(Source: Attorney General Eric T. Schneiderman) - MINEOLA – In a speech to Long Island business leaders as part of Hofstra University’s Distinguished Lecture Series, Attorney General Eric T. Schneiderman today detailed his multi-pronged strategy to restore New York’s housing market and protect homeowners from foreclosure. Excerpts from the speech are below.
On the Economic Impact of the Housing Crisis
The biggest impediment to a more rapid recovery is the ongoing crisis in America’s housing market…. Homeowners who are facing foreclosure, or who are underwater on their mortgages, are saving every penny they have to try to pay down their debt and save their homes. They can’t spend at local businesses. They can’t move for a better job or invest in starting their own small business. They’re stuck under America’s $628 billion mountain of negative equity.
On the Ongoing Housing Crisis on Long Island
This crisis is far from over. Five years after the housing market crashed, in the third quarter of 2012, foreclosure filings were up 35% in Nassau County.
On Attorney General Schneiderman’s Goals for Recovery
Our housing relief initiative has three essential objectives: First, to protect homeowners’ legal rights; second, to speed as much relief as possible to those who are still struggling because of past abuses; and finally, to hold accountable those who caused the crisis, so that we can restore confidence that there is one set of rules for everyone.
On Protecting Homeowners Legal Rights
When I took office, half of New Yorkers facing foreclosure had no access to a lawyer at any point in the process…. So last year, we set up the attorney general’s Homeowner Protection Program, or HOPP. This is a three year, $60 million dollar commitment to fund housing counselors and legal services providers all over the state to help homeowners avoid foreclosure.
On Speeding Relief to Struggling Homeowners
When the National Mortgage Settlement was executed last spring, H.U.D. estimated that new york homeowners would receive approximately $600 million in mortgage relief, principal reductions, rate reductions, and other benefits. Thanks to our H.O.P.P. network, our homeowners actually received around $2 billion in the first year.
On Improving Protections for Homeowners
Earlier today we announced that I have introduced two bills—one civil and one criminal—to protect New York homeowners from wrongful foreclosure.
On Pursuing Accountability for the Root Causes of the Crash
We are continuing to investigate the conduct that led to the crisis in the first case. My office has filed securities fraud cases against two major banks that engaged in a systemic pattern of fraudulent misrepresentations and omissions in the packaging, promotion, and sale of mortgage backed securities. We see these cases as templates for future actions and our investigation is ongoing.
The misconduct in the mortgage backed securities market contributed to the bubble and crash that cost Americans over $7 trillion dollarsin home equity and precipitated the worst recession in 70 years. There has to be accountability and we have to restore the principle that everybody plays by the same set of rules. If we don’t, this kind of crisis will happen again.
Attorney General Schneiderman’s speech at Hofstra University followed a news conference earlier in the day at the Attorney General’s Nassau Regional Office with New York State Senate Majority Coalition Leader Jeff Klein pushing for passage of the “Certificate of Merit” bill (A. 5582) and the Foreclosure Fraud Prevention Act (A.7395), two important pieces of legislation to protect New York homeowners facing foreclosure. Both bills passed the New York State Assembly last week, and will be soon be decided on by the New York State Senate. Many homeowners in New York are still fighting to stay in their homes, and these bills would ensure that families are protected from careless, or irresponsible, or even criminal behavior.
The “Certificate of Merit” bill would ensure homeowners have a chance to participate in court-supervised mediation sessions that could help them keep their homes. The Foreclosure Fraud Prevention Act would impose criminal penalties on residential mortgage lenders, servicers and their agents who intentionally engage in fraudulent or deceptive conduct in the preparation, execution or filing of false foreclosure documents. This legislation was proposed by Attorney General Schneiderman and are being sponsored in the Senate by Senator Klein.
Homeowners’ foreclosure cases regularly languish for months, or even years, when financial institutions delay in filing critical paperwork that affirms the basis for the foreclosing bank’s right to foreclose on the property and ultimately triggers a settlement conference – the mandatory process under New York law that provides borrowers an opportunity to negotiate alternatives to foreclosure, such as loan modifications or short sales.
