SECRET DEALS, FORECLOSURE SETTLEMENTS, STRESS TESTS, AND VAMPIRE SQUID WHISTLE-BLOWERS: YOU JUST CAN’T MAKE THIS STUFF UP
No Hollywood scriptwriter could plot a more implausible story. Here is the plotline sequencing:
- Bankers make NINJA loans, securitize them, and sell on to government GSEs
- Bankers destroy all the loan documents and begin random and fraudulent foreclosures, throwing millions of innocent victims out on the street
- GSEs sue bankers and force them to take back bad mortgages
- Bankers sell servicing rights for the same bad mortgages back to GSEs, who overpay
- GSEs resell servicing rights to companies run by former GSE officials
- Bankers slapped on wrist with puny foreclosure settlement in return for government promise it will never sue them for past foreclosure fraud
- Government stress test claims banks are healthy
- Bankers get sweet deal, counting mortgage mods for best borrowers toward the settlement
- HUD report released demonstrating massive foreclosure fraud that reached to highest levels of banks
- Vampire Squid Executive Director fires off resignation letter decrying bankster culture
- Banksters walk away scott-free as statute of limitations runs out for criminal behavior
This would have to be a fantasy because no one would ever believe it could have been true.
Beginning in the late 1990s the biggest banks and GSEs created MERS to end-run around county recorders so that they would not have to pay fees to properly register sales of mortgages that would be securitized. http://www.huffingtonpost.com/l-randall-wray/post_1440_b_797563.html
They then proceeded to lose or destroy all (or virtually all) the written documents, broke the chain of title, and screwed up even the electronic records. Nobody knows who owes what to whom, so the loan servicing arms of the biggest banks decided to go on a foreclosure frenzy to seize as many homes at random before anyone found out.
And that required the biggest forgery conspiracy the US has ever seen, with individual Robo-signers admitting to falsifying up to 10,000 documents each per month. Burger King floor-moppers and pizza delivery boys were promoted to JPMorgan Chase Vice Presidents to manufacture documents. I am not kidding—“the titles were given by Chase for the sole purpose of allowing individuals to sign documents and came with no other duties or authority”. http://www.nytimes.com/2012/03/13/business/tough-reviews-ahead-for-banks-in-26-billion-mortgage-deal.html
A detailed review of 36 of Chase’s foreclosures found that the bank was unable to find any documents related to how much the borrowers owed in 32 of them; there were documents in 4 cases, but docs for 3 of those were wrong. In other words, Chase actually had correct documents needed for foreclosure in only one case out of 36. And these were foreclosures it had successfully completed. In 35 out of 36 cases Chase had simply stolen the home—it had no documents showing what the homeowners supposedly owed. Maybe they owed nothing. We will never know. That is the state of home mortgages in America—thanks to Wall Street and MERS.
This is what led to the recent “foreclosure settlement” that let the worst banksters off the hook with a tiny little slap on their dirty hands. It totaled $26 billion, but as is widely reported hardly any of that is real money—see below. In return for the token payments the banks got to walk scot-free away from lawsuits: 49 state attorneys general as well as the federal authorities have agreed they will not be able to sue the banksters for crimes like robo-signing.
But here is the funny thing about the settlement: the details were not announced at the time—instead the authorities dragged their feet until the end of last week.
We now know why: it looks like they were waiting for the government’s “stress tests” to be readied for damage control. Let me explain.
Last Thursday the details of Bank of America’s deal were released. Recall that BofA had taken over Countrywide, queen of the fraudulent mortgages. BofA has the second biggest servicer, and is servicing some of the lowest quality mortgages in the country. Further, Countrywide was notoriously sloppy in its record keeping. Ergo, BofA’s foreclosure fraud record was among the worst and it got hit owing $11.8 billion of the $26 billion settlement. http://www.nytimes.com/2012/03/09/business/bank-of-america-makes-deal-on-housing.html
But you know the government is going to cut BofA a sweet deal—it is a $2 trillion dollar behemoth that is way too big to fail. Now, the vast majority of the settlement fund is not real money—it is funny accounting money. The banks agreed to provide about $20 billion of the $26 billion in the form of debt reduction or lower interest rates for just 1 million homeowners.
(Only $1.5 billion will go to the homeowners who already lost their homes to thieving banks—who only have to provide $1,500 to $2000 for each home they foreclosed improperly. Home theft by a bankster is not a serious crime in America, after all.)
The details on BofA’s deal stink. BofA is going to provide principal reductions for 200,000 homeowners with mortgages greater than $100,000. None of these can be mortgages owned by Fannie or Freddie, nor can they be backed by the FHA or the VA (our veterans are exempt from mortgage relief?). And those owners getting the deal must have mortgages owned or at least serviced by BofA, they must be underwater, and the must be 60 days or more overdue.
