FLASH: We have our first major mortgage fraud smoking gun: "Zippy Cheats & Tricks"

Hopefully the Oregonian did their homework and verified this document isn't a fake, but assuming it's real, it's one of the first of many REIC smoking guns to be found - once the FBI and SEC do their jobs and start raiding REIC offices nationwide.

And Angelo Mozilo's home of course...

Here's the skinny on "Zippy":

Chase mortgage memo pushes 'Cheats & Tricks' - The bank says it never backed the strategies, which detail how to get an iffy loan approved

A newly surfaced memo from banking giant JPMorgan Chase provides a rare glimpse into the mentality that fueled the mortgage crisis.

The memo's title says it all: "Zippy Cheats & Tricks."

It is a primer on how to get risky mortgage loans approved by Zippy, Chase's in-house automated loan underwriting system. The secret to approval? Inflate the borrowers' income or otherwise falsify their loan application.

We interrupt this blog for a very important message for the people of Europe

People of Europe, with your crappy falling apart $1 million apartments that would rent out for a fraction of the cost of "owning", you have no idea how f*cked you are.

It was the Brits - they came into your market and bid up the prices to unjustified and unsustainable levels, in a big giant European Housing Ponzi Scheme. And you fell for it. In America, the Californians were our Brits. And you know how that turned out.

And now back to our regularly scheduled programming.

FLASH: Bear Stearns Tells Hedge Fund Investors There's `No Value Left'

Ruh-roh! Mark to market anyone? Anyone?

You gotta wonder how many more "suprises" are out there

Hint: Lots.

July 18 (Bloomberg) -- Bear Stearns Cos. told investors in its two failed hedge funds that they will get little if any money back after ``unprecedented declines'' in the value of AAA rated securities used to bet on subprime mortgages.

Estimates show there is ``effectively no value left'' in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and ``very little value left'' in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter. The second fund still has ``sufficient assets'' to cover the $1.4 billion it owes Bear Stearns, according to the letter, which was obtained yesterday by Bloomberg News from a person involved in the matter.

``This is a watershed,'' said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``A leading player, which has honed a reputation as a sage investor in mortgage securities, has faltered. It begs the question of how other market participants have fared.''

Bear Stearns provided the second fund with $1.6 billion of emergency funding last month in the biggest hedge fund bailout since the collapse of Long-Term Capital Management LP in 1998. The losses investors now face underscore the severity of the shakeout in the market for collateralized debt obligations, or CDOs, investment vehicles that repackage bonds, loans, derivatives and other CDOs into new securities.

Ralph Cioffi, the 22-year Bear Stearns veteran who managed the two funds, sought to minimize risk by investing in the top- rated portions of CDOs, hence the ``high-grade'' label. Under Cioffi, 51, the funds also borrowed money in an effort to boost returns. Instead, as defaults surged on subprime mortgages, they grappled with declines in the values of AAA and AA securities, Bear Stearns said in the letter.

Market Implications

``That has implications for credit weakness in the next several days and weeks,'' said Peter Plaut, an analyst at New York-based hedge fund Sanno Point Capital Management. ``There's going to be more risk aversion.''

$1,800 a month disability payment. $150 child support. And yup, $894,000 in Alt-A Liar's Loan debt. Party over.

Just read the whole article in USAToday on Friday. Then ask yourself - how will IndyMac (the Liar's Loan king) ever stay in business? And do you see now how home prices got so wildly and briefly inflated?

Corrupt commission-hungry mortgage brokers, out-of-control fraud and greed, IndyMac and other Alt-A lenders with no oversight, hedge funds buying up the debt, and then... the party ended.

Let's clean up the mess everyone.

(yes, I'm short IndyMac and yes, this whole scheme is caving in)

Neighborhood finds real estate loans too good to be true

Soon, mortgage applications — almost entirely blank — arrived in the mail. Darden signed and returned them. In November, Darden closed on the first house. In December, she closed on a second.

She'd been preapproved for $360,000. Now she was borrowing $894,000.

It would cost her $7,194 a month.

It wasn't until seven months later, though, after she struggled to find tenants and maintain the buildings, that Darden began to wonder just what had happened. It began to make sense only when she studied the finished paperwork.

When she bought, Darden was receiving $1,800 a month in disability payments — as she recovered from a collapsed lung — sometimes supplemented by child support of $150 a week.

But the mortgage application described a woman she did not recognize: an administration manager for a medical supply company, earning $114,000 a year.

Meanwhile, the real Frances Darden was quickly falling behind.

One of the most notable things about Frances Darden's story is how much it echoes the others.

Valerie Hayes says she knew something was very wrong when she went to close on the $440,000 loan for her house, a two-family in East Boston. She'd agreed to $2,300 payments because of expected rental income. But the documents listed payments at $3,300 a month.
"I see the real mortgages and it's apparent to me I got robbed," Hayes says, "but I'm thinking I'm going to make this work."

Why didn't she walk out? Because she'd already given up her old apartment and had a tenant waiting to move in. Within months, though, maintaining the building depleted savings already strained by the mortgage payments. That's when she noticed the reference to a second job — one she never had — earning a fictional $1,846 a month working for Champagne.

Late last year, Hayes moved out and the lender began foreclosure.

Others are still trying to hold on.

