Monthly Archives: September 2011

California pulls out of 50-state foreclosure talks

SACRAMENTO, Calif. (AP) — California Attorney General Kamala Harris said Friday that she will not agree to a settlement over foreclosure abuses that federal officials and other state attorneys general are negotiating with major U.S. banks.

Her announcement is the latest to undermine a settlement that had been in the works between the banks and attorneys general in all 50 states. Other states including New York also have expressed reservations.

The agreement was supposed to settle claims of poor mortgage and foreclosure practices, including document fraud known as "robo-signing" — approving documents in foreclosures without actually reading them.

However, Harris said the pending deal is "inadequate for California homeowners" and gives bank officials too much legal immunity.

The state is being asked as part of the settlement "to excuse conduct that has not been properly investigated," she wrote, promising to continue her own investigation.

Without agreement from the nation's most populous state — and one of the hardest hit by foreclosures — the settlement could end up doing little to resolve the issue. Foreclosure fraud class-action lawsuits are also piling up against major banks across the country.

Harris noted that more than 2.2 million California residents are underwater, meaning they owe more on their mortgages than their homes are worth. Since negotiations began 11 months ago, foreclosures have begun against more than 560,000 additional California homes.

"No state has been harder hit than my home state of California," Harris wrote in a letter to Associate U.S. Attorney General Thomas Perrelli and Iowa Attorney General Tom Miller, who have been leading the talks. "Recently, at the same time that we have been negotiating in good faith, foreclosures in California have surged again."

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are among the banks that have been involved in the talks to compensate borrowers whose homes were improperly foreclosed upon.

JPMorgan Chase spokesman Thomas Kelly and a Bank of America representative declined to comment on Harris' letter. A Wells Fargo representative did not immediately return a call seeking comment.

Harris said California will go it alone in negotiating a settlement with the banks that would keep more families in their homes. She also promised to seek regulations and legislation to prevent future problems.

Assistant Iowa Attorney General Patrick Madigan said California had been an important part of the negotiations, which already have had lasting effects, delaying foreclosures in many states.

"However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks," he said in a statement. The settlement will still be presented to all 50 states, he said.

States need to move quickly to prevent more foreclosures, Madigan said.

"Providing relief after the foreclosure crisis is over would be a hollow victory indeed," he warned.

Community organizations praised Harris for rejecting the settlement.

"The first step in restarting our economy is keeping people in their houses and holding banks' feet to the fire," Rick Jacobs, chairman and founder of the Courage Campaign, said in a written statement.

"This settlement would have only been able to help around 20,000 California homeowners out of 2.2 million, while giving away all future rights to pursue investigations and litigation around a broad list of fraud that has been committed," said a news release from People Improving Communities Through Organizing.

Banks' responses to the scrutiny have varied.

Many, including Bank of America and Ally Financial Inc.'s GMAC Mortgage, temporarily halted their foreclosure cases in October after allegations surfaced that employees signed but didn't read documents that may have contained errors. Wells Fargo also admitted it had made mistakes in thousands of foreclosure cases and promised to fix them but did not stop its foreclosures. All three lenders have said they're fixing the problems.

One of the biggest sticking points in settlement talks has been the amount of penalties the mortgage lenders would pay for their role in improper foreclosures. Federal and state officials have sought a figure greater than $20 billion while banks have pushed for about $5 billion.

A "monetary relief fund" was agreed upon in principle by May. But the formula for how much states and federal agencies would get became contentious.

Some states, upset with the slow movement on the settlement, have already taken action on their own.

New York's attorney general, Eric Schneiderman, was removed from an executive committee of 14 state officials in August after refusing to agree to an across-the-board immunity clause for banks.

Attorneys general in Arizona and Nevada, two of the states hardest hit by defaulted mortgages, have filed lawsuits against Bank of America, the country's largest bank, saying the lender misled and deceived homeowners who have tried to modify mortgages.


Associated Press writer Michael J. Crumb in Des Moines, Iowa; and AP real estate writers Derek Kravitz in Washington, D.C., and Alex Veiga in Los Angeles, contributed to this report.

Mortgage Debacle Costs Banks $66 Billion as Suits Sap Profit

By James Sterngold

Sept. 16 (Bloomberg) -- Faulty mortgages and foreclosure abuses have cost the nation’s five biggest home lenders at least $65.7 billion, according to a tally by Bloomberg News, and new claims may push the industrywide total to twice that amount.

Bank of America Corp., the largest U.S. lender, had the biggest costs, totaling $39.1 billion since the start of 2007, according to data compiled by Bloomberg. JPMorgan Chase & Co., ranked second by assets, followed with $16.3 billion, and Wells Fargo & Co., the biggest U.S. home lender, had $5.09 billion, the data show.

The costs have eclipsed predictions from bankers and analysts that lenders would suffer only modest damage from what Bank of America Chief Executive Officer Brian T. Moynihan has called “the mortgage mess.” Paul Miller, the FBR Capital Markets & Co. analyst, said costs for all banks could surpass $121 billion as the bill comes due for lax lending practices.

“You’re not talking about improperly stapling together two documents, you’re talking about systematic fraud in the system,” Neil Barofsky, the former special inspector general for the U.S. Treasury’s Troubled Asset Relief Program, said in an interview. “What this shows is that before the financial crisis, the banks were essentially lying to the purchasers of the mortgages about the quality.”

What’s Included

Bloomberg’s tally was compiled from regulatory filings, company statements and financial presentations by the nation’s five biggest mortgage lenders. The data cover provisions and expenses attributable to repurchases, foreclosure errors and abuses, payments to reimburse investors for lost value on faulty mortgages, legal settlements and litigation expenses.

The compilation also includes writedowns of assets, such as mortgage servicing rights, when the company attributed the loss in value to problems in mortgage underwriting or foreclosures and the costs of remedies. The figures may increase as more detailed breakdowns become available.

Miller, a former bank examiner, previously said costs might range from $54 billion to $106 billion for the banking industry. Under his new $121 billion estimate, which covers only repurchase costs, Bank of America, Wells Fargo, JPMorgan and Ally Financial Inc. will bear 60 percent of the burden, with Bank of America alone paying 33 percent.

Ally, previously known as GMAC Inc., has been hit with $3.28 billion in costs. The Detroit-based financer of auto loans and leases lost $10.3 billion in 2009 and required a government bailout totaling more than $17 billion, largely due to losses from its Residential Capital mortgage unit. Ally is now 74 percent owned by the U.S. Treasury Department.

Adding Up

Costs at Citigroup Inc., ranked third by assets among U.S. lenders, totaled $1.9 billion. The New York-based lender needed a $45 billion bailout as bad bets on subprime loans drove the company to post a 2008 net loss of $27.7 billion. The bailout has since been repaid.

“We have been diligent in settling claims related to the mortgage business, where appropriate,” said Gina Proia, a spokeswoman for Ally. “We believe we are appropriately reserved based on what we know today and what we are able to estimate.”

