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39 » VISIT US ONLINE @ DSNEWS.COM FIFTH THIRD TO PAY $85 MILLION TO SETTLE FRAUD CLAIMS Fifth ird Bancorp agreed to pay nearly $85 million to resolve civil fraud claims regard- ing approximately 1,400 loans originated by the bank that were insured by the FHA, according to an announcement from U.S. Attorney for the Southern District of New York Preet Bharara and Special Inspector General for the Troubled Asset Relief Program Christy Goldsmith Romero. According to the announcement, Fifth ird made a voluntary disclosure of approximately 1,400 loans from 2003 to 2013 that the bank had certified as eligible for FHA insurance that were later found to contain material defects that would have made those loans ineligible for FHA insurance. e defects in the loans were never self-reported to HUD, which later resulted in millions of dollars in losses to the department. Fifth ird, which received a $3.4 billion bailout from TARP in 2008, admitted it violated HUD requirements by failing to report to HUD loans the bank knew were defective. Fifth ird agreed to pay $85 million to cover HUD's losses on approximately 500 of the loans that defaulted on which HUD paid insurance claims and to indemnify HUD on any losses the department may incur for the remaining approximately 900 loans that have not defaulted, according to the announcement. Also as part of the settlement, the Fifth ird employees responsible for the bank's failure to self-report the defective loans have been terminated and the bank has reformed its business practices. "Before and during the time Fifth ird was bailed out in TARP, its Quality Control employ- ees made false representations to HUD that residential mortgages the bank originated were of the quality required to be insured by HUD," Romero said. "e bank's false representations cost HUD millions of dollars to pay insurance claims on 519 of the materially defective loans that later defaulted. Fifth ird's actions to fire those employees, voluntarily disclose its viola- tions of the False Claims Act and FIRREA to law enforcement, and make corporate changes should stand as an example for others who violated the law." Fifth ird said it was "pleased to have concluded this agreement with the government, covering loans dating to the financial crisis. We are excited about the future of our mortgage business." e issue of the defective loans arose in part from a whistleblower complaint filed by the False Claims Act, although Fifth ird made a voluntary disclosure to the government regard- ing the defective loans in 2012 without knowl- edge of the whistleblower complaint, according to the announcement. ANOTHER ASSET PRICE BUBBLE? KROLL SAYS 'YES' Take a look back to the year 2008 and remember where you were when Bear Stearns crashed and the credit crisis began, leading to a shaky summer and a distressing stock market plunge in early autumn. Did you get many warning signs? Not really. So if the data coming in today doesn't fit within the pessimistic paradigm created by some of the world's leading economists, just call it a case of déjà vu, analysts with Kroll Bond Rating Agency said. Kroll analysts Christopher Whalen and Joe Scott sounded the alarm in a note after learning banks are reporting low default rates, which superficially looks like a good sign for lenders, but the devil 'as always' is in the details. e two analysts reviewed the U.S. bank sector's credit outlook and concluded that hav- ing the banking industry reporting zero or low default rates is a clear sign "of mounting future credit risk." Why? Wouldn't this be good news? Not really, the analysts say. In fact, we may be look- ing at another asset price bubble in the housing sector among others. During the mortgage bubble of 2004-2005, Washington Mutual and Countrywide—two of the lenders that eventually had to be bailed out by larger banking institutions—reported negative defaults, Whalen and Scott reported. On the surface this looks like good news since it means the banks' recoveries exceeded charge- offs, the pair explained. But it also could be a sign of overheating in the market with asset values exceeding economic fundamentals such as employment, income, and GDP, according to KBRA's note. Flash back to the home price bubble, and we all remember what happened next. Whalen and Scott have this warning about the banking in- dustry's low default rate data: "e credit results measured by metrics such as charge-offs and recoveries are simply too good to be believed—or sustained." While others have praised the Fed for keeping interest rates low on the grounds that economic fundamentals support a push back against rising interest rates, KBRA's note said "the responsibility for the rising risk in bank loan portfolios lies squarely at the feet of the Federal Open Market Committee (FOMC), which explicitly set a policy to push up asset prices to facilitate greater risk taking." e problem with rising prices is the creation of an asset price bubble, whereas Whalen and Scott point out, "these higher asset values … have not been validated by the performance of the U.S. economy, either in terms of rising income or GDP." In other words, you cannot create confident consumers out of thin air. ey are either mak- ing enough money to swim in your pond and buy your house, or they're not. e analysts also warn that loan-to-value ratios are on the rise, which is another déjà vu, given the fact that LTVs reached a great imbal- ance in the years leading up to the housing crash. e takeaway: e U.S. economy lacks robust employment and income figures to create the aggregate demand needed for a full function- ing healthy economy. e Fed, as a measure of compassion, may be creating a low interest rate environment to spur demand, but the consumer is already defeated and has no room to budge. With rates staying low, asset prices rise artifi- cially, and now consumers who are taking a bite of the apple are buying into a price structure that is artificially stimulated since it is not supported by economic fundamentals. Is this the year 2008 all over again? The total non-current inventory (properties 30 days or more overdue or in foreclosure) was 3.2 million for September 2015, a decline of more than 600,000 properties from September 2014, according to Black Knight Financial Services. KNOW THIS

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