The Inflatable Loan Pool
By GRETCHEN MORGENSON



AMID the legal battles between investors who lost money in mortgage securities and the investment banks that sold the stuff, one thing seems clear: the investment banks appear to be winning a good many of the early skirmishes.

Weekend Business: Jeff Sommer with Gretchen Morgenson on a fight over mortgage-backed securities.

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Times Topic: Gretchen MorgensonBut some cases are faring better for individual plaintiffs, with judges allowing them to proceed even as banks ask that they be dismissed. Still, these matters are hard to litigate because investors must persuade the judges overseeing them that their losses were not simply a result of a market crash. Investors must argue, convincingly, that the banks misrepresented the quality of the loans in the pools and made material misstatements about them in prospectuses provided to buyers.

Recent filings by two Federal Home Loan Banks — in San Francisco and Seattle — offer an intriguing way to clear this high hurdle. Lawyers representing the banks, which bought mortgage securities, combed through the loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors.

You may not be shocked to learn that the analysis found significant differences between what the Home Loan Banks were told about these securities and what they were sold.

The rate of discrepancies in these pools is surprising. The lawsuits contend that half the loans were inaccurately described in disclosure materials filed with the Securities and Exchange Commission.

These findings are compelling because they involve some 525,000 mortgage loans in 156 pools sold by 10 investment banks from 2005 through 2007. And because the research was conducted using a valuation model devised by CoreLogic, an information analytics company that is a trusted source for mortgage loan data, the conclusions are even more credible.

The analysis used CoreLogic’s valuation model, called VP4, which is used by many in the mortgage industry to verify accuracy of property appraisals. It homed in on loan-to-value ratios, a crucial measure in predicting defaults.

An overwhelming majority of the loan-to-value ratios stated in the securities’ prospectuses used appraisals, court documents say. Investors rely on the ratios because it is well known that the higher the loan relative to an underlying property’s appraised value, the more likely the borrower will walk away when financial troubles arise.

By back-testing the loans using the CoreLogic model from the time the mortgage securities were originated, the analysis compared those values with the loans’ appraised values as stated in prospectuses. Then the analysts reassessed the weighted average loan-to-value ratios of the pools’ mortgages.

The model concluded that roughly one-third of the loans were for amounts that were 105 percent or more of the underlying property’s value. Roughly 5.5 percent of the loans in the pools had appraisals that were lower than they should have been.

That means inflated appraisals were involved in six times as many loans as were understated appraisals.

David J. Grais, a lawyer at Grais & Ellsworth in New York, represents the Home Loan Banks in the lawsuits. “The information in these complaints shows that the disclosure documents for these securities did not describe the collateral accurately,” Mr. Grais said last week. “Courts have shown great interest in loan-by-loan and trust-by-trust information in cases like these. We think these complaints will satisfy that interest.”

The banks are requesting that the firms that sold the securities repurchase them. The San Francisco Home Loan Bank paid $19 billion for the mortgage securities covered by the lawsuit, and the Seattle Home Loan Bank paid $4 billion. It is unclear how much the banks would get if they won their suits.

Among the 10 defendants in the cases are Deutsche Bank, Credit Suisse, Merrill Lynch, Countrywide and UBS. None of these banks would comment.

As outlined in the San Francisco Bank’s amended complaint, it did not receive detailed data about the loans in the securities it purchased. Instead, the complaint says, the banks used the loan data to compile statistics about the loans, which were then presented to potential investors. These disclosures were misleading, the San Francisco Bank contends.

In one pool with 3,543 loans, for example, the CoreLogic model had enough information to evaluate 2,097 loans. Of those, it determined that 1,114 mortgages — or more than half — had loan-to-value ratios of 105 percent or more. The valuations on those properties exceeded their true market value by $65 million, the complaint contends.

