About that 50 State Fraud Settlement

Big Banks Face Inquiry Over Home Insurance

By LOUISE STORY, The New York Times

Published: January 10, 2012

Mr. Lawsky’s office issued 31 subpoenas or other legal notices related to the case in early October, just as the state’s insurance and banking departments were merged under his new agency. His office has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners’ original plans.

In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies, according to the person briefed on the investigation.

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The investigation is yet another legal battle for the nation’s largest banks and points to the sorts of problems they may continue to face nationwide. The banks, in separate negotiations with federal and state authorities over suspected foreclosure abuses, have been trying to negotiate a settlement with state and federal officials to avoid future investigations, but it is not clear if businesses like home insurance would be covered if a deal were reached.

These policies are called ‘forced placement’ because homeowners are forced to take them as a condition of the loan.

New York Investigates Forced-Place Insurance Scams

By: David Dayen, Firedog Lake

Wednesday January 11, 2012 7:35 am

I first wrote about forced-place insurance back in November of 2010. Basically, banks who take over the insurance for homeowners whose policies have lapsed end up getting a kickback when the insurer ramps up the price. And the homeowners pay the cost. In some cases, the policies didn’t even lapse; the bank assumed the homeowners’ insurance costs and steered the borrower into costly deals, adding the balance to principal. Sometimes the servicer just purchased redundant coverage for borrowers who were current on their policies. And this provides yet another incentive for servicers to keep borrowers delinquent: they can take over their insurance in that case, and jack up the price, getting a kickback in the process.

Dodd-Frank made this type of forced-place insurance scam illegal. Yet, despite the fact that we’ve known about this for years, it takes the New York State Department of Financial Services to run the investigation. Presumably the Consumer Financial Protection Bureau, now newly bolstered with the ability to regulate non-bank financial operations like mortgage servicers, can get involved. But Dodd-Frank makes it unclear who is supposed to regulate forced-place insurance scams at the federal level. Until then, we have to rely on the states.

It’s just another example of how most bank profits really do come from criminal enterprises. As American Banker reports today, JPMorgan Chase has recently stopped filing consumer debt collection lawsuits, because a whistleblower charged that the bank “falsely overstated the balances of thousands of delinquent accounts it sold to a third party.” And, they also found the exact same robo-signing problem we’ve seen in foreclosure fraud.

Florida AG Office Encouraged to Intervene on Behalf of Foreclosure Fraudster LPS

By: David Dayen, Firedog Lake

Wednesday January 11, 2012 8:15 am

The invaluable Abigail Field has a long piece about Pam Bondi, the Florida AG, incidentally a member of the executive committee on the foreclosure fraud settlement led by Iowa AG Tom Miller, and her ties to the foreclosure industry in Florida. These include the usual financial ties, but also the sense that the Florida AG’s office was a no-go zone for investigations against banks, servicers and the entities that pushed foreclosure fraud. And Field uncovers a long history of this.

The Economic Crimes Division of that office habitually ignored or dismissed crimes happening in the state. And in one case, they lobbied an AG in another state on behalf of the target of a national investigation.

The story concerns Lender Processing Services (LPS), the foreclosure document processor currently under indictment in Nevada for its practices. Michigan’s Republican Attorney General, Bill Schuette, issued criminal subpoenas to LPS in June of last year. And Lisa Epstein, the foreclosure fraud blogger, obtained through a public records request communications between LPS’ attorneys at Baker & McKenzie and the Florida AG’s office. In them, Baker & McKenzie asks the Florida AG to help them persuade Schuette to switch his subpoenas from criminal to civil ones.

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Joan Meyer is a partner for Baker & McKenzie; Victoria Butler works in the AG’s office. She asks in the first email to “catch up” about the Michigan criminal subpoenas, and adds that “These public announcements can deeply impact LPS’s business operations and stock price and seem unnecessary if the AGs who issue them have already agreed to a meeting. Wondering if there’s anything we can do.” The meeting she refers to is part of the wider foreclosure fraud investigation.

In the second email, Meyer adds that “Sue Sanford from the Michigan AG’s Office is going to call you about the State AG meeting with LPS. She may ask about converting her investigation from criminal to civil. If you are comfortable, please encourage her to join the civil group. I would like to share information with her and get her up to date regarding the information we provided at the meeting but thus far cannot because of the criminal restrictions.”

