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Thread: Californians rush to pull money from Countrywide Bank

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    Default Californians rush to pull money from Countrywide Bank

    By E. Scott Reckard and Annette Haddad
    LA Times
    Published on: 08/17/07
    LOS ANGELES — Anxious customers jammed the phone lines and Web site of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

    Countrywide Financial Corp., the biggest home-loan company in the United States, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank.


    The mortgage lender said it would further tighten its loan standards and make fewer large mortgages. Those moves could make it harder to get a home loan and further depress the housing market.

    The rush to withdraw money — by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company — came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown.

    The parent firm borrowed $11.5 billion Thursday by using up an existing line of credit from 40 banks, saying the money would help the lender meet its funding needs and continue to grow. But stock investors, apparently alarmed that the company felt compelled to use the credit line, sent Countrywide's already battered stock down an additional 11 percent.

    At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.
    In west Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.

    Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

    "It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

    "It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured — I just want it out."

    Customers, most of whom said they were acting just in case, said they went to the lightly staffed branches because they couldn't get through to the bank via its toll-free number or its slow-moving Web site.

    "I doubt it will go under, but I want to protect myself," said Rogie Vachon, who was the Kings' most valuable player for several years in the '70s. Vachon said he went to the west Los Angeles branch to withdraw some money because his account balance exceeded the limit on insurance provided by the Federal Deposit Insurance Corp.

    In a statement, the bank said: "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion." The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

    As for parent firm Countrywide Financial, the mortgage giant said draining its credit line would allow it to continue operations while refocusing its business on the "plain vanilla" mortgage loans that can be sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.
    Countrywide said it planned to fund more mortgages through Countrywide Bank and have the bank invest in certain loans that Fannie Mae and Freddie Mac won't buy, such as "jumbo" mortgages, which in California are defined as those over $417,000.

    Countrywide recently was funding about $40 billion a month in mortgages. Of those, about half qualified to be sold to Freddie Mac or Fannie Mae, and half were "nonconforming" loans the agencies don't buy, including sub-prime mortgages to higher-risk borrowers as well as jumbo loans, which account for 43 percent of all mortgages issued in Southern California.

    Company executives declined to discuss how the heavy withdrawals at Countrywide Bank branches Thursday might interfere with that strategy.
    http://www.ajc.com/business/content/...ebank0817.html
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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ no problemo ... a 40 bank consortium guaranteed Countrywide $11 billion in new credit, and the Fed discount 'window' is open after they burn through that cash injection.

    However, at the same time,

    CFC is definitely a great candidate for buying 'crash puts'

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    Default Re: Californians rush to pull money from Countrywide Bank

    While I understand it is human nature to panic in a situation like this, we are taking a problem and exacerbating it. This is reminiscent of the Lincoln Savings and Loan/Charlie Keating run of over a decade ago. Not so much the public then, but the Feds rushing to judgment. While Countrywide may have exposure on sub prime, it is doubtful that it is to the degree that this thing is being played up in the press. Sub prime defaults are about 2 percent right now, not a number that cannot be handled. Wall Street hates uncertainty and they cannot put their arms around a number. Once this hysteria dies down, and it will, I think the actual damage will be a relative small number. Will some funds get wiped out? Yes, and they should. Many of these loans were made under ridiculous terms and conditions. I think when history looks at this, negative comments will have done more damage, many of these coming from those on the Street that will profit and wanted interest rates lowered, than the actual money loss.

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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ did you catch the significance of my yahoo link ? The president of Countrywide has been 'quietly' selling off his stock options for a couple of months now ... in small amounts ... so as not to attract media attention !

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    Default Re: Californians rush to pull money from Countrywide Bank

    Meh, mass hysteria, pretty funny stuff...

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
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    Default Re: Californians rush to pull money from Countrywide Bank

    News Flash- "Countrywide Bank Pulls Out Of California, Cums On Its Face- Film At Eleven"

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    Default Re: Californians rush to pull money from Countrywide Bank

    I am not sure where people get their numbers but here is some numbers looking at foreclosures over all.

    On a per-capita basis for the first seven months of 2007, 9 pre-foreclosures were filed for every 1,000 households (567,046 total filings), up more than 27 percent from nearly 7 filings per 1,000 households. That's also up more than 83 percent from the 4.9 filings per 1,000 households for the same period a year ago, reports ForeclosureS.com, based on analysis of its nearly 3.5 million listings in more than 1,590 counties across the country.

    http://biz.yahoo.com/bw/070806/20070806005310.html?.v=1

    The article on that link has tons of information about the real state of foreclosures.

    This isn't an isolated issue with one financial institution. This is a nation wide problem. A problem that is going to continue to compound itself.

