Fight Over Blog Comments Hits High Court

Aaron Krowne and the crew over at the Mortgage Lender Implode-O-Meter are in court once again, defending their right to disseminate news about mortgage lenders after being sued by New Hampshire-based The Mortgage Specialist who took affront to leaked company data showing up on the Implode-O-Meter website and some anonymous comments that reflected poorly on the company president.

Oral arguments in the New Hampshire Supreme Court were heard yesterday and no determination has yet been made as to whether a lower court ruling would be overturned.


Last year, The Mortgage Specialists won a temporary injunction requesting that a "2007 Loan Chart" document be removed from their website (ml-implode.com) and that the source of the data be revealed along with the name of the anonymous commenter.

While both the loan chart and the offending comments were removed, neither of the sources were provided and so The Mortgage Specialists filed for and won a permanent injunction earlier this year which is now being appealed.

Additional details can be found here and here.

A central point of disagreement between the two parties is whether the Implode-O-Meter is entitled to the same rights as journalists and newspapers, groups that routinely publish news based on anonymous sources and leaked confidential documents.

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The Implode-O-Meter and Alex Walker

The folks at the Mortgage Lender Implode-O-Meter were the subjects of a report in the Concord Monitor the other day that detailed recent developments in their court case with Mortgage Specialists, currently #6 on the the Implode-O-Meter's Ailing/Watchlist Lenders.

The new question concerns the site's internet forum, where posters are free to make up their own user names and post anonymously about various mortgage companies. After the "Implode-O-Meter" published an article questioning the financial health of the Plaistow-based Mortgage Specialists, a commenter said some nasty things about the company's president online. Mortgage Specialists has sued, saying the comments are defamatory and asking the website to turn over the name of the poster. The website has refused.

Websites around the internet - including concordmonitor.com - offer similar forums where writers are able to share their thoughts without the need to share their identities. The Implode case could set the standard for when websites will be forced to give up their posters' identities and when anonymous online speech should be kept anonymous.

A Superior Court judge has already heard the case, and he found for Mortgage Specialists, ordering the website to permanently delete the comments and to disclose information about the poster.

Recall that this was discussed here briefly back in April when a judge first ordered Aaron Krowne and crew to give up the name of anonymous posters.

The Superior Court decision is being appealed, but what's most interesting about the situation now is that Alex Walker, the lawyer for Mortgage Specialists, seems to be dishing out a fair amount of nasty comments himself.

Walker said that McHugh's ruling (in Superior Court) got the law right. Mortgage Specialists didn't want money from the website, just information that would allow it to sue the speaker. Given the context, that was a reasonable request, he said.

"I think the Implode folks have really made a mountain out of a molehill here, to really ratchet this up to be this kind of extremely important First Amendment decision, and we've never seen it that way," Walker said. "All we've been asking for is some narrowly tailored relief."
...
The stakes are high, Krowne said. As soon as McHugh's order came down, his stream of tips started drying up. He said that his site relies on insiders willing to share information about their ailing companies. Those people simply won't blow the whistle if they are worried about their identities being revealed, he said.
...
Krowne said his site may have started informally, but it's grown into an organization that adheres to journalistic norms and performs a journalistic function, by reporting on financial trouble and ethical malfeasance in the mortgage industry.

"We try to be very careful, and I think we were in this case," Krowne said. "We had good information come to us, and there was no good reason why we shouldn't be able to publish it."

Walker said that Implode's status is more marginal. The company didn't adhere to good journalistic standards he said, and can't be considered a legitimate news organization. He also said the company's first reaction was telling. When asked, the company immediately removed the content from its site.

"If it's as big a First Amendment issue as they now say it is, why would they do that?" he asked.

Walker has apparently not yet heard of Web 2.0 or of the many newspapers that are shutting their doors because of it, organizations like the Implode-O-Meter serving a very useful purpose from its inception a few years back, remaining far out in front of the mainstream media in breaking mortgage related news as the housing bubble was popping.

