The lawsuit was filed in Cook County Circuit Court, and it relies on internal email from within the ratings agency as evidence of the company’s misrepresentations of risk.

According to the court filing, an employee said “an investment could be restructures by cows and we would rate it”, which is outrageous considering the importance of S&P in the financial industry.

Madigan also used references from a former director at S&P, stating “profits are running the show.”

Illinois Attorney General’s lawsuit highlights what really happened before the financial crisis and the main cause. “S&P consistently misrepresented the risk of mortgage-backed securities, assigning these securities its highest seal of approval – or AAA rating,” Lisa Madigan’s office stated.

“Publically, S&P took every opportunity to proclaim their analyses and ratings as independent, objective and free from its desire for revenue,” Madigan said. “Yet privately, S&P abandoned its principles and instead used every trick possible to give deals high ratings in order to retain clients and generate revenue.”

This resulted the housing bubble that burst soon as the investments began defaulting, triggering the current situation we are facing.

“The mortgage-backed securities that helped our market soar and ultimately crash – could not have been purchased by most investors without S&P’s seal of approval”.

The other side, S&P is washing its hands, denying an culpability. “The case is without merit, and we will defend ourselves vigorously,” said an S&P spokesperson.

Last week Federal Reserve Chairman Ben Bernanke submitted a white paper to Congress  providing “a framework for thinking about directions policymakers might take to help the housing market,” expressing his support for an REO rental program. Furthermore he stressed the importance of accessible credits, that would boost the housing market, just like it did before the housing collapse.

Bernanke stated that “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.” In addition other Fed members have expressed their support for Bernanke’s white paper.

The recipient of the white paper, the Congress on the other hand has started to make action based on its own scenario that will trigger the housing recovery: it uses funding from the GSEs to fuel it.

The action plan involves the extensions of the Temporary Payroll Tax Cut, which calls on the Federal Housing Finance Agency to raise the GSEs guarantee fees.

However, some Congress members have different views about Bernanke’s status to define directions. Sen. Orrin Hatch wrote a reply to Bernanke saying that the Fed Chairman has overstepped his bounds with his white paper.

“I believe that your recent housing white paper, and recent advocacy by Federal Reserve officials for further taxpayer-funded government intervention in housing and mortgage markets, intrudes too far into fiscal policy advice and advocacy.”

It s unclear at this time which side has the winning card, but until a proper scenario is just a dream, the economic recovery will remain a dream too. And eats dust from the fight between the Congress and the Fed? The taxpayer, of course.

The announcement came Friday, right after the US Department of Labor stated that the nation’s unemployment rate trends down. According to the department’s data unemployment slipped to 8.5% nationwide, as the economy added 200,000 new jobs.

The rate is down from a 8.6% reported in November and as the statement says the downward trend was better than expected, with analysts forecasting a rise un unemployment for the last month of the year.

DsNews reports that previously servicers could offer up to three months of forbearance without payment on Freddie Mac loans or up to six months, but with reduced payments, without prior approval coming from the mortgage giant.

However, extended forbearance plans had to receive prior approval and often only applied to natural disasters or medical emergencies.

With the new extended forbearance plan, Freddie Mac now offers up to six months of forbearance to unemployed borrowers without prior approval. In the other hand, the GSE has to grant the forbearance plan, but it can go up to one year.

Tracy Mooney, SVP of single-family servicing and REO at Freddie Mac commented the statement, saying that the new plan will help families facing prolonged periods of unemployment with a greater measure of security, as this extension gives them more time to find a new job and time to solve their delinquencies.

Freddie officials say this will help more families to get back on track and keep their homes.

With the new, already active directive servicers can evaluate unemployed homeowners already in a forbearance plan to propose extension of the terms.

Both early stage and serious delinquencies remained unchanged over the quarter, the OCC said in its latest report.

Looking at these mortgage delinquencies separately, the OCC stats show that loans 30 to 59 days delinquent maintained 3%, while seriously delinquent mortgages stood at nearly 5% for the quarter.

On the other hand, new foreclosures are up more than 21% with the total number of loans in foreclosure reaching 1.3 million, accounting only 4.1% of the loans observed by the Office.

But the greatest news reported by the OCC is that performing loans accounted 93.1% of the GSEs’ portfolio, unchanged from the prior quarter.

Another great news highlighted by the OCC report was regarding the number of loan modifications, trial period plans and payment plan was 0.6% higher than the prior quarter, but 2.4% less than a year ago.

On average, mortgage modifications included 24.4% reductions in monthly principal and interest payments, DsNews cited from the report.

Another positive news underscored by the OCC reports was that HAMP mods included reductions up to 35.1%, which saved borrowers $567 per mont.

