Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Goldman Sachs in 'paper profits' row


By Ambrose Evans-Pritchard
Last Updated: 1:37am BST 16/10/2007
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/16/cnsachs116.xml&CMP=ILC-mostviewedbox

A Goldman Sachs filing with the US Securities and Exchange Commission has led to allegations that it may have inflated profits in the third quarter to a spectacular $8.23bn (£4.03bn) by booking paper gains on mortgage derivatives at too high a value.

Analysts cited by Fortune Magazine claim that almost a third of the bank's revenue came from "short" positions on the lowest tier of mortgage derivatives and other forms of toxic debt.

These assets are extremely hard to price, and were not in fact realised. More than $2.62bn of declared profits were made entirely on house estimates at the underlying value.

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Charles Peabody, an analyst at Portales Partners in New York, said there were concerns that Goldman had set optimistic values on instruments for which there was in reality little or no functioning market.

"Common sense tells me that a lot of these losses were real and a lot of their gains were paper, and that's something we'd like to know more about," he said.

Goldman Sachs bet correctly that mortgage securities would crash during the summer, but this has been a very erratic market. A hedge fund of rival Bear Stearns collapsed in June after making such bets earlier.

It was caught out by a snap rebound in the lowest tier of this debt, causing its complex arbitrage strategy to blow up.

A Goldman Sachs spokesman said suggestions of inflated paper gains were preposterous.

"We do this for a living. It is impossible to manage your risk if you don't know the value of your assets," he told The Daily Telegraph.

He added: "Besides, the regulators live in our building.

"We have some exotic assets, but if there is any debate about the value, we order a sale.

"In any case, these assets are not just contracts. They are secured by collateral. We can issue margin calls if we see the value going south," he said.

The bank said in its SEC filing that "valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence."


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Shaggy Rogers

Taking the shine off Goldman’s glister

There have been rumours. Sly asides. Whispered suggestions. Goldman’s results aren’t all they’re cracked up to be.

There was the insinuation of some funny accounting going on. Goldman chose to mark more of their assets as “level three” under accounting standards than any other Wall Street firm.
Then there were questions over the bank’s scruples. Stan O’Neal was one notorious critic.

And now, even the SEC is thought to be harbouring doubts. Just how did the bank manage to get it so spectacularly right in choosing when to short the subprime market? The New York Post suggests that there may be an insider trading issue here.  A hole in a Chinese wall somewhere.

People are uncomfortable with that spectacular bet (or series of bets) Goldman made just before the crunch hit home - shorting subprime securities and hedging against its own exposures in the market. The bank seemed to perform a canny volte-face right before Bear Stearn’s two funds went bellyup. Says the Post:

One person who discussed the matter with the SEC says the investigator seemed curious as to whether the investment banking side of Goldman’s business could have tipped off the trading side of that brokerage firm to the extent of the problems that would soon be encountered by Bear and others.

But of course, it wasn’t all easy riding for Goldman. Global Alpha, remember, dropped 23 per cent in August alone and saw $4bn wiped off its value. And Goldman’s own trading success - broken down - was pretty volatile.

Maybe - just maybe - the people at Goldman are good at their jobs.

It’s a terrible thing, success.

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Goldman Sacked & Pillaged
Goldman's Double Take
Motley Fool 
By Morgan Housel January 4, 2008

Sure, Goldman Sachs (NYSE: GS) has long been considered in the upper echelon of Wall Street megabanks, consistently cranking out staggering profits and offering the utmost prestige to its investment banking clients -- not to mention a bonus pool that comes out to an average $600,000 per employee, attracting the most talented and motivated workers around.

It wasn't too shocking, then, that if there was to be one financial institution that emerged unscathed from the subprime fallout, it would be Goldman. While Wall Street neighbors like Bear Stearns (NYSE: BSC), Morgan Stanley (NYSE: MS), and Merrill Lynch (NYSE: MER) continue to stagger around, struggling to navigate the wild debt market, Goldman appears to be sitting back and enjoying the ripples caused by the wake of others' tidal waves. With such widespread problems stemming from CDOs, CMOs, ABSs, and a host of other abbreviations that'll make your head spin, how on earth did Goldman steer clear of the debt debacle?

For one, it didn't just avoid it; it made out like a bandit from it, in what has in fact become one of the largest windfall profits by a company -- nearly $4 billion.

Look out below
Goldman capitalized on the overheated market by strategically short-selling portions of the asset-backed securities that had become so coveted. Bond traders at Goldman were Johnny-on-the-spot when it came to timing the end of the glory days. Short positions were accumulated beginning in December 2006 and came to full force by February 2007, when the debt market began to tremble. As the tremors turned into a San Andreas-style shakeout in late summer 2007, Goldman's short positions were sitting handsomely in the green.

