$23 Million Settlement Reached with UBS in 1031 Exchange Scam Lawsuit

The plaintiffs in a class action lawsuit who allege they lost over $80 million that they had placed with Southwest Exchange, Inc. (SWX) and several other 1031 exchange accommodators or qualified intermediaries (QIs) have reached a settlement with one of the defendants, UBS Financial Services, Inc. (UBS).

You can read our earlier post about the lawsuit here.

Under the terms of the settlement, the plaintiffs will receive $23 million from UBS.

The settlement was approved by the court on March 28, 2008, and a notice was sent to the class action plaintiffs on April 2, 2008.

You can read the settlement notice sent by the law firm of Hollister & Brace here.

UBS is one of several defendants who are alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

In addition to UBS, the plaintiffs claim that other major financial firms, including Citigroup and Salomon Smith Barney, participated in the scheme.

A criminal investigation continues.

UPDATE:

For more on UBS, click here.

More Terrible News for Terrible Herbst — Bonds Ratings Lowered and Still No Deal with Creditors

We wrote a post last month about the likelihood that Herbst Gaming will have to file for Chapter 11 bankruptcy protection from its creditors if it is unable to alter its payment structure for $1.14 billion in debt. 

The company is privately held by brothers Ed, Tim and Troy Herbst, but roughly $371 million of its debt is through publicly traded bonds, which have been negatively affected by the fall-out from the subprime mortgage crisis.

Now there is more terrible news for Terrible Herbst.

On Wednesday, Moody’s Investment Service lowered its bond credit ratings for Herbst Gaming.  The bonds were cut from B3 to Caa2. 

Standard & Poor’s also cut Herbst’s credit rating, from B to CCC. 

In addition, Standard & Poor’s announced that it had placed Herbst Gaming on a “developing watch,” indicating an ongoing reevaluation of the credit quality of Herbst’s debt obligations and the likelihood that its credit rating will be downgraded further.

Bonds rated A (“investment grade”) are judged to be of the highest quality, with minimal credit risk; bonds rated B (“junk bonds”) are considered speculative and are subject to high credit risk; and bonds rated C (also “junk bonds”) are judged to be of poor standing and subject to very high credit risk.

Moody’s said the downgrade took into consideration that Herbst Gaming may not meet its financial obligations in 2008.

“It remains unclear at this time what course of action the lenders may pursue with respect to the event of default,” Moody’s said. “The downgrade acknowledges that the continued volatility in the capital markets along with the high cost of borrowing makes it less likely that a strategic alternative will emerge that does not involve some level of impairment.”

The rating actions came after Herbst Gaming said it had engaged Goldman Sachs for evaluation of strategic and financial alternatives. These alternatives may include a re-capitalisation, refinancing, restructuring or re-organisation of the company’s obligations or a sale of some or all of its businesses.

So far, Herbst Gaming has been unable to negotiate a forbearance agreement with its lenders.

UPDATE:

For the lastest news on Standard and Poor’s Ratings Services lowering its rating on Herbst Gaming’s notes ‘D’ from ‘C’, following the Herbst’s failure to make an interest payment on June 1, 2008, and on the debt crisis across the casino industry, click here. 

 

Property of 1031 Exchange Scammer Ed Okun Goes on Sale

High-end retail complex properties in Kansas and Texas owned by the notorious Edward H. Okun have been put up for sale by a federal bankruptcy trustee.

The properties are the 1.1 million square foot West Oaks Mall in Houston, Texas, and the 587,512 square foot Salina Central Mall in Salina, Kansas.

Okun is alleged to be behind the 1031 exchange scam run by The 1031 Tax Group (1031TG) that defrauded thousands of people out of millions of dollars.

Okun was arrested in Miami, Florida, last month and charged with mail fraud, bulk cash smuggling, false statements, and forfeiture from a scheme to defraud and obtain millions of dollars in client funds held by The 1031 Tax Group. 

Those who were defrauded by Okun’s 1031 Tax Group had hoped to recoup some of their missing funds from Okun’s remaining assets — including the West Oaks Mall and the Salina Central Mall — which were purchased from monies allegedly taken from victims in the 1031 exchange scam.