Shannon Bell at Citigroup, Thomas Kelly at JPMorgan and Richele Messick at Wells Fargo declined to comment on the data.

Most of Bank of America’s costs have been tied to mortgages written by Countrywide Financial Corp., the leading subprime lender, which Bank of America rescued from collapse in 2008.

“The reserves that we have established are part of the effort to address legacy and Countrywide issues and put them behind us,” said Jerry Dubrowski, a Bank of America spokesman.

Guarantees Offered

Banks typically made home loans and bundled them into securities sold to private investors and government-backed enterprises. They usually offered “representations and warranties” in which lenders promised to buy back the mortgages or cover losses if the loans turned out to be based on inaccurate or missing data on criteria such as the borrower’s income, the property’s value or whether it would be used as a primary residence.

“The impact of the reps and warranties was completely underestimated for a long time,” said Laurie Goodman, a senior managing director at Amherst Securities Group LP in New York who specializes in mortgage-backed securities. “It’s not anymore.”

Actions that may boost the total costs include the Federal Housing Finance Agency’s Sept. 2 lawsuit against 17 firms, which cited possible defects in $196 billion of mortgage securities bought by the Washington-based Fannie Mae and Freddie Mac, based in McLean, Virginia. FHFA became the conservator for Fannie Mae and Freddie Mac following government takeovers in the 2008 credit crisis.

AIG Lawsuit

Last month, American International Group Inc. filed a suit against Bank of America for more than $10 billion, alleging fraud. The bank denied AIG’s allegation and blamed the New York- based insurer for the problems.

“AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets,” said Larry DiRita, a Bank of America spokesman. “It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors.”

As for foreclosures, banks are negotiating a settlement with state attorneys general that may be valued at $20 billion. All 50 states are investigating whether banks relied on inaccurate, inadequate or missing documents to seize homes.

Success by claimants could push the costs for errors and misrepresentations to more than $100 billion, said Robert Litan, a vice president of research and policy at the Kansas City, Missouri-based Kauffman Foundation, which promotes entrepreneurial activity.

What Went Wrong

“As large as that number is, it’s a small fraction of the overall economic damage that the crisis and these mortgages caused to the economy,” said Litan, who was on a commission that investigated the savings and loan crisis in the 1980s. “There were trillions of dollars of damage.”

The FHFA lawsuit cited the prospectus for one mortgage- backed security underwritten by Bank of America entities, which said no loans were larger than the underlying value of the homes. In fact, 11 percent of loans sampled by the agency fit that description, the suit said. Another securitization said 4.45 percent of the homes weren’t owner-occupied, while the true percentage was 15.27 percent, according to the suit.

Fannie Mae and Freddie Mac “acknowledged that their losses in the mortgaged-backed securities market were due to the unprecedented downturn in housing prices and other economic factors,” said DiRita at Bank of America.

The industry-wide errors “were not minor slip-ups,” said Peter Swire, a law professor at Ohio State University in Columbus, Ohio, and until last year a special assistant to President Barack Obama for economic policy. “Our biggest banks were talking homeowners into taking some of these bad loans at the front end and then dumping fraudulent loans on investors at the back end.”

Selling Contracts

Moynihan at Bank of America has said the lender will sell some of its contracts to handle billings, collections and foreclosures on home loans, and JPMorgan will reduce its remaining mortgage portfolio “until it’s close to zero,” Chief Executive Officer Jamie Dimon told analysts on a July 14 conference call.

JPMorgan liabilities could swell if it’s forced to bear the cost of bad loans made by Washington Mutual Inc., according to the bank’s regulatory filings. JPMorgan acquired most of WaMu’s assets from the Federal Deposit Insurance Corp. in 2008 after the Seattle-based company became the biggest bank to fail in U.S. history.

WaMu sold securitized mortgages to investors that might be subject to repurchase demands, according to JPMorgan. While the bank contends the FDIC would be responsible for the costs, the agency contested that position and the dispute hasn’t been resolved, according to a July 14 JPMorgan presentation.

More Claims

Analysts have predicted banks will face more claims if home prices continue to decline and foreclosures keep rising. Default notices sent to overdue U.S. homeowners surged 33 percent in August from the previous month, and total foreclosure filings increased 7 percent, according to a Sept. 15 report from RealtyTrac Inc., the Irvine, California-based data seller. The increase in default notices was the biggest monthly gain in four years.

Collectively, that leaves investors with little certainty on how big the tally may become, according to Barofsky, the former TARP official and now a senior fellow and adjunct professor at the New York University School of Law.

“I don’t think anyone knows where the bottom is for all these costs,” he said.

--Editors: Rick Green, William Ahearn

To contact the reporter on this story: James Sterngold in New York at

Nevada foreclosure filings surge in August


 Nevada could see its inventory of foreclosed homes increase in the coming months, the latest data from Discovery Bay, Calif.-based showed.

Notices of default jumped 44.2 percent in August from the previous month, reversing what had been a declining trend for the past several months, the foreclosure listing service reported.

The surge in foreclosure filings is primarily attributed to Bank of America moving forward in clearing up the so-called "robo-signing" scandal from last year, said Sean O'Toole, chief executive officer of

"It's possible that they are clearing up files that were set aside during review of the robo-signing," O'Toole said Wednesday. "If that's the case, I think this will be a one-month blip of cleanup."

In Clark County, notice of default filings rose to 5,279 in August, up nearly 46 percent from July, but down 13.7 percent from the same month a year ago, ForeclosureRadar reported.

Notices of trustee sale declined 8 percent for the month and 44.8 percent from a year ago to 3,108 in August. It's the fifth consecutive month of declining notices of trustee sale.

Investor activity increased in August. Properties sold at auction to third parties rose 17.3 percent to 699, while those going back to the bank -- commonly known as real estate-owned -- increased 1.4 percent to 1,555.

Cancellations declined for the fourth straight month, dropping 9.1 percent in August to 1,540, the lowest number in 15 months.

Time to foreclose reached a record of 373 days in August. With banks taking more than a year to foreclose, it's unclear whether August's jump in foreclosure starts will lead to an increase in foreclosure sales anytime soon, O'Toole said.

Banks are playing a game of "foreclosure roulette," he said, keeping delinquent mortgages on their books to pass solvency tests, O'Toole said.

Wells Fargo and US Bank also saw an increases in foreclosure start filings, while filings by JP Morgan Chase and Citibank were essentially flat.

Banks are fighting legal battles against states and the federal government over the foreclosure process and are having to play "catch-up" on delinquent mortgages, O'Toole said.

The 2nd District Court in Washoe County ruled in August that Nevada's foreclosure mediation program -- the subject of a legal challenge by Deutsche Bank -- is constitutional.

Whether or not the bank will appeal the ruling is not yet clear. After the decision, the Las Vegas law firm representing Deutsche Bank issued a statement saying it is reviewing the decision and looking at various options.

