It seems to us the underlying question is really whether "normal business" is really "normal" for obvious wards of the government like Fannie and Freddie. Either privatize them for real (in which case hedging like this would be baked in the cake, and properly priced-in, and therefore "normal"), or make them into a homeowner bailout vehicle -- but whatever you do, for god sakes, do it officially. This having-it-both-ways stuff is clearly not working.

Even DeMarco himself accepts this ridiculous "dual mandate" when he refers to "the agency's efforts to stabilize the mortgage market". Preventing people from refinancing is obviously not stabilizing the market. Society would benefit if DeMarco would simply be more candid and say something like "we cannot overtly provide relief to distressed homeowners unless we are either given an appropriation, or someone [such as the Fed] helps absorb our derivatives risk."

David Higgs, 42, and Salmaan Siddiqui, 36, pled guilty in U.S. District Court in New York to a criminal charge of conspiracy to falsify books and records and commit wire fraud in a way that bolstered their bonuses.

The convictions marked the first successful criminal prosecutions against individuals at investment banks involved in the meltdown, and took four years to win, even without a trial.

In building the case, prosecutors enjoyed advantages that are rarely available -- and likely make this kind of success hard to replicate.

Kudos to the government for getting this, but the problem is they seem unwilling to touch the "big scam", probably because it gets too close to the government itself. That would include the entire securitization system, which was largely founded on a fraud (which is why so many foreclosures have proceeded on an outright illegal basis).

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As the article details, the sordid tale begins in 2007, when Santorum formed a trust with mortgage and development company NVR's secretary and general counsel James Sack, which then bought a property in Great Falls, Virginia for $2M. It isn't clear (and probably isn't ever going to be public) who exactly put in what capital for that purchase, but I'm going to guess NVRSack put up most or all of it (I wonder why).

Then, over the next couple years, as the property's value fell, it was used by Santorum as essentially a personal piggy bank with up to $2.5M in mortgages taken out on it at a time, from banks including American Home Bank of Lancaster, PA and behemoth ING.

The property was actually transferred from the trust to Santorum in June, 2009 (at that time, as far as we can piece together, the property had $1.5M in mortgages on a $2M sale price, or $500k of equity. How nice of NVR--er, we mean Sack).

We looked at the timeline and pieced together the following interesting milestones:

• Feb. 2010 - The Santorums take out another $1M loan on the property, making about $2.5M total outstanding, on a property that sold for $2M. They are at least $500k in the hole at this point.
• March, 2010 - The Santorums pay back the $1.5M loan, making $1M outstanding -- but now the property appraises at only $1.4M (thus, they were really more like $1M-$1.1M in the hole above, yet somehow got a $1M loan).
• July, 2010 - The Santorums are able to take out another $1M loan, for about $2M total outstanding. But now the property appraises for only $1.2M, so they are $800k underwater.

Keep in mind this is all going on as underwriting standards are as strict as ever. How did he get an additional $1M loan that put the underlying property $800k in the hole? We have to wonder how many more loans Santorum can take out of this already-underwater property, which he was "gifted" from a trust formed with someone from a major developer and mortgage company.

All of this is to say nothing of Santorum's questionable residency and other property/mortgage deals, which the Charter's Valley Patch briefs.

Bank of America has stopped originating cash-out home-refinance loans. The new policy went into effect last week. And the Charlotte, N.C.-based bank has suspended all mortgage refinancing activity that allows homeowners to convert equity in their homes to cash.

...

BofA spokesman Terry Francisco confirmed the policy when contacted by the Charlotte Business Journal, a sister publication of The Business Review. However, he says the change is only temporary. He says the bank has seen a "tremendous surge" in refi applications since a new federal policy took effect Jan. 17. That policy allows banks to refinance homes more than 125 percent underwater and still receive a government guarantee on the loan.

Francisco says the increased volume of applications stemming from that issue forced BofA to temporarily suspend cash-out refis so closing times for other loan types didn't suffer.

"We hope to reinstate them as soon as possible," he says.