Tag: Bank Fraud

The more the experts and analysts look into the Foreclosure Agreement the more reasons are found to hate it and why, to Yves Smith‘s descriptive word, it “sucks”:

Not only are the banks getting away with fraud they are still going to be allowed to systemically overcharge homeowners and wrongly take their homes.

Remember that the Administration also trumpeted that enforcement would be tough, even as Abigail Field has shown that idea to be a joke. For instance, the servicing standards allow for the astonishing concept of an acceptable error rate. Banks aren’t permitted to make errors with your checking account and ding you an accidental $10,000 and get away with it. But with people’s most important asset, their homes, servicers are allowed a certain level of reportable errors, and many of them can be serious as far as borrowers are concerned.[..]

She also points out that wrongful foreclosures at a 1% rate are acceptable. Procedures around real estate are deliberate because any error of this magnitude has devastating consequences. But this new provision means that 1%, or over 33,000 erroneous foreclosures since 2008 would be perfectly OK as far as the authorities are concerned.

Field also points out in a separate post that this deal is in no way done. Key points remain to be resolved, in particular, how the Monitor will supervise the pact. That’s a huge item, and leaving it unresolved shifts the power to the banks (if you don’t believe me, I refer you to what is happening to Dodd Frank).

Field also wonders “how did all our meaningful law enforcers do this deal?:

I hate the term Too Big To Fail because it’s a loaded premise presented as fact. But looking at the weasel parentheticals, maybe we should start asking if the banks as too big to be competent. I mean, why do the banks need a ‘hey, we tried but didn’t have enough time to stop the sale’ exemption? If the B.O.Bs (bailed out bankers) want their lawyer or trustee to call off a foreclosure sale, all they need is two things: a) to contact their agent and b) have a competent agent.

What does “took appropriate steps to stop the sale” mean, anyway? Does it mean that someone at the bank left a message or two with foreclosure counsel? If the B.O.B.s made a real effort to stop the sale but their agents did it anyway, why isn’t that the B.O.B’s fault for having incompetent agents? Doesn’t giving the B.O.B. a pass remove any incentive to have competent (and thus more expensive) agents?

Wrongfully selling someone’s home should be a strict liability issue. Strict liability is, well, strict: no one cares what you were trying to do, what your intentions were, what you did or didn’t do. Did the harm happen? Then you’re responsible.

Before you give me any, hey, let’s be reasonable here, a business needs to operate and we’re so big some mistakes will happen, remember what we are talking about: homes; property rights; land records; fundamental fairness. How can the B.O.Bs be held to any standard other than strict liability when it comes to wrongfully selling a home?

Neil Barofsky, the former Special US Treasury Department Inspector General for the Troubled Asset Relief Program (TARP) and Matthew Stoller, a fellow at the Roosevelt Institute give a good overview of why this settlement really “sucks”

There is no accountability, no punishment for what has to be the largest fraud ever perpetrated in this country.  

Who could have possibly thought that by giving the banks a pass on foreclosure fraud with the 49 state agreement that there would be an increase in foreclosures? That prediction came from Mark Vitner, an economist with Wells Fargo:

“The immediate results are not going to be all that pleasant,” said Mark Vitner, an economist with Wells Fargo. His bank is one of the biggest lenders in Florida as well as a participant in the settlement. “The amount of foreclosures will actually increase and there will be some additional downward pressure on home prices.”

And foreclosures are on the rise in half of the major metro areas:

February foreclosure activity in the 26 states with a judicial foreclosure process increased 2 percent from January and was up 24 percent from February 2011, while activity in the 24 states with a non-judicial foreclosure process decreased 5 percent from January and was down 23 percent from February 2011.

Half of largest metro areas post annual increases in foreclosure activity

Ten of the nation’s 20 largest metro areas by population documented year-over-year increases in foreclosure activity in February, led by the Florida cities of Tampa (64 percent increase) and Miami (53 percent increase).

The 10 metro areas with increases were all on the East Coast or in the Midwest, while most of the metro areas with year-over-year decreases in foreclosure activity were in the West, led by Seattle (59 percent decrease) and Phoenix (43 percent decrease).

The metro areas with the highest foreclosure rates among the 20 largest were Riverside-San Bernardino in California (one in 166 housing units), Atlanta (one in 244), Phoenix (one in 259), Miami (one in 264) and Chicago (one in 302).

Meanwhile robosigning has still not stopped. Matt Stoller at naked capitalism found according to the HUD Inspector General Report Well Fargo is still using it:

At the time of our review, affidavits continued to be processed by these same signers, who may not have been qualified, and these signers may not have adequately verified certain figures because they accessed a computer screen of data showing a compilation of figures instead of verifying the data against the information through review of the books and records kept in the regular course of business by the institution.

Stollers reaction deserves repeating:

I’m sorry, but WHAT THE $&*@!?!?  I’m so glad Eric Holder has cut a deal with Al Capone while Capone is still on a shooting spree.  And note, this isn’t just robosigning, this is potentially overcharging homeowners with junk fees and just generally not verifying accurate data on who owes what to whom.  There really is no lesson here except “crime pays”.

And they are still stealing homes.

