Tag: Foreclosure Fraud

New Rebel Alliance: NY Attorney General & FHFA Inspector General

Cross posted from The Stars Hollow Gazette

New York State attorney General Eric Schneiderman and Steve Linick, the inspector general supervising Fannie and Freddie and the Federal Housing Finance Agency (FHFA) have joined forces giving the NY AG access to documents and depositions taken by the FHFA Office of Inspector General as part of its investigation into mortgage and securities fraud perpetrated against Fannie and Freddie. As Yves Smith at naked capitalism points out this is a “well deserved slap in the case to the Department of Justice”:

I’m not certain of the precise scope of powers of the FHFA inspector general. But typically, federal inspector generals have limited scope of action. They can only subpoena documents and cannot subpoena witnesses. And, of course, they are not prosecutors and cannot launch cases. The theory of IGs is that if they uncover something unsavory, they’ll hand it off to the Department of Justice. But as a former IG has pointed out, the DoJ does not take case leads from the IGs unless they are fully fleshed out, and that is well nigh impossible to do in the absence of speaking to witnesses.

The Department of Justice has AWOL on the mortgage and banking beat, no doubt to avoid ruffling powerful possible Obama donors. Inspectors general are in theory independent, and on top of that, the FHFA is an independent agency and is not running the Administration playbook (I’ve been told by people involved in bank regulation that Geithner has tried pressuring FHFA acting chief DeMarco to no avail).

So what does the FHFA inspector general do, certain that Eric Holder will ignore any misdeeds he finds? Turn to another prosecutor who can bring cases that can bring cases that are national in scope.

According to Shahien Nasiripour writing for the Financial Times this alliance could “make it easier for authorities to bring fraud charges against Wall Street companies”.:

Investigators will be able to share documents and findings, and pool resources, according to people familiar with the co-operation agreement. It was signed in recent weeks by Eric Schneiderman, New York attorney-general, and Steve Linick, the inspector general supervising Fannie and Freddie as well as the Federal Housing Finance Agency , the regulator responsible for the two taxpayer-owned home loan financiers.

The collaboration escalates Mr Schneiderman’s probe of about a dozen banks and mortgage insurers as part of a broad investigation into whether banks properly bundled hundreds of billions of dollars worth of home loans into now-soured securities sold to investors.

The New York attorney-general is armed with the state’s Martin Act, considered one of the most powerful prosecutorial tools in the country. The law allows Mr Schneiderman to investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud. State prosecutors need only prove that a fraud was committed, which state courts have defined as “all deceitful practices contrary to the plain rules of common honesty”.

The law allows Mr Schneiderman to pursue civil and criminal probes, and to seek felony criminal convictions. The Martin Act confers broader powers than federal securities laws used by agencies like the US Securities and Exchange Commission, which must show intent when bringing fraud cases. Previous New York prosecutors such as Eliot Spitzer have wielded the law to extract billions of dollars from Wall Street firms for alleged wrongdoing.

In conjunction with with lawsuits from Delaware’s Beau Biden, Massachusetts’ Martha Coakley and Nevada’s Catherine Cortez Masto, this is really great news. As David Dayen at FDL says “this is an end run around the justice department”:

Recall that Linick has recently come out with some explosive reports, including a report that the GSEs know about foreclosure fraud back in 2003. So that’s a wealth of knowledge from which to draw, and the IG can compel some more of it, though as said above they are somewhat limited. If Schneiderman sought these documents and depositions by himself, federal regulators could have overruled him. Now he can just use Linick as a conduit.

The FHFA, over which Linick monitors, sued 17 banks for securities fraud earlier this year. So you’re almost seeing a consolidation of lawsuits and actions between Schneiderman and a rogue independent housing agency. It’s really nice to see.

Another step in getting justice for homeowners.

Slow, Steady Calls For Investigating Foreclosure Fraud

Cross posted from The Stars Hollow Gazette

Some encouraging news in the on going call for an investigation into foreclosure fraud, Sen Maria Cantwell (D-WA) called for Attorney General Eric Holder to investigate the fraud before letting the bank off with a pitiful settlement $20 billion and a “get out of jail” card for criminal charges, She also demanded a full investigation into robo-signing scandal and ‘pump and dump’ mortgage bubble scheme:

I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.



Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.

I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.