But the Okun-controlled companies that owned the malls declared Chapter 11 bankruptcy in October. 

It is now unclear whether the proceeds from the sale of the properties would go Okun’s 1031 exchange scam victims.

Both properties apparently have a long line of creditors.

The trustee in the bankruptcy case has hired Keen Consultants, the new real estate division of KPMG Corporate Finance, to market both properties.

You can read our earlier post on Okun and his 1031 exchange scam here.

 

 

Doomsday Scenarios for the Housing Market

If the current economic news isn’t scary enough, two respected analysts have come up with Doomsday scenarios that are guaranteed to terrify you.

Here’s one from Mark Gimein, who writes for Slate.com. 

Gimein argues that the subprime crisis is going to spill over into prime loans, greatly expanding both the reach and the consequences of the mortgage debacle and the housing price meltdown.

What’s coming, says Gimein, is a “wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we’ve seen in subprime.” 

The effect wil be that many thousands of upscale homeowners will walk away from their homes (and their loans), causing even greater loses for lenders and an even greater fall in housing value.  Another effect: no federal bailout will be able to prevent the total collapse of the housing market.

Here is his reasoning:

“When those dominoes start falling next year [as ARMs reset to higher rates], we may or may not have a subprime bailout plan, and the discussion will start about how to bail out this next tranche of borrowers. The bailout plans on the table now…are reasonably based on the principle of bringing payments down to a point that homeowners can afford.”

“But where prices fall 40 percent to 60 percent, all that goes out the window. Why? Because in expensive locales like San Diego, tens of thousands of people with 100 percent loan-to-value mortgages and option ARMs are living in homes in which they have no equity and on which they owe a lot more than the house is worth.”

“In these places, accepting a government “bailout” that pays them, say, 90 percent of the value of the house to keep from foreclosing will be very tough for lenders, who (if the appraisers don’t fudge the numbers) could be forced to take 36 cents or 45 cents on the dollar for their loans. On the other hand, any plan that makes them pay more if they can afford it is hugely disadvantageous for the borrowers, who have option ARMs about to reset and are much better off handing the keys to bank—and maybe even scooping up the foreclosed house down the street.”

“If you’re…in this position, you might start thinking very seriously about just how attached you are to the wisteria vine snaking over the basketball hoop on your garage. That’s what a lot of other California borrowers will be doing.

“Bet on this: Whatever moral qualms are being urged on borrowers to keep them from walking away from their mortgages, they’ll count for a lot less than the economic reality facing borrowers whose homes have fallen in value by half. Lenders had no reservations about selling borrowers loans with rising payments that would be poisonous in a rising market. Now it seems borrowers have no reservations about leaving those lenders with the risks they begged to take.”

“Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it’s perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.”

If that scenario isn’t chilling enough, Yale University economist Robert J. Shiller (author of Irrational Exuberance and co-developer of the Case-Shiller home-price index) has warned that the current housing crisis could exceed that of The Great Depression.

Specifically, Shiller announced that there’s a good chance housing prices will fall further than the 30% drop in the historic depression of the 1930s.

“I think there is a scenario that they could be down substantially more [than in the Depression],” Shiller said in a speech spech given last week at the New Haven Lawn Club and reported in the Wall St. Journal.

Here is Shiller’s reasoning:

Even normal real estate cycles typically take many years to correct.  Because home prices rose about 85% from 1997 to 2006 adjusted for inflation in the biggest national housing boom in U.S. history, the current downturn is likely to go much deeper and last far longer than any other has in the past.

“Basically we’re in uncharted territory,” Shiller said. ” It seems we have developed a speculative culture about housing that never existed on a national basis before.”

As for us, we’re not quite ready to evaluate either Gimein or Shiller as credible prophets of doom. 

We note that, while widely respected, Professor Shiller has also been called the “Dr. Doom” of the U.S. economy.

And we think that both the Pollyannas and the scaremongers have usually been proven wrong.  Economic life usually operates between the poles of perfect success and catastrophe.

But not always. 

