2 Bank Giants Fined for Mortgage Kickbacks

DAILY REAL ESTATE NEWS | FRIDAY, JANUARY 23, 2015

Government regulators have ordered Wells Fargo and JPMorgan Chase to pay $35.7 million to settle charges for their part in an illegal mortgage marketing kickback scheme that involved a title company that sought consumer referrals from lenders in exchange for cash.

On Thursday, the Consumer Financial Protection Bureau and the Maryland Attorney General’s Office accused a former title company, Genuine Title, of offering the banks’ loan officers cash, marketing materials, and other consumer information in exchange for business referrals. Such actions violate the Real Estate Settlement Procedures Act – RESPA – which prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real estate settlement service.

Genuine Title, based in Maryland, closed in April 2014.

“Home owners were steered toward this title company, not because they were the best or most affordable, but because they were providing kickbacks to loan officers who referred consumers to them,” says Maryland Attorney General Brian Frosh. “This type of quid pro quo arrangement is illegal, and it’s unfair to other businesses that play by the rules.” 

Regulators have ordered Wells Fargo to pay $24 million, as well as $10.8 million to consumers. JPMorgan will pay $600,000 and another $300,000 in redress to consumers, according to the CFPB.

"These banks allowed their loan officers to focus on their own illegal financial gain rather than on treating consumers fairly,” CFPB Director Richard Cordray said in a statement. “Our action today to address these practices should serve as a warning for all those in the mortgage market.”

Wells Fargo says the bank has taken “strong corrective action” as a result, citing that it’s terminated any involved staff members and that it is improving the monitoring of its processes and team members. JPMorgan issued a statement that said “these former employees clearly violated our policies, procedures, and training.”

Source: “CFPB Takes Action Against Wells Fargo and JPMorgan Chase for Illegal Mortgage Kickbacks,” Consumer Financial Protection Bureau (Jan. 22, 2015) and “U.S. Fines Wells Fargo, JPMorgan Over ‘Illegal Mortgage Kickbacks,’” Reuters (Jan. 22, 2015)

2 Executives Sentenced in $3 Billion Fraud Ring

Two executives were sentenced to several years in prison for their involvement in a massive fraud ring — estimated at $3 billion — that led to the collapse of one of the country’s largest privately held mortgage lending companies, as well as a bank.

Taylor, Bean & Whitaker Mortgage Corp.’s former president Raymond Bowman and its former treasurer Desiree Brown were convicted for their part in trying to cover up major losses by the company in moving money between accounts at Colonial Bank and selling mortgage loans that never existed or that had previously been sold. TBW’s former chairman Lee Farkas, who prosecutors have called the ring leader of the fraud, is set to be sentenced June 27.

Bowman was sentence to 30 months in prison while Brown was sentenced to six years in prison.

"It was never my intent to commit a crime," Brown told the court. "It was always my intent to fix the problem."

Prosecutors say the mortgage fraud at TBW lasted more than seven years up until August 2009, which ultimately led to the collapse of TBW and Colonial BancGroup Inc.’s Colonial Bank. Prior to its collapse, TBW was one of the nation’s largest privately held mortgage lenders with some $20 billion in mortgage sales a year. Meanwhile, Colonial Bank — before regulators took it over — was once one of the top 50 U.S. banks.

Prosecutors say the case marks one of the few since the aftermath of the global financial crisis where charges have been brought up against executives at major firms. Usually prosecutions, up to this point, have involved lower-level employees or smaller firms.

Source: “Former Executives Get Prison Time for Mortgage Fraud,” Reuters (June 10, 2011)

Former Countrywide CEO Charged With Fraud

Countrywide Financial CEO and co-founder Angelo Mozilo has been charged with securities fraud and insider trading. The Securities and Exchange Commission (SEC) also hit former Chief Operating Officer David Sambol and ex-Chief Financial Officer Eric Sieracki with similar charges.

The SEC said the men deliberately misled investors, leading them to believe that riskier subprime and option adjustable-rate mortgages were safe. It said the executives ignored the warnings of the company’s risk officer about the firm’s precarious underwriting practices.