Along with the Foreclosure Settlement documents it was agreed that the Housing and Urban Development Inspector General report was also released. The New York Times review of the report noted that, contrary to the denial by the banks, top bank managers were responsible for the criminal conduct:

   Managers at major banks ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections, according to a wide-ranging review by federal investigators.

   The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008.

   But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development […]

   “I believe the reports we just released will leave the reader asking one question – how could so many people have participated in this misconduct?” David Montoya, the inspector general of the housing department, said in a statement. “The answer – simple greed.”

Ben Hallman at The Huffington Post observed that the report fell short because of stonewalling by the banks lawyers who blocked interviews with but a handful of employees:

Though the report describes a pattern of misconduct that appears widespread, it fails to quantify the damage to homeowners or, ultimately, how many home loans were affected. It also clearly reflects the frustration that investigators felt in conducting the review. Even as negotiators for the banks were fighting to win the best possible deal, their lawyers were stonewalling other government investigators trying to ascertain the scope of the “robo-signing” abuses.

Wells Fargo provided a list of 14 affidavit signers and notaries — but then stalled while the bank’s own attorneys interviewed them first. The bank then tried to restrict access to just five of those employees. The reason? “Wells Fargo told us we could not interview the others because they had reported questionable affidavit signing or notarizing practices when it interviewed them,” the report says. [..]

Bank of America only permitted its employees to be interviewed after the Department of Justice intervened and compelled the testimony through a civil investigation demand. Even so, the review was hindered, the report says.  [..]

The investigation into Citigroup’s mortgage division was “significantly hindered” by the bank’s lack of records. Citigroup simply did not have a mechanism for tracking how many foreclosure documents were signed.

Both JPMorgan Chase and Ally Financial refused to provide access to some employees or documents or otherwise impeded the investigation, according to the report.

Hallman also noted some of what was uncovered by investigators:

Wells Fargo employees testified that they signed up to 600 documents a day without attempting to verify whether any of the information was correct. [..] The bank also relied on low-paid, unskilled workers to do the reviews: a former pizza restaurant worker, department store cashier, and a daycare worker, to name a few.

A vice president at Bank of America testified that she only checked foreclosure documents for formatting and spelling errors. Employees in India supposedly verified judgment figures in foreclosure documents, but none of the U.S. employees interviewed by the inspector general could explain how that process was supposed to work. One former employee described signing 12 to 18 inch stacks of documents without review.

Employees at Wells Fargo and Bank of America testified that they complained about the pace and lack of care given to reviews, but instead of relief, were told to sign even faster. One Bank of America notary said his target was set at 75 to 80 documents an hour, and he was evaluated on whether he met that target. One notary even notarized her own signature on a few documents.

Abuses at the other banks — JPMorgan Chase, Citigroup and Ally Financial — appear just as pervasive. Citi, for example, routinely hired law firms that “robo-signed” documents. An exhibit included with the report shows eight different versions of one attorney’s signature — all apparently signed by different people.

In signing off on this 49 state agreement the banks did not have to admit to any wrongdoing despite the damning evidence of fraud that was directed by top management. No other sanctions beyond a few billion dollars and certainly no criminal prosecutions. If I were Bernie Madoff, I’d be really pissed.

The Foreclosure Fraud Settlement documents were filed in federal court and released to the public. There is a lot to wade through but the intrepid David Dayen at FDL News Desk breaks them down in a series of four articles that highlight just how easy these banks are getting off and what they are getting away with. Some of it will really make your blood boil:

Foreclosure Fraud Settlement Docs (I): Ally’s Side Deal

What accounts for this? Probably this little nugget buried in a Reuters article on the settlement:

  Some banks negotiated separate requirements.

   Ally Financial, for example, negotiated a steep discount on the fine part of its settlement, based on an inability to pay it, according to people familiar with the matter.

   It was expected to pay some $250 million, but the Justice Department cut it to around $110 million, these people said.

   In exchange, it committed to solicit all borrowers in its own loan portfolios and to offer to cut principal for delinquent borrowers down to 105 percent of the home’s value. It also offered to refinance underwater borrowers who are current on their payments.

Gee, I didn’t know that federal and state civil penalties had a “pay what you can” quality to them. [..]

About those state funds: there is nothing to stop state AGs from using them in any way they see fit. Note the weasel words in this language (which I’ve bolded):

Each State Attorney General shall designate the uses of the funds set forth in the attached Exhibit B-1. To the extent practicable, such funds shall be used for purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices and to compensate the States for costs resulting from the alleged unlawful conduct of the Defendants.

   No more than ten percent of the aggregate amount paid to the State Parties under this paragraph 1(b) may be designated as a civil penalty, fine, or similar payment. The remainder of the payments is intended to remediate the harms to the States and their communities resulting from the alleged unlawful conduct of the Defendant and to facilitate the implementation of the Borrower Payment Fund and consumer relief.

You have that strong word “shall” competing with “to the extent practicable.” And indeed, several states have already made clear that they will be diverting much of the settlement into their state budgets. More make it clear in the settlement docs, more on that later.