And some good news for homeowners facing foreclosure in Florida:

WEST PALM BEACH – Home­owners in foreclosure may have a better chance of getting a true trial, instead of a quickie judgment, following a 4th District Court of Appeal decision that requires banks to prove ownership of the note at the time they file for repossession.

The ruling Wednesday in Palm Beach County was heralded by foreclosure defense attorneys who said it may even force banks to dismiss some cases and start over with new paperwork.[..]

Wednesday’s ruling was on the case of Robert McLean vs. JPMorgan Chase, and involved a 2009 Broward County foreclosure.

According to the decision, which reversed a lower court’s verdict in favor of the bank, Chase originally filed the foreclosure claiming the note – basically the IOU from the borrower – was “lost, stolen or destroyed.”

The claim has been made thousands of times as lenders rushed without the proper documentation to take back homes tangled up in the real estate boom’s securitization frenzy.

Although most notes are found before a final foreclosure judgment is entered, the 4th DCA said the note also must be correctly dated and endorsed to show ownership before the foreclosure was initially filed – something that Chase didn’t have, according to the ruling. The court also questioned a mortgage assignment made to Chase that was dated three days after the foreclosure was initially filed.

If there is substantial doubt about the note, the bank should dismiss and refile the case or the home­owner should be entitled to an evidentiary hearing instead of a more hasty “summary judgment,” the ruling said.

Why Can’t The Feds Prosecute Systemic Fraud?

Cross posted from The Stars Hollow Gazette

In 2007, Eileen Foster, a former executive vice president in charge of fraud investigations for Countrywide Financial Corp., and her team began looking through documents in the company’s mortgage division. What she uncovered was massive fraud that was being committed on a daily basis. When Countrywide was acquired by Bank of America in 2008, Ms. Foster was fired for “inappropriate and unprofessional conduct.”

Ms. Foster filed a wrongful termination lawsuit with the Department of Labor. During her three year fight to clear her name, the extensive fraud committed by Countrywide employees and executives came to light. Bank of America, as typical, says that this in nothing new and the claims against Countrywide were settled. In the first part of a two part article by Michael Hudson published at i-Watch News, recounts the extent of the fraud committed by Countrywide employees, condoned by executives and covered up by BoA:

In government records and in interviews with iWatch News, Foster describes other top-down misconduct:

   

  • She claims Countrywide’s management protected big loan producers who used fraud to put up big sales numbers. If they were caught, she says, they frequently avoided termination.
  •    

  • Foster claims Countrywide’s subprime lending division concealed from her the level of “suspicious activity reports.” This in turn reduced the number of fraud reports Countrywide gave to the U.S. Treasury’s Financial Crimes Enforcement Network.
  •    

  • Foster claims Countrywide failed to notify investors when it discovered fraud or other problems with loans that it had sold as the underlying assets in “mortgage-backed” securities. When she created a report designed to document these loans on a regular basis going forward, she says, she was “shut down” by company officials and told to stop doing the report.
  • Eileen Foster appeared on 60 Minutes in an interview with Steve Kroft:

    60 Minutes also interviewed the head of the criminal division at the Department of Justice, Larry Brewer asking him about the lack of prosecutions that could be done under the Sarbanes-Oxley law. Brewer’s response was “he thinks nobody ‘lacks confidence’ in the department’s ability to prosecute financial crime”:

       60 MINUTES: We spoke to a woman at Countrywide who was a senior vice president for investigating fraud and she said that the fraud inside countrywide was systemic. That it was basically a way of doing business.

       BREWER: Well, it’s hard for me to talk about a particular case. Of course in the Countrywide case, terrific office, US Attorney’s office in Los Angeles, investigated that. Interviewed many, many people. Hundreds of people, perhaps. Reviewed millions of documents.

       60 MINUTES: Do you lack confidence in bringing cases under Sarbanes-Oxley?

       BREWER: Steve, no one is really has accused this Department of Justice, or this division, or me of lacking confidence. If you look at the prosecutors all over the country, they are bringing record cases with respect to all kinds of criminal laws. Sarbanes-Oxley is a tool, but it’s only one tool. We’re confident. We follow the facts and the law wherever they take us. And we’re bringing every case that we believe can be made.

    Some state attorney generals are filing suits and conducting investigations. Massachusetts AG Martha Coakley filed papers in state court suing five major mortgage lenders, including Bank of America, and MERS. Meanwhile, there have been no federal prosecutions of any top level executives and federal prosecutions of financial fraud have fallen to a 20 year low but thousands of Occupy Wall Street protesters have been arrested.

