Why Anemic Income Statements Anticipated.The fallout from the foreclosure debacle will lie heavily on the banks, who will be forced to take back more and more faulty loans. A Federal Reserve official, Chris Whalen, was quoted as saying this could cost the biggest banks upwards of $50 billion to buy backs of problem loans.
Fannie Mae and Freddie Mac who guarantee 90% of the mortgage loans in the Unites States, will have no choice but to exercise their right to force loan originators to repurchase erroneous or fraudulent loans. Income statements for mortgage underwriters are not going to be a pretty sight for the next 2 quarters, particularly the 4th quarter . It will be interesting to who will push the limits of creative accounting in order to spread out the bad news over time, to avoid the possible ramifications of reporting larger than anticipated losses
Meanwhile, Toxic Mortgages continue to haunt Goldman Sachs. Barely recovering from the poor publicity derived from an SEC investigation which ended in a settlement, Goldman is facing another law suit. The tainted Golden Goose of the Investment Banking industry was hit with a suit from a German Bank concerning a pool of mortgage assets sold to them in 206.According to the Wall Street Journal, the suit alleges that Goldman failed to fully disclose the risks underlying the mortgage back securities. According to court documents, the suit contends that Goldman knowingly dumped collateralized debt obligations on their subsidiary LBBW Luxemburg, even though they saw signs that the market was tanking.
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CIT Group filed for bankruptcy as of November 1, citing the exposure from subprime mortgages, and credit tightening. CIT, which was founded 101 years ago, is the 6th largest commercial lender, the number one lender for small and mid-sized business, and a leader in funding minority and women owned businesses. The lender’s bankruptcy filing is a pre-packaged plan, structured to exit bankruptcy on a fast track. CIT is making every effort to ensure the customers remain funded, with little or no interruption to their other operating businesses. CIT’s other profitable units, including CIT Bank, were not included in the bankruptcy filing. According to court documents, CIT will have immediate access to $125 million from a total of $500 million in a debtor-in-possession (DIP) loan* from Bank of America. They have also requested are requesting the ability to make intercompany loans, as it makes its way out of bankruptcy, which is expected in early December. 
The New York based lender, which funds 1-million businesses, has received $1 billion from investor Carl Icahn, for operating costs while it reorganizes. It doesn’t appear that the government will recover much of the $2.3 billion in bailout funds, which is essentially tax-payer money, and unfortunately share holders will be wiped out according to the bankruptcy plan. Financial institutions don’t have a good record for recovering from bankruptcy, but it looks as though CIT has secured $1 billion in investor funding to support their operation, and the DIP loan from Bank of America and a well thought out exit strategy to beat the odds. 