Aaron has a few thoughts on Walker's comments, notably:

You read that right... Walker is complaining that ML-Implode didn't adhere to good journalistic standards, even though ML-Implode quickly and provisionally took down the objectionable materials to allow for due process and a full finding of the facts (and NOT because MoSpec "demanded" it, as Walker untruthfully asserts).
...
The defamatory aspect comes in with Walker's next statement, which implies that ML-Implode doesn't care about defending free speech because it took down the content. But Walker knows from the fact that ML-Implode is appealing the lower court ruling that our goal is to be able to -- legally -- put the content back up. In other words, he has attempted to smear ML-Implode as uncaring about free speech, even though we are continuing the legal fight specifically to make sure we are free and clear to repost all of the contentious content -- for this time and to defend the free speech rights of all future contributors (why else would we go to the trouble? Please someone explain that one.)

Anyone feeling the urge to write something nasty about Mr. Walker, please feel free to do so in the comments section below.

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Implode-O-Meter ordered to give up sources

Implode Explode Heavy Industries (IEHE), the folks who have brought the world the popular Mortgage Lender Implode-O-Meter, has been ordered to give up the names of their sources who supplied information about The Mortgage Specialists Inc. in a frightening example of how First Amendment rights can be easily trampled. The details are in this press release:

New Hampshire Judge Orders ML-Implode To Divulge Identities of Anonymous Posters

March 31, 2009 - For Immediate Release

LAS VEGAS - A New Hampshire Superior Court Judge has ordered Implode-Explode Heavy Industries, Inc., the owner of the popular mortgage industry crash site Mortgage Lender Implode-O-Meter (ml-implode.com) to give up the identities of persons who provided information to the site about The Mortgage Specialists, Inc. of Plaistow New Hampshire.

Rockingham County Judge Kenneth R. McHugh also ordered that the allegedly "secret" and "defamatory" content about The Mortgage Specialists would have to stay down permanently.

The information consists of an anonymous posting on the ML-Implode forum about The Mortgage Specialists and the publishing of the company's 2007 "Loan Chart" sent in by an informant and placed online by the Implode-O-Meter staff.

Lots more below:

The Mortgage Specialists alleged in their complaint the forum posts were defamatory, and the 2007 Loan Chart detailing financial statistics was secret. ML-Implode immediately and voluntarily removed the information to assuage MoSpec's concerns, despite its continuing assertion that it still had the right to post them. However The Mortgage Specialists persisted in demanding the submitters' identities and a promise to permanently keep the information offline. ML-implode refused. The Mortgage Specialists filed suit on November 12, 2008, signed by company President Michael Gill.

Judge McHugh stated in his order that since the Mortgage Specialists did not hold the Implode-O-Meter culpable or ask for monetary damages, their request to divulge the identities of the persons in question was "reasonable." The Judge further stated:

The maintenance of a free press does not give a publisher the right to protect the identity of someone who has provided it with unauthorized or defamatory information."

Judge McHugh's order was issued without a full hearing on the merits of The Mortgage Specialists' claims. Specifically, plaintiffs had not yet established that any of the postings were defamatory or that the Loan Chart information posted was in fact confidential, as ML-Implode's challenges were limited to whether the New Hampshire court had jurisdiction over ML-Implode and whether the plaintiff's requested relief would violate the First Amendment.

Judge McHugh earlier ordered that New Hampshire venue was appropriate, despite the arguments that neither ML-Implode nor IEHI specifically did any business in or had any personnel or facilities in the state of New Hampshire. Such a decision theoretically construes the long-arm statute to cover any web site or web publishing outfit in the U.S., as long as it is viewed from New Hampshire. The Order therefore implies there can be no reasonable expectation of anonymity for any online posting where a New Hampshire-based party might consider the presented information defamatory or secret.

The order issued injunctive relief despite ML-Implode’s argument that Mortgage Specialists had not met the requisite test under New Hampshire law. Specifically, the petitioner did not establish that it had a valid claim for defamation based upon the postings, or that it had any claim at all against ML-Implode -- ostensibly a requirement to compel ML-Implode to disclose sources or commenters, or not to publish. Although ML-Implode argued these points, the Court failed to address them in the order, or to explain its own reasoning in ordering injunctive relief.

Judge McHugh acknowledged in his order that the ML-Implode voluntarily took down the contentious items (the forum posts and the 2007 Loan Chart), but wrote that the web site nevertheless acted in a "knee-jerk" fashion by not giving in to The Mortgage Specialists' demand to know the identities of the contributors.

The decision is being appealed to the New Hampshire Supreme Court. If the order stands, a flood of similar lawsuits filed by corporations against “whistleblower” and consumer advocacy web sites could appear across the country.