Foreclosure Fraud Settlement Docs (II): Giving Homes to Charity as a Penalty

Another part of the document explains that any modification under any government housing program can qualify under the settlement credits:

   Eligible modifications include any modification that is made on or after Servicer’s Start Date, including:

   i. Write-offs made to allow for refinancing under the FHA Short Refinance Program;

   ii. Modifications under the Making Home Affordable Program (including the Home Affordable Modification Program (“HAMP”) Tier 1 or Tier 2) or the Housing Finance Agency Hardest Hit Fund (“HFA Hardest Hit Fund”) (or any other federal program) where principal is forgiven, except to the extent that state or federal funds paid to Servicer in its capacity as an investor are the source of a Servicer’s credit claim.

   iii. Modifications under other proprietary or other government modification programs, provided that such modifications meet the guidelines set forth herein.

Presumably those programs weren’t all going to shut down. So banks doing what they’ve been doing, meeting the minimum requirements of those other programs, will help them complete the settlement requirements.

Foreclosure Fraud Settlement Docs (III): “Internal Review Group”

Page E-3 details the “internal review group”:

   Servicer will designate an internal quality control group that is independent from the line of business whose performance is being measured (the “Internal Review Group”) to perform compliance reviews each calendar quarter (“Quarter”) in accordance with the terms and conditions of the Work Plan (the “Compliance Reviews”) and satisfaction of the Consumer Relief Requirements after the (A) end of each calendar year (and, in the discretion of the Servicer, any Quarter) and (B) earlier of the Servicer assertion that it has satisfied its obligations thereunder and the third anniversary of the Start Date (the “Satisfaction Review”). For the purposes of this provision, a group that is independent from the line of business shall be one that does not perform operational work on mortgage servicing, and ultimately reports to a Chief Risk Officer, Chief Audit Executive, Chief Compliance Officer, or another employee or manager who has no direct operational responsibility for mortgage servicing.

So the bank can take their own employees out of another part of the bank and have them conduct a quarterly review, which then gets passed to the monitors and becomes the initial basis for enforcement. Even if you believe these will be “independent” internal reviews, we’ve seen with the OCC foreclosure reviews that those independent reviewers paid for and hired by the banks typically write bank-friendly reports. In fact, a later note indicates that “The Internal Review Group may include non-employee consultants or contractors working at Servicer’s direction.”

Foreclosure Fraud Settlement Docs (IV): Association of Mortgage Investors Planning to Challenge in Court

At any rate, if there’s one group who does not agree with HUD that investors won’t end up footing the bill for a substantial portion of the settlement, it’s… the Association of Mortgage Investors. The trade group representing investors in mortgage-backed securities fully believes they will be on the hook for losses, and so they will challenge the settlement in federal court.

   As the federal court reviews the final settlement, AMI asks that the following changes be made on behalf of all investors:

   Transparency. The NPV (net present value) model incorporated into the settlement must consider all of a borrower’s debts, be national in scope, transparent, and publicly disclosed; the NPV model must be developed by an independent third-party. An incorrect NPV model likely will lead to further re-defaults and further harm distressed homeowners.

   Monetary Cap to Protect Public Institutions. As intended, the settlement causes financial loss to the abusers (the bank servicers and their affiliates). Unfortunately, the settlement is expected to also draw billions of dollars from those not a party to the settlement, including public institutions, unions, and individual investors. It places first and second lien priority in conflict with its original construct thereby increasing future homeowner mortgage credit costs. It is unfair to settle claims against the robosigners with other people’s funds. While we request that it not be done, at a minimum we request that a meaningful cap be placed on the dollar amount of the settlement satisfied by innocent parties. Again, restitution should come from those who are settling these claims, and

   Public Reporting. We ask that the settlement Administrator be required to make reports public and available on a monthly basis, reporting progress on clearly defined benchmarks and detailing on both a dollar and percentage basis whether the mortgages modified are owned by the mortgage servicers or the general public.

Over at naked capitalism, Yves Smith points out The Legal Lie at the Heart of the $8.5 Billion Bank of America and Federal/State Mortgage Settlements

HUD Secretary Donovan, the propagandist in chief for the Federal/state mortgage pact, has claimed he has investor approval to do the mortgage modifications that are a significant portion of the value of the settlement. We’ll eventually see what is actually in the settlement, but the early PR was that “no less than $10 billion” of the $25 billion headline total was to come from principal reductions. Modifications of mortgages not owned by banks, meaning in securitized trusts, are counted only 50% and before Donovan realized he was committing a faux pas, he said he expected 85% of the mods to be from securitizations, so that means $17 billion. [..]

But what about this investor approval that Donovan says he has? He has told both journalists and mortgage investors directly that the bulk of the mods will come from Countrywide deals and he has consent via the $8.5 billion Bank of America/Bank of New York settlement. Huh? First, it seems more that a bit cheeky to rely on a major piece of a program via a deal that has not yet gone through (the Bank of America settlement was removed to Federal court and has now been sent back to state court, and there will be discovery in the state court process, so approval is not imminent).

But second and more important, investors approved nothing. Bank of New York is trying to act well outside its authority as trustee for the 530 Countrywide trusts in the settlement. It’s tantamount to having a friend that you gave a medical power of attorney claim that it gave him the authority to sell your car and write checks on your account.