Now think about those conditions. The target is certainly not going to be lower income households—with smaller mortgages, and who tend to rely on FHA and VA. It looks a lot like the redlining banks used to do (drawing a redline around areas they would not lend to, mostly populated by lower income minorities)–by design it will disproportionately help white borrowers.
And the deal says nothing about homeowners most in danger of losing their homes—those already in default. Rather it looks like BofA will be cream-skimming, including mortgages it probably would have modified anyway! So it will get to count money it would have spent even without the settlement toward the $12 billion or so that it owes.
And here is where the plot thickens. If you go all the way back to last summer there were some reports about BofA playing “hide and seek” with Fannie (http://www.forbes.com/sites/francinemckenna/2011/08/11/fool-me-twice-bank-of-america-plays-hide-and-seek-using-fannie-mae/ ). So recall that the banks made toxic NINJA (no income, no job, no asset, no problem) subprime mortgage loans, then packaged them into securities. It sold a lot of these to the GSEs (Fannie and Freddie). After the crisis hit, Fannie sued some of the banks because those securities did not meet the “reps and warranties”, forcing BofA to take some of them back. Then last summer BofA’s servicing arm sold the servicing rights to some 400,000 rotten mortgages to Fannie—which had not been happy with the bank’s success at squeezing blood out of defaulting homeowners. http://www.americanbanker.com/issues/176_243/fannie-mae-secretly-become-mortgage-servicing-giant-1044951-1.html
(To be sure there is more to the story than this, because the interests of a servicer are in conflict with the interests of the banks and securities holders—I won’t go into this now, but it sometimes makes sense to drag a foreclosure out long enough to eat up the full value of the underlying house in fees due to the servicer.)
At the time, many analysts thought Fannie paid far too much ($500 million) for these servicing rights on mortgages with potentially high default rates. It looked like a government bail-out of BofA, since Fannie could just use government money to pay for the rights—rights that private servicers did not appear to want since none of BofA’s competitors was stepping up to bid for them. As Francine McKenna at Forbes revealed at the time, Countrywide’s former auditor (KPMG) was also the auditor of Fannie, and BofA’s auditor (PricewaterhouseCoopers) was also the auditor of Freddie (as well as the FHLBs and AIG—two other institutions that sued BofA to take back bad loans).
McKenna thus speculated that these auditors were in a good position to know which loans had been put back to BofA and also which loans were included in the servicing rights that were sold to Fannie.
If you were a suspicious sort, you might wonder if those same toxic mortgages that BofA had to buy back from Fannie were involved in some sort of “payback” by Fannie to BofA in the form of an overpayment for servicing rights.
Oh, but it gets worse. (Doesn’t it always?)
Fannie has continued to buy servicing rights from the biggest servicers (perhaps continuing to overpay for them) and then selling the rights to a handful of favored specialty servicing firms like Nationstar.
Guess who runs Nationstar’s parent company? If you guessed Donald Mudd, formerly Fannie’s chief business officer you’d be right. And all of this is done in secret.
Nay, top secret. American Banker submitted a Freedom of Information Act request to get documents related to these deals. The Federal Housing Finance Agency uncovered 4000 pages of documents related to the request but said not a single page could be released even in redacted form. This stuff is more secret than Presidentially-ordered assassinations of American citizens.
Heard enough? Not yet. It gets worse.
The foreclosure settlement as well as the bank stress tests were conducted and released before the Department of Housing and Urban Development released its examination of bank foreclosure practices on Monday. That report documented widespread abusive practices at the biggest banks. It shows the potentially illegal activities were not only known by top management, but also encouraged by management. Indeed, when midlevel managers tried to report and stop illegal activity, top management directed them to shut up and get with the program.
Gee do you think it would have been nice to have that report before settling with the banksters?
By releasing the HUD report after the settlement, the state attorneys general were denied material information that could have strengthened their bargaining position. And the timing is certainly unfortunate if not intentional as it came after the government certified that most of the biggest banks had passed the wimpy stress tests—to minimize damage to bank stock prices that could have been done by the HUD study. http://www.nytimes.com/2012/03/13/business/tough-reviews-ahead-for-banks-in-26-billion-mortgage-deal.html
And, finally. I am sure you are as shocked (shocked!) as I am at the kiss-and-tell resignation letter by Goldman Sach’s Greg Smith. Did you know that Goldman rewards employees who push the worst toxic waste onto Goldman’s own clients? Simply shocking!