The selling document for that pool said that all of the mortgages had loan-to-value ratios of 100 percent or less, the complaint said. But the CoreLogic analysis identified 169 loans with ratios over 100 percent. The pool prospectus also stated that the weighted average loan-to-value ratio of mortgages in the portion of the security purchased by Home Loan Bank was 69.5 percent. But the loans the CoreLogic model valued had an average ratio of almost 77 percent.

IT is unclear, of course, how these court cases will turn out. But it certainly is true that the more investors dig, the more they learn how freewheeling the Wall Street mortgage machine was back in the day. Each bit of evidence clearly points to the same lesson: investors must have access to loan details, and the time to analyze them, before they are likely to want to invest in these kinds of securities again.

i think your gut reaction was the most revealing

Texas Rep. Joe Barton Backpedals On BP Apology: Oil Giant 'Should Be Held Responsible'
The Huffington Post First Posted: 06-17-10 04:23 PM | Updated: 06-17-10 05:23 PM

Joe Barton Apologizes For 'Shakedown' Comments To BP CEO Tony Hayward
On Thursday afternoon, Texas Republican Congressman Joe Barton issued an apology for telling BP CEO Tony Hayword that the Obama administration's actions to hold the oil giant accountable in the wake of the Gulf Coast oil spill was a "shakedown" -- a characterization that sparked a firestorm of criticism from Democratic and Republican lawmakers alike.

"I want the record to be absolutely clear that I think BP is responsible for this accident, should be held responsible, and should in every way do everything possible to make good on the consequences that have resulted from this accident," Barton said later in the day during the committee hearing. "And if anything I said this morning has been misconstrued in an opposite effect, I want to apologize for that misconstruction."

Later in the day, Barton issued a statement in which the Texas Republican apologized "for using the term 'shakedown' with regard to yesterday's actions at the White House" and retracted his "apology to BP."

Here's the full text of Barton's statement:

"I apologize for using the term 'shakedown' with regard to yesterday's actions at the White House in my opening statement this morning, and I retract my apology to BP. As I told my colleagues yesterday and said again this morning, BP should bear the full financial responsibility for the accident on their lease in the Gulf of Mexico. BP should fully compensate those families and businesses that have been hurt by this accident. BP and the federal government need to stop the leak, clean up the damage, and take whatever steps necessary to prevent a similar accident in the future. "I regret the impact that my statement this morning implied that BP should not pay for the consequences of their decisions and actions in this incident."
HuffPost's Sam Stein reports on the controversial comments made by Barton to Hayword earlier in day at a hearing on Capitol Hill where the BP oil chief was testifying about the company's role in the massive spill:
"I'm ashamed of what happened in the White House yesterday," said Rep. Joe Barton (R-Tex.) during a hearing on Thursday morning with BP's CEO Tony Hayward." I think it is a tragedy in the first proportion that a private corporation can be subjected to what I would characterize as a shakedown -- in this case a $20 billion shakedown -- with the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the American people, participating in what amounts to a $20 billion slush fund that's unprecedented in our nation's history, which has no legal standing, which I think sets a terrible precedent for our nation's future."
"I'm only speaking for myself. I'm not speaking for anyone else, but I apologize," Barton added. "I do not want to live in a county where anytime a citizen or a corporation does something that is legitimately wrong, [it is] subject to some sort of political pressure that, again, in my words, amounts to a shakedown."

Airing criticisms against the notion of forcing BP to fork over $20 billion in liability revenue would seem like a fairly risky proposition considering just how reviled the oil giant is in the current political environment. And Democrats quickly jumped on the congressman's remark, as well as those from other Republicans, as evidence of a lack of sensitivity for the victims of the spill.

Man kills self 12 years after receiving heart from suicide victim

Man kills self 12 years after receiving heart from suicide victim
By Associated Press


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A man who received a heart transplant 12 years ago and later married the donor's widow died the same way the donor did, authorities said: of a self-inflicted gunshot wound.