The SEC claims Mozilo acknowledged privately that the company was unsure about the performance of option mortgages, but publicly spoke about their soundness. Mozilo is also accused of selling $140 million of his Countrywide shares even though he knew the firm was near collapse.

Lawyers for the men say they are innocent and are being charged because the SEC is looking for scapegoats.

Source: The Wall Street Journal, Liz Moyer (06/04/09)

Fannie Mae Changes Policy To Help Investors

On December 16, Fannie Mae sent lenders the following bulletin:

Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.

Due to current market conditions, many condominium projects are experiencing higher numbers of financial institution- owned REO units, which many lenders may be counting as non-owner-occupied under Fannie Mae’s current requirements.

Fannie Mae is clarifying its condominium project owner-occupancy ratio policy to include REO units that are for sale (not rented) as owner-occupied units in the owneroccupancy ratio.

When an investor applies to Fannie for loan, Fannie requires that at least 51% of the units in the complex are owner occupied. In the past, any vacant unit that had been foreclosed on and was bank-owned was considered non-owner occupied. Under this new policy, Fannie says it will now count bank-owned REO units that are listed for sale, but are not rented, as if they are owner-occupied when computing the 51 percent ratio.

This will help investors qualify for Fannie Mae loans and, hopefully, help stimulate sales of units that have been languishing on the market.

Banks Limit Foreclosures

Yesterday, Citigroup announced that it was putting a moratorium on instigating new foreclosures as well as on completing foreclosures now in process. With this announcement, they join Morgan Stanley Chase, the Federal Deposit Insurance Corporation (FDIC,) and a Bank of America (which now holds Countrywide's loans) in attempting to stop foreclosures of single family homes.

The moratorium will be available to homeowners if they meet several criteria; they must want to stay in their home, be willing to work in good faith with the bank to resolve their problems, and have the income to afford payments on a restructured mortgage.

But Citigroup is not just waiting until borrowers go into default before helping them find new loan payment solutions. Over the next six months, the bank plans to contact about one-half million homeowners, about one-third of the bank's own borrowers, who are current on their mortgage payments now but are at risk of falling behind in the near future.

Banks are finally realizing that working with borrowers to prevent foreclosures, while expensive in the short term, is ultimately less costly than taking, managing, and marketing the foreclosed homes.

If you are having problems meeting your home loan obligations, call your bank. You may find that they are now willing to help you find a solution.

Bank of America Agrees to Restructure Countrywide Mortgages

For many, Countrywide Financial is the poster child for predatory lenders. Their abuses were so egregious that in June, a lawsuit was filed against them for making bad loans. Soon after the filing, Countrywide was acquired by Bank of America.

Today, in order to settle this lawsuit, Bank of America announced that it would spend up to 8.4 billion dollars to restructure Countrywide's loan portfolio. In a statement, the bank said the program is intended to benefit those borrowers who "financed their homes with subprime loans or pay-option adjustable-rate mortgages serviced by Countrywide and originated prior to Dec. 31, 2007."

Starting December 1, counselors will begin a proactively outreach to customers that could result in interest rate and principal reductions for nearly 400,000 Countrywide customers nationwide. In addition, foreclosure sales will be temporarily frozen for those borrowers who are likely to qualify for the program.

"With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide," California Attorney General Jerry Brown said in a statement. "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."

Are Your Deposits Safe?

I have received a number of calls and emails from clients asking if their deposits are safe or if they should pull their money out of their banks. Most deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to $100,000. If your bank or savings association is insured, and if your accounts come under the insurance limits, your money should be safe.

To check whether your bank or savings association is insured by the FDIC, call toll-free 1-877-275-3342, use Bank Find, or look for the official FDIC sign where deposits are received.

To find out if your deposit amounts are fully insured, go to EDIE. This calulator on the FDIC site will help you determine if your deposits adhere to the insurance limits.

Freddie and Fannie - the Morning After

On Sunday, the federal government took over the management of Freddie Mac and Fannie Mae. Yesterday, the financial markets responded with hyperbolic glee. Pronouncements were made claiming this would save the real estate industry and, on Wall Street, stocks shot up over 300 points.

But today is the day after. And, in the light of this new dawn, people are starting to ask whether we really have our financial White Knight. Is this takeover going to save us? In a word - no. Will it help? Yes. Here's why.