If you’ve got something to say to help us all sleep at night, please let us know.

Until then, pleasant dreams…

 

 

We Got Banned

Today we were banned from the Bankruptcy Forum for “Posting unwanted spam.”

The Bankruptcy Forum has a message board containing news and information about bankruptcy.

We joined the forum a few days ago so that we could see what people were interested in and writing about in regard to bankruptcy and also to tell people about our posts about bankruptcy here at The Fox Real Estate Report.

The post we wrote on the forum included a link to all of the bankruptcy related articles that we’ve published here, and stated that the articles were related to bankruptcy and the mortgage/subprime crisis.  We asked for comments and suggestions about topics, issues, and news we should cover.

Quite a lot of people followed the link and read our posts.

They thought that finding our posts on bankruptcy on the forum was worthwhile.

Now forum members won’t be able to find them there.

That’s bad for them.

 

 

Commercial Real Estate Still Resisting Slump — But Caution Advised

Standard & Poor’s announced the results of it’s January S&P/GRA Commercial Real Estate Indices (SPCREX) yesterday, showing that commercial real estate prices across most sectors are either holding steady or still rising despite the subprime crisis and the free fall in the residential housing market.

According to David Blitzer, Managing Director and Chairman of the Index Committee at Standard & Poor’s, “The National Index was relatively flat for this month and all sectors and regions are losing momentum compared to a year or two ago. At the same time, there were some big moves in the individual components.”

More specifically, the report found a national composite annual price appreciation of 7% from January of 2007, up from the 6.7% price increase reported in December’s data but still far below the 14.5%, peak price increase reported in June of 2006.

In the property sector, Warehouses reported the biggest gain for the month with a 1.9% increase and a 12 month increase of 10.1%. Office reported the only monthly decline of 0.2%, but has still returned 9.9% over the past 12 months. Apartments and Retail reported annual gains of 5.8% and 4.3%, respectively, from January of last year.

Among the regions, the Northeast had the highest return over the previous month at 1.4%, as well as the highest annual return over the past 12 months at 9.4%. The Desert Mountain West reported the largest price declines in the January/December period at -1%, but still remained marginally positive (up 0.9%) on an annual basis. The Mid Atlantic South and Midwest regions also reported slight declines.

Blitzer cautioned against reading too much that was positive into the data.

“Compared to residential property price trends, the impact of financial market developments remains unclear for commercial property,” he said.  “We do need a few more months of data to see if this market is going to remain relatively healthy or follow in the path of the U.S. housing market.”

We think that apartments will increase or hold their value as more homeowners are forced back into renting.  We also think that slower retail sales will eventually have a negative impact on retail real estate, at least in certain regions, and that the office sector, particularly in areas hit hard by the residential meltdown, will also suffer. 

We think too that, even more than residential real estate, the value of commercial real estate will depend on the health of the local economy.  In areas where the local economy is still strong, such as Austin, Denver, Seattle, and New York, commercial real estate prices will continue to increase.

On the other hand, where we work — Irvine, California, the epicenter of the subprime mortgage meltdown — we expect sharp decreases in value, partcularly in the office sector.

Home Sales and Median Prices Show No End to Real Estate Slump

Anyone thinking that the free fall in the residential real estate market was about to bottom out, needs to think again based on the dismal figures released today by the National Association of Realtors (NAR).

Once again, existing home sales fell, and once again, median home prices declined from a year ago.

The specific figures are these:

• Sales of existing home fell by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units, down 19.3 percent compared with a year ago.

• Median home prices suffered a decline of 7.7 percent from the median price a year ago. This was the second-biggest year-over-year price decline following a record 8.4 percent drop in February.

On the other hand, there was some glimmer of light in these dark statistics:

• While sales were down 6.5 percent in the Midwest and 3.5 percent in the South, slight increases in sales (2.2 percent) were recorded in both the Northeast and the West.

• The median home price also showed a very slight up-tick. The median price in March was $200,700, which, although down 7.7 percent from a year ago, was still up from February’s median price of $195,600.

However, this rise in median home price was concentrated in one section of the country. The Northeast was the country’s only region to experience a rise in median prices, which were up 4.6 percent compared with a year ago.

