Thursday, May 31, 2012

Capital Account TV Exclusive Interview of CBO Mortgage Fraud Whistleblower!


A story you may have not heard before, from a person that you have definitely not heard from before. It's a story about America's financial crisis, its mortgage crisis, and the foreclosure fraud that enveloped the United States during the past decade. That person is Lan T. Pham, the famous CBO whistleblower who was fired from her job for telling the truth about systemic fraud and corruption in America's mortgage market and financial system.


In the past century, real estate law and transactions related to real estate and mortgage financing in the US have been subject to state regulations, with mortgage documents recorded at the county level. This worked relatively well in the traditional mortgage market that we had for most of America's history; the bank that issues the mortgages keeps the loan on its books until maturity. However, this made difficult, if not impossible, the type of financial engineering of mortgages that we saw during the securitization and refinancing credit boom of the past decade. This refers, of course, to the slicing and dicing, the repackaging and selling of homes into mortgage backed securities (MBS) and collateralized debt obligations (CDO'S) that underpinned the credit bubble of the 2000's that end with the financial crisis of 2008. The reason why traditional mortgage practices made securitization difficult is, in part, because every time a financial product containing mortgages was sold, various state laws would require that the sale of the mortgage be recorded in the local county office. This practice results in additional costs, paperwork, and perhaps most importantly, a trail in the chain of title.

Eager to work around these barriers, the financial industry created an alternative registration system for recording the issuance, sale and re-distribution of mortgages. This system, known as MERS (Mortgage Electronic Registration Systems), was founded in the mid-nineties with the help of some of the nation's largest banks, including JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, as well as mortgage giants Fannie Mae and Freddie Mac.

MERS was created by the mortgage banking industry in order to streamline the mortgage process by using electronic commerce that eliminated paper. According to MERS, it was supposed to help reduce fraud and thus reduce costs for everyone, including borrowers. Ironically, or perhaps not so ironically, the system helped to do exactly the opposite. It effectively replaced the recording and tracking of mortgage ownership and paperwork at the county level with a privately controlled system for the tracking of tens of millions of mortgages.

Once MERS was instituted, lenders were still required to file initial paperwork at the county level, but with two key distinctions from how things were done in the past. First, the paperwork did not need to filed with the name of the lender. Instead, MERS could be substituted in place of mortgage issuers such as Bank of America or JP Morgan Chase. Second, and perhaps more importantly, any subsequent modification in terms or changes in ownership of the mortgage would only be recorded through MERS, making it a black-box for the securitization industry, and for the trillions of dollars in mortgages that would subsequently be rolled up, cut up, and sold off in complex financial products to pension funds and other unsuspecting investors. Trillions of dollars in credit protection written on these very mortgages added another layer of exposure to a financial system run amok.

By 2007, MERS registered some two-thirds of all the home loans in the US according to Harpers, and it was around this time that the financial system began to experience the credit convulsions that subsequently came to be known as "the financial crisis." This led to not only a a bailout of firms holding these toxic products, but it also lead to 180+ billion dollar bailout of AIG, the largest issuer of insurance protecting against the very products that were being pumped out like sausages on an assembly line. And, of course, let's not forget about the federal takeover of Fannie Mae and Freddie Mac, which the taxpayer is still footing the bill for 5 years later.

These are issues that Dr. Lan T. Pham, former Principal Analyst and Financial Economist at the Congressional Budget Office (CBO) was beginning to explore in her work there in 2010, before she was quickly fired. She joins us in a TV exclusive interview to tell her story, and to tell you why Americans should be asking some tough questions about who the CBO and Congress are REALLY serving...


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