Look, as I wrote a long time ago it is a common claim among competitors that when a customer comes to Goldman for financing, Goldman puts together two teams. One tries to convince the customer to take the worst terms possible while the other team creates derivatives to bet on the customer’s failure. And given what we know about the deal Goldman cut with hedge fund manager John Paulson, that certainly rings true. But now we’ve got it straight from the horse’s mouth, so to speak. Read it for yourself: http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=1&emc=eta1
And that statute of limitations clock just keeps on ticking while the Obama Administration keeps on fiddling.
Other reference on the sale of servicing by BofA:
Federal Housing Finance Agency, Office of Inspector General, Semiannual Report to the Congress, April 1, 2011, through September 30, 2011
16 Responses to “SECRET DEALS, FORECLOSURE SETTLEMENTS, STRESS TESTS, AND VAMPIRE SQUID WHISTLE-BLOWERS: YOU JUST CAN’T MAKE THIS STUFF UP”
There, unfortunately, may be institutions that are too big to fail but the folks that led those institutions should not be too big to be prosecuted.
Do you have documentation about foreclosures being "random"? I haven't been foreclosed on. Most people with current loans have not. I would bet those who are foreclosed on have been delinquent. So, do you have ratios of foreclosures on non-delinquent vs deliquent loans, irrespective of documentation issues? And perhaps average time of delinquency vs time of foreclosure, and its spread? I am sure there is a great spread, but anyone who is delinquent is subject to foreclosure, after a certain point.
"I haven't been foreclosed on. Most people with current loans have not."
Do you have data documenting that most people with current loans haven't been foreclosed on? Also, do you know how many of them will be foreclosed on in the future by banks who have no legal right to do so? The Chase study shows that in 35 out of 36 cases, the bank had no legal right to foreclose. Do you have data showing how general this phenomenon is or data on how may foreclosures are, in fact, illegal?
Look, you seem to be implying that people behind in their loan payments deserve foreclosure regardless of whether the foreclosing party has the legal right to foreclose? Don;t you think this is a ridiculous position. Which is more corrosive to an orderly society, people falling behind on their home loans and failing to repay them to the rightful creditors or seizure of their homes through fraud by private parties who cannot demonstrate property rights in those homes?
I believe that the second is far more corrosive and that while the homeowners behind in their loans certainly ought to be accountable, the people seizing those homes through fraud and committing felonies and should certainly go to jail and serve time/ "Let Justice Be Done, Though the Heavens Fall."
Yes it is documented: banks are foreclosing on the wrong houses, on people who've never had a mortgage at all. And how the heck would we know if they are delinquent? The banks do not have the records.
You suffer from a common misperception. Just because YOU miss a loan payment does not mean that I can foreclose. I need to follow the law; I must demonstrate I have the right to foreclose. The banks cannot do that because they do not have the docs. In 35 out of 36 cases, Chase did not have the necessary docs. It goes far beyond documenting what is owed. To foreclose the bank also must demonstrate clear title. They cannot. They do not have it. Hence robo-signing. CAN YOU UNDERSTAND THAT MANUFACTURING FAKE DOCUMENTS IS ILLEGAL, IN ITSELF, AND CANNOT RESOLVE THE PROBLEM?
In a "good" economic system there should (cannot) not be any institution that is "Too Big to Fail". Period.
Both the present and the last administrations had an opportunity to "deconstruct" and "unwind" the financial crisis to a manageable level. Both administrations chose not to. One of the main reasons is the fallacy that there exists that "too big to fail" concept, and in Tim Geithner's own words: "First do no harm".
Well, Mr. Geithner's advise was taken by this administration and the patient is essentially dead.
Now there is a huge disconnect of what we may believe Wall Street actually stands for. It certainly doesn't stand for "job creation". Anybody that still believes that is brain dead at the least.
Until the present administration actually starts to indict those who committed common law fraud and perp walks them to prison we will continue this facade of, "….a recovering economy".
During the S&L mess, over 1,000 indictments were active and many individuals actually went to jail and many were barred for life from any connection with public banking. With a crisis infinitely more dark, nobody seems to want to tackle the job to clean up this mess.
Two political parties thoroughly corrupt and a public that is confused and apathetic (except for a small part) to say the least.
Incidentally, Merrill was also one that rewarded those within that raised the conflict of "going short, while advising their clients to "go long". I'm sure there are many more that did and are still doing the same thing.
Is it true that BlackRock has made a deal with the gov to purchase for pennies on the dollar billions of $$$$ foreclosed properties????????
