KeNo's Housing and Economic Portal: Friday March 9 Housing and Economic stories

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How Citibank Dumped Lousy Mortgages on the Government - (www.propublica.org) Citigroup agreed yesterday to pay $158 million to settle a lawsuit over bad loans that the bank passed on to the Federal Housing Administration to insure. The whistle-blower who originally brought the case, Sherry Hunt, an employee of Citi's mortgage department, said the company actively undermined the process that was supposed to check for fraud in order to push through reckless loans and get higher profits. The suit itself makes for good reading. We've pulled out the juiciest bits, and explain just what Citi appears to have been doing.

How Greece could take down Wall Street - (www.globalresearch.ca) MF Global was a major global financial derivatives broker until it met its unseemly demise on October 30, 2011, when it filed the eighth-largest U.S. bankruptcy after reporting a “material shortfall” of hundreds of millions of dollars in segregated customer funds. The brokerage used a large number of complex and controversial repurchase agreements, or "repos," for funding and for leveraging profit. Among its losing bets was something described as a wrong-way $6.3 billion trade the brokerage made on its own behalf on bonds of some of Europe’s most indebted nations. Avizius writes: [A]n agreement was reached in Europe that investors would have to take a write-down of 50% on Greek Bond debt. Now MF Global was leveraged anywhere from 40 to 1, to 80 to 1 depending on whose figures you believe. Let’s assume that MF Global was leveraged 40 to 1, this means that they could not even absorb a small 3% loss, so when the “haircut” of 50% was agreed to, MF Global was finished. It tried to stem its losses by criminally dipping into segregated client accounts, and we all know how that ended with clients losing their money. . . . However, MF Global thought that they had risk-free speculation because they had bought these CDS from these big banks to protect themselves in case their bets on European Debt went bad. MF Global should have been protected by its CDS, but since the ISDA would not declare the Greek “credit event” to be a default, MF Global could not cover its losses, causing its collapse.

Subprime mortgage bonds suddenly popular investments - (www.bloomberg.com) Investors who made some of the biggest profits from the 2007 bust in U.S. mortgages are once again in agreement. This time, they’re going long. Hedge fund manager Kyle Bass, who made $500 million betting against subprime debt in the crash, is raising a fund to buy home loan securities. He’s joining Greg Lippmann, a former Deutsche Bank AG trader, and John Paulson, who made $15 billion in 2007, in betting on default prone mortgages. Goldman Sachs Group Inc. (GS) and American International Group Inc. (AIG) have also emerged as buyers this year as trading more than doubled for non-agency mortgage notes. The $1.1 trillion market for U.S. mortgage bonds without government-backing is joining a global rally in everything from stocks and commodities to company loans, as confidence grows that Europe’s sovereign debt crisis will be contained. Investors are speculating the riskiest mortgage securities are priced to withstand an economic slowdown and home price declines even as President Barack Obama and the Federal Reserve pursue policies to combat the six-year residential real-estate slump.

Too Much Cash in the Corner Office - (www.businessweek.com) Chief executive officers are not the only highly paid people in America. It’s just their misfortune that, thanks to disclosure rules, they’re among the most visible. This proxy season coincides with an electoral cycle in which income inequality has become a populist issue for candidates in both parties, which means CEO paychecks will be scrutinized as never before. And what can’t evade discovery is that, even among the very rich, CEOs have been consistently overpaid. By overpaid, I don’t mean merely highly paid. We live in a capitalist country, and talent is entitled to fetch its price. But to take just one shining example, Larry Ellison, CEO of Oracle (ORCL), has gorged himself on more than $60 million in stock options every year since 2008. Even if Ellison did groundbreaking work and was a juggernaut of management brilliance, abusive would not be too strong a word. Fixing CEO pay—making it more reflective of what executives are truly worth—would go a long way toward restoring America’s faith in business, and in equal treatment. How, is the $60 million question.

Foreclosure Scout Shares The 'Dirty Tricks And Blatantly Illegal Practices' Of His Job - (www.businessinsider.com) “We break & enter all day, every day." Foreclosure buyers, the trash collectors of the housing industry, have been raking it in. An anonymous foreclosure scout recently described the "ins and outs, all the dirty tricks, blatantly illegal practices" in a thread at Reddit. In fact as the thread became popular, the source deleted his comments out of concern that his identity would get out. His answers were preserved, however, at Pastebin.com (via Patrick.net).