The Implode-O-Meter's founder Aaron Krowne continues to defend the site's decision to keep the submitters' identities anonymous, stating:

We do not dispute that in some cases defamatory or secret information may need to be taken down, and that the identities of those who have provided such sensitive information may need to be revealed to the court. However, such moves should not be taken lightly given the sanctity of the First Amendment.

We are disappointed and distressed by this Order because it creates a “chilling effect” whereby grassroots media sites will be greatly hindered in providing fora for critiquing and challenging corporate interests. This is all the more problematic given that it has not been shown that the underlying material was either defamatory or secret. As a result, if the order stands, we will no longer be able to operate, as we will no longer be able to risk allowing any third-party information to be placed online, which is the core function of our forum.

ML-Implode is considered by many to be the first dedicated whistleblower of the subprime crisis and credit crunch, as profiled in a July 8th, 2008 New York Times article. It is commonly cited by major news networks and financial publications regarding the economic crisis.

In 2008 The Mortgage Specialists was accused by Massachusetts and New Hampshire State banking officials of more than 60 mortgage-related violations, including forging signatures and destroying documents. Massachusetts banking officials also have accused the company of unfair and deceptive business practices. The Mortgage Specialists consented to a Massachusetts Banking Department Cease & Desist without admitting to any culpability and agreed to pay a $300,000 fine. They were also ordered to cease further originations and place all remaining loan applications with other providers, effectively shuttering the business' operations pending resolution of the state's concerns. New Hampshire imposed a fine of $300,000 against The Mortgage Specialists, with an additional $50,000 each against Michael Gill and Lisa Tracy individually, and an additional fine of $25,000 for failure to consult the National Do Not Call List.

ML-Implode's report on these developments was based on facts as reported by authoritative sources, including the states of Massachusetts and New Hampshire.

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Doh! They've got to be able to repay the loan

There's a special 14-page report in today's Wall Street Journal presenting the findings of last week's Future of Finance Initiative, a gathering of 100 of the "brightest minds in finance" tasked with the job of charting a path forward from our precarious current position.

No, former Fed chief Alan Greenspan was not included.

Astonishingly, not once, not twice, but at least three times, the fixing of one of the most fundamental errors of the last six or seven years is prominently featured in the many recommendation sections, what would have undoubtedly stopped the global credit bubble in its tracks years ago if someone other than "crazy housing bubble bloggers" and a few rogue economists would have brought attention to it and been able to do something about it.

This recommendation appears in Principles for Change, an interview with Peter Fisher of BlackRock Inc., it is a key element of Princeton Economic Professor Alan S. Blinder's recommendations enumerated in The Future of Banking, and it is featured as number one in a list of of almost two dozen "principles for rebuilding the financial system" in a summary section (no link found).

It's pretty simple - borrowers must be able to repay loans from income.

Gussied up a little bit for the paper it looks like this:

Minimum Underwriting Standards. Bank management and bank examiners must enforce the banks' minimum underwriting standards, focused on the borrowers' ability to repay debt from income. The bank supervisors' authority must extend beyond banks to all bank agents, such as mortgage brokers.

Maybe it's just me, but, to some of us who could see this all developing back in the first half of the decade - when Fannie and Freddie first starting having problems in 2002 and 2003, then when Wall Street got involved in a big way in 2004 and 2005, and then in 2006 when everyone laughed about "all you have to do to get a home loan is to fog a mirror" - this is just about the most ridiculous example of how maybe these guys aren't all the bright after all.

What were they saying five years ago and why did it take them so long to have this epiphany?

Alan Blinder was singing the praises of the former Fed chairman up until the housing bubble had unquestionably burst, and now he's charged with charting the new course for banking?

In just about every interview that I ever did back around the time that the housing bubble was peaking and popping, I'd always say something like the following:

All anyone has to do is spend some time in a mortgage loan office and you'll quickly see that there's no way these people are going to pay this money back. When the median home price is ten times the median income, the only way that money is getting paid back is if they sell the house at a profit and that will only work so long as home prices keep going up.

What does it say about policymakers that they couldn't see this simple truth?

When the former and current Federal Reserve Chairmen - the position that was once considered to be the second most powerful in the world behind only the U.S. president - dismiss out of hand the possibility of home prices ever declining, what hope do we have that they'll not do something equally as stupid next time?