There's Macdala Louis, a nursing assistant, who bought on Edwin Street. Her loan application said she had a second job working for a company, Hart Professional Cleaning, that does not appear to exist.

And Jennifer Stone, a medical assistant who bought a $489,000 home with her partner, a special police officer.

"They said we had accounts we didn't even have. They said we had $50,000 in the bank," Stone says. "I didn't even have $700 in my 401(k)."

A house of cards

I think by now we're all pretty clear on why and how the subprime and Alt-A (liar's loan) house of cards is collapsing.

But I think you should all game this out farther down the road - all the way to seemingly safe 30-year fixed good credit loans, and the fate of the American consumer-driven economy.

Why?

Because Americans stupidly extracted their paper profits, their fake equity, and went on a spending binge the likes we've never seen. And now that fake equity is disappearing.

So many Americans will owe way more than their home is worth, many Americans with ARMs won't be able to make the higher payments, millions of Americans will lose their jobs as housing-ATM consumer driven spending dries up (especially the auto industry), and millions will now lose their homes.

Just game it out. And get ready.

The state of the home mortgage industry is one of the hottest news stories these days. And frankly, it's scaring me.

I'm worried that many folks are headed for financial trouble because they've taken on mortgages that are too large; and I'm scared that others have finally realized it wasn't a good idea to pull out all their home equity.

According to Synergistics Research, 24 percent of homeowners took out a line of home equity credit to buy a car or truck. And 8 percent purchased a vehicle with a second mortgage.

In Sunday's column, "Loan Loser: Home-Financing A Car," I challenged people to stop and do the math before using the borrowed money from their home to purchase a depreciating asset. Too many people just assume that a home equity loan is cheaper than a traditional car loan.

Schiff: The house of cards collapses, home prices must collapse, recession an outright certainty

Why people think the biggest financial mania in recorded human history only merits a tiny little readjustment period, I'll never understand. Get off the crack, I'd say, and embrace the new reality - housing is crashing after the biggest bubble ever.

Regression to the mean will happen, must happen, and always happens. Calling bottom is a fools game - yet time and time again, that's what people do and that's what people want to hear.

It just never quite works out like that. Here's Schiff:

The Worst is Far from Over!

by Peter Schiff

As for the likelihood of recession, not only does it seem to be highly probable, but it is more of an outright certainty. With the construction industry shedding 62,000 jobs last month (the most in sixteen years), it is clear that housing is already in recession! The major question is when the overall recession will begin: the second half of "07 or early '08?

The current train wreck unfolding in the sub-prime lending sector provides a good preview as to what will happen to the entire credit-financed bubble economy when the funding dries up. Contrary to the self-serving rhetoric of Wall Street and housing industry shills, the entire mortgage sector is not insulated from sub- prime. In fact, sub-prime is just the tip of the credit iceberg. Beneath the surface lie similar problems in Alt-A and prime loans, where borrowers also relied on adjustable rate mortgages to purchase over-priced homes that they could not otherwise afford.

With the sub-prime market drying up, most first-time home buyers will be unable to buy. Without those "starter-home" buyers, the trade-up buyers (most of whom have the ability to make down-payments and are therefore considered "prime borrowers") will be unable to sell their existing homes, and hence unable to trade up. This brings down the entire house of cards. Home prices must collapse, affecting all homeowners, regardless of their credit ratings.

Since 70% plus of the U.S. economy is based on consumer spending, how can we possibly avoid a recession if the credit well financing much of it runs dry? Since home equity has been the principal asset collateralizing that credit, how can consumers keep borrowing and spending when housing prices fall? I heard one commentator on CNBC claim that the U.S. economy was in great shape except for housing. To me that's like a doctor telling a patient that he is in great health, except for the javelin sticking out of his chest. If housing is going down, there is no way on earth the entire economy does not get caught in its undertow.

UK Telegraph headline: US mortgage crisis goes into meltdown

Boy, reading the paper today and seeing words like "meltdown" and "panic" I thought I was reading HP, not the MSM.

Yes, folks, the Great Unwinding is here. And now it's being reported in some quarters outside the US - while most of the US MSM sleeps. Don't wan't to upset those advertisers you know...

US mortgage crisis goes into meltdown

Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.

Analysts say the housing bust is pulling America into recession, citing a 14.4pc drop in housing starts

The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.

The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.

Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown.

"It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.

Mr Roubini said: "America faces a 'reverse cycle' where a credit crunch has hit before the slowdown, a rare pattern. Normally, recession comes first, setting off credit troubles in its wake. We have a housing recession, an auto recession, a manufacturing recession, and a real investment recession already present. If all this happening in what the consensus terms as a 'Goldilocks economy', what would happen if the economy slows down?"

Wal-Mart's shelves need stocking

What kind of a country are we when we no longer make anything, we no longer produce, we no longer save, we no longer have the ability to provide for ourselves, and we no longer have the capacity to pay back our debts?

Ah, the luxury of being the greatest debtor in the world with the world's reserve currency. People give us their goods, the result of their hard work and labor, and we give them paper and IOUs, which we have no intention or capacity to pay back.

Keep sending us those televisions, those luxury cars, those ships full of oil. Keep building factories, keep working 'til you drop, keep those ships and containers coming. We'll give you this green stuff in return. That's a fair trade, no?