Prices were down in all other regions of the country, dropping by 14.7 percent in the West, 7.1 percent in the South and 5.3 percent in the Midwest. 

NAR also reported home price gains in certain metro areas of country whose regions generally showed declines — Des Moines, Iowa, Austin, Texas, and Durham, North Carolina.

So what does all this mean?

Contrary to the sugar-coating given to these figures by NAR economist Lawrence Yun, we believe that the residential real estate market is still far from bottoming out — and that as more adjustable rate mortgages reset it could get even worse than it is now.

UPDATE:

For an update on the commercial real estate market, click here.

Judicial Nullification of Foreclosures Spreads to Bankruptcy Court

Back in March, we posted a blog on “judicial nullification” in mortgage cases. 

We titled it “Are “Deadbeat” Home Owners Beating the Banks Through “Judicial Nullification“?

Recent judicial decisions have proven us to be correct — and that “judicial nullification” in mortgage cases has expanded into federal bankruptcy proceedings.

When a jury refuses to follow the law or the instructions of the judge, and instead renders a verdict counter to the law but based on their sympathies or their sense of fairness, it is called “jury nulllification.” 

Judges too can refuse to follow the law when they believe it is unfair, or they can interpret the law so that the outcome favors the side that the judge believes to be morally right — even if that side would be legally in the wrong according to previous interpretations of the law.

We call that “judicial nullification.”

Now we hear that in an increasing number of cases, federal bankruptcy judges are refusing to stay bankruptcy proceedings to permit lenders to move forward with foreclosure actions, and even sanctioning lenders whose conduct seem to them to be abusive or improper.

According to the New York Times, “Slowly but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers.”

The cases cited by the Times are from bankruptcy courts in Delaware, Louisiana and New York, and “each one shows how improper, undisclosed or questionable fees unfairly penalize borrowers already struggling with mortgage debt or bankruptcy.”

In a case in Louisiana, Judge Elizabeth W. Magner found that Wells Fargo was guilty of “abusive imposition of unwarranted fees and charges,” and improper calculation of escrow payments, among other things.  She found Wells Fargo negligent and assessed damages, sanctions and legal fees of $27,350.

The Times wrote that “The heart of the case is that Wells Fargo failed to notify the borrower when it assessed fees or charges on her account. This deepened her default and placed her on a downward spiral that was hard to escape. And Wells Fargo’s practice of not notifying borrowers that they were being charged fees ‘is not peculiar to loans involved in a bankruptcy,’ the court said. During a 12-month period beginning in 2001, for example, Well Fargo assessed 13 late fees totaling $360.23 without telling Ms. Stewart or her late husband, whose name was on the loan before he died. Even though the terms of the mortgage required that Wells Fargo apply any funds it received from the Stewarts to principal and interest charges first, the late fees were deducted first. This meant that the Stewarts’ mortgage payments were insufficient, making them fall further behind — and keeping them subject to more late fees.”

“Then there were the multiple inspection fees Wells Fargo charged the borrowers. Because its computer system automatically generates a request for property inspections when a borrower becomes delinquent — to make sure the property is being kept up — the $15 cost of the inspections piled up. The court noted that the total cost to the borrower for one missed $554.11 mortgage payment was $465.36 in late fees and property inspection charges.”

“From late 2000 and 2007, Wells Fargo inspected the property on average every 54 days, the court found. But the court also determined that inspections charged to Ms. Stewart had often been performed on other people’s properties. Of the nine broker appraisals charged to Ms. Stewart from 2002 to 2007, two were said to have been conducted on the same September day in 2005 when Jefferson Parish, where the Stewart home was located, was under an evacuation order because of Hurricane Katrina.”

“The broker appraisals were conducted by a division of Wells Fargo that charged more than double its costs for them, the court found. It concluded that the charges were an undisclosed fee disguised as a third-party vendor cost and illegally imposed by Wells Fargo. The bank also levied substantial legal fees and failed to credit back to the borrower $1,800 that had been charged for an eviction action but that had been returned by the sheriff because it never occurred.”

