North Jersey banks repossessed more properties

In banking, OREO is not a cookie, and there’s no sugary frosting in the middle.

It’s an acronym for one of the industry’s most unpleasant statistics, Other Real Estate Owned, which means repossessed homes and commercial properties. And it has been on the rise in North Jersey.

Repossessed homes and commercial properties held by the 10 largest commercial banks based in Bergen and Passaic counties nearly doubled to $53.3 million from $27.3 million in the past year, according to The Record’s analysis of financial reports filed quarterly with the government.

These include properties that banks acquired in sheriff’s auctions because the bids made were too low to cover the loans. They also included properties where distressed owners voluntarily signed over the deeds.

An increase of that size is “certainly not good,” said Rick Weiss, an analyst with Janney Capital Markets. “I think the rate [of bad loans] going in is probably slowing, but things aren’t being cleared out fast enough.”
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Bauer said recently that 12.7 percent of New Jersey banks were “troubled or problematic” as of the end of 2011, up from 7.8 percent at the end of 2010. The ratio of troubled or problematic banks declined nationwide during that time to 11.1 percent from 13.2 percent.

John McWeeney, president of the New Jersey Bankers Association, said New Jersey-based banks “are still relatively strong compared to other areas of the country” and their capital levels are “solid.”
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Wayne-based Valley National Bank’s holding company said in a filing with securities regulators that its increase in OREO last year was largely due to one commercial property with a value of $3.5 million, which the bank acquired in the third quarter. The dollar value of Valley’s OREO rose to $21.7 million last year from $18.3 million.

At Edgewater-based Mariner’s Bank, OREO increased to $8.7 million from $1.5 million, attributed entirely to repossessed commercial properties.

Community Bank of Bergen County’s OREO increased more than tenfold to $6.4 million from $604,000, with residential mortgages accounting for more than $5 million of the year-end total at the Maywood bank.

“A lot of what you are seeing now is loans that went bad in 2008 and 2009,” said Nicholas Ketcha, a managing director of FinPro in Liberty Corner. “It’s taken that long to get the properties to where they can take control.”

Jersey Rejuvenation Story

About six years ago, Newark, N.J., seemed to be winning its long struggle to emerge from decades of urban decay, and one of the symbols of that was the opening of Eleven80, a market-rate rental property in a converted Art Deco office building.

The developer, Cogswell Realty, spent about $110 million to develop the 317-unit apartment tower with luxury finishes and a bowling alley in the building that originally opened in 1929. Most significantly, Cogswell was charging market rates of more than $2,000 a month for some units, prices unheard of in downtown Newark.
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But now the project has also taken on new symbolism as its defaulted mortgage has been sold. While sales of distressed real-estate debt are commonplace these days, this deal was significant because the seller was the Federal Reserve Bank of New York.

The Fed wound up owning the debt on Eleven80, along with about $6.4 billion in commercial real-estate loans, when it made a $28.8 billion loan to bail out Bear Stearns Cos. in 2008.

Since then, the Fed has been slowly and quietly reducing that stockpile, partly through loan sales. As of Dec. 31, the value of the commercial real-estate loan portfolio had been whittled down to $2.9 billion, according to public documents.

What is less clear is how well taxpayers have made out from the Fed’s efforts to sell off commercial real-estate loans. A spokeswoman for the Fed declined to comment on the disposal of toxic real-estate loans by Maiden Lane LLC, the Fed-controlled company that was established in 2008 to handle all of the Bear Stearns assets taken over by the Fed.

In the case of Eleven80, taxpayers didn’t make out well. Bear Stearns originally made a $54 million loan on the project, which Maiden Lane inherited. In the recent deal, Maiden Lane sold the debt for $35 million to KBS Strategic Opportunity REIT, a nontraded real-estate investment trust managed by KBS Capital Advisors LLC, of Newport Beach, Calif.

The Fed also moved slowly. A trustee began foreclosure proceedings in 2009, but three years later Cogswell still owns the asset. The foreclosure has been complicated in part by litigation related to a construction company seeking payments.

The Fed’s loss could have been worse. Investors’ demand for distressed commercial real-estate loans is rising, and buyers are now paying an average of 50 cents on the dollar, topping the 25 cents on the dollar that soured commercial real-estate debt was selling for when real-estate values hit their troughs, according to Harris Trifon, global head of commercial real-estate research at Deutsche Bank Securities Inc.