Were they all so deluded by the apparent prosperity of our late, great asset-based economy that these wizards of the financial world were unable to see something so simple, only now realizing just how huge this simple error was?

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Dopey leaders of 2008

Jim Pethokoukis at U.S. News and World Report offers up his top ten list of dopey leaders in the business world for the year about to conclude. Former Fed chairman Alan Greenspan comes in a respectable third.

¡Ay, caramba! In a year when Wall Street imploded, the Big Three automakers neared collapse, and the economy plunged into its worst downturn in at least a generation, finding business and economy "leaders" who messed up badly isn't too hard. But these 10 might well be the worst of the worst.

1) Bernard Madoff. If the federal government's accusations prove correct, Madoff also belongs on a list of America's most active and energetic senior citizens. The 70-year-old money manager was arrested by the FBI for allegedly running the largest Ponzi scheme this side of Social Security, losing an estimated $50 billion in client money. Investigators say Madoff told them that his business was just "one big lie." Terrible news for numerous wealthy individuals, banks, and charitable foundations. A perfect way to cap off a perfectly terrible year on Wall Street.

2) The bailout trio. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and New York Federal Reserve President Timothy Geithner decided to let Lehman Brothers fail in September, triggering a global collapse of financial confidence, as well as wrecking the money and commercial paper markets. The move also led to massive hedge fund redemptions, which forced them to liquidate stocks. And don't forget the ever evolving $700 billion Paulson plan to bail out the banks. Buying assets one day, injecting capital the next. And the crisis rolls on ....

3) Alan Greenspan. Now when people call Greenspan "the Maestro," it's with more than a hint of sarcasm. Many economists and financial analysts give the former Federal Reserve chairman a large share of the blame for the current financial crisis by keeping interest rates too low for too long during the first part of this decade. They also say the Ayn Rand disciple shirked his responsibility to ensure the safety and soundness of the financial system by resisting calls for tighter regulation of risky bank lending.

4) Angelo Mozilo. The nattily dressed former CEO of Countrywide Financial has become the tanned face of the subprime mortgage meltdown. Mozilo built Countrywide into the nation's largest mortgage lender and enriched himself to the tune of more than $400 million in the process. But as it turns out, lots of those borrowers should have stayed renters. Not that it mattered to Countrywide, since it could sell those soon-to-be-toxic mortgages to Wall Street and beyond.

5) Robert Rubin. It has been a bad run for the heroes of the 1990s boom. Now it's Rubin's turn for criticism, thanks to the unfolding financial disaster that is Citigroup. It looks as if all the company got from Rubin for some $115 million was a strategy for taking on heaps more risk in the collapsing debt markets. The former treasury secretary probably doesn't have to worry about deciding whether to give up his fat private-sector compensation package if eventually nominated by Barack Obama to be the next Fed chair. Doesn't look as if that call will be coming.

6) Richard Fuld. Not only did CEO Fuld watch Lehman Brothers, the 158-year-old investment bank, go down the tubes, but he reportedly got punched in the face in the company gym and was viciously mocked on Saturday Night Live. Under Fuld, Lehman became the single biggest Wall Street underwriter of mortgage debt right into the teeth of the mortgage debt collapse. But in the end, there was no lifeline from Uncle Sam. That was the knockout blow and worse than a punch in the kisser.

7) Barney Frank. This is a quote, from 2003, that the Massachusetts Democrat would like to have back: "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' Turns out that the two government-sponsored entities were walking farther and farther out onto thin financial ice. And as late as last year, Frank wanted Fannie and Freddie to take on even more subprime risk. Washington and Wall Street have to share the blame for the financial crisis.

8) John McCain. At times during the presidential campaign, it seemed as if McCain was going out of his way to prove to voters that he really meant it when he said he didn't understand economics too well. He constantly misspoke about the details of his healthcare plan, let Barack Obama steal the tax-cut issue, and talked more passionately about earmarks than about dealing with the imploding housing market.

9) Barack Obama. If there is one piece of policy advice that economists agree on, it is this: You don't raise taxes during an economic downturn. Doing so would be right out of the Great Depression playbook. Yet even as the economy obviously weakened in the latter half of the year, Obama stuck to his campaign pledge to reverse the 2001 and 2003 tax cuts on income and capital gains for wealthier Americans. Indeed, Obama's transition website still holds out that possibility. And while there are signs that he might instead let the tax cuts expire at the end of 2010, that is not for sure yet.