“While Wells Fargo claimed that the borrower owed $35,036, the judge said the actual figure was $24,924.10. The judge ordered Wells Fargo to provide a complete loan history on every case pending with her court after April 13, 2007.”

In a Delaware case, Judge Brendan Linehan Shannon refused to allow a lender to charge fees owing under the mortgage after the borrower had satisfied all obligations under a Chapter 13 bankruptcy.

Mortgage lenders argue that their contracts allow them to recover all the fees and costs they incur when a borrower files a Chapter 13 bankruptcy plan, even after a case is resolved.

“This cannot be,” the judge wrote. “If the court and the Chapter 13 Trustee fully administer a case through completion of a 60-month Chapter 13 plan, only to have the debtor promptly refile on account of accrued, undisclosed fees and charges on her mortgage, it could fairly be said that we have all been on a fool’s errand for five years.”

And in a recent case in New York, Judge Cecilia G. Morris refused to allow a lender to foreclose even though the borrowers had technically failed to make the required payments on their mortgage.

The Times reports that “The case involved Christopher W. and Bobbi Ann Schuessler, borrowers who had $120,000 of equity in their Burlingham, N.Y., home when their bank, Chase Home Finance, a unit of JPMorgan Chase, moved to begin foreclosure proceedings. The couple had filed for personal bankruptcy protection, which automatically prevents any seizure of their home. But the bank moved for a so-called relief from the bankruptcy stay, and claimed the couple had no equity.”

“The Schuesslers got into trouble because Chase had refused a mortgage payment they tried to make at a local branch. Testimony in the case revealed a Chase policy of accepting mortgage payments in branches from borrowers who are current on their loans but rejecting payments from borrowers operating under bankruptcy protection.”

“The Schuesslers did not know this. When Chase rejected their payment, they briefly fell behind on their mortgage, according to the court documents. Then Chase moved to begin foreclosure proceedings.”

“Without informing debtors, Chase Home Finance makes it impossible for JPMorgan Chase Bank branches to accept any payments,” Judge Morris wrote. “It appeared that Chase Home Finance intended to commence an unwarranted foreclosure action, due to ‘arrears’ resulting from Chase Home Finance’s handling of the case in its bankruptcy department, rather than any default of the debtors.”

We predicted in March that “that more judges will engage in ‘judicial nullification’ of mortgages unless Congress and the Executive Branch exercise their responsibilities and turn their attention to the mortgage and credit crisis in a far more comprehensive and meaningful way than they have so far.”

These recent cases are proving us correct.

Freddie Mac to Buy $10-15 Billion in Jumbo Loans — Move Hopes to Jump-Start Liquidity in Home Loan Market

Some relief may be in store for the battered residential real estate markets in California, New York, and other high cost states, as Freddie Mac announced on Thursday that it will buy jumbo mortgages in areas with high real estate prices from four of the largest U.S. mortgage lenders.

Freddie Mac’s purchase of conforming jumbo mortgages is restricted to 224 high cost markets where median home prices exceed Freddie Mac’s $417,000 loan limit.

Qualified borrowers in these states can now apply for an array of fixed-rate or adjustable rate conforming jumbo mortgages that will be less expensive than non-conforming jumbo loans in high cost markets.

Borrowers can use Freddie Mac conforming jumbo mortgages to finance up to 90% of a property’s value.

Freddie Mac said in a press release that it will purchase conforming jumbo loans from Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual. 

It expects to finance between $10 and $15 billion in new jumbo mortgages in 2008.

The press release called the decison Freddie Mac’s “first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act.” 

The Economic Stimulus Act temporarily raised Freddie Mac’s conforming loan limit from $417,000 to as much as $729,750 through December 31, 2008.

The move is another is a series of federal actions that are meant to increase liquidity in the housing finance market.

Congress tried to ease jumbo loan rates in February, when it allowed Fannie Mae and Freddie Mac to guarantee bigger mortgages of up to almost $730,000 dollars.

But, so far, the banks has failed to respond to these new government guarantees by lowering interest rates or increasing liquidty in the home loan market.