Foreclosure starts jump 28 percent in January : LPS

Starts on U.S. home foreclosures shot up 28 percent in January, data provider Lender Processing Services (LPS.N) said on Tuesday in a report that suggested paper backlogs that had clogged the system were rapidly clearing.

U.S. lenders had cut back on foreclosure after accusations of faulty foreclosure practices had surfaced in late 2010.

Last month, five big U.S. banks reached a $25 billion settlement with the federal government to end a national investigation into claims of flaws in their foreclosure process, including allegations of so-called “robo-signing” of documents.

“One-month anomalies do occur, but make no mistake about it, this is a larger move than we’ve seen since the late 2010 period when the process reviews and moratoria really took hold,” said Herb Blecher, senior vice president at LPS Applied Analytics, a unit of the Jacksonville, Florida-based company.
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LPS also said foreclosure sales, which it defined as a bank repossession of a home from the borrower or in some cases the completion of a short sale, surged 29 percent in January from the previous month.

Mortgage delinquencies were down more than 25 percent from their January 2010 peak, according to the report. The delinquency rate stood at 7.97 percent in January, down 10.5 percent from a year earlier.

White House Cuts Refinance Fees

The U.S. government will cut fees on federally insured mortgages that have prevented some borrowers from refinancing their home loans at ultra-low interest rates, the latest in a series of White House efforts to boost the flagging housing market.

The change was announced Tuesday by President Obama. Mr. Obama’s administration has focused on revamping its efforts to aid the weak housing market of late after falling well short of its initial goals set out in early 2009.

The White House estimated that between 2 million and 3 million homeowners would be eligible and said the reduced fees would save homeowners around $1,000 per year. The administration has been pushing to allow more homeowners to take advantage of interest rates that have been averaging under 4% for 30-year mortgages, the lowest levels on record.

“This is not something the government, by itself, can solve,” Mr. Obama said at a news conference. “But I’m not one of those people who believe that we should just sit by and wait for the housing market to hit bottom.”

The changes will apply to borrowers with loans backed by the Federal Housing Administration, a federal agency that guarantees mortgages made to borrowers who have weaker credit scores and need low down payments.

Those borrowers are currently allowed to refinance into new FHA loans without providing verification of their credit score, income or a new appraisal. However, high fees have prevented many from doing so.

Since the FHA guarantees these loans and is on the hook for any losses, allowing these borrowers to take advantage of low rates could result in fewer defaults for the agency.

The insurance premiums that FHA borrowers must pay up-front for refinanced loans will be nearly eliminated, falling to just 0.01% of the loan balance–or a fee of just $17.50 for a $175,000 mortgage. In addition, the FHA will also cut in half the annual premium it charges to 0.55% from 1.15% of the loan balance. That means this fee will drop to about $960 from about $2,000 on a $175,000 loan.

However, the changes apply only to borrowers who took out loans before June 1, 2009. As a result, the majority of FHA borrowers won’t be able to take advantage of the reduced fees.

Why Renters Rule U.S. Housing Market (Part 1): A. Gary Shilling

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

Why Renters Rule U.S. Housing Market (Part 2): A. Gary Shilling

In making my case for continued housing weakness, I’ve emphasized the negative effect of excess inventories on house sales, prices, new construction and just about every other aspect of residential real estate.

In housing, as in every goods-producing sector, excess inventories are the mortal enemy of prices. Lower prices are needed to unload surplus inventory, yet they also lead to the creation of more inventory by anxious sellers. The plight of house sellers and the reluctance of buyers are made worse by the realization that house prices can fall, and are falling for the first time in 70 years.

There are about 2 million excess housing units in the U.S., over and above normal inventory working levels. Before the housing collapse began in 2006, housing starts and completions were volatile but averaged about 1.5 million per year. So a 2 million excess is much more than the previous annual average build.

Furthermore, that excess is rising as homeownership declines as a result of foreclosures, unemployment, inability to meet mortgage standards or reluctance to own a depreciating asset.

Foreclosure Deal May Help States Prop Up Budgets, Raze Houses

Wisconsin plans to use part of its $140 million share of the national foreclosure settlement to fill a budget hole. Missouri would devote $40 million for education. Ohio wants to tear down vacant homes.

Ninety percent of the $25 million settlement announced Feb. 9 goes to borrowers, with states receiving at least $2.66 billion, said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who helped negotiate the deal. The money for states is to “help fund consumer protection and state foreclosure-protection efforts,” according to the National Mortgage Settlement website, though states have discretion in spending, and their tax bases and budgets were hurt by the housing crash, Greenwood said in an e-mail.

