U.S. sues Wells Fargo in mortgage fraud case

Reuters

The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co, the latest legal volley against big banks for their lending during the housing boom.

The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans.

The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured by assets.

"As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," said Manhattan U.S. Attorney Preet Bharara.

Wells, the largest U.S. mortgage lender, denied the allegations and said in a statement it believes it acted in good faith and in compliance with FHA and U.S. Department of Housing and Urban Development rules. The bank said many of the allegations have been previously addressed with HUD and added that its FHA delinquency rates have been as low as half the industry average.

In a regulatory filing in August, the bank said it was being investigated for possible violations of laws and regulations relating to mortgage origination practices, including FHA loans. Wells said it will vigorously defend itself against the suit.

Bharara's office has brought similar cases in the past few years, including one against Citigroup Inc unit CitiMortgage Inc, which settled the case for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case.

The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations.

The Wells Fargo case is brought under the False Claims Act, which provides penalties for fraud against the government, and under the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA for short, a little-used statute that has grown in popularity in the past year.

The law requires a lower burden of proof than criminal charges, has a longer statute of limitations than other financial laws and potentially could bring big fines.

A civil fraud unit that Bharara created in March 2010 filed its first lawsuit under FIRREA in December of that year.

DAMAGES AND PENALTIES

At issue In Tuesday's suit are loans Wells Fargo made through a program that allows banks to originate, underwrite and certify mortgages for FHA insurance, according to the complaint. Under the so-called Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan before it is approved for FHA insurance, but lenders are supposed to follow program rules.

Between May 2001 and October 2005, according to the complaint, Wells certified more than 100,000 loans for FHA insurance, even though the bank knew its underwriters had failed to verify information that was directly related to the borrower's ability to make payments.

"The extreme poor quality of Wells Fargo's loans was a function of management's singular focus on increasing the volume of FHA originations (and the bank's profits), rather than the quality of the loans being originated," the complaint said.

The bank also failed to properly train its staff, hired temporary workers and paid improper bonuses to its underwriters to encourage them to approve as many loans as possible, the complaint said.

During a 7-month stretch in 2002, at least 42 percent of the bank's FHA loans failed to actual qualify for the insurance they were submitted for, even though the bank's internal benchmark for such violations was set at 5 percent.

Wells also kept its defective loans secret from HUD, the complaint said. From January 2002 to December 2010, the bank internally identified more than 6,000 "materially deficient" loans, including 3,000 that had defaulted in the first six months, but did not comply with its self-reporting obligations, the complaint said.

Prior to October 2005, the bank did not self-report a single bad loan, and the inadequate reporting continued even after a HUD inquiry that year, the suit states. All told, from 2002 through 2010 the bank self-reported only 238 loans, according to the complaint.

Some of the mortgages Wells Fargo suspected of fraud but declined to report to HUD include loans it separately reported as suspicious activity to the U.S. Treasury Department, according to the suit.

The complaint seeks treble damages and penalties for hundreds of millions of dollars in insurance claims already paid to Wells Fargo, as well as penalties on claims HUD may pay in the future.

Citi, in its settlement, paid $158 million to resolve allegations that a "substantial percentage" of around $200 million in insurance claims failed to meet FHA requirements.

The Wells Fargo complaint also includes specific allegations that the lender failed to report another $190 million in loans it should have flagged as potentially problematic to HUD, which potentially adds to any eventual payout from the bank.

The lawsuit adds to the growing number of civil cases the government has filed targeting conduct that allegedly contributed to the financial crisis.

The Justice Department has indicted few individuals and institutions on criminal charges for roles in the collapse, and officials have said prosecutors determined much of the conduct amounted to greed but not crimes.

A joint federal-state task force set up earlier this year to continue to probe conduct tied to the 2007-2009 crisis has also acknowledged the bulk of its inquiries are under civil law.

(Reporting by Rick Rothacker in Charlotte, N.C. and Aruna Viswanatha in Washington; Editing by Matthew Lewis and Tim Dobbyn)

N.Y. AG sues J.P. Morgan over mortgage securities

MarketWatch
Ronald D. Orol

WASHINGTON (MarketWatch) — New York Attorney General Eric Schneiderman late Monday filed a lawsuit against J.P. Morgan Chase & Co. in civil court, alleging widespread fraud in the sale of mortgage-backed securities.

The suit relates to mortgage-backed securities issued by Bear Stearns & Co., which was acquired by J.P. Morgan JPM +1.21%  in 2008 when the firm collapsed amidst the financial crisis.

The complaint argues that Bear Stearns defrauded “thousands of investors.”

The charges, which came partly as a result of a federal mortgage task force formed in January by the Justice Department, assert that the misconduct was in connection with the firm’s “due diligence and quality control processes” that “constituted a systemic fraud on thousands of investors.”

The complaint alleges that Bear Stearns and its mortgage unit “committed multiple fraudulent and deceptive acts” in promoting and selling residential mortgage-backed securities. It alleges that the bank “systematically failed to fully evaluate the loans” while leading investors to believe that the securities have been “carefully evaluated.”

Dennis Kelleher, president of advocacy group Better Markets, said in a statement that he hopes the lawsuit is the first of many and that lawbreakers on Wall Street will be punished.

“Finally! A major Wall Street bank has been sued for fraud for its reckless lending that helped cause the 2008 financial collapse,” Kelleher said in a statement. “Wall Street is a high crime area, but no one has been held accountable. The creation, sale and distribution of worthless toxic mortgages was at the core of the financial crisis.”

How Quantitative Easing Helps the Rich and Soaks the Rest of Us

And why the Occupy movement should be up in arms.