    As Zaid Jilani concludes at Think Progress:

    After all, allowing criminals to help cause a global recession that plunged 60 million people into extreme poverty and then proliferate in an industry will only sully its reputation.

    GMAC to Massachusetts: We Aren’t Going to Play in Your State

    Cross posted from The Stars Hollow gazette

    Massachusetts Attorney General Martha Coakley filed a law suit against five major banks and MERSover deceptive mortgage practices. One of those entities, GMAC, the mortgage lender of Ally Financial Inc., decided to stop mortgage lending in Massachusetts. The nation’s fifth-largest mortgage originator said it “has taken this action because recent developments have led mortgage lending in Massachusetts to no longer be viable,”. Seriously, they are not going to play in the state because Martha wants them to play by the rules. How dare she!

    Yves Smith at naked capitalism says that in essence GMAC Mugs Massachusetts for Insisting on the Rule of Law, Suspends Mortgage Lending in the State

    This move by GMAC, now Ally, is remarkably brazen. GMAC has effectively said that Massachusetts must hew to its demands of how to deal with foreclosures. It announced it is withdrawing from mortgage lending in the state in an effort to bring it to heel. [..]

    GMAC is trying to get other big banks to follow suit. I hope the state and other groups that do substantial financial business with banks (largish churches are also attractive clients) make it clear than any effort to punish the state for enforcing the law will be met by moving their accounts to smaller institutions that respect the law. [..]

    Sorry, for the first decade plus of the private mortgage securitization business, banks and servicers did hew to the requirements of state law. It was only in the late 1990s through 2004 or so that they started to fail to comply with the requirements of their own contracts (the breakdown appears to have taken place over time, with the biggest decay taking place during the 2002-2003 refi boom). That’s what has put their foreclosures on shaky footing, which in turn has led to wideranging legal abuses to get around the mess they created.

    The insolence of the securitization industry continues to be astonishing. They act as if they have an imperial right to dictate to governments, and refuse to admit any role in a disaster of their own creation. I hope those of you who do business with Ally close your accounts immediately and tell the bank that it is due to their Mafia style move in Massachusetts.

    If you’re a GMAC customer in Massachusetts, it’s time to move your loan.  

    MA Attorney General Sues 5 Major Banks & MERS

    Cross posted from The Stars Hollow Gazette

    Another state attorney general is suing five major banks and Mortgage Electronic Registration System Inc. and its parent company over deceptive foreclosure practices. Massachusetts Attorney General Martha Coakley  filed the suit on Wednesday seeking redress from Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial.

    Ms. Coakley joins a small group of state attorney generals from larger states that have been hit the hardest by the foreclosure/mortgage fraud scandal:

  • Nevada Attorney General Catherine Cortez Masto sued Bank of America for fraudulent practices related to a prior settlement on Countrywide loans and recently filed a 606-count criminal indictment against two LPS employees for robo-signing;
  • Delaware AG Beau Biden sued MERS for deceptive practices;
  • New York’s Eric Schneiderman has a ever expanding investigation into foreclosure and securitization fraud and has issued a number of subpoenas for documents;
  • California’s Kamala Harris just filed subpoenas against Fannie Mae and Freddie Mac over mortgage servicing and securitization.
  • Ms. Coakley, whose reputation was tarnished after her loss to a Republican for the late Ted Kennedy’s senate seat, has been strong on tightening state regulations and force banks to assist financially stressed homeowners save their homes:

    Coakley spoke in support of legislation she filed in January with state Senator Karen Spilka, an Ashland Democrat, and Representative Steven M. Walsh, a Lynn Democrat. The proposed law, which they call An Act to Prevent Unlawful and Unnecessary Foreclosures, focuses on mortgage loans that are considered to be risky, including those with interest-only payment and adjustable rates.

    The bill would require lenders to analyze a borrower’s financial information to determine whether modifying the loan to a more affordable payment would be more beneficial financially to the lender than going through the lengthy and costly process of taking the property through foreclosure. Many lenders already undertake such a study before deciding whether to foreclose, but the bill would permit homeowners to file a lawsuit if the process does not occur, according to Coakley’s staff.

    The proposed law also would force lenders to prove they are the legal owner of mortgages before foreclosing, incorporating the findings of recent foreclosure-related decisions from the state’s Supreme Judicial Court.