    What's really happening in the market goes beyond subprime loans -- those issued to people with little or no credit -- gone bad and subsequent foreclosure fallout. "The big picture is that the formerly artificial, overzealous housing and loose credit markets have adjusted too firmly and a clampdown in liquidity is the result. Liquidity refers to the availability of money to lend for housing for everyone.

    "For the past few years as home prices appreciated almost out of control, so did the artificial and 'creative' financing environment that helped people who couldn't really afford it buy their homes. Now, thanks to Freddie Mac's lead in tightening lending qualification standards earlier this year, lenders are being extremely cautious on all levels. Home loans and refinancings now are being made only if potential borrowers meet full documentation income qualifications necessary to afford those mortgages," says McGee.

    "We went from 'irrational exuberance' in the housing and credit markets to fear and blood on the streets very quickly. We need to get to a place where it's a balanced financing environment again to help stabilize our housing markets."

    "The foreclosures will work their way through. As they do in the coming months, we'll see more and more REO properties and REO auctions (Please see REO Auction Update below)," adds McGee. "What worries me more about the future is a lack of liquidity in the market for all borrowers in general. What's happening now with subprime and now alt-a lenders collapsing, lenders exiting the subprime market, industry consolidations, bankruptcies, and more, is that the institutional investors that provide cash to lending markets are panicking and pulling their money out.

    "With tighter credit, fewer people will be able to qualify for home loans. As a result, we can expect to see a drop in overall homeownership rates nationwide -- currently at an all-time high of 69 percent. Many of those people who lose their homes to foreclosure won't get back into homeownership until they raise their income years later to better afford it."


    I think panic is useless. But I do believe things are worse than many people realize. I think it is time to battin down that hatches and get ready for a real bad financial storm.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ and the kicker to all of this is that the 9/1000 or 0.9% pre-foreclosure rate that currently exists for ALL types of mortgages resulted from economic conditions that are rapidly getting worse. The foreclosure rate on ARM's is now about 4%

    Point #1 - there are FAR more ARM's resetting over the next 12 months than have reset in the previous 12 months. 2 million ARM's are due to reset this coming October, versus 1/2 million that reset in the month of August. Some experts forecast a 20% default rate on ARMS within a year, which will raise the foreclosure rate on ALL types of mortgages from todays 1% or so to the 3.5-4% ballpark. See

    Point #2 - until the past couple of months, homeowners with resetting ARMS did have a reasonable shot of refinancing. However, with the credit fears of the past month, mortgage lenders are now requiring that new loans and refis 'conform' to FNM / FRE standards in order to obtain a manageable rate of interest. FNM / FRE standards limit maximum loan size to $417k, which will pretty much disqualify every house in California ! Lenders are also requiring actual verification of income, are requiring substantial equity / down payments etc., meaning that fewer and fewer ARM holders will be able to qualify for a refi - thus more and more ARM holders going into default / foreclosure / bankruptcy

    Point #3 - as the overall foreclosure rate on US mortgages creeps upward, the losses on mortgage backed bonds, CDO's, etc. will mount even faster. Given the 'disturbances' in world finance already caused by the current rate of defaults / foreclosures, having to take losses that are four times as great a year from now does not bode well for the stability of many large banks and hedge funds. This will trickle down to either impossibly tight future lending standards for all sorts of loans (which may very well cause a depression), or will trickle down to a nearly worthless US dollar (which may very well cause shocking levels of price inflation)

    Point #4 - REO's (basically repossessed houses that the bank/lender can't sell) may appear as an asset on the bank's/lender's books, but they nonetheless tie up the bank's/lender's available cash. No available cash means no new loans. Having to borrow additional cash, even from the fed's discount window at a 5.75% 'wholesale' rate, means more expensive new loans as well as tighter bank/lender standards for creditworthiness, proof of income, equity/down payment etc.


    The skeptics out there will tell you that just about the ONLY way that this situation can be reversed is for the US congress to force FNM and FRE to loosen their 'conformance' standards, and to then buy up a whole lot of 'toxic' mortgages. This would indeed bail out the US banks by 'freeing up' their cash, but at a tremendous new cost to the US taxpayer ... who will ultimately be on the hook to bail out FNM and FRE when those 'toxic' mortgages go belly-up. Hey, the savings and loans got bailed out by the US taxpayer 25 years ago, right ?

    However, speculation is that if this plan goes down it will mean substantial new tax increases to cover the FNM and FRE bailout. Ironically, this will mean that younger US workers will be so saddled by higher taxes that they won't be able to qualify for mortgages to buy a home for themselves. And the reason that the younger workers be forced to pay those higher taxes is to keep current homeowners who can't afford their mortgage payments out of foreclosure and still living in their houses ! This could very well lead to a 'generation war' at the ballot box, but would certainly lead to a much lower standard of living for younger US workers ... which is bad for the US economy, bad for banks, and bad for all Americans except those who have already been able to borrow and spend more money than they could afford to ever pay back !