Reason

Anthony Randzzo

The decision is in: Unlimited quantitative easing. That was the announcement from the Federal Open Market Committee this afternoon, launching a third round of purchases of securities in a bid to boost the economy and reduce unemployment. This time, Federal Reserve Chairman Ben Bernanke and crew are pledging to buy $40 billion per month until the economy improves. The Fed's policy committee also extended its zero-interest rate policy until “at least mid-2015.” If QE3 lasts that long, the Feds will be printing at least another $800 billion to buy mortgage-backed securities.

It won’t be a surprise to read conservatives lambasting this as unconventional monetary policy meant to help re-elect President Obama. And inflation hawks have already started screeching. But the loudest cry of “for shame” should be coming from the Occupy Wall Street movement.

Quantitative easing—a fancy term for the Federal Reserve buying securities from predefined financial institutions, such as their investments in federal debt or mortgages—is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality formed by crony capitalism. And it is hurting prospects for economic growth down the road by promoting malinvestments in the economy.

How is the Federal Reserve contributing to regressive redistribution, income inequality, and manipulated markets? Let’s flesh this out a bit.

Last month, Bernanke said that quantitative easing had contributed to the rebound in stock prices over the past few years, and suggested this was a positive outcome. “This effect is potentially important, because stock values affect both consumption and investment decisions,” he argued, apparently under the belief that the Fed has a third mandate to support rising stock prices.

This is ironically a trickle down monetary policy theory, where rising stock prices mean more wealth and more consumption that trickles down the economic ladder. One problem with this idea is that there is a gigantic mountain of household debt—about $12 trillion worth—that is diverting away any trickle down. An even worse assumption is that the stock market really reflects what is going on in the real economy.

Where the Occupy movement should really be teed off is when you consider that most equity shares in America are owned by the wealthiest 10 percent. That is not inherently a problem—wealthier individuals with more disposable income will have more ability take ownership stakes in companies than those in lower income brackets. And it is not a call for class warfare. However, it does mean that when the Fed engages in quantitative easing it is providing a benefit to a very narrow segment of society at the expense of others (either through future inflation or through the cost of raising taxes to pay for increased federal debts). That is the definition of crony capitalism.

At the same time, all Americans have seen the prices of basic goods increase over the past few years in large part due to rising commodities prices. The whole idea of QE is to drive investors out of lower risk investments like mortgage backed securities and government debt and get them to put that money in “more productive” use—lend it, build skyscrapers, invest in technology, etc. Since there is little confidence about the future of the economy, many investors have crowded into the stock market with their money, and still others have invested in commodities.

The problem is that investing in commodities can push up prices on things like gas, meat (because of feed corn prices), bread (because of wheat prices), and even orange juice. There certainly have been other contributors to commodities prices going up, but if the Fed has boosted stocks, they've boosted commodities too. So not only are the cronies gaining from quantitative easing, there is a negative wealth effect too.

The cronyism doesn’t end there. In a Dallas Fed paper released in August, OPEC chief economist William White points out that easy monetary policy favors “senior management of banks in particular.” And even Bernanke himself suggested (as if it was a good thing) that quantitative easing purchases “have been found to be associated with significant declines in the yields on both corporate bonds and MBS.” Translation: the Federal Reserve has made it artificially cheaper for corporations to borrow money and has pushed up the prices of houses (benefiting homeowners but hurting homebuyers).

Correct me if I’m wrong, but I thought cheap loans allowing businesses to leverage up and juiced housing prices were key parts of what got us into this mess?

All of this might be acceptable to some if quantitative easing was helping the American economy recover. The reality is that quantitative easing has made it cheaper for the government to borrow, has artificially propped up the housing market (making it take longer to recover), and has dramatically manipulated the distribution of capital in financial markets. And the economy has not been in recovery.

The plans announced today will exacerbate pre-existing malinvestment and income inequality. What is this continuous round of purchases going to do? It won’t get banks lending any more than they already are. And even if it did, households and small business still have a lot of debt that will keep them in a deleveraging state for a while. It won’t help the housing market bottom out, clear away toxic debt, and end the wave of foreclosures that need to process. It is not going to push up incomes, create new jobs, or change the technological revolution that is altering the face of employment in America.

To put it simply: More quantitative easing is not going to move the dial much on the growth meter.

Taken together, the crony capitalism and negative wealth effects of quantitative easing should clearly give pause. The fact that QE promotes activities that led to the housing bubble should have stopped its progression as an idea a long time ago, especially since these problems are greater than any gain that would come from this now perpetual pace of money creation.

If there is a time to head down to Zuccotti Park and raise some cardboard in opposition to the continuation of such a devastatingly failed policy, it is now.

Washington's highest court rules MERS cannot foreclose on homeowners

The Oregonian
Brent Hunsberger

The Washington Supreme Court ruled unanimously today that the mortgage industry’s controversial document-recording system lacked authority to start out-of-court foreclosures and might have violated state consumer protection laws.

The state’s highest court ruled that lenders could not foreclose on homeowners in the name of the Mortgage Electronic Registration Systems Inc. It found that MERS did not meet Washington's  definition of a beneficiary and could not foreclose on behalf of a lender that holds the mortgage note.

“Simply put, if MERS does not hold the note, it is not a lawful beneficiary,” the court wrote in an opinion written by Justice Tom Chambers and released today.

The Oregon Supreme Court also is considering whether MERS can be a beneficiary under Oregon law, said Rick Fernandez, an attorney in Lake Oswego whose cases are before the court.

In July, the Oregon Court of Appeals ruled that lenders could not use MERS  to skirt state law requiring that all mortgage sales be recorded in county offices before launching out-of-court foreclosures.

Washington's court today also found that MERS's involvement in robo-signing mortgage documents, among other behaviors, appeared to violate Washington’s Consumer Protection Act. But consumers must try such claims on a case-by-case basis, the court said

MERS was created by the mortgage industry to bundle and sell loans to investors without having to record every assignment with county clerks. It is involved in most mortgages across the country, but does not take payments from borrowers or negotiate on behalf of lenders. 

