Richard Bowen

  • Home
  • About
  • Speaking
  • Videos
  • Media/Press
  • Testimonials
  • Blog
  • Contact
  • +1-214-604-5492

August 16, 2018 By Richard Bowen

The Fed: Why They Must Engage Before It’s Too Late

Image source: FOX 52, Public Domain

In a recent NY Times article, Neil Irwin asks “What Will Cause the Next Recession?” He says, “The economic expansion in the United States celebrated its ninth birthday last month. If it survives another year, it will be the longest on record.” He challenges the status quo with, “But eventually something will kill it. The question is what, and when.”

Mr. Irwin details some likely threats, yet the question uppermost in my mind is this: will the Fed recognize the warning signs soon enough to take proactive actions to prevent another financial crisis and recession?

Based on the Federal Reserve’s past behaviors in ignoring egregious warning signs, I am doubtful they will. One of these historical issues which had multiple warnings I discussed in my last post regarding the two billion dollar fine levied on Wells Fargo for its lying about the quality of sub-prime and Alt-A mortgages that secured residential mortgage-backed securities in the run-up to the 2008 housing crisis. 

Wells Fargo had sold at least 73,539 stated income loans that were included in residential-backed securities (RMBS) between 2005 to 2007. Half of these had defaulted. It continued the pattern Countrywide, Citigroup and other Wall Street banks had followed in making, purchasing and selling stated loans. According to the DOJ, “Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in residential mortgage-backed securities containing loans originated by Wells Fargo.”

In a recent article, Bill Black, author of The Best Way to Rob a Bank is to Own One,  associate professor of economics and law at the University of Missouri-Kansas City, and co-founder, along with myself and others, of Bank Whistleblowers United, talked about the history of stated loans, mortgage fraud and the Federal Reserve.

He notes that “liar’s loans (as they were called) began to become material around 1989 during the savings and loan debacle. In that era, they were called “low documentation” (‘low doc’) loans.” Bill Black was with the regulator of the S&L industry at the time, the Office of Thrift Supervision (OTS), with its examiners concluding that “No honest lender would make widespread loans without verifying the borrower’s income because it was certain to produce “adverse selection” and produce serious losses.” And the OTS made it a priority to drive the stated loans out of the S&L industry.

Nobel prize winner George Akerloff and Paul Romer analyzed the savings and loan crisis in their famous 1993 article “Looting: The Economic Underworld of Bankrupcy for Profit,” concluding that the failure to verify the borrower’s income was, indeed, an example of a lending practice that only fraudulent lenders would use on a widespread basis.

Stated loans and their lenders then migrated to the shadow banking world of mortgage banking over which the OTS did not have purview. But Congress responded to the widespread warnings about stated loans and, in 1994, passed the Home Ownership and Equity Protection Act (HOEPA) which gave the Fed the unique authority to ban all stated loans.

But the Fed did nothing, with the stated loans then becoming popular in banking in 2002, growing exponentially.

Even the FBI issued public warnings beginning in 2004 about mortgage fraud and stated loans, warning that the developing “epidemic” of mortgage fraud would cause a financial “crisis” if not stopped.

But the Federal Reserve did nothing.

Mr. Black also notes and applauds the warnings of Steven Krystofiak, president of the Mortgage Brokers Association for Responsible Lending, a professional association dedicated to fighting mortgage fraud and predation.  Mr. Krystofiak presented to the Federal Reserve, in a 2006 public hearing, a highly publicized study and public testimony about the growing dangers of stated loans.

Mr. Krystofiak noted in his testimony before the Federal Reserve that 37% of all loans sold in the United States originated without income being proven. In areas where homes are the least affordable (i.e. California and Florida), that number grows to over 50% and some banks reported that close to 80% of loans originated are stated income loans.

His testimony further noted, “a recent sample of 100 stated income loans which were compared to IRS records (which is allowed through IRS forms 4506, but hardly done) found that 90 % of the income on these stated loans were exaggerated by 5% or more. MORE DISTURBINGLY, ALMOST 60% OF THE STATED AMOUNTS WERE EXAGGERATED BY MORE THAN 50%. These results suggest that the stated income loans deserve the nickname used by many in the industry, the “liar’s loan.”