"It's just this concept that all of this backlog of foreclosures should be worked through, but I just don't think we have the political will to foreclose on people who are sitting in their homes and not making payments, at least not very quickly," O'Toole said. "We're changing the rules so the banks don't have to (foreclose) and certainly the banks don't want to."

Homeowners pack court, stop foreclosure

Homeowners from five counties packed the courtroom here on Sept. 2 to support a Pittsburg family facing eviction in a foreclosure scam.

After a four-hour marathon session, the Superior Court judge cancelled the eviction. The decision means the Parra/Gullo family can stay in their home with a payment they can afford.

“I believe it was a victory for the family in this case,” said Delia Aguilar, an organizer with the Bay Area Moratorium (BAM), a homeowners group that is fighting wrongful foreclosures and evictions. “I believe the community had a lot of impact, that they came out here to support the family, often from long distances.” BAM organized 44 people to back up the family in court. They came from Contra Costa, San Joaquin, Santa Clara, Sacramento and Solano counties — areas hard hit by an epidemic of foreclosure fraud and chicanery by the banks and real estate companies.

The company seeking to evict the family, Antrea Investments Trading LLC, fraudulently claimed to have lawfully bought the property from Wachovia/Wells Fargo Bank after the homeowners failed to make mortgage payments. However, BAM pointed out:

1) the homeowner was not in default, having made regular payments which the bank accepted;

2) Antrea was not registered with the state to do business in California;

3) a bogus “robo-signing” document was used to try to evict the family; and

4) there was no “assignment of Deed of Trust” with the county recorder.

Antrea attorney Terrie L. Brewer’s jaw dropped when she saw all the supporters filing into the courtroom. She exclaimed, “They bring so many people!” Delia Aguilar concluded that “if all the homeowners will come out, like today, then these courts and sheriffs may be more careful in issuing orders that can result in an illegal eviction.” Aguilar explained that it has become standard procedure for real estate companies and their eviction attorneys to “move quickly to take the homes from these homeowners, harassing and scaring them, using gorilla tactics like threatening to get the sheriff to remove them in four hours. Sometimes these real estate people will call in law enforcement even before filing an ‘unlawful detainer’ action as if it was their own personal police force.

“But if we all stay together,” she added, “we can defeat them and keep our homes.”

BAM is part of a network of groups working for a moratorium to stop foreclosures and evictions and allow people to stay in their homes. The Michigan-based Moratorium NOW! Coalition explains the situation:

“Today the federal government, through its takeover of Fannie Mae and Freddie Mac along with the Federal Housing Administration, owns at least 75 percent of all mortgage loans. However, rather than utilizing this federal takeover of the housing market to benefit homeowners and renters, the federal government is continuing to bail out the banks, paying the banks full value for the fraudulent and predatory loans which they created, and then throwing millions of homeowners into the streets.

“It’s time for the federal government to bail out the people and not the banks. President Obama should immediately declare a two-year moratorium on all foreclosures and evictions, during which time the loans could be renegotiated to their real value, with the banks eating the losses for the fraud they practiced. Rather than selling off government-owned housing to investors and sharks, the government should train our youth to rebuild these homes and reoccupy them with the millions of homeless and unemployed.”

$1T in sour notes

Banks being squeezed by mortgage investors


It’s the flip side of foreclosure fraud: Not only is the city fireman in danger of losing his home, he also might wind up with smaller retirement checks because his pension invested in home-mortgage-backed bonds that were bundled and sold off by banks during the real-estate bubble.

Pension funds, insurance companies, university endowments, charities, community banks and other investors are believed to be out hundreds of billions of dollars because of the mess big banks made of the housing market.

Although lawsuits against banks are mounting, the disputes over the almost $1 trillion in mortgage securities may take years to resolve -- and most investors are likely to wind up with only cents on the dollar.


“It comes out of our pockets,” says Peter Henning, a Wayne State University law professor and securities-law expert. “No one reached into your wallet and took out cash, but it impacts all of us. If you’re a mutual-fund holder with a bond fund, you’ve probably taken a hit. Insurance companies have losses, and that cost has to get passed on.”


Subpoenas from state and federal lawmakers have raised investor ire by revealing bad banker behavior -- including widespread inking of fabricated foreclosure documents by “robo-signers.”


“Every layer of this onion you peel is rotten,” says Talcott Franklin, a Dallas lawyer who is representing the 129-year-old Catholic charitable organization, Knights of Columbus, and other investors in lawsuits against banks. “It’s hard not to feel wronged.”

Investors are getting aggressive about getting money back, but they recognize that only a small amount might get recovered, says Steve Toll, a partner at law firm Cohen Milstein, lead counsel in eight class-action lawsuits over mortgage-backed securities.

“We’re trying to get as much as we can for investors, but there’s never enough money to go around,” he says.


Isaac Gradman, a mortgage-litigation expert with consultancy IMG Enterprises, says the size of the potential liability is enormous.

“With $1 trillion in private-label mortgage-backed securities outstanding today, successful suits involving only a fraction could be pretty devastating for even the largest banks,” says Gradman.

Banks Blow Off, Doom Foreclosure Fraud Settlement With AGs

By: David Dayen Friday September 9, 2011

Obviously a refinancing initiative using an existing program, which may net $20 billion but not do much to arrest the foreclosure crisis, is more of a punt than anything as far as housing is concerned in the American Jobs Act. That’s Mike Konczal’s take as well. But the bigger news on the housing/foreclosure front was the final nail in the coffin of this increasingly farcical 50-state AG settlement. The banks are miffed about the FHFA’s lawsuit against them over representations and warrants on mortgage backed securities, particularly because the suit holds over 130 individuals responsible for the crimes, which is justnot done. So these banks blew off the latest scheduled meeting with the AGs in a fit of pique.

The five biggest mortgage servicers have cancelled a planned negotiating session with representatives of the 50 State Attorneys General in apparent protest over a federal regulator filing suit against them, a source familiar with the matter tells TIME.
The banks canceled the meeting on Tuesday afternoon in protest over the announcement last Friday that the Federal Housing Finance Agency would bring a broad case against 17 firms, including those in talks with the State AGs. The FHFA, which oversees mortgage giants Fannie Mae and Freddie Mac, alleges the firms violated securities law by misrepresenting the value of bundles of high-risk mortgages they sold. FHFA did not say how much the case might be worth, but outside analysts have said it could potentially produce billions of dollars in compensatory damages from the firms.