Most states, especially those hit hard by foreclosures, likely will spend the money on related purposes instead of priorities that the public may not see as fitting the spirit of the settlement, said David Adkins, executive director of the Council of State Governments in Lexington, Kentucky.

“If my home were in foreclosure, I would want to make certain that the revenue in my state was directed at ameliorating that specific problem,”Adkins said.
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At least 100,000 homes need to be demolished, DeWine said, and he is establishing a program to match funds that cities and land banks allocate for tearing down houses.

Using the settlement money for that purpose is appropriate because many homeowners are paying their mortgages and did nothing wrong, yet they face plummeting property values because of foreclosures around them, said Jim Rokakis, a former Cuyahoga County treasurer who directs Cleveland’s nonprofit Thriving Communities Institute.

“If you don’t take these homes down, these neighborhoods will continue to lose what little value they have left, they will be less safe and there will be zero chance of those neighborhoods coming back,” Rokakis said in a Feb. 9 telephone interview. “You can’t build the new American city until you take the old one down first.”

NJ gets $837.7M in nationwide mortgage and foreclosure settlement

New Jersey’s share of the $25 billion mortgage settlement announced Thursday is expected to bring financial relief to at least some of the state’s homeowners who are facing foreclosure or owe more than their homes are worth, analysts said.

For homeowners in that category, though, it’s no slam dunk. Banks still will need to be relatively assured that homeowners can make their modified mortgage payments, they said.
Homeowners “have a better chance,” said Patrick J. O’Keefe, director of economic research for J.H. Cohn, an accounting firm based in Roseland. “But this is a partial solution.”

The U.S. government and 49 state attorneys general, including New Jersey, reached an agreement with the nation’s five biggest mortgage lenders – Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial Inc. – to settle charges that the companies cut corners to foreclose on homes and deceived customers about loan modifications.
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With the government unable to solve the puzzle, prices have declined so much that 310,000 homeowners in New Jersey – about 16 percent – owe more than their homes are worth, according to Jeffrey Otteau, president of the Otteau Valuation Group in East Brunswick.
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New Jersey is in line to receive $837.7 million, state Attorney General Jeffrey S. Chiesa said. That money will be used to modify and refinance loans. It will go to pay for borrowers who “suffered servicing abuse” and were foreclosed on. And it will help pay for state housing programs.

The settlement affects only customers whose mortgages are owned and serviced by the five companies in the agreement. It’s an important distinction because the companies might have sold some mortgages to Fannie Mae and Freddie Mac, government-backed companies whose customers aren’t part of the agreement.

It isn’t clear how many New Jersey homeowners would qualify, but the five companies represent 60 percent of the industry, the state said.

The program, because of its complexity, could take three years to complete, the state said.
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How much of a difference will it make? Observers were torn.

“It might need $1 trillion to really solve the problem, but maybe this will be enough to take people in the process of foreclosure … start to make performing loans,” said Joel Greenberg, chief executive officer of Novadebt, a Freehold Township credit counselor. “That’s got to help the situation, but it’s still the middle of a crisis. I don’t see this whole logjam breaking immediately.”

New York Housing Market Could Still Collapse: Analyst

There’s been a lot of talk recently about home prices reaching a bottom. Most notably, Bill McBride at Calculated Risk — perhaps the most respected housing market analysts in the blogosphere — says housing starts already bottomed and housing prices are likely to bottom in March.

But not everyone is convinced. Keith Jurow argues that home prices are nowhere near the bottom. In fact, he thinks that one particular market — New York City — is close to collapsing.

From Jurow:

Let’s look at the most misunderstood housing market in the country — the NYC metro. The published median sale price for both NYC and Long Island has seemingly held up better than other major metros — not much less than $400,000 for Queens or Suffolk counties. This has fooled people into thinking that the worst is over in the NYC area. On the contrary, the real collapse in prices is imminent.

In November 2011, Minyanville.com posted my 30-page New York City Housing Market Report. The report included never-seen-before charts, graphs and data that revealed what has been going on there. The banks have not been foreclosing for the past three years. This started well before the robo-signing mess. On February 7, 2012 there were a total of only 242 repossessed properties on the active MLS in Queens according to foreclosure.com. This is a borough with a population of 2.2 million.

Because of this, the number of seriously delinquent properties throughout NYC has been soaring. Based on individual charts for each borough from the NY Federal Reserve Bank which I included in my report, there were roughly 80,000 properties where the mortgage had not been paid in more than 90 days as of June 2011.

