“Why crisis era mortgage defect rates cited by the government (and others) are false, a massive Red Herring. Part 3: FHA’s Post Endorsement Technical Review (PETR) Quarterly Loan Summary Report, from 2012-2016, is the second of two Smoking Gun documents that are both publicly-available from FHA itself, that definitively proves this contention of mine…

…How so? First you must read blog statement #410 and Parts 1 and 2 (the two just previous blog postings), in order. Then take a look at the SECOND SMOKING GUN FHA DOCUMENT (2SGFD) just below. The Reviews by Fiscal Year chart in Section 1 of this document show as clear as day that from 2012 to 2016, because FHA (like banks and other mortgage lenders internal QC departments and unlike early QC done on private MBS securities issuance, which only involved new, current loans) selected an adverse sample that included a high percentage of EPDs (early payment defaults) and other higher risk mortgages and mortgage lenders, they found an Initial Unacceptable (material defect) rate of between a low of 40.08% in 2012 to a high of 47.53% in 2014, yet a Final Unacceptable Rate (a year or so later) of just 4.45% for 2012 and a Final Unacceptable Rate of 5.81% for 2014. That is an 89% reduction in 2012 and an 88% reduction in 2014, from Initial to Final material mortgage defect rates. 2013 and 2015 are similar, 2016 shows a current Final Unacceptable Rate of 26.98% because it is too soon for FHA’s Initial Unacceptable claims for 2016 to be resolved. Bottom line, once FHA mortgage lenders had an opportunity to explain and/or resolve Initial Unacceptable (material mortgage defect) claims by FHA in the 2012-2015 period, the initial very high (40% to 45%+) material mortgage defect rates decline dramatically (by 85% to 90%) to a level around 4.5% to 5.5% and at that level, FHA then requires (appropriately) the mortgage lender to indemnify the FHA insurance fund against any future loss. That is an amazing reduction, given that FHA’s PETR audit sample is not random, but adverse and includes as part of its selection of mortgages, about 35% to 40% EPD’s and most of the rest being higher risk mortgages and higher risk mortgage lenders. This adversarial business process is what should have happened with crisis era mortgage defects that FHA and others initially discovered, but it didn’t. See the excerpt from the May 4, 2016, Wall Street Journal Editorial Board, “The Quickening” just below. It’s powerful and disturbing, isn’t it? The bottom line is the government stopped this normal industrywide adversarial process, a loan-by-loan fact finding process, for crisis era (2005-2011) mortgage loans, I think because they didn’t want the truth known and/or they could see from 2012 to 2016 adversarial process at FHA, that their mortgage defect allegations would be proven to be bogus, a massive Red Herring. And if the government’s mortgage defect allegations were bogus, it would destroy their ability to recapitalize the insolvent FHA insurance fund with billions in coerced settlement dollars from Big Banks and other large FHA mortgage lenders. It would also destroy a key crisis era claim of the government and others. And if the government’s crisis era mortgage defect claim is destroyed, as has been done in this three-part blog posting by me, then our liberal government’s false claim that “greedy and reckless” bankers were the primary cause of the crisis, also mostly crumbles away. Right? The truth has emerged!”, Mike Perry, former Chairman and CEO, IndyMac Bank

SECOND SMOKING GUN FHA DOCUMENT (2SGFD): FHA Post Endorsement Technical Review (PETR) Quarterly Loan Summary Report, from 2012 to 2016:

http://portal.hud.gov/hudportal/documents/huddoc?id=PETR_loan_summary_report.pdf

Excerpt from The Wall Street Journal Editorial Board, “The Quickening”, May 4, 2016

“How confident is Justice that it can prevail on the facts? In 2013 the government told Quicken Loans that because of the investigation, the FHA would stop conducting standard reviews of the company’s mortgages originated prior to 2012—meaning all of the loans at issue in the suit. In other words, the government wanted less data generated on the quality of Quicken mortgages. Who needs to suppress evidence if prosecutors can ensure it’s never created in the first place?”

May 6, 2016 – Statement 1169: “Why would the government sue what is arguably the most taxpayer-friendly issuer of federally backed loans in the country? The Detroit-based lender put it this way in a filing last year: “Quicken Loans appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is ‘investigating’ and pressuring large, high-profile lenders into paying nine- and ten figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” That sounds like a fair summary…

Posted on June 9, 2016, in Postings. Bookmark the permalink. Leave a comment.

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