Today's mortgage fraud stunner comes from Bloomberg's Jody Shenn who reports on the ongoing lawsuit between Ambac and former Bear Stearns mortgage unit EMC, now part of JP Morgan. In what can only be classified as fraud-cum-double dipping-cum-AIG/Goldman, "JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements." The bottom line is that JPM, which has so far been able to escape largely unscathed from the fraudclosure scandal, is about to take front and center. The reason: the very first line of the just released Exhibit 1 to the Ambac lawsuit: "In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that - in the words of the Bear Stearns deal manager - was a "SACK OF SHIT." But the stunner, and nothing short of a full-blown scandal if proven true, is that Bear Stearns (aka JPM) after funneling misrepresented loans with Ambac's insurance, "implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities." This needs its own congressional hearing right now, followed by a few wristslaps. After all such wholesale fraud can never possibly be prosecuted in the world's most advanced country.The Atlantic Monthly article suggests that at least some of these internal e-mails come from Bear Stearns "whistleblowers," one of whom is identified by name in a prior Atlantic article (the above-linked Atlantic article provides a link to this article).
So, let me get this straight, we have former Bear Stearns insiders "blowing the whistle" and clearly talking to anybody who would listen-- including reporters, the victims of Bear Stearns' fraud, and the attorney general of New York-- but they didn't talk to federal law enforcement? Really? Sorry, but that's not possible. Indeed, it is impossible to imagine that such insiders did not reach out to the SEC first.
If reporters want a real story, they should be asking the whistleblowers about their interactions with federal agencies like the SEC and the DOJ. Exposing the apathy of federal law enforcement towards such crimes would be an eye opener for a lot of people.
Between the zerohedge article (which links to a copy of the exhibits themselves) and the two Atlantic articles, we have a picture of leveraged fraud:
- Bear Stearns defrauded borrrowers (falsifying borrrower info to secure loans they did not qualify for)
- Bear Stearns defrauded ratings agencies (failure to disclose lending fraud)
- Bear Stearns defrauded mortgage insurers (misrepresenting quality of the loans)
- Bear Stearns defrauded the mortgage trust and mortgage-backed securities investors (no transfer of loans to the trust)
- Bear Stearns defrauded the loan originators by selling them back loans that they did not have proper title to (the loans should have been transferred to the mortgage trusts)
- Bear Stearns defrauded the stock market by shorting the stock of mortgage insurers that had insured Bear Stearns' "sack of shit" mortgages (trading on material non-public information)
This story also provides an additional wrinkle on the MERS fraudclosure mess, confirming the suspicions of people like Karl Denninger that banks did not transfer title to mortgage trusts so they could resell the same mortgage multiple times.
But, hey, nothing to see here. Move along.