The terms of Countrywide PSAs vary, but all appear to restrict mods. The prohibitions varied by credit quality of the deal. Alt-A and early vintage (2004 and earlier) deals often barred mods completely; subprime and later vintage deals generally allowed for a higher limit on mods, with 5% the top amount across these deals. The idea was that some mods were expected in the dreckier mortgage pools. Nevertheless, all of them, as well as the few that had no caps, also required Bank of America to buy the modified loans back at par. That is something the battered Charlotte bank would be very keen to avoid doing.

This comment by Synoia sums it all up pretty nicely:

The Banks won’t be held accountable

The Banks won’t fix their past behavior

The Banks won’t change their behavior

The Banks won’t stop bribing our politicians

The Banks won’t stop gouging consumers

The Banks won’t tell the truth about any facet of their business

The Banks won’t stop taking enormous risks with other people’s money

The Banks won’t stop paying their worthless executives too much money

Need one continue?

And this settlement won’t change a thing.

Thank you, President Obama

New York State Attorney General Eric Schneiderman filed suit today in New York State Supreme Court in Brooklyn charging them with deceptive and fraudulent practices that harmed homeowners and undermined the judicial foreclosure process. From Mr. Schneiderman’s office:

NEW YORK – Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of a private national mortgage electronic registry system known as MERS has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. The lawsuit asserts that employees and agents of Bank of America, J.P. Morgan Chase, and Wells Fargo, acting as “MERS certifying officers,” have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have. The lawsuit names JPMorgan Chase Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., as well as Virginia-based MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc.

The lawsuit further asserts that the MERS System has effectively eliminated homeowners’ and the public’s ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database – which is plagued with inaccuracies and errors – over which MERS and its financial institution members exercise sole control. Additional defendants include BAC Home Loans Servicing, LP, Chase Home Finance LLC, EMC Mortgage Corporation, and Wells Fargo Home Mortgage, Inc.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,” said Attorney General Schneiderman. “Our action demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.” [..]

The lawsuit specifically charges that the defendants have engaged in the following fraudulent and deceptive practices:

   

MERS has filed over 13,000 foreclosure actions against New York homeowners listing itself as the plaintiff, but in many instances, MERS lacked the legal authority to foreclose and did not own or hold the promissory note, despite saying otherwise in court submissions.

   

MERS certifying officers, including employees and agents of JPMorgan Chase, Bank of America, and Wells Fargo, have repeatedly executed and submitted in court legal documents purporting to assign the mortgage and/or note to the foreclosing party. These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid. These assignments were often automatically generated and “robosigned” by individuals who did not review the underlying property ownership records, confirm the documents’ accuracy, or even read the documents. These false and defective assignments often masked gaps in the chain of title and the foreclosing party’s inability to establish its authority to foreclose, and as a result have misled homeowners and the courts.

   

MERS’ indiscriminate use of non-employee “certifying officers” to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose. MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel. The signature line just indicates that the individual is an “Assistant Secretary,” “Vice President,” or other officer of MERS. Indeed, these documents often purport to assign the mortgage to the certifying officer’s own employer. Moreover, as a result of the defendants’ failure to track the designation of certifying officers and the scope of their authority to act, individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan.

   

MERS and its members have deceived and misled borrowers about the importance and ramifications of MERS’ role with respect to their loan by providing inadequate disclosures.

   

The MERS System is riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information. In addition, as a result of these inaccuracies, MERS has filed mortgage satisfactions against the wrong property.

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

Schneiderman has still not signed onto the Federal agreement and the final terms of that agreement are still pretty vague as no one has actually seen the final document but they have been given until February 6 to sign on to it.  Precisely how this suit, or the one file this week by Illinois AG against Nationwide, will effect or be effected by that agreement is anyone’s guess. But there is a lot of speculation. Happy Friday news dump  

Nothing is as it seems and all the optimism about how the mortgage settlement with the banks was about to be sealed with a kiss turns about to be premature. With a deadline of February 3 for states to declare whether they are joining the settlement, some major questions have been raised about just what the definition of “narrow” is for the Obama administration.

From Yves Smith at naked capitalism.

Yet More Mortgage Settlement Lies: Release Looks Broad, Not Narrow; Other States Screwed to Bribe California to Join

While there is every reason to believe there has been some improvement in terms due to the resistance of Schneiderman and other state attorneys general (Beau Biden of Delaware, Martha Coakley of Massachusetts, Catherine Cortez Masto of Nevada, and Kamala Harris of California), the notion that, per Mike Lux, “the settlement release is tight” appears to be patently false.

Since there has yet to be any disclosure of the draft terms, we can’t be certain, but a reading of a letter sent by Nevada’s Masto gives plenty of cause for pause. Reaching inferences from her 38 questions is a Plato’s cave exercise, but some of the items seem pretty clear. [..]

Yves explains the concerns that the banks would be released of liability of not just robosigning but chain of title securitizations and origination issues. She then get to the latter from Nevada Attorney General Catherine Cortez Masto who submitted a letter to settlement negotiators

Most of her queries are sufficiently technical so as to make it hard to guess with any certainty as to what the language of the agreement might be, but two questions at the top stood out:

This certainly looks as if Masto sees the origination release as broad. Asking for an itemization of what is NOT included suggests a lot seems to be included.