MERS spokeswoman Janis Smith noted that Thursday's decision applies only to non-judicial foreclosures done outside a courtroom, the process lenders typically use. MERS voluntarily changed its rules in July 2011 to stop foreclosures in its name, she said.

Melissa Huelsman, a Seattle attorney, represented homeowner Kristin Bain in one of the cases against the court. Bain had sued Metropolitan Mortgage Group, Indymac Bank, Fidelity National Title and MERS.

Huelsman said the ruling cleared the path for homeowners to recover damages and attorneys fees from lenders found to have wrongfully foreclosed. She called the decision a victory for the rule of law. 

"Too often we've seen courts twisting themselves into knots to get to a decision that's inconsistent with the statute," Huelsman said.

Attorneys said they were still evaluating how the decision impacts existing cases and already completed foreclosures.

"I would guess that lenders will approach out-of-court foreclosures involving MERS much more cautiously," Fernandez said. 

Washington Attorney General Rob McKenna and the National Consumer Law Center had submitted briefs supporting the cases of Bain and homeowner Kevin Selkowitz. The Washington Bankers Association had supported MERS.

In its ruling, the court noted the confusion MERS had caused distressed homeowners who were trying to identify and negotiate modifications with the true owner of their mortgage.

"While not before us, we note that this is the nub of this and similar litigation and has caused great concern about possible errors in foreclosures, misrepresentation, and fraud," the opinion said. 

"Under the MERS system, questions of authority and accountability arise, and determining who has authority to negotiate loan modifications and who is accountable for misrepresentation and fraud becomes extraordinarily difficult."

It called the debate over whether MERS could foreclose without owning the mortgage as "a simple question" under Washington law: "... if MERS never 'held the promissory note' then it is not a 'lawful beneficiary.'"

The court cited previous federal court rulings in Washington in favor of MERS as "not well taken."

The cjustices declined to evaluate the legal impact of their ruling, as U.S. District Court Judge John C. Coughenour asked them to last year when he sought their opinion.

Under the state's Consumer Protection Act, MERS's characterization of itself on deeds of trust as a beneficiary could be considered an unlawful deceptive practice, the court said.

"The fact that MERS claims to be a beneficiary, when under a plain reading of the statute it was not, presumptively meets the deception element of a CPA action," the court said.

So could MERS's participation in robo-signing mortgage documents, the court said.

"MERS's officers often issue assignments without verifying the underlying information, which has resulted in incorrect or fraudulent transfers," the court said. "Actions like those could well be the basis of a meritorious CPA claim."

The court also said MERS could not show that it acted as an agent for parties who owned Bain and Selkowitz's loans, which are often sold repeatedly to other investors. MERS also failed to identify the parties that control and are accountable for its actions, the court said.

MERS spokesman Jason Lobo said it will be able to show a trial court which lenders it represented in those cases. 

Elites Bilk Populace through Manipulation of Currency, Interest Rates and Precious Metals

J.T. Waldron

The mechanisms for transferring wealth from the majority to the elite involve a massive conspiracy to deceive with the primary goal of getting all to jump into tangled heaps of collapsing markets. 

Starting with the currency market, the Federal Reserve responds to increased public scrutiny and pending audits by posting a study extolling the virtues of  quantitative easing to keep high prices for the stock market.   As reported by CNBC, the Federal Reserve claims that stock market prices woud be 50% lower without the Federal Reserve.  The question should be, "So what?  Do the prices accurately reflect the value of the stocks or not? "  This inflation is fueled by the misconception that the price of stocks somehow reflect the state of the economy.  Stocks from companies that rely on cheap labor overseas, downsizing, consolidation, liquidation - anything that could dismantle the domestic labor force. 

Keeping news pundits with ample filler on their tele-prompters, one can often hear the excuse du jour for why indexes have slipped on any given day.  This becomes its own clever PR technique suggesting concerns with the war on terror, public trends less favorable to investors, or whatever the desired suggestion is laid out for those who've bought into the system. 

In the name of saving the market from dismal price performance on behalf of a handful of investors, U.S. currency has incurred a 97% loss in purchasing power since the Federal Reserve's formation in 1913.  

The Federal Reserve is directly accountable for an average of 10% inflation in the last 10 years.  The result is a population indirectly taxed through the reduction of real purchasing power, especially among those for whom purchasing power actually means something.  They are robbed to please an elite handful of investors depending upon inflated stock prices. 

But that is only one avenue for bilking the public.  Apparently, interest rates were manipulated to draw more unwitting families and individuals into financial traps like various credit lines and mortgages.   As a Barclay's employee reported to the New York Federal Reserve, “Our feeling is that Libors are again becoming rather unrealistic and do not reflect the true cost of borrowing.”. 

There was nothing ambiguous about what was communicated by the Barclay employee to the New York Fed:  “Where I would be able to borrow in the interbank market … without question it would be higher than the rate I’m actually putting in.”

Libor serves as a benchmark interest rate for trillions of dollars worth of loans to consumers and corporations.

Recollections of Geithner's handling of interest rate-fixing are no different from skilled bureaucracies at all municipal levels - make sure there is one memo or piece of paper to pull out of your ass for culpable deniability.  A sincere effort to restore credibility to the markets would have seen Geithner demanding an end to the practice, stating the implications for fraud at this scale, and threats to go public.   The staid approach in itself suggests that systemic deception is the norm, not the exception.
  

As much as 800 trillion dollars of financial products were were initially valued based on Libor rates.  The consistent pattern was to present lower interest rates to sell more loans and financial products.   This makes the market so inefficient, there is no reliance in determining the value of these debt instruments.  

