View Full Version : Banks give taxpayer the finger........

06-06-2010, 08:22 PM
<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Among the more glaring bookkeeping fictions on big banks’ balance sheets today are the values they assign to all of the bounteous second mortgage loans. doled out during the mortgage bonanza. As any realist will attest, many of these loans are worth little, and yet there they sit, at fantasy levels, on banks’ ledgers.

Refusing to face reality on second liens ultimately hurts shareholders. But taxpayers are the ones holding the bag when institutions try to avoid losses by refusing to buy back problem loans they have sold to Fannie Mae and Freddie Mac, the mortgage finance giants that are wards of the state.

Fannie and Freddie helped grease the nation’s housing machinery before and during the boom years, scooping up loans from all corners of the country. The more of these that Fannie and Freddie bought, the easier it was for banks to write new mortgages.

<span style='font-size: 14pt'><u>To protect themselves</u> from getting piles of garbage loans shoveled their way when they buy mortgages, <u>Fannie and Freddie require lenders or loan servicers to sign contracts requiring those firms to repurchase loans that don’t meet certain standards relating to borrower incomes, job status or assets. </u>Loans that were extended fraudulently, or deemed to have been predatory, are also candidates for buybacks.

Surprise, surprise: banks don’t want to repurchase these loans.</span> So when Fannie or Freddie identify problem mortgages and request repayment, a battle royal begins. Banks may argue, for example, that the repayment requests have flaws of their own.

But for us <span style='font-size: 17pt'>as taxpayers, watching this battle from the sidelines, one growing concern is how aggressively Fannie and Freddie will pursue their requests. If banks refuse to buy back flawed loans, taxpayers will have to cover more of the losses. </span></div></div>
link (http://www.nytimes.com/2010/06/06/business/06gret.html)