Fannie Mae and Freddie Mac buy loans from banks and package those loans as mortgage-backed securities which they then sell to investors. By purchasing the loans from banks, the banks get their capital back which they then can use to make more loans. This cycle of lending money, selling the loan, and relending the money keeps funds flowing through the banking industry. In other words, there is money available for you to borrow. So what happened?

As concerns began to surface about sub-prime loans and higher-than-normal default rates, investors got nervous. They began to question the quality of the mortgage-backed securities that Freddie and Fannie were peddling. And then they started to question whether these mortgage giants would fail. Many stopped buying the securities and money stopped flowing through the system. Simply put, the money well dried up. That's why, for the past few weeks, even borrowers with great credit and good down payments were having a hard time finding money to borrow. And the money they did find was expensive.

Freddie and Fannie were on the verge of failing. And if they failed, the US financial industry would sustain a mortal wound. Fannie and Freddie are involved in $5.4 trillion worth of mortgage debt. Simply put, they are just too big for the government to allow them to collapse.

So the feds designed a bail-out. They replaced senior management and agreed to purchase $5 billion in Freddie and Fannie mortgage-backed securities. By keeping the companies solvent they are trying to restore faith in the system. They are trying to calm investors' nerves so that mortgage money will, once again, be available.

This will help some of us. Funds will be available to borrow, and the cost of borrowing will probably go down marginally. But it will not help people who have poor credit or a low down payment, so-called "A- or B paper" borrowers. It will not help people who do not have the equity in their homes to refinance before their interest rates increase.

Sunday's move was just a first step - a tourniquet to stop the heavy bleeding so that the patient did not die. It was not a cure. Over the next few months, you can expect to hear lots of opinions coming out of Washington and Wall Street as to what to do next. You can bet that, as with any serious illness, the cure will be long, painful and expensive. And the US taxpayer gets to pay the bill.

Freddie and Fannie's Woes Means Higher Costs For Borrowers

Freddie Mac and Fannie Mae, the two government-sponsored companies that buy most mortgages issued by United States lenders, are clamping down on the type and quality of the loans they buy. They are demanding that borrowers have larger cash reserves, better credit scores and second home appraisals. In addition, they have doubled the fees they charge to many lenders in an effort to raise revenue. The result is that borrowers can expect higher interest rates, more fees and closing costs, bigger down payments and fewer loan choices.

Fannie Mae announced that it will no longer purchase "Alt-A" loans. So someone with less-than-perfect credit or with less than a 20 percent down payment will have difficulty finding a lender. In addition, the increase in lender fees will be passed on to the borrower. For a $300,000 loan, that could work out to an extra $750 in closing costs.

If you want to refinance your home, you have the double whammy of a decreased home value and an increase in lending requirements. Even those with excellent credit will not be able to take cash out of their home if, after the loan, they have less than 15 percent equity in the home. Previously, the threshold was 10 percent. And if your credit score is low, refinancing will be next to impossible.

Meanwhile, Freddie and Fannie's stock prices continue to fall. This instability makes investors shy away from putting funds into the lending industry, which further limits the funds available to lend. There is talk of a government bail-out, but nothing is settled. And until things stabilize, there is little hope that this tight lending environment will change.

Option ARMs a Headache for Lenders

Countrywide Financial Corp. said in a regulatory filing Monday that the average borrower with an option adjustable-rate loan now owes 95 percent of the value of his home, up from 76 percent when the loan was made.

Seventy-two percent are making less than full interest payments and 12.4 percent are at least 90 days delinquent. The average FICO credit score has dropped to 680 from an original 715. The U.S. median is 723.

Bank of America has said about 66 percent of the option ARMs went to California and Florida borrowers.

Bank of America is not the only big lender with option ARM headaches.

Wachovia Corp said borrowers in its $122 billion "Pick-a-Pay" option ARM portfolio owed 85 percent of what their homes were worth on June 30, up from an original 71 percent. In California's Central Valley, the average was 109 percent. The average overall FICO score was down to 661 from 675.

Source: Reuters News, Jonathan Stempel (08/12/2008)

It's Not Much, But At Least It's Something...