10) Big Three CEOs and unions. It takes a special kind of incompetence to completely drain away the goodwill of a car-crazy nation like America. Yet polls show that most Americans don't want to bail out the automakers. As with the credit crisis, there is plenty of blame to go around, from poorly designed cars to fat union benefits and complicated work rules. Bottom line: Thousands of workers seem destined for the unemployment line.

In some ways it almost seems unfair that Bernie Madoff's gigantic Ponzi scheme came crashing down during the last month of the year as the these lists are being assembled.

Scrutiny of this criminal will take away from the attention available for others who, while not likely to end up in jail, perpetrated equally heinous crimes.

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Friday afternoon banking update

Let's see, it's Friday afternoon. What's the banking world up to? No commercial bank failures yet, though it's still early. Oh, here's some news:
So much for Hank Paulson's Bazooka vs. Peashooter theory on how to save the mortgage giants. The original WSJ report is available in the public section of their website.

Some highlights:

Precise details of Treasury's plan couldn't be learned. The plan is expected to involve a creative use of Treasury's authority to intervene in the two companies, which it won earlier this year, and could involve a capital injection into the beleaguered giants.

The plan also includes a management shakeup at both companies, according to one person familiar with the plans. Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts.
...
On Friday afternoon, Messrs. Syron and Mudd were summoned to a meeting at the offices of the agency. Also attending were Mr. Bernanke and Treasury Secretary Henry Paulson.

The meetings Friday were in part aimed at getting Messrs. Mudd and Syron to agree to the plan, though their approval was not necessary, these people said.

Mr. Mudd arrived for the meeting at 2:50 p.m., flanked by the company's general counsel, Beth Wilkinson, and Rodgin Cohen of Sullivan & Cromwell, one of the country's top banking lawyers. A few minutes later, Mr. Bernanke followed with security escorts.

"We are making progress on our work," said Treasury spokeswoman Jennifer Zuccarelli, who declined to comment further. Spokesmen for Fannie and Freddie declined to comment on the expected Treasury moves.

Look's like he's going to have to use the Bazooka.

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Mike and Dan's great adventure

It's impossible to know whether the author of this comment on this month-old post is telling the truth, stretching the truth, or is just plain naive (probably some combination of the three), but it is certainly not unusual these days to hear such angst.

These nice young clean cut gentlemen took over the loan on my house to help lower my monthly payment and build my credit, but after their company folded, I continued paying them the house note, but they stopped paying the bank. I had no idea what was going on until the nice people from recon trust posted a notice on my door that my home would be sold at auction in two weeks. It came and passed and for my trouble they (the Bank) say they will pay me $2,000 for me to go away without a fight within 30 days. My credit score still rampant with identity fraud. I am now a single mother of two living in one bedroom of my sisters house. The 3 of us share less than 150 sq ft where we once had 2600 sq ft and a pool. thank you Mike and Dan you belly slithering snakes.

It wouldn't be re-published here today except that I'm about the only one who knows about notes like these appearing on something over 100 posts ago.

The fact that these fellas still flaunt their Hummer makes them a particularly interesting case study to me.

Having lived in the same area makes them an almost irresistible subject.

Having rented a house in a gated community for a few years before relocating northward in 2007, we'd often see this monstrous vehicle on the street or parked out in front of some McMansion where the homeowners were apparently looking to strike a deal with Mike and Dan to their mutual advantage.

The historians are going to have a field day with the first decade of the new century.

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Locusts!

Having no connection with the mortgage industry other than this blog (which isn't much, really) and tallying the volume of SPAM on the subject of reverse mortgages that winds up in my inbox, one can only imagine the what sort of havoc former subprime salesmen are creating by helping "The Greatest Generation" get their retirement needs financed.

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Blame Lyndon Johnson for GSE woes

James Surowiecki writes in the New Yorker about the duck-billed platypuses otherwise known as Fannie Mae and Freddie Mac noting a Johnson-era accounting change that was instrumental in creating the mess that exists today.