    As to the Countrywide situation, my 'friend' Elaine just posted a real expose' about them ...



    (snip)"Then the Fed and all the huge financial houses that have kennels filled with dying hedge hell hounds came to the rescue and infused this evidently corrupt organization with an astonishing sum of money, $11 billion. They didn't force these possible rip-off artists to return the money they got from these seemingly fraudulent sales based on lies. I do expect the SEC to examine this very severely, this reeks of ENRON.

    The total sales of all the top officers of this bank that is in very serious trouble and that is being bailed out by our own government at our cost was...almost $600,000,000. Six hundred million dollars. In less than a year of selling down their own business. Astonishing, isn't it?

    Let me make a moral remark here: this smacks of double dealing. I track these things and all throughout the year all the way up until a mere few days ago, the men and women selling off their shares to cash in were assuring gullible and trusting people that all was well. I have crunched only a few surface numbers from this dying bank and was horrified to see that they alreayd have taken possession of over a billion $ worth of housing including a building in Maimi that owed this dying bank $3 million. In California, they have a backlog of unsold repro properties that are in the thousands and most of them went into bankruptcy owing from $300,000 to $2 million with lots and lots of houses in the $500,000 to $700,000 range.

    Since this organization that seems more akin to the Mafia than to a neighborhood bank has been the recipient of a very public rescue, I demand they open all their books to all of us and publish the whole thing online. If they refuse, they can mail me their books and I will take it all to an accountant friend of mine and we will go through it with a fine tooth comb. Then I get to do the next step: demand the government begin proceedings against these people if I find anything amiss.

    HAHAHA. And I bet there is a huge chance this will happen. Because the sale of one's own stake while telling strangers, you have a gold mine, is to my humble mind, FRAUD. And if it is not, then fine. But it looks awfully suspicious and I am a suspicious person and if this organization has lawyers, go for it, guys! Try and shut me up.

    Fraud, fraud, fraud, fraud.

    And this is killing America. We cannot be a land of fraudsters, gamblers and con men or prostitutes and muggers and drug dealers! Where is everyone's morals? The sale of $600,000,000 in stocks in a bank that is going bankrupt is not right on any level at all."(snip)


    I think panic is useless. But I do believe things are worse than many people realize. I think it is time to battin down that hatches and get ready for a real bad financial storm.
    ... especially since Countrywide is merely the tiniest tip of the proverbial iceberg !!!

    .
    Last edited by Melonie; 08-18-2007 at 05:22 AM.

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    Default Re: Californians rush to pull money from Countrywide Bank

    Unfortunately some of this was warranted. I felt it coming two years ago when I got out of stripping and into the world of finance. All of these people were coming to see me with a huge hard asset base (read, real estate) and cash-flow red EVERY month. And they wanted me to help them save so they could be MORE real estate. I didn't invite these types in as clients, as I wouldn't see a penny of their assets.

    Now most of them are fucked, leveraged to the hilt, with empty rentals, and no way to re-fi out of their ARMS because of their debt/income ratio and liquidity. It sucks, but its been a long-time coming.

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    Default Re: Californians rush to pull money from Countrywide Bank

    Some of it is warrented but alot of it was all out fraud.

    Many lenders lied to people telling them they were only eligalbe for subprime. When in reality they could of gotten a 30yr fixed with just a slightly higher interest rate. When I worked at the credit union people came in all time with these issuues. When we sat down and looked at their credit history we told them the truth.

    Most of these forclosures are families who wanted a house because everyone else had one. They went in uneducated about the process. They were told and sold all kinds of insane things. Because of the greed of lenders and people who went for houses they couldnt afford; and the government turning a blind eye until it is too late; we are all going to pay.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    About your post Melonie.....

    The one thing I can't figure out is why hasn't the government closed or fined more lenders for fraud. Banks get audited every year. Everything is gone over with a fine tooth comb. It lasts at least a week.

    In my above example, if someone has a good credit history and they get terms as if they had horrible credit, it would be blantly obvious what was going on. In mortgage paper work everything is documented.

    Unless that isn't illegal. But it still makes no sense to me.

    I wouldn't be surprised if there is alot of lawsuits because of this type of fraud in banking.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    My mortgage broker client keeps me informed about this. The rules are changing EVERY DAY. No one has had a chance to let the dust settle. Its very disconcerting for his industry, and adds time to his origination process...

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
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    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: Californians rush to pull money from Countrywide Bank

    The one thing I can't figure out is why hasn't the government closed or fined more lenders for fraud. Banks get audited every year. Everything is gone over with a fine tooth comb. It lasts at least a week.
    probably because, with the exception of FNM, FRE and a few other gov't sponsored mortgage backers, almost the entire secondary mortgage underwriting market involved the 'securities' industry rather than the 'banking' industry. This in turn involved SEC regulation rather than FRB regulation. Philosophically, the securities industry lives with high risk vs high profits, whereas the banking industry lives with low risk and low profits. Attempts to 'blend' the two industries to arrive at supposedly low risk but still very high profit business are at the root of today's mess.