Some analysts, like Bruce Kastling, make the claim that consumers enjoyed initial lower rates and, because they entered at a lower rate, they have no claim.  

How many people would have never qualified for or purchased mortgages or consumer loans had the cost truly reflected the market?  Setting aside the folly of variable interest rate loans, illegal rescission of various credit lines, and extreme interest rate hikes, what about the effects from a massive fraud of this scale on the economy?  

How many times have vast market corrections induced default and foreclosure among those who didn't see it coming?  Are we to blame the victim for not anticipating huge market volatility that results from mass conspiracy to commit fraud?  Probably not. 

And what's in store for those who choose precious metals as a means of protecting real purchasing power?   Are those investing in gold going to see an accurate reflection of their wealth over time? 

According to Ned Taylor-Leland, an investment director at Cheviot, "like interest rates, gold and silver reflect the true value of money the same way interest rates do."

"It is effectively an intervention in two ways; one would be the fact that for central banks, gold and silver going up doesn't make their currency look any good, and secondly a number of the big commercial banks have very large short positions which they like to manage and make easy money from."

Under the guise of a safe haven for value, smaller investors are finding their prices subject to an elite group of investors corrupting market accuracy in exchange for speculative profits and the concerted effort to keep the value of the U.S. dollar artificially high in the wake of massive Bernanke-style currency dumps.  

These conspiracies to deceive the public should open renewed dialog over U.S. taxpayer funded bailouts for institutions hiding behind the fascist concept of "too big to fail".  Bailouts are another example of how the majority is bilked into thinking they are somehow supporting the saviors of capitalism when they are actually handing more wealth over to the criminal elite.

This whole system relying  on  the "magic of the market place" needs to be dismantled.  Here are some additional statistics indicating this mass exodus of wealth from the majority to the criminal elite from an earlier article by J.D. Sayles:

#1 - The “corporate-tax-percentage” of all federal revenue plummeted from 32% to7% since 1960.

#2 - Two out of three U.S. corporations paid no federal taxes from 1998-2005 on sales of $2.5 trillion

#3 - Tax rates for the wealthiest plummeted from 91% to 36% - which goes far lower with loopholes.  All of which combined to cause a collapse in tax revenues from these sectors.  Our revenue this past decade was about $41 trillion.  Had we received just an additional 10% over this time period we could have our debt reduced by:  $4.1 trillion

#4 - Multi-Billion dollar corporate subsidies have doubled over the past decade to over 2000 programs.  Energy subsidies cost roughly $200 billion the past 20 years and farm subsidies over the same period of time cost taxpayers roughly $300 billion more:  $500 billion

#5 - Tax-payer bailouts for bankers, who provide 40% of all campaign donations:  $700 billion

#6 - More than one trillion tax dollars have been wasted on wars, subsidizing the corporate war machine with another $2 trillion predicted in future commitments resulting from these wars:  $1.167 trillion plus $45 billion for aid to repair the destruction that we caused.

#7 - Trillions of dollars were admittedly "misplaced" by the Pentagon, subsidizing the corporate war machine:  $2.3 trillion

#8 - Billions of tax dollars given in foreign “aid”, subsidizing the corporate war machine:  $200 billion

#9 - Trillions of dollars in salaries and bonuses for the political/corporate elite the past few decades

#10 - The corporate elite (top 1%) own almost 50% of America’s wealth and 23% of America’s income.  The last time these numbers happened were as we exited the "Guilded Age", the collapse of the stock market in 1929 and entered into the age of "The Great Depression".  Yet they push for more...

#11 - Politicians make fortunes legislating to the gain of their personal corporate stock portfolios

#12 - Politicians make fortunes in the political after-life with corporate lobbying income

#13 - An unfunded big PHRMA bill (03 modernization act) cost taxpayers another:  $534 billion

#14 - Due to market manipulations, pensions lost:  $3.3 trillion

#15 - Small investors and 401ks invested in the stock market lost:  $9.3 trillion

#16 - In addition to 3 million foreclosures, homeowners lost in home equity:  $9 trillion

Morgan Stanley Got S&P to Inflate Ratings, Investors Say

Bloomberg

Morgan Stanley successfully pushed Standard & Poor’s and Moody’s Investors Service Inc. to give unwarranted investment-grade ratings in 2006 to $23 billion worth of notes backed by subprime mortgages, investors claimed in a lawsuit, citing documents unsealed in federal court.

According to the plaintiffs, the documents reveal that what the ratings companies describe as independent judgments were actually unsupported by evidence and written in collaboration with the bank that was packaging the securities. Morgan Stanley and the ratings companies deny the allegations.

Executives at the ratings companies failed to warn investors about the risks associated with subprime-backed notes that were issued by a unit of London-based hedge fund Cheyne Capital Management Ltd., the investors claimed. Moody’s and S&P sought to reap financial rewards from doing business with Morgan Stanley (MS), the sixth-largest U.S. bank by assets, they alleged, citing court filings unsealed yesterday in Manhattan.

“All of us were under instructions to rate everything that we could bring in the door, and they were measuring market share on a monthly basis,” Frank Raiter, a former analyst of residential-mortgage bonds at S&P, said in a deposition, according to the documents. “I wasn’t real confident we were doing a very good job at it.”

Claims Dismissed

U.S. District Judge Shira Scheindlin last month dismissed some claims against the defendants, while allowing the investors to proceed on a claim of negligent misrepresentation. In 2009, she rejected an argument that the ratings were protected speech under the U.S. Constitution.

The unsealing of the internal documents from Moody’s and Standard & Poor’s came in one of the largest ratings lawsuits to emerge from the 2008 financial crisis. The lawsuit was filed in 2008 by Abu Dhabi Commercial Bank, based in the United Arab Emirates, and Washington’s King County, which includes Seattle.