    These five state attorney generals are doing the hard work that should be done by the US Attorney General Eric Holder. Instead Mr. Holder is still clinging to Iowa AG Tom Miller’s stalled negotiations with the banks to settle the fraud for a mere $25 billion and exoneration from criminal prosecution. Mr. Holder has made protecting banks and corporations his priority and just recently announced a new initiative to prosecute intellectual property rights thefts by the public. This is not what Americans elected this administration to do.

    Eric Holder Wants Us To Protect MTV

    Cross posted from The Stars Hollow Gazette

    Apparently, US Attorney General Eric Holder thinks it is far more important to protect corporations from intellectual property (IP) theft than to protect us from predatory and fraudulent banking practices that has led to collapse of the economy. He is more concerned that you or your neighbor are illegally downloading movies or songs from the internet or receiving pharmaceuticals from Canada.

    On November 29, Mr. Holder held a press conference to announce a serious crack down on IP theft:

    As our country continues to recover from once-in-a-generation economic challenges, the need to safeguard intellectual property rights – and to protect Americans from IP crimes – has never been more urgent. But, in many ways, this work has also never been more difficult.

    Recent technological advances – particularly in methods of manufacturing and distribution – have created new opportunities for businesses of all sizes to innovate and grow. But these quantum leaps have also created new vulnerabilities, which tech-savvy criminals are eager to exploit. As a result, we’re seeing an alarming rise in IP crimes – illegal activities that can not only devastate individual lives and legitimate businesses, but undermine our nation’s financial stability and prosperity.

    Make no mistake: IP crimes are anything but victimless. For far too long, the sale of counterfeit, defective, and dangerous goods has been perceived as “business as usual.”   But these and other IP crimes can destroy jobs, suppress innovation, and jeopardize the health and safety of consumers.   In some cases, these activities are used to fund dangerous – and even violent – criminal enterprises and organized crime networks. And they present a significant – and growing – threat to our nation’s economic and national security.

    But we are fighting back – in bold, comprehensive, and collaborative ways.

    One of those “bold, comprehensive, and collaborative ways” is a series of series of television, radio, and Internet public service announcements that will ask the public to spy on their neighbors.

    We shouldn’t be surprised by this since, as reported in the Wired:

    The Justice Department under President Barack Obama has seen a sea change in attitude when it comes to intellectual-property enforcement, which could have been predicted by the number of former Recording Industry Association of America attorneys appointed by the Obama administration. (Hollywood votes and donates Democratic).

    Meanwhile, as Matt Stoller writes, mortgage fraud continues unabated and unprosecuted:

    In 2004, the FBI warned Congress of an “epidemic of mortgage fraud,” of unscrupulous operators taking advantage of a booming real estate market. Less than two years later, an accounting scandal at Fannie Mae tipped us off that something was very wrong at the highest levels of corporate America.

    Of course, we all know what happened next. Crime invaded the center of our banking system. Wall Street CEOs were signing on to SEC documents knowing they contained material misstatements. The New York Fed, riddled with conflicts of interest, shoveled money to large banks and tried to hide it under the veil of central bank independence. Even Tim Geithner noted that Lehman had “air in the marks” in its valuations of asset-backed securities, as the bankruptcy examiner’s report showed that accounting manipulation to disguise the condition of the balance sheet was a routine management tool at the bank. [..]

    And yet, no handcuffs. [..]

    And what happens when this kind of fraud goes unprosecuted? It continues, even today. The same banks that ran the corrupt home mortgage securitization chain are now committing rampant fraud in the foreclosure crisis. Here’s New Orleans Bankruptcy Judge Elizabeth Magner discussing problems at Lender Processing Services, the company that handles 80 percent of foreclosures on behalf of large banks. [..]

    The bad behavior is so rampant that banks think nothing of a contractor programming fraud into the software. This is shocking behavior and has led to untold numbers of foreclosures, as well as the theft of huge sums of money from mortgage-backed securities investors.

    It would be nice if the Obama Justice Department devoted the same man power, resources and efforts into prosecuting the banks and mortgage service lenders who pushed fraudulent loans and have illegally foreclosed on thousands of homes. The attitude of Obama administration continues to be that they must bail out banks and protect corporations while the public gets sold out by the government that is suppose to protect us.

    Where Are The Prosecutions?

    Cross posted from The Stars Hollow Gazette

    In case you missed it (I strongly suspect you did), Yves Smith of naked capitalism appeared as a guest on the PBS News Hour to discuss why there have been so few prosecutions of ceo’s or bankers in the recent banking scandal.