The median US household (the middle household out of 118 million) lost over 40% of its lifetime's savings, over $40,000 of savings, between 2007 – 2009, according to Univ. of California professor Sylvia Allegretto's report State of Working America's Wealth. The median dropped from $106,000 to $62,200 (page 6). And as a result of the Recession, the Dept. of Labor reports 8.75 million workers lost their jobs. The Rockefeller Fdtn reports 23% of US households lost 25% of income in one year. The Statistical Abstract, Table 722, shows a $13 Trillion drop in national household net worth from $78 Trillion to $65 Trillion. That is a loss of $110,000 per household on average, spread over 118 million US households. Allegretto shows the run up of national housing prices from 1998 to 2006 went from 80 to over 180 on a price index chart (page 28). She adds this to her summary, page 2, "Because of the housing bust, home equity as a percent of home value fell from 59.5% in the first quarter of 2006 to 36.2% in the fourth quarter of 2009. For the first time on record, the percent of home value that homeowners own outright dropped below 50%—meaning that banks now own more of the nation’s housing stock than people do." Another graph shows in 1980 home owner equity at 70% — so the drop 1980 to 2009 went from 70% to 36.2%. But "BANKS NOW OWN MORE OF NATION"S HOUSING STOCK THAN PEOPLE DO" is the result. This whole story is just too complicated, but the summation is simple — fraud and greed have run wild. I have a blog with proposed solutions, http://benL8.blogspot.com, I agree with Robert Reich on a lot of issues. After this article I think we need to return banking to 1990 rules, state charters only, keep the size smaller, no derivatives, no shadow banking, banks hold mortgages to full term. The Great Financial Crisis by Magdoff and Foster shows financial corporation debt grew from 10% of GDP in 1970 to over 110% of GDP in 2007. Too much credit in the economy indicates massive inequality.
It's fraud and introducing those documents in Court and swearing to them is perjury. Both are felonies. It is not a felony to fall behind in your loan payments. So, BB, you are saying, that to punish those who have fallen behind in their payments, banks, and servicers have the right to commit felonies and to destroy the integrity of the real estate property system in this country. Excuse me, but I think I know who has to be punished here to restore the integrity of our real estate system. And, I'm afraid it's not the borrowers, but the banksters and fraudsters, and especially the people who are at the apex of the control frauds.
thanks, Ben, good data and very important toward building an understanding of what is really going on.
It is all part of Bush's "ownership society" agenda. The chickens are roosting now.
Ben, if banks went back to holding mortgages to term, that would solve alot of the problem. I'm so sick and tired of individuals making comments like it the homeowners fault they are in foreclosure. I had good credit before I refinanced. The orinal lender paid the broker $7700 to push that bullshit ass loan off on me. I have documentation of the fraud, my income was falsified, they lied about what type of loan it was, but yet its my fault I'm in foreclosure. It was fraud at the inception and all the way through. Two different copies of the assignments of the deed of trust, two different copies of the note, fraudulent affidavits, robo-signing. Two parties entered into a contract but only the homeowners were suppose to follow thr rules, the banks just did what the hell they wanted. For all of you who feel its always the homeowners fault get your head out your ass and wipe the shit from your eyes, you might just see things a little different. They are swindling homes from people who were never late on their payment as well, through accounting errors and the use of fraudalent documentation. Hope that it never happens to you!
We didn't even own the home, and BoA tried to foreclose on us with ficticious documents. Try and defend that dumb@#%
Thank you, everyone for your responses!
I did not mean to say that false forecosures have not happened, as per anecdote. Or that breaking the chain of title and filing false documents is not a felony and that the associated banks shouldn't be prosecuted, etc.
What I meant was that "random" foreclosure is a very serious charge, which has a specific statistical meaning.. i.e. no correlation with payment status. Despite all the horrifying anecdotes, my sense of the industry is that most foreclosures are happening on eminently foreclosable properties, seen from a financial perspective, apart from the issues of clarity of documentation.
It is a serious charge that deserves serious documentation, not polemics. In policy terms, it then becomes a question of how to treat homeowners equitably, by tracking down (or establishing, by restoration of local title documentation) the title chain, and making banks take losses on their bad lending as well as bad documentation.
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this is an excellent explanation to anyone who asks what brought on the mortgage crisis. You put everything together piece by piece and this was well done! The poison of our country begins with roots like this story and Our very poor written system of laws and financial regulations allow for white collar criminals to go scott free on statutes of limitations and bargain deals recovering merely a fraction of what could have been taken back for the American people in a re-sparking of the economy. Very troubling to read stuff like this because it is only one example of our we are being taken advantage of by large corporations. I am an advocate for any politician that is for taxing these types of behaviors with criminal charges and repercussions for irresponsible predatory lending.