    Of course, the flip side of the low risk but still very high profit environment enjoyed by Countrywide and a host of other non-bank mortgage brokers (actually a huge mortgage securities company plus a small bank operating under the same name) is that somebody wound up getting stuck with their high risk but low profit 'mortgage paper'. When a reported 50% of such 'mortgage paper' winds up owned by foreigners, foreign banks, US investment banks, secretive hedge funds, uber rich investors etc. there was not much incentive to regulate. However, when those foreign banks and hedge funds and uber rich investors started taking losses on their 'mortgage paper', it left them unable to fulfill other financial commitments - thus setting up a potential domino effect that could quickly come right back to hammer the 'banking' industry.

    Ultimately, this whole mess is about taking on long term 'retail' debt obligations financed by short term 'wholesale' borrowing. This by definition requires that the short term notes can be 'rolled over' under terms that still allow for a profit vs the long term obligations. This is where all hell broke loose due to the downward revaluation of collateral and the realignment of currency exchange rates. And because the entire circle of debt is international, it was/is impossible for any single country's regulators to even get a grip on the true financial picture surrounding the entire circle of debt, let alone having the authority to actually effect meaningful regulations.

    This is going to get far worse before it gets better. The skeptics will tell you that the only real remaining question is whether or not the US taxpayer will pick up the tab to sustain the present financial system (if that's even possible), vs. letting the financial chips fall where they may and trying to pick up the pieces later. With an important election coming up I'd bet on the former, as a speculative 2.5 million 'former' homeowners plus a speculative 25 million bank depositors whose balances are frozen would make for a very unhappy electorate ( remember Herbert Hoover )! Of course, the costs to the US taxpayer for such a bailout will be incredibly high ... but won't really come home to roost until well after the 2008 election ( remember F.D. Roosevelt ) !

    !
    Last edited by Melonie; 08-18-2007 at 04:24 PM.

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    Default Re: Californians rush to pull money from Countrywide Bank

    Quote Originally Posted by Katrine View Post
    My mortgage broker client keeps me informed about this. The rules are changing EVERY DAY. No one has had a chance to let the dust settle. Its very disconcerting for his industry, and adds time to his origination process...

    I am not talking about loan criteria ie credit worthiness. I am talking about the laws governing fraud within a mortgage.
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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ again the problem is that a bank / credit union originated mortgage is a different animal altogether than a brokered securitized mortgage i.e. Countrywide and the 100 odd subprime mortgage brokers who have already gone bankrupt. Like money market accounts versus money market funds, or like CD's vs term investment contracts, they don't have to play by the same rules even though they put forth a public image that they are really the same thing. Thus aspects which would clearly be considered 'fraud' under FRB rules were merely 'business as usual' under SEC rules - at least until the point where public outcry results in an Enron like full investigation by the SEC.

    IMHO outfits like Countrywide take the prize for deceptive business practices since they went to the trouble of establishing (comparatively small) retail bank branches while the vast majority of their business was securitized mortgage brokerage. This allowed the general public who didn't bother to do any independent research to draw the incorrect conclusion that the Countrywide mortgage they were signing was in fact being offered by Countrywide bank under FRB regulations, when in reality it was being offered by Countrywide 'brokerage' under SEC regulations. Actually, people only had to look as far as to get a taste of Countrywide's true operations.
    Last edited by Melonie; 08-18-2007 at 05:17 PM.

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    Default Re: Californians rush to pull money from Countrywide Bank

    Looking up information about sub prime mortgage laws ( i am such an addict of finance lol) I found a really interesting article in the Wall Street Journal ...


    Did Greenspan Add to Subprime Woes?Gramlich Says Ex-Colleague Blocked CrackdownOn Predatory Lenders Despite Growing Concerns

    By GREG IP
    June 9, 2007;

    Alan Greenspan was arguably the country's most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan's regulatory record has received far less scrutiny than his management of the economy.

    That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed's broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.


    Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

    "I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

    "He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.

    Greenspan's Response

    Mr. Greenspan, in an interview, says he doesn't recall a specific discussion of the idea but confirmed his opposition to it.

    There is "a very large number of small institutions, some on the margin of scrupulousness and very hard to detect when they are doing something wrong," says Mr. Greenspan, who retired in February last year. "For us to go in and audit how they act on their mortgage applications would have been a huge effort, and it's not clear to me we would have found anything that would have been worthwhile without undermining the desired availability of subprime credits."

    Mr. Greenspan adds that borrowers might get a false sense of security from a lender that advertised itself as Fed-inspected.