That number is considerably higher now. How about this statistic? I received updated numbers from the N.Y. State Department of Banking a few weeks ago. In 2009, the state legislature passed a law requiring all mortgage servicers to send a “pre-foreclosure notice” to all delinquent owner-occupants in danger of losing their home to foreclosure.

As of the end of December 2011, a total of 165,000 pre-foreclosure notices were sent to delinquent owner-occupants just in NYC. This does not include delinquent investors because the law requires that these notices be sent only to owner-occupants.

While not all of these borrowers were more than 90 days delinquent, the vast majority were 60+ days delinquent. What do you think will happen to home prices once the banks finally begin to foreclose on these properties? Prices will collapse in the four outer boroughs and will decline sharply in Manhattan. I am convinced that this will occur although we can’t be sure when the banks will begin to move on this.

The situation is even worse in Long Island — Nassau and Suffolk counties. I wrote a 22-page report on the Long Island housing market which Minyanville posted in December 2011. Just for these two counties — with a total of less than three million people — more than 149,000 pre-foreclosure notices had been sent as of the end of 2011.

As in NYC, the banks have not been foreclosing in Long Island. But they cannot put it off indefinitely. When they begin, prices there will collapse.

Foreclosure Deal Deadline Arrives as States Must Choose Whether to Sign On

States that balked at bank liability releases in a proposed $25 billion nationwide settlement over foreclosure practices must decide by today whether its mortgage relief and reforms are worth the legal claims they’ll give up.

While some states have already announced their intention to sign the deal, others including California Attorney General Kamala Harris have yet to publicly commit in part due to terms that protect the banks from future litigation. Without Harris, the deal’s value will drop by several billion dollars, according to a person familiar with the matter.

The agreement is “beyond fixing,” said George Goehl, executive director of National People’s Action, a network of community organizations which advocates for fair lending and affordable housing.

“People are very disappointed in what this is going to be both in terms of dollars and release of claims,” Goehl said in a telephone interview. “We’re giving away the store.”

Most states don’t have the resources to go it alone and fight the banks in court, said James Tierney, director of Columbia Law School’s National State Attorneys General Program. States such as California that may reject the agreement must decide whether the time and money needed to fight for a better deal is worth it, given that the settlement provides immediate relief for homeowners, he said.

“How long does it take and how much better?” Tierney said of a state pursuing its own deal. “Is it so much better that it warrants the cost and delay?”
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Today’s deadline, extended by the parties from Feb. 3, comes almost 16 months after all 50 states announced they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes.

Economists See Ways to Aid Housing Market

he underpinnings of a housing recovery are hiding in plain sight: sharp price declines, low mortgage rates and rising rents have made owning more affordable than renting in a growing number of markets.

Yet housing largely remains in a funk. The prospect of continued price declines—led by the oversupply of foreclosed homes—has deterred some potential buyers, while others can’t qualify for loans.

Many economists, including some at the Federal Reserve, are urging President Barack Obama to do more, and the president will be “aggressive on housing” in his State of the Union address on Tuesday, his housing secretary said last week. The administration is already rebooting a refinancing initiative and putting finishing touches on programs to convert some foreclosed properties into rentals.

What more can be done? Economists cite three broad ideas that could advance a housing recovery.

First, local investors could play a greater role in spurring a recovery in their own communities. Some mom-and-pop investors have begun to buy up excess housing stock and rent it out.
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Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations. The government’s extraordinary steps to rescue Fannie and Freddie helped prevent a cataclysmic shock but it has made no real movement to overhaul the companies and the nation’s broader housing-finance machinery.
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Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.
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Mustering the political will to take any of these three steps wouldn’t be easy. Given the state of the market, “there isn’t a solution which will make everyone love you and cost no money,” Mr. Ranieri says.

Indeed, no single idea will fix all of housing’s problems. Many involve taking on more risk or rewarding bad behavior.

Bernanke calls for nationwide REO rental program

The government should consider helping the nation’s vacant, unsold stock of foreclosed properties by supporting initiatives to occupy.

Federal Reserve Chairman Ben Bernanke believes that one aspect should be a government support program that allows renters to move into those houses.

In a letter Wednesday to ranking members on the House Committee of Financial Services, Reps. Spencer Bachus, R-Ala., and Barney Frank, D-Mass., Bernanke said that inefficiencies in the foreclosure and mortgage origination processes are dragging on the economic recovery.

However, solutions are available, he added.

“Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8% — sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property,” Bernanke’s staff writes in a supporting white paper.