But this is the whopper:

From early on, we have stressed that this is a cash for release deal, and this looks like a VERY big release. The banks will pay an amount into the fund, and all issues relating to robo-signing and foreclosure will be released by the AGs: the banks will have a state level release from all bad assignment/transfer issues. [..]

Remember, bank executives piously swore in 2010 that they stopped robosigning, yet their firms continue to engage in that practice.

Then there is the matter of trying to bribe California’s AG Kamala Harris back into the fold by giving California 60% of the $25 billion. She notes this article from the Financial Times by Shahien Nasiripour

   California, home to the largest US property market, spurned an offer of roughly $15bn in lower monthly mortgage payments and reduced loan balances for its residents in talks to settle allegations of mortgage-related misdeeds by leading US banks…

   California would have received more than half of about $25bn of aid that would be available to borrowers in a nationwide deal under discussion to settle allegations that banks illegally seized homes using faulty documentation.

   Deal terms, sent to state attorneys-general late last week after nearly a year of talks between the banks and various states and federal agencies, did not include guaranteed minimums for any other states, people familiar with the matter said. Various state officials said they were unaware of the California offer.

Yves notes that AG Masto in question #24 asks for clarification of how much each state would receive.

I agree with Yves that it’s hard to imagine how any attorney general could sign onto this agreement and begs to question why Florida’s AG Pam Bondi would be pushing California to sign on to this and not pushing for a better settlement for the homeowners of her state. Masto certainly did her homework as David Dayen at FDL News Desk noted:

n other words, Masto did her homework and saw this settlement as little more than a framework, without specificity on the release, the level of relief on a per-state basis, and the level of enforcement. Or, in other words, everything. And by the way, they want an answer by the end of the week. That’s clear at the end of Masto’s letter, where she writes: “Because there is a sign-on deadline of February 3, 2012, I need this information as soon as possible to allow my office to continue to evaluate the proposal on behalf of the state of Nevada.”

Every AG should be asking these same questions including Eric Schneiderman.

And that leads to the question of Eric Schneiderman and his motivations for sitting on the sideline and not opposing what appears to be a walk from liability for the banks and screw the homeowners. This is a very disappointing development and it won’t win Obama any votes either.

The surprise announcement by President Barack Obama that he was appointing New York State’s Attorney General Eric Schneiderman to head a new group, the Residential Mortgage-Backed Securities Working Group, that would be investigating securities fraud from the housing bubble and financial crisis. The announcement elicited some interesting reactions from the President’s supporters and critics expressing both praise and doubt about the new committee and just how much force it would really have considering the other appointees to the panel. Public opinion seems to be that few if any of the real perpetrators of the housing bubble and financial crisis have been held accountable.

On Friday, the group held its first press conference. US Attorney General Eic Holder, along with Mr. Schneiderman and Housing Secretary Scott Donovan, explained the purpose of the group, on what it would be focusing some of its powers and announced it had already issued 11 subpoenas:

“We are wasting no time in aggressively pursuing any and all leads,” Mr. Holder said. “In sending out those subpoenas, we consulted with the S.E.C. in making a determination as to where they should go.” Officials would not say which companies received the subpoenas.

“We are not going to be looking at the same things they are examining,” he added. “We’re going to be working with them but looking at a separate group of institutions.”

Schneiderman added that by working together with the SEC, IRS and Justice Department state Attorneys Generals would give them more information with which to bring prosecutions and civil suits at the state level:

In addition, the New York State Martin Act, which gives the attorney general broad powers to elicit information during investigations, “is more flexible than federal securities laws,” Mr. Schneiderman said. The New York and Delaware attorneys general also have jurisdiction over the trusts that hold the mortgages that underlie the mortgage-backed securities, making them “the bricks and mortar of this entire structure.”

By coordinating their efforts, group members might be able to share documents and information that usually would be in individual agency silos, Mr. Holder said.

Friday evening, Schneiderman sat down for an interview with MSNB’s Rachel Maddow, where he further discussed the committee’s focus, the agencies that would be involved and the roll of the states. Dayen, who still has strong reservations about the RMBS working group, thinks that the group lacks serious substance mostly because the use of wording like “resolving allegations”, not “crimes” and the lack of supporting staff and the appearance of disinterest by Assistant Attorney General for the Criminal Division Lanny Breuer who was absent at the press conference. However, he does see some promise. In the past, the IRS was reluctant to get involved, but as David Dayen at FDL News Desk indicated there could be huge tax fraud implications:

But I want to pull out the sentence I highlighted previously in Schneiderman’s interview which shows that at least he is thinking creatively about this. He said that “We have the Internal Revenue Service in because there are huge tax fraud implications to some of the stuff that went on.” I suppose he could be talking about a few different things (like the tax evasion from the banks using MERS instead of recording mortgage transfers at public records offices and paying a fee), but my guess is he’s talking about REMIC claims.