    Ben Bernanke, Mr. Greenspan's successor, told Congress in March that he has asked his staff for "a complete review of our powers and practices" in examining holding-company units. A Fed spokesman this past week said "that review is under way." The Fed Thursday will conduct a public meeting on steps it could take to strengthen laws governing subprime lending.

    On June 29, the Urban Institute will release a book by Mr. Gramlich, "Subprime Mortgages: America's Latest Boom and Bust." It argues, among other points, that all lenders affiliated with banks and thrifts could "be brought under the same supervisory conventions as their parents seemingly without major culture shock." It wouldn't be a huge undertaking by policy makers, and it would lead to more uniform, stringent practices.


    Mr. Gramlich, who is being treated for cancer, says, "There are certain things that unsupervised lenders do that a Fed supervisor would not let you get away with," such as not escrowing taxes and insurance, not verifying an applicant's stated income, or assessing the borrower's ability to repay based on an introductory "teaser" rate. But he said the proposal's reach would have been limited by the fact that many lenders would still have no federal supervision.

    At the time President Clinton appointed Mr. Gramlich to the Federal Reserve Board, he was a University of Michigan academic who had served on commissions studying Major League Baseball and Social Security. Mr. Greenspan put him in charge of the board's community and consumer affairs committee.

    Mr. Gramlich often pushed the Fed to expand fair-lending and consumer-protection rules, winning the admiration of consumer groups that often accuse the Fed of being too supportive of the financial industry. Despite their differing philosophies, Mr. Gramlich says he got along well with Mr. Greenspan, who supported him on most initiatives, especially those involving increased disclosure.

    Nonetheless, his remarks represent a rare insider's criticism of Mr. Greenspan's regulatory record. Mr. Greenspan says he didn't get heavily involved in regulatory matters in part because his laissez-faire philosophy was often at odds with the goals of the laws Congress had tasked the Fed with enforcing.

    "I basically listened to the staff and tried as best I could to support the staff's recommendation," he says. He notes that with one exception, on a highly technical issue, he always voted with the board majority.

    Still, Mr. Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny.

    Heat on the Fed

    The Fed has taken heat recently for not more vigorously using its power to write consumer-protection rules for the entire industry, not just the lenders it oversees directly. Before it proposed new standards last month, the Fed hadn't conducted a broad review of its credit-card disclosure requirements since 1981 -- six years before Greenspan took office.

    In 2005, 52% of subprime mortgages were originated by companies with no federal supervision, primarily mortgage brokers and stand-alone finance companies; 23% by banks and thrifts; and 25% by finance companies affiliated with banks and thrifts, including units of bank holding companies.

    According to Inside Mortgage Finance, an industry publication, in 2006 three of the eight largest subprime mortgage lenders were units of bank holding companies. The Fed is one of four federal regulators that supervises deposit-taking banks and thrifts. It also has oversight over bank holding companies, with the discretion to delegate authority over their operating units to other agencies.


    Edward Gramlich was a Clinton appointee from the University of Michigan.
    Thus the Fed generally leaves regulation of nationally chartered banks to the Office of the Comptroller of the Currency; of securities-dealer units to the Securities and Exchange Commission; and of consumer-finance companies to the states.

    However, state regulation is generally considered inconsistent and usually less rigorous than federal oversight. Moreover, 18 states offer some form of exemption from state regulation to bank holding company units, according to the Conference of State Banking Supervisors.

    The Fed periodically examines the finance-company units to ensure that they pose no threat to the "safety and soundness" of their deposit-taking affiliates and to assess their controls for things like money laundering. In special situations, it does scrutinize their practices for compliance with consumer-protection laws. In 2004, it fined Citigroup $70 million for alleged abuses by its CitiFinancial unit.

    But Mr. Gramlich fretted that extending those standards to holding-company units would create an unlevel playing field unless stand-alone lenders were subjected to the same thing.

    Jim Strother, general counsel for Wells Fargo & Co., said oversight of bank holding company units isn't "where the need is," noting the Fed does examine Wells Fargo Financial, a major subprime mortgage lender. "The gap is for companies that aren't in the banking system at all."

    --Damian Paletta contributed to this article
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    Quote Originally Posted by Melonie View Post
    ^^^ again the problem is that a bank / credit union originated mortgage is a different animal altogether than a brokered securitized mortgage i.e. Countrywide and the 100 odd subprime mortgage brokers who have already gone bankrupt. Like money market accounts versus money market funds, or like CD's vs term investment contracts, they don't have to play by the same rules even though they put forth a public image that they are really the same thing. Thus aspects which would clearly be considered 'fraud' under FRB rules were merely 'business as usual' under SEC rules - at least until the point where public outcry results in an Enron like full investigation by the SEC.

    Thanks for the explanation Melonie.