The case focuses on notes issued by Cheyne Finance Plc, a so-called structured-investment vehicle that collapsed in 2007. SIVs issued short-term debt to fund purchases of higher-yielding long-term notes and failed when credit dried up amid the financial crisis, sparked by investments in mortgage-backed securities.

The Cheyne SIV declared bankruptcy in August 2007 when borrowers defaulted on the mortgages that secured the notes, according to the 2009 ruling. Holders of the notes that were initially rated AAA got back little of their investment and some other securities turned out to be worthless, the judge said.

Designing Notes

As Morgan Stanley bankers were designing the Cheyne notes, they asked Moody’s to use the same volatility assumptions for subprime-backed mortgage securities as for those that had prime home loans as collateral, the investors allege in yesterday’s filing. The ratings company agreed, the investors claim.

“We in fact built everything,” Dorothee Fuhrmann, an executive for New York-based Morgan Stanley, said according to the documents, allegedly referring to the risk-analysis methods applied to the Cheyne ratings.

The investors are using e-mails “chosen from thousands of pages of documents” out of context to support a “baseless” case, Ed Sweeney, a spokesman for S&P, said in a statement.

Mary Claire Delaney, a spokeswoman for Morgan Stanley, said that the investors’ allegations are “without merit.”

“Our rating opinions in this case were, as always, fully independent,” Michael Adler, a spokesman for New York-based Moody’s, said in a phone interview.

AAA Ratings

Before the crisis, Moody’s Investors Service, a unit of Moody’s Corp. (MCO), had given AAA ratings to 42,625 mortgage-backed securities, the same seal of approval U.S. Treasury bonds get. Of those rated in 2006, 83 percent were downgraded within four years, according to the Financial Crisis Inquiry Commission.

"Yes Men" Pretend Bank of America Would Do Right by Taxpayers

Yes Lab

Dow Jones posts fake release for two hours; bank gets fake website blacklisted, briefly
    Contact: bofa@yeslab.org

Bank of America executives, investors, and opponents alike reacted with surprise to yesterday's news—posted for two hours on Dow Jones Newswire and elsewhere—that the mammoth financial institution, realizing it was heading for a taxpayer bailout, was asking Americans to start thinking about what they'll do with the bank once they own it, and to start advertising that vision too.

The news, of course, was a hoax.

The fake YourBofA.com website was quickly, but temporarily, blacklisted by Google as a potential "phishing scam," despite the site containing no forms, spyware, or other characteristics of a site engaging in phishing. Firefox and Google Chrome users who tried to load YourBofA.com were warned that the site may be "dangerous," while some individuals with Gmail accounts reported that emails containing the URL were bounced back or not delivered. An investigation by Raw Story concluded that "It's likely that Bank of America reported the site to Google as a phishing scam." Shortly after the article's publication—and with the help of thousands of volunteers complaining to Google—the website was taken off the blacklist.

Today's reports of slumping profits make the fake site all the more timely. "This site is a forum for people to imagine what they could do with this bank," said Jane O'Heely of the Yes Lab, one of the site's creators. "The ideas we've gotten already show we all know as much as bankers about how a bank ought to be run—and actually, a good deal more." 

American's Comfortably Numb on the Highway to Economic Collapse

Market Oracle
James Quinn

As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators. 

Both the Tea Party movement and the Occupy Wall Street movement are a reflection of the mood change in the country, which is a result of government overreach, political corruption, dysfunctional economic policies, and a financial system designed to enrich the few while defrauding the many. The common theme is anger, frustration and disillusionment with a system so badly broken it appears unfixable through the existing supposedly democratic methods. The system has been captured by an oligarchy of moneyed interests from the financial industry, mega-corporations, and military industrial complex, protected by their captured puppets in Washington DC and sustained by the propaganda peddling corporate media. The differences in political parties are meaningless as they each advocate big government solutions to all social, economic, foreign relations, and monetary issues. 

There is confusion and misunderstanding regarding the culprits in this drama. It was plain to me last week when I read about a small group of concerned citizens in the next town over who decided to support the Occupy movement by holding a nightly peaceful march to protest the criminal syndicate that is Wall Street and a political system designed to protect them. My local paper asked for people’s reaction to this Constitutional exercising of freedom of speech and freedom of assembly. Here is a sampling of the comments:

“What are those Occupy people thinking?! The whole concept is foreign to me. There are always going to be the haves and the have nots. Get over it. Blame yourself for not paying more attention in school or not working hard enough. Just wish people would take responsibility.” 

“If they worked half as hard actually working as they do being a pain in everyone else’s ass, they’d be rich! Being born does not guarantee success or wealth. Only hard work does. Maybe we should let them all occupy a jail cell or two.”

“If the goal is to irritate hardworking suburban commuters on their way home, that sounds like the perfect time and location.”

“Let’s hope they don’t pitch tents and trash Lansdale. They need to look for a job, not occupy the streets.”

“I work, and even if I wasn’t working I wouldn’t (march); I would be out looking for a JOB!” 

I was dumbfounded at the rage directed towards mostly young people who haven’t even begun their working careers and have played no part in the destruction of our economic system underway for the last 30 years. The people making these statements are middle aged, middle class suburbanites. They seem to be just as livid as the OWS protestors, but their ire is being directed towards the only people who have taken a stand against Wall Street greed and Washington D.C. malfeasance. I’m left scratching my head trying to understand their animosity towards people drawing attention to the enormous debt based ponzi scheme that is our country, versus their silent acquiescence to the transfer of trillions in taxpayer dollars to the criminal bankers that have destroyed the worldwide financial system. I can only come to the conclusion the average American has become so apathetic, willfully ignorant of facts and reality, distracted by the techno-gadgets that run their lives, uninterested in anything beyond next week’s episode of Dancing with the Stars or Jersey Shore, and willing to let the corporate media moguls form their opinions for them through relentless propaganda, the only thing that will get their attention is an absolute collapse of our economic scheme. Uninformed, unconcerned, intellectually vacant Americans will get exactly that in the not too distant future. 

