A major player in the banking industry and one-time federal bank examiner, Paul Miller, has called on the US federal government to stop punishing banks. In his letter he said one major US bank stands to lose anywhere from 60-120 billion dollars from repurchase losses.
Repurchase losses are losses banks may have to incur if federal regulators at Fannie Mae and Freddie Mac discover ambiguous and fraudulent documentation of borrowers' income. Fannie Mae and Freddie Mac are the largest mortgage loan security backers in the country. Both megabanks allege that 17 smaller banks sold bunk mortgage-backed securities totaling about 196 billion dollars.
Fannie Mae and Freddie Mac are publicly traded, and the US government has a huge stake in both securities companies. Both companies claim to be "acting in their own self-interest" by legally pursuing smaller banks in the hope of recovering huge financial losses via the repurchase option.
Many big, privately held banks and lenders use Fannie and Freddie to insulate their investments and this allows them to extend more credit. Many financial experts have insisted that a decision by regulators would gut the banks and present another serious roadblock to US economic recovery. Some financial experts see this as a political response to the negative populist opinion of banks, which received huge taxpayer support in the form of a bailout only a few years ago.
Legal storms bring down unfavorable decisions on big banks
Many banks, their subsidiaries and mortgage lending instruments have been accused of abusing federal housing and mortgage assistance programs. Chief amongst the claims is that banks took advantage of the incentives offered through loan modification programs like HAMP, only to countermand the agreement with the borrower months later.
Other borrowers have alleged fraudulent and pernicious bank practices where their interest rate would suddenly go up after renegotiating the terms of their loan. Some borrowers reported delinquency notices from their banks months after they renegotiated.
Across the country, judges have been handing down verdicts favoring class-action plaintiffs. Some banks have chosen to settle out of court in order to avoid greater losses.
A confluence of anti-bank sentiment and poor accounting practices
Federal auditors, working on behalf of Freddie and Fannie have been reexamining the bookkeeping of banks, just as judges have done at the state level. They are suspect that they will discover not only poor accounting, but, in some cases outright fraudulent lending practices that defy or dither the parameters of the loan modification approval process.
More economic suffering ahead?
This latest surge of populist anger and Freddie-Fannie investigations has economists worried and frank-many are suggesting that federal regulators could potentially unhinge the entire banking industry by recovering repurchase losses from smaller banks.
Repurchase losses are losses banks may have to incur if federal regulators at Fannie Mae and Freddie Mac discover ambiguous and fraudulent documentation of borrowers' income. Fannie Mae and Freddie Mac are the largest mortgage loan security backers in the country. Both megabanks allege that 17 smaller banks sold bunk mortgage-backed securities totaling about 196 billion dollars.
Fannie Mae and Freddie Mac are publicly traded, and the US government has a huge stake in both securities companies. Both companies claim to be "acting in their own self-interest" by legally pursuing smaller banks in the hope of recovering huge financial losses via the repurchase option.
Many big, privately held banks and lenders use Fannie and Freddie to insulate their investments and this allows them to extend more credit. Many financial experts have insisted that a decision by regulators would gut the banks and present another serious roadblock to US economic recovery. Some financial experts see this as a political response to the negative populist opinion of banks, which received huge taxpayer support in the form of a bailout only a few years ago.
Legal storms bring down unfavorable decisions on big banks
Many banks, their subsidiaries and mortgage lending instruments have been accused of abusing federal housing and mortgage assistance programs. Chief amongst the claims is that banks took advantage of the incentives offered through loan modification programs like HAMP, only to countermand the agreement with the borrower months later.
Other borrowers have alleged fraudulent and pernicious bank practices where their interest rate would suddenly go up after renegotiating the terms of their loan. Some borrowers reported delinquency notices from their banks months after they renegotiated.
Across the country, judges have been handing down verdicts favoring class-action plaintiffs. Some banks have chosen to settle out of court in order to avoid greater losses.
A confluence of anti-bank sentiment and poor accounting practices
Federal auditors, working on behalf of Freddie and Fannie have been reexamining the bookkeeping of banks, just as judges have done at the state level. They are suspect that they will discover not only poor accounting, but, in some cases outright fraudulent lending practices that defy or dither the parameters of the loan modification approval process.
More economic suffering ahead?
This latest surge of populist anger and Freddie-Fannie investigations has economists worried and frank-many are suggesting that federal regulators could potentially unhinge the entire banking industry by recovering repurchase losses from smaller banks.
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