The G.S.E.s are curious, because there’s no obvious reason for them to exist in the form they do: instead of creating private companies to do all these jobs, the government could just do them itself. In fact, that’s how Fannie Mae got started, back in 1938: originally, it was a government agency endowed with the authority to buy mortgages, in the hope that this would expand the supply of credit to homeowners. It wasn’t until 1968 that Fannie was privatized. (Freddie Mac was created two years later, and was private from the start.) The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used “special-purpose entities” to move liabilities off its balance sheet.
...
Do we need Fannie and Freddie at all? Their supposed reason for being is that their ability to borrow money at low rates lowers borrowing costs for homeowners. But a paper by the economist Wayne Passmore, of the Federal Reserve, suggests that in fact Fannie and Freddie have only a small effect on the interest rates that homeowners pay, saving them less than one-tenth of a percentage point. More important, if the last few years have taught us anything, it’s that homeownership is not an unalloyed economic good, and that we should be cautious about using gimmicks to make it more attractive. The government already offers homeowners a subsidy, in the form of a mortgage tax break. Given everything else we could be spending taxpayer money on, does the government really need to be in the mortgage-buying business, too?

They do now...

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Julie, Fannie, and Freddie

Here's Julie Alexandria on the troubles at Fannie Mae and Freddie Mac.

I liked the part about the toilet paper in the White House.

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More eery similarities to the Great Depression

Many blamed the short-sellers for the stock market crash in 1929 and for difficulties in the following years in staging a rebound in equity markets. It looks like the SEC is trying to avoid that this time around.

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Who's going to rescue the U.S. government?

Well, another rescue is now in process and the institutions in distress are getting bigger and bigger. Last week it was Indymac, now it's Fannie, Freddie, and their $5.2 trillion of mortgage debt. Who's going to rescue the U.S. government when the time comes?
Sorry about the confusion in last Friday's poll - there should have been a selection for the weekend or for Sunday. I figured the rescue would come late on Sunday and mine was the first vote for Monday, July 14th, so the other 100 people who agreed with me all get credit for having the correct answer.
Hey, it's my poll and I make the rules.

Here are the write-in votes which means there are another 10 respondents who also get credit for the correct answer.
More importantly, shouldn't this count as an "implosion" at the Implode-O-Meter?

So far, The Meter is stuck at 266.

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GSE Rescue Countdown Survey

By popular demand... to appear in the right side bar after it scrolls down a bit.


Free Online Surveys
Some Bloomberg reports to help with your deliberations:

• Fannie, Freddie May Need to Lose $77 Billion First
• Paulson Backs Fannie, Freddie in Their `Current Form'
• U.S. Stocks Tumble on Concern Fannie, Freddie May Need Rescue

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The drug dealers are running the detox centers

One of the great things about blogs is that the material never goes away - it just stays there for years and years in searchable form so that, when someone sends you an email on a subject that sounds familiar, within about five seconds you can find something from years ago and create a whole new story that otherwise would have been impossible.

Such was the case earlier today when an incoming mail from someone in my old neighborhood of Ventura County, California asked whether I had any idea whether one Mike Hobbs was a reputable fellow when it comes to rescuing homeowners from predatory lenders.

A quick Google search on Mr. Hobbs led to the Mortgage Police website which carries the "Mortech" moniker that may be familiar to long-time readers.

For those not familiar with the Mortech Financial story, have a look at this post from January of 2006 titled "No Rules, Only Guidelines" to learn what Mike Hobbs and partner Dan Harris were up to a few years back as one of the leading local mortgage lenders with a popular radio talk show, catering to those individuals and families desperate to get in on the hot real estate market but without the requisite good credit, downpayment, or a job.

Fast forward a few years (through what must have been an exciting time for them) and the gigantic red Hummer shown above - then a symbol of real estate riches and borrow and spend overconsumption - has morphed into something of a firetruck/police car and the former lenders now bill themselves as consumer advocates.
Hey, you gotta make a living somehow - adapt or die, as they say, because the business of suprime lending is certainly dead.

Now, I don't claim to know anything about what sorts of things Mike and Dan are doing in their new role "sticking up for the little guy". For all I know, maybe they felt so bad about getting all those prior customers into loans they really couldn't afford they are now offering a genuinely good service at no charge.

Who knows?

Whatever their motives and whatever the quality of the services they provide, from here, it sure looks like the drug dealers are running the detox centers.

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Think positive!