REMICs are an acronym for Real Estate Mortgage Investment Conduits. When you’re talking about mortgage pools used in securitization, you’re talking about REMICs. And REMICs have special tax treatment; they are exempt from federal taxes provided they only invest in “qualified mortgages” and other permitted investments. Here’s the important part: under the 1986 Tax Reform Act, the REMIC must receive all of its assets in the trust within 90 days and the assets have to be performing (not in default). Any REMIC violations make the vehicle subject to a penalty tax of 100%, with additional penalties as they apply.

Well, the strong suspicion is that, during the bubble years, the trustees did not properly convey the mortgages to the REMICs. Which makes the whole investment vehicle a massive tax fraud. That’s a huge level of exposure. You’re talking about $3 trillion in REMICs.

This obviously goes much deeper than fraud.

I became Attorney General about a year ago and started digging into this, and realized that New York and Delaware, which is why my collaboration with Beau Biden was so important, we had a unique place. Because all of the mortgage-backed securities were actually pools of mortgages deposited into New York trusts or Delaware trusts. We started looking at what she’s talking about, did they actually get all the paperwork done, things like that. And we realized that there’s a lot of work to do but a lot of potential for proving liability. [..]

To get this done Rachel, you need resources, you need jurisdiction, and you need will. And when I stood there today with Eric Holder and my other colleagues in government and other prosecutors, I really felt that we had that level of commitment […] what we realized as we started to go back and forth over the last few months is that we all need to work together. There are situations that, New York’s securities law is a stronger law in some ways than the federal laws. Some of our statutes of limitations, though, are shorter. So we can’t go as far back. The federal statute is longer. We need everyone together. And the folks that we have in on this… the Consumer Financial Protection Bureau, Rich Cordray just, a whole array of new powers just came into existence with his appointment, which the President just got done very recently. That’s a huge addition. We have the Internal Revenue Service in, because there are huge tax fraud implications to some of the stuff that went on. All of the people who are in this, all of the agencies who are designated, working together, can achieve so much more than any one of us on our own.

h/t David Dayen for the transcript.

There is still a lot of doubt about this commission and it’s purpose and goals. Matt Stoller at naked capitalism is curious to know if this panel will indict Vikram Pandit, the CEO of Citibank, for possible violations of Sarbanes-Oxley. He sees two problems with this task force. The first is the Obama administration’s policy “to protect the banking system’s basic architecture, which means the compensation structure and the existing personnel who run these large institutions.” And secondly:

Obama personally believes in the legitimacy of the existing banking institutional framework and he strongly suspects that no crimes were committed.  He has hired a raft of people – including Jack Lew, Tim Geithner, Eric Holder, Larry Summers, and so on and so forth – who agree, and has implemented policies such as Dodd-Frank that assume as much. [..]

These people aren’t stupid, they aren’t without principles, and they aren’t electorally driven.  They are ideologues.  They really believe in a neoliberal political economy, where government throws money at the economy through private channels and private channels do with it whatever they think best.

That’s quite a conflict of ideologies. Stoller concludes with more questions and doubts:

There are many details of the task force that are as of yet not public, so it is not clear to me that doing a case like this is possible.  But it’s quite obvious that mega-bank officials and regulators lying about the perilous state of various financial institutions to the public was a key part of the crisis, and that accountability on this front is probably critical to restoring faith in the system.  It would certainly be a big statement upfront if this is what this task force attempted to take on.  Will it?  That’s a very good question, and one I hope we get answers to, soon.

Here’s hoping that this isn’t just an election year sham and Eric Schneiderman has the will to stand up to the Obama neoliberals.  

I realize that there has been a lot of speculation about what went down in the 24 hrs prior to the SOTU after Miller announced that there was no bank/state settlement deal. There is a lot of speculation about Schneiderman and not without good reason. When I was writing my article for Stars Hollow I was careful not to join in the “sell out” theme that was running hot with some very respected bloggers. I think Obama is desperate. He knows that he is losing the Independents and moderate Republicans and needed to do something fast, especially in the light of the unpopularity of the 50 state agreement and the massive push to stop it. On the other side, and I somewhat agree with RJ Eskow on this, Schneiderman has the upper hand. He is wildly popular and scares the crap out of Cuomo & company. Schneiderman is not dropping the investigation here in NY, he’s expanding it from what I hear.

That said, I think that if this unit doesn’t move quickly in the evidence they already have, evidence BTW Schneiderman has not had access to, he will drop this like a hot potato and walk. Obama is walking a thin line and realizes that Wall St money alone will not get him reelected. I think Schneiderman is playing on that and hopes to at least hold some of them more responsible and get some better compensation for the homeowners that got screwed along with some regulation of the securitization that caused this all.

I have my doubts. There are better ways to do this, namely appointing a special prosecutor with a budget, investigators and subpoena power. I’m not willing to throw Schneiderman under the bus just yet.

I also think Obama wants him to succeed Holder who said he would leave this year even if Obama is reelected. It’s either him or CA’s AG Harris.

This was a complete surprise, so I’m being very cautious here, knowing what I do about Schneiderman and who is politically afraid of him. Like after Obama was elected, I’m watching and listening very carefully. Hoping that it is not as bad as it looks.