The delays and subsequent backlogs, often referred to as the “shadow docket,” have become a major burden on both homeowners and the judicial system. This legislative fix will require banks to file the necessary paperwork, which ultimately triggers the settlement conference, simultaneously with the filing of any foreclosure action, thus avoiding future delays. The Office of Court Administration issued a report in July of 2012 which found that 25,000 families are trapped in this legal foreclosure limbo.
In 2009, Senator Klein authored landmark foreclosure legislation aimed at protecting homeowners and preserving property values in communities stricken with high rates of foreclosure. Senator Klein’s legislation, which was signed into law by Governor Paterson, requires banks to maintain foreclosed properties, creates new ways for homeowners to stay in their homes after foreclosure proceedings, and guarantees every homeowner the right to a settlement conference prior to any court proceeding.
The Foreclosure Fraud Prevention Act would impose both misdemeanor and felony-level penalties for lenders and servicers who knowingly engage in fraudulent residential mortgage foreclosure practices. These fraudulent activities include falsifying mortgage foreclosure documents–a practice that came to be known as “robo-signing,” which was rampant in New York and across the country during the early part of the foreclosure crisis.
An investigation of robo-signing conducted by the Office of the Attorney General with 48 State Attorneys General, the Department of Justice and the U.S. Department of Housing and Urban Development, led to the signing of the National Mortgage Settlement, a $25 billion agreement with the nation’s five largest mortgage servicers and provides for billions in mandated consumer relief including mortgage refinancing and principal reductions.
The bill will create a legal definition for residential mortgage foreclosure fraud, which will apply to mortgage lenders and servicers, and extend both to their lower level employees and “high managerial agents.” This aspect of the bill is particularly significant because it carries the potential to bring criminal charges against law firms and servicers that specialize in high-volume residential foreclosure cases and knowingly engage in fraud.
Attorney General Schneiderman has made protecting homeowners struggling to avoid foreclosure a top priority. In June 2012, he announced the Homeowner Protection Program (HOPP), a three-year, $60 million initiative to fund housing counselors and legal services across New York State. The program strives to ensure that every family facing foreclosure has access to a knowledgeable and qualified professional advocate.
Throughout New York State, 34 legal services organizations and 59 housing counseling agencies will receive over $16.1 million this year to provide free foreclosure prevention services. An additional $3.9 million has been allocated for training, technical assistance, and other support services to assist homeowners in foreclosure. In part because of the advocacy of HOPP funded housing counselors and legal services providers, over 4,300 New York homeowners have completed, or have active trial modifications for approximately $540 million worth of first mortgage principal reduction.
For more information on Attorney General Schneiderman’s efforts to support New York families caught in the foreclosure crisis, visit www.AGHomeHelp.com.
The Distinguished Lecture Series at Hofstra University is organized by the Scott Skodnek Business Development Center (BDC) at Hofstra University. The BDC assists businesses, public entities and community organizations on Long Island and in the surrounding area start-up, expand, or diversify. The Distinguished Lecture Series is designed to bring together the elite of Long Island’s business community and offer them the opportunity to interact with some of the country’s most powerful and influential thinkers in fields ranging from science to politics to investments.
Bills before state senate look to New Yorkers are protected from irresponsible, or even criminal, behavior
Schneiderman: Legislation will keep homeowners out of the legal limbo and ensure their rights are honored
Attorney General Eric T. Schneiderman and New York State Senate Majority Coalition Leader Jeff Klein today highlighted the "Certificate of Merit" bill (A. 5582) and the Foreclosure Fraud Prevention Act (A.7395), two pieces of legislation to protect New York homeowners facing foreclosure. Both bills passed the New York State Assembly last week, and will be soon be decided on by the New York State Senate. Many homeowners in New York are still fighting to stay in their homes, and the AG said these bills would ensure that families are protected from careless, or irresponsible, or even criminal behavior.
