Financial Stability Oversite Committee

Members of the Financial Stability Oversight Committee


c/o Secretary Geithner, Chairman of the FSOC

1500 Pennsylvania Avenue NW

Washington DC, 20220



In light of the recent report from the Congressional Oversight Panel regarding mortgage irregularities, we are writing to support the panel’s call for a new round of stress tests to examine stability issues arising from residential mortgages held in securitized pools. Stability issues that have not been included in previous stress tests include liabilities for breaches of representations and warranties in Pooling and Servicing Agreements, liabilities arising from systemic mortgage documentation irregularities, and conflict of interests for servicers affiliated with firms that hold significant portfolios of second liens. We urge the council to recommend that its members conduct specific, thorough reviews of the potential effects of these issues on the risk profiles of the institutions they regulate and also that the Federal Reserve incorporate these potential liabilities into the new round of stress tests it announced earlier this week. We urge that the Financial Stability Oversight Council consider, in light of those stress tests, requiring that some financial companies divest affiliates involved in servicing securitized mortgages.



First, we urge that the members of the Council examine a representative sample of collateral loan files of each major servicer to determine if the files contain all the documents required by contract or by law, including the note; mortgage, deed of trust or equivalent document; and all documents evidencing or constituting the necessary assignment, delivery and recording of those documents. The Council should determine if the documents satisfy contractual representations and warranties in the pooling and servicing agreement or other governing instrument for the mortgages in question, and if not, any potential liability that may result. The collateral loan files examined should be selected at random, not by the servicers.



Questions about the documentation of securitized mortgages have received much recent attention. The financial institutions involved in securitization, including sponsors, trustees and servicers, have said publicly that any problems are isolated, technical in nature and easily cured. Others contend that the problems are pervasive, incapable of cure, and may ultimately require financial institutions involved in the securitization of residential mortgages to repurchase at face value hundreds of billions of dollars of mortgages, many of which are now non-performing. Many of the financial companies with potential liability to repurchase those mortgages are on any list of systemically significant firms.

More to the story here.

Second, we urge the Council to examine the servicing of first mortgages by servicers that hold second liens or are affiliated with firms that hold second liens. The largest servicers hold almost half a trillion dollars in second liens, which are valued for accounting purposes at approximately 85 percent of face value. Those servicers, also systemically significant firms, assert that the second liens are performing, as are the first mortgages on the same property, and thus the second liens are accurately valued. The servicers contend that any interest the servicers may hold in second liens has not affected their servicing of securitized first mortgages. Others contend that there is an indefensible conflict of interest for servicers of securitized first mortgages to hold second liens on the same property, that servicers have acted contrary to the interest of the beneficial owners of first mortgages to avoid accounting losses on second liens, and that servicers face significant unrealized losses on those second liens.



An important purpose of the Dodd-Frank Act is to identify risks to the financial system as early as possible, so that regulators can take corrective action or minimize the disruption to the financial system that results from the insolvency of systemically significant financial companies. It is also a purpose of the Act to make risk to our nation’s financial system transparent in order to restore the confidence of the American people in the financial system and in their government. It would serve those purposes to examine these issues and make the result of that examination public.



Finally, we urge that the Council consider use the authority under the Dodd-Frank Act to require that financial companies divest affiliates or other holdings involved in servicing securitized mortgages. There is no apparent advantage in having financial companies that securitized mortgages also act as trustees or servicers, and there is an obvious conflict of interest. The uncertainty about the extent of the risk to our nation’s financial stability posed by the mortgage irregularities is largely the result of the control of critical information by financial companies at risk of insolvency from potential legal liability to mortgage investors and others. The control of critical information by financial companies with a possible motive to conceal systemic risks is incompatible with the intent of the Dodd-Frank Act, and is a grave threat to our nation’s financial stability.



Thank you for your attention to this matter.



Andre Carson (IN)

Stephen Lynch (MA)

Joe Baca (CA)

Jackie Speier (CA)

Danny K. Davis (IL)

Laura Richardson (CA)

Barney Frank (MA)

John Conyers (MI)

Luis Gutierrez (IL)

Maxine Waters (CA)

Tax payer and Real Estate owner left holding losses

The US Tax payer was sold down the river by the banks and the government when they played the greatest shell game in history.  They created a system that would take the economy down and when it happened they came to the government for a bailout. Congress was sold a bill of goods.  Congress was eager to buy that bill for many reasons but mostly out of fear of losing votes in upcomming election.   Trillions of dollars given to the banks and insurers and the issues were not addressed.  The economy is still being held hostage.

and the government is likely to hand over billions more to the banks before this is over. 

Banks failing fast, more closed Friday Nov 52010

Credit Default Swaps

for more on banks closures and mortgage fraud go here

and here The reality of finance and comment on the stories. 



Story from Huffington post


http://www.huffingtonpost.com/2010/11/06/us-banks-failing-at-faste_n_779941.html




MARCY GORDON, Associated Press



WASHINGTON -- Regulators shut down four more banks Friday, bringing the 2010 total to 143, topping the 140 shuttered last year and the most in a year since the savings-and-loan crisis two decades ago.

The Federal Deposit Insurance Corp. took over K Bank, based in Randallstown, Maryland, with $538.3 million in assets, and Pierce Commercial Bank, based in Tacoma, Washington, with $221.1 million in assets. The FDIC also seized two California banks: Western Commercial Bank in Woodland Hills, with $98.6 million in assets, and First Vietnamese American Bank in Westminster, with assets of $48 million.



M&T Bank, based in Buffalo, N.Y., agreed to assume the deposits and $410.8 million of the assets of K Bank. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of Western Commercial Bank. Heritage Bank, based in Olympia, Wash., is taking the assets and deposits of Pierce Commercial Bank, while Los Angeles-based Grandpoint Bank is assuming the assets and deposits of First Vietnamese American Bank.



In addition, the FDIC and M&T Bank agreed to share losses on $289 million of K Bank's loans and other assets. The FDIC and First California Bank are sharing losses on $83.9 million of Western Commercial Bank's assets.



The failure of K Bank is expected to cost the deposit insurance fund $198.4 million. That of Western Commercial Bank is expected to cost $25.2 million; Pierce Commercial Bank, $21.3 million, and First Vietnamese American Bank, $9.6 million.



Like these four financial institutions, the banks that have failed this year are smaller, on average, than those that succumbed in 2009. That has meant the deposit insurance fund has suffered a milder loss, which has reached about $21 billion so far this year, compared with $36 billion in 2009.



Still, banks, especially small community institutions, are falling as soured loans have mounted and the economy has sputtered. The wave of closings points to the lingering power of the recession more than a year after its official end.



Florida, Georgia, Illinois and California have each seen bank failures in the double digits this year. Some communities in those states are still reeling from the financial meltdown that brought an avalanche of bad loans, especially for commercial real estate. The closures have compounded the problems in areas already straining under high unemployment, foreclosed homes and vacant malls and office buildings.



The pace of failures has accelerated as banks' losses on loans for commercial property and development have mounted. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.