From Volume 6, Issue 47 of EIR Online, Published Nov. 20, 2007

U.S. Economic/Financial News

Federal Judges Dismiss Bogus Foreclosure Cases

Nov. 17 (EIRNS)—Following the Oct. 31 decision in Cleveland, Ohio, by Federal Judge Christopher A. Boyko, to dismiss 14 home foreclosure cases, brought by Deutsche Bank National Trust Co., on Nov. 14 Federal Judge Kathleen M. O'Malley similarly "dismissed without prejudice" 32 foreclosure cases in Cleveland, because the plaintiff did not provide documentation that it was the owner/holder of the note and mortgage when the foreclosure action was filed.

Separately, on Nov. 15, Federal Judge Thomas M. Rose for the Southern District of Ohio, in Dayton, threatened to dismiss 27 foreclosure actions within 30 days, because lenders have not proved they own the property they are foreclosing on. Lyndon LaRouche observed that the "legitimate suspicion" that banks leveraged mortgage they didn't own properties, could bring down the system.

Judge Rose ruled that the lawyer filing 26 of the foreclosure cases had claimed his clients did own the properties at the time the foreclosures began, but he had not submitted the necessary evidence to the court.

"Failure in the future by this attorney to comply with the filing requirements," Judge Rose wrote, "may only be considered to be willful."

"A willful failure to comply" with the pertinent law within 30 days, he said, "may result in immediate dismissal of the foreclosure action." The law requires, among other things, a recorded copy of the mortgage, and an affidavit documenting that the named plaintiff is the owner and holder of the note and mortgage at the time the foreclosure complaint is filed.

Citibank is trustee in one of the cases, the New York Times reported; it represents a securitization trust sold in 2005 by First Franklin, a loan originator now owned by Merrill Lynch. Another case involves HSBC.

Judge Rose said he was "in full agreement with Judge Christopher A. Boyko ... who recently stressed that the judicial integrity of the United States District Court is 'priceless.'"

Judge O'Malley said the plaintiff did not "appropriately document the chain of ownership to demonstrate its legal status vis-à-vis the items at the time it files suit on those items."

Congressman Calls for Federal Freeze on Foreclosures

Nov. 17 (EIRNS)—Philadelphia Congressman Chaka Fattah (D), chairman of the House Urban Caucus, wrote to George Bush yesterday, calling on him to "declare a six-month moratorium on all foreclosures" as a "stop gap measure until long-term measures can be implemented to address this national crisis," according to a release from his office carried by PR Newswire and U.S. Newswire.

Industrial Production Index Fell in October

Nov. 16 (EIRNS)—The index of industrial output in the United States showed a decline of 0.5% in output of factories, mines, and utilities compared to last month, according to figures, which are typically significantly understated, released by the Federal Reserve today. Here are some of the findings:

* Factories made 0.4% fewer goods in October. (Factories account for four-fifths of what's called industrial production, with the remaining portion accounted for by mining and utilities.)

* Utility production dropped 1.6%.

* Mining output, including petroleum drilling, decreased 0.6%.

* Motor vehicle and parts production fell 1%.

* Consumer durable goods production, including furniture and electronics, dropped 0.6%. The decline in sales of consumer durable goods goes along with the home mortgage bubble blowout. For example, Whirlpool Corp., the largest home appliance manufacturer in the world, posted a decline of 8% in its third-quarter sales this year.

Capacity utilization of surviving productive facilities is also declining, even as the overall capacity itself has dwindled by the drastic takedown of the auto and other manufacturing sectors. Capacity utilization fell in October to 81.7%, down from 82.2% in September. (Capacity utilization is actual production taken as a percentage of potential production from plant and equipment.)

U.S. Cities, Projects, Entities Hit by Loss of Credit

Nov. 16 (EIRNS)—As turmoil increases for banks and all credit institutions, U.S. cities and municipal entities are forced to delay bond issuances and borrowing, including for vital functions. Among the recently delayed or postponed municipal bond issuances are the following:

* Chicago O'Hare International Airport—$960 million;

* Puerto Rico Public Building Authority—$900 million;

* Miami-Dade County, Florida—$540 million.

One factor in this picture is that the insurers of municipal bonds—also of mortgage-backed securities (MBS)—are in crisis. Share values of the major insurers are plunging. On Nov. 15, shares fell 7.2% in one day for Ambac Financial Group, Inc., which has lost 48% of its share value in the past three months. Yesterday, executives of Ambac started crisscrossing the country to meet with municipal bond issuers, investors, and banks to attempt to calm panic.

Fannie Mae Stock in Free Fall

Nov. 16 (EIRNS)—The stock value of Fannie Mae, which plays the role as owner or guarantor of $2.7 trillion of U.S. mortgage assets, plunged 10% Nov. 15, and by late morning today, fell another 13%, to $37.44. This results from a suspicion that the mortgage finance company's newly announced accounting figures for write-offs and losses understate the actual size of the losses. Fannie Mae executives held a conference call this morning to defend their statistics, which also involved a change of accounting method. Fannie Mae has reported a loss for the third quarter of $1.39 billion.

Behind Fannie Mae: A Parade of Losers

Nov. 16 (EIRNS)—Fannie Mae's double-digit stock plunge on Nov. 15—the biggest since the 1987 market crash—leads a parade of other big brass who are also losing share value, as they post huge losses in home mortgage-related financing activities and speculation. Year-to-date, the value of U.S. financial stocks is down 15% overall, as measured by the D.J. Wilshire Index of financial firms.

* Barclays, one of the world's major banks, yesterday reported $2.67 billion in charges and write-downs for securities tied to subprime mortgages.

* Bear Stearns stock dropped 3% on Nov. 15, after its long-term rating was downgraded a notch by Standard & Poor's, following an asset write-down by Bear Stearns of $1.2 billion in its fourth quarter.

* Shares of Freddie Mac fell 6% Nov. 15, by $2.49, down to $39.37.

* Novastar Financial, Inc., a major player in subprime mortgages, saw its share value drop 25%, or 53 cents, down to $1.56 on Nov. 15. There are now expectations that Novastar, linked to Wachovia Bank, will declare bankruptcy. Novastar, which reported a $598 million loss in the third quarter, is currently not in compliance with covenants of operation with Wachovia, and is still functioning on a waiver which expires Nov. 30. There is a scramble to pay down debt and take other contingent actions, which may fail.

Builder of Levittown Files for Bankruptcy

Nov. 14 (EIRNS)—The veteran homebuilder Levitt and Sons announced Nov. 11 that the company and 37 of its subsidiaries had filed for bankruptcy in Fort Lauderdale, Fla., blaming "unprecedented conditions." It had already halted all projects, laid off nearly 90% of its staff, and failed to successfully negotiate with its bank lenders to restructure its debt. The firm is best known for building Levittown, a community developed on Long Island, N.Y. for returning World War II soldiers and their families. Likewise, Sacramento-based Dunmore Homes filed for Chapter 11 bankruptcy protection late last week; it had stopped building in August.

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