Greater Depression Hidden from View

“Look at the orators in our republics; as long as they are poor, both state and people can only praise their uprightness; but once they are fattened on the public funds, they conceive a hatred for justice, plan intrigues against the people and attack the democracy.” – Aristophanes, Plutus

The anger and vitriol directed at OWS protestors by middle class Americans is a misdirected reaction to a quandary they can’t quite comprehend. They know their lives are getting more difficult but aren’t sure why. They are paying more for energy, food, tuition, and real estate taxes, while the price of their houses decline and their wages stagnate. More than a quarter of all homeowners are underwater on their mortgage and many are drowning in credit card and student loan debt. At the same time, government drones tell them the economy is in its second year of recovery and corporate profits are at all-time highs. Government statistics, false storylines, and entitlement programs are designed to confuse the public and obscure the fact we are in the midst of another Depression. Everyone has seen the pictures of the Great Depression breadlines, farmers forced off their land during the dustbowl, and downtrodden Americans in soup kitchens. The economic conditions today are as bad as or worse than the Great Depression. This Depression is hidden from plain view because there are no unemployment lines, bread lines, or soup lines. We are experiencing an electronic Great Depression, as food stamps, unemployment compensation, Social security payments and welfare benefits are electronically delivered to millions of recipients. 

Attorney General of N.Y. Is Said to Face Pressure on Bank Foreclosure Deal

Editor's Note:  The Obama Administration appears to be siding with the banks in mortage fraud settlement disputes.

NYTimes
Gretchen Morgenson

Eric T. Schneiderman has objected to
elements of the settlement for months.

Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.

In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

But Mr. Donovan and others in the administration have been contacting not only Mr. Schneiderman but his allies, including consumer groups and advocates for borrowers, seeking help to secure the attorney general’s participation in the deal, these people said. One recipient described the calls from Mr. Donovan, but asked not to be identified for fear of retaliation.

Not surprising, the large banks, which are eager to reach a settlement, have grown increasingly frustrated with Mr. Schneiderman. Bank officials recently discussed asking Mr. Donovan for help in changing the attorney general’s mind, according to a person briefed on those talks.

In an interview on Friday, Mr. Donovan defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners. But he said he had not spoken to bank officials or their representatives about trying to persuade Mr. Schneiderman to get on board with the deal.

“Eric and I agree on a tremendous amount here,” Mr. Donovan said. “The disagreement is around whether we should wait to settle and resolve the issues around the servicing practices for him — and potentially other A.G.’s and other federal agencies — to complete investigations on the securitization side. He might argue that he has more leverage that way, but our view is we have the immediate opportunity to help a huge number of borrowers to stay in their homes, to help their neighborhoods and the housing market.”

And Alisa Finelli, a spokeswoman for the Justice Department. said: “The Justice Department, along with our federal agency partners and state attorneys general, are committed to achieving a resolution that will hold servicers accountable for the harm they have done consumers and bring billions of dollars of relief to struggling homeowners — and bring relief swiftly because homeowners continue to suffer more each day that these issues are not resolved.”

Terms of the possible settlement under consideration center on foreclosure improprieties like so-called robo-signing and submitting apparently forged documents to the courts to speed up the process of removing troubled borrowers from homes. Negotiations on this deal have been led by Thomas J. Perrelli, associate attorney general of the United States, and Tom Miller, the attorney general of Iowa.
An initial term sheet outlining a possible settlement emerged in March, with institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo being asked to pay about $20 billion that would go toward loan modifications and possibly counseling for homeowners.

In exchange, the attorneys general participating in the deal would have agreed to sign broad releases preventing them from bringing further litigation on matters relating to the improper bank practices.
The banks balked at the $20 billion figure. And the talks seemed to stall over the summer, as Mr. Schneiderman and a few other attorneys general — Beau Biden of Delaware and Catherine Cortez Masto of Nevada, for example — questioned aspects of the deal.

Mr. Schneiderman began objecting a few months ago to the proposed releases barring future litigation, declining to participate as long as they were included.

“The attorney general remains concerned by any attempt at a global settlement that would shut down ongoing investigations of wrongdoing related to the mortgage crisis,” said Danny Kanner, the spokesman for Mr. Schneiderman. His office has opened several inquiries into mortgage practices during the credit boom.

Representatives for the four big banks declined to comment. Mr. Schneiderman has also come under criticism for objecting to a settlement proposed by Bank of New York Mellon and Bank of America that would cover 530 mortgage-backed securities containing Countrywide Financial loans that investors say were mischaracterized when they were sold.

Reports Of Mortgage Fraud Rose To Record Level Last Year

William Alden
Alden@huffingtonpost.com 

After the housing market crashed, reports of suspected mortgage fraud soared.




As lenders, homeowners and brokers rushed to close deals, the process during the boom years was tainted by fakery, according to reports later submitted to the Financial Crimes Enforcement Network, an agency of the Treasury Department. The number of reports of suspected mortgage fraud rose to its highest level on record last year, as 70,472 reports were submitted to the government agency, according to a new release from the LexisNexis Mortgage Asset Research Institute.


That's nearly double the number of cases reported in 2006 when the market was at its peak, and it's nearly 22 times the number of cases reported in 2000. From the LexisNexis release:

Fraudsters thrive on inadequacies within lengthy loan-related processes and a lack of consistency across organizations and/or industries that help them hide their true motives. Technology has enabled faster loan production through automation, ease of processing, and analytics. Industry professionals have keen knowledge of those processes, which makes it much easier to manipulate protocols in place to thwart adverse activities.