In an effort to try and encourage loan servicers to work with borrowers who are trying to modify their loan payments, Freddie Mac has set up a rewards program for servicers who successfully renegotiate Freddie Mac-owned loans.

Starting today, Freddie is paying servicers the following:

$500 for each repayment plan;
$800 for each loan modification; and
$2,200 for each short sale.

Freddie also will reimburse a servicer the advertising costs involved in telling borrowers about these options. If the advertising results in the borrower contacting the servicer, Freddie will pay the servicers up to $15 per mortgage for leaving a door hanger, and up to $50 per mortgage for knocking on a door.

It's not much, but it's something. And in these tough times, lenders are looking to make every penny they can. So maybe this will be just the incentive servicers need in order to make them more amenable to working with homeowners.

New Housing Bill Has Benefits For Many Borrowers

You probably have heard that a housing bail-out bill has been passed by the House of Representative. The Senate is expected to pass it as well, and President Bush has already said he will sign it. It's a complicated bill, but today's New York Times has an excellent article explaining some of the provisions in the bill that may help homeowners, even those who are not worried about losing their homes to foreclosure.

Housing Bill Has Something for Nearly Everyone
By RON LIEBER
Published: July 25, 2008

If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.

The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.

Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.

Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.

Here are some of the new benefits:

RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.

So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.

Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.

Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.

If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.

This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.

BREAK FOR FIRST-TIME BUYERS If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the Internal Revenue Service. So if you owe $1,500 and you qualify for the credit, you would end up getting a $6,000 refund.

There are two big catches, though. If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.

But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. According to the National Association of Realtors, there were about 2.5 million first-time home buyers in 2007. A large proportion of them would have qualified for this credit, but whether it is enough to push would-be buyers over the edge this year remains to be seen.

The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.

ADDITIONAL DEDUCTION If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. Again, this one is gravy; you get it in addition to the standard deduction.

Since itemizers are often people who pay a lot of mortgage interest, this deduction will generally benefit people who pay little or none, like those who have paid off their mortgages entirely or close to it. There is one hitch here: you will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.

REVERSE MORTGAGE CHANGES Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.

The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower’s best interest.

The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage.

Finally, the bill raises the maximum amount that people can borrow. Before, the limits were set on a county by county basis, according to AARP’s legislative policy director, David Certner. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.

REDEFINITION OF JUMBO LOANS Often, if you want the mortgage loan with the lowest possible interest rate, it has to be small enough to be purchased by Fannie Mae or Freddie Mac from whatever bank or other institution originated it.

Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.

A BREAK FOR VETERANS Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.

These provisions expire on Dec. 31, 2010.

How Did We Get Into This Credit Mess?

Journalists are very good at reporting the problems caused by the credit crisis - foreclosures, plummeting property values, destroyed credit ratings - but not so good at giving a jargon-free explanation of how this happened. So here goes...

In 2001, the US was officially in a recession. What helped pull us out was an upswing in residential real estate purchases and an overall increase in consumer spending. This was fueled by easy credit. People were tapping into their home equity to pay for everything from college educations to Hawaii vacations. As more people borrowed, lenders drooled over the money made from loan fees and wanted more. So new loan products flooded the market, each of which required less from the borrower in order to qualify - less down payment, less income verification, less credit-worthiness.

These sub-prime loans became prevalent because banks were no longer the driving force behind the lending industry. That role was turned over to non-bank (and non-regulated) financial institutions who packaged these loans into large bundles called mortgage-backed securities (one security typically holds 1,000 mortgages), and sold them to investors.

But why would investors buy these securities if they included risky loans? Because some Wall Street analysts designed risk-pricing models which said that loans are less risky when bundled in large groups then when held individually. If you invest in one real estate loan and the borrower defaults, your investment is in trouble. But if you invest in 1,0000 loans and one defaults, the loss is easily absorbed into the profit from the 999 good loans. And the underlying premise of those models was that, since the Great Depression, US real estate values had never gone down year-over-year on a national basis. Investors knew real estate-backed securities would always be a safe bet.