    So basically no one is watching what they do really. Which is just mind boggling to me.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    Did Greenspan Add to Subprime Woes?Gramlich Says Ex-Colleague Blocked CrackdownOn Predatory Lenders Despite Growing Concerns
    not wanting to swing too far towards the political, but in fact this entire issue got started as a result of a gov't sanctioned 'push' during the Clinton administration for mortgage lenders to liberalize (no pun intended) creditworthiness standards under FHA and HUD directives - for the express purpose of increasing home ownership by minorities. See

    (snip)"Ownership for the majority of the minorities. That's the new goal of the Clinton Administration, which wants to boost the home owner rate among African Americans and Hispanics beyond the 50 percent level within three years.

    To achieve that percentage, an additional 423,000 African American families and 420,000 Hispanics would have to become owners, according to the Department of Housing and Urban Development.

    At the end of this year's first quarter, more than 73 percent of all white households across the land owned the roofs over their heads. And the ownership rate among all Americans was at a record 67.1 percent.

    Nevertheless, only 47.8 percent of all African American households and 45.7 percent of Hispanic households were owners.

    To reach its intended target, HUD Sec. Andrew Cuomo committed the Federal Housing Administration to insure 765,000 mortgage for members of the two minorities. And he called on the private sector to pitch in by pushing the initiative over the top."(snip)


    Trying to keep the non-economic aspects to a minimum here in Dollar Den, while there were indeed some non-economic reasons for a low percentage of minority home ownership in the 90's and before (i.e. redlining, outright discrimination), there were also very real financial reasons. Those very real financial reasons were that, statistically speaking, a large percentage of minority workers did not have the income or credit history or financial/job stability to justify being approved for a large long term loan. Clinton's FHA / HUD initiative forced lending criteria to be loosened, with federal tax money channeled through FHA / HUD and the implied gov't guarantees to FNM and FRE serving to create what would otherwise have been considered excessively 'risky' mortgage loans. Later GWB could not put himself in the position of reversing the Clinton initiative out of fear of racism accusations, so the same program continued - see

    While the minority home ownership initiative did add 'risk' to the system, that risk was quickly multiplied 3 fold by an 'unintended consequence' of the Clinton minority home ownership initiative program. Court rulings were handed down that the gov't mandated ( gov't subsidized) more relaxed lending standards could not just be offered to blacks and hispanics. Instead the relaxed lending standards now had to be offered to all Americans regardless of race. This of course opened the door for poor credit risk white Americans to now become homeowners right along side poor credit risk black and hispanic Americans, and greatly increased the total number of 'risky' mortgages that were written !

    Well, surprise - surprise ... many of those excessively 'risky' mortgage loans are now going belly-up ! Surprise - surprise ... the taxpayers who guaranteed these 'risky' mortgage loans are going to wind up eating the losses. But the ultimate surprise is the gall of some of the politicians who originally supported the Clinton minority housing initiative in the 90's who are now beginning to blame the bank and securities regulators for 'allowing' this situation to develop in the first place - when in fact it was the politicians themselves who voted to put the minority home ownership initiative into effect thus effectively forcing US banks and mortgage lenders to write those 'risky' mortgages against their credit committees' better judgement !

    These politicians conveniently ignore the fact that such new gov't mandated minority mortgage lending was inherently too 'risky' for the mortgage lenders to have approved on its own merits - which is the major reason why these 'risky' loans were not being made by the US banking industry prior to the Clinton initiative, thus the bulk of the reason why minority home ownership was as low as it was prior to the Clinton initiative !!! In point of fact, much of today's subprime mortgage default problem, and the resulting MBS / CDO problem, and the resulting liquidity problem, and the resulting bank / stock market problem, can be directly traced back to the 'well intentioned' but financially ignorant meddling of President Clinton and the US congress. Of course this is a taboo subject where mainstream media is concerned, and the 'incubation period' of the economic 'infection' has been so drawn out that very few people attempt to connect the distant cause with today's effect.

    When Alan Greenspan attempted to point out the increasing level of 'risk' being introduced into the banking system by an increasing number of these subprime mortgages, and attempted to suggest that the whole issue of subprime creditworthiness be re-evaluated, this again ran afoul of the Clinton era minority home ownership directive and opened up the FED (as well as the GWB administration) to yet more racism claims. As such, Alan undoubtedly got a 'quiet' talking-to - which was probably source of the real 'heat' on the FED. And of course all of this also became a 'taboo' subject where mainstream media was concerned.

    The ultimate irony is probably this. True to the great tradition of American ingenuity, the financial industry found ways to turn an undesirable gov't mandate, i.e. the necessity of writing 'shaky' loans to increase home ownership rates by non-creditworthy borrowers, into a new opportunity for profit. The 'new' businesses of subprime mortgage lending, loan repackaging into mortgage backed securities and CDO's for subsequent resale of mortgage debt into the securities markets, the concept of mortgage loan 'servicing', etc. are all arguably the direct descendants of the Clinton minority home ownership initiative. Of course, this is the ultimate 'taboo' subject where mainstream media is concerned.