The "Certificate of Merit" bill would ensure homeowners have a chance to participate in court-supervised mediation sessions that could help them keep their homes. The Foreclosure Fraud Prevention Act would impose criminal penalties on residential mortgage lenders, servicers and their agents who intentionally engage in fraudulent or deceptive conduct in the preparation, execution or filing of false foreclosure documents. This legislation was proposed by Schneiderman and sponsored in the Senate by Klein.
"On Long Island and all across New York state, wrongful foreclosure and the growing 'shadow docket' are preventing thousands of families from even getting a chance to keep their homes," Schneiderman said. "Both the 'Certificate of Merit' bill and the Foreclosure Fraud Prevention Act address these critical problems by proposing common-sense reforms to keep homeowners out of the legal limbo and ensure their rights are honored. The Assembly has already acted to empower hardworking New Yorkers fighting against foreclosure. It is now time for the Senate to do the same."
Klein said, "Any family that is facing the loss of their home deserves a fair day in court. But right now, unnecessary delays and incomplete paperwork are denying thousands of families this opportunity every day. These reforms can help change all of that, by ending the stalemate and bringing these homeowners the peace of mind that they deserve. That's why I'm proud to support these measures and look forward to ushering them through the Senate."
"With these new laws, we will hold criminals accountable for their abusive foreclosure practices and deter them from unlawfully removing New Yorkers from their homes, and eliminate the 'shadow docket' in the courts," said Assemblywoman Helene Weinstein, chair of the Assembly Judiciary Committee. "Attorney General Eric Schneiderman and Chief Judge Jonathan Lippman have recognized the problems in foreclosure and have put forward corrective legislation, to protect New York's homeowners. I look forward to the Senate passing this much-needed legislation."
"Too many older New Yorkers are at risk of losing their homes to foreclosure because some banks and their lawyers are exploiting administrative loopholes, which are denying homeowners a chance at affordable settlements - all the while continuing to charge interest and fees. This needs to change," said Beth Finkel, state director for AARP in New York. "AARP applauds Attorney General Schneiderman and Sen. Klein for proposing a common sense solution to stop banks' delay tactics and help homeowners get the resolution they deserve - and the chance to keep their homes."
Elie Hecht, director of Labor and Industry for Education, said, "In working with underserved communities on Long Island, we've seen numerous cases of homeowners left waiting for lenders to adhere to legal requirements, struggling while their loan interest and legal fees pile up. Such injustices should simply not be allowed to happen. This legislation will put an end to the harmful delays that prevent New York homeowners from finally moving past the foreclosure crisis."
Josh Zinner, Co-Director of the Neighborhood Economic Development Agency, said, "Abuse by lenders in the foreclosure process has caused great harm to communities throughout the state. The proposed legislation would be an important step toward reforming the process - it would ensure that lenders don't file foreclosures based on invalid information, and it would speed up the time it takes homeowners to get to court-supervised mediation. These reforms would enable more homeowners to get loan modifications and save their homes."
Kristen Brown Lilley, director of policy advocacy at the Empire Justice Center, said, "This bill addresses a real problem for homeowners who are stuck in legal limbo because lenders aren't filing the required paperwork. If enacted, foreclosure cases will move more swiftly through the foreclosure process, giving homeowners a better chance of saving their homes, and returning vacant properties to the housing market more quickly."
Homeowners' foreclosure cases regularly languish for months, or even years, when financial institutions delay in filing critical paperwork that affirms the basis for the foreclosing bank's right to foreclose on the property and ultimately triggers a settlement conference - the mandatory process under New York law that provides borrowers an opportunity to negotiate alternatives to foreclosure, such as loan modifications or short sales.
The AG said delays and subsequent backlogs, often referred to as the "shadow docket," have become a major burden on both homeowners and the judicial system. This legislative fix will require banks to file the necessary paperwork, which ultimately triggers the settlement conference, simultaneously with the filing of any foreclosure action, thus avoiding future delays. The Office of Court Administration issued a report in July of 2012, which found that 25,000 families are trapped in this legal foreclosure limbo.