    The other guests are:

    Lynn Turner is a former chief accountant for the Securities and Exchange Commission. He’s now a managing director at the consulting firm Litinomics.

    Anton Valukas is a former U.S. attorney. He’s now in private practice and issued a bankruptcy report examining the collapse of Lehman Brothers.

    Mark Calabria is a former Republican staff member of the Senate Committee on Banking, Housing and Urban Affairs. He’s now at the libertarian think tank, the Cato Institute.

    In Aftermath of Financial Crisis, Who’s Being Held Responsible?

    The full transcript is here.

    5,000 Illegal Foreclosures On Military Families: Up Dated

    Cross posted from The Stars Hollow Gazette

    US lenders review military foreclosures

    By Shahien Nasiripour in New York

    Ten leading US lenders may have unlawfully foreclosed on the mortgages of nearly 5,000 active-duty members of the US military in recent years, according to data released by a federal regulator.

    JPMorgan Chase and Bank of America this year reached legal settlements in which they agreed to pay damages to nearly 200 service members who claimed that their homes had been improperly seized.

    Data released last week by the Treasury’s Office of the Comptroller of the Currency, which regulates national banks, shows that 10 lenders – including BofA, but not JPMorgan, which was not part of the study – are reviewing nearly 5,000 foreclosures of homes belonging to service members and their families to see if they complied with the law.

    Dishonorably Discharged, with Pat Garofalo

    Pat Garofalo reported this at Think Progress:

    Back in April, JPMorgan Chase, which was not one of the 10 banks that the OCC examined, agreed to a $56 million settlement over allegations that it had overcharged members of the military on their mortgages. Chase Bank has even auctioned off the home of a military member the very day that he returned from Iraq. Two other mortgage servicers agreed in May to settle charges of improperly foreclosing on servicemembers.

    Even without the banks illegally foreclosing, military members have been hard hit by the foreclosure crisis. Last year alone, 20,000 members of the military faced foreclosure, a 32 percent increase over 2008. The newly created Consumer Financial Protection Bureau is tasked with ensuring that military members are treated fairly by financial services companies – a job that is obviously necessary – but Republicans in Congress have, so far, refused to confirm a director for the agency, leaving it unable to fulfill all of its responsibilities.

    Up Date: New York State Attorney General Eric Schneiderman has launched an investigation into military foreclosures under a NY State consumer protection law, the Martin Act, that gives him broad powers to investigate fraud.

    Also, Congress is getting on the bandwagon, Sen. Jack Reed (D-RI), a member of the Senate Banking Committee, will be requesting hearings. From David Dayen at FDL:

    It looks like even Congress is getting involved, or at least a few of them, because systematic illegal foreclosures on everyday people can be ignored, but systematic foreclosures on members of the military cannot. Jack Reed, a member of the Senate Banking Committee, will request a hearing on the matter. Brad Miller, who has actually been great on this issue and who sees it as a lever to open up a host of inquiries on foreclosure fraud, had a great statement yesterday:

       It is hard to see this as anything except a flagrant disregard for a law that has been on the books continuously since the First World War. The Servicemembers Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.

       The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, and consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.

       The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.

    Schneiderman is doing the job that we would expect Eric Holder to be doing. Just where is Mr. Holder? We know where the president is, campaigning.

    AG Harris Still Standing Up For CA Homeowners

    Cross posted from The Stars Hollow Gazette

    While Iowa Attorney General Tom Miller and his merry band of AG sell outs push for an agreement to settle the mortgage fraud, it looks like California Attorney General, Kamala Harris, is sticking to her plan to hold the worst of the abusers feet to the fire.

    The Miller agreement, which is also being backed by US Attorney General Eric Holder, could result in an even smaller settlement than the $25 million and would still leave the banks open to legal claims in the states that do not sign on to the agreement. While California is the state with the largest number of foreclosures, not signing onto the agreement would mean that homeowners would have to wait longer for relief but, as AG Harris has stated, it “would allow too few California homeowners to stay in their homes…. After much consideration, I have concluded that this is not the deal California homeowners have been looking for.”

    Ms. Harris has been under considerable pressure from the Obama administration, who has considered her a replacement for Eric Holder should Obama be reelected. However. many community organizations, unions and liberal groups have urged to her not to sign on to the Miller agreement unless there is a larger monetary settlement or, that failing, the states are allowed to prosecute the banks for crimes they may have committed. Neither of those two stipulations appears to have happened, nor are they likely.