The number of verified cases of mortgage fraud declined from 2009 to 2010, but that's partially attributable to a decline in the number of new loans, the LexisNexis report says. Reports of suspected fraud increased nearly 5 percent during that period.

Homeowners and investors have filed numerous lawsuits against mortgage companies, claiming that crucial mortgage documents were misplaced or even forged. Some of these suits have been successful, bolstered by testimony from bank employees. In a widely cited example, an employee of the lender now owned by Bank of America testified in a New Jersey court in 2009 that her company regularly held onto mortgage notes even as the loans were sold to investors, contradicting what contracts usually require.

Without a note, a bank cannot prove it has a right to foreclose on a home; homeowners have used the absence of a note to contest foreclosures. Likewise, a missing note compromises the legal rights of an investor in a mortgage security, a situation that has prompted some investors to sue the banks that sold them the securities.

But it's not just the banks who have been accused of fraud. The Wall Street Journal describes a practice some brokers allegedly used, in which they would get artificially low valuations of distressed homes, and then help a buyer sell those homes for a profit.

Homeowners, too, have been accused of misstating their income on mortgage documents. One borrower is now serving a 21-month prison sentence for mortgage fraud, the New York Times reported.
The chiefs of the lenders that helped fuel this boom, meanwhile, have largely escaped punishment.

Examples of alleged fraud extend to the foreclosure process as well. When it came out last fall that employees at foreclosure processing companies would sign thousands of foreclosure documents daily without even reading them, some of the county's biggest lenders temporarily halted their foreclosures.

The nation's five biggest mortgage lenders -- Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Ally Financial -- have been accused of wrongfully foreclosing on homeowners and improperly handling mortgages. All 50 state attorneys general along with the Obama administration are working to reach a settlement deal. Fines could reach $30 billion, The Huffington Post reported.

Obama Blocks Legal Aid for Homeowners Facing Foreclosure

The Nation 
 Katrina Van Huevel

With the media's laser-like focus on the Obama-Republican tax deal, here's a story that's underreported: the Obama Administration's coddling of the Big Banks and simultaneous neglect of homeowners facing foreclosure.

Consider this: the recent Fed audit revealed over $3.3 trillion in emergency assistance to the banks and other corporate behemoths during the financial crisis—no strings attached. Two trillion dollars to Morgan Stanley here, $600 billion to Goldman there, throw in a little chump change for McDonald's, GE, others—no demands to increase lending to small businesses, or modify mortgages for unemployed homeowners, for example.
Then consider the 19 states which are recipients of the Hardest Hit Fund (HHF)—a portion of TARP money set aside to help homeowners in states struggling with the highest unemployment rates and steepest declines in the housing market.

Some of those states, including Ohio, let Treasury Secretary Tim Geithner know as far back as this past spring that they wanted to use some of those funds to assist legal aid groups that help individual homeowners. Seems like a reasonable request—unlike the absurdity of handing over trillions of dollars to robo-signing, foreclosure-mad banks, no questions asked.

Treasury solicited the opinion of an outside law firm, Squire, Sanders & Dempsey. Never mind that the firm's clients include BB&T Corporation and payday lender CNG Financial Corp. The firm said, in essence—sorry, no can do on the legal aid. Not permitted under the TARP.
Huh? Hold on a sec—is this the same TARP that granted the Treasury Secretary all those "extraordinary powers" to protect people's home values, preserve home ownership, promote economic growth, etc.?

Congresswoman Marcy Kaptur wasted no time in challenging Treasury's interpretation. This comes as no surprise. The feisty, maverick Ohioan has consistently been ahead of the curve in the foreclosure fight—attempting to increase the number of FBI agents working on foreclosure fraud as far back as June 2009. She also told homeowners to demand that foreclosing banks "produce the note" back in 2008, more than two years before the robo-signing scandal revealed the extent to which banks are illegally foreclosing on people.

"We talked with Secretary Geithner about this back in June—we had mailed him letters," said Kaptur. "But of course with the big banks in charge, Treasury is sadly representing them more than the people being affected by this around the country and in places like Ohio. It didn't have to be this way. And the carnage across the countryside in terms of empty neighborhoods, families destroyed, going into our shelters—it didn't have to happen."

Senator Sherrod Brown also wrote Secretary Geithner on June 1 questioning Treasury's refusal to allow states to use TARP money to help homeowners obtain legal aid services.
"The purposes of [TARP] are restoring liquidity and stability to the financial system and using TARP funds in a manner that, among other things, protects home values, preserves homeownership, and promotes jobs and economic growth. Both legal services and homeowner counseling would seem to fit squarely within these purposes." Senator Brown goes on to note, "Section 109(a) says that TARP funds can be used for programs to minimize foreclosures, and legal services are such a program."
Receiving no indication that Treasury would budge on the issue, Representative Kaptur introduced a bill in June to amend the Emergency Economic Stabilization Act of 2008 so that TARP money could be used "to provide assistance to nonprofit counseling intermediaries and nonprofit legal organizations to provide legal assistance to homeowners." It is limited to single family homeowners who occupy the house and it prohibits use of the funds for class action lawsuits. Senator Brown introduced a companion bill last month.

Let's get this straight—this legislation doesn't involve any new money—the money is already out the door. It doesn't even require states to use that money to support legal aid, it just gives them the option if they so choose. States' rights—now that's something even the GOP should be able to support.
"Legal aid lawyers are on the front line of the housing crisis, and their hard work is often the only thing helping homeowners understand their rights in foreclosure," Senator Brown told me in an e-mail. "Unlike many of the foreclosure prevention programs already in place, providing legal services with adequate resources is a simple, straightforward way of helping families keep their homes without providing a windfall to the banks."