And what about the borrowers? Why would they take out a loan they could not afford? They knew that, when their 1% adjustable rate loan jumped to 9% in a few years, they would not be able to "pay the piper". Like the Wall Street analysts, borrowers were also aware that real estate was a sure thing. They knew they would be able to sell the home and make a great profit. Would-be homeowners who, a few years before, would have waited to save up a down payment, jumped at the chance to buy now with nothing down. Real estate speculators figured they could buy with cheap money and sell at a profit before their loan rates increased. Everybody would make out OK because everybody was sure that real estate values would continue to increase.

And then the rates on these loans started to rise. As the "teaser" rates expired and the "real" loan rates started to adjust up, the homeowners did exactly what they had planned. They put their homes on the market and waited for the buyers to come flooding in so they could sell the house, pay off the loan, and pocket a nice profit.

But there were just too many loans adjusting upward at the same time, so there were too many sellers trying to move their properties at the same time. In order to get rid of the homes, sellers started to drop their prices. Eventually, prices became so low that, even if they did sell, the proceeds would no longer cover the debt owed on the home. So some sellers walked away from the property, letting the bank foreclose.

Banks are not in business of owning real estate, so they were eager to get rid of their foreclosed properties as quickly as possible. These institutional sellers dropped prices even lower. This forced individual sellers to follow suit. This spiral continued until now, for the first time since the Depression of the 1930's, property values have dropped throughout the entire country.

New Wave of Bank Defaults are on the Horizon

Banks have been struggling to deal with home mortgage defaults. But even as the number of home defaults seems to be growing, a new group of borrowers is about to enter the default crisis.

Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans. There is no money to build and, even if the home gets built, there are no buyers. According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.

In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses. Even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already reeling from home loan defaults and may not be able to survive another round of write-offs in the building sector.

We Need Your Help

A request has gone out to the real estate and mortgage industry asking for ideas on how to stem the mortgage and housing crisis. So I'm asking....

Do you have any ideas that might help pull the country out of this mess? If you do, please email me. I'll post the best responses here, and I'll also pass them along to the folks correlating this data.

THANKS!

A Case Of The Fox Guarding the Hen House?

A new company has emerged to address some of the financial turmoil created by the credit crisis. Private National Mortgage Acceptance Company, LLC, known as a PennyMac, has just opened its doors.

PennyMac plans to buy at-risk loans from banks and savings and loans - at a deep discount. They will then attempt to work with the borrower to restructure the loan so that the borrower can make the payments and stay in the home. Once the loan is stable, PennyMac will then sell the loan to other investors at a profit. As stated on PennyMac's website, they will acquire "loans from financial institutions seeking to reduce their mortgage exposures. PennyMac will create value for both borrowers and investors through our distinctive approach to loan servicing. "

These financial woes were caused, in part, by the greed of irresponsible corporations. Some, like Countrywide, one of the biggest players in the loan debacle, are being investigated by the FBI for securities fraud. So it's good to know that there are money wizards trying to solve this mess. But who are these financial "white knights"?

Let's start with PennyMac's founder, Chairman, and CEO, Standford L. Kurland. Here's a quotation from Mr. Kurland's biography as stated on the website:

He is well recognized for his leadership in developing the strategic direction, risk management activities, financial management, and organizational development of Countrywide Financial Corporation. During his tenure at Countrywide Financial, until his departure in 2006, where he served as Chief Financial Officer and then Chief Operating Officer and President, the company grew in market capitalization from just over one million dollars to a leading financial services firm with over 25 billion dollars in market value. Under his leadership, Countrywide built a world class organizational and governance structure.

Yes - you read that correctly. The man who was the head of one of the largest companies responsible for this financial mess is now going to head the company that will profit from trying to fix the mess. "He won't be the first or the last person trying to make money on both sides of a trade," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc., who covers Countrywide.

You sure are correct, Mr. Cannon. Kurland isn't the only former Countrywide manager planning to use PennyMac to drain even more personal profit out of this loan crisis. Here are a few other former Countrywide employees and their new PennyMac titles:

David Spector, Chief Investment Officer;
Farzad Abolfathi, Chief Technology Officer;
Adal Bisharat, Director, Strategic Planning;
James S. Furash, Chief Development Officer;
Aratha M. Johnson, Chief Administrative Officer;
Michael L. Muir, Chief Capital Markets Officer
Lior Ofir, Director, Technology;
Mark P. Suter, Chief Portfolio Strategy Officer; and
David M. Walker, Chief Credit Officer.