Massimo Calabresi intimates that the FHFA suit has ruined the AG settlement, but that’s a bit of 20/20 hindsight. The settlement was already going nowhere well before the FHFA lawsuit. The banks want full immunity on everything, and enough AGs were unwilling to give that up that the two sides could never come together. What’s more, AGs couldn’t possibly release the banks from liability lawsuits from private investors, or even quasi-private ones like Fannie and Freddie.
This is just a hissy fit from the banks, and probably an excuse to end settlement talks that will not give them what they need. Indeed, the banks are probably searching for a Plan B at this point. They don’t want to have to give up a dime on robo-signing, conserving cash for the future legal fights ahead. Some banks, like Bank of America, are engaging in restructuring and firing of top executives, essentially to create a smaller and more focused operation. BofA is actually trying to get itself small enough to fail, because with their exposure they cannot afford to be too big. They plan to cut 30,000 jobs and significantly separate the commercial and investment banking sectors of the business.
Meanwhile, the lawsuits and the exposure keeps coming. In a major appellate court ruling in Florida, one of the most important foreclosure states, a foreclosure was reversed because LaSalle Bank could not prove the proper amount due and owing. Glarum v. LaSalle Bank is a huge ruling with broad implications. Here’s Abigail Field:

When foreclosing, the court said, a bank has to use evidence, not hearsay. In this case, the hearsay was LaSalle’s claim about how much the homeowner owed it–the bank’s “affidavit of indebtedness.”
What is hearsay? Split the word in two and it’s obvious: the witness hears something, and then says it to the court. Hearsay’s prohibited for a basic reason: you can’t trust it to be true, as anyone who has played “telephone” knows. The hearsay rule has a 500+ year pedigree, so it’s not possible that any lawyer or judge in Florida thought it was okay to use hearsay to win a case [...]
Ruling that LaSalle’s affidavit of indebtedness was inadmissible hearsay was unremarkable as a matter of law. But in a state where some judges have displayed pro-bank bias so powerful they don’t require the banks to follow the rules, the decision is stunning. In fact, banks are likely to be far more than stunned by it; they may be stopped in their tracks for a long time.
That’s because the affidavit represented normal business practice: have an employee look at a piece of paper, look at a computer screen, and sign. By rejecting Orsini’s affidavit, the court is forcing the banks to overhaul their basic foreclosure processes. Don’t be too sympathetic to those poor banks, however. The hearsay nature of these affidavits is obvious, and the only way banks could think it would be alright to use them would be to think they are above the law.

If applied broadly, this ruling basically shuts down robo-signing and forces the banks to completely change their broken servicing processes. More here and here.

Bank of America: Too Big to Obey the Law

If you’ve watched the collapse in Bank of America’s stock this past month, you’ve probably read that investors are concerned about the bank’s legal liabilities from the collapse of the housing market. Analysts usually cite the raft of lawsuits filed by just about anybody who had anything to do with the bank or Countrywide, which was bought by Bank of America when Countrywide was on the verge of bankruptcy. Analysts, however, don’t tell you the details behind these legal claims – what exactly did Bank of America do to earn its position as poster child for banking industry fraud? To the rescue comes a lawsuit filled with such details, from someone who has access to thousands of consumer complaints about Bank of America. The complaint was filed recently by the Attorney General of Nevada, Catherine Cortez Masto. You should take the time to read this lawsuit. It tells you in a comprehensive way what went wrong with the mortgage business from origination of the mortgage to foreclosure. But fair warning: prepared to be nauseated. If Bank of America perpetrated even a fraction of the frauds outlined in this report, it raises a most serious question: why does this company still have a banking license?

Countrywide Sets the Tone

The first third of the complaint concentrates on the fraudulent activity of Countrywide Financial under its CEO Angelo Mozilo, before it collapsed and was bought up by a covetous Bank of America. Bank of America at the time of the purchase assured its shareholders that management had done thorough due diligence on Countrywide and that BOA was satisfied it had uncovered all the sins of omission and commission possibly perpetrated by Countrywide. It is evident now, as BOA is being dragged underwater by the weight of these sins, that management’s idea of “due diligence” seemed to consist of nothing more that reading the frothy “all is well” press releases that Angelo Mozilo was issuing until the very end.

Too bad BOA never uncovered the email Mozilo sent around to his executives, alerting them to growing problems in the mortgage portfolio, including the rising number of defaults and the difficulties borrowers were having with “payment shock.” BOA should have been concerned that Countrywide in 2003 had abandoned traditional fixed rate mortgages to sell more lucrative but highly toxic mortgages to customers that couldn’t qualify for traditional mortgages in the first place.

The three favorite mortgages at Countrywide were:

1) Option Adjustable Rate Mortgages, which were often marketed with a 1% teaser rate for the first three months. The consumer had the option to defer principal payments and only pay interest, but the deferred amount accumulated and compounded so that the mortgage developed “negative amortization”, which meant the loan balance grew to a size greater than the amount initially borrowed.

2) Hybrid Adjustable Rate Mortgages. These mortgages carried low introductory interest rates for the first two or three years, and then significantly higher interest rates for the next 28 or 27 years.

3) Home Equity Lines of Credit (HELOCs). Countrywide marketed these loans as “piggyback mortgages”, encouraging homeowners to borrow up to 85% of the value of their home on their first mortgage, and take out a HELOC for the remaining 15% of the value. The customer walked out the door signing away all equity of the home as collateral to Countrywide.

Countrywide set up a very aggressive marketing program for all three of these loans. Advertisements never mentioned anything but the opening, low rates. Brochures conveniently left out information about the payment shock which would occur when rates reset. Loan officers were not allowed to talk about interest rates at all during the initial conversation with a borrower, and nor was there any discussion of how much equity was going to be shifted over to the bank as collateral. By 2006, over three-quarters of Countrywide loans were “liar loans”, in which the homeowner’s income and asset information could be submitted without any verification whatever, such as pay stubs or tax returns. Often the loan officers made up these numbers out of thin air in order to get a loan approved. Countrywide played hardball with appraisers who did not inflate the value of homes under review; those who refused to play along were blackballed completely from ever dealing with the nation’s largest home loan lender.

That was the home loan side of things. Countrywide was also the nation’s largest mortgage servicer, for its own loans and those of many other banks, handling over $1.5 trillion in mortgages. Once the housing crisis hit in 2006, Countrywide found new and imaginative ways to defraud consumers by collecting “impermissible and inflated fees” from any homeowner in default or foreclosure or bankruptcy. Interest due was routinely overstated and never explained in detail. In four states where Bankruptcy Trustees looked into the matter, it was shown that Countrywide collected unlawful servicing fees.

The Federal Trade Commission investigated Countrywide’s compliance under the Deceptive Trade Practices Act (DTPA), and fined the bank $108 million for its various criminal acts. When Bank of America bought Countrywide, it wanted to put all these problems behind it, especially since they were much bigger and more serious than they thought at first. BOA negotiated a multi-state settlement, conceding that “Countrywide engaged in widespread consumer fraud in origination, marketing, and servicing.” The state of Nevada came to its agreement with BOA on February 24, 2009, in which BOA consented to make major changes in its servicing practices.

The complaint filed this week by Nevada is the third since 2009 in which the state alleges BOA has routinely violated the terms of this agreement. This new suit is also the most comprehensive in describing these violations, which also include the way BOA sold mortgages into the secondary market.