    !
    Last edited by Melonie; 08-18-2007 at 06:47 PM.

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    Featured Member Vamp's Avatar
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    Default Re: Californians rush to pull money from Countrywide Bank

    I wont try to beat a dead horse because we have discussed this before. But I think there is alot of other hands that started this mess.

    Reagen had a large hand in deregulating banking and lending itself. It had not been done before to that large of an extent.

    To me race is not an issue with this problem. No matter what the orginal intentions of the Bill Clinton was. I have seen on many financial forums people blantly saying it is " blacks and illegals" fault for this subprime meltdown. It is totally insane to me. Risky loans are just that; no matter who takes them out.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ agreed on Reagan's deregulation, although something had to be done after the time of the S&L bailout (which was arguably caused by excessively tight regulation).

    Also agreed that race has nothing to do with this, other than the fact that the scope of Clinton's program was originally only intended for minorities. Soon after it's creation, the US courts eliminated the factor of race from the potential group of mortgage benefit 'recipients' of gov't guaranteed loans that they could not truly qualify for based on their own incomes / credit. This in turn caused the amount of FHA / HUD subsidies required and the amount of FNM / FRE exposure to 'shaky' loans - as well as creating three times as many outstanding 'shaky' loans throughout the US mortgage market than the Clinton program had originally intended (by including white Americans with bad credit into the pool of mortgage benefit 'recipients').

    As you say, ultimately bad credit 'shaky' loans are what they are ... 'toxic' to the banking system. Having 3 times as many bad credit 'shaky' loans on the books is three times as 'toxic'. The Clinton program was originally intended to provide a new de facto social welfare benefit for minorities i.e. gov't guarantees that 'shaky' loans would be approved. The US court decisions effectively changed a de facto social welfare benefit program intended only for minorities into a de facto social welfare benefit program for ALL low income / bad credit Americans.

    Now the key question from here on out will be whether this policy will be followed at the other end of the line ... i.e. whether or not the de facto social welfare benefit program will also pick up the tab to keep the low income / bad credit Americans with unaffordable mortgages from being foreclosed on !!! Several states are already pondering this issue, and a few ( MA, NY )have already approved the expenditure of state tax money to pay off the 'shortfall' and allow low income state residents to refi into fixed rate mortgages they could never qualify for on their own merits and without cash of their own to cover the 'shortfall'.

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    Default Re: Californians rush to pull money from Countrywide Bank

    I just ran across this very succinct analysis which details how there are now in fact TWO independent financial systems in operation ... the conventional system comprised of the FED and the commercial banks (which operate under the auspices of bank regulators), and the unconventional system comprised of the GSE's and the investment banks (who operate under the auspices of securities regulators).



    It's a bit long, but fundamental to understanding what's actually going on in the economy right now re potential bank failures.

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    Default Re: Californians rush to pull money from Countrywide Bank

    Quote Originally Posted by Melonie View Post
    Also agreed that race has nothing to do with this, other than the fact that the scope of Clinton's program was originally only intended for minorities. Soon after it's creation, the US courts eliminated the factor of race from the potential group of mortgage benefit 'recipients' of gov't guaranteed loans that they could not truly qualify for based on their own incomes / credit. This in turn caused the amount of FHA / HUD subsidies required and the amount of FNM / FRE exposure to 'shaky' loans - as well as creating three times as many outstanding 'shaky' loans throughout the US mortgage market than the Clinton program had originally intended (by including white Americans with bad credit into the pool of mortgage benefit 'recipients').
    Blacks and Hispanics are only 15-20% of the population. That group benefitted for a few years from the HUD policy changes and the lending world thrived. You add in the poor whites and fly-by-night speculators who buy a far larger percentage of homes and <POOF>!! Says more about the latter groups' stability than the former.

    Quote Originally Posted by Melonie View Post

    When Alan Greenspan attempted to point out the increasing level of 'risk' being introduced into the banking system by an increasing number of these subprime mortgages, and attempted to suggest that the whole issue of subprime creditworthiness be re-evaluated, this again ran afoul of the Clinton era minority home ownership directive and opened up the FED (as well as the GWB administration) to yet more racism claims. As such, Alan undoubtedly got a 'quiet' talking-to - which was probably source of the real 'heat' on the FED. And of course all of this also became a 'taboo' subject where mainstream media was concerned.
    Loans have to be paid back and were paid back by the first group. It's the poor whites and greedy speculators who walked from their obligations. Why not support regulation? If Regan's de-regulation was so smart things wouldn't have gone awry again and we wouldn't be holding the bag. If Greenspan's laissez faire (re:instituting Fed oversight) was appropriate he would not have seen the program as a success to be repeated on a grander scale. He and GW must have been asleep at the wheel not to see what you saw coming. You can't let big business operate without reasonable guidelines. You just end up with cycle upon cycle of fraud, collapse, and bail. These days with most people retirement on the line it's not feasible to be laissez faire.
    Last edited by Optimist; 08-20-2007 at 10:19 PM.
    “What a caterpillar calls the end of the world we call a butterfly.” - ECKHART TOLLE