In 2009, Klein authored landmark foreclosure legislation aimed at protecting homeowners and preserving property values in communities stricken with high rates of foreclosure. His legislation, which was signed into law by Gov. David Paterson, requires banks to maintain foreclosed properties, creates new ways for homeowners to stay in their homes after foreclosure proceedings, and guarantees every homeowner the right to a settlement conference prior to any court proceeding.
The Foreclosure Fraud Prevention Act would impose both misdemeanor and felony-level penalties for lenders and servicers who knowingly engage in fraudulent residential mortgage foreclosure practices. These fraudulent activities include falsifying mortgage foreclosure documents - a practice that came to be known as "robo-signing," which was rampant in New York and across the country during the early part of the foreclosure crisis.
An investigation of robo-signing conducted by the Office of the Attorney General with 48 state attorneys general, the Department of Justice and the U.S. Department of Housing and Urban Development, led to the signing of the National Mortgage Settlement, a $25 billion agreement with the nation's five largest mortgage servicers, and provides for billions in mandated consumer relief, including mortgage refinancing and principal reductions.
The new bill will create a legal definition for residential mortgage foreclosure fraud, which will apply to mortgage lenders and servicers, and extend both to their lower level employees and "high managerial agents." This aspect of the bill is particularly significant because it carries the potential to bring criminal charges against law firms and servicers that specialize in high-volume residential foreclosure cases and knowingly engage in fraud.
Schneiderman has made protecting homeowners struggling to avoid foreclosure a top priority. In June 2012, he announced the Homeowner Protection Program, a three-year, $60 million initiative to fund housing counselors and legal services across New York state. The program strives to ensure that every family facing foreclosure has access to a knowledgeable and qualified professional advocate.
Throughout New York state, 34 legal services organizations and 59 housing counseling agencies will receive more than $16.1 million this year to provide free foreclosure prevention services. An additional $3.9 million has been allocated for training, technical assistance, and other support services to assist homeowners in foreclosure. In part because of the advocacy of HOPP-funded housing counselors and legal services providers, more than 4,300 New York homeowners have completed, or have active trial modifications for approximately $540 million worth of first mortgage principal reduction.
For more information on Schneiderman's efforts to support New York families caught in the foreclosure crisis, visit www.AGHomeHelp.com.
The deals are being marketed as the $425 million Advance Receivables-Backed Notes Series 2013-T2 and $425 million Advance Receivables-Backed Notes Series 2013-T3.
In December 2012, Ocwen purchased Homeward Residential Holdings $2.267 billion servicing portfolio. $703.2 million of that contributes to the existing collateral in the facility.
The securitization of mortgage servicing advances are becoming more and more common.
Earlier this year North-Texas based servicing giant Nationstar Mortgage Holdings ($44.83 1.02%)priced a securitization from its special purpose vehicle Nationstar Agency Advance Funding Trust for an estimated $900 million in mortgage servicer advance receivable-backed notes.
Credit enhancement in the HLSS deal is primarily via overcollateralization with a subsequent reserve fund to cover any investor shortfall.
S&P remarked on the strength of the deal, adding Ocwen's commitment to continue to make advances on delinquent loans until the servicer deems them nonrecoverable, as a clear positive. And it's listed as such in the Pooling and Servicing Agreement.
Tranches are mainly and preliminarily rated investment-grade.
However, there remains some unknowns related to foreclosure litigation, the pre-sale states. And HLSS' ability to advance payment to investors is based on the ability of Ocwen to keep the payments coming.
S&P ranks Ocwen highly as a mortgage servicer, prompting it to downplay this risk in its analysis.
A federal judge on Monday made the rare move to stop the foreclosure auction of an Aurora woman’s house in a case that squarely takes on the constitutionality of Colorado’s foreclosure laws.