If I murdered someone and wrote a book about it and that became a best seller, I would not be allowed to keep the money. The law says I can not profit from my crime. So why are these people allowed to perpetrate these financial crimes and, not only get away with it, but be allowed to profit from the fix?

Appraising the Appraisal - New Guidelines for Home Appraisals

There is plenty of blame to go around when it comes to the housing crisis - lenders, Realtors, mortgage brokers, and borrowers. Even the appraiser has been derided for overstating values. But appraisers have been placed in a very difficult position.

Many banks and savings and loans have their own "in-house" appraisal departments. The appraiser, a bank employee, is told that the loan department wants to make a loan on a particular home. In order to do so, the appraisal needs to come in at or above a certain home value. The appraiser knows that if he does not come in at that amount, the loan will not go through and he'll have the loan department breathing down his neck. Enough of these complaints and he might lose his job. So he manipulates the numbers to make sure his appraisal comes in at the required value.

This problem exists even for independant appraisers (those who do not work directly for a lending institution). Most appraisal companies are on a lenders "approved appraiser" list. This means that, with each new loan, the lender will turn to this list to hire an appraiser. For many appraisal companies, this is how they get the majority of their business. And if they are thrown off the list, the appraisal company may go under.

Either way, the in-house appraiser or the approved appraiser has every reason to manipulate the appraisal to meet the lender's required loan amount. But this is about to end.

Starting in 2009, Fannie Mae and Freddie Mac, two of the biggest players in the secondary mortgage market, have announced that they will no longer buy loans from lenders who do not use independent appraisers. Lenders who want to sell loans to Fannie Mae or Freddie Mac will not be allowed to use in-house appraisers, or appraisals done by a subsidiary or an affiliated company. Also, mortgage brokers and real estate agents may no longer choose the appraiser. And finally, Fannie Mae and Freddie Mac will create the Independent Valuation Protection Institute, a group that will accept complaints from consumers who feel their appraisals are unfair, and appraisers who feel that they are being pressured to provide inacurate appraisals.

Will this make it harder to get a loan? Yes, but at least you will know that your homes appraised is a realistic estimate of it's true worth.

Worried About Bank Failures?

Recent economic news has been bleak, and some people are beginning to get nervous about the stability of the banking industry. Even if the worst happens and your bank fails, your deposits will be safe if your bank is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC was created during the Great Depression in response to thousands of bank failures, and it insures deposits in banks and thrift institutions.

Now may be a good time to confirm that your bank is covered by the FDIC. First, look for the FDIC logo at your local branch. If you don't see it, ask the bank, or go to the FDIC's Web site and click on "Bank Find." Here you'll be able to see if the bank carries this guarantee. Even if you are banking with an internet-only bank, they should be listed on the FDIC site. If you want to see how financially "healthy" the institution is, go to http://www.bankrate.com/.

The FDIC limits the type of banking products it insures, and for what amount. Individual deposits, such as checking, savings, CD's and money market accounts, are insured up to $100,000. Joint accounts can be insured up to $200,000. IRAs and Keoghs can be insured up to $250,000. These retirement accounts are considered separate from your individual bank accounts. What is not insured are investments, such as mutual or stock funds. Nor are the contents of your safe deposit box covered. A general rule of thumb is that deposits are insured, investments are not.

If your bank does go under, it will most likely be purchased by a healthy bank. As a depositor, all this usually means is that there is now a new name on your bank statements. Your checks will still be valid and you can still use your ATM card. Even if the worst happens and there is no buyer for the bank, your deposits are covered. Withing 48 hours, the FDIC will issue a check in the amount of your deposits.

However, there are some things that might change. If you have a CD with the failed bank, the new bank may change its terms (interest rate or length). If that happens and you don't like the new terms, you can cash in the CD without penalty. But if you have a loan with the bank, those rates and terms can not change.

The FDIC maintains that, since 1934, no depositor has lost a penny of insured funds as a result of a bank failure. That's a pretty good track record. But you do need to make sure your bank is covered, so take a few minutes and check. It'll be one less thing for you to worry about in these uncertain economic times.