Housing Doom

The sleezy mortgage news keeps coming from Arizona.  While the focus recently has been on Mortgage Ltd. and their Radical Bunny investors in Phoenix, we haven’t forgotten the problems with the defunct First Magnus Financial in Tucson.  While some of their former directors and officers have gone on to form a new company in the old location, old "dirty laundry" lingers on. [Hat tip MR!]

Collapsed lender First Magnus Financial Corp. paid illegal fees to real estate companies and builders to secure mortgage business, according to an audit report released by U.S. Department of Housing and Urban Development.

 

The Aug. 4 HUD Office of Inspector General report said that First Magnus paid the fees between 2003 and 2005 to builders T.J. Bednar and Santa Anna Homes as well as to Long Realty Co. and Realty Executives.

The fees and other agreements outlined in the report violated the Real Estate Settlement Procedures Act, according to HUD. RESPA, as the law is known, forbids mortgage lenders or other parties involved real estate transactions to give or receive “any fee, kickback or thing of value” in exchange for referring business.

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We occasionally like to look in on the blog of Bill Maloni, former chief lobbyist of Fannie Mae, for some insights into the GSEs.  He reported on some interesting rumors yesterday:

Mr. Z (my name for him), the knowledgeable Washington financial services expert, suggested to me—and likely others, the blabbermouth—that the Treasury’s announced plan to backstop the GSEs, “if” they ever needed help, really was part of a broader Paulson scheme to do away with those “d****d GSEs” in their current structure.

Mr. Z speculated that the Treasury Secretary—who successfully sold his idea to the Congress—cunningly would employ his new authority to reduce the GSEs to a "government regulated utility" status, which the mortgage market still would heavily use, but which minimizes Fannie’s and Freddie’s overall financial risk as well as profit. The scheme would introduce some additional cost and inefficiency into the residential real estate market, but nobody would really question it or care, since so much else is going on with the economy and national politics.

The “Wise One” snarkily labeled the Paulson plan the “Gulf of Tonkin” resolution, analogous to what Congress passed when it used a questionable military incident in that puddle of water to give President Johnson the authority to declare war against North Vietnam.

This week, PIMCO’s Bill Gross suggested that both Fannie Mae and Freddie will be bailed out by Treasury within weeks. When the GSE bill was signed, a respected Washington journalist, who has covered GSE issues for years, confidently told me that she thinks that both companies would be “nationalized within a year.” Others have made similar calls and just in the past few days.

What do they know/see that I don’t??

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