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    Default Re: Californians rush to pull money from Countrywide Bank

    That group benefitted for a few years from the HUD policy changes and the lending world thrived.
    You really can't draw this conclusion since the vast majority of the pre-court ruling HUD subsidized mortgage loans to minorities were run through FNM and FRE. As you are probably aware, there was something like a 5 year period where these agencies did not release accurate financial statements ... where these agencies 'played games' with their numbers etc. If any 'private' bank or mortgage company had done the same they would have been delisted from the stock exchange and forced into bankruptcy, but with these gov't sponsored enterprises it only resulted in their CEO's being fired. It is arguable that this was a cover-up for losses on subprime HUD mortgages, but we'll never really know.

    Loans have to be paid back and were paid back by the first group. It's the poor whites and greedy speculators who walked from their obligations.
    While I can't dispute the fact that, once the courts forced lending institutions to allow the same 'shaky' credit individuals to qualify for mortgages regardless of being minority or white that a huge number of additional subprime loans were made, and while I can't dispute the fact that because many more 'shaky' loans were made to poor white borrowers the total number of delinqencies by white borrowers is a high number, there is no evidence to indicate that on a percentage basis that minorities had lower delinquency rates. In fact Fannie Mae states the opposite ...

    (snip)"Because subprime mortgage loans tend to be geographically concentrated in minority and low-income neighborhoods, the stability of these communities is particularly at risk."(snip) from


    Now the speculators / flippers are another story altogether. It is arguable that this aspect of the real estate 'business' got started because of the existing provisions of state bankruptcy regulations which prevented mortgage lenders from foreclosing on delinquent mortgages, and which allowed delinquent homeowners to continue living in their houses forever despite the fact that they could not meet their mortgage payment obligations. Thr federal bankruptcy regulations were of course changed two years ago to eliminate this 'moral hazard'. But again we have no way of knowing the relative delinquency rates of minority vs white subprime mortgages prior to this tightening in bankruptcy law because few foreclosures were allowed to take place.


    As to the relative merits of increased regulations, that's another story altogether as well. For example, arguably it was the very same pre-revision bankruptcy regulations which allowed Countrywide and other mortgage machines to avoid having to book foreclosures and resulting losses on their collateral due to forced sales. In fact, because bankruptcy regulations did not allow for foreclosure and eviction, Countrywide and other mortgage machines were allowed to simply tack on interest and penalties to the unforeclosable delinquent mortgages which actually INCREASED their official corporate earnings (despite the fact that little of this tacked on interest and penalty money would ever actually be paid by the delinquent homeowners).

    So yes from one viewpoint regulations made for the 'appearance' of a more stable financial institution and more stable home ownership. But from another viewpoint those same regulations allowed the mountain of 'toxic' mortgages to be accumulated in the first place. The recent change in bankrupt homeownership regulations pulled the 'curtain' away from the existance of these 'toxic' mortgages, and forced the mortgage lenders and subprime borrowers to deal with the real world consequences. Ultimately, where gov't regulations are concerned, 'you can't get something for nothing'. All that increased regulations accomplish is to create 'moral hazard' in one group / area, and to transfer the actual costs of that 'moral hazard' to another group / area. Again one's viewpoint on this subject is affected by whether or not they will be a beneficial 'recipient' of such regulations or will wind up having to pick up the tab.
    Last edited by Melonie; 08-21-2007 at 02:35 AM.

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    God/dess britneyireland's Avatar
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    Default Re: Californians rush to pull money from Countrywide Bank

    I bought more puts on CFC this morning! Yahoo!!!!!!
    Rebecca Avalon







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    Default Re: Californians rush to pull money from Countrywide Bank

    ^^^ probably a very smart move. The 'conspiracy theorists' would tell you that the whole reason Bank of America injected cash into Countrywide was to maneuver themselves into being first in line for the coming bankruptcy and liquidation of assets (via their 'purchase' of preferred stock). That way, when the Sherriff's auctions finally start liquidating Countrywide's backlog of 50000+ foreclosed properties at 30-40 cents on the dollar, B of A will get paid back 100% on their 'investment' with interest ... but the foreign banks, hedge funds, retirement funds etc. that hold Countrywide mortgage paper will take bigger losses !!!

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