Jukin' The Stats.

My all time favorite TV series is "The Wire", which ran for 5 years on HBO. Throughout the series, the common thread was the affinity, by the police, the mayor, city politicians and even the drug lords, to "juke the stats". In other words, "tell them what they want to hear", and move on.

In this vein, I've been all over the econoblogosphere today and I'm surprised that this excellent article from Yves Smith hasn't gotten more attention.

Many of us here at EP, and elsewhere, have questioned the veracity of new data eminating from the Census Bureau, the BLS (a.k.a. Bureau of Lying Statistics) and other gov't agencies. In particular, any new reports pertaining to housing, unemployment levels and CPI must be taken with a heavy dose of skepticism.

Likewise, any reasonable evaluation of the banking sector's (in)solvency has been seriously impaired since the suspension of "mark to market" accounting requirements instituted last spring by the FASB.

Even so, the revelations in Yves' article take the scam to a new level. This is a message from one of her readers:

I heard a rumor from a very well placed source that BOFA will foreclose 500,000 houses over the next 10 months. They plan to move these houses very aggressively; they will go to auction 90 days from foreclosure if they are not sold by then. Someone else, very highly placed in Fanny Mae, confirmed this and said there are at least that many again in the rest of the banking system.

While Yves could offer no confirmation of this, it is no big news here, except that BofA plans to "agressively move these new foreclosures". But Yves reminds us that BofA bought Countrywide, way back when, because they were interested in gaining Countrywide's mortgaging servicing operations

Here's more from Yves:

And there has (been) a good deal of evidence that regulators are tolerating some lax valuations on mortgages. Moreover, more aggressive liquidations might be seen, at least initially, as a plus by investors. Recall when banks first started taking subprime-related writedowns, the assumption was they were putting the losses behind them. And ironically, it seemed that with each quarter, the writeoffs kept getting bigger, yet the party line each time was, “Ah yes, they have really cleaned house, now haven’t they?”

Well, it turns out their motives may not have been so altruistic, as suggested by a commentor from Texas:

When I went to the bankruptcy / foreclosure auctions here a few weeks ago I found out that the whole thing is a charade. Bank of America (for instance) auctions off houses that have gone into foreclosure for the amount owed plus any carrying costs which usually makes the auction price higher than what was owed. A pre-bid was submitted by Bank of America Home Loan Servicing (the rename for Countrywide) in the exact amount of the auction minimum (mortgage owed plus carrying costs). No one else bids so the house is “sold” by Bank of America to Bank of America Home Loan Servicing. In essence, the property is simply transferred from one division to another so that clear title is established. But this is counted as an existing home sale which artificially inflates existing home sales numbers. This is what was happening for most of the 102 BAC mortgages and the 130 Wells Fargo mortgages. For the house I “rent” where the original mortgage was with Countrywide (and then transferred to B of A when B of A bought the property) this is simply a process for getting the house off of B of A’s books and back on Countrywide’s books (now BAC Home Loan Servicing). As I said, it is all charade or smoke-and-mirrors or a shell game.

Later Bank of America Home Loan Servicing will contact a realtor who will eventually put the house on the market for sale. Let’s say that the auction price was $200,000 but the house is now worth only $150,000. Of course when this house is sold by the realtor it is again counted as an existing home sale.

So, who needs "mark to market" evaluation anyway? We can play all kinds of accounting games like just establishing subsidiaries to "buy" the "asset" at "full value" or even some "inflated value"? As long as you can make the proper bookkeeping entries on the various entities books, who can determine the "true" market value!?!

The real story here is that these accounting shenanigans are not only understood to be happening by TPTB in DC, but they are encouraged by the FED, Congress and the Obama Administration.

"America" is nothing more than an ever evolving accounting illusion. Buyer (or creditor) beware!



missed this one

Although I've read reports elsewhere but this game of using acquired countrywide is new.

We've had comments, most anonymous from people just pulling their hair out, telling similar stories on EP. You might not have seen them and I've never gone through and collected them into a blog post.

Very similar that the entire mortgage modification, "programs" ...it's more profitable with similar games like the above to foreclose.