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Story Published: Apr 6, 2008 at 3:42 PM PDT
Story Updated: Apr 6, 2008 at 3:42 PM PDT
Heart transplant recipient Sonny Graham, left, and his wife, Cheryl, pray during a moment of silence in this Dec. 1, 2006 file photo.
Comments (0)HILTON HEAD ISLAND, S.C. (AP) - A man who received a heart transplant 12 years ago and later married the donor's widow died the same way the donor did, authorities said: of a self-inflicted gunshot wound.

No foul play was suspected in 69-year-old Sonny Graham's death at his Vidalia, Ga., home, investigators said. He was found Tuesday in a utility building in his backyard with a single shotgun wound to the throat, said Greg Harvey, a special agent with the Georgia Bureau of Investigation.

Graham, who was director of the Heritage golf tournament at Sea Pines from 1979 to 1983, was on the verge of congestive heart failure in 1995 when he got a call that a heart was available in Charleston.

That heart was from Terry Cottle, 33, who had shot himself, Berkeley County Coroner Glenn Rhoad said.

Grateful for his new heart, Graham began writing letters to the donor's family to thank them. In January 1997, Graham met his donor's widow, Cheryl Cottle, then 28, in Charleston.

"I felt like I had known her for years," Graham told The (Hilton Head) Island Packet for a story in 2006. "I couldn't keep my eyes off her. I just stared."

In 2001, Graham bought a home for Cottle and her four children in Vidalia. Three years later, they were married after Graham retired from his job as a plant manager for Hargray Communications in Hilton Head.

From their previous marriages, the couple had six children and six grandchildren scattered across South Carolina and Georgia.

Cheryl Graham, now 39, has worked at several hospices in Vidalia. A telephone message left Sunday at a listing for Cheryl and Sonny Graham in Vidalia was not immediately returned.

Sonny Graham's friends said he would be remembered for his willingness to help people.

"Any time someone had a problem, the first reaction was, 'Call Sonny Graham,' " said Bill Carson, Graham's friend for more than 40 years. "It didn't matter whether you had a flat tire on the side of the road or your washing machine didn't work. He didn't even have to know you to help you."

heart/lungs can't be borrowed

Lyndsey Scott Received Lungs Of 30-Year Smoker In Transplant, Dies
| 06/15/10 09:57 AM |

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Share Comments 154 LONDON — The family of a 28-year-old British woman who unknowingly received a lung transplant from a smoker says she would have been "horrified" and have lodged a complaint.

Cystic fibrosis sufferer Lyndsey Scott in February 2009 received a double lung transplant from a donor who had smoked for three decades. She died in July of pneumonia.

Britain's top transplant official Chris Rudge defended the decision and said patients should be told they are not getting a "brand new" organ. He said on the BBC that "lungs from a smoker can be working perfectly normally."

Scott's family called for patients to be told more information about organ donors before accepting a transplant.

does this mean something?

why do inflation rates go up

Double-dip watch: Retail sales in May took their biggest nose-dive in eight months, according to Friday's report from the Commerce Department. Remember: Consumers account for 70 percent of the nation's economic activity.

American Corporations are sitting on huge piles of cash but they're not investing, and they're creating only a measly number of new jobs. And they won't invest and create jobs until they know there are customers out there to buy what they sell.

For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.

During this era of inflation economics, it appeared that John Maynard Keynes - and his Depression-era concern about chronically inadequate demand -- was dead. So-called "supply siders" told policy makers that if they cut taxes on corporations and the wealthy, they'd unleash a torrent of investment and innovation - thereby increasing the productive capacity of the nation. The benefits would trickle down to everyone else.

But the pendulum may now be swinging back to the earlier era in which demand always seems on the verge of trailing the nation's productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don't have enough money to what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America's middle class.

John Maynard Keynes is being exhumed because his Depression-era worry about inadequate demand is once again the nation's central economic problem.

Keynes prescribed two remedies -- both of which are now necessary: Government spending to "prime the pump" and get businesses to invest and hire once again. And, as Keynes wrote, "measures for the redistribution of incomes in a way likely to raise the propensity to consume." Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class.

where's Boehner? Steele? Anyone?