“Estimated cap rates on the Federal Housing Administration’s REO inventory are a bit higher — about half of the current inventory has a cap rate above 8% — because FHA properties tend to have somewhat lower values relative to area rents,” they said.
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In a scenario of declining house prices such as this, homeownership should be promoted, according to the white paper. Indeed, they argue that in many cases REO-to-rentals may be inappropriate. Yet unless mortgage origination requirements, with tighter underwriting standards, are loosened in the immediate future, borrowers may have little choice but to rent.

Furthermore, support for such a program will cost mortgage servicers, bond investors and even taxpayers. But it may be a sacrifice for the greater good.

Modification blunders bedevil U.S. housing recovery

Shirley Burnell, a community activist from Oakland, California, has been trying to get her subprime loan restructured since 2007.

She never missed a payment, but the adjustable rate mortgage she got in 2004 shot up to a monthly payment she could no longer afford.

First she provided documents without getting any response, then she was denied in April by her servicer, Bank of America (BAC.N), for not providing documents it never actually asked for.

As one part of the bank appealed that decision and approved her for a trial modification, another part denied her again – twice – providing two new reasons in part based on inaccurate calculations, according to documents reviewed by Reuters.

When asked about Burnell’s case, a bank spokesman said she was unable to qualify under “imminent default provisions,” a third reason that Burnell said she had never been given.

At one point, Burnell even received notice the bank would accelerate foreclosure proceedings, despite her perfect payment record and the letter itself saying the bank owed her $281.01.

“They gave you a funky loan in the first place, and now they’re refusing to work with people to get it worked out,” Burnell said. “It just keeps you upset all the time.”
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Three years after the foreclosure crisis began, the process to apply for a loan modification remains a bureaucratic nightmare that is complicating the housing recovery and could dull the impact of any Obama administration initiatives in the works.

The administration’s biggest foreclosure-prevention effort, the Home Affordable Modification Program (HAMP), targeted to help 3 million to 4 million homeowners, has reached only about a quarter of that since its 2009 inception.

The program pushed mortgage servicers to cut interest, extend terms, or defer parts of a loan in an effort to reduce monthly payments and keep borrowers in their homes.

But servicers have dragged their feet on providing wide-scale modifications. They continue to lose documents, use inaccurate numbers to issue denials, or both approve and deny applications at the same time, according to housing advocates.

“It delays resolution of the problem of defaulting loans and it is adding uncertainty to the market,” said Susan Wachter, a housing expert at the Wharton School of the University of Pennsylvania.

Around one in every 12 mortgages in the country is delinquent, and only a fraction of them have received modifications.

“Somehow the borrower is unreachable, or the servicer hasn’t found the right way to reach the borrower, but the fact is, we see (modifications) piercing maybe 10 to 25 percent of the potential population,” said Diane Westerback, a managing director of global surveillance analytics at Standard & Poor’s.
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“These are institutions that have taken a huge amount of bailout money. There should be a level of responsibility to communities,” said Josh Zinner, an advocate with the Neighborhood Economic Development Advocacy Project in New York. “HAMP is far from perfect, but the biggest problem is servicers not doing their job.”

What Housing Risk?

Before the 2007 housing bust, financial analysts who raised questions about Fannie Mae and Freddie Mac’s shaky finances were dismissed as cranks. So it’s worrying to see a thoughtful critique of another taxpayer-backed monolith—the Federal Housing Administration—receive a similar brush-off.

The flap centers around an American Enterprise Institute paper “Is FHA the Next Housing Bubble?” by Wharton real-estate finance professor Joseph Gyourko earlier this month. Mr. Gyourko notes that while the FHA’s loan exposure has grown to more than $1 trillion this fiscal year from $305 billion at the end of 2007, the agency hasn’t “increased its capital reserves commensurately.” Sure enough, the Department of Housing and Urban Development recently reported that the FHA’s capital reserves are 0.24%, a far cry from the 2% statutory minimum.

If the FHA were a private entity, these revelations would alarm investors exposed to the risk and force management to adjust. But the FHA is a bureaucracy, so its instinct is the opposite. In a blog post titled “The Continued Strength of the FHA,” Assistant Secretary for Research and Policy Development Raphael Bostic dismisses Mr. Gyouko’s “outrageous claims” and says the FHA’s books are “sound.” His arguments are worth mulling for what they reveal about what passes for FHA thinking.