Even the most casual observer can plainly see where the roots of many of today's economic problems lie simply by examining two stories appearing amidst a torrent of news this morning at Bloomberg.

Grabbing all the attention today in this report, part of the ongoing saga of the nation's Government Sponsored Enterprises - Fannie Mae and Freddie Mac - companies who, depending upon who you talk to, seem to be having renewed difficulty getting their books to square, is retired Fed Governor William Poole tossing around the word "insolvency" as if that is somehow going to help the situation:

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Honestly, what's he trying to accomplish with this fear mongering?

Doesn't he know that the entire U.S. financial system is based on "faith" and, regardless of the underlying condition of the world's most important mortgage lenders with the implicit multi-trillion dollar guarantee of the U.S. government, talk like this doesn't do anybody any good.

If Mr. Poole had the best interests of the housing market, financial system, and the American way of life in mind when making these comments, he would have adopted a tone more like Bloomberg columnist John Berry in today's column.

Worst of Housing Crisis Is Behind Us -- Really
The intense pain caused by the bursting of the housing bubble is beginning to ease. Really.

That may be hard to believe, given the rapid increase in mortgage foreclosures, big year-over-year declines in home prices and housing starts, and continuing writedowns in the value of mortgage-backed securities.

Yet a close look at the recent flow of housing data provides convincing evidence that the worst of the decline is over. Investors who are fleeing financial-institution stocks -- including those of Fannie Mae and Freddie Mac -- ought to think twice about the housing outlook.

Take sales of existing homes, which account for about 85 percent of all U.S. housing sales. They peaked at an annual rate of 7.25 million in the fall of 2005 and fell to 4.89 million in January. In May, it was 4.99 million.

The recent figures aren't a guarantee that such sales won't decline a bit more in coming months. Still, their relative stability probably indicates that home prices have dropped enough to encourage buyers to re-enter the market. And there's no reason to think the huge drop in sales since 2005 will be repeated.

See?

That's the way you do it. Happy talk like this is just the cure for what ails the economy - get enough people on board with this line of thinking and you can virtually "will the economy back to health".

William Poole ought to be ashamed of himself.

[Note: Please just ignore the whole idea that the stabilization of sales at historic lows is, in large part, a result of the massive wave of foreclosures that are coming back onto the market and that this will only exacerbate home price declines, resulting in even more foreclosures, all of which will have a debilitating effect on the economy as a whole.]
How many times do people have to see existing home sales stabilizing before they will be convinced that it will only be a matter of months, a year or too at the most, before we can all return to life as we knew it in 2005, when we were all rich beyond our wildest dreams simply as a result of owning a home and we could all borrow and spend freely?

Everybody just think positive!

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Imploding mortgage lenders: "It's so depressing"

There's a nice article in the NY Times today about the Mortgage Lender Implode-O-Meter featuring an interview with founder Aaron Krowne.

Interestingly, he used the same word in the final quote that I used over the weekend with one of his assistants when discussing an email sent to me by an employee at the now mostly defunct Indymac.

Aaron noted, "I really wish that our esteemed policy makers would pay attention and not repeat the same mistake. It’s so depressing.”

I still remember that day about a year and a half ago when Aaron sent me an email asking if I would kindly add a link for his new website, now referred to as "The Meter" by insiders. At the time, the count was about 25.

The misery in the housing market is registering on the Implode-O-Meter.

As millions of homeowners fall behind on their mortgages, a fledging Web site called the Mortgage Lender Implode-O-Meter is gleefully tallying the number of lenders that run into trouble too. On Monday, the count was 265 — and rising.

With its tongue-in-cheek tone and running lists of the “imploded” and the merely “ailing,” the Implode-O-Meter has become a sort of Gawker of the subprime world. At a recent Mortgage Bankers Association conference, a speaker addressed what has become a hot topic among lenders: how to keep your company’s name off the site.

“No one wants to be number 266,” said Jim Reichbach, a vice chairman and leader of Deloitte’s banking and securities team. “This is a death toll that is equivalent to the casualty ticker of the Vietnam War.”

The Implode-O-Meter is the brainchild of Aaron Krowne, a former researcher at Emory University in Atlanta. A computer scientist and mathematician, Mr. Krowne, 28, started the site in 2007, believing that the troubles in the housing market, and by extension the mortgage industry, would worsen.