U.S. District Judge William Martinez issued a preliminary injunction against the sale of Lisa Kay Brumfiel’s four-bedroom home, scheduled for Wednesday in Arapahoe County, until the judge can decide whether parts of state law are unfair to homeowners facing the loss of their house.
At issue is a provision in state law that allows lawyers to assert that their client, typically a bank, has the right to foreclose on a property even though they might not have the original mortgage paperwork to prove it.
What makes the case compelling isn’t just that a federal judge was persuaded to step into an issue involving state law — extremely difficult to do — but the plaintiff in the case is a part-time saleswoman who has taken on the battle without a lawyer.
he obscene greed-and-arrogance stories emanating from Wall Street are piling up so fast, it's getting hard to keep up. This one is from last week, but I missed it - it's about the foreclosure/robo-signing settlement that was concluded earlier this year.
The upshot of this story is that in advance of that notorious settlement, the government ordered banks to hire "independent" consultants to examine their loan files to see just exactly how corrupt they were.
Now it comes out that not only were these consultants not so independent, not only did they very likely skew the numbers seriously in favor of the banks, and not only were these few consultants paid over $2 billion (over 20 percent of the entire settlement amount) while the average homeowner only received $300 in the deal - in addition to all of that, it appears that federal regulators will not turn over the evidence of impropriety they discovered during these reviews to homeowners who may want to sue the banks.
In other words, the government not only ordered the banks to hire consultants who may have gamed the foreclosure settlement in favor of the banks, but the regulators themselves are hiding the information from the public in order to shield the banks from further lawsuits.
To recap: in the foreclosure deal, 13 banks agreed to pay a total of $9.3 billion to settle their liability in a number of areas, including robo-signing, which is just a euphemism for mass-perjury - robo-signing is the practice of having low-level bank employees sign documents attesting to full knowledge of case files in court foreclosure actions, when in fact they were signing hundreds of files per day, often having no idea whether the paperwork was correct or not.
It was done across the industry and turned housing cases across America into nightmares of jumbled and/or forged paperwork, in which even people who did not deserve to be thrown out of their homes were uprooted thanks to systematic errors by faceless bureaucrats who cut legal corners purely to save money.
All the major banks were guilty on a mass scale, but they worked with federal regulators like the Fed and the Office of the Comptroller of the Currency to secure this wide-ranging, industry-saving settlement, which not only covered the robosigning epidemic but a host of other bad or illegal practices, like the wrongful denial of modifications and the improper levying of (often hidden) fees.
Minus this crucial settlement, banks would have faced enormous uncertainty about their legal liability going forward, and getting a deal that not only gave these companies some legal closure but allowed them to pay pennies on the dollar for their illegal activity was a massive coup for the whole finance sector.
Only $3.6 billion was earmarked for cash payments to the nearly 4 million homeowners covered in the settlement. Most of the remainder of the deal was in other forms of non-cash relief, i.e. modifications or principal reductions.
Now, at the time of the deal, press releases by the Fed and the OCC stated that part of the reason they'd fixed on that particular settlement amount was that regulators had uncovered that banks had made errors or committed illegal acts in about 6.5 percent of the mortgage files reviewed. In other words, the error rate was an important component of this calculation.
But it turned out that this error rate had been calculated with the help of several consultant firms regulators had ordered the banks to hire. Regulators had mandated the hiring of these "independent" consultants back in 2011, and the list of companies included Promontory Financial Group, PricewaterhouseCoopers, Ernst & Young, and Deloitte & Touche. These private firms were hired to review the banks' loan files in search of errors, and collectively were paid by the banks over $2 billion, a staggering sum which ultimately worked out to over $20,000 per file.
With such highly-paid help, it would seem impossible that these consultants could screw up so simple a task as figuring out how many of these mortgage files were corrupt. Regulators came up with the 6.5 percent number this past January, then shortly afterward revised the number downward, saying that only 4.2 percent of some 100,000 mortgage files reviewed were compromised.
