Buried deep beneath the rotted rubble that is the securitized housing market lies an internal record of the fraud that occurred at Countrywide. It may yet see the light of day:
On Wednesday, MBIA's lawyers at Quinn Emanuel Urquhart & Sullivan sent a letter to Justice Eileen Bransten requesting that she order Countrywide to produce discovery on an internal fraud-tracking database "which MBIA had not previously known to exist." MBIA said it needs the discovery to prepare for upcoming depositions of former Countrywide employees who tried to expose its allegedly fraudulent mortgage underwriting practices, including the well-known whistleblowers Eileen Foster and Mari Eisenman. […]
MBIA wants the discovery to prepare for a final round of summary judgment motions, which are due in April. As you surely recall, Bransten issued rulings in January that paved the way for MBIA to recover on its insurance-law fraud and breach-of-contract claims. Bank of America has asked the state appellate court to review that part of the judge's decision; MBIA, in turn, has appealed Bransten's ruling that the insurer is not entitled to summary judgment on its MBS representations and warranties claims. […]
Last week Bank of America agreed to pay $1 billion to resolve the Justice Department's claims that it defrauded the government by underwriting Federal Housing Administration mortgages to unqualified borrowers. MBIA is making similar mortgage-origination allegations about the loans underlying securities it agreed to insure. And in the process it's demanding discovery that could be of use to all the other monolines and investors clamoring for a pound of the bank's flesh.
What is the importance of this covered-up rubbish? Firms such as Bank of America continue to pledge toxic mortgage paper as collateral for its repo transactions, which have reached pre-crisis levels:
In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors. The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.
When the US housing bubble burst, the banks' trading partners refused to accept such securities as collateral and the repo market rapidly contracted.
However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.
Using the repackaged loans can increase risk in the repo market, the rating agency says.
€152 trillion of these deals were made in 2011. Are they riding on quicksand?
BofA continues to collect mortgage insurance on loans that don't exist:
Despite the fact that this mortgage “asset” no longer exists, the trust is still claiming this mortgage as an asset as of the Jan 2012 investor report, charging all sorts of fees, including monthly servicing fees, etc. […]
Roman Pino loan #130133456 – $162,400 – (July 2011 satisfaction – still on the books in Jan 2012 trust report in “foreclosure” status) [3764 Mil Run Court, Greenacres, FL 33463] – BoA monthly servicing fee for non-existent mortgage $50.73
Samantha Woodruff loan #130521936 – $171,940 – (Sept 2011 deed from trust REO to new buyer – still on the books in Jan 2012 trust report in “REO” status) [1497 Lake Crystal Drive D, West Palm Beach, FL 33411] BoA monthly servicing fee for non-existent mortgage $33.70
Robert Rodriguez loan #130450231 – $176,542 – (Sept 2011 short sale deed & Nov 2011 satisfaction – still on the books in Jan 2012 trust report in “REO” status) [1139 Lake Terry Drive 60L, West Palm Beach, FL 33411] – BoA monthly servicing fee for non-existent mortgage $181.69
Elsa Castillo Rivas loan #130445815 – $375,000 – (July 2011 short sale deed) – remained on books through Dec 2011 in “REO” status), finally reported as “liquidated” in Jan 2012 report [13918 Preacher Chapman Place, Centreville, VA]. – BoA monthly servicing fee for non-existent mortgage $328.04