    Along with New York’s Eric Schneiderman, Delaware’s Beau Biden, Nevada’s Catherine Cortez Masto and a couple of other state attorney generals, Ms. Harris’s position is good policy for the state, as well as, good politics for her. She has stood by the people who put her in office, the people she will need to support her should she run for governor or the US Senate. We could use a few like her in that body.

    Foreclosure Fraud: Business As Usual

    Cross posted from The Stars Hollow Gazette

    On of the biggest frauds that has been perpetrated in the housing collapse that has precipitated the foreclosure crisis has been robosigning especially done by MERS, Mortgage Electronic Registration Systems, a privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. The current negotiations by the state attorney generals in conjunction with the Obama Justice Department will in all likelihood exonerate the banks of any criminal liability and allow them to continue using the fraudulent MERS to foreclose on homes that the banks may not legally own. Gretchen Morgensen wrote in the New York Times that “The deal being discussed now may also release the big banks that are members of MERS, the electronic mortgage registry, from the threat of some future legal liability for actions involving that organization.”  Matt Stoller and Mike Lux point to an even bigger issue, robosigning has not stopped:

    Why a Foreclosure Fraud Settlement is a RIDICULOUS Idea

    By Matt Stoller

    What makes these discussions so utterly absurd, so ridiculous, and farcical, is that robo-signing, an abuse the banks have admitted to and clam they’ve ceased, is still going on. The AP reported this in July; mortgage servicers in Nevada have stopped foreclosing because of a law explicitly criminalizing robo-signing. Yes, the banks are asking for a release of claims on acts, or perhaps crimes, that are ongoing. And these abuses are extensive: lying to investors about the quality of the mortgages; violating their own contracts by failing to convey mortgages properly to securitization trusts; charging fees that are impermissible under Federal law and the contracts; making a mess of property records and engaging in deceptive consumer practices through the use of MERS; and engaging in document forgeries and fabrications in foreclosures. All these people trying to give the banks “a settlement” are in fact immunizing banks against acts they are committing and will commit going forward. Only in the future, when a voter complains to his or her state AG, that official will have to explain to that voter that his/her rights have been given away.

    We’re talking about an ongoing case of criminal theft of private property by mortgage servicers charging illegal fees and then using fraudulent documents to foreclose. Now, a settlement implies that this practice is over, and that the banks are remediating past wrongs. It isn’t over, but the AGs and Federal regulators are treating it as if it is. Think about this incentive – why should a bank change its mortgage servicing once it has immunity for robo-signing, origination, pyramiding of fees, etc? The last consent decrees weren’t enforced, why would this one be enforced?

    Obama on Banking: The Worst Deal They Could Cut

    by Mike Lux

       A dozen banks would contribute a grand total of $3.5 to 5 billion toward the settlement, pocket change for massive companies that apparently approved their foreclosure mill law firms likely committing over 1,000,000 counts of perjury in the robo-signing process. The rest of the money, about $20 billion, would come in the form of “credits” banks essentially give themselves if they agree to reduce a certain amount of the principal owed on mortgages. We don’t know the details yet, but given that all banks in the home lending industry write down some mortgages, unless the details are tough on the banks (a phrase not generally heard of among regulators in this era), this will be giving banks credit for mortgages they would be writing down anyway. And if they don’t end up writing down as much as they project, they probably won’t end up being penalized for it given the history of programs like HAMP […]

       If the administration rams through this ultimate in Wall Street sweetheart deals – a laughably pocket change fine combined with “credit” for what they would have done anyway, at the expense for a get out of jail free card for 1 million counts of perjury and a wide range of other potential fraud – they will have zero credibility to run as the tough on Wall Street candidate. ZERO.

       This makes no sense. For example, for the Obama administration to be leaning so hard on California Attorney General Kamala Harris to sign off on this is truly politically suicidal, both for them and for her after she so strongly announced she was pulling out a couple of weeks ago. Yet they continue to push her. Why are they pushing so hard for this? It all boils down to Treasury Secretary Tim Geithner. It is apparent that Geithner believes the only thing that matters in terms of fixing the economy is to keep the big banks in good financial shape, which is ironic given that in public he claims that everything is fine with the banking sector now.