Bank of America Promises to Clean Up its Mortgage Business

Under the consent agreement with the state of Nevada, Bank of America promised that under its participation in the National Homeownership Retention Program, the bank would:

• Make the modification process streamlined,
• Decide on modifications within 60 days, on average,
• Not initiate or advance any foreclosures on homeowners seeking modifications to their mortgage.

Based on numerous complaints filed with the Attorney General of Nevada, the state’s lawsuit against Bank of America claims none of these promises was met.

The modification process was anything but streamlined. Consumers were required to submit proof of income, copies of tax statements including all attached schedules, an IRS tax form 4506-T (authorizing a tax transcript), a signed affidavit applying for a modification, and a signed letter identifying the financial hardship behind the request. Under the terms of some of the government modification programs, financial hardship was not a condition required for a modification. This was a bank, by the way, that was happy to extend these loans without any proof of income required from the consumer.

Once consumers submitted the required documentation, for many of them a nightmare began in which documentation would be lost by the bank as many as half a dozen times. The bank never told consumers documentation was lost; it was only discovered if the consumer called the bank to find out why the modification was taking so long. The bank would repeatedly tell consumers documentation was complete and under review, when in fact it was lost. These and other problems made a mockery of the bank’s claims, plastered all over its website and in written material, that the streamlined modification process would take less than 60 days, and in many cases “within 45 days”. Bank of America has refused to release its statistics on the average wait time for a modification decision, but the Nevada Attorney General believes the average to be well beyond 60 days.

While modifications were under review, or even if the documentation was lost by the bank, Bank of America proceeded in many cases to file for foreclosure against the applicants, even though this was strictly prohibited under the terms of the government programs involved. Consumers would receive letters of foreclosure at the same time they were told by the bank that modification was forthcoming. Employees working in the bank call center report numerous instances where they knew the home was in the process of foreclosure even though this was prohibited under the modification terms.

Consumers who were never late on a payment, and who sought a modification, were instantly labeled by the bank as a bad credit risk, and the credit agencies were notified of an adverse event that affected the consumer’s credit rating. It was also routine for the bank to hire collection agents to harass the applicants for payment if they were late on their mortgage obligation. One of the advantages to the bank of damaging a consumer’s credit rating or labeling them as delinquent and therefore subject to collection procedures, was that the bank could start accumulating missing payment fees and late payment interest charges. The Attorney General’s complaint cited a number of cases where the late fees and interest charges were so large, that the consumer lost the home to foreclosure anyway.

Consumers who were not late in making payments were routinely told that they could not proceed with an modification request until they deliberately failed to make a payment. This was definitely not a requirement under the government modification programs, but once a consumer stopped paying on their mortgage, the entire foreclosure process began in earnest, including compounding of late fees and other charges. In a number of such cases, these consumers ultimately lost their home to Bank of America under a foreclosure.

The bank said it made 20,000 modifications a month nationwide last year, but it won’t release data on how many applications were declined a modification. The Nevada Attorney General said that the decision process was opaque, and the reasons given for a refusal were often specious. If a request was denied, foreclosure was often the only option for the homeowner. The bank had any number of reasons to give when denying a modification. Consumers might be told that the investors owning the mortgage had refused to allow a modification, even though in most cases investors had authorized the bank to modify loans, and even though Bank of America had specific evidence in the consumer’s file that investors had waived their right to deny modifications for that specific mortgage. Another reason given was that the applicant had failed to file complete information; the complaint shows that in many such cases the applicant had filed the complete information required multiple times. On some occasions Bank of America denied modifications for incomplete information even though the only reason information was incomplete was because the bank had lost the file. One consumer was told his modification was denied because he had already received a modification, even though the applicant had rejected that modification because it was based on erroneous income information. In many cases the bank denied modifications because the applicant was “unable to be reached”, despite evidence in the file that the applicant had called the bank numerous times.

The denial of a modification usually allowed the bank to proceed with foreclosure. At the time of the Countrywide purchase, and when Bank of America entered into its consent agreement with the state of Nevada to clean up its mortgage servicing business, the bank knew that Countrywide had serious problems with its securitization process. Complaints had revealed that Countrywide hardly ever complied with the terms of the legal agreements governing securitizations, so that the trustee for the security rarely received the original note to the mortgages and never received any amendments or modifications to the note, as required.

Despite knowing this, since 2009 Bank of America, in the state of Nevada, has consistently foreclosed on properties for which it has no legal claim, according to the state Attorney General. The suit claims Bank of America “sought to enforce notes, engage in collection activity, pursue nonjudicial foreclosures, and defend foreclosures when it did not have the authority to act.”

Suppose a consumer was one of the few who received a modification. In many cases the modification involved an increase in the interest rate, which is yet another of the terms that are not permitted under the federal loan modification programs. Or, the consumer was allowed to go through mediation, which like arbitration, is one of those practices corporations are increasingly requiring to prevent consumers from suing in courts for redress. The Nevada suit claims, though, that Bank of America often did not show up at mediation hearings, or the people who came were unable to agree to mediation terms, or they didn’t have sufficient documentation in their file to discuss the terms. When the mediator got both sides to agree to a modification package, the mediator would discover months later that Bank of America never proceeded to grant the modifications. Some of these consumers therefore still went into foreclosure. A number of these mediators have reported to the state Attorney General that Bank of America “did not negotiate in good faith.”

What to Do About a Bad Faith Bank

The first defense Bank of America can make about its actions is that the Attorney General’s complaint consists of allegations. In other words, nothing has been proven yet. Except, the complaint cites several regulatory actions against Bank of America that have resulted in substantial fines being paid, even though the bank did not admit any guilt. It just didn’t want to go to court or to a jury trial. Second, this isn’t a complaint from a private party. The attorney general is in possession of thousands of complaints against the bank, complaints which have been investigated by the state, and for which the bank has no explanation or justification. The lawsuit is backed up by documentation from these thousands of consumers, by depositions, and other evidence. This isn’t some lawyer looking for an easy target and a quick settlement. This is, in fact, a state government that entered into an agreement with Bank of America on these same issues regarding mortgages and foreclosures, and has already concluded that the bank did not act in good faith.

Some of the observers who have had the stomach to read through all 48 pages of this suit – and it takes a good deal of fortitude to read about case after case of consumer fraud – think Bank of America is a criminal organization. Certainly you get the feeling that the bank operates in complete defiance of the law, of regulations set down in Washington, of the legal agreements it signed governing securitizations, of the promises it made to mediators, and of commitments it made previously to state attorneys general.