Out of the 90% of all modifications completed during the analyzed third quarter, 77.5% came with reduced interest rates, 20.5% included principal referrals and 7.8% included principal reductions

Of the HAMP modifications, 86.8% included reduced interest rates, another 34.9% inclded principal deferrals and 10.2% included principal reductions.

The report covers the 32.4 million loans, which account 62% of all existing mortgages in the country.

The Scorecard tracks the key indicators of the nation’s housing market health month by month and it features specific regional housing market highlights. The November report focused on Atlanta, Georgia.

According to the recently released Scorecard, about 82% of the homeowners eligible for HAMP modification trial have received permanent modification, with an estimated 3-5 months of average timeline for achieving the modification. Furthermore, the Scorecard highlighted that HAMP have saved homeowners around $9.4 billion to date.

Another highlight of the recent report was the total number of modification arrangement starts, which hit 5.4 million, while a total of 1.7 million HAMP trial mod starts were initiated along with 1.1 million FHA loss mitigation and early delinquency interventions.

The numbers revealed by the Treasury show around 880,000 permanent mortgage mods which have been run through HAMP since November. Another 2.5 million proprietary modifications were derived from HOPE Now to date.

However, the November Scorecard underscored that JPMorgan Chase is in need of substantial improvement, while other lenders, such as Bank of America has passed from “in need of substantial improvement” to “need of moderate improvement”, although the it is not exactly clear how these improvements are measured. But the Treasury noted, that the mortgage giant, Bank of America, is still required to address problems identified during previous surveys.

“The Federal Reserve will soon release for comment its proposed rule on enhanced prudential standards that would apply to large bank holding companies and systemically important nonbank financial firms,” Yellen said in prepared remarks at a conference hosted by the Federal Reserve Bank of Chicago. “Efforts to develop these rules have been progressing well.”

The proposed rules aim to heal the biggest issued in financial services, including risk-based capital requirements, leverage, resolution planning and concentration limit. The length of the proposal is expected to range from 1,000 to 2,000 pages.

Structured Finance News highlights that the proposal will detail how the central banks plans to regulate large, interconnected financial institutions, and for the first time, the Fed tries to regulated non-banks too.

“Because the material distress or failure of a SIFI can have outsized effects on the financial sector and the real economy, the Dodd-Frank Act empowers the Federal Reserve to reduce the probability of such events through tougher prudential standards, including enhanced risk-based capital and leverage requirements, liquidity requirements, an early remediation regime, and restrictions on activities,” Yellen said. He stressed the Fed has been “attentive” to coordinating rules required by Dodd-Frank with higher capital standards and new liquidity standards for large banks under the Basel III rules.

GAO (Government Accountability Office) underscores the need for collaboration between the agencies that regulate the financial market. They recommend that the Financial Stability Oversight Council to work with agencies such as the Federal Reserve Board and the Consumer Financial Protection Bureau to develop formal coordination policies to implement the Dodd-Frank Act. Another suggestion of GAO is that the agencies should work more closely with the Office of Management and Budget.

The request comes after Freddie posted its quarterly results: the company recorded a net loss of $4.4 billion for the third quarter of 2011, more than twice the loss it recorded in the second quarter.

According to the numbers the Virginia-based mortgage giant posted, its latest earning results reflect net interest income of $4.6 billion, but the the company shouldered a $4.8 billion loss on derivatives and a $3.6 billion provision in credit losses.

Freddie Mac’s CEO Charles E. Haldeman, Jr. pointed out that hundreds of thousands of borrowers refinanced into lower mortgage rates or shorter mortgage terms in the third quarter. Long-term interest rates declined by approximately 125 basis points in the third quarter, compared to a decrease of about 30 basis points in the second quarter.

“[T]he borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year,” Haldeman said.

These savings – underscored by Haldeman – means less money is coming in for Freddie, so this results in higher loss severity rates, which are likely to grow in the fourth quarter, as the government is retooling the HARP, which is expected to add another 1 million borrowers with loans backed by Freddie and Fannie.

Freddie’s $4.4 billion loss in the third quarter combined with the $1.6 billion dividend payment it made to Treasury for past bailout money left the GSE with a $6 billion net worth deficit as of the end of September. To eliminate this deficit, the Federal Housing Finance Agency (FHFA), as conservator, is submitting a draw request to Treasury for the same amount.

The company’s Q3 request is the biggest since the first quarter of 2010, and brings the total taxpayer supported bailout to $72.2 billion, while the GSE returned only 1$14.9 billion to Treasury.

The recently released report say only 5.4% or $2.5 billion of the $45.6 billion in TARP funds have been spent.

SIGTARP said participation in the HAMP has been disappointing and according to its estimation if the pace of modification continue at its current pace, “as many as 600,000 homeowners who are eligible for the program will not receive a permanent modification before HAMP expires next fall.”

Treasury recently published data showing that there are now 992,968 homeowners eligible for HAMP. The number of new permanent mortgage modifications each month has hovered between 25,000 and 30,000.