But that low number stank so badly that even the Wall Street Journal was moved to check it out, and in late February, in a story called "Foreclosure Files Detail Error Gap," the paper discovered that the error numbers were almost certainly very much higher. From that piece:
A breakdown of the information provided to the regulator shows that more than 11% of files examined for Wells FargoWFC+0.39% & Co. and 9% of those for Bank of America Corp. had errors that would have required compensation for homeowners, said people who have reviewed the figures. A narrower sample of files - representing cases selected by outside consultants - showed error ratios of 21% for Wells Fargo and 16% for Bank of America, the people said.
The OCC findings appear skewed by the outsize contribution of one bank, J.P. Morgan ChaseJPM-0.39% & Co., which reported an error rate far below rivals that oversaw a much larger universe of loans.
J.P Morgan was responsible for more than half of the completed files counted in the OCC review and reported compensation-worthy errors in just 0.6% of cases, according to people familiar with the figures.
So you have numbers from all of these other banks coming in at 9 percent, 11 percent, even 21 percent, and yet somehow J.P. Morgan Chase came in at 0.6 percent. The OCC just took the Chase numbers and averaged them together with the rest and ultimately came up with the 4.2 percent number.
So how did Chase come out so squeaky clean? Well, it seems they developed quite a rapport with the government-mandated consultants who were hired to review their loan files. This is from that WSJ report:
Two Deloitte employees who performed the review for J.P. Morgan in a Brooklyn office building said workers were encouraged by supervisors to examine pools of loans they knew would be less time-consuming or error-prone as they tried to hit loan quotas.
One of these employees said that at an event last year known in the Brooklyn office as "March Madness," Deloitte officials encouraged reviewers to avoid problematic loans originated by EMC Mortgage, a troubled mortgage lender J.P. Morgan acquired in 2008.
So basically Chase allegedly warned the consultants off their problem loans and incentivized the consultants to examine the less-fucked-up loans. Employees of another of Chase's auditors, Promontory, were reportedly given gift cards of up to $500 for "completing a certain number of files quickly."
The whole thing was a joke. Government orders banks to hire auditors to investigate robosigning, then banks induce said auditors to robosign the investigation! Because that's exactly what that would mean, if there were financial incentives to finish masses of files quickly. It's horrible, obviously, but on another level, it's so ingeniously corrupt, one almost has to tip a cap to whoever thought of it.
Incidentally, what were Chase's real numbers? I mean, if it hadn't been a consulting firm hired by Chase for buttloads of cash to do the study, what might an auditor have concluded? Well, as reported by (among others) David Dayen at Naked Capitalism, we got a glimpse into one possible truth when the HUD Inspector General released a report that included an ad-hoc survey of Chase loans:
For Chase, we also reviewed 36 affidavits for foreclosures in judicial States to determine whether the amounts of borrowers' indebtedness were supported. Chase was unable to provide documentation to support the amounts of borrowers' indebtedness listed on the affidavits for all except four. When we reviewed the four affidavits, three were inaccurate. Specifically, the amounts of the borrowers' late charges and accumulated interest did not reconcile with the information in Chase's mortgage servicing system.
As Dayen jokingly pointed out, that means the gap in the stats was relatively small - Chase's loans were either 97.2 percent fucked (as HUD found), or 0.6 percent (as Chase/OCC found). Somewhere in between there.
Anyway: In March, a Washington law firm called Williams and Connolly sued the OCC for failing to properly ensure that the auditors would be truly "independent." The firm declined to say on whose behalf it was suing. Around the same time, members of congress like the House's Elijah Cummings and new Massachusetts Senator Elizabeth Warren started to become interested in these consulting arrangements, expressing concern that perhaps the settlement number had been reached in error.
Fast forward a few weeks. It's April 11th, and Warren, along with Sherrod Brown and Jack Reed, held hearings on this whole issue, bringing in officials from the OCC along with some of these consultants to get to the bottom of a number of issues, including, most importantly, how the settlement was calculated, and who decided who would receive how much compensation.
