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Posted by on Feb 5, 2010 in Business, Economy, Markets, TG Roundup

One of Many Different Faces of Fraud (The “Healthy” Bank)

Remember Indy Mac which blew-up circa June 2008? This bank became the epitome of everything that was wrong with mortgage fraud. Now, one would think that whatever is left of the banking system after the 2008-2009 market cleansing, is clean.

Karl Denninger’s Market Ticker is among the blogs I regularly follow. At times Karl is over the top, but when it comes to markets – he does his homework. He has been talking about banks intentionally not reporting mortgage delinquencies. How does this help the banks? It gives the false impression that the assets bank is showing are not problem assets. When you look at some individual credit reports, it shows a different story. This is outright fraud and cheating of shareholders.

In this story, Carl highlights a mortgage – a “conventional” loan – that has been reported as “120 days past due” to the credit bureaus for THIRTEEN CONSECUTIVE MONTHS. He adds:

This person has been living in their house without making a mortgage payment for nearly a year and a half, and the bank – it’s one of the “Big Three” – HAS NOT FORECLOSED. [Big three: Bank of America, JP Morgan Chase and Citigroup]

This crap has to stop folks.  Yeah, this is an anecdote, but I have to ask whether the auditors have looked into this.  A loan that has this “payment history” ought to be carried at recovery value, but that would mean it would be “marked to the market”, and we know the banks all got permission to mark ’em to “model” back in the early part of 2009.

This sort of BS game is too damn prevalent.  There is no reason other than cooking of the books that institutions would hold paper like this in a perpetual “not paying and not gonna pay either” state rather than foreclose and take the hit – except to present a view of their financial status that is less than completely honest.

“Extend and Pretend” may have been made legal but that doesn’t make you solvent – it just means that the government made legal what formerly was called accounting fraud, and the inescapable reality is that eventually the cash flow will get you anyway.