One of Brown's constituents described trying to deal with the banks on his own this way: "In 1999, I was diagnosed with cancer. I endured two surgeries and a brutal year of chemotherapy. My experiences with [my servicer] have been worse than having cancer."

Kaptur also related how critical legal representation is for people currently going it alone.
"Even in a judicial foreclosure state like Ohio—where the foreclosure has to go through the courts—the property owner is distraught, really at the end of their rope, and generally doesn't even think that they have a right to legal representation," said Kaptur. "I can tell you that happened to two of my neighbors—women, both working—both have jobs. They simply were so ashamed they walked away from their equity and their property."

Another state receiving TARP money through the Hardest Hit Fund is Georgia. The AFL-CIO has been very active there in helping members facing foreclosures, and Charlie Flemming, president of the Atlanta-North Georgia Labor Council, praised this legislation.

"Homeowners who are able to work with Atlanta Legal Aide, compared to people who have to go it alone against the big banks—it's like night and day when it comes to getting mortgage modifications," said Flemming. "The squeaky wheel definitely gets the grease. But these legal aid groups are understaffed and way under-funded."

If you trust banks—that they haven't made mistakes and every foreclosure that's moved forward is a simple paperwork error—then this bill probably isn't for you.
But if you live on this planet, then you know that the real story is more along the lines of what's revealed in a recent GAO report cited by Senator Brown at a hearing last month: "Between 14,000 and 34,000 families in cities like Cleveland, Akron, and Columbus have been unnecessarily forced out of their homes."

Urge your representative to cosponsor the Kaptur bill (HR 5510) and encourage the Democratic leadership to move it before recess. Tell your senator to cosponsor the Brown bill (S. 3979). And while you're at it, tell Treasury to get on board and allow states to use the Hardest Hit Funds as they see fit.
"The courts—the judicial system of this country—is what is left in terms of gaining fair treatment under the law for homeowners," said Kaptur.

JPMorgan Suspending Foreclosures

New York Times

In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures.

The lender, JPMorgan Chase, said on Wednesday that it was halting 56,000 foreclosures because some of its employees might have improperly prepared the necessary documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.

The bank, which lends through its Chase Mortgage unit, has begun to “systematically re-examine” its filings to verify that they meet legal standards, a spokesman, Tom Kelly, said.

Last week, GMAC Mortgage said it was suspending an undisclosed number of foreclosures to give it time to take a closer look at its own procedures. GMAC simultaneously began withdrawing affidavits in pending court cases, throwing their future into doubt.

Chase and GMAC, in their zeal to process hundreds of thousands of foreclosures as quickly as possible and get those properties on the market, employed people who could sign documents so quickly they popularized a new term for them: “robo-signer.”

In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month.

Now that haste has come back to haunt them. The affidavits in foreclosures attest that the preparer personally reviewed the files, which those workers acknowledge they had no time to do.

GMAC and Chase say that their lapses were technical and will soon be remedied with new filings. But defense lawyers are seizing on these revelations and say they will now work to have their cases thrown out.

Beyond the relative handful of foreclosure cases being contested are many more in which the homeowner did not have legal counsel. Potentially, hundreds of thousands of cases could be in doubt.

GMAC’s initial disclosures prompted challenges or investigations from attorneys general in Iowa, Illinois, Colorado, California and North Carolina. The Treasury Department, which became the majority owner of GMAC after providing $17 billion in bailout money, has directed the lender to correct its procedures.

The pressure on the lender, which began as the auto financing arm of General Motors, is continuing to increase. Senator Al Franken, Democrat of Minnesota, asked Wednesday for the Treasury, the Justice Department and other regulators to collaborate on “a thorough investigation into the alleged misconduct.”

Defense lawyers have consistently complained that the lenders’ law firms were sending through cases that were at best sloppy. The Florida attorney general’s office says it is investigating four so-called foreclosure mills.

“The GMAC announcement was the mushroom cloud,” said one Florida defense lawyer, Matthew Weidner. “The fallout will burn through the entire mortgage servicing industry.”

Judges who oversee a lot of foreclosure cases increasingly agree that there is a serious problem.

“I don’t want to say that every one of these cases is wrong and a fraud on the court, but it is a big concern for us,” J. Thomas McGrady, chief judge of the Sixth Judicial Circuit in Florida, said in an interview last week after GMAC’s announcement.

Judge McGrady predicted that the foreclosure process in Florida, which the Legislature has been trying to speed up, would have to slow down.

“Everyone is going to have to look at these cases more closely,” said Judge McGrady, whose circuit includes St. Petersburg.

The foreclosure process in many states is already torpid. This benefits delinquent homeowners, who can live in their properties free for years, as well as lenders who do not have to write down the value of the original loan. But it also threatens to prolong the housing crisis for many years.

Chase said that unlike GMAC, it had not withdrawn any affidavits in pending cases. It also said that if foreclosures were completed, it was allowing its agents to proceed with the sale of the properties. GMAC has stopped its sales.

Chase followed the lead of GMAC in playing down the impact of the situation. “Affidavits were prepared by appropriate personnel with knowledge of the relevant facts based on their review of the company’s books and records,” the spokesman, Mr. Kelly, said.

But many questions are unresolved. One is whether completed foreclosures will be vulnerable to what GMAC is calling “corrective action.” If those former homeowners press their claims, they could conceivably dislodge the new buyers.

Such cases are probably not imminent. The more immediate consequences for the lenders using robo-signers will be determined by the homeowners who are fighting their cases in court.

Lilliana DeCoursy, a real estate agent in Safety Harbor, Fla., has a rental property in foreclosure with GMAC. Now that the lender has withdrawn the affidavit in her case, Ms. DeCoursy said she was determined to press every advantage.

“I think they should have to answer for this,” she said.

William Neuman contributed reporting.