    Yves Smith at naked capitalism suggests we make some phone calls:

    It’s important to keep the pressure up, particularly on state AGs who might walk from a too bank friendly deal. States whose AGs might decamp include Oregon, Washington, Arizona, and Colorado. It’s also key to let the AGs in states who have left the talks and are under pressure to return that voters are watching and will be unhappy if they reverse themselves. Those states are New York, Delaware, Massachusetts, Kentucky, Nevada, Minnesota, and of course, California. You can find their phone numbers here.

    The Obama administration, congress and the state attorney generals who refuse to hold the banks to the letter of the law hold this country’s economic future. If this passes it will destroy the housing market and this economy for decades.

    Mortgage Fraud: Selling Out To The Banks

    Cross Posted from The Stars Hollow Gazette

    The Obama administration is about to screw Main St. one more time by letting the banks get away with mortgage and foreclosure fraud with a pittance of a fine and indemnifying the banks from state-level prosecution for a series of crimes at practically all stages of the mortgage process. It has been pointed out that by not enforcing the law, which includes investigating and prosecuting fraud, Barack Obama is in violation of his oath of office. Remember? The one he took on front of a rapt nation on the steps of the Capitol where he swore to up hold the Constitution and Law. I don’t recall any part of that oath including letting the banks get away with bringing the US economy to its knees through fraudulent practices.

    A Deal That Wouldn’t Sting

    by Gretchen Morgenson

    Cutting to the chase: if you thought this was the deal that would hold banks accountable for filing phony documents in courts, foreclosing without showing they had the legal right to do so and generally running roughshod over anyone who opposed them, you are likely to be disappointed.

    This may not qualify as a shock. Accountability has been mostly A.W.O.L. in the aftermath of the 2008 financial crisis. A handful of state attorneys general became so troubled by the direction this deal was taking that they dropped out of the talks. Officials from Delaware, New York, Massachusetts and Nevada feared that the settlement would preclude further investigations, and would wind up being a gift to the banks.

    It looks as if they were right to worry. As things stand, the settlement, said to total about $25 billion, would cost banks very little in actual cash – $3.5 billion to $5 billion. A dozen or so financial companies would contribute that money.

    The rest – an estimated $20 billion – would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.

    Sure, $5 billion in cash isn’t nada. But government officials have held out this deal as the penalty for years of what they saw as unlawful foreclosure practices. A few billion spread among a dozen or so institutions wouldn’t seem a heavy burden, especially when considering the harm that was done. {..}

    The deal being discussed now may also release the big banks that are members of MERS, the electronic mortgage registry, from the threat of some future legal liability for actions involving that organization. MERS, which wreaked havoc with land records across the country, was sued last week by Beau Biden, Delaware’s attorney general, on accusations of deceptive trade practices.

    The MERS registry was also subpoenaed last week by Eric Schneiderman, the attorney general of New York, as part of his investigation into the fun-while-it-lasted mortgage securitization fest. If he were to sign on to the settlement, his investigation into MERS could not move forward.

    Angry yet?

    Latest Leak on State Attorney General Mortgage Settlement: A Shameless Sellout to the Banks

    by Yves Smith

    Morgenson highlights another feature of the plan:

       One of the oddest terms is that the banks would give $1,500 to any borrower who lost his or her home to foreclosure since September 2008. For people whose foreclosures were done properly, this would be a windfall. For those wrongfully evicted, it would be pathetic. Roughly $1.5 billion in cash is expected to go into this pot.

    “Pathetic” isn’t strong enough. Let’s look at the damages sought by Nevada attorney general Catherine Masto in her second amended complaint against Bank of America: civil penalties of $5000 per violation, or $12,000 for elderly or disabled borrowers. An individual loan can, and likely does, have multiple violations. The suit also seeks restitution, costs for wrongful foreclosures, plus the cost of damage to municipalities and homeowners from unnecessary vacancies. Note that an AG victory on the issue of wrongful foreclosure would pave the way for private lawsuits, and here the damages would be massive, particularly if state law or precedent allows for penalties (as we’ve noted, Alabama has statutory tripe damages for wrongful foreclosure, and recent rulings have had applied penalties in excess of nine times).

    And what did Masto get from a different servicer, Morgan Stanley’s Saxon? The settlement is estimated to average somewhere between $30,000 and $57,000 per borrower. And the basis of action wasn’t erroneous or fraudulent foreclosures, but deceptive practices in mortgage lending and securitization.