More power to 'em. A group of savvy and perhaps prophetic traders at Goldman recognized the overvaluation and lack of risk foresight that was taking hold of the debt market and pounced on the opportunity. This is, after all, their job, right?

Wait a minute ...
Right. But isn't this the same Goldman Sachs that took part in issuing, packaging, slicing, and selling bundles of asset-backed debt during the past several years, charging multimillion-dollar fees to its clients all along? You bet it is.

Goldman Sachs -- which was indeed one of the largest issuers of mortgage-backed securities over the past two and a half years, to the tune of upward of $100 billion, according to ABalert.com -- made huge amounts of money betting against what was in essence the same products it had been peddling to clients in previous years. Boy, even infomercial tycoon Ron "But Wait!" Popeil would be impressed by those sales tactics.

Do as I do, not as I did
To add insult to injury, former Goldman CEO Hank Paulson, who now presides over the Treasury Department for the United States, was Goldman's fearless leader during much of the period when the company pushed toxic debt onto the market. Now, as if thumbing his nose at those who bought into the debt products, Paulson has proposed a taxpayer-funded bailout program to save the industry and mortgage participants such as Countrywide Financial (NYSE: CFC) from a complete demise that might spark more serious ramifications for the economy if not contained. Is this capitalism at its finest?

Survival of the keenest
What makes hedge funds so alluring to many investors is the prospect of a manager who is forced to proverbially "eat his or her own cooking." A business where the company doesn't eat until the clients have been fed encourages nothing but the most honest behavior and aligns its interests with that of its clients.

When an industry leader like Goldman Sachs partakes in using its own money to capitalize on the weakness of its own products, we should seriously think about the deeper interests of our banking sector: Is it out to finance the greater good of capitalism, or skim off a buck of profit in any manner possible? While the former has no doubt been a serious factor in promoting this nation's prosperity over the past century, the latter could no less bring it to its knees if not properly contained.

Despite massive writedowns from nearly every other financial firm, analysts and investors are treating them as the Wall Street golden child. While all the firms may well deserve that title, because of their profitability and their earning potential, they should be meticulously scrutinized when weighing the now-serious debt problems our financial system faces.

________________________________

Small wonder GS bought Litton Loan Servicing in order to continue their feeding frenzy !

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Blossom

Goldman Bet on Subprime Mortgage Decline for Most of 2007

By Christine Harper

Jan. 14 (Bloomberg) -- Goldman Sachs Group Inc., the world's largest securities firm, said it bet on declines in the subprime mortgage market for most of 2007, as many of its competitors suffered record losses from the market's collapse.

``During most of 2007 we maintained a net short subprime position with the use of derivatives and therefore stood to benefit from declining prices in the mortgage market,'' Chief Accounting Officer Sarah Smith wrote in an Oct. 30 letter to the Securities and Exchange Commission made public today. The New York-based firm has previously only disclosed that it was short the mortgage market in the third quarter.

Goldman declined to comment on the matter when it released fourth-quarter earnings last month, after telling investors and analysts in the prior quarter that it profited by betting the market would decline. Goldman earned a record $11.6 billion in fiscal 2007 while competitors including Morgan Stanley and Bear Stearns Cos. posted quarterly losses and annual profit declines.

The SEC's division of corporate finance wrote to Goldman on Sept. 20, the same day that Goldman reported higher-than-expected third-quarter earnings, requesting ``supplemental information about your involvement in subprime loans.''

The firm responded that mortgage-related activities represented less than 3 percent of total net revenue in fiscal 2005, 2006 and the first three quarters of 2007, of which roughly half was subprime-related. It added that balance sheet exposure to all subprime mortgage products represented less than 2 percent of total assets in those same periods.

`Potentially Misleading'

Disclosing balance-sheet exposure is ``potentially misleading'' because the firm's traders ``may choose to take a directional view of the market,'' Goldman told the SEC. As a result, the firm's ``net risk position was either short or long depending on our then-existing view of the market,'' Smith said in the Oct. 30 letter.

Smith's letters to the SEC also disclose that the firm used the ABX Index and credit default swaps on single securities to hedge its holdings in the subprime market, establishing its short position.

The firm also told the SEC it bought Senderra Funding, a South Carolina-based subprime mortgage originator, for $14 million in March 2007.

Michael DuVally, a spokesman for Goldman in New York, declined to comment on the SEC correspondence or the firm's position in subprime mortgages. John Nester, a spokesman for the SEC, also declined to comment on the agency's letters to Goldman.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .

Last Updated: January 14, 2008 14:37 EST
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