This week also saw two other complaints against Bank of America. The Federal Housing Finance Agency filed suit against BOA and 16 other banks, charging them with defrauding investors by lying about the condition of the mortgages included in mortgage-backed securities. The interesting thing about this complaint is that the allegations are about Bank of America’s behavior before it bought Countrywide, and when it was one of the large securitizers in the business. Separately it was revealed that HUD’s inspector general submitted to the Department of Justice evidence that many banks, including Bank of America, defrauded the government and consumers by forcing consumers to buy expensive home mortgage insurance, not revealing that the insurance provider was a subsidiary of the bank itself.

Adding all this up, you do get the image of a corporation which actively skirts, flouts, evades, and breaks the law. Does this mean that CEO Brian Moynihan meets regularly with his executives, or even his board of directors, to determine which laws to break next? No – nor is that necessary for one to conclude that the bank is a criminal enterprise. It is possible that the bank executives refused to hear the details of what their managers were doing, and winked and nodded at suggestions that the bank “stretch things” a little when it comes to the legalities.

But let us assume this is not the case. Assume that Moynihan and his fellow executives have every intention of following the law, and that they set a tone that should in normal circumstances encourage employees to follow the law and regulations to the letter and the spirit required. Even assuming this, something has gone severely wrong at Bank of America that still allows for egregious, fraudulent behavior. What could this be?

The large banks have admitted to serious errors in their mortgage servicing businesses. These businesses were sleepy underperformers before the housing collapse. They earned modest fees and modest returns for processing mortgage payments. Foreclosures were few and far between. They were grossly understaffed when the mortgage crisis hit, and they farmed out foreclosure and other duties to law firms that routinely broke the law with robo-signing and other techniques that jammed thousands of foreclosures through the system every week.

Having admitted all this, you would think an institution like Bank of America would devote top executive talent and the necessary hiring budget to fixing its problems. Whatever happens with the state of Nevada complaint, a bank lives and dies by its reputation, and cannot afford the reputational damage that is done when a high profile suit alleges consistent, deliberate criminal behavior. Bank of America has persisted in behavior that could utterly destroy its franchise.

This might be why shareholders have abandoned its stock, which has fallen over 45% in value this year. Given how the bank cannot afford continuing criminal behavior and the attendant law suits and reputational damage that results from this behavior, we have to conclude that the bank is incapable of correcting its fraudulent behavior. This may be because the bank cannot hire the right sort of people, or the cost of modifications is too high. This is certainly possible, because what is really needed are thousands of capable attorneys to handle all the modification claims and foreclosure legal requirements. It is also plausible that if the bank starts accepting modifications, it will need to write down billions in related first and second mortgages that would deserve similar treatment.

Another possibility is that the executives running the business are incompetent. Bank of America gave notice this week that this is something to consider, when it fired the executive in charge of Consumer Banking. Whatever the reasons, we come to the belief that Bank of America is Too Big to Manage.

Along with Too Big to Fail, we now have another reason to doubt whether Bank of America should be allowed to survive in its present form. And why wouldn’t the same conclusion be made for Wells Fargo, Citigroup, Chase Manhattan, Goldman Sachs and the other Too Big to Fail institutions? The same allegations have surfaced against these banks as well. Even the one bank supposedly above the fray of fraudulent behavior – JPM Chase, whose chairman insisted not one of its foreclosures was unjustified, was later forced to confess that by foreclosing on so many servicemen engaged in Iraq and Afghanistan, it violated the Service Members Civil Relief Act, which outlawed such foreclosures.

We would know a lot more about these other banks and their activities in the mortgage business if the attorneys general in other states were as conscientious as Catherine Cortez Masto. Lamentably, 46 state attorneys general have signed on to the effort of Attorney General Tom Miller of Iowa, who is attempting to come to some agreement with the banks regarding their role in the mortgage crisis. This agreement is said to involve a penalty of $20 billion or higher, and a commitment from the banks to cease their fraudulent behavior. Nevada has given up on this effort, as have officials in New York, Delaware, and Massachusetts. The banks have so far refused to accept any agreement until they get what they really want – a release “from all future liability for past mortgage practices and mortgage-backed securities they sold to investors”, according to some sources.

That the banks are pushing so hard for a blanket indemnity from all fraudulent behavior tells you that they must have a good deal of fraudulent behavior seeking absolution. They also feel in a strong enough position to demand it. Too bad these 46 attorneys general aren’t spending their time doing what Nevada has been doing – investigating the thousands of complaints many of them have received. Too bad there are so many of them that think the banks can be trusted to live up to their commitments once they get their blanket indemnity. Nevada has learned the hard way that Too Big to Fail also means Too Big to Manage, and Too Big to Obey the Law.

Bank of America, with its size and reach all across the United States, has proven itself to be a menace to the American economy. There are probably quite a few other banks its size which also pose a danger to the economic foundations of this country, which certainly rest in large part on respect for the law. Free market capitalism cannot survive if the major financial players disrespect, disregard and disobey the law.

Mortgage cases target people, not just banks

By Jonathan Stempel

(Reuters) - By suing 131 individuals in its effort to recover losses on $200 billion of mortgage debt that went sour, the federal agency overseeing mortgage giants Fannie Mae and Freddie Mac is doing one thing that the government has largely left alone.

It is trying to hold actual people, not just companies, responsible for their roles in the global financial crisis.

The 18 lawsuits by the Federal Housing Finance Agency, including 17 filed last week and one in July, signal a change from prior federal efforts to punish banks and bankers for their roles in the financial crisis.

That difference may stem in part from the FHFA's belief that it has enough evidence to pursue civil claims against banking executives.

Its lawsuits draw on information generated by 64 subpoenas issued last year for details on pools of mortgage securities that Fannie Mae and Freddie Mac bought. They also draw on probes by a Senate investigation subcommittee and the Financial Crisis Inquiry Commission, among other sources.

Most of the higher-profile financial crisis cases brought by the Department of Justice, such as its civil fraud against Deutsche Bank AG, or the Securities and Exchange Commission have named few or no individual defendants. So far, no top executives at major banks have been criminally charged.

"Each agency has its own statutory authority, and its own particular evidence," said Peter Swire, a law professor at Ohio State University and former special assistant to the president for economic policy in the Obama administration.

"The FHFA is not part of the executive branch," Swire added. "It does not report to the president. If the FHFA finds the right evidence, it decides on its own to move forward."

Sixteen of the FHFA lawsuits name two or more individuals as defendants, each of whom is said to have signed at least one regulatory filing that allowed the sale of the problem debt. Two people were sued in three different lawsuits.

The lawsuit against JPMorgan Chase & Co names 38 individual defendants, including over alleged wrongdoing at Bear Stearns Cos and Washington Mutual Inc, which the bank bought. Three lawsuits targeting Bank of America Corp name 27 individual defendants.


None of the individual defendants is a household name, though some hold high positions in finance. Former Countrywide Financial Corp president Stanford Kurland, for example, is now chief executive of PennyMac Mortgage Investment Trust. He is also a defendant in many other Countrywide lawsuits.

In one case, the FHFA said former Bear Stearns mortgage executive and defendant Jeffrey Verschleiser "forcefully advocated" packaging loans into securities before homeowners started missing payments, triggering default provisions.