Mr. Bostic focuses on the FHA’s expansion and recent reforms. Although the agency expects “record” payouts next year as borrowers default, it forecasts $9 billion of new business over the same period. FHA credit scores have improved markedly: At the end of 2007, 47% of borrowers had a credit score of less than 620, but today that figure is 3.5% and the average credit score tops 700. The Obama Administration has increased FHA premiums three times, made “reforms to credit policy, risk management, lender enforcement, and consumer protections,” and “total liquid assets are at their highest point ever,” Mr. Bostic notes.

In other words, the FHA wants to grow its way out of its problems by shedding subprime borrowers and expanding into prime loans, an area historically served by private insurers. Mr. Bostic makes this argument explicit, arguing that the FHA’s market dominance—the agency now backs nearly one-third of all new single-family mortgages—is “essential” to a housing-market recovery, adding: “Providing access to credit for homebuyers of all income ranges and in all communities, and stabilizing our housing market, has been FHA’s mission for nearly eight decades.”

And here we thought its mission was to make housing affordable for lower-income earners. But if the FHA now wants to dominate America’s housing market with taxpayer monies, that’s even more reason to examine the risks, not ignore them.

Mortgage firm is Mafia Inc: feds

It was a hostile corporate takeover — Mafia-style.

The son of jailed former Lucchese boss Nicodemo “Little Nicky’’ Scarfo used the trusted mob technique of extortion to gain control of a cash-rich mortgage company — and then loot it for millions, according to federal prosecutors in New Jersey.

“The [mob’s] criminal activities have evolved from the back alleys to the boardrooms,” said Michael Ward, FBI agent-in-charge in Newark, said of the stunning scheme.

Nicodemo “Junior’’ Scarfo, 46, and 12 others, including an accountant and five lawyers — one, David Adler, from tony Chappaqua, NY — were nailed in the scheme involving Irving, Texas-based FirstPlus Financial Group, authorities said.
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Instead of targeting a more typical Mafia staple such as a restaurant or illegal-gambling racket, the mobster offspring and his cronies zeroed in on FPFG, which had been raking in millions from its subprime-mortgage business at the height of the real-estate boom, the feds said.
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“They saw the potential, they saw this small company that was cash-rich, looking to do a restructuring,” one law-enforcement source told The Post. “They saw an opportunity to exploit. It was wrong place, wrong time” for the firm.

The group began threatening the board of directors — and their families — to get them to vote their way, or else.
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In another instance, when Pelullo was trying to get enough directors to vote his way, he allegedly screamed at an associate: “I don’t care if [any voting members] are in a funeral parlor, I don’t care if they’re in a f–kin’ hospital respirator, we’ll send somebody there.

“I want their vote, I want their signature, and I want it done by the close of the day today.”

The scheme netted $ 12 million by bleeding FPFG dry. The money was laundered by manipulating mergers of sham shell companies they owned and engaging in phony consulting contracts, prosecutors alleged.

U.S. Gambles With Mortgage Retreat

hree years after virtually nationalizing the U.S. mortgage market, the government has embarked on a pullback to see whether private industry picks up the slack.

Some people in the housing industry worry that Washington’s move will cause fresh pain in many regions where demand has yet to recover amid the sluggish economy.

At issue are the loan limits that Congress expanded in 2008, allowing Fannie Mae and Freddie Mac to buy mortgages that exceeded the national cap of $417,000.

When the mortgage market melted down four years ago and sent private mortgage investors fleeing, interest rates rose sharply on “jumbo” mortgages—those too large for backing by Fannie, Freddie or agencies such as the Federal Housing Administration. That accelerated home-price declines in high-end markets throughout California and the Northeast, where many pricey homes couldn’t be bought with a government-backed loan.

To stem the fallout in prices, Congress raised the loan caps to as high as $729,750 in markets such as Los Angeles and New York. It then passed a series of one-year extensions to keep the higher limits in place. But this year, Congress and the Obama administration opted against an extension.

As a result, the limits in hundreds of counties fell by 10% or more on Oct. 1. For loans backed by Fannie and Freddie, the limits declined to between $417,000 and $625,500 in about 200 counties.

More worrisome to real-estate agents are declines in the FHA limits, which fell to between $271,050 and $625,500 in 600 counties. Those changes are causing heartburn because the FHA allows buyers to make down payments of just 3.5%, and it has financed as many as half of all home purchases in recent quarters.

Policy makers allowed the limits to fall because they want private companies to hold more mortgage risk, and dialing down loan limits is one way to carve out space for those investors. Fannie, Freddie, and the FHA currently back nine in 10 new mortgages. Taxpayers already are on the hook for $141 billion in losses at Fannie and Freddie, and the FHA’s reserves have plunged to razor-thin levels.