There were two major revelations from these hearings, in addition to the ongoing revelation that the suits who people the country's financial regulators are sniveling, obfuscatory weasels who clearly view the banks they're supposed to be regulating as a bunch of stand-up dudes while the taxpayers who are always demanding this or that (and the politicians who represent them) are humorless pains in the ass.
In terms of new revelations, the first was this one, a real shocker: that apparently, it was not even the obscenely overpaid, lapdog consultants who made the final decisions about which homeowners fell into which boxes in terms of settlement compensation. Incredibly, it appears that the banks themselves were allowed to do that sorting process!
Senator Warren: I just want to take a look at the Independent Foreclosure Review Payment Agreement details. I think you've probably all seen this one page agreement that lists all of the things that the banks did wrong and then boxes for how many people fall into each category and how much money they're going to be paid. Is that right? You've all seen this? [Panel indicates they have seen it.] And this was put out - who put this out? I think this is put out by the OCC and Federal Reserve. Is that right? As part of the settlement details.
In the settlement there is a one-page document that lists all the various misdeeds the banks engaged in during the foreclosure process, then goes on to list how many homeowners were victimized by each activity. Warren is showing this document to these consultants and she's asking them, did you prepare these statistics? She goes on - listen to the answers from the auditors:
Senator Warren: So I just want to ask you about this. It has some pretty amazing categories here. The first category is about service members who were protected by Federal law whose homes were unlawfully foreclosed. It's got people who were current on their payments whose homes were foreclosed. It's got people who were performing all of the requirements under a modification who lost their homes to foreclosure. And it tells how many people fall into each category and how much money the people in that category will receive. And, it ultimately resolves what will happen to 3,949,896 families. So the question I have is having resolved this for nearly 4 million families, who put the people, the families, into each of these boxes. Is that what your firms did, Mr. Ryan?
Owen Ryan, Partner, Deloitte & Touche LLP: No, Senator, we did not.
Senator Warren: So who put them in?
Ryan: I'm not sure how that schedule is prepared. I saw it for the first time yesterday.
Senator Warren: Mr. Flanagan?
James Flanagan, Leader, U.S. Financial Services Practice, Pricewaterhouse Coopers LLP: Same response. We were not involved in the accumulation of that information.
Senator Warren: Mr. Alt?
Konrad Alt, Managing Director, Promontory Financial Group: Senator, I've seen the schedule but I'm not familiar with the basis for its preparation.
Having established that the consulting firms did not do this sorting, Warren presses toward the obvious conclusion:
Senator Warren: So that leaves us with the banks that broke the law, were then the banks that decided how many people lost their homes because of their lawbreaking. And, as a result, how many people would collect money in each of these categories. Is that right,Mr. Alt?
Alt: Senator, I'm not familiar with the basis for the scheduling.
Senator Warren: So far as you know, there's no independent review of the banks' analysis . . . You looked at 100,000 cases, and the banks have now put 4 million people into categories and resolved finally how much they will get from this review by the OCC and the Federal Reserve.
So that's bombshell Number One - it wasn't the auditors who decided which homeowners fell into which categories, it appears to have been the banks themselves. Bombshell Number Two? The representatives of the OCC and the Fed - remember, federal regulators whose job it is supposedly to protect ordinary people - flatly refused to give any information about the real results of their surveys, i.e. their inquiries into what the real error rates were.
Even worse, when pressed on the question of whether they would deliver any evidence of wrongdoing they uncovered to private parties who might want to sue, they hedged.
In these exchanges, Warren questions Daniel Stipano, deputy chief counsel from the OCC, and Richard Ashton, Associate General Counsel for the Board of Governors at the Fed. There are two key sequences.
In the first, Warren asks both men if they will make public what they know about the extent of the illegality and errors - whether the real error rate was, as she put it, 1 percent or 90 percent. But the two officials respond in gibberish legalese (if you watch the video, Ashton in particular seems to take pleasure in dicking the Senate around with his verbose non-answers), repeatedly forcing Warren to pin him down to their actual concrete position, which turns out to be, "Fuck you." For example:
Senator Warren. So let me just make sure I understand this completely. I want to know on a bank-by-bank basis the number of families that were illegally foreclosed on. Will you give me that information?