He was right — and the Implode-O-Meter took off. Traffic on the site soared, reaching as many as 100,000 regular visitors, and advertising dollars rolled in. Mr. Krowne quit his day job and hired 10 people for his company, Implode-Explode Heavy Industries.

No one wants to be number 266, but somebody has to.

Yesterday that honor went to Lehman Brothers SBF.

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Didn't we learn anything over the past two years?

The funniest thing about the recent developments at Fannie Mae and Freddie Mac - where they were recently given the go-ahead to fund more loans, in larger amounts, with relaxed lending standards - is that this is where all the housing problems started back in 2003.

After much hand-wringing when neither firm could produce understandable financial statements and the OFHEO threw up their hands before Congress claiming there was no way to effectively regulate the "Government Sponsored Entities", at the urging of former Fed Chief Alan Greenspan, much of Fannie's and Freddie's work was outsourced to Wall Street.

Everyone knows what happened next...

Oddly, this was the only "systemic risk" that the Maestro ever admitted to seeing in his 18+ year term as Fed Chief - too much government involvement in mortgage securitization.

Caroline Baum at Bloomberg takes note of the recent developments and we pick up the story after the amusing Fannie Mae fairy tale introduction:

Fannie announced it will now accept mortgages with a loan-to-value (LTV) ratio of up to 97 percent on a primary, single-family residence, even in areas where prices are declining.

"I'm not even sure this makes sense as public policy," says Michael Carliner, an independent housing economist in Potomac, Maryland. "Fannie should be making loans, but the underwriting standards shouldn't be lowered to that extent."

Just think about it: With home prices in a handful of hard- hit areas of California and Florida down 10-15 percent last year, according to data from the Office of Federal Housing Enterprise Oversight, or Ofheo, Fannie's regulator; and with widespread expectations that prices will continue to fall to attract buyers, Fannie Mae is loosening down-payment requirements when a house in these areas could be worth less than its loan value in a matter of months?
...
"We are able to adopt this new, national down-payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely," the company said in a statement.

I wouldn't know model DU Version 7.0 from model DU Version 6.0. It's still a model that uses information about the borrower and the property to determine the viability of a loan. Falling home prices, which can eliminate that 3 percent equity stake in a jiffy, aren't one of the inputs. (Fannie has other models that forecast house prices.)

Didn't we learn anything over the past two years?

No.

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Is anyone watching this?

While it is understandable that former peddlers of subprime mortgages and their ilk must do something for a living, must they do this? The idea of them moving like hungry locusts toward unwitting senior citizens who simply want to put food on the table, pay their utility bills, and pay for their meds just makes my stomach turn.

SPAM like this continues to show up in my inbox - I'm guessing that regulators have no clue how quickly septuagenarians are being fleeced every day.

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This stuff disgusts me

Do you think any of the regulatory agencies in Washington have any idea where the swarming locusts have recently landed, now in the process of devouring one more part of the great American ownership society?

My guess is NO!

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Oh God! You knew this was coming

Like in a scene from Night of the Living Dead, mortgage professionals are about to descend on Las Vegas in an attempt to revive their careers. Senior citizens beware!
If the folks in Washington want to really make good on their promises to reform mortgage lending, they ought to start with reverse mortgages because that's where the action is right now.

While lenders are shutting down their conventional mortgage lending operations, they're adding staff to the reverse mortgage division.

According to this report in the Wall Street Journal last week, retirees should collectively grab their wallets and hang on tight.

Older Homeowners Cautioned On Use of Reverse Mortgages

The Financial Industry Regulatory Authority urged homeowners over the age of 60 to carefully weigh their options before tapping into their home equity through reverse mortgages to obtain additional income for their retirement years.

The group, formed by a merger of the NASD and some regulatory functions of New York Stock Exchange parent NYSE Group Inc., warned that a reverse mortgage -- an interest-bearing loan secured by the equity in a home -- can jeopardize their financial futures.

With a reverse mortgage, a bank makes payments to a homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out or dies. Reverse mortgages have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs.

The warning notes that, in some cases, those who sell the mortgages may profit from the their sale, giving them twice the incentive to talk someone into a loan they may not need.

Seven percent of the home's value!

Do you know how big a number you get when you multiply that by the total number of senior citizens who are now strapped for cash?

ooo

This week's cartoon from The Economist:

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