STOCK MARKET WATCH -- Monday, 16 January 2012

[Demeter]

11. PREQUEL: How Ed DeMarco finally cried fraud By Maureen Tkacik

http://blogs.reuters.com/great-debate/2011/10/25/how-ed-demarco-finally-cried-fraud/

It took three years, but Fannie/Freddie Conservator Ed DeMarco is starting to channel his inner Irving Picard by acknowledging that among root causes of the financial crisis is fraud, and lots of it...Trying to parse the madness of Fannie Mae and Freddie Mac over the past few years has given me a new appreciation for Bernie Madoff. Bernie might not have left much for his victims, but at least they finally got a straight answer about what he’d been doing with their money all those years, and a sensible legal framework for recovering and winding down all that might be left....Like Madoff’s estate, Fannie and Freddie have spent the last three years under a kind of bankruptcy protection, led by a conservator, DeMarco, whose top priority is to maximize the value of the national “estate” and thereby minimize harm to the housing bubble’s innumerable victims. As both trustees’ travails demonstrate, it’s a thankless job: Madoff’s former investors smear Irving Picard in the press so regularly it’s as if they forgot about Madoff, and Fannie/Freddie conservator Edward DeMarco has alienated so many politicians with his long list of offenses that Timothy Geithner, who recommended him for the job in the first place, is now said to be plotting to oust him.

But where Picard has annoyed by taking a direct approach to the job, DeMarco’s actions have been mystifying. Picard has: canceled the car leases, gym memberships, etc.; listed Madoff’s houses/boats/jewelry for sale or waited until the market recovers; and (this is the controversial part, but it’s also brought in the big bucks) filed “clawback” suits against anyone who booked fictitious profits off their Madoff “investment” in order of biggest to smallish; reimburse, rinse, repeat.

By contrast, Fannie and Freddie have focused their clawback actions almost exclusively on the hardest hit victims of the housing crisis: struggling homeowners whose outstanding mortgage balances are worth more than their houses, and we taxpayers, who get hit up for a new cash infusion just about every month, for a total that should soon top $200 billion. DeMarco, whose enterprises own or guarantee half the outstanding mortgages in America, has not only flatly refused time and again to modify underwater mortgages, he’s actually promised to sue any delinquent borrower his agency suspects of taking Suze Orman’s advice and defaulting “strategically.” (Yesterday’s announcement by President Obama that some FHFA regulations were being scrapped to help homeowners refinance is the first let-up on underwater borrowers by DeMarco, and by all appearances, it was policy driven from the White House, not his office.)

Also: a whistleblower lawsuit filed last year accuses Fannie of deliberately sabotaging struggling homeowners who sought mortgage modifications ostensibly offered in the Administration’s 2009 mortgage relief program HAMP by pushing them into temporary modifications—for which Fannie executives drew fat rentention bonuses—with no follow-up or due diligence, then dropping the ball. More recently a harrowing three-part investigation in the Detroit Free-Press chronicled the GSE’s pattern of intervening in other banks’ mortgage modification negotiations, in which Fannie seems to be systematically using its authority as a mortgage guarantor to force (and accelerate) foreclosures even when banks would rather work out a deal....Tapped-out homeowners aren’t the only ones the mortgage monsters are fighting bitterly in America’s courtrooms: in September Freddie Mac sued the IRS to keep $3 billion in back taxes they allegedly owed from the Bush Administration years during which they had understated their earnings. (In this case they had inspiration: ward of the state AIG filed a similar complaint in 2009.) Meanwhile on the big fish end of operations, DeMarco has left “billions of dollars” at the negotiating table with other TBTF counterparts, according to an inspector general report just released. The report suggested that a $1.35 billion settlement Freddie Mac had struck to indemnify Bank of America over a bad batch of Countrywide loans might have been ten times that size if Freddie management had honestly estimated its losses in the deal....