Krystofiak also warned the Fed about stated loans being sold to investors, saying “Banks have already made their profit. Investors will soon realize stated income loans are too risky…”

But, despite the overwhelming evidence of fraud in stated loans, the Mortgage Bankers Association took the position that the Fed should not use its HOEPA authority to ban the growing epidemic of liar’s loans. So the Fed did nothing.

Stated loans were finally eliminated in 2010 with the passage of both the Dodd-Frank Act and the Truth in Lending Act.

So why was the continuance of this fraudulent lending practice so rampant? Let’s face it: profit, the greed factor!

I can attest to that given my experience at Citigroup. These loans are prevalent, as I and others have often, stated because individuals and institutions are incented for making them. So this fraud was encouraged by the banks and enabled by the Federal Reserve?

It’s time our government learned to seriously pay attention to warnings and not to take us down another dangerous path. Click To Tweet

As Mr. Irwin strongly suggests, another economic recession is not a matter of if, but when.

The signs for another recession are clear.

Catastrophic? Perhaps not if the Fed and Congress face up to their responsibilities instead of paying them lip service, pay attention to the warning signs and act with integrity.

It’s time our government learned to seriously pay attention to warnings and not to take us down another dangerous path.

Related Posts

  • So What’s New: Wells Fargo Caught Again!
  • Pulitzer Prize Winner Benoît Bringer Documents the Financial Crisis of 2008!
  • Bank Reputations are Falling: Wonder Why?

Truth, Trust, Transparency: The Hijacking of FOIA
So What’s New: Wells Fargo Caught Again!

Tagged With: Fed, Federal Reserve

Ethics on your mind? Subscribe to my ezine to get my latest article delivered right to your inbox. Click Here to Subscribe

Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.

Related Posts

  • The Goldman Sachs Takeover of the Fed!The Goldman Sachs Takeover of the Fed!
  • Is the Fed Really Interested In Protecting Consumers or Is It just Lip Service?Is the Fed Really Interested In Protecting Consumers or Is It just Lip Service?
  • Audit the Fed? Maybe this time it will happen.Audit the Fed? Maybe this time it will happen.
  • FED UP… An Insider’s Take On Why The Federal Reserve Is Bad For AmericaFED UP… An Insider’s Take On Why The Federal Reserve Is Bad For America

What People Are Saying About Richard M. Bowen

William D. Cohan"Richard Bowen is one of my heroes. His is a story of human fortitude at its best and Wall Street at its worst."

~ William D. Cohan, NY Times Best Selling Author
2017-06-30T10:08:59+00:00
"Richard Bowen is one of my heroes. His is a story of human fortitude at its best and Wall Street at its worst." ~ William D. Cohan, NY Times Best Selling Author
https://www.richardmbowen.com/testimonials/2556/

Eileen McDonnell"Richard Bowen reinforced my motto that "there is no right way to do a wrong thing.” Long after his presentation, the conversation has continued about personal responsibility and the courage to challenge things that appear to be wrong. We encourage this dialog and rely on it to help make our business stronger."

~ Eileen McDonnell, Chairman, CEO, & President, Penn Mutual
2015-02-13T19:51:19+00:00
"Richard Bowen reinforced my motto that "there is no right way to do a wrong thing.” Long after his presentation, the conversation has continued about personal responsibility and the courage to challenge things that appear to be wrong. We encourage this dialog and rely on it to help make our business stronger." ~ Eileen McDonnell, Chairman, CEO, & President, Penn Mutual
https://www.richardmbowen.com/testimonials/711/

Ben Stein"Richard Bowen, you are a star and a hero."

~ Ben Stein, Economist and Political Commentator
2015-02-13T19:50:26+00:00
"Richard Bowen, you are a star and a hero." ~ Ben Stein, Economist and Political Commentator
https://www.richardmbowen.com/testimonials/712/

Jim Farrell"Richard's speech at the April Financial Executives International dinner was informative, interesting, riveting, and fast moving.  The feedback from members was overwhelming positive, and Richard received one of the few standing ovations given by our membership."