    Look at the MERS compplaint filed by Delaware AG Beau Biden. He’s suing MERS over deceptive practices, at $10,000 per violation. It’s quite possible that he may find more than one violation per mortgage. And I would imagine that success against MERS would pave the way for actions against servicers who relied on MERS in the face of knowledge of its deficiencies.

    In other words, the suits filed by two AGs alone make a mockery of these negotiations.

    So, how much are the banks contributing to the president and the attorney generals who are going to try to let them off the hook?  

    Another Fraud Settlement Proposal And The Banks Skate

    Cross posted fromThe Stars Hollow Gazette

    The latest proposal to come from of the State Attorney Generals investigating mortgage and foreclosure fraud is just a another band-aid on a hemorrhage that lets the banks off and does nothing to help homeowners who are underwater on their mortgage or behind in their payments. It appears that this is just a ploy to bring the California Attorney General “back into the fold.” Diana Olick, CNBC Real Estate Reporter, has tis analysis:

    As first reported by the Wall Street Journal, the AG’s are proposing a refinance plan for underwater borrowers, trying to get banks to bring down interest rates on mortgages for those who owe far more than their homes are presently worth; that’s around 10.9 million borrowers, according to CoreLogic, but sources say it wouldn’t be all of them. It would, “target a finite number of borrowers who are current on their mortgages,” according to my source.

    My source then went on to explain that this is a plan previously pushed by the California state attorney general, who has dropped out of the negotiations over issues surrounding banks’ release from future liability (the California AG did not comment in the WSJ article but claimed they had not seen said proposal). New York and Massachusetts have done the same. Apparently this could, “bring California back to the table,” says my source, because the California AG finds it, “intriguing.”

    Ms. Olick also points out that this is the same plan that the Obama administration has proposed for Fannie Mae and Freddie Mac. The plan will only affect about 20% of homeowners with bank mortgages. While it would give some, who can afford the loans, a little extra cash, it doesn’t “change the fact that these folks still have no hope of seeing their home equity again any time soon, and it doesn’t address the greater ills of today’s housing market that are keeping true recovery at bay.”

    David Dayen at FDL expounds further:

    But wait! This is supposed to be a penalty on the banks. Is it a penalty on the banks when an eligible borrower with a bank-owned loan refinances? No, that’s just an option that the borrower has. Extending that option is supposed to be a penalty for committing systemic fraud on state courts? I don’t necessarily mind the Fannie/Freddie plan as a source of potential stimulus. I don’t consider it a penalty. And when you’re talking about 20% of the market, tops (and not all of those loans are underwater, so this is smaller), the benefits are miniscule (sic).

    They’re just grabbing at straws to try and get a flawed settlement across the line that the remaining AGs can hold a press conference about. And economic stimulus, not accountability, is the main goal. Keep in mind that anything that leads to a round of sped-up foreclosures will not aid the housing market. It will bring prices down, just as a function of supply and demand. This will bring borrowers more underwater. So the idea that there’s a tension between the rule of law and helping people presumes that the only thing standing between America and a recovery is Kamala Harris and Eric Schneiderman. That’s just not true. There are tools at the disposal of the relevant regulators right now to foster recoery (sic), they’re just not choosing to do it.

    Delaware Attorney General Beau Biden spoke with MSNBC’s Dylan Ratigan about fight to investigate the banks.

    The biggest problem that is the gorilla in the room is chain of title. In a detailed article that is well worth the read, Yves Smith at naked capitalism:

    And as we anticipated, the inducement that had led the Miller camp to hope it might clinch a deal is a juicy release. From Reuters:

       Originally, the states were only considering immunity for shortcuts taken during mortgage servicing and foreclosures, including the so-called “robo-signing” of documents to evict people behind on their mortgages.

       In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income, according to two people familiar with the talks.

       In exchange, banks would agree to refinance mortgages for borrowers who are current on their payments but owe more than their homes are currently worth, the sources said.

    This is very troubling. Investors should be up in arms. Any release the banks get here is worth multiples of what the banks will pay for this (note that because investors are conservative creatures and have ongoing relationships with banks, having attorneys general pave the way is particularly important for them).

    The failure to verify income is the tip of the iceberg of origination abuses. The most serious is chain of title, where the banks promised to investors to take a series of steps to convey the mortgages properly to the securitization trusts within a stipulated time frame. For reasons we’ve explained in gory detail in earlier posts, retroactive fixes or waivers simply won’t work. That is why the banks have resorted to widespread forgeries and document fabrication.

     

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