Mr. Stipano. Eventually, we are going to issue a statement to the public where we provide additional information, but if we go through the processes that I described previously, we can share it to Congress in its oversight capacity.
Huh? I have no idea what that means, but it sounds positive - it did to Warren, too:
Senator Warren. So you are saying you will make that information publicly available?
Mr. Stipano. I did not say that. I said that we are planning on issuing a public statement that wraps up the IFR that provides additional information . . .
Ultimately, both the Fed and the OCC turned out to be united on the issue. They'll release something, but it won't be the real numbers. Frustrated, Warren asked them where the public is supposed to get the numbers, if not from them. Their answer is, well, they can maybe pull it out of their butts, if they get lucky - not our problem:
Mr. Stipano. Well, sometimes you get information through third parties, through outside sources. But in this case, that is not the case.
Senator Warren. So unless someone throws a rock through the window with this information tied to it, you will not release it, is that what you are saying?
Stipano here replies with more gibberish:
Mr. Stipano. To the extent that the information is confidential supervisory information derived from the exam process, it is subject to privilege.
From there, Warren asks a more specific question. What if someone wants to sue a bank for illegally tossing them out of their home? And what if you have evidence in such a case? Wouldn't such evidence be, you know, helpful to those people? Stipano helpfully agrees, yes, it would be helpful:
Senator Warren. All right. So let me ask it from the other point of view. You now have evidence in your files of illegal activity, I take it, for some of these banks. I get that from the evidence you have released about the charts, who is going to get paid what. So if someone believes that they have been illegally foreclosed against, will they still have a right under this settlement to bring a lawsuit against the bank?
Mr. Stipano. Yes.
Senator Warren. All right. Now, if a family wants to bring a lawsuit--you are both lawyers--would it be helpful, if you are going against one of these big banks, would it be helpful for these families to have the information about their case that is in your files? Mr. Ashton?
Mr. Ashton. It would be helpful, obviously, to have information related to the injury. Yes, it would.
Which leads to the next question - having acknowledged that it would be helpful, will you help?
This seems like it should be an easy answer, but it isn't:
Senator Warren. Okay. So do you plan to give the families this information? That is, those families that have been victims of illegal foreclosures, will you be giving them the information that is in your possession about how the banks illegally foreclosed against them? Mr. Ashton?
Mr. Ashton. I think that is a decision that we are still considering. We have not made a final decision yet.
Senator Warren. So you have made a decision to protect the banks but not a decision to tell the families who were illegally foreclosed against?
Mr. Ashton. We have not made a decision about what information we would provide to individuals, that is true. Yes.
Senator Warren. Mr. Stipano?
Mr. Stipano. We are in the same position.
Obviously these guys can't come out and say, "We're not giving anybody anything. Blow us." That would cause too much of an uproar. So they just say they haven't decided, and we all know what that means. Warren tries to frame the issue in the most embarrassing way possible, but the witnesses prove immune to such embarrassment:
Senator Warren. So I want to just make sure I get this straight. Families get pennies on the dollar in this settlement for having been the victims of illegal activities or mistakes in the banks' activities. You let the banks, and you now know individual cases where the banks violated the law and you are not going to tell the homeowners, or at least it is not clear yet whether or not you are going to do that?
Mr. Stipano. We have not made a decision on what we are going to tell the homeowners.
All of this just confirms what we already suspected about the foreclosure settlement. This whole enterprise was conceived by the government solely as a means of dealing with the explosive problem of containing the private liability of these "systemically important" companies. Not only are we not prosecuting these firms anymore, we're also actively in the business of protecting them from litigation.
No other conclusion is possible from this testimony, which shows that our two primary regulators not only withheld information about bank illegality and errors prior to the settlement, but plan on continuing to do so going forward. There can be only one reason for concealing that information from the people affected by those "errors."