~ Jim Farrell, Program Chairman, Dallas Chapter, Financial Executives International
2014-12-28T19:48:17+00:00
"Richard's speech at the April Financial Executives International dinner was informative, interesting, riveting, and fast moving.  The feedback from members was overwhelming positive, and Richard received one of the few standing ovations given by our membership." ~ Jim Farrell, Program Chairman, Dallas Chapter, Financial Executives International
https://www.richardmbowen.com/testimonials/532/

Dennis McCuistion"Richard Bowen has been there, done that, and has the scars to prove it, and his message of corruption at the highest levels of industry and government needs to be heard. I only wish that more bankers had the courage that Bowen exhibits. He is not only one of the most talented bankers I have ever met, he has more integrity than all the bankers on Wall Street put together. If his former employer had listened to him taxpayers would not have had to bail out Citi for the third time in the last 30 years."

~ Dennis McCuistion, Host of the McCuistion TV program
2014-12-28T19:48:06+00:00
"Richard Bowen has been there, done that, and has the scars to prove it, and his message of corruption at the highest levels of industry and government needs to be heard. I only wish that more bankers had the courage that Bowen exhibits. He is not only one of the most talented bankers I have ever met, he has more integrity than all the bankers on Wall Street put together. If his former employer had listened to him taxpayers would not have had to bail out Citi for the third time in the last 30 years." ~ Dennis McCuistion, Host of the McCuistion TV program
https://www.richardmbowen.com/testimonials/533/

Betty Garrett"Richard Bowen is a dynamic, entertaining speaker and story-teller - a CPA with a great personality!"

~ Betty Garrett, Garrett Speakers International
2014-12-28T19:47:50+00:00
"Richard Bowen is a dynamic, entertaining speaker and story-teller - a CPA with a great personality!" ~ Betty Garrett, Garrett Speakers International
https://www.richardmbowen.com/testimonials/531/

fred-timmons"I believe Richard Bowen is the only keynote speaker to ever receive a standing ovation from the Texas Society of CPA’s at any of its annual conferences."

~ Fred Timmons, Chairman of The Texas Society of CPA's
2014-12-28T19:47:22+00:00
"I believe Richard Bowen is the only keynote speaker to ever receive a standing ovation from the Texas Society of CPA’s at any of its annual conferences." ~ Fred Timmons, Chairman of The Texas Society of CPA's
https://www.richardmbowen.com/testimonials/530/

Presentation Topics

Playing for High Stakes: The Principles and Practice of Ethical Leadership

Dark Citi: The Story of a Whistleblower

Want to Hire Richard?

Watch Richard

See What Clients are Saying

About Richard

Recent Posts

  • Warmest thoughts and best wishes for a wonderful and safe holiday
  • Thanksgiving 2020
  • Pausing For A While
  • The world is in crisis
  • Relationships Count

Categories

  • Business Ethics
  • Congress
  • Corporate Debt
  • Corruption
  • Ethical Leadership
  • Financial Crime
  • Financial Crisis
  • Financial Crisis of 2008
  • Holiday
  • International
  • Mortgage Lending
  • Mortgage Meltdown
  • Relationships
  • Texas Politics
  • The Fed
  • Too Big To Fail
  • Uncategorized
  • Updates
  • Wall Street
  • Whistle Blowers

About Richard

Now an ethical leadership speaker, Richard Bowen was Citigroup's Business Chief Underwriter during the housing bubble.

Read more

Connect with Richard

  Facebook   Twitter   Linked   Google Plus   YouTube

Contact Us

Phone: +1-214-604-5492

Email: Richard@RichardMBowen.com

Contact Richard
Google+

Copyright 2019© 2021 · Richard M. Bowen | ALL RIGHTS RESERVED.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are as essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are as essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.

Necessary Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

X
Sign up to receive my blog posts via email!
Subscribe >>