The reason, accoprding to the banks, is that they need to sell their loans to investors, but investors aren’t buying.  Freddie Mac’s move is intended to free up the lenders’ balance sheets and allow them to concentrate their efforts on originating these loans.

“Purchasing conforming jumbo mortgages for our portfolio shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis,” said Freddie Mac Chairman and CEO Richard Syron. “We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets.”

While specific product availability may vary by lender, Freddie Mac has said it will buy 15-, 20-, 30- and 40-year fixed-rate, fully amortizing conforming jumbo mortgages; 30-year fixed-rate mortgages with 10-year interest-only periods; fully amortizing 5/1 adjustable-rate mortgages (ARMs) and 5/1 ARMs with 10-year interest-only periods. Qualified borrowers can also obtain cash-out refinance conforming jumbo mortgages that provide a maximum cash-out of $100,000.

FBI Expands Probe of Mortgage Fraud — Now Involving 19 Mortgage Companies and 1,300 Cases. Reverse Mortgages Also Under Scrutiny.

The FBI is expanding its wide-ranging probe of the mortgage industry.

At a Senate hearing on Wednesday, FBI Director Robert Mueller said his agency is currently investigating an estimated 1,300 home mortgage fraud cases, and that the FBI’s probe into potential mortgage fraud now includes investigations into 19 separate mortgage companies.

The FBI, he said, has already “identified 19 corporate fraud matters related to the sub-prime lending crisis … targeting accounting fraud, insider trading, and deceptive sales practices.” 

Mueller also said that the FBI expected to expand its investigation even further. 

There was, he said, “no end in sight” to the growing number of fraud cases. 

“We’ve had a tremendous surge in cases related to the sub-prime mortgage debacle,” Mueller told a Senate Appropriations panel. “We expect them to grow even further.”

“I’m not sure at this point we can see the extent of the surge,” he added.

Mueller declined to go into the specifics of the investigation, but in previous announcements the FBI said it was looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.

Mueller said he believes part of the problem is “rampant conflicts of interest in the corporate suites.” He said that FBI investigations “further emphasize the need for independent board members, auditors, and outside counsel. Shareholders rely on the board of directors to serve as the corporate watchdog. … [But] board members are often beholden to the executives they are expected to oversee.”

With one exception, the agency declined to identify the companies under investigation but has said that the inquiry, which began last spring, involves companies across the financial industry, including mortgage lenders, loan brokers and Wall Street banks that packaged home loans into securities.

The FBI has also said that the “hotspots” for its mortgage fraud investigations include California, Texas, Arizona, Florida, Ohio, Michigan, and Utah.

The one company that Mueller did acknowlege as being involved in the probe, Doral Financial Corp., had its former treasurer indicted last month for investment fraud. 

The FBI has also acknowledged in the past that the largest U.S. mortgage lender, Countrywide, is under investigation for misrepresenting its financial position and the quality of its mortgage loans.

It is also known that several major investment banks, including Goldman Sachs, Morgan Stanley, and Bear Stearns, have been asked to provide information to the government, and Beazer Homes has said that it had received a federal grand jury subpoena related to its mortgage business.

In addition to announcing an expansion of the number of cases and companies being investigated, Mueller also indicated a new direction for the FBI’s inquiry: reverse mortgages. 

Reverse mortgages release the equity in a property to the homeowner in one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves the home.  In the U.S., reverse mortgages are available for people 62 years old or older.

Reverse mortgages are typically used to finance retirement or pay unexpected medical bills.  While reverse mortgages can make sense for seniors, the FBI is concerned about possible abusive sales practices that prey on seniors, such as aggressive and untruthful marketing and excessive fees.

Mueller said that the increasing number of mortgage cases has forced the FBI to shift agents from other areas, such as health care fraud and other financial crimes, to focus on mortgage lending practices.

The FBI has also previously indicated that it is cooperating with the Securities and Exchange Commission, which is conducting more than three dozen civil investigations into how subprime loans were made and packaged, and how securities backed by them were valued. 

UPDATE:

For the latest news of the FBI’s expanding probe of the mortgage industry, click here.