Eskow’s opinion appeared in Huffington Post and he disclosed that he is a fellow at Campaign for America’s Future, a left wing strategy center. (This site, however, is not affiliated with any outside organization and opinions expressed here are solely are own.) He gives a good analysis of the reasons for the skepticism of David Dayen, Yves Smith and Duncan Black (Atrios) who said, “It’s hard to see the Schneiderman thing as anything but bad news.”

Eskow dissects the reasons for the skepticism

The administration’s lack of prosecutions has been inexcusable. His administration has refused to prosecute even the most compelling prima facie cases of and has appointed one revolving-door banker after another to key economic positions. Its financial settlements with Wall Street have been disgraceful. For far too long the president pushed the nonsensical argument that “Wall Street and Main Street rise and fall together.”

And with an election coming up, bankers can write big checks that most other people can’t.

He also points out that if the Department of Justice and the SEC had been doing their jobs in the first place neither the Financial Fraud Task Force or this unit would be necessary. It’s hard not to agree with him that committees are “designed for paralysis and gridlock, not efficiency” and that president who promoted “”streamlining government” and “eliminating bureaucracy” would create this committee. Looking back on what happened with health care and financial reform everyone on the left has good cause to be wary of anything that President Obama does at this point and some groups, perhaps shouldn’t have been so effusive in their praise of this deal. Eskow, as do I, thinks that the White House, left scrambling after Iowa AG Tom Miller announced that there was no settlement with the banks and presented with citizen petitions that had hundred of thousands of names, reversed course in desperation. Then with the announcement that Schneiderman would “chair” the committee, there was a rush of exuberant relief that Obama was finally showing some signs of supporting the 99%.

As to the possibility that Schneiderman “caved”to pressure from the White House, Eskow backs up what I have said, Schneiderman has too much leverage:

Whatever Eric Schneiderman’s goals are, I doubt they include being stigmatized by progressives as a sell-out. His actions over the last few months have not been those of a guy who rolls over easily. It’s safe to assume that he wants to prosecute bank fraud, and that this appointment will give him access to the resources he’s needed to conduct a thorough investigation. [..]

Consider this: What would it do to the White House if Schneiderman labeled the entire effort a sham, resigned in protest, and continued his investigations alone? He must know he has leverage now, and presumably will use it if necessary.

Escow appeared with Cenk Uygur on “The Young Turks” to discuss the unit and Schneiderman with Cenk’s panel:

I certainly don’t agree with Michael Shure and what basically is “the lesser of two evils” meme. It can be just as bad with Obama. That said, could this turn out as the cynics are predicting? Sure and if it does we here at Stars Hollow, like Eskow, will say so.

Another good discussion of this new committee was with Delaware AG Beau Biden who appeared with Dylan Ratigan on MSNBC and his other guest real estate analyst, Jack McCabe:

I’m not ready to throw in the towel nor am I going to get on the cheer-leading band wagon. I will wait to see what transpires and keep my fingers crossed for the best outcome for the most people, the 99%.

Over the weekend while everyone was distracted by the South Carolina primary circus, the Super Bowl Championship playoffs and the Joe Paterno death watch, the Obama Justice Department is working to stab homeowners in the back and let the big banks off the hook for liability for the fraud they’ve committed and continue to commit.

Talks set out terms of US mortgage deal

By Shahien Nasiripour and Kara Scannell at Financial Times

Banks and government negotiators have cleared a big hurdle in efforts to resolve allegations of widespread mortgage-related misdeeds, agreeing on terms for a settlement that are being circulated to the 50 US states for approval, state officials and a bank representative say.

The proposed pact would potentially reduce mortgage balances and monthly payments by more than $25bn for distressed US homeowners, these five people said.

The tentative agreement still must be approved by all 50 state attorneys-general, and negotiators have previously missed proposed deadlines. Participants described the proposal terms as set, meaning the states will be asked either to agree to them or decline to participate.

The amount of potential aid is contingent on state participation and would decrease significantly if big states do not sign the agreement. New York and California are among several states that have voiced concerns about the terms of the proposed deal with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. New York and California are particularly concerned with the part of the deal that would absolve the banks of civil liability for allegedly illegal mortgage-related conduct.

California borrowers would be eligible to receive more than $10bn in aid if the state were to agree to the terms, according to several people involved in the talks.

It’s pretty obvious that by offering California 40% of the settlement that the Obama administration is trying very hard to pull their AG, Kamala Harris, back into the agreement. So far the pressure from her constituents is winning out over bribes that in the end would short change California home owners. From Marcy Wheeler at emptywheel:

Remember the “Cornhusker Kickback”? That was the $45 million in expanded Medicaid funding Ben Nelson demanded from the Obama Administration before he’d support Health Insurance Reform. The special treatment for Nebraska gave the reform effort a tawdry feel.

And just as importantly, it did nothing to improve Nelson’s popularity in his own state. When he announced he would not run for reelection in December, reporters pointed to the Cornhusker Kickback as one issue that was making his reelection increasingly unlikely. [..]

Yet it seems like Obama’s trying something similar in his effort to get CA’s Kamala Harris to join in his foreclosure settlement, with $10 billion in aid slated for CA’s struggling homeowners.

It would seem that Obama is having a hard time getting the Democratic AG’s on board.