This is a lawyer for LPS encouraging one AG office to lobby another, to get criminal subpoenas converted to civil ones. This came at a time when LPS was under active investigation by the state of Florida.

IG Report Whitewashes Firing of Foreclosure Fraud Investigators in Florida

By: David Dayen, Firedog Lake

Monday January 9, 2012 7:22 am

June Clarkson and Theresa Edwards were career lawyers in the South Florida office of the Attorney General, economic crimes division. Back during the dark days of 2010, Clarkson and Edwards were the most aggressive law enforcement officials, from the top down, in identifying and investigating the web of foreclosure fraud, particularly the stew that emerged in Florida, with bogus documents, forgeries, go-go foreclosure mills valuing speed over accuracy, and document processing companies providing menus for law firms to finish off the theft of homes from borrowers.

Much of the information Clarkson and Edwards got into the public sphere motivated the investigations and lawsuits we see today. At the end of 2010, Clarkson and Edwards prepared a Power Point Presentation, called Unfair, Deceptive and Unconscionable Acts in Foreclosure Cases. That Power Point, bringing together all the types of document fraud seen in Florida foreclosure courts, had a profound impact. I described it at the time as “a full pictorial history of the past decade in the mortgage industry, complete with actual shots of improper mortgage assignments. They show the same name of a bank officer being written four different ways, clearly forged. They show stamps from notarizations that expired before they were used to certify foreclosure documents.”

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McCollum left the AGs office in January, replaced by a different Republican, Pam Bondi. At the same time, the longtime director of the economic crimes division left, and Richard Lawson, a former defense attorney for white collar criminals – mainly bank officials – came in. As Lawson acknowledges in his statement to the IG report (more on that in a minute), he received complaints from the lawyers of several of the defendants in Clarkson and Edwards’ cases, in particular Lender Processing Services (LPS), which was part of a multistate investigation at the time.

Lawson immediately went to work criticizing Clarkson and Edwards’ conduct, disputing their claims, savaging the work of their office, and micromanaging their investigations (but only the foreclosure fraud investigations, not their other work). By May they were out, fired by Lawson and Bondi. They were given 90 minutes to pack up their things and leave the office, and lost access to all their files and emails.

This looked suspiciously like a politically motivated firing. Advocates for homeowners, along with the group Progress Florida and a couple Democratic lawmakers, urged an investigation. Two days before state Rep. Darren Soto and state Sen. Eleanor Sobel asked the Justice Department to investigate, Bondi personally requested an investigation, outsourcing it to the inspector general for the state’s Chief Financial Officer, Jeff Atwater, a Republican former member of the state legislature. That report came out late Friday, and it completely exonerated the AG’s office for the Clarkson and Edwards firing. “During the course of the inquiry there was no specific allegation of wrongdoing made by any person, and no discovery of evidence of wrongdoing on the part of anyone involved in the matter,” the report concludes.

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The media has accepted the narrative that this IG report cleared Bondi of any wrongdoing in the firing. But it really just raises more questions. Why were so many attorneys defending targets of investigations talking to the head of the economic crimes division? Why was he listening to their concerns over his own investigators in his office? Why was Lawson faulting Clarkson and Edwards for a failure to do “independent investigations to confirm third party complaints” when he was accepting third party complaints from the targets of the investigations?

Thomas Perrelli, DoJ Point Person on Foreclosure Fraud Settlement, Stepping Down by March

By: David Dayen, Firedog Lake

Thursday January 12, 2012 6:17 am

I keep hearing from everyone “in the know” that these foreclosure fraud settlement talks are just about wrapped up. Surely everyone’s just practicing their signatures for the big signing ceremony, right? Except that there hasn’t really been any news on the settlement for a few weeks. And now the number 3 at the Justice Department, Thomas Perrelli, the central figure running the talks from the federal government side, will step down in a couple months.

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Aside from the obvious fact that there’s not going to be a number three at Justice for the next year, because Obama made four recess appointments over the holiday break and Republicans are so mad about it they’re going to retaliate as soon as they get back from vacation, Marcy Wheeler writes that this “sets a finite deadline” for the foreclosure fraud settlement. I actually think it seals its fate. No deadline has yet been responded to on the settlement. Aside from the half-dozen or so Democrats who aren’t on board, there are plenty of Republicans who don’t want to see the banks take any penalty at all. The talks haven’t even gotten around to that persuasion stage, as there remain outstanding issues with the banks in terms of the nature of the penalties and the level of release from liability.