And, in its lawsuit against Goldman Sachs Group Inc, the FHFA said Kevin Gasvoda, then head of residential whole loan trading, in February 2007 directed sales staff to sell mortgage debt as part of Goldman's push to offload "declining and defective" mortgage assets.

"Great job syndicate and sales, appreciate the focus," he replied after substantial sales took place, the lawsuit said.

A JPMorgan spokesman declined to comment on its lawsuit and Verschleiser. A Goldman spokesman declined to comment on its lawsuit, and said Gasvoda remains employed at the bank. Verschleiser now heads mortgage operations at Goldman.

The FHFA's mandate is to oversee secondary mortgage markets, help make Fannie Mae and Freddie Mac sound and solvent, and minimize taxpayer losses.

Its lawsuits mark a new tack by the government, at a time investors generally are worried about the ability of banks worldwide to weather soft economies, tight credit conditions, and excess debt, including at the sovereign level.

Federal regulators are also working with all 50 state attorneys general on a possible $20 billion settlement with big banks to address "robo-signing" and other foreclosure abuses.

"There are many doubts about the legitimacy of the banks' activities," said Raymond Brescia, visiting clinical associate professor at Yale Law School. "Resolution of these lawsuits could clear up many of these doubts."


The Justice Department's biggest lawsuit this year related to the credit and financial crises is a civil case, accusing Deutsche Bank of hoodwinking a federal housing agency into insuring poor quality mortgages. The case names no individual defendants, and Deutsche Bank has sought to dismiss it.

Federal prosecutors have also pursued only two significant criminal cases tied to the crisis through trial, with mixed results.

In the first, former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin were acquitted of fraud in November 2009. In the second, former Taylor, Bean & Whitaker Mortgage Corp Chairman Lee Farkas was convicted in April, and later sentenced to 30 years in prison.

Meanwhile, the SEC has targeted individuals in only a handful of major cases.

Last year, it named just one individual defendant in its lawsuit against Goldman over a soured mortgage investment, Abacus. Goldman settled for $550 million. The individual, vice president Fabrice Tourre, is still fighting the SEC charges.

Earlier, the SEC got a $150 million settlement from Bank of America over its failure to disclose details about its takeover of Merrill Lynch, and a $67.5 million accord with former Countrywide Chief Executive Angelo Mozilo.

But the federal judge who approved the Bank of America accord called it "half-baked justice at best," saying it was not directed at people responsible for the nondisclosures.

Mozilo admitted no wrongdoing, and insurance covered much of his payout. Experts said insurance could also limit liability for some individuals in the FHFA cases.

The FHFA's decision to go after individual defendants may reflect more potentially incriminating facts uncovered through its subpoenas than what other agencies found in their probes.

Also, the FHFA faces a lower standard of proof in civil cases than the Justice Department faces in criminal cases: that wrongdoing was more likely than not to have occurred, not that it occurred beyond a reasonable doubt.

Moreover, because the FHFA did not exist until the summer of 2008, six weeks before Fannie Mae and Freddie Mac were taken over by the government, it had no real chance to work with bank executives to address alleged improper practices.

Lawsuits against the banks and some of those executives are part of the clean-up effort.

United States: Obama blind to bankers’ fraud

By Keeanga-Yamahtta Taylor

The United States is facing its gravest housing crisis since the Great Depression.

By at least one measure, today's crisis is worse. Housing prices have now fallen 33% from their peak, compared with 31% during the depression.

Yet despite the almost unprecedented nature of the housing collapse, the administration of US President Barack Obama has remained stunningly passive if not utterly disinterested.

This inaction is criminal given the fact that the largest US banks have used illegal means to file and carry out foreclosures.

From illegal notary signatures to filing claims without proof of being the legitimate lending institution, the banks are being allowed to flout the legal process and literally steal people's homes.

This isn’t just banter from critics of the Obama administration. It was the finding of an internal review conducted by the Department of Housing and Urban Development (HUD).

An investigative report by Shahien Nasiripour in May reported that HUD launched an undercover investigation into whether the nation's five largest mortgage lenders — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — had defrauded taxpayers in their handling of foreclosures on homes with government insured loans.

The HUD investigation found the banks had cheated the public — and broken the law.

Specifically, the banks “filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents”, Nasiripour wrote.

Other probes have revealed further wrongdoing by the banks.

Investigators found that lenders pursuing foreclosures improperly handled 49% of Federal Housing Administration loans.

In a random review of several thousand foreclosures serviced by the 14 largest mortgage firms, government officials found 50 active-duty military personnel in foreclosure. This is a violation of federal law.

The Bank of America has been singled out for particularly nefarious behavior. BoA is the largest holder of mortgages in the US and the prime perpetrator of using fake documentation to illegally foreclose on homes.

Its use of illegal documents became so widespread and obvious that the bank imposed a moratorium on its foreclosures last October.

Despite this brief reprieve, BoA quickly restarted its foreclosure mill.

The HUD investigation charges that even after the moratorium, BoA continued to use illegal means to foreclose on homes.

Not only has the Obama administration not taken this opportunity to stand up for homeowners and taxpayers by exposing the banks, it appears to be preparing to let them completely off the hook.


The HUD investigation suggested the banks could be charged with a Civil War-era law called the False Claims Act, which was passed to stop companies from swindling government funds.

The penalties for crimes committed under the act allow the government to collect three times the actual damages.

But instead of trying to make the banks pay for their behavior, the White House has teamed up with the Treasury Department, HUD officials and bank supervisors to compel the 50 state attorney generals to negotiate a weak settlement that would end all future legal action against banks for mortgage fraud.

The terms of the settlement proposed by the Obama administration are criminal.

The administration initially proposed a settlement of US$20 billion to be paid by the five major banks into a fund to modify loans and help homeowners who are in trouble.

Laughably, the banks countered with an offer of $5 billion.

Both sums are outrageously low considering the amount of money the banks have raked in.

Consider that HUD's investigation into fraudulent claims on FHA-insured loans found that BoA alone submitted $5.7 billion in claims, just between October 2008 and September last year.

One report estimated the banks had already saved at least $20 billion through shortcuts in the foreclosure process.

New York Attorney General Eric Schneiderman has so far refused to agree to the settlement, rightfully saying that such an agreement will prevent any future legal action against the banks.

In response, the Obama administration is turning up the pressure on Schneiderman to cave.

Kathryn Wylde, a member of the board of directors of the New York Federal Reserve, made the priorities of the Federal Reserve and the Obama administration crystal clear when she told him (reportedly at a funeral service for former Governor Hugh Carey, no less): “It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a monkey wrench into it.

“Wall Street is our Main Street — love 'em or hate 'em. They are important, and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Apparently, bilking millions of people out of their homes, selling junk securities, filing billions of dollars in false claims from the federal government and setting off a financial crisis that has spread around the world doesn't rise to the level of “indefensible”.

