loan forgiveness might create difficulties. The 2012 internal report warned that cities might react negatively to the sheer number of forgiven loans, which would lower tax revenues while adding costs. Noting that some of the cities in question were clients of JPMorgan Chase, the report warned that the project posed a risk to the bank’s reputation.

Reputational risk was the exact opposite of what JPMorgan hoped to achieve in Detroit. So the bank decided to delay the mass forgiveness of loans in Detroit and surrounding Wayne County until after the $100 million investment was announced. Dimon himself ordered the delay, according to the minutes of JPMorgan Chase meetings that cite the bank’s chairman and CEO by name. Dimon then went to Detroit to announce the investment on May 21, 2014, reaping positive coverage from The New York Times, USA Today, and other local and national news outlets. Since June 1, 2014, JPMorgan has released 10,229 liens in Wayne County, according to public records; the bank declined to state how many of these were part of the lien-release project.

Both of Larry Schneider’s lawsuits alleging fraud on JPMorgan Chase’s part remain active in federal courts. The Justice Department could also still file charges against JPMorgan, Jamie Dimon, or both, because Schneider’s case was excluded from the federal settlement agreements.

Few would expect Jeff Sessions’s Justice Department to pursue such a case, but what this sorry episode most highlights is the pathetic disciplining of Wall Street during the Obama administration.

JPMorgan’s litany of acknowledged criminal abuses over the past decade reads like a rap sheet, extending well beyond mortgage fraud to encompass practically every part of the bank’s business. But instead of holding JPMorgan’s executives responsible for what looks like a criminal racket, Obama’s Justice Department negotiated weak settlement after weak settlement. Adding insult to injury, JPMorgan then wriggled out of paying its full penalties by using other people’s money.

The larger lessons here command special attention in the Trump era. Negotiating weak settlements that don’t force mega-banks to even pay their fines, much less put executives in prison, turns the concept of accountability into a mirthless farce. Telegraphing to executives that they will emerge unscathed after committing crimes not only invites further crimes; it makes another financial crisis more likely. The widespread belief that the United States has a two-tiered system of justice—that the game is rigged for the rich and the powerful—also enabled the rise of Trump. We cannot expect Americans to trust a system that lets Wall Street fraudsters roam free while millions of hard-working taxpayers get the shaft.

By David Dayen | The Nation