“While this represents real help for these homeowners, many additional homeowners could receive that same help,” SIGTARP said in its report.

SIGTARP says Treasury could reduce the likelihood that homeowners are misinformed or confused by requiring servicers to notify borrowers in writing of any change related to their participation status or application terms. This written communication could be as simple as email, and notes that oral notification is open to abuse with compliance difficult to assess.

Furthermore, the report highlights the number of complaints that many trial modifications last beyond the intended three months, many trial mods fail to ever convert to permanent status and the lack of timely responses to homeowners when they escalate complaints.

SIGTARP didn’t stop at analyzing, it came up with recommendations to Treasury to improve servicer performance, including that Treasury set benchmarks on what it deems to be acceptable performance for conversion rates from trial to permanent mods, length of trial mods and timelines to respond and to solve complaints.

On the other hand, Treasury says it has “succeeded in improving servicer performance” with non-financial remedies and temporarily withholding incentives from two servicers – Bank of America and JPMorgan Chase. Treasury stated that it will exercise its financial remedies “when necessary,” but SIGTARP says given the number of homeowner complaints, if there are benchmarks in this area, Treasury is not adequately enforcing them against the 112 active servicers.

“With less than 1 million struggling borrowers remaining eligible, and a window quickly closing on the end of the program, Treasury must double its efforts to ensure that servicers comply with program requirements,” SIGTARP said in its report.

There is no question that the GSEs should cease to exist, and it is time to put a plan into place to ensure private investors are ready to take up the slack once they’re gone, Garrett said.

According to Garrett’s information Fannie and Freddie could require as much as$311 billion by the end of 2014, while private investment could protect US taxpayers from this massive bailout.

“The government-sanctioned duopoly of Fannie and Freddie is not only systemically dangerous to our economic security, it’s un-American,” Garrett said in a statement. “For too long the government’s manipulation of the housing market has crowded out private market participants at the expense of the American taxpayers.”

Garrett came up with a three-part plan. First, he believes the FHFA should standardize mortgage securitization by creating specific categories of mortgages with consistent underwriting requirements for each and to set up uniform securitization agreements and representation of warranties. His last directive under the standardization point is: abolish the risk-retention provisions included in Dodd-Frank.

Secondly, he urges the removal of conflicts of interest between servicers and investors, clarifying rules around second lien mortgage obligation and mandating arbitration between investors and issuers for all rep and warranty disagreements.

The third part of Garrett’s plan underscored the demand for improvement in the quality of loan level data and other information used by investors to evaluate the value of mortgages. Garrett wants investors to be privy to pricing history on securitization deals and he advocates for the creation of individualized markers to distinguish each loan within a pool.

What Garrett highlighted in his statement is that 95% of the mortgage market is in the hands of the government at the moment, and what he wants is to balance this number in favor of investors. However, exactly this disproportionate allocation of financial support that leads some in the industry to err on the side of caution in mapping out the future of the nation’s housing finance system.

“The GSEs will, in the short term, continue to play a vital role in terms of providing liquidity to the marketplace,” commented Ed Delgado, CEO of the Five Star Institute. “Any abrupt action can be detrimental to the financial markets and signal more uncertainty.”

“You have to measure the deconstruction of the GSEs relative to the impact on the housing and national economy. We’re not just shutting off a light switch,” Delgado says.

The chairman’s action comes after a whistleblower lawsuit was filed in federal court in Atlanta showing hard evidence of the lending institution’s illegal activity.

“I will reserve judgment on the appropriate next course of action, to include the potential for a full Committee hearing, after having the opportunity to review the results of the staff investigation,” Rep. Jeff Miller (R-Fla.), chairman of the committee, wrote in a letter Friday to Rep. Bruce Braley (Iowa), the ranking Democrat on the committee’s subcommittee on economic opportunity.

The VA program allows veterans to refinance with loans guaranteed by the government, which means they had access to lower interest rates or shorten terms of their mortgages, and the rules do prohibit lenders from charging attorney fees.

But the lenders managed to find their way to crush out money from taxpayers in trouble. Two mortgage brokers from Georgia brought the lawsuit under the False Claims Act, alleging that the banks instructed them to disguise attorney charges by listing them as part of the title examination fee.

The whistleblower lawsuit was filed five years ago, but it remained sealed as the allegations were investigated, as the suit seek to recover damages and civil penalties from the nation’s biggest lending institutions on behalf of the government.

The Justice Department has notified the federal court in Atlanta that it is not taking over the case but will consider doing so at a later date. “I request that you provide justification for this decision, and urge you to reconsider,” Tester wrote in his letter to Holder. “I also request that you investigate the full extent of these illegal activities.”

During the last decade more than 1.2 million of the refinanced loans made to veterans and their families. Court documents say nearly 90% of these refis have been affected.