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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Sunday, November 18, 2012

Follow-Up on Relationship of Goldman Sachs with Litton Loan Servicing

While we are waiting patiently for The Wonderful Shrinking Banking System to develop, here is further information on Litton Loan Servicing and its relationship with Goldman Sachs.  Goldman used Litton for "scratch and dent" policies to make a profit on sub-prime mortgage securitizations.  Goldman "trolled" for revenue both from high-roller hedge funds and from modest individual homeowners.  Litton's portfolio gave Goldman information about delinquences in the housing market so that they could plan their big bet and their exit from the mortgage market with huge profits intact.

Litton gave Goldman the needed cues that it was time to get out of the loan modification business and into pushing for foreclosures before a moratorium on mortgages took place in 2009.  Those wily Goldmanites, of course, ignored the usual conflicts of interest found in their work with Navigant Consulting which was hired to audit Goldman's foreclosure procedures.

The full sordid story of how Goldman disentangled itself from its fraudulent practices with Litton is told in a Huffington Post article by writer Joel Sucher:
Goldman Sachs and Litton Loan Servicing:  A Very Uncomfortable Divorce
By Joel Sucher - Huffington Post

Prior to the 2008 when Wall Street was laying on big bets on the housing market, mortgage servicing was the equivalent of blackjack; the odds for a player who knew the rules were very good and having a company that collected monthly mortgage payments from homeowners provided a reliable revenue stream. Even better were the companies that operated in the sub-prime space -- "default servicers" -- because if you couldn't shake the shekels out of the homeowners pocket, you could always seize the property in foreclosure and make back your nut and then some. In the colorful vernacular of the industry these mortgage loans are referred to as "S&D" (scratch and dent).

Now Goldman Sachs isn't the place you'd think would want to make paltry and piddling sums off the backs of individual homeowners, but, then again, recent history has proven this notion incorrect. Goldman, for most observers, is a company that operates in hedge fund heaven, a financial stratosphere full of qualified investors and high rollers with lots of coin to spread around. But when it comes to trolling for revenue Goldman will bait its hooks for anything that might prove profitable, and back in 2007 the Wall Street giant had its eye on a relatively small Houston based company by the name of Litton Loan Servicing run by a father and son team, Larry Litton Sr. and Larry "Blake" Litton Jr. The company had a portfolio of "non-performing" sub-prime loans which they attempted to turn around by pursuing a variety of options including loan modifications. Whatever Goldman wants Goldman gets and in late 2007 the financial giant muscled out the competition to acquire Litton at auction. However, according to Suzanne Kapner, writing for the Financial Times in a March 16th 2011 article, Goldman's interest wasn't simply distressed mortgages. The ever cagey financial giant "also wanted to use the data that Litton collects from delinquent borrowers to help it make bets on the housing market, said people familiar with the strategy."

When the casino melted down in the summer of 2008 all bets were off and you didn't need Mata Hari to tell you that the housing market was taking a nose dive. According to ex-Litton executive, Chris Wyatt, Goldman quickly sent down word to abandon loan modifications altogether and push homeowners into foreclosure before a moratorium negotiated with several major banks was to go into effect in early 2009. This was followed by the Obama administration's much touted but weak-kneed attempt to help struggling homeowners through the Home Affordable Mortgage Program ("HAMP"), which Litton signed on to after its introduction in 2009. According to Wyatt, HAMP opened up a floodgate with thousands of homeowners swamping the staff at Litton with a tsunami of loan mod requests. In response Goldman's micro-managers sent down some commandments: deny, deny and deny. For Wyatt, whose job put him in direct contact with homeowners seeking modifications, Goldman was trying to get what it could out of foreclosures without having to be bothered by the muss and fuss of labor intensive and less profitable loan mods. An anonymous letter sent to the NY Fed and obtained by Suzanne Kapner summed up the scheme. In a May 25th, 2011 article for the Financial Times she writes that "loans were denied without the proper review under a 'denial sweep' strategy devised to clear a backlog of applications." 

Read the entire article here


Sharon_Hanson said...

"Goldman's interest wasn't simply distressed mortgages. The ever cagey financial giant "also wanted to use the data that Litton collects from delinquent borrowers to help it make bets on the housing market, said people familiar with the strategy."
This was behind their denying modifications.  If the loan defaulted they would win their bet and collect the insurance proceeds. 
By the way Neil Luria of Navigant Capital is Plan Trustee in the Taylor Bean and Whitaker bankruptcy and he had something to do with approving Lender Processing Services to manage the unsecured creditors.  Homeowners with valid claims in the TBW are being treated like they don't belong and they are being railroaded. In the meantime some believe that he is selling the assets for pennies on the dollar and charging astronomical fees further depleting what is left to pay creditors.  They recently filed a separate lawsuit using TBW's funding arm Ocala Funding, LLC.  The first order of business a Motion for Order to Examine Freddie Mac and the FHFA.  The FHFA objected saying that the judge didn't have jurisdiction.  They are brave I'll say that for them but evil to the core.  They want to claw back $800M from tax payers (Freddie Mac) and give to Deutsche and BNP Paribas.

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