And the investigations of fraud haven't touched the full scope of the banks’ behaviour.

For example, the federal government hasn't looked at these same banks' role in perpetuating the use of predatory sub-prime loans in African American communities throughout the 1990s and well into the new millennium.

This is despite the fact it is widely known that banks routinely singled out African Americans for sub-prime loans.

The inaction of the Obama administration on charges of fraud fits with its incompetent response to housing collapse more generally.

The centrepiece of the administration's foreclosure prevention plan is the Home Affordable Modification Program (HAMP). To date, HAMP has used only 4% of the funds allocated to it three years ago.

The program's impotence is easy to understand.

It was established to allow homeowners to modify their original mortgage loans, but it was left up to the banks to decide who qualifies.

But the banks have no incentive to modify any loans.

If homeowners can't pay the full amount, the government guarantees that most banks will have their loans fully reimbursed — at the taxpayers' expense.

An expose published by the Detroit Free Press on August 14 broke the news that the Federal National Mortgage Association — commonly known as Fannie Mae — has, in fact, been pressuring banks to foreclose on homeowners.

Fannie Mae was a private entity, though with federal government sponsorship, before the financial meltdown in 2008.

At that point, it was taken over by the federal government for fear that the banks couldn't cover the wave of home mortgage defaults.

Fannie Mae owns more than half of all mortgages in the US and two-thirds of all new mortgages.

According to its own rules, Fannie Mae is supposed to instruct the banks that service its loans that each homeowner potentially in foreclosure must be considered for loan modification under the HAMP.

Instead, internal memos found that a vice president of Fannie Mae made it clear to lenders that between 10% and 12% of homes in foreclosure were expected to proceed to sale.

Fannie Mae even encouraged banks to foreclose on homeowners who were actually in the process of qualifying for mortgage modifications — violating its own policy.

Valparaiso law professor Alan White explained that Fannie Mae has an interest in dealing with problem loans before it reverts back to being a private institution.

White said: “Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses ... And Treasury and the [Federal Housing Finance Agency] are letting them get away with it.

“It's a huge waste. Wealth is being destroyed, people are losing houses needlessly, and taxpayers are losing money.”

If Fannie Mae can use public tax dollars to pay off bank losses before the federal government ends its takeover, it won't be responsible for the cost.

So far, foreclosures have cost the federal government $141 billion. That number is expected to rise to almost $400 billion before the bottom of the housing crisis is reached.

So why is the administration looking the other way when it comes to the banks' corrupt practices?

Consider the fact that Obama and his advisers have stated they plan to raise $1 billion for the upcoming presidential election.

Only a few institutions have the kind of funds that can help Obama get to that figure — Wall Street and the banks are certainly among them.

Obama has spent the past year currying favor with Corporate America in general. He has refused to raise corporate taxes, kept the Bush tax cuts from expiring and pledged to reduce federal oversight and regulation.

The inaction of the administration on the foreclosure crisis fits the pattern.

Yet while the Obama administration refuses to act, there is a growing grassroots movement of anti-eviction and anti-foreclosure organisations that are challenging bank foreclosures — and encouraging homeowners and tenants to stay put.

This movement has had high-profile victories in Chicago, New York City and Rochester.

Activists have used an assortment of tactics — from challenging the bank's ownership of a particular mortgage, to simply refusing to move and organising neighborhood blockades that physically prevent evictions from being carried out.

Given the growing number of people affected by foreclosure and eviction, now is the time to organise that movement — because waiting for the Obama administration to do anything to stop the needless suffering of homeowners is futile.

[Reprinted from . Keeanga-Yamahtta Taylor is on the editorial board of the International Socialist Review.]


Banks Continue to Fabricate Documents, Commit Foreclosure Fraud

By: David Dayen Thursday September 1, 2011 9:30 am

Article From FireDogLake 

Goldman Sachs, Litton Loan Servicing and Ocwen Financial have agreed with a state regulator in New York to “end robosigning.” I’m not really sure what that means. First of all, Goldman sold Litton Loan Servicing to Ocwen, so I’m not sure why they are in this story at all, save for the name ID. Second, robo-signing is illegal, so agreeing to end it is like saying “I’ve agreed to stop running over people with my car.” The New York banking regulator does not have the ability to pursue criminal or civil prosecutions, though they could happen on a parallel track. But this is essentially akin to Litton and Ocwen saying “we won’t do it again.”

And 14 top banks have already agreed to end robosigning, through their consent decrees with the Office of the Comptroller of the Currency. Litton and Ocwen were not part of that agreement, but if anything would set a precedent for other regulators, it would be the OCC action. And yet, as Kate Berry at American Banker reports, those banks continue to fabricate documents and defy the consent order:

Some of the largest mortgage servicers are still fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners.

The practice continues nearly a year after the companies were caught cutting corners in the robo-signing scandal and about six months after the industry began negotiating a settlement with state attorneys general investigating loan-servicing abuses.

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

Berry follows on reporting from Reuters and AP, and something well known to anyone who follows the various foreclosure fraud sites out there. This is the dirty secret about robo-signing: it’s still happening. So are the forgeries and the document fabrication and the fraud upon state courts. After the scandal erupted last October, the banks promised to fix their operations. They did so by waiting everyone out and engaging in the exact same practices.

And you see, the banks HAVE to fabricate documents. Because they destroyed the private property system through improper and sloppy securitizations and lost or missing mortgage assignments during the bubble years, and as such they cannot prove standing to foreclose without lying. Robo-signing is a crime, but it’s also a cover-up for a much bigger crime, which involves MERS and improper mortgage transfer and securities fraud. The robo-signed, forged, fabricated documents are the smokescreen being used to foreclose and get the real problem off the books. Banks are trying to wriggle off the hook by saying they are merely “memorializing” past actions with the fake documents. Some courts aren’t buying it; the pooling and servicing agreements stipulate that all assignments showing transfers must take place within 60 days, not years later through “memorialized” actions.

And some state AGs, like Eric Schneiderman in New York and Catherine Cortez Masto in Nevada, are on to this as well. They both filed with courts allegations of improper securitizations and the lack of standing to foreclose. They know that the robo-signing and document fraud is a cover-up as well as a crime. Max Gardner, the godfather of foreclosure defense, explains one of the scams:

North Carolina consumer bankruptcy lawyer O. Max Gardner III says servicers and trustees often submit promissory notes in court without proper endorsements, which show the chain of title from one lender to another. Then, after the fact, there will be “a magically appearing note with a stamped endorsement,” Gardner said.

When plaintiff’s lawyers then try to depose the person whose name is stamped on the endorsement, “we’re being told the person is no longer employed by the servicer or by the party for whom they signed,” Gardner says.

Linda Tirelli, a New York bankruptcy lawyer, calls such mortgage documents “Ta-Da!” assignments because they seem to appear out of nowhere.