Foreclosure Fraud Settlement Terms Laid Out, But Holdout AGs Not Signed On

by David Dayen at FDL News Desk

When I started digging into whether this Monday meeting with HUD and DoJ officials to go over a proposal for a foreclosure fraud settlement was legitimate, I couldn’t find one state Attorney General who mattered actually committed to showing up. When I say AGs who “matter,” I mean the ones who have been critical of a settlement in the past. I mean the Justice Democrats. I mean Eric Schneiderman in New York, Beau Biden in Delaware, Martha Coakley in Massachusetts, Catherine Cortez Masto in Nevada, Kamala Harris in California, not to mention the AGs from Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky, Minnesota, Oregon and Montana who showed up (either themselves or representatives) at the meeting in DC last week to discuss alternatives to a settlement. I mean them. They aren’t going to Chicago, by all accounts. [,,]

But again, I’ve seen no evidence that anyone outside of the small circle of the Administration and the AGs on the executive committee negotiating the deal actually agree to it. Call it the 12-state deal, rather than the 50-state one. This is only closer to getting done in the sense that the folks who have wanted to cave all along are ready to do so.

So what can we do as individuals to get our state Attorney Generals to support homeowners and reject this sell out to the big banks? Yves Smith at naked capitalism lays out three reasons they should oppose this settlement and says to call them:

Here are some of the reasons to oppose a settlement:

1. There have been virtually no investigations, and the Administration has engaged in cover-ups rather than trying to get to the bottom of the mortgage mess

2. The big argument made in favor of the deal, that it will help borrowers, is patently false. Remember, Countrywide entered into a deal with attorney generals just like this, where they agreed to do mods in return for a settlement on abuses. Guess what? They didn’t do the mods. To add insult to injury, they actually abused homeowners who should have gotten mods. Nevada AG is suing Countrywide now over its failure to comply with the terms of its settlement. And even if some mods miraculously did get done, the settlement is designed to have banks hit a dollar amount. That means they will focus on the biggest loans, which means any relief will go to a comparatively small number of people in (originally) big ticket houses.

3. The Administration has only one chance to get this right. Now you might argue that Team Obama has no intention of getting the mortgage mess right, but the tectonic plates suddenly seem to be moving in elite circles. The Fed realizes that housing is a BIG problem and has even started making noise about it. Yet Obama is moving forward with a plan cooked up in late 2010 that is completely out of whack with the urgency and severity of the problem. Note that this settlement will NOT stop private actions, such as borrowers fighting foreclosures. And we will continue to banks refuse to take losses and drag out foreclosures to maximize fees. That will lead to continued pressure on housing prices in many markets as buyers stay on the sidelines, fearful of buying before a large shadow inventory clears. [..]

PLEASE call them TODAY. Here is a list of phone numbers. If you can’t get through, send an e-mail.

Please also sign this petition from Campaign for America’s Future (it has some talking points if you need them for the AG calls). Note you can opt out of being put on their mailing list (I know that has been a sore point with some past petitions). I know it is futile to ping Obama, but they will collect the number of people who sign, and that will in turn bolster the dissident AGs.

Please call today. Unlike Congresscritters, who get a lot of constituent mail and phone calls, AGs get much less in the way of messages from state citizens, so your calls will make a difference.

Thanks for your help.

Another slap on the wrist by the government for the banks that caused the housing bubble and the crash that sank the economy world wide with unregulated derivatives and credit default swaps:

The Department of Justice has announced a $335 million settlement with Countrywide, the former subprime mortgage giant now subsumed into Bank of America, on claims of housing discrimination.

   The Justice Department on Wednesday announced the largest residential fair-lending settlement in history, saying that Bank of America had agreed to pay $335 million to settle allegations that its Countrywide Financial unit discriminated against black and Hispanic borrowers during the housing boom.

   A department investigation concluded that Countrywide had charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. It also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received prime loans, the department said.

   The pattern and practice covered the years 2004 to 2008, before Countrywide was acquired by Bank of America.

   “The department’s actions against Countrywide makes clear that we will not hesitate to hold financial institutions accountable, including one of the nation’s largest, for discrimination,” Attorney General Eric H. Holder Jr. said. “These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin.”

I’m waiting for someone to hold financial institutions accountable for discrimination against every one of its customers, by defrauding them and destroying the residential home mortgage market. That’s obviously not going to happen here.[..]

Here’s the settlement agreement, and once again you see that Countrywide doesn’t have to admit wrongdoing for their crimes.

But the Department of Justice and the Securities and Exchange Commission will enthusiastically pursue the one agency that didn’t cause the crash but just inherited it, at tax payers expense:

The walls have closed in over the past couple weeks on mortgage giants Fannie Mae and Freddie Mac. The SEC charged former CEOs and executives at the companies with fraud. California Attorney General Kamala Harris sued them for imformation (sic)in a wide-ranging fraud investigation. And now we learn that the FBI is investigating them[..]

If Fannie and Freddie are guilty of misleading investors, they deserve to pay the penalty. And yet, I do sense more enthusiasm to go after these government sponsored enterprises than to go after the private banking firms which were far more responsible for subprime. This feeds a false narrative that government somehow caused the financial crisis by forcing lending to poor people. Fannie and Freddie followed the market in subprime and did not originate it.