TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/317625
60 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest Former rmBs trader convicted in Fraud case A Connecticut broker-dealer was found guilty for 10 counts of securities fraud. c hristy Romero, special inspector general for the Troubled Asset Relief Program (SIGTARP) announced in a press release that a federal jury in New Haven, Connecticut, has convicted Jesse C. Litvak, a registered broker-dealer and former managing director at New York investment bank Jefferies & Co., Inc., of multiple offenses involving schemes to defraud customers trading in residential mortgage-based securities (RMBS). Litvak was convicted on all counts, including 10 counts of securities fraud, one count of defrauding TARP, and four counts of making false statements. "This afternoon, Jesse Litvak, a former senior trader at New York investment bank Jefferies & Co., was convicted of lying through his teeth to defraud American taxpayers out of their hard- earned TARP investments," Romero said. Romero continued, "Trading in mortgage securities can be a complicated business, but what the defendant did was simple—he lied to, defrauded, and illegally overcharged customers out of pure greed to benefit Jefferies and himself." Litvak, as a broker-dealer, misrepre- sented the RMBS seller's asking price to the buyer and subsequently misrepresented the buyer's asking price to the seller. By creating a gap that did not exist, Litvak, on behalf of Jefferies, pocketed the difference. Additionally, Litvak took bonds held in Jefferies' inventory and sold them to RMBS buyers after inventing a fictitious third- party seller. "This ruse allowed Litvak to charge the buyer an extra commission that Jefferies was not entitled to because it was selling bonds it held in its own inventory," the release said. Litvak reportedly defrauded numerous funds for a total of more than $2 million. The release noted, "Litvak was found guilty of 10 counts of securities fraud, a charge that carries a maximum term of imprisonment of 20 years on each count, one count of TARP fraud, which carries a maximum term of imprisonment of 10 years, and three counts of making false statements to the federal government, a charge that carries a maximum term of imprisonment of five years on each count." analysts revise Forecasts Following Weak mBs issuance FBR changes its first-quarter forecast to $244 billion. c iting weak MBS issu- ance data published by Inside Mortgage Finance—$67.3 billion in January, followed by $64.5 bil- lion in February—researchers for investment bank FBR Capital Markets anticipate a weak first quarter, with issuances likely totaling near $200 billion. While noting that issuances are not the same as origination figures, FBR nevertheless dialed back its first-quarter origination projections to $244 billion, bring- ing its full-year forecast to $1.2 tril- lion from $1.3 trillion previously. "Though we had long expected refinancing volumes to slow as rates rose and the pool of bor- rowers with an economic incen- tive to refinance declined, we have been counting on a rebound in the purchase market that has yet to occur," the FBR team notes in its latest report. While there are several factors that can explain the slow come- back in purchase lending, they go on to say that the two biggest influences will correct themselves over time: higher interest rates and a lack of credit availability. At this point, the question is how long it will take for purchase loans to make their much-antici- pated recovery. "Though our 2014 expecta- tions have moderated to around $1.2 trillion from an original $1.5 trillion estimate, we continue to believe there is upside to both our estimates and the MBA's [Mortgage Bankers Association's] $1.1 trillion forecast," FBR said. "This should especially be true if refinancing volumes stabilize and purchase volumes begin to increase. "Given a lack of purchase strength in the last several months, the next six to nine months will be a critical driver of mortgage company performance in the coming year." "Given a lack of purchase strength in the last several months, the next six